linta_Current folio

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33982

LIBERTY INTERACTIVE CORPORATION

(Exact name of Registrant as specified in its charter)

incorporation or organization)

Identification No.)

State of Delaware

(State or other jurisdiction of
incorporation or organization)

84-1288730

(I.R.S. Employer
Identification No.)

12300 Liberty Boulevard
Englewood, Colorado

(Address of principal executive offices)

80112

(Zip Code)

Registrant's telephone number, including area code: (720) 875-5300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

(do not check if
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

The number of outstanding shares of Liberty Interactive Corporation's common stock as of October 31, 2017 was:


	Series A	Series B

QVC Group	401,097,375	29,217,195
Liberty Ventures	81,351,297	4,245,314

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,		December 31,
	2017		2016
	amounts in millions
Assets
Current assets:
Cash and cash equivalents	$	895	825
Trade and other receivables, net of allowance for doubtful accounts of $87 million and $99 million, respectively		945	1,308
Inventory, net		1,197	968
Other current assets		81	68
Total current assets		3,118	3,169
Investments in available-for-sale securities and other cost investments (note 7)		2,481	1,922
Investments in affiliates, accounted for using the equity method (note 8)		573	581
Investment in Liberty Broadband measured at fair value (note 8)		4,068	3,161
Property and equipment, net		1,117	1,131
Intangible assets not subject to amortization (note 9):
Goodwill		6,123	6,052
Trademarks		3,302	3,302
		9,425	9,354
Intangible assets subject to amortization, net (note 9)		635	1,005
Other assets, at cost, net of accumulated amortization		30	32
Total assets	$	21,447	20,355

(continued)

See accompanying notes to condensed consolidated financial statements.

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)


	September 30,		December 31,
	2017		2016
	amounts in millions,
	except share amounts
Liabilities and Equity
Current liabilities:
Accounts payable	$	833	790
Accrued liabilities		641	706
Current portion of debt, including $994 million and $862 million measured at fair value (note 10)		1,011	876
Other current liabilities		161	162
Total current liabilities		2,646	2,534
Long-term debt, including $892 million and $805 million measured at fair value (note 10)		7,050	7,166
Deferred income tax liabilities		4,015	3,636
Other liabilities		177	158
Total liabilities		13,888	13,494
Equity
Stockholders' equity (note 11):
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued		—	—
Series A QVC Group common stock, $.01 par value. Authorized 4,000,000,000 shares; issued and outstanding 408,826,790 shares at September 30, 2017 and 429,005,932 shares at December 31, 2016		5	5
Series B QVC Group common stock, $.01 par value. Authorized 150,000,000 shares; issued and outstanding 29,217,195 shares at September 30, 2017 and 29,358,638 shares at December 31, 2016		—	—
Series A Liberty Ventures common stock, $.01 par value. Authorized 400,000,000 shares; issued and outstanding 81,351,302 shares at September 30, 2017 and 81,150,711 shares at December 31, 2016		1	1
Series B Liberty Ventures common stock, $.01 par value. Authorized 15,000,000 shares; issued and outstanding 4,245,314 shares at September 30, 2017 and 4,271,958 shares at December 31, 2016		—	—
Additional paid-in capital		—	—
Accumulated other comprehensive earnings (loss), net of taxes		(157)	(266)
Retained earnings		7,605	7,032
Total stockholders' equity		7,454	6,772
Noncontrolling interests in equity of subsidiaries		105	89
Total equity		7,559	6,861
Commitments and contingencies (note 12)
Total liabilities and equity	$	21,447	20,355

See accompanying notes to condensed consolidated financial statements.

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017		2016
	amounts in millions
Total revenue, net	$	2,381	2,412		7,060	7,485
Operating costs and expenses:
Cost of sales (exclusive of depreciation shown separately below)		1,554	1,575		4,553	4,822
Operating		160	165		461	512
Selling, general and administrative, including stock-based compensation (note 4)		279	290		777	892
Depreciation and amortization		180	225		594	663
		2,173	2,255		6,385	6,889
Operating income (loss)		208	157		675	596
Other income (expense):
Interest expense		(88)	(92)		(267)	(277)
Share of earnings (losses) of affiliates, net (note 8)		(86)	(22)		(122)	(21)
Realized and unrealized gains (losses) on financial instruments, net (note 6)		369	606		1,186	942
Other, net		7	(8)		1	130
		202	484		798	774
Earnings (loss) from continuing operations before income taxes		410	641		1,473	1,370
Income tax (expense) benefit		(102)	(190)		(462)	(440)
Earnings (loss) from continuing operations		308	451		1,011	930
Earnings (loss) from discontinued operations, net of taxes		—	27		—	14
Net earnings (loss)		308	478		1,011	944
Less net earnings (loss) attributable to the noncontrolling interests		12	9		33	28
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders	$	296	469		978	916

Net earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock	$	119	61		321	285
Liberty Ventures common stock		177	408		657	631
	$	296	469		978	916
						(Continued)

See accompanying notes to condensed consolidated financial statements.

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations (Continued)

(unaudited)


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017		2016
Basic net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock	$	0.27	0.13		0.71	0.59
Series A and Series B Liberty Ventures common stock	$	2.06	2.68		7.73	4.35
Diluted net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock	$	0.26	0.13		0.71	0.59
Series A and Series B Liberty Ventures common stock	$	2.03	2.65		7.64	4.28

Basic net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock	$	0.27	0.13		0.71	0.59
Series A and Series B Liberty Ventures common stock	$	2.06	2.87		7.73	4.44
Diluted net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock	$	0.26	0.13		0.71	0.59
Series A and Series B Liberty Ventures common stock	$	2.03	2.84		7.64	4.38

See accompanying notes to condensed consolidated financial statements.

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Net earnings (loss)	$	308	478	1,011	944
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments		28	(3)	111	36
Share of other comprehensive earnings (losses) of equity affiliates		—	(1)	3	(5)
Other comprehensive earnings (loss) from discontinued operations		—	(1)	—	(2)
Other		—	—	—	6
Other comprehensive earnings (loss)		28	(5)	114	35
Comprehensive earnings (loss)		336	473	1,125	979
Less comprehensive earnings (loss) attributable to the noncontrolling interests		12	11	38	46
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders	$	324	462	1,087	933

Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock	$	147	56	428	303
Liberty Ventures common stock		177	406	659	630
	$	324	462	1,087	933

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements Of Cash Flows

(unaudited)


	Nine months ended
	September 30,
	2017		2016
	amounts in millions
Cash flows from operating activities:
Net earnings (loss)	$	1,011	944
Adjustments to reconcile net earnings to net cash provided by operating activities:
(Earnings) loss from discontinued operations		—	(14)
Depreciation and amortization		594	663
Stock-based compensation		59	75
Cash payments for stock-based compensation		—	(92)
Share of (earnings) losses of affiliates, net		122	21
Cash receipts from returns on equity investments		21	24
Realized and unrealized (gains) losses on financial instruments, net		(1,186)	(942)
Deferred income tax expense (benefit)		356	422
Other, net		8	(46)
Changes in operating assets and liabilities
Current and other assets		161	349
Payables and other liabilities		(67)	(384)
Net cash provided (used) by operating activities		1,079	1,020
Cash flows from investing activities:
Cash proceeds from dispositions of investments		—	350
Investments in and loans to cost and equity investees		(140)	(67)
Capital expended for property and equipment		(126)	(177)
Purchases of short term and other marketable securities		—	(264)
Sales of short term and other marketable securities		—	1,174
Investment in Liberty Broadband		—	(2,400)
Other investing activities, net		(36)	(14)
Net cash provided (used) by investing activities		(302)	(1,398)
Cash flows from financing activities:
Borrowings of debt		1,689	2,688
Repayments of debt		(1,917)	(3,629)
Repurchases of QVC Group common stock		(452)	(603)
Withholding taxes on net settlements of stock-based compensation		(14)	(16)
Other financing activities, net		(26)	(28)
Net cash provided (used) by financing activities		(720)	(1,588)
Effect of foreign currency exchange rates on cash		13	7
Net cash provided (used) by discontinued operations:
Cash provided (used) by operating activities		—	15
Cash provided (used) by investing activities		—	—
Cash provided (used) by financing activities		—	—
Change in available cash held by discontinued operations		—	—
Net cash provided (used) by discontinued operations		—	15
Net increase (decrease) in cash and cash equivalents		70	(1,944)
Cash and cash equivalents at beginning of period		825	2,449
Cash and cash equivalents at end of period	$	895	505

See accompanying notes to condensed consolidated financial statements.

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Nine months ended September 30, 2017


	Stockholders' Equity
			Common stock					Accumulated
			QVC		Liberty		Additional	other		Noncontrolling
	Preferred		Group		Ventures		paid-in	comprehensive	Retained	interest in equity	Total
	stock		Series A	Series B	Series A	Series B	capital	earnings (loss)	earnings	of subsidiaries	equity
	amounts in millions
Balance at January 1, 2017	$	—	5	—	1	—	—	(266)	7,032	89	6,861
Net earnings		—	—	—	—	—	—	—	978	33	1,011
Other comprehensive loss		—	—	—	—	—	—	109	—	5	114
Stock compensation		—	—	—	—	—	59	—	—	—	59
Series A QVC Group common stock repurchases		—	—	—	—	—	(452)	—	—	—	(452)
Distribution to noncontrolling interest		—	—	—	—	—	—	—	—	(22)	(22)
Option exercises		—	—	—	—	—	1	—	—	—	1
Withholding taxes on net settlements of stock-based compensation		—	—	—	—	—	(14)	—	—	—	(14)
Reclassification		—	—	—	—	—	405	—	(405)	—	—
Other		—	—	—	—	—	1	—	—	—	1
Balance at September 30, 2017	$	—	5	—	1	—	—	(157)	7,605	105	7,559

See accompanying notes to condensed consolidated financial statements.

(1) Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Liberty Interactive Corporation and its controlled subsidiaries (collectively, "Liberty," the "Company," “Consolidated Liberty,” “us,” “we,” or “our” unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated in consolidation.

Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the video and online commerce industries in North America, Europe and Asia and the cable industry in North America. The Company’s wholly-owned subsidiary, QVC, Inc.’s (“QVC”) business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Liberty's Annual Report on Form 10-K for the year ended December 31, 2016.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Liberty considers (i) fair value measurement, (ii) accounting for income taxes, (iii) assessments of other-than-temporary declines in fair value of its investments and (iv) estimates of retail-related adjustments and allowances to be its most significant estimates.

On May 18, 2016, Liberty completed a $2.4 billion investment in Liberty Broadband Corporation (“Liberty Broadband”) (for accounting purposes, a related party of the Company) in connection with the merger of Charter Communications, Inc. ("Charter") and Time Warner Cable Inc. ("TWC"). The proceeds of this investment were used by Liberty Broadband to fund, in part, its acquisition of $5 billion of stock in the new public parent company (“New Charter”) of the combined enterprises. Liberty, along with third party investors, all of whom invested on the same terms as Liberty, purchased newly issued shares of Liberty Broadband Series C common stock at a per share price of $56.23, which was determined based upon the fair value of Liberty Broadband's net assets on a sum-of-the parts basis at the time the investment agreements were executed. Liberty's investment in Liberty Broadband was funded using cash on hand and is attributed to the Ventures Group (as defined in note 2). See note 8 for additional information related to this investment.

Liberty also exchanged, in a tax-free transaction, its shares of TWC common stock for shares of New Charter Class A common stock, on a one-for-one basis, and Liberty has granted to Liberty Broadband a proxy and a right of first refusal with respect to the shares of New Charter Class A common stock held by Liberty in the exchange.

On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned subsidiary CommerceHub, Inc. (“CommerceHub”). The CommerceHub Spin-Off was accomplished by the distribution by Liberty of a dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each outstanding share of Liberty’s Series A Liberty Ventures common stock as of 5:00 p.m., New York City time, on July 8, 2016 (such date and time, the “Record Date”), (ii) 0.1 of a share of CommerceHub’s Series B common stock for each outstanding share of Liberty’s Series B Liberty Ventures common stock as of the Record Date and (iii) 0.2 of a share of CommerceHub’s Series C common stock for each outstanding share of Series A and Series B Liberty Ventures common stock as of the Record Date, in each case, with cash paid in lieu of fractional shares. In September 2016, the Internal

Revenue Service (“IRS”) completed its review of the CommerceHub Spin-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion. See the discussion in note 3 regarding discontinued operations treatment for the CommerceHub Spin-Off.

On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned subsidiary Bodybuilding.com, LLC (“Bodybuilding”). On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed $299 million, net of certain debt related costs, to Liberty on November 4, 2016. The Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series A common stock at 5:00 p.m., New York City time, on November 4, 2016 (such date and time, the “Redemption Date”) and (ii) 0.4 of each outstanding share of Liberty’s Series B Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series B common stock on the Redemption Date, in each case, with cash paid in lieu of any fractional shares of Liberty Ventures common stock or Expedia Holdings common stock (after taking into account all of the shares owned of record by each holder thereof, as applicable). In February 2017, the IRS completed its review of the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion. See the discussion in note 3 regarding discontinued operations treatment for the Expedia Holdings Split-Off.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance on revenue from contracts with customers. The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued additional guidance which clarifies principal versus agent considerations, and in April 2016, the FASB issued further guidance which clarifies the identification of performance obligations and the implementation guidance for licensing. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company has reviewed the applicable Accounting Standard Update (“ASU”) and has selected the modified retrospective transition method. In addition, the Company expects to elect the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when its payment terms are less than one year, as well as the practical expedient to exclude from the measurement of the transaction price sales and similar taxes collected from customers. To date, the Company has concluded it will recognize revenue at the time of shipment to its customers consistent with when title passes. This is a change from the current practice whereby the Company recognizes revenue at the time of delivery to the customers and deferred revenue is recorded to account for the shipments in-transit. At the current time, the Company is continuing to evaluate the impact of the standard including its determination of whether the Company acts as principal or agent in certain vendor arrangements. The Company is also evaluating the impact of the standard on the presentation and timing of credit card income for its QVC-branded credit card and its financial statement disclosures, among other areas. The Company has not quantified the effects of this pronouncement, but it is working through the relevant aspects to evaluate the quantitative effects of the new guidance. The Company plans to be able to quantify the effects of these ASUs no later than the fourth quarter of 2017 in its annual report for the year ending December 31, 2017.

In July 2015, the FASB issued new accounting guidance that changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new principle is part of the FASB’s simplification initiative and applies to entities that measure inventory using a method other than last-in, first-out or the retail inventory method. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016. The Company has adopted this guidance as of January 1, 2017, and there was no significant effect of the standard on its financial reporting.

In January 2016, the FASB issued new accounting guidance that is intended to improve the recognition and measurement of financial instruments. The new guidance requires equity investments with readily determinable fair values

(except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. The Company has not yet determined the effect of the standard on its ongoing financial reporting.

In February 2016, the FASB issued new guidance which revises the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new guidance also simplifies the accounting for sale and leaseback transactions. The new standard, to be applied via a modified retrospective transition approach, is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and collecting lease data.

In October 2016, the FASB issued new accounting guidance which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset transfers. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill impairment. Under the new guidance, an entity will no longer perform a Step 2 Test to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Company plans to adopt the standard during the fourth quarter of 2017, and does not expect the standard to have a material impact.

As a result of repurchases of Series A QVC Group common stock, the Company’s additional paid-in capital balance was in a deficit position as of September 30, 2017. In order to ensure that the additional paid-in capital account is not negative, we reclassified the amount of the deficit ($405 million) at September 30, 2017 to retained earnings.

Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making process or business management practices of these affiliates. Accordingly, Liberty relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that Liberty uses in the application of the equity method. In addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on Liberty's condensed consolidated financial statements.

Liberty has entered into certain agreements with Liberty Media Corporation ("LMC") (for accounting purposes, a related party of the Company), a separate publicly traded company, neither of which has any stock ownership, beneficial or otherwise, in the other, in order to govern relationships between the companies. These agreements include a reorganization agreement, services agreement, facilities sharing agreement and tax sharing agreement.

The reorganization agreement provides for, among other things, provisions governing the relationship between Liberty and LMC, including certain cross-indemnities. Pursuant to the services agreement, LMC provides Liberty with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty reimburses LMC for direct, out-of-pocket expenses incurred by LMC in providing these services and for Liberty's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Liberty. Under the facilities sharing agreement, LMC shares office space and related amenities at its corporate headquarters with Liberty. Under these various agreements, approximately $3 million and $2 million was reimbursable to LMC for the three months ended September 30, 2017 and 2016, respectively, and approximately $8 million and $8 million was reimbursable to LMC for the nine months ended September 30, 2017 and 2016, respectively. Additionally, the tax

sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and LMC and other agreements related to tax matters.

(2) Tracking Stocks

A tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty has two tracking stocks—QVC Group common stock and Liberty Ventures common stock, which are intended to track and reflect the economic performance of the Liberty QVC Group and the Ventures Group, respectively (as defined below).

While the QVC Group and the Ventures Group have separate collections of businesses, assets and liabilities attributed to them, no group is a separate legal entity and therefore cannot own assets, issue securities or enter into legally binding agreements. Holders of tracking stock have no direct claim to the group's stock or assets and are not represented by separate boards of directors. Instead, holders of tracking stock are stockholders of the parent corporation, with a single board of directors and subject to all of the risks and liabilities of the parent corporation.

The term “QVC Group” does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. As of September 30, 2017, the QVC Group is primarily comprised of our merchandise-focused televised-shopping programs, Internet and mobile application businesses and has attributed to it our wholly-owned subsidiaries, QVC and zulily, llc (“zulily”), our approximate 38% interest in HSN, Inc. (“HSN”), and cash and cash equivalents of approximately $383 million, which includes subsidiary cash. The QVC Group also has attributed to it liabilities that reside with QVC and zulily, certain liabilities related to our corporate level indebtedness (see note 10) and certain deferred tax liabilities.

On July 6, 2017, Liberty announced that it had entered into an Agreement and Plan of Merger, dated as of July 5, 2017 (the “HSN Merger Agreement”), by and among Liberty, Liberty Horizon, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Liberty (“Merger Sub”), and HSN. Pursuant to the terms of the HSN Merger Agreement, Merger Sub will merge with and into HSN, with HSN surviving as a wholly-owned subsidiary of Liberty (the “HSN Merger”). As a result of the HSN Merger, Liberty will acquire the approximately 62% of HSN it does not already own in an all-stock transaction making HSN a wholly-owned subsidiary, attributed to the QVC Group tracking stock group. Liberty currently owns approximately 38% of HSN. HSN shareholders (other than Liberty) will receive fixed consideration of 1.65 shares of Series A QVC Group common stock for each share of HSN common stock. Based on the Series A QVC Group common stock’s closing price as of July 5, 2017 and the number of HSN undiluted shares outstanding as of May 1, 2017, this equates to a total enterprise value for HSN of $2.6 billion, an equity value of $2.1 billion, and consideration of $40.36 per HSN share, representing a premium of approximately 29% to HSN shareholders, based on HSN’s closing price on July 5, 2017. Liberty intends to issue 53.4 million shares of Series A QVC Group common stock to HSN shareholders.

The HSN Merger is expected to be completed by the fourth quarter of 2017. The completion of the acquisition is subject to certain customary conditions, including approval by a majority of the outstanding voting power of HSN shareholders. A voting agreement has been obtained from Liberty to vote its HSN shares in-favor of the transaction. Approval of the Liberty stockholders is not required, and is not being sought, for the HSN Merger. Upon closing, Liberty’s board of directors will be expanded by one to include a director from HSN’s board of directors; this director will be selected by Liberty.

The term “Ventures Group” does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. As of September 30, 2017, the Ventures Group is comprised primarily of our interests in Evite, Inc. (“Evite”), FTD Companies, Inc. (“FTD”), LendingTree, Inc. (“LendingTree”), Liberty Broadband, investments in Charter, ILG, Inc. (“ILG”), and Time Warner Inc. (“Time Warner”), and cash and cash equivalents of approximately $512 million. The Ventures Group also has attributed to it certain liabilities related to our Exchangeable Debentures (see note 10) and certain deferred tax liabilities. The Ventures Group is primarily focused on the maximization of the value of these investments and investing in new business opportunities.

subsidiary of Liberty (“LI LLC”), whereby Liberty will acquire GCI through a reorganization in which certain Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI. Liberty and LI LLC will contribute to GCI Liberty (as defined below) its entire equity interest in Liberty Broadband and Charter, along with, subject to certain exceptions, Liberty’s entire equity interests in FTD and LendingTree, together with the Evite operating business and certain other assets and liabilities, in exchange for (a) the issuance to LI LLC of (i) a number of shares of reclassified GCI Class A Common Stock and a number of shares of reclassified GCI Class B Common Stock equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures common stock outstanding on the closing date of the Contribution, respectively, and (ii) cash and (b) the assumption of certain liabilities by GCI Liberty (the “Contribution”).

Liberty will then effect a tax-free separation of its controlling interest in the combined company (to be named GCI Liberty, Inc. (“GCI Liberty”)) to the holders of Liberty Ventures common stock in full redemption of all outstanding shares of such stock, leaving QVC Group common stock as the only outstanding common stock of Liberty. Holders of GCI Class A Common Stock and GCI Class B Common Stock each will receive (i) 0.63 of a share of reclassified GCI Class A Common Stock and (ii) 0.20 of a share of new GCI Series A preferred stock in exchange for each share of their existing GCI stock. The exchange ratios were determined based on total consideration of $32.50 per share for existing GCI common stock, comprised of $27.50 per share in reclassified GCI Class A Common Stock and $5.00 per share in newly issued GCI Preferred Stock, and a Liberty Ventures reference price of $43.65 (with no additional premium paid for shares of GCI Class B Common Stock). The Series A preferred shares will accrue dividends at an initial rate of 5% per annum (which would increase to 7% in connection with a future reincorporation of GCI Liberty in Delaware) and will be redeemable upon the 21st anniversary of the closing.

At the closing of the Transactions, Liberty will reattribute certain assets and liabilities from the Ventures Group to the QVC Group (the “Reattribution”). The reattributed assets and liabilities, if effected as of the date hereof, would include cash, Liberty’s interest in ILG, certain green energy investments, LI LLC’s exchangeable debentures, and certain tax benefits. Pursuant to a recent amendment to the reorganization agreement, LI LLC’s 1.75% Exchangeable Debentures due 2046 (the “1.75% Exchangeable Debentures”) will not be subject to a pre-closing exchange offer and will instead be reattributed to the QVC Group, along with (i) an amount of cash equal to the net present value of the adjusted principal amount of such 1.75% Exchangeable Debentures (determined as if paid on October 5, 2023) and stated interest payments on the 1.75% Exchangeable Debentures to October 5, 2023 and (ii) an indemnity obligation from GCI Liberty with respect to any payments made by LI LLC in excess of stated principal and interest to any holder that exercises its exchange right under the terms of the debentures through October 5, 2023. The cash reattributed to the QVC Group will be funded by available cash attributed to Liberty’s Ventures Group and the proceeds of a margin loan facility in an initial principal amount of up to $1 billion. Within six months of the closing, Liberty, LI LLC and GCI Liberty will cooperate with, and reasonably assist each other with respect to, the commencement and consummation of a purchase offer (the “Purchase Offer”) whereby LI LLC will offer to purchase, either pursuant to privately negotiated transactions or a tender offer, the 1.75% Exchangeable Debentures on terms and conditions (including maximum offer price) reasonably acceptable to GCI Liberty. GCI Liberty will indemnify LI LLC for each 1.75% Exchangeable Debenture repurchased by LI LLC in the Purchase Offer in an amount equal to the difference between (x) the purchase price paid by LI LLC to acquire such 1.75% Exchangeable Debenture in the Purchase Offer and (y) the sum of the amount of cash reattributed with respect to such purchased 1.75% Exchangeable Debenture in the reattribution plus the amount of certain tax benefits attributable to such 1.75% Exchangeable Debenture so purchased. GCI Liberty’s indemnity obligation with respect to payments made upon a holder’s exercise of its exchange right will be eliminated as to any 1.75% Exchangeable Debentures purchased in the Purchase Offer.

Liberty will complete the Reattribution using similar valuation methodologies to those used in connection with its previous reattributions, including taking into account the advice of its financial advisor. The Transactions are expected to be consummated during the first quarter of 2018, subject to the satisfaction of customary closing conditions and the requisite stockholder approvals. Simultaneous with that closing, QVC Group, including wholly-owned subsidiaries QVC, Inc., zulily and HSN (or, if the HSN Merger has not yet closed, following such closing), will become an asset-backed stock and Liberty will be renamed QVC Group, Inc. Neither the Transactions nor the HSN Merger is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first.

See Exhibit 99.1 to this Quarterly Report on Form 10-Q for unaudited attributed financial information for Liberty's tracking stock groups.

(3) Disposals

On July 22, 2016, Liberty completed the CommerceHub Spin-Off. CommerceHub is included in the Corporate and other segment through July 22, 2016 and is not presented as a discontinued operation as the CommerceHub Spin-Off did not represent a strategic shift that had a major effect on Liberty’s operations and financial results. Included in revenue in the accompanying condensed consolidated statements of operations is $7 million for the three months ended September 30, 2016, and $51 million for the nine months ended September 30, 2016 related to CommerceHub. Included in net earnings (loss) in the accompanying condensed consolidated statements of operations is income of $4 million for the three months ended September 30, 2016, and $4 million for the nine months ended September 30, 2016 related to CommerceHub.

On November 4, 2016, Liberty completed the Expedia Holdings Split-Off. At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia and Liberty’s former wholly-owned subsidiary Bodybuilding. Liberty views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued operations presentation. Based on a quantitative analysis, the Expedia Holdings Split-Off represents a strategic shift that has a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by Expedia. Accordingly, the accompanying condensed consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest in Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off does not have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The disposition of Bodybuilding does not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not presented as a discontinued operation in the accompanying condensed consolidated financial statements of Liberty. Bodybuilding is included in the Corporate and other segment through November 4, 2016. Included in revenue in the accompanying condensed consolidated statements of operations is $97 million for the three months ended September 30, 2016, and $325 million for the nine months ended September 30, 2016 related to Bodybuilding. Included in net earnings (loss) in the accompanying condensed consolidated statements of operations are earnings of $2 million for the three months ended September 30, 2016, and $6 million for the nine months ended September 30, 2016 related to Bodybuilding.

Certain financial information for Liberty’s investment in Expedia, which is included in earnings (loss) from discontinued operations is as follows:


	Three months ended	Nine months ended
	September 30,	September 30,
	2016	2016
	amounts in millions
Earnings (loss) before income taxes	40	15
Income tax (expense) benefit	(13)	(1)

The impact from discontinued operations on basic and diluted earnings (loss) per share is as follows:


	Three months ended	Nine months ended
	September 30,	September 30,
	2016	2016
Basic earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 3):
Series A and Series B QVC Group common stock	NA	NA
Series A and Series B Liberty Ventures common stock	0.19	0.10
Diluted earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 3):
Series A and Series B QVC Group common stock	NA	NA
Series A and Series B Liberty Ventures common stock	0.19	0.10

(4) Stock-Based Compensation

The Company has granted to certain of its directors, employees and employees of its subsidiaries, restricted stock, restricted stock units (“RSUs”) and options to purchase shares of Liberty common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.

Included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are $22 million and $20 million of stock-based compensation during the three months ended September 30, 2017 and 2016, respectively, and $59 million and $75 million during the nine months ended September 30, 2017 and 2016, respectively.

During the nine months ended September 30, 2017, Liberty granted 3.1 million options and 483 thousand options to QVC and zulily employees, respectively, to purchase shares of Series A QVC Group common stock. Such options had a weighted average GDFV of $7.86 per share and vest semi-annually over four years.

Also during the nine months ended September 30, 2017, Liberty granted to Liberty employees and directors 165 thousand and 34 thousand options to purchase shares of Series A QVC Group common stock and Series A Liberty Ventures common stock, respectively. Such options had a weighted average GDFV of $7.73 and $15.48 per share, respectively, and vest between one and five years.

In connection with our CEO’s employment agreement, during the nine months ended September 30, 2017, Liberty also granted 154 thousand and 269 thousand options to purchase shares of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively, and 115 thousand performance-based RSUs of Series B QVC Group common stock. Such options had a GDFV of $7.92 per share and $15.41 per share, respectively. The RSUs had a GDFV of $19.90 per share at the time they were granted. The options vest on December 31, 2017, and the RSUs cliff vest in one year, subject to satisfaction of certain performance objectives. Performance objectives, which are subjective, are considered in determining the timing and amount of the compensation expense recognized. When the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The value of the grant is remeasured at each reporting period.

The Company has calculated the GDFV for all of its equity classified Awards and any subsequent remeasurement of its liability classified Awards and certain performance-based Awards using the Black-Scholes-Merton Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in

the calculation for Awards is based on the historical volatility of Liberty's stock and the implied volatility of publicly traded Liberty options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.

Liberty—Outstanding Awards

The following tables present the number and weighted average exercise price ("WAEP") of the Awards to purchase QVC Group and Liberty Ventures common stock granted to certain officers, employees and directors of the Company.


	QVC Group
				Weighted		Aggregate
				average		intrinsic
	Series A			remaining		value
	(000's)	WAEP		life		(millions)
Outstanding at January 1, 2017	29,585	$	20.80
Granted	3,763	$	23.69
Exercised	(1,333)	$	14.11
Forfeited/Cancelled	(1,083)	$	27.31
Outstanding at September 30, 2017	30,932	$	21.21	4.0	years	$	118
Exercisable at September 30, 2017	19,432	$	19.15	3.1	years	$	106


	QVC Group
				Weighted		Aggregate
				average		intrinsic
	Series B			remaining		value
	(000's)	WAEP		life		(millions)
Outstanding at January 1, 2017	1,489	$	27.50
Granted	154	$	23.87
Exercised	—	$	—
Forfeited/Cancelled	—	$	—
Outstanding at September 30, 2017	1,643	$	27.16	5.0	years	$	—
Exercisable at September 30, 2017	843	$	25.68	5.4	years	$	—


	Liberty Ventures
				Weighted		Aggregate
				average		intrinsic
	Series A			remaining		value
	(000's)	WAEP		life		(millions)
Outstanding at January 1, 2017	1,974	$	22.18
Granted	34	$	52.00
Exercised	(428)	$	16.48
Forfeited/Cancelled	(12)	$	38.21
Outstanding at September 30, 2017	1,568	$	24.27	2.9	years	$	52
Exercisable at September 30, 2017	1,161	$	19.30	2.0	years	$	44


	Liberty Ventures
				Weighted		Aggregate
				average		intrinsic
	Series B			remaining		value
	(000's)	WAEP		life		(millions)
Outstanding at January 1, 2017	987	$	35.02
Granted	269	$	52.39
Exercised	—	$	—
Forfeited/Cancelled	—	$	—
Outstanding at September 30, 2017	1,256	$	38.74	4.9	years	$	27
Exercisable at September 30, 2017	184	$	36.82	5.2	years	$	4

As of September 30, 2017, the total unrecognized compensation cost related to unvested Awards was approximately $111 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.6 years.

As of September 30, 2017, Liberty reserved for issuance upon exercise of outstanding stock options approximately 30.9 million shares of Series A QVC Group common stock, 1.6 million shares of Series B QVC Group common stock, 1.6 million shares of Series A Liberty Ventures common stock and 1.3 million shares of Series B Liberty Ventures common stock.

(5) Earnings (Loss) Per Common Share

Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding ("WASO") for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Potentially dilutive shares are excluded from the computation of diluted EPS during periods in which losses are reported since the result would be antidilutive.

Series A and Series B QVC Group Common Stock

Excluded from diluted EPS, for the three months ended September 30, 2017 and 2016, are 16 million and 13 million potential common shares, respectively, because their inclusion would be antidilutive. Excluded from diluted EPS, for the nine months ended September 30, 2017 and 2016, are 16 million and 13 million potential common shares, respectively, because their inclusion would be antidilutive.


	QVC Group Common Stock
	Three months ended		Nine months ended
	September 30,		September 30,
	2017	2016	2017	2016
	number of shares in millions
Basic WASO	448	473	451	479
Potentially dilutive shares	4	5	3	6
Diluted WASO	452	478	454	485

Series A and Series B Liberty Ventures Common Stock

No potential common shares were excluded from diluted EPS for the three and nine months ended September 30, 2017. Excluded from diluted EPS for the three and nine months ended September 30, 2016 were less than a million potential common shares in both periods, because their inclusion would be antidilutive.


	Liberty Ventures Common Stock
	Three months ended		Nine months ended
	September 30,		September 30,
	2017	2016	2017	2016
	number of shares in millions
Basic WASO	86	142	85	142
Potentially dilutive shares	1	2	1	2
Diluted WASO	87	144	86	144

(6) Assets and Liabilities Measured at Fair Value

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

The Company's assets and liabilities measured at fair value are as follows:


	Fair Value Measurements at				Fair Value Measurements at
	September 30, 2017				December 31, 2016
			Quoted			Quoted
			prices			prices
			in active	Significant		in active	Significant
			markets for	other		markets for	other
			identical	observable		identical	observable
			assets	inputs		assets	inputs
Description	Total		(Level 1)	(Level 2)	Total	(Level 1)	(Level 2)
	amounts in millions
Cash equivalents	$	623	623	—	625	625	—
Available-for-sale securities	$	2,393	2,393	—	1,846	1,846	—
Investment in Liberty Broadband	$	4,068	4,068	—	3,161	3,161	—
Debt	$	1,886	—	1,886	1,667	—	1,667

The majority of the Company's Level 2 financial assets and liabilities are primarily debt instruments with quoted market prices that are not considered to be traded on "active markets," as defined in GAAP. The fair values for such instruments are derived from a typical model using observable market data as the significant inputs.

Realized and Unrealized Gains (Losses) on Financial Instruments

Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Fair Value Option Securities - Available-for-sale securities	$	130	260	552	608
Fair Value Option Securities - Liberty Broadband		365	490	906	651
Exchangeable senior debentures		(91)	(138)	(230)	(313)
Other financial instruments		(35)	(6)	(42)	(4)
	$	369	606	1,186	942

(7) Investments in Available-for-Sale Securities and Other Cost Investments

All marketable equity and debt securities held by the Company are classified as available-for-sale ("AFS") and are carried at fair value based on quoted market prices. GAAP permits entities to choose to measure many financial instruments, such as AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the entity's statement of operations (the "Fair Value Option"). Liberty has historically entered into economic hedges for certain of its AFS securities (although such instruments were not accounted for as fair value hedges by the Company). Changes in the fair value of these economic hedges were reflected in Liberty's statements of operations as unrealized gains (losses). In order to better match the changes in fair value of the subject AFS securities and the changes in fair value of the corresponding economic hedges in the Company's financial statements, Liberty has elected the Fair Value Option for certain of its AFS securities ("Fair Value Option Securities"). Accordingly, changes in the fair value of Fair Value Option Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial instruments, net in the accompanying condensed consolidated statements of operations.

Investments in AFS securities, the majority of which are considered Fair Value Option Securities, and other cost investments are summarized as follows:


	September 30,		December 31,
	2017		2016
	amounts in millions
QVC Group
Other investments	$	4	4
Total attributed QVC Group		4	4
Ventures Group
Charter		1,947	1,543
ILG		445	302
Other investments		85	73
Total attributed Ventures Group		2,477	1,918
Consolidated Liberty	$	2,481	1,922

(8) Investments in Affiliates Accounted for Using the Equity Method

Liberty has various investments accounted for using the equity method. The following table includes Liberty's carrying amount, fair value, and percentage ownership of the more significant investments in affiliates at September 30, 2017 and the carrying amount at December 31, 2016:


							December 31,
	September 30, 2017						2016
	Percentage		Fair value		Carrying		Carrying
	ownership		(Level 1)		amount		amount
			dollar amounts in millions
QVC Group
HSN	38	%	$	782	$	198	184
Other	various			NA		38	40
Total QVC Group						236	224
Ventures Group
FTD (1)	37	%		133		133	216
LendingTree (2)	27	%		788		113	31
Other	various			NA		91	110
Total Ventures Group						337	357
Consolidated Liberty					$	573	581

(1)

The Company recorded an impairment on its investment in FTD during the third quarter of 2017 in the amount of $50 million.

(2)

During the nine months ended September 30, 2017, the Company purchased an additional 450 thousand shares of LendingTree.

The following table presents Liberty's share of earnings (losses) of affiliates:


	Three months ended September 30,			Nine months ended September 30,
	2017		2016	2017	2016
	amounts in millions
QVC Group
HSN	$	12	9	35	41
Other		(1)	(1)	(4)	(3)
Total QVC Group		11	8	31	38
Ventures Group
FTD (1)		(81)	(7)	(86)	(8)
LendingTree		2	2	5	10
Other		(18)	(25)	(72)	(61)
Total Ventures Group		(97)	(30)	(153)	(59)
Consolidated Liberty	$	(86)	(22)	(122)	(21)

(1)

As discussed above, the Company recorded an impairment of $50 million on its investment in FTD during the third quarter of 2017 which is reflected in the share of earnings (losses) of affiliates line item in the condensed consolidated statement of operations for the three and nine months ended September 30, 2017.

Investment in Liberty Broadband

As discussed in note 1, in connection with the merger of Charter and TWC, on May 18, 2016, Liberty invested $2.4 billion in Liberty Broadband Series C nonvoting shares. As of September 30, 2017, Liberty has a 23% economic ownership interest in Liberty Broadband. Due to overlapping boards of directors and management, Liberty has been deemed to have significant influence over Liberty Broadband for accounting purposes even though Liberty does not have any voting rights.

Liberty has elected to apply the fair value option for its investment in Liberty Broadband (Level 1) as it believes that the Company’s investors value this investment based on the trading price of Liberty Broadband. Liberty recognizes changes in the fair value of its investment in Liberty Broadband in realized and unrealized gains (losses) on financial instruments, net in the condensed consolidated statements of operations. Summarized financial information for Liberty Broadband is as follows:


	September 30, 2017		December 31, 2016
	amounts in millions
Current assets	$	142	258
Investment in Charter, accounted for using the equity method		9,327	9,315
Other assets		13	18
Total assets		9,482	9,591
Long-term debt, including current portion		497	599
Deferred income taxes		498	505
Other liabilities		17	14
Equity		8,470	8,473
Total liabilities and shareholders’ equity	$	9,482	9,591


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions			amounts in millions
Revenue	$	3	21	10	27
Operating expenses, net		9	14	29	41
Operating income (loss)		(6)	7	(19)	(14)
Share of earnings (losses) of affiliates		(5)	19	25	570
Realized and unrealized gains (losses) on financial instruments, net		3	—	5	93
Gain (loss) on dilution of investment in affiliate		(4)	(16)	(42)	760
Other income (expense), net		(5)	(4)	(14)	(5)
Income tax benefit (expense)		7	(2)	18	(532)
Net earnings (loss)	$	(10)	4	(27)	872

(9) Intangible Assets

Goodwill

Changes in the carrying amount of goodwill are as follows:


				Corporate and
	QVC		zulily	Other	Total
	amounts in millions
Balance at January 1, 2017	$	5,110	917	25	6,052
Foreign currency translation adjustments		71	—	—	71
Balance at September 30, 2017	$	5,181	917	25	6,123

Intangible Assets Subject to Amortization

Amortization expense for intangible assets with finite useful lives was $137 million and $181 million for the three months ended September 30, 2017 and 2016, respectively, and $462 million and $538 million for the nine months ended September 30, 2017 and 2016, respectively. Based on its amortizable intangible assets as of September 30, 2017, Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):


Remainder of 2017	$	80
2018	$	283
2019	$	142
2020	$	74
2021	$	54

(10) Long-Term Debt

Debt is summarized as follows:


	Outstanding
	principal at		Carrying value
	September 30, 2017		September 30, 2017		December 31, 2016
	amounts in millions
QVC Group
Corporate level debentures
8.5% Senior Debentures due 2029	$	287		285	285
8.25% Senior Debentures due 2030		504		502	501
Subsidiary level notes and facilities
QVC 3.125% Senior Secured Notes due 2019		400		399	399
QVC 5.125% Senior Secured Notes due 2022		500		500	500
QVC 4.375% Senior Secured Notes due 2023		750		750	750
QVC 4.85% Senior Secured Notes due 2024		600		600	600
QVC 4.45% Senior Secured Notes due 2025		600		599	599
QVC 5.45% Senior Secured Notes due 2034		400		399	399
QVC 5.95% Senior Secured Notes due 2043		300		300	300
QVC Bank Credit Facilities		1,690		1,690	1,896
Other subsidiary debt		177		177	174
Deferred loan costs				(26)	(28)
Total QVC Group debt	$	6,208		6,175	6,375
Ventures Group
Corporate level debentures
4% Exchangeable Senior Debentures due 2029	$	435		334	276
3.75% Exchangeable Senior Debentures due 2030		435		326	267
3.5% Exchangeable Senior Debentures due 2031		328		331	316
0.75% Exchangeable Senior Debentures due 2043		1		3	3
1.75% Exchangeable Senior Debentures due 2046		750		892	805
Total Ventures Group debt	$	1,949		1,886	1,667
Total consolidated Liberty debt	$	8,157		8,061	8,042
Less current classification				(1,011)	(876)
Total long-term debt			$	7,050	7,166

QVC Bank Credit Facilities

On June 23, 2016, QVC amended and restated its senior secured credit facility (the “Third Amended and Restated Credit Agreement”) with zulily as co-borrower. The Third Amended and Restated Credit Agreement is a multi-currency facility that provides for a $2.65 billion revolving credit facility, with a $300 million total sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Third Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC and zulily, as co-borrowers with an additional $50 million sub-limit for standby letters of credit. The remaining $2.25 billion and any incremental loans may be borrowed only by QVC. The borrowers may elect that the loans extended under the Third Amended and Restated Credit Agreement bear interest at a rate per annum equal to the annual base rate or LIBOR, as each is defined in the Third Amended and Restated Credit Agreement. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% to 0.75% depending on QVC and zulily’s combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter period (the “Combined Consolidated Leverage Ratio”). Borrowings that are LIBOR loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on QVC and zulily’s Combined Consolidated Leverage Ratio. Because the calculation of the Combined Consolidated Leverage Ratio was revised to include zulily, the effective interest rate margins, on the date that the Third Amended and Restated Credit Agreement was entered into, decreased from the interest rate margins under the previous bank credit facility. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments are required other than when borrowings and letter of credit usage exceed availability; provided that, if zulily ceases to be controlled by Liberty, all of its loans must be repaid and its letters of credit cash collateralized. Any amounts prepaid on the revolving facility may be reborrowed. The facility matures on June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Payment of loans may be accelerated following certain customary events of default.

The purpose of the amendment was to, among other things, extend the maturity of QVC's senior secured credit facility, provide zulily the opportunity to borrow on the senior secured credit facility, and lower the interest rate on borrowings. The payment and performance of the borrowers’ obligations (including zulily’s obligations) under the Third Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement). Further, the borrowings under the Third Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of the capital stock of QVC. The payment and performance of the borrowers’ obligations with respect to the $400 million tranche available to both QVC and zulily are also guaranteed by each of zulily’s Material Domestic Subsidiaries (as defined in the Third Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of zulily’s equity interests.

The Third Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on QVC and zulily and each of their restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; limiting QVC’s consolidated leverage ratio, which is defined in the Third Amended Restated Credit Agreement as QVC’s consolidated total debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period; and limiting the Combined Consolidated Leverage Ratio.

The interest rate on borrowings outstanding under the Third Amended and Restated Credit Agreement was 2.7% at September 30, 2017. Availability under the Third Amended and Restated Credit Agreement at September 30, 2017 was $950 million, including the remaining portion of the $400 million tranche that zulily may also borrow on.

Exchangeable Senior Debentures

Liberty has elected to account for its exchangeable senior debentures using the fair value option. Accordingly, changes in the fair value of these instruments are recognized as unrealized gains (losses) in the statements of operations. As of September 30, 2017 the balance of the 4% Exchangeable Senior Debentures due 2029, the 3.75% Exchangeable Senior

Debentures due 2030 and the 3.5% Exchangeable Senior Debentures due 2031 have been classified as current because Liberty does not own shares to redeem the debentures. For the remaining exchangeables, Liberty reviews the terms of the debentures on a quarterly basis to determine whether a triggering event has occurred to require current classification of the exchangeables upon a call event. The 0.75% Exchangeable Senior Debentures due 2043 are classified as current as of September 30, 2017.

During the year ended December 31, 2016, holders exchanged, under the terms of the debentures, approximately $523 million principal of Liberty’s 0.75% Exchangeable Senior Debentures due 2043 and Liberty made cash payments of approximately $1,181 million to settle the obligations. In addition, in conjunction with the investment in Liberty Broadband (see note 1), an extraordinary distribution of approximately $325 million was paid to holders of the 0.75% Exchangeable Senior Debentures due 2043.

In August 2016, Liberty issued $750 million principal amount of new 1.75% Exchangeable Senior Debentures due 2046. The 1.75% Exchangeable Senior Debentures are senior exchangeable debentures due September 2046, which bear interest at an annual rate of 1.75%. Each $1,000 debenture is exchangeable at the holder’s option for the value of 2.9317 shares of Charter Class A common stock. Liberty may, at its election, pay the exchange value in cash, Charter Class A common stock or a combination thereof. The number of shares of Charter Class A common stock attributable to a debenture represents an initial exchange price of approximately $341.10 per share. Liberty, at its option, may redeem the debentures, in whole or in part, for cash generally equal to the face amount of the debentures plus accrued interest.

Debt Covenants

Liberty, QVC and zulily are in compliance with all debt covenants at September 30, 2017.

Other Subsidiary Debt

Other subsidiary debt at September 30, 2017 is comprised primarily of capitalized satellite transponder lease obligations.

Fair Value of Debt

Liberty estimates the fair value of its debt based on the quoted market prices for the same or similar issues or on the current rate offered to Liberty for debt of the same remaining maturities (Level 2). The fair value of Liberty's publicly traded debt securities that are not reported at fair value in the accompanying condensed consolidated balance sheet at September 30, 2017 are as follows (amounts in millions):


Senior debentures	$	885
QVC senior secured notes	$	3,654

Due to the variable rate nature, Liberty believes that the carrying amount of its other debt, not discussed above, approximated fair value at September 30, 2017.

(11) Stockholders' Equity

In addition to the Series A and Series B QVC Group and Liberty Ventures common stock, there are 4 billion shares of Series C QVC Group and 400 million shares of Series C Liberty Ventures common stock authorized for issuance. As of September 30, 2017, no shares of any Series C QVC Group or Liberty Ventures common stock were issued or outstanding.

(12) Commitments and Contingencies

Distribution Center Lease

On July 2, 2015, QVC entered into a lease (the “Lease”) for a west coast distribution center. Pursuant to the Lease, the landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and

(13) Information About Liberty's Operating Segments

Liberty, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video, online commerce and cable industries. Liberty identifies its reportable segments as (A) those consolidated subsidiaries that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of Liberty's annual pre-tax earnings.

Liberty evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA, gross margin, average sales price per unit and revenue or sales per customer equivalent. In addition, Liberty reviews nonfinancial measures such as unique website visitors, number of units shipped, conversion rates and active customers, as appropriate.

Liberty defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses excluding all stock-based compensation. Liberty believes this measure is an important indicator of the operational strength and performance of its businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, certain purchase accounting adjustments, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Liberty generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.

For the nine months ended September 30, 2017, Liberty has identified the following consolidated subsidiaries as its reportable segments:

QVC – a consolidated subsidiary that markets and sells a wide variety of consumer products in the United States and several foreign countries, primarily by means of its televised shopping programs and via the Internet through its domestic and international websites and mobile applications.

zulily – a consolidated subsidiary that markets and sells unique products in the United States and several foreign countries through flash sales events, primarily through its desktop and mobile websites and mobile applications.

Liberty's operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segments are the same as those described in the Company's Summary of Significant Accounting Policies in the Annual Report on Form 10-K for the year ended December 31, 2016.

Performance Measures


	Three months ended September 30,
	2017			2016
			Adjusted		Adjusted
	Revenue		OIBDA	Revenue	OIBDA
	amounts in millions
QVC Group
QVC	$	2,010	412	1,948	393
zulily		367	12	359	18
Corporate and other		—	(8)	—	(5)
Inter-segment eliminations		(2)	—	(4)	—
Total QVC Group		2,375	416	2,303	406
Ventures Group
Corporate and other		6	(6)	109	(4)
Total Ventures Group		6	(6)	109	(4)
Consolidated Liberty	$	2,381	410	2,412	402


	Nine months ended September 30,
	2017			2016
			Adjusted		Adjusted
	Revenue		OIBDA	Revenue	OIBDA
	amounts in millions
QVC Group
QVC	$	5,954	1,314	6,024	1,271
zulily		1,093	53	1,080	72
Corporate and other		—	(18)	—	(17)
Inter-segment eliminations		(3)	—	(10)	—
Total QVC Group		7,044	1,349	7,094	1,326
Ventures Group
Corporate and other		16	(21)	391	8
Total Ventures Group		16	(21)	391	8
Consolidated Liberty	$	7,060	1,328	7,485	1,334

Other Information


	September 30, 2017
	Total assets		Investments in affiliates	Investment in Liberty Broadband	Capital expenditures
	amounts in millions
QVC Group
QVC	$	11,263	38	—	83
zulily		2,374	—	—	41
Corporate and other		343	198	—	—
Total QVC Group		13,980	236	—	124
Ventures Group
Corporate and other		7,467	337	4,068	2
Total Ventures Group		7,467	337	4,068	2
Consolidated Liberty	$	21,447	573	4,068	126

The following table provides a reconciliation of Consolidated segment Adjusted OIBDA to Operating income (loss) and Earnings (loss) from continuing operations before income taxes:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Consolidated segment Adjusted OIBDA	$	410	402	1,328	1,334
Stock-based compensation		(22)	(20)	(59)	(75)
Depreciation and amortization		(180)	(225)	(594)	(663)
Operating income (loss)		208	157	675	596
Interest expense		(88)	(92)	(267)	(277)
Share of earnings (loss) of affiliates, net		(86)	(22)	(122)	(21)
Realized and unrealized gains (losses) on financial instruments, net		369	606	1,186	942
Other, net		7	(8)	1	130
Earnings (loss) before income taxes from continuing operations	$	410	641	1,473	1,370

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; international expansion; new service offerings; our proposed transactions involving General Communication, Inc. (“GCI”) and HSN, Inc. (“HSN”); revenue growth at QVC, Inc. ("QVC"); the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash; and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

customer demand for our products and services and our ability to adapt to changes in demand;

competitor responses to our products and services;

increased digital TV penetration and the impact on channel positioning of our programs;

the levels of online traffic to our businesses' websites and our ability to convert visitors into customers or contributors;

uncertainties inherent in the development and integration of new business lines and business strategies;

our future financial performance, including availability, terms and deployment of capital;

our proposed transactions involving GCI and HSN and the satisfaction of conditions thereto;

our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;

the ability of suppliers and vendors to deliver products, equipment, software and services;

the outcome of any pending or threatened litigation;

availability of qualified personnel;

changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;

changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors;

domestic and international economic and business conditions and industry trends, including the impact of Brexit (as defined below);

consumer spending levels, including the availability and amount of individual consumer debt;

changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and Internet protocol television and their impact on home shopping programming;

rapid technological changes;

failure to protect the security of personal information, subjecting us to potentially costly government enforcement actions and/or private litigation and reputational damage;

the regulatory and competitive environment of the industries in which we operate;

threatened terrorist attacks, political and economic unrest in international markets and ongoing military action around the world; and

fluctuations in foreign currency exchange rates.

For additional risk factors, please see Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2016, as well as Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on

Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2016.

See note 1 of the accompanying condensed consolidated financial statements for an overview of new accounting standards that we have adopted or that we plan to adopt that have had or may have an impact on our financial statements.

The information herein relates to Liberty Interactive Corporation and its controlled subsidiaries (collectively “Liberty,” the “Company,” “Consolidated Liberty,” “us,” “we” or “our” unless the context otherwise requires).

Overview

We own controlling and non-controlling interests in a broad range of video, online commerce and cable companies. Our largest business and reportable segment is QVC. QVC markets and sells a wide variety of consumer products in the United States and several foreign countries, primarily by means of its televised shopping programs and the Internet through its domestic and international websites and mobile applications. On October 1, 2015 we acquired zulily, inc. (“zulily”) (now known as zulily, llc), an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day.

Our “Corporate and other” category includes entire or majority interests in consolidated subsidiaries, which operate online commerce businesses in a broad range of retail categories, ownership interests in unconsolidated businesses and corporate expenses. These consolidated subsidiaries include Evite, Inc. (“Evite”), CommerceHub, Inc. (“CommerceHub”) (through July 22, 2016) (see note 3 of the accompanying condensed consolidated financial statements) and Bodybuilding.com, LLC ("Bodybuilding") (through November 4, 2016) (see note 3 of the accompanying condensed consolidated financial statements) (collectively, the “Digital Commerce businesses”). Evite is an online invitation and social event planning service on the web. CommerceHub provides a cloud-based platform for online retailers and their suppliers (manufacturers and distributors) to sell products to consumers without physically owning inventory, or managing the fulfillment of those products. Bodybuilding manages websites related to sports nutrition, bodybuilding and fitness. We also hold ownership interests in FTD Companies, Inc. (“FTD”), HSN and LendingTree, Inc. (“LendingTree”), which we account for as equity method investments; an interest in Liberty Broadband Corporation (“Liberty Broadband”), which we account for at fair value; and investments and related financial instruments in public companies such as Charter Communications, Inc. (“Charter”), ILG, Inc. (“ILG”) and Time Warner Inc. (“Time Warner”), which are accounted for at their respective fair market values.

The term “Ventures Group” does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. As of September 30, 2017, the Ventures Group has attributed to it our interests in Evite, FTD, LendingTree, and Liberty Broadband, investments in Charter, ILG, and Time Warner, and cash and cash equivalents in the amount of approximately $512 million. The Ventures Group also has attributed to it certain liabilities related to our corporate level indebtedness (see note 10 in the accompanying condensed consolidated financial statements) and certain deferred tax liabilities. The Ventures Group is primarily focused on the maximization of the value of these investments and investing in new business opportunities.

On April 4, 2017, Liberty entered into an Agreement and Plan of Reorganization (the “GCI Reorganization Agreement” and the transactions contemplated thereby, the “Transactions”) with General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty (“LI LLC”), whereby Liberty will acquire GCI through a reorganization in which certain Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI. Liberty and LI LLC will contribute to GCI Liberty (as defined below) its entire equity interest in Liberty Broadband and Charter, along with,

subject to certain exceptions, Liberty’s entire equity interests in FTD and LendingTree, together with the Evite operating business and certain other assets and liabilities, in exchange for (a) the issuance to LI LLC of (i) a number of shares of reclassified GCI Class A Common Stock and a number of shares of reclassified GCI Class B Common Stock equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures common stock outstanding on the closing date of the Contribution, respectively, and (ii) cash and (b) the assumption of certain liabilities by GCI Liberty (the “Contribution”).

On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned subsidiary CommerceHub. The CommerceHub Spin-Off was accomplished by the distribution by Liberty of a dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each outstanding share of Liberty’s Series A Liberty Ventures common stock as of 5:00 p.m., New York City time, on July 8, 2016 (such date and time, the “Record Date”), (ii) 0.1 of a share of CommerceHub’s Series B common stock for each outstanding share of Liberty’s Series B Liberty Ventures common stock as of the Record Date and (iii) 0.2 of a share of CommerceHub’s Series C common stock for each outstanding share of Series A and Series B Liberty Ventures common stock as of the Record Date, in each case, with cash paid in lieu of fractional shares. This transaction has been recorded at historical cost due to the pro rata nature of the distribution. In September 2016, the Internal Revenue Service (“IRS”) completed its review of the CommerceHub

Spin-Off and notified Liberty that it agreed with the nontaxable characterization of the CommerceHub Spin-Off. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion.

On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia, Inc. and Liberty’s former wholly-owned subsidiary Bodybuilding. On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed $299 million, net of certain debt related costs, to Liberty on November 4, 2016. The Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series A common stock at 5:00 p.m., New York City time, on November 4, 2016 (such date and time, the “Redemption Date”) and (ii) 0.4 of each outstanding share of Liberty’s Series B Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series B common stock on the Redemption Date, in each case, with cash paid in lieu of any fractional shares of Liberty Ventures common stock or Expedia Holdings common stock (after taking into account all of the shares owned of record by each holder thereof, as applicable). In February 2017, the IRS completed its review of the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion.

The term “QVC Group” does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. As of September 30, 2017, the QVC Group is primarily comprised of our merchandise-focused televised-shopping programs, Internet and mobile application businesses, and has attributed to it our wholly-owned subsidiaries QVC and zulily, as well as our approximate 38% interest in HSN and cash and cash equivalents of approximately $383 million, including subsidiary cash. The QVC Group also has attributed to it liabilities that reside with QVC and zulily, certain liabilities related to our corporate level indebtedness (see note 10 of the accompanying condensed consolidated financial statements) and certain deferred tax liabilities.

On July 6, 2017, Liberty announced that it had entered into an Agreement and Plan of Merger, dated as of July 5, 2017 (the “HSN Merger Agreement”), by and among Liberty, Liberty Horizon, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of Liberty (“Merger Sub”), and HSN. Pursuant to the terms of the HSN Merger Agreement, Merger Sub will merge with and into HSN, with HSN surviving as a wholly-owned subsidiary of Liberty (the “HSN Merger”). As a result of the HSN Merger, Liberty will acquire the approximately 62% of HSN it does not already own in an all-stock transaction, making HSN a wholly-owned subsidiary, attributed to the QVC Group tracking stock group. Liberty currently owns approximately 38% of HSN. HSN shareholders (other than Liberty) will receive fixed consideration of 1.65 shares of Series A QVC Group common stock for each share of HSN common stock. Based on the Series A QVC Group common stock’s closing price as of July 5, 2017 and the number of HSN undiluted shares outstanding as of May 1, 2017, this equates to a total enterprise value for HSN of $2.6 billion, an equity value of $2.1 billion, and consideration of $40.36 per HSN share, representing a premium of approximately 29% to HSN shareholders, based on HSN’s closing price on July 5, 2017. Liberty intends to issue 53.4 million shares of Series A QVC Group common stock to HSN shareholders.

As discussed above, the Transactions are expected to close in the first quarter of 2018. Simultaneous with that closing, QVC Group, including wholly-owned subsidiaries QVC, Inc., zulily and HSN (or, if the HSN acquisition has not yet closed, following such closing), will become an asset-backed stock and Liberty will be renamed QVC Group, Inc. Neither the Transactions nor the HSN Merger is conditioned on the completion of the other, and no assurance can be given as to which of these transactions will be completed first.

Results of Operations—Consolidated

General. We provide in the tables below information regarding our consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our principal reporting segments. The "Corporate and other" category consists of those assets or businesses which we do not disclose separately,

including our Digital Commerce businesses. For a more detailed discussion and analysis of the financial results of the principal reporting segments, see "Results of Operations—Businesses" below.

Operating Results


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Revenue
QVC Group
QVC	$	2,010	1,948	5,954	6,024
zulily		367	359	1,093	1,080
Inter-segment eliminations		(2)	(4)	(3)	(10)
Total QVC Group		2,375	2,303	7,044	7,094
Ventures Group
Corporate and other		6	109	16	391
Total Ventures Group		6	109	16	391
Consolidated Liberty	$	2,381	2,412	7,060	7,485

Operating Income (Loss)
QVC Group
QVC	$	274	231	851	799
zulily		(44)	(52)	(112)	(138)
Corporate and other		(12)	(12)	(30)	(34)
Total QVC Group		218	167	709	627
Ventures Group
Corporate and other		(10)	(10)	(34)	(31)
Total Ventures Group		(10)	(10)	(34)	(31)
Consolidated Liberty	$	208	157	675	596

Adjusted OIBDA
QVC Group
QVC	$	412	393	1,314	1,271
zulily		12	18	53	72
Corporate and other		(8)	(5)	(18)	(17)
Total QVC Group		416	406	1,349	1,326
Ventures Group
Corporate and other		(6)	(4)	(21)	8
Total Ventures Group		(6)	(4)	(21)	8
Consolidated Liberty	$	410	402	1,328	1,334

Revenue. Our consolidated revenue decreased 1.3% or $31 million and 5.7% or $425 million for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The decreases were due to the disposition of Bodybuilding (which contributed $97 million and $325 million for the three and nine month periods ended September 30, 2016, respectively), decreased revenue at QVC of $70 million for the nine month period ended September 30, 2017, and the CommerceHub Spin-Off (which contributed $7 million and $51 million for the three and nine month periods ended September 30, 2016, respectively). The decrease in the three month period ended September 30, 2017 was partially offset by an increase in revenue at QVC of $62 million. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of QVC and zulily.

Stock-based compensation. Stock-based compensation includes compensation related to (1) options, restricted stock awards and restricted stock units for shares of our common stock that are granted to certain of our officers and employees and (2) phantom stock appreciation rights granted to officers and employees of certain of our subsidiaries pursuant to private equity plans.

We recorded $22 million and $20 million of stock-based compensation for the three months ended September 30, 2017 and 2016, respectively. We recorded $59 million and $75 million of stock-based compensation for the nine months ended September 30, 2017 and 2016, respectively. The increase of $2 million for the three months ended September 30, 2017 was primarily due to an increase at the corporate level. The decrease of $16 million for the nine months ended September 30, 2017 was primarily due to the CommerceHub Spin-Off and declines at QVC U.S., zulily, and at the corporate level. As of September 30, 2017, the total unrecognized compensation cost related to unvested Liberty equity awards was approximately $111 million. Such amount will be recognized in our condensed consolidated statements of operations over a weighted average period of approximately 2.6 years.

Operating income. Our consolidated operating income increased 32.5% or $51 million and 13.3% or $79 million for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The increase in operating income for the three months ended September 30, 2017 was primarily due to an increase in operating income at QVC of $43 million and a decrease in operating losses at zulily of $8 million. The increase in operating income for the nine months ended September 30, 2017 was primarily due to an increase in operating income at QVC of $52 million, a decrease in operating losses at zulily of $26 million, a decrease in corporate spending at the QVC Group of $4 million, partially offset by an increase in corporate spending at the Ventures Group of $3 million. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of QVC and zulily.

Adjusted OIBDA. We define Adjusted OIBDA as revenue less cost of sales, operating expenses and selling, general and administrative ("SG&A") expenses excluding all stock-based compensation. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses. We believe this is an important indicator of the operational strength and performance of our businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation and amortization, stock-based compensation and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. See note 13 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to Operating income and Earnings (loss) from continuing operations before income taxes.

Consolidated Adjusted OIBDA increased 2.0% or $8 million and decreased 0.4% or $6 million for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The increase in Adjusted OIBDA for the three months ended September 30, 2017 was primarily due to an increase at QVC of $19 million, partially offset by a decrease at zulily of $6 million, a decrease in corporate and other Adjusted OIBDA at QVC Group of $3 million, and a decrease in corporate and other Adjusted OIBDA at Ventures Group of $2 million (of which $1 million related to the CommerceHub Spin-Off and $7 million related to the disposition of Bodybuilding). The decrease in Adjusted OIBDA for the nine months ended September 30, 2017 was primarily due to a decrease in corporate and other Adjusted OIBDA at Ventures Group of $29 million (of which $16 million related to the CommerceHub Spin-Off and $22 million related to the disposition of Bodybuilding) and a decrease at zulily of $19 million, partially offset by an increase at QVC of $43 million. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of QVC and zulily.

Other Income and Expense

Components of Other income (expense) are presented in the table below.


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Interest expense
QVC Group	$	(73)	(73)	(222)	(220)
Ventures Group		(15)	(19)	(45)	(57)
Consolidated Liberty	$	(88)	(92)	(267)	(277)

Share of earnings (losses) of affiliates
QVC Group	$	11	8	31	38
Ventures Group		(97)	(30)	(153)	(59)
Consolidated Liberty	$	(86)	(22)	(122)	(21)

Realized and unrealized gains (losses) on financial instruments, net
QVC Group	$	1	(6)	—	(2)
Ventures Group		368	612	1,186	944
Consolidated Liberty	$	369	606	1,186	942

Other, net
QVC Group	$	5	6	(5)	31
Ventures Group		2	(14)	6	99
Consolidated Liberty	$	7	(8)	1	130

Consolidated Liberty other income (expense)	$	202	484	798	774

Interest expense. Interest expense remained relatively flat for the three and nine months ended September 30, 2017, as compared to the corresponding periods in the prior year.

Share of earnings (losses) of affiliates. The following table presents our share of earnings (losses) of affiliates:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
QVC Group
HSN	$	12	9	35	41
Other		(1)	(1)	(4)	(3)
Total QVC Group		11	8	31	38
Ventures Group
FTD (1)		(81)	(7)	(86)	(8)
LendingTree		2	2	5	10
Other		(18)	(25)	(72)	(61)
Total Ventures Group		(97)	(30)	(153)	(59)
Consolidated Liberty	$	(86)	(22)	(122)	(21)

(1)

The Company recorded an impairment of $50 million on its investment in FTD during the third quarter of 2017 which is reflected in the share of earnings (losses) of affiliates line item in the condensed consolidated statement of operations for the three and nine months ended September 30, 2017.

The share of losses in the “Other” category of the Ventures Group, in all periods, is primarily related to our investments in alternative energy solution entities. These entities typically operate at a loss and we record our share of such losses. We note these entities typically have favorable tax attributes and credits, which are recorded in our tax accounts.

Realized and unrealized gains (losses) on financial instruments, net. Realized and unrealized gains (losses) on financial instruments, net are comprised of changes in the fair value of the following:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Fair Value Option Securities - Available-for-sale securities	$	130	260	552	608
Fair Value Option Securities - Liberty Broadband		365	490	906	651
Exchangeable senior debentures		(91)	(138)	(230)	(313)
Other financial instruments		(35)	(6)	(42)	(4)
	$	369	606	1,186	942

The changes in realized and unrealized gains (losses) on financial instruments, net are due to market activity in the period on the various financial instruments that are marked to market on a periodic basis. The decrease for the three months ended September 30, 2017, compared to the corresponding period in the prior year, was primarily driven by the investments in Liberty Broadband and Charter experiencing higher gains during the third quarter of 2016 compared to the third quarter of 2017. The increase for the nine months ended September 30, 2017, compared to the same period in the prior year, was primarily driven by the investment in Liberty Broadband and the investment in Charter, as well as the exchange of a majority of the 0.75% Exchangeable Senior Debentures during the nine months ended September 30, 2016.

Other, net. Other, net includes the impact of foreign currency at QVC. Certain loans between QVC and its subsidiaries are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded in the accompanying condensed consolidated statements of operations. The change in foreign currency gain (loss) was also due to variances in interest and operating payables balances between QVC and its international subsidiaries denominated in the currency of the subsidiary and the effects of currency exchange rate changes on those balances. Other, net increased $15 million and decreased $129 million for the three and nine months ended September 30, 2017, respectively, compared to the corresponding periods in the prior year. The increase for the three months ended September 30, 2017, compared to the same period in the prior year was the result of a loss on extinguishment of debt of $18 million during the three months ended September 30, 2016, and no similar loss in the three months ended September 30, 2017. The decrease for the nine months ended September 30, 2017, compared to the same period in the prior year was primarily as a result of a change in gain (loss) on dilution of investments of $80 million and a change in foreign exchange gains (losses) of $33 million in the nine months ended September 30, 2016.

Income taxes. We had income tax expense of $102 million and $190 million for the three months ended September 30, 2017 and 2016, respectively, and income tax expense of $462 million and $440 million for the nine months ended September 30, 2017 and 2016, respectively. Income tax expense was lower than the U.S. statutory tax rate of 35% during the three and nine months ended September 30, 2017 due to a federal benefit from tax credits and incentives generated by our alternative energy investments and permanent tax benefits related to foreign currency losses realized for tax purposes partially offset by state taxes, net of federal benefit. Income tax expense was lower than the U.S. statutory tax rate of 35% during the three and nine months ended September 30, 2016, due to a federal benefit from tax credits and incentives generated by our alternative energy investments partially offset by state taxes, net of federal benefit.

Net earnings. We had net earnings of $308 million and $478 million for the three months ended September 30, 2017 and 2016, respectively, and net earnings of $1,011 million and $944 million for the nine months ended September 30, 2017 and 2016, respectively. The change in net earnings was the result of the above-described fluctuations in our revenue, expenses and other gains and losses.

Material Changes in Financial Condition

While the QVC Group and the Ventures Group are not separate legal entities and the assets and liabilities attributed to each group remain assets and liabilities of our consolidated company, we manage the liquidity and financial resources of each group separately. Keeping in mind that assets of one group may be used to satisfy liabilities of the other group, the

following discussion assumes, consistent with management expectations, that future liquidity needs of each group will be funded by the financial resources attributed to each respective group.

As of September 30, 2017, substantially all of our cash and cash equivalents are invested in U.S. Treasury securities, other government agencies, AAA rated money market funds and other highly rated financial and corporate debt instruments.

The following are potential sources of liquidity: available cash balances, equity issuances, dividend and interest receipts, proceeds from asset sales, monetization of our public investment portfolio, debt (including availability under QVC’s Senior Secured Credit Facility, (the “Third Amended and Restated Credit Facility”)) and cash generated by the operating activities of our wholly-owned subsidiaries. Cash generated by the operating activities of our subsidiaries is only a source of liquidity to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise restricted such that, in the case of QVC, a leverage ratio (defined in the amendment and restatement, dated June 23, 2016, of the Third Amended and Restated Credit Facility as the ratio of QVC’s consolidated total debt to Adjusted OIBDA for the most recent four fiscal quarter period and the ratio of QVC and zulily’s combined debt to Adjusted OIBDA ratio for the most recent four fiscal quarter period) of less than 3.5 to 1.0 must be maintained.

During the quarter there have been no changes to our corporate or subsidiary debt credit ratings.

As of September 30, 2017, Liberty's liquidity position consisted of the following:


			Available-for-Sale
	Cash and cash		Securities and Other
	equivalents		Cost Investments
	amounts in millions
QVC	$	343	—
zulily		15	—
Corporate and other		25	4
Total QVC Group		383	4
Corporate and other		512	2,477
Total Ventures Group		512	2,477
Total Liberty	$	895	2,481

To the extent that the Company recognizes any taxable gains from the sale of assets we may incur tax expense and be required to make tax payments, thereby reducing any cash proceeds. Additionally, we have borrowing capacity of approximately $950 million under the Third Amended and Restated Credit Facility at September 30, 2017, including the remaining portion of the $400 million tranche that zulily may utilize. As of September 30, 2017, QVC had approximately $263 million of cash and cash equivalents held in foreign subsidiaries that is available for domestic purposes with no significant tax consequences upon repatriation to the U.S.

Additionally, our operating businesses have generated, on average, more than $1 billion in annual cash provided by operating activities over the prior three years and we do not anticipate any significant reductions in that amount in future periods.


	Nine months ended
	September 30,
	2017		2016
	amounts in millions
Cash Flow Information
QVC Group net cash provided (used) by operating activities	$	901	893
Ventures Group net cash provided (used) by operating activities		178	127
Net cash provided (used) by operating activities	$	1,079	1,020
QVC Group net cash provided (used) by investing activities		(159)	(157)
Ventures Group net cash provided (used) by investing activities		(143)	(1,241)
Net cash provided (used) by investing activities	$	(302)	(1,398)
QVC Group net cash provided (used) by financing activities		(710)	(821)
Ventures Group net cash provided (used) by financing activities		(10)	(767)
Net cash provided (used) by financing activities	$	(720)	(1,588)

QVC Group

During the nine months ended September 30, 2017, the QVC Group uses of cash were primarily the net repayment of certain debt obligations of approximately $217 million and the repurchase of Series A QVC Group common stock of $452 million. Additionally, the QVC Group had approximately $124 million of capital expenditures during the nine months ended September 30, 2017. These uses of cash were funded by cash provided by operating activities.

The projected uses of QVC Group cash for the remainder of 2017 are the cost to service outstanding debt, approximately $30 million in interest payments on QVC and corporate level debt, anticipated capital improvement spending of approximately $70 million and the continued buyback of QVC Group common stock under the approved share buyback program.

Ventures Group

During the nine months ended September 30, 2017, the Ventures Group uses of cash were primarily investments in and loans to cost and equity investments of $140 million and $11 million of repayments on outstanding debt. These uses of cash for the Ventures Group were funded by cash on hand.

The projected uses of Ventures Group cash for the remainder of 2017 are approximately $10 million in interest payments to service outstanding debt and further investments in existing or new businesses through continued investment activity.

Consolidated

During the nine months ended September 30, 2017, Liberty's primary uses of cash were investments in and loans to cost and equity investments of $140 million, the net repayment of certain debt obligations of approximately $228 million and the repurchase of Series A QVC Group common stock of $452 million. These activities were funded primarily by cash provided by operating activities.

The projected uses of Liberty cash for the remainder of 2017 are the continued capital improvement spending of approximately $70 million, payment of expenses to be incurred with respect to the Transactions and the HSN Merger, the repayment of certain debt obligations, approximately $40 million for interest payments on outstanding debt, the potential buyback of common stock under the approved share buyback program and additional investments in existing or new businesses. We also may be required to make net payments of income tax liabilities to settle items under discussion with tax authorities. We expect that cash on hand and cash provided by operating activities and borrowing capacity in future periods will be sufficient to fund projected uses of cash.

Results of Operations—Businesses

QVC. QVC is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications. In the United States ("U.S."), QVC’s televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC 2 (f/k/a QVC Plus) and their recently launched Beauty iQ. QVC-U.S. programming is also available on QVC.com, QVC’s U.S. website; mobile applications via streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, etc.).

QVC believes that its digital platforms complement its televised shopping programs by allowing consumers to purchase a wide assortment of goods offered on its televised programs, as well as other products that are available only on its digital platforms. QVC views e-commerce as a natural extension of its business, allowing QVC to stream live video and offer on-demand video segments of items recently presented live on its televised programs. QVC’s digital platforms allow shoppers to browse, research, compare and perform targeted searches for products, control the order-entry process and conveniently access their QVC account.

QVC’s international televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland, Italy and France. In some of the countries where QVC operates, its televised shopping programs are broadcast across multiple QVC channels: QVC Beauty & Style and QVC Plus in Germany and QVC Beauty, QVC Extra, QVC Style and QVC +1 in the U.K. The programming created for most of these markets is also available via streaming video on QVC’s digital platforms. QVC’s international business employs product sourcing teams who select products tailored to the interests of each local market.

QVC's Japanese operations (“QVC-Japan”) are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by QVC and 40% by Mitsui. QVC and Mitsui share in all profits and losses based on their respective ownership interests. During the nine months ended September 30, 2017 and 2016, QVC-Japan paid dividends to Mitsui of $22 million and $21 million, respectively.

Additionally, QVC also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). QVC owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. This joint venture is accounted for as an equity method investment recorded in share of earnings (losses) of affiliates, net in QVC’s condensed consolidated statements of operations.

QVC's operating results were as follows:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Net revenue	$	2,010	1,948	5,954	6,024
Cost of sales		1,282	1,251	3,755	3,816
Gross profit		728	697	2,199	2,208
Operating expenses:
Operating		145	140	419	428
SG&A expenses (excluding stock-based compensation)		171	164	466	509
Adjusted OIBDA		412	393	1,314	1,271
Stock-based compensation		9	8	23	24
Depreciation		38	38	116	103
Amortization		91	116	324	345
Operating income	$	274	231	851	799

Net revenue was generated in the following geographical areas:


	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
	amounts in millions
QVC-U.S.	$	1,374		1,338		4,111		4,173
QVC-International		636		610		1,843		1,851
Consolidated QVC	$	2,010		1,948		5,954		6,024

QVC's consolidated net revenue increased 3.2% and decreased 1.2% for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The increase in net revenue of $62 million for the three month period was primarily comprised of an increase of $199 million due to a 9.2% increase in units sold, offset by a decrease of $92 million due to a 3.9% decrease in average selling price per unit ("ASP"), an increase in estimated product returns of $26 million, $8 million due to a decrease in shipping and handling revenue, $7 million due to unfavorable foreign currency rates, and a $4 million decrease in miscellaneous income. The decrease in net revenue of $70 million for the nine month period was primarily comprised of $206 million due to a 2.9% decrease in ASP, $65 million due to unfavorable foreign currency rates, a decrease in shipping and handling revenue of $20 million, and a $12 million decrease in miscellaneous income. The decrease was offset by a $212 million increase in units sold and a $21 million decrease in estimated product returns.

During the three and nine months ended September 30, 2017 and 2016, the changes in revenue and expenses were affected by changes in the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. In the event the U.S. Dollar strengthens against these foreign currencies in the future, QVC's revenue and operating cash flow will be negatively affected. As QVC’s product margins could continue to be under pressure due to the devaluation of the U.K. Pound Sterling, QVC will attempt to reduce its exposure through pricing and vendor negotiations as Brexit negotiations progress.

In describing QVC’s operating results, the term currency exchange rates refers to the currency exchange rates QVC uses to convert the operating results for all countries where the functional currency is not the U.S. Dollar. QVC calculates the effect of changes in currency exchange rates as the difference between current period activity translated using the prior period's currency exchange rates. QVC refers to the results of this calculation as the impact of currency exchange rate fluctuations. Constant currency operating results refers to operating results without the impact of the currency exchange rate fluctuations. The disclosure of constant currency amounts or results permits investors to better understand QVC’s underlying performance without the effects of currency exchange rate fluctuations.

The percentage increase (decrease) in net revenue for each of QVC's geographic areas in U.S. Dollars and in constant currency was as follows:


	Three months ended						Nine months ended
	September 30, 2017						September 30, 2017
	U.S. Dollars		Foreign Currency Exchange Impact		Constant Currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant currency
QVC-U.S.	2.7	%	—	%	2.7	%	(1.5)	%	—	%	(1.5)	%
QVC-International	4.3	%	(1.0)	%	5.3	%	(0.4)	%	(3.4)	%	3.0	%

QVC-U.S. net revenue increase for the three months ended September 30, 2017 was primarily due to an 8.7% increase in units shipped. The increase was offset by a decrease of 3.5% in ASP, a $19 million increase in estimated product returns, an $11 million decrease in shipping and handling revenue, and a $5 million decrease in miscellaneous income. QVC-U.S. experienced a system outage during the second quarter of 2017 which resulted in an estimated 1% shift in net revenue to the third quarter. The increase in returns is driven by an increase in sales during the third quarter. Additionally, the Company experienced a decrease in shipping and handling revenue per unit due to promotional offers. For the three months ended September 30, 2017, QVC-U.S. experienced shipped sales increases in apparel, electronics, beauty, and accessories, offset by decreases in jewelry and home. For the nine months ended September 30, 2017, the QVC-U.S. net revenue decline was due to a decrease of 3.2% in ASP, a $24 million decrease in shipping and handling revenue, and an $11 million decrease in miscellaneous income. The decrease was offset by a 2.1% increase in units shipped, and a $30

million decrease in estimated product returns. The decrease in net shipping and handling revenue was a result of a decrease in shipping and handling revenue per unit from promotional offers. The decrease in estimated product returns was primarily due to an overall lower return rate and reduced sales. For the nine months ended September 30, 2017, QVC-U.S. experienced shipped sales increases in apparel, beauty and electronics, offset by decreases in jewelry, home and accessories.

QVC-International net revenue growth in constant currency for the three months ended September 30, 2017 was primarily due to a 9.9% increase in units shipped, driven by increases in Japan, Germany, the U.K., and France, offset by a decrease in Italy. There was a $3 million increase in shipping and handling revenue, primarily driven by Japan and Germany. This was offset by a 4.5% decrease in ASP, primarily driven by Japan and Germany, and a $7 million increase in estimated product returns driven by all markets except for Japan. For the three months ended September 30, 2017, QVC-International experienced shipped sales growth in constant currency in apparel, accessories, home and beauty with declines in electronics and jewelry. Net revenue growth in constant currency for the nine months ended September 30, 2017 was primarily due to a 4.9% increase in units shipped, driven by increases in Japan, Germany, and France, offset by decreases in units shipped in the U.K. and Italy. There was a $4 million increase in shipping and handling revenue, primarily driven by Japan. This was offset by a 2% decrease in ASP, primarily driven in Japan and Germany offset by increases in the U.K., Italy and France, and a $9 million increase in estimated product returns, driven by all markets except for Japan. For the nine months ended September 30, 2017, QVC-International experienced shipped sales growth in constant currency in apparel, beauty and accessories with declines in electronics, jewelry and home.

QVC's future net revenue growth will primarily depend on sales growth from e-commerce and mobile platforms, additions of new customers from households already receiving QVC's television programming and increased spending from existing customers. QVC's future net revenue may also be affected by (i) the willingness of cable television and direct-to-home satellite system operators to continue carrying QVC's programming service; (ii) QVC's ability to maintain favorable channel positioning, which may become more difficult due to governmental action or from distributors converting analog customers to digital; (iii) changes in television viewing habits because of personal video recorders, video-on-demand and Internet video services; and (iv) general economic conditions.

On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the European Union (the “E.U.”), commonly referred to as “Brexit.” As a result of the referendum, the global markets and currencies have been adversely impacted, including a sharp decline in the value of the U.K. Pound Sterling as compared to the U.S. Dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the E.U. In the longer term, any impact from Brexit on us will also depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may adversely affect QVC’s operations and financial results. On March 29, 2017, the U.K. invoked Article 50 of the Treaty of Lisbon, which is the first step of the U.K.’s formal exit from the E.U. This started the two-year window in which the U.K. and the European Commission can negotiate future terms for imports, exports, taxes, employment, immigration and other areas, ending in the exit of the U.K. from the E.U.

QVC's gross profit percentage was 36.2% and 36.9% for the three and nine months ended September 30, 2017, respectively, compared to 35.8% and 36.7% for the three and nine months ended September 30, 2016, respectively. For the three months ended September 30, 2017, the gross profit percentage increased primarily due to an increase in product margins. The increase was offset by an unfavorable inventory obsolescence provision in the U.S. and increased freight costs. The increase in freight and warehouse costs was primarily due to increased units shipped in both segments. For the nine months ended September 30, 2017, the gross profit percentage increased primarily due to increased product margins.

QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees and telecommunications expenses. Operating expenses increased $5 million or 3.6% and decreased $9 million or 2.1% for the three and nine months ended September 30, 2017, respectively, compared to the same periods in the prior year. For the three months ended September 30, 2017, operating expenses increased primarily due to a $3 million increase in credit card processing fees and a $3 million increase in commissions offset by $1 million from favorable foreign currency exchange rates. Credit card fees and commissions increased primarily due to the increase in U.S. sales. In addition, credit card interchange processing fees have increased compared to the three months ended September 30, 2016. For the nine months ended September 30, 2017, operating expenses decreased primarily due to a $6

million decrease in customer service expenses related to lower call volumes in the U.S. and favorable foreign currency exchange rates, offset somewhat by higher credit card fees primarily in the U.S.

QVC's SG&A expenses (excluding stock-based compensation) include personnel, information technology, provision for doubtful accounts, production costs, credit card income, marketing and advertising expenses. Such expenses increased $7 million for the three months ended September 30, 2017, and decreased $43 million for the nine months ended September 30, 2017, as compared to the same periods in the prior year, and as a percentage of net revenue, increased from 8.4% to 8.5% for the three months ended September 30, 2017, respectively, as compared to the three months ended September 30, 2016, and decreased from 8.4% to 7.8% for the nine months ended September 30, 2017, respectively, as compared to the nine months ended September 30, 2016. For the three months ended September 30, 2017, the increase was primarily due to an increase in personnel costs of $10 million and an increase in franchise taxes of $4 million offset by a decrease in bad debt expense of $5 million and a $2 million decrease in marketing expenses. The increase in personnel costs was primarily due to an increase in bonus expense offset by decreases in severance expense and salaries and wages, mostly in the U.S. The decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the Easy-Pay program in the U.S. The decrease in marketing expenses is primarily related to discontinuing the naming rights to the Chiba Marine Stadium in Japan.

For the nine months ended September 30, 2017, the decrease is primarily due to a decrease in bad debt expense of $26 million, $8 million from favorable foreign currency rates, a $7 million increase in credit card income, a $4 million decrease in marketing expenses, and a $5 million decrease in various other expenses offset by an increase in personnel cost of $7 million. The decrease in bad debt expense was primarily related to lower default rates experienced from prior periods mostly associated with the Easy-Pay program in the U.S. The increase in credit card income was due to the favorable economics of the QVC-branded credit card portfolio in the U.S. The decrease in marketing expenses is primarily related to discontinuing the naming rights to the Chiba Marine Stadium in Japan. The increase in personnel costs was primarily due to an increase in bonus expense offset by decreases in severance expenses and salaries and wages.

Depreciation and amortization consisted of the following:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Affiliate agreements	$	25	37	98	110
Customer relationships		28	43	112	128
Acquisition related amortization		53	80	210	238
Property and equipment		38	38	116	103
Software amortization		24	26	70	73
Channel placement amortization and related expenses		14	10	44	34
Total depreciation and amortization	$	129	154	440	448

For the three and nine months ended September 30, 2017, acquisition related amortization expense decreased primarily due to the end of the useful lives of certain affiliate agreements and customer relationships established at the time of the Company’s acquisition of QVC in 2003. This was offset by an increase in channel placement amortization related to the addition of Beauty iQ in the U.S. For the nine months ended September 30, 2017, the amortization decrease mentioned above was offset by an increase in depreciation related to the addition of the California distribution center in the third quarter of 2016.

zulily. Liberty acquired zulily on October 1, 2015. zulily is an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched each day. The zulily website was launched in January 2010 with the goal of revolutionizing the way moms shop. Through its desktop and mobile websites and mobile applications, zulily helps its customers discover new and unique products at great values that they would likely not find elsewhere. zulily’s merchandise includes women’s, children’s and men’s apparel and other products such as home, beauty and personalized products. zulily sources its merchandise from thousands of vendors, including emerging brands and smaller boutique vendors, as well as larger national brands. By bringing together millions of customers and a daily

selection of products chosen from its vendor base, zulily has built a large scale and uniquely curated marketplace. zulily's stand-alone operating results for the three and nine months ended September 30, 2017 and 2016 were as follows:


	Three months ended			Nine months ended
	September 30,			September 30,
	2017		2016	2017	2016
	amounts in millions
Net revenue	$	367	359	1,093	1,080
Costs of sales		272	257	800	768
Gross profit		95	102	293	312
Operating expenses:
Operating		11	12	33	34
SG&A expenses (excluding stock-based compensation)		72	72	207	206
Adjusted OIBDA		12	18	53	72
Stock-based compensation		5	5	13	16
Depreciation		5	5	16	16
Amortization of intangible assets		46	60	136	178
Operating income (loss)	$	(44)	(52)	(112)	(138)

zulily's consolidated net revenue increased 2.2% and 1.2% for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The increase in net revenue for the three and nine months ended September 30, 2017 was primarily attributed to a 5.7% and 2.4% increase in orders placed, respectively, driven by a 5.8% increase in active customers year over year, offset by increased backlog due to timing of orders within the period. Along with the increase in orders placed, units per order also increased but was offset with lower average sales price per unit. An active customer is defined as an individual who had purchased from zulily at least once in the last twelve months, measured from the last date of a period.

zulily's gross profit percentage was 25.9% and 28.4% for the three months ended September 30, 2017 and 2016, respectively. zulily’s gross profit percentage was 26.8% and 28.9% for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017, the decrease was primarily due to increased promotional offers, as well as higher supply chain expenses resulting from an increase in international shipping, and ramping up of zulily’s Pennsylvania fulfillment center, a shift in product mix, and higher unit volume at a lower average sales price per unit. For the nine months ended September 30, 2017, the decrease was primarily due to higher free shipping and promotional offers, as well as higher supply chain expenses resulting from an increase in international shipping, a shift in product mix, and growth of our third-party fulfillment services and higher unit volume at a lower average sales price per unit.

zulily’s operating expenses are principally comprised of credit card processing fees and customer service expenses. For the three and nine month periods ended September 30, 2017, operating expenses decreased as compared to the corresponding periods in the prior year as a result of a reduction in customer service labor expenses.

zulily’s SG&A expenses (excluding stock-based compensation) include personnel related costs for general corporate functions, marketing and advertising expenses, information technology, and the costs associated with the use by these functions of facilities and equipment, including rent. For the three months ended September 30, 2017, these expenses remained flat, and as a percentage of net revenue, decreased from 20.1% to 19.6%, as compared to the corresponding period in the prior year. For the nine months ended September 30, 2017, these expenses increased $1 million, and as a percentage of net revenue decreased from 19.1% to 18.9%, as compared to the corresponding period in the prior year. The decrease as a percentage of net revenue for the nine months ended September 30, 2017 was primarily due to a shift in marketing and advertising spend to promotional offers.

zulily’s total depreciation and amortization of intangible assets expense decreased $14 million and $42 million for the three and nine months ended September 30, 2017, respectively, as compared to the corresponding periods in the prior year. The decrease is attributed to the decelerating amortization of intangible assets recognized in acquisition accounting.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities and the conduct of operations by our subsidiaries in different foreign countries. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.

We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We have achieved this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity, (ii) issuing variable rate debt with appropriate maturities and interest rates and (iii) entering into interest rate swap arrangements when we deem appropriate. As of September 30, 2017, our debt is comprised of the following amounts:


	Variable rate debt				Fixed rate debt
			Weighted				Weighted
	Principal		average		Principal		average
	amount		interest rate		amount		interest rate
	dollar amounts in millions
QVC Group
QVC	$	1,390	2.7	%	$	3,727	4.6	%
zulily	$	300	2.7	%	$	—	—	%
Corporate and other	$	—	—	%	$	791	8.3	%
Ventures Group
Corporate and other	$	—	—	%	$	1,949	3.0	%

We are exposed to changes in stock prices primarily as a result of our significant holdings in publicly traded securities. We continually monitor changes in stock markets, in general, and changes in the stock prices of our holdings, specifically. We believe that changes in stock prices can be expected to vary as a result of general market conditions, technological changes, specific industry changes and other factors. We periodically use equity collars and other financial instruments to manage market risk associated with certain investment positions. These instruments are recorded at fair value based on option pricing models.

At September 30, 2017, the fair value of our available-for-sale securities was $2,393 million. Had the market price of such securities been 10% lower at September 30, 2017, the aggregate value of such securities would have been $239 million lower. Our investments in HSN and FTD are publicly traded securities and are accounted for as equity method affiliates, which are not reflected at fair value in our balance sheet. The aggregate fair value of such securities was $915 million at September 30, 2017 and had the market price of such securities been 10% lower at September 30, 2017, the aggregate value of such securities would have been $92 million lower. Such changes in value are not directly reflected in our statement of operations. At September 30, 2017, the fair value of our investment in Liberty Broadband was $4,068 million. Had the market price of such security been 10% lower at September 30, 2017, the fair value of such security would have been $407 million lower. Additionally, our exchangeable senior debentures are also subject to market risk. Because we mark these instruments to fair value each reporting date, increases in the stock price of the respective underlying security and decreases in interest rates generally result in higher liabilities and unrealized losses in our statement of operations.

Liberty is exposed to foreign exchange rate fluctuations related primarily to the monetary assets and liabilities and the financial results of QVC's foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated into U.S. Dollars at period-end exchange rates, and the statements of operations are generally translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. Dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded in accumulated other comprehensive earnings (loss) as a

A summary of the repurchase activity for the three months ended September 30, 2017 is as follows:


	Series A QVC Group Common Stock
				(c) Total Number	(d) Maximum Number
				of Shares	(or Approximate Dollar
				Purchased as	Value) of Shares that
	(a) Total Number	(b) Average		Part of Publicly	May Yet Be Purchased
	of Shares	Price Paid per		Announced Plans or	Under the Plans or
Period	Purchased	Share		Programs	Programs
July 1 - 31, 2017	—	$	—	—		$ 298	million
August 1 - 31, 2017	5,492,034	$	21.80	5,492,034		$ 178	million
September 1 - 30, 2017	7,778,532	$	22.97	7,778,532		$ 1,000	million
Total	13,270,566			13,270,566

No shares of Series A QVC Group common stock and Series A Liberty Ventures common stock were surrendered by our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock and restricted stock units during the three months ended September 30, 2017.

Item 6. Exhibits

(a) Exhibits

Listed below are the exhibits which are filed as a part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):


2.1		Agreement and Plan of Merger, dated as of July 5, 2017, by and among Liberty Interactive Corporation, Liberty Horizon, Inc. and HSN, Inc. (incorporated by reference to Exhibit 2.1 to Liberty Interactive Corporation’s Current Report on Form 8-K filed on July 11, 2017 (File No. 001-33982)).
10.1		Form of 2017 Performance-based Restricted Stock Unit Agreement (QVCB) under the Liberty Interactive Corporation 2016 Omnibus Incentive Plan (the “2016 Incentive Plan”) for Gregory B. Maffei.*
10.2		Form of 2017 Term Option Agreement under the 2016 Incentive Plan for Gregory B. Maffei.*
10.3		Form of 2017 Performance-based Restricted Stock Unit Agreement under the 2016 Incentive Plan for certain officers other than the Chief Executive Officer and Chief Legal Officer.*
10.4		Form of Restricted Stock Units Agreement under the 2016 Incentive Plan for Nonemployee Directors.*
10.5		Form of Nonqualified Stock Option Agreement under the 2016 Incentive Plan for Nonemployee Directors.*
31.1		Rule 13a-14(a)/15d-14(a) Certification*
31.2		Rule 13a-14(a)/15d-14(a) Certification*
32		Section 1350 Certification**
99.1		Unaudited Attributed Financial Information for Tracking Stock Groups*
99.2		Reconciliation of Liberty Interactive Corporation Net Assets and Net Earnings to Liberty Interactive LLC Net Assets and Net Earnings**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Definition Document*

*Filed herewith

**Furnished herewith


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited)		I-3
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Operations (unaudited)		I-5
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Comprehensive Earnings (Loss) (unaudited)		I-7
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Cash Flows (unaudited)		I-8
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement Of Equity (unaudited)		I-9
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited)		I-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		I-29
Item 3. Quantitative and Qualitative Disclosures about Market Risk.		I-44
Item 4. Controls and Procedures.		I-45

PART II—OTHER INFORMATION		II-1
Item 1. Legal Proceedings		II-1
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		II-1
Item 6. Exhibits		II-2

SIGNATURES		II-3

	LIBERTY INTERACTIVE CORPORATION
Date: November 9, 2017	By:	/s/ GREGORY B. MAFFEI
		Gregory B. Maffei President and Chief Executive Officer
Date: November 9, 2017	By:	/s/ MARK D. CARLETON
		Mark D. Carleton Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)