UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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
(Exact name of Registrant as specified in its charter)
State of (State or other jurisdiction of | (I.R.S. Employer |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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.
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
The number of outstanding shares of Qurate Retail, Inc.'s common stock as of April 30, 2021 was:
Series A common stock | | ||
Series B common stock | |
Table of Contents
I-2
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
| March 31, |
| December 31, |
| ||
2021 | 2020 | |||||
amounts in millions | ||||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | |
| | ||
Trade and other receivables, net of allowance for doubtful accounts of $ |
| |
| | ||
Inventory, net |
| |
| | ||
Indemnification agreement receivable | | | ||||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Property and equipment, net |
| |
| | ||
Intangible assets not subject to amortization (note 5): | ||||||
Goodwill |
| |
| | ||
Trademarks |
| |
| | ||
| |
| | |||
Intangible assets subject to amortization, net (note 5) |
| |
| | ||
Other assets, at cost, net of accumulated amortization |
| |
| | ||
Total assets | $ | |
| | ||
(continued)
See accompanying notes to condensed consolidated financial statements.
I-3
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
March 31, | December 31, |
| ||||
2021 | 2020 |
| ||||
amounts in millions, |
| |||||
except share amounts |
| |||||
Liabilities and Equity |
|
|
|
| ||
Current liabilities: | ||||||
Accounts payable | $ | |
| | ||
Accrued liabilities |
| |
| | ||
Current portion of debt, including $ |
| |
| | ||
Other current liabilities |
| |
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Total current liabilities |
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Long-term debt (note 6) |
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Deferred income tax liabilities |
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Preferred stock (note 7) | | | ||||
Other liabilities |
| |
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Total liabilities |
| |
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Equity | ||||||
Stockholders' equity: | ||||||
Series A common stock, $ |
| |
| | ||
Series B common stock, $ |
|
| ||||
Series C common stock, $ | ||||||
Additional paid-in capital |
| — |
| — | ||
Accumulated other comprehensive earnings (loss), net of taxes |
| ( |
| | ||
Retained earnings |
| |
| | ||
Total stockholders' equity |
| |
| | ||
Noncontrolling interests in equity of subsidiaries |
| |
| | ||
Total equity |
| |
| | ||
Commitments and contingencies (note 8) | ||||||
Total liabilities and equity | $ | |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-4
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions, except per share amounts |
| |||||
$ | |
| | |||
Operating costs and expenses: | ||||||
| |
| | |||
Operating expense |
| |
| | ||
Selling, general and administrative, including stock-based compensation (note 2) |
| |
| | ||
Depreciation and amortization |
| |
| | ||
| |
| | |||
Operating income (loss) |
| |
| | ||
Other income (expense): | ||||||
Interest expense |
| ( |
| ( | ||
Share of earnings (losses) of affiliates, net |
| ( |
| ( | ||
Realized and unrealized gains (losses) on financial instruments, net (note 4) |
| |
| ( | ||
Other, net |
| |
| | ||
| ( |
| ( | |||
Earnings (loss) before income taxes |
| |
| ( | ||
Income tax (expense) benefit |
| ( |
| | ||
Net earnings (loss) | | ( | ||||
Less net earnings (loss) attributable to the noncontrolling interests |
| |
| | ||
Net earnings (loss) attributable to Qurate Retail, Inc. shareholders | $ | |
| ( | ||
Basic net earnings (loss) attributable to Series A and Series B Qurate Retail, Inc. shareholders per common share (note 3): | $ | |
| ( | ||
Diluted net earnings (loss) attributable to Series A and Series B Qurate Retail, Inc. shareholders per common share (note 3): | $ | |
| ( | ||
See accompanying notes to condensed consolidated financial statements.
I-5
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Net earnings (loss) | $ | |
| ( | ||
Other comprehensive earnings (loss), net of taxes: | ||||||
Foreign currency translation adjustments |
| ( |
| ( | ||
Recognition of previously unrealized losses (gains) on debt, net |
| — |
| ( | ||
Comprehensive earnings (loss) attributable to debt credit risk adjustments | ( | | ||||
Other comprehensive earnings (loss) |
| ( |
| | ||
Comprehensive earnings (loss) |
| |
| | ||
Less comprehensive earnings (loss) attributable to the noncontrolling interests |
| |
| | ||
Comprehensive earnings (loss) attributable to Qurate Retail, Inc. shareholders | $ | |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-6
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Cash flows from operating activities: | ||||||
Net earnings (loss) | $ | |
| ( | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Stock-based compensation |
| |
| | ||
Share of (earnings) losses of affiliates, net |
| |
| | ||
Realized and unrealized (gains) losses on financial instruments, net |
| ( |
| | ||
Deferred income tax expense (benefit) |
| |
| ( | ||
Other, net |
| |
| | ||
Changes in operating assets and liabilities | ||||||
Decrease (increase) in accounts receivable |
| |
| | ||
Decrease (increase) in inventory | ( | ( | ||||
Decrease (increase) in prepaid expenses and other assets | | | ||||
(Decrease) increase in trade accounts payable | ( | ( | ||||
(Decrease) increase in accrued and other liabilities | ( | ( | ||||
Net cash provided (used) by operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Investments in and loans to cost and equity investees |
| ( |
| ( | ||
Capital expenditures |
| ( |
| ( | ||
Expenditures for television distribution rights | ( | ( | ||||
Cash proceeds from dispositions of investments | | — | ||||
Proceeds from sale of fixed assets |
| |
| — | ||
Other investing activities, net | ( | | ||||
Net cash provided (used) by investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Borrowings of debt |
| |
| | ||
Repayments of debt |
| ( |
| ( | ||
Repurchases of Qurate Retail common stock |
| ( |
| — | ||
Withholding taxes on net settlements of stock-based compensation |
| ( |
| ( | ||
Dividends paid to noncontrolling interest | ( | ( | ||||
Dividends paid to common shareholders | ( | — | ||||
Other financing activities, net |
| ( |
| | ||
Net cash provided (used) by financing activities |
| ( |
| ( | ||
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash |
| ( |
| ( | ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| ( |
| ( | ||
Cash, cash equivalents and restricted cash at beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash at end of period | $ | |
| | ||
The following table reconciles cash, cash equivalents and restricted cash reported in our condensed consolidated balance sheets to the total amount presented in our condensed consolidated statements of cash flows:
March 31, | December 31, | ||||
2021 | 2020 | ||||
in millions | |||||
Cash and cash equivalents | $ | ||||
Total cash, cash equivalents and restricted cash in the condensed consolidated statement of cash flows | $ | ||||
See accompanying notes to condensed consolidated financial statements.
I-7
QURATE RETAIL, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
(unaudited)
Stockholders' Equity | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | other | Noncontrolling |
| |||||||||||||||
Preferred | Common stock | paid-in | comprehensive | Retained | interest in equity | Total |
| |||||||||||
| stock |
| Series A |
| Series B |
| capital |
| earnings (loss) |
| earnings |
| of subsidiaries |
| equity |
| ||
amounts in millions |
| |||||||||||||||||
Balance at January 1, 2021 | $ | — | | — | — | | | | | |||||||||
Net earnings (loss) |
| — | — | — | — | — | | | | |||||||||
Other comprehensive earnings (loss) |
| — | — | — | — | ( | — | ( | ( | |||||||||
Stock compensation | — | — | — | | — | — | — | | ||||||||||
Series A Qurate Retail stock repurchases |
| — | — | — | ( | — | — | — | ( | |||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | ( | ( | ||||||||||
Withholding taxes on net share settlements of stock-based compensation | — | — | — | ( | — | — | — | ( | ||||||||||
Other | — | — | — | ( | — | | — | ( | ||||||||||
Reclassification | — | — | — | | — | ( | — | — | ||||||||||
Balance at March 31, 2021 | $ | — | | — | — | ( | | | | |||||||||
Stockholders' Equity | ||||||||||||||||||
Accumulated | ||||||||||||||||||
Additional | other | Noncontrolling | ||||||||||||||||
Preferred | Common stock | paid-in | comprehensive | Retained | interest in equity | Total | ||||||||||||
| stock |
| Series A |
| Series B |
| capital |
| earnings (loss) |
| earnings |
| of subsidiaries |
| equity | |||
amounts in millions | ||||||||||||||||||
Balance at January 1, 2020 | $ | — | | — | — | ( | | | | |||||||||
Net earnings (loss) |
| — | — | — | — | — | ( | | ( | |||||||||
Other comprehensive earnings (loss) |
| — | — | — | — | | — | | | |||||||||
Stock compensation | — | — | — | | — | — | — | | ||||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | ( | ( | ||||||||||
Other | — | — | — | ( | — | — | — | ( | ||||||||||
Balance at March 31, 2020 | $ | — |
| |
| — |
| |
| |
| |
| |
| | ||
See accompanying notes to condensed consolidated financial statements.
I-8
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Qurate Retail, Inc. and its controlled subsidiaries (collectively, "Qurate Retail," the "Company," “Consolidated Qurate Retail,” “us,” “we,” or “our” unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated in consolidation. Qurate Retail is made up of wholly-owned subsidiaries QVC, Inc. (“QVC”), which includes HSN, Inc. (“HSN”), Cornerstone Brands, Inc. (“Cornerstone”), Zulily, LLC (“Zulily”), and other cost and equity method investments.
Qurate Retail is primarily engaged in the video and online commerce industries in North America, Europe and Asia. The businesses of the Company’s wholly-owned subsidiaries, QVC, Cornerstone and Zulily, are 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, 2020, 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 Qurate Retail's Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”).
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. Qurate Retail considers (i) fair value measurements, (ii) accounting for income taxes, and (iii) estimates of retail-related adjustments and allowances to be its most significant estimates.
In December 2019, a new coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China and has subsequently spread across the globe causing a global pandemic, impacting all countries where Qurate Retail operates. As a result of the spread of the virus, certain local governmental agencies have imposed travel restrictions, local quarantines or stay at home restrictions to contain the spread, which has caused a significant disruption to most sectors of the economy.
Management is not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require the Company to update the estimates, judgments or revise the carrying value of our assets or liabilities. Management's estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.
As a result of repurchases of Series A Qurate Retail common stock, the Company’s additional paid-in capital balance was in a deficit position as of March 31, 2021. In order to ensure that the additional paid-in capital account is not negative, we reclassified the amount of the deficit ($
Qurate Retail has entered into certain agreements with Liberty Media Corporation ("LMC") (for accounting purposes, a related party of the Company), a separate publicly traded company. These agreements include a reorganization agreement, services agreement and facilities sharing agreement. As a result of certain corporate transactions, LMC and Qurate Retail may have obligations to each other for certain tax related matters. Neither Qurate Retail nor LMC has any stock ownership, beneficial or otherwise, in the other. In connection with a split-off transaction that occurred in the first quarter of 2018 (the “GCI Liberty Split-Off”), Qurate Retail and GCI Liberty, Inc. (“GCI Liberty”) entered into a tax sharing agreement. Pursuant to the tax sharing agreement, GCI Liberty agreed to indemnify Qurate Retail for taxes and tax-related losses resulting from the GCI Liberty Split-Off to the extent such taxes or tax-related losses (i) result primarily from, individually
I-9
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
or in the aggregate, the breach of certain restrictive covenants made by GCI Liberty (applicable to actions or failures to act by GCI Liberty and its subsidiaries following the completion of the GCI Liberty Split-Off), or (ii) result from Section 355(e) of the Internal Revenue Code applying to the GCI Liberty Split-Off as a result of the GCI Liberty Split-Off being part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, a 50-percent or greater interest (measured by vote or value) in the stock of GCI Liberty (or any successor corporation). Following a merger between Liberty Broadband Corporation (“Liberty Broadband”) and GCI Liberty, Liberty Broadband (for accounting purposes, a related party of the Company) has assumed the tax sharing agreement.
In December 2019, the Company entered into an amendment to the services agreement in connection with LMC’s entry into a new employment arrangement with Gregory B. Maffei, the Company’s Chairman of the Board (the “Chairman”). Under the amended services agreement, components of his compensation will either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc., and Liberty Broadband (collectively, the “Service Companies”) or reimbursed to LMC, in each case, based on allocations among LMC and the Service Companies set forth in the amended services agreement, currently set at
The reorganization agreement with LMC provides for, among other things, provisions governing the relationship between Qurate Retail and LMC, including certain cross-indemnities. Pursuant to the services agreement, LMC provides Qurate Retail with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. Qurate Retail reimburses LMC for direct, out-of-pocket expenses incurred by LMC in providing these services and for Qurate Retail's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Qurate Retail. Under the facilities sharing agreement, LMC shares office space and related amenities at its corporate headquarters with Qurate Retail. Under these various agreements, approximately $
(2) 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 the Company’s 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 $
The following table presents the number and weighted average GDFV of options granted by the Company during the three months ended March 31, 2021:
Three months ended | ||||||
March 31, 2021 | ||||||
Options Granted (000's) | Weighted Average GDFV | |||||
Series A Qurate Retail common stock, QVC and HSN employees (1) | | $ | | |||
Series A Qurate Retail common stock, Zulily employees (1) | | $ | | |||
Series A Qurate Retail common stock, Qurate Retail employees (2) | | $ | | |||
I-10
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
| (1) | Grants vest semi-annually over |
| (2) | Grants vest between and |
During the three months ended March 31, 2021, Qurate Retail granted to employees and directors
The Company has calculated the GDFV for all of its equity classified Awards and any subsequent remeasurement of its liability classified 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 Qurate Retail's stock and the implied volatility of publicly traded Qurate Retail options. The Company uses a
Qurate Retail—Outstanding Awards
The following tables present the number and weighted average exercise price ("WAEP") of the Awards to purchase Qurate Retail common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.
|
|
| Weighted |
| Aggregate |
| ||||||
average | intrinsic | |||||||||||
Series A | remaining | value | ||||||||||
(000's) | WAEP | life | (millions) | |||||||||
Outstanding at January 1, 2021 |
| | $ | | ||||||||
Granted |
| | $ | | ||||||||
Exercised |
| ( | $ | | ||||||||
Forfeited/Cancelled |
| ( | $ | | ||||||||
Outstanding at March 31, 2021 |
| | $ | |
| years | $ | | ||||
Exercisable at March 31, 2021 |
| | $ | |
| years | $ | | ||||
|
|
| Weighted |
| Aggregate |
| ||||||
average | intrinsic | |||||||||||
Series B | remaining | value | ||||||||||
(000's) | WAEP | life | (millions) | |||||||||
Outstanding at January 1, 2021 |
| | $ | | ||||||||
Granted |
| — | $ | — | ||||||||
Exercised |
| — | $ | — | ||||||||
Forfeited/Cancelled | — | $ | — | |||||||||
Outstanding at March 31, 2021 |
| | $ | |
| years | $ | — | ||||
Exercisable at March 31, 2021 |
| | $ | |
| years | $ | — | ||||
I-11
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
As of March 31, 2021, Qurate Retail had
As of March 31, 2021, the total unrecognized compensation cost related to unvested Awards was approximately $
As of March 31, 2021, Qurate Retail reserved for issuance upon exercise of outstanding stock options approximately
(3) 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.
Excluded from diluted EPS for the three months ended March 31, 2021 and 2020 are
Qurate Retail Common Stock | |||||
| Three months ended | ||||
March 31, | |||||
2021 | 2020 | ||||
number of shares in millions | |||||
Basic WASO |
| | | ||
Potentially dilutive shares |
| | | ||
Diluted WASO |
| | | ||
(4) 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 |
| ||||||||||||
March 31, 2021 | December 31, 2020 |
| ||||||||||||
|
| 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 | $ | |
| |
| — |
| |
| |
| — | ||
Indemnification asset | $ | | — | | | — | | |||||||
Debt | $ | |
| — |
| |
| |
| — |
| | ||
I-12
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
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.
The indemnification asset relates to Liberty Broadband’s agreement to indemnify Liberty Interactive LLC (“LI LLC”) and pertains to the ability of holders of LI LLC’s
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 |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Exchangeable senior debentures |
| |
| ( | ||
Indemnification asset | ( | ( | ||||
Other financial instruments | | ( | ||||
$ | |
| ( | |||
The Company has elected to account for its exchangeable debt using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statement of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares into which the debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive earnings (loss). The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk was a loss of $
(5) Intangible Assets
Goodwill
Changes in the carrying amount of goodwill are as follows:
Corporate and | ||||||||||||
| QxH | QVC Int'l | Zulily |
| Other |
| Total |
| ||||
amounts in millions |
| |||||||||||
Balance at January 1, 2021 | $ | | | |
| |
| | ||||
Foreign currency translation adjustments |
| — | ( | — |
| — |
| ( | ||||
Balance at March 31, 2021 | $ | | | |
| |
| | ||||
I-13
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Intangible Assets Subject to Amortization
Amortization expense for intangible assets with finite useful lives was $
Remainder of 2021 |
| $ | | |
2022 | $ | | ||
2023 | $ | | ||
2024 | $ | | ||
2025 | $ | |
(6) Long-Term Debt
Debt is summarized as follows:
Outstanding |
| ||||||||
principal at | Carrying value |
| |||||||
| March 31, 2021 |
| March 31, 2021 |
| December 31, 2020 |
| |||
amounts in millions |
| ||||||||
Corporate level debentures | |||||||||
$ | |
| |
| | ||||
| |
| |
| | ||||
| | | |||||||
| | | |||||||
| | | |||||||
Subsidiary level notes and facilities | |||||||||
QVC |
| |
| |
| | |||
QVC |
| |
| |
| | |||
QVC | | | | ||||||
QVC | | | | ||||||
QVC | | | | ||||||
QVC | | | | ||||||
QVC |
| |
| |
| | |||
QVC | | | | ||||||
QVC | | | | ||||||
| |
| |
| | ||||
QVC Bank Credit Facilities | | | — | ||||||
Deferred loan costs | — | ( | ( | ||||||
Total consolidated Qurate Retail debt | $ | |
| |
| | |||
Less current classification |
| ( |
| ( | |||||
Total long-term debt | $ | |
| | |||||
QVC Bank Credit Facilities
On December 31, 2018, QVC entered into the Fourth Amended and Restated Credit Agreement with Zulily as co-borrower (collectively, the “Borrowers”) which is a multi-currency facility that provides for a $
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Borrowers combined ratio of Consolidated Total Debt to Consolidated EBITDA (the “Combined Consolidated Leverage Ratio”). Borrowings that are LIBOR loans will bear interest at a per annum rate equal to the applicable
The payment and performance of the Borrowers’ obligations (including Zulily’s obligations) under the Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement). Further, the borrowings under the Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of QVC’s equity interests. In addition, the payment and performance of the Borrowers’ obligations with respect to the $
The Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on QVC and Zulily and each of their respective 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; and limiting QVC’s consolidated leverage ratio, and the Borrowers’ Combined Consolidated Leverage Ratio.
During the three months ended March 31, 2021, Zulily borrowed $
Exchangeable Senior Debentures
The Company 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. See note 4 for information related to unrealized gains (losses) on debt measured at fair value. As of March 31, 2021 the Company’s exchangeable debentures have been classified as current because the Company does not own shares to redeem the debentures or they are currently redeemable. The Company 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.
Debt Covenants
Qurate Retail and its subsidiaries are in compliance with all debt covenants at March 31, 2021.
Fair Value of Debt
Qurate Retail 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 Qurate Retail for debt of the same remaining maturities (Level 2). The QVC
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Senior debentures | $ | | ||
QVC senior secured notes |
| $ | |
Due to the variable rate nature, Qurate Retail believes that the carrying amount of its other debt, not discussed above, approximated fair value at March 31, 2021.
(7) Preferred Stock
On September 14, 2020, Qurate Retail issued its
Priority. The Preferred Stock ranks senior to the shares of common stock of Qurate Retail, with respect to dividend rights, rights of redemption and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of Qurate Retail’s affairs. Shares of Preferred Stock are not convertible into shares of common stock of Qurate Retail.
Dividends. Holders of the Preferred Stock are entitled to receive quarterly cash dividends at a rate of
The ability of Qurate Retail to declare or pay any dividend on, or purchase, redeem, or otherwise acquire, any of its common stock or any other stock ranking on parity with the Preferred Stock will be subject to restrictions if Qurate Retail does not pay all dividends and all redemption payments on the Preferred Stock, subject to certain exceptions as set forth in the Certificate of Designations.
Distributions upon Liquidation, Dissolution or Winding Up. Upon Qurate Retail’s liquidation, winding-up or dissolution, each holder of shares of the Preferred Stock will be entitled to receive, before any distribution is made to the holders of Qurate Retail common stock, an amount equal to the liquidation price plus all unpaid dividends (whether or not declared) accrued from the immediately preceding dividend payment date, subject to the prior payment of liabilities owed to Qurate Retail’s creditors and the preferential amounts to which any stock senior to the Preferred Stock is entitled. The Preferred Stock has a liquidation price equal to the sum of (i) $
Mandatory and Optional Redemption. The Preferred Stock is subject to mandatory redemption on March 15, 2031 at the liquidation price plus all unpaid dividends (whether or not declared) accrued from the most recent dividend payment date. On or after the fifth anniversary of September 14, 2020 (the “Original Issue Date”), Qurate Retail may redeem all or a portion of the outstanding shares of Preferred Stock, at the liquidation price plus all unpaid dividends (whether or not declared) accrued from the most recent dividend payment date plus, if the redemption is (x) on or after the fifth anniversary of the Original Issue Date but prior to its sixth anniversary,
I-16
QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
on or after the seventh anniversary of the Original Issue Date,
Voting Power. Holders of the Preferred Stock will not have any voting rights or powers, except as specified in the Certificate of Designations or as required by Delaware law.
Preferred Stock Directors. So long as the aggregate liquidation price of the outstanding shares of Preferred Stock exceeds
Recognition. As the Preferred Stock is subject to unconditional mandatory redemption in cash and was issued in the form of a share, the Company concluded the Preferred Stock was a mandatorily redeemable financial instrument and should be classified as a liability in the condensed consolidated balance sheets. The Preferred Stock was initially recorded at its fair value, which was determined to be the liquidation preference of $
(8) Commitments and Contingencies
Litigation
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Qurate Retail may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
(9) Information About Qurate Retail's Operating Segments
Qurate Retail, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video and online commerce industries. Qurate Retail identifies its reportable segments as (A) those operating segments that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA (as defined below) or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of Qurate Retail's annual pre-tax earnings.
Qurate Retail 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, Qurate Retail reviews nonfinancial measures such as unique website visitors, number of units shipped, conversion rates and active customers, as appropriate.
For the three months ended March 31, 2021, Qurate Retail has identified the following operating segments as its reportable segments:
| ● | QxH - QVC U.S. and HSN market and sell a wide variety of consumer products in the United States, primarily by means of their televised shopping programs and via the Internet through their websites and mobile applications. |
| ● | QVC International – QVC International markets and sells a wide variety of consumer products in several foreign |
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
| countries, primarily by means of its televised shopping programs and via the Internet through its international websites and mobile applications. |
| ● | Zulily – Zulily markets and sells a wide variety of consumer products in the United States and several foreign countries through flash sales events, primarily through its app, mobile and desktop experiences. |
Qurate Retail'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 2020 10-K.
Performance Measures
Disaggregated revenue by segment and product category consisted of the following:
Three months ended | ||||||||||||
March 31, 2021 | ||||||||||||
QxH | QVC Int'l | Zulily | Corp and other | Total | ||||||||
in millions | ||||||||||||
Home | $ | | | | | | ||||||
Apparel | | | | | | |||||||
Beauty | | | | — | | |||||||
Accessories | | | | — | | |||||||
Electronics | | | | — | | |||||||
Jewelry | | | | — | | |||||||
Other revenue | | | | — | | |||||||
Total Revenue | $ | | | | | | ||||||
Three months ended | ||||||||||||
March 31, 2020 | ||||||||||||
QxH | QVC Int'l | Zulily | Corp and other | Total | ||||||||
in millions | ||||||||||||
Home | $ | | | | | | ||||||
Apparel | | | | | | |||||||
Beauty | | | | — | | |||||||
Accessories | | | | — | | |||||||
Electronics | | | | — | | |||||||
Jewelry | | | | — | | |||||||
Other revenue | | | | — | | |||||||
Total Revenue | $ | | | | | | ||||||
For segment reporting purposes, Qurate Retail defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses excluding all stock-based compensation and transaction related costs. Qurate Retail believes this measure is an important indicator of the operational strength and performance of its businesses by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. 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 acquisition accounting adjustments, separately reported litigation settlements, transaction related costs (including restructuring, integration, and advisory fees), and impairment charges that are included in the measurement of operating income pursuant to GAAP.
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QURATE RETAIL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flows provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Qurate Retail generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
Adjusted OIBDA is summarized as follows:
Three months ended March 31, | ||||||
2021 | 2020 | |||||
amounts in millions | ||||||
QxH | $ | |
| | ||
QVC International | | | ||||
Zulily |
| |
| | ||
Corporate and other |
| |
| ( | ||
Consolidated Qurate Retail | $ | |
| | ||
Other Information
March 31, 2021 |
| |||||
Total assets | Capital expenditures |
| ||||
amounts in millions |
| |||||
QxH | $ | |
| | ||
QVC International | | | ||||
Zulily | | | ||||
Corporate and other |
| |
| | ||
Consolidated Qurate Retail | $ | |
| | ||
The following table provides a reconciliation of Adjusted OIBDA to Operating income (loss) and Earnings (loss) before income taxes:
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Adjusted OIBDA | $ | |
| | ||
Stock-based compensation |
| ( |
| ( | ||
Depreciation and amortization |
| ( |
| ( | ||
Operating income (loss) | $ | | | |||
Interest expense |
| ( |
| ( | ||
Share of earnings (loss) of affiliates, net |
| ( |
| ( | ||
Realized and unrealized gains (losses) on financial instruments, net |
| |
| ( | ||
Other, net |
| |
| | ||
Earnings (loss) before income taxes | $ | |
| ( | ||
I-19
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 strategies; COVID-19 (as defined below); revenue growth at QVC, Inc. ("QVC"); our projected sources and uses of cash; the recoverability of our goodwill and other intangible assets; and fluctuations in interest rates and foreign currency exchange rates. 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:
| ● | the impact of the novel coronavirus (“COVID-19”) pandemic and local, state and federal governmental responses to the pandemic on the economy, our customers, our vendors and our businesses generally; |
| ● | customer demand for our products and services and our ability to attract new customers and retain existing customers by anticipating customer demand and adapting 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, deployment of capital and our level of indebtedness; |
| ● | our ability to effectively manage our installment sales plans and revolving credit card programs; |
| ● | the cost and ability of shipping companies, manufacturers, suppliers, digital marketing channels, and vendors to deliver products, equipment, software and services; |
| ● | the outcome of any pending or threatened litigation; |
| ● | availability of qualified personnel; |
| ● | the impact of the seasonality of our businesses; |
| ● | 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); |
| ● | changes in the trade policy and trade relations with China; |
| ● | consumer spending levels, including the availability and amount of individual consumer debt and customer credit losses; |
| ● | system interruption and the lack of integration and redundancy in the systems and infrastructures of our businesses; |
| ● | advertising spending levels; |
| ● | changes in distribution and viewing of television programming, including the expanded deployment of video on demand technologies 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; |
| ● | natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control; |
| ● | 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. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”). These forward-looking statements and such risks, uncertainties and other
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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 the 2020 10-K.
The information herein relates to Qurate Retail, Inc. (formerly named Liberty Interactive Corporation) and its controlled subsidiaries (collectively “Qurate Retail,” the “Company,” “Consolidated Qurate Retail,” “us,” “we” or “our” unless the context otherwise requires).
Overview
We own controlling and non-controlling interests in a broad range of video and online commerce companies. Our largest businesses and reportable segments are our operating segment comprised of QVC U.S. and HSN (“QxH”) and QVC International. QVC markets and sells a wide variety of consumer products in the United States (“U.S.”) and several foreign countries, primarily by means of its televised shopping programs and the Internet through its domestic and international websites and mobile applications. Zulily, LLC (“Zulily”), an online retailer offering customers a fun and entertaining shopping experience with a fresh selection of new product styles launched every day, is a reportable segment.
Our “Corporate and other” category includes our consolidated subsidiary Cornerstone Brands, Inc. (“Cornerstone”), along with various cost and equity method investments.
In December 2019, the COVID-19 pandemic was reported to have surfaced in Wuhan, China and has subsequently spread across the globe, impacting all countries where Qurate Retail operates. As a result of the spread of the virus, certain local governmental agencies have imposed travel restrictions, local quarantines or stay at home restrictions to contain the spread, which has caused a significant disruption to most sectors of the economy.
In response to these stay at home restrictions, QVC has mandated that non-essential employees work from home and has reduced the number of employees who are allowed on its production set and has implemented increased cleaning protocols, social distancing measures and temperature screenings for those employees who enter into certain facilities. In some cases, the move to a work from home arrangement for QVC’s non-essential employees will be permanent, which has resulted in the reduction of office space. QVC has also mandated that all essential employees who do not feel comfortable coming to work will not be required to do so. As a result of these resource constraints, QVC included fewer hours of live programming on some of its secondary channels and has experienced some delays in shipping at certain fulfillment centers. In certain markets, QVC temporarily increased the wages and salaries for those employees deemed essential who do not have the ability to work from home, including production and fulfillment center employees. The inability to control the spread of COVID-19, or the expansion or extension of these stay at home restrictions could negatively impact QVC’s results in the future.
Zulily has seen increased freight surcharges from China due to COVID-19 and in concert with QVC has made work accommodations in its fulfillment centers which has resulted in an increase in labor expense. Zulily has also incurred additional expenses to deep cleanse its fulfillment centers and office buildings. In addition, Zulily management cut all travel expenses, and reduced capital expenditures due to uncertainty created by COVID-19.
The stay at home restrictions imposed in response to COVID-19 required many traditional brick and mortar retailers to temporarily close their stores, but allowed distance retailers, including QVC, to continue operating. As a result, beginning at the end of March 2020, QVC observed an increase in new customers and an increase in demand for certain categories, such as home. However, QVC may not be able to retain these new customers after the pandemic subsides and any increases in demand in our product categories during the pandemic may be temporary.
As a result, for the three months ended March 31, 2020, QVC management had increased the amounts of certain estimated reserves including, but not limited to, uncollectible receivables in anticipation of higher defaults by customers billed through our installment payment option, inventory obsolescence due to decreased demand for certain categories,
I-21
such as apparel, and sales returns due to our extended return policy. There were no remaining estimated reserves as of December 31, 2020 and March 31, 2021 as a direct result of COVID-19.
In addition, there are several potential adverse impacts of COVID-19 that could cause a material negative impact to QVC’s financial results, including its capital and liquidity. These include governmental restrictions on QVC’s ability to continue to operate under stay at home restrictions and produce content; reduced demand for products it sells; decreases in the disposable income of existing and potential new customers; the impacts of any recession and other uncertainties with respect to the continuity of government stimulus programs implemented in response to COVID-19; increased currency volatility resulting in adverse currency rate fluctuations; higher unemployment; labor shortages; and an adverse impact to QVC’s supply chain and shipping disruptions for both the products it imports and purchases domestically and the products it sells, including essential products experiencing higher demand, due to factory closures, labor shortages and other resource constraints. While the impact is currently uncertain, the inability to control the spread of COVID-19 could cause any one of these adverse impacts, or combination of adverse impacts, to have a material impact on QVC’s financial results.
I-22
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. 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 |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Revenue | ||||||
QxH |
| $ | 1,936 | 1,792 | ||
QVC International | 774 | 635 | ||||
Zulily | 377 | 316 | ||||
Corporate and other | 250 | 177 | ||||
Consolidated Qurate Retail |
| $ | 3,337 | 2,920 | ||
Operating Income (Loss) | ||||||
QxH |
| $ | 257 | 190 | ||
QVC International | 124 | 80 | ||||
Zulily | (18) | (20) | ||||
Corporate and other | 10 | (19) | ||||
Consolidated Qurate Retail |
| $ | 373 | 231 | ||
Adjusted OIBDA | ||||||
QxH |
| $ | 349 | 293 | ||
QVC International | 143 | 97 | ||||
Zulily | 6 | 2 | ||||
Corporate and other | 19 | (8) | ||||
Consolidated Qurate Retail |
| $ | 517 | 384 | ||
Revenue. Consolidated Qurate Retail revenue increased 14.3% or $417 million for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The increase in the three months ended March 31, 2021 was due to increased revenue at QxH of $144 million for the three months ended March 31, 2021, increased revenue at QVC International of $139 million for the three month period ended March 31, 2021, increased revenue in the Corporate and other segment of $73 million for the three months ended March 31, 2021, and increased revenue at Zulily of $61 million for the three months ended March 31, 2021, compared to the same period in the prior year. The increase in Corporate and other revenue was due to an increase in revenue at Cornerstone due to strong revenue in the home category, specifically in the home décor, interior furnishings and outdoor categories, supported by growth in home textiles at the Garnett Hill brand. 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 primarily related to options, restricted stock awards and restricted stock units for shares of our common stock that are granted to certain of our officers and employees.
We recorded $16 million and $11 million of stock-based compensation for the three months ended March 31, 2021 and 2020, respectively. The increase of $5 million for the three months ended March 31, 2021 was primarily due to increases at QxH, at the corporate level, and at Zulily. As of March 31, 2021, the total unrecognized compensation cost related to unvested Qurate Retail equity awards was approximately $159 million. Such amount will be recognized in our condensed consolidated statements of operations over a weighted average period of approximately 2.2 years.
I-23
Operating income. Our consolidated operating income increased $142 million for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The increase in operating results for the three ended March 31, 2021 was primarily due to an increase in operating income at QxH of $67 million for the three months ended March 31, 2021, an increase in operating income at QVC International of $44 million for the three months ended March 31, 2021, and a increase in operating income at the Corporate and other segment of $29 million for the three months ended March 31, 2021, and a decrease in operating losses at Zulily of $2 million for the three months ended March 31, 2021. Operating income in the Corporate and other segment increased for the three months ended March 31, 2021, as compared to the corresponding period in the prior year, primarily related to strong revenue performance and expanding gross margins as a result of lower promotional activity at Cornerstone. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of QVC and Zulily.
Adjusted OIBDA. To provide investors with additional information regarding our financial results, we also disclose Adjusted OIBDA, which is a non-GAAP financial measure. We define Adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, restructuring, acquisition and other related costs and impairments. 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 by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flows provided by operating activities and other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. The following table provides a reconciliation of Operating income (loss) to Adjusted OIBDA:
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Operating income (loss) | $ | 373 |
| 231 | ||
Depreciation and amortization |
| 128 | 142 | |||
Stock-based compensation |
| 16 | 11 | |||
Adjusted OIBDA | $ | 517 | 384 | |||
Consolidated Adjusted OIBDA increased 34.6% or $133 million for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The increase in Adjusted OIBDA for the three months ended March 31, 2021 was primarily due to an increase at QxH of $56 million for the three months ended March 31, 2021, an increase at QVC International of $46 million for the three months ended March 31, 2021, and an increase at Corporate and other of $27 million for the three months ended March 31, 2021, and an increase at Zulily of $4 million for the three months ended March 31, 2021. The change in the Corporate and other segment for the three months ended March 31, 2021 was primarily due to strong revenue performance and expanding gross margins as a result of lower promotional activity at Cornerstone. 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 |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Interest expense |
| $ | (117) | (97) | ||
Share of earnings (losses) of affiliates |
| (32) | (36) | |||
Realized and unrealized gains (losses) on financial instruments, net |
| 41 | (138) | |||
Other, net |
| 13 | 13 | |||
Other income (expense) |
| $ | (95) | (258) | ||
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Interest expense. Interest expense increased $20 million for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The increase was primarily related to dividends incurred and paid related to our 8.0% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Preferred Stock”) during the period recorded through interest expense due to the accounting treatment.
Share of earnings (losses) of affiliates. Share of losses of affiliates decreased $4 million for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The losses decreased during the three months ended March 31, 2021 due to improved results at the Company’s alternative energy entities. These entities typically operate at a loss and the Company records its share of such losses but have favorable tax attributes and credits, which are recorded in the Company’s 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 |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Exchangeable senior debentures | 46 | (50) | ||||
Indemnification asset | (52) | (22) | ||||
Other financial instruments | 47 | (66) | ||||
| $ | 41 | (138) | |||
The changes in realized and unrealized gains (losses) on financial instruments, net are due to market activity in the applicable period related to the financial instruments that are marked to market on a periodic basis. The increase in realized and unrealized gains for the three months ended March 31, 2021, compared to the corresponding period in the prior year, was primarily driven by an increase in unrealized gains related to derivative instruments, unrealized gains on the exchangeable senior debentures driven by less growth in stock prices of the securities underlying the debentures than the prior year, partially offset by an increase in unrealized losses on the indemnification asset (described in note 4 of the accompanying condensed consolidated financial statements).
Other, net. Other, net remained flat for the three months ended March 31, 2021, compared to the corresponding period in the prior year. The activity captured in other, net is primarily attributable to the impact of the tax sharing arrangement with Liberty Broadband Corporation (“Liberty Broadband”), a gain on the sale of fixed assets and foreign exchange losses in the current year.
Income taxes. We had income tax expense of $54 million and income tax benefit of $18 million for the three months ended March 31, 2021 and 2020, respectively. Income tax expense was lower than the U.S. statutory tax rate of 21% during the three months ended March 31, 2021 due to tax benefits from tax credits generated by our alternative energy investments, partially offset by state and foreign income tax expense. The income tax benefit during the three months ended March 31, 2020 was due primarily to tax benefits from tax credits generated by our alternative energy investments partially offset by tax expense for an increase in the Company’s valuation allowance.
Net earnings. We had net earnings of $224 million and net losses of $9 million for the three months ended March 31, 2021 and 2020, respectively. The change in net earnings (loss) was the result of the above-described fluctuations in our revenue, expenses and other gains and losses.
Material Changes in Financial Condition
As of March 31, 2021, substantially all of our cash and cash equivalents are invested in U.S. Treasury securities, securities of 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, availability under QVC’s Senior Secured Credit Facility (the “Fourth Amended and Restated Credit Facility”), as discussed in note 6 of the accompanying condensed consolidated financial statements, debt issuances, equity issuances, interest receipts, proceeds from asset sales, and cash generated by the operating activities of our wholly-owned subsidiaries. Cash generated by the operating activities of our
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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 as, in the case of QVC and Zulily, due to a requirement that a leverage ratio (calculated in accordance with the terms of such indebtedness) of less than 3.5 must be maintained.
As of March 31, 2021, Qurate Retail's liquidity position included the following:
Cash and cash | ||||
equivalents | ||||
amounts in millions | ||||
QVC |
| $ | 638 | |
Zulily | 31 | |||
Corporate and other | 70 | |||
Total Qurate Retail |
| $ | 739 | |
Borrowing capacity | ||||
amount in millions | ||||
Fourth Amended and Restated Credit Facility | $ | 2,853 | ||
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. As of March 31, 2021, the Company had approximately $269 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 United States. QVC accrues foreign taxes on the unremitted earnings of its international subsidiaries. Approximately 71% of QVC’s foreign cash balance was that of QVC-Japan (as defined below). QVC owns 60% of QVC-Japan and shares all profits and losses with the 40% minority interest holder, Mitsui & Co., LTD (“Mitsui”).
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.
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Cash Flow Information | ||||||
Net cash provided (used) by operating activities |
| $ | 153 | 172 | ||
Net cash provided (used) by investing activities |
| $ | (180) | (74) | ||
Net cash provided (used) by financing activities |
| $ | (23) | (210) | ||
During the three months ended March 31, 2021, Qurate Retail's primary uses of cash were investments in and loans to cost and equity method investments of $118 million, expenditure for television distribution rights of $56 million, capital expenditures of $47 million and repurchases of Series A Qurate Retail common stock of $41 million, partially offset by net debt borrowings of $71 million and proceeds from the sale of fixed assets of $40 million.
The projected uses of Qurate Retail cash for the remainder of 2021 are continued capital improvement spending of approximately $240 million, debt service payments (including approximately $210 million for interest payments on outstanding debt), the potential buyback of common stock under the approved share buyback program, payment of dividends to the holders of the Preferred Stock 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.
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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 U.S., QVC’s televised shopping programs, including live and recorded content, are distributed across multiple channels nationally on a full-time basis, including QVC, QVC 2, QVC 3, HSN and HSN2. QVC U.S. programming is also available on QVC.com and HSN.com, QVC’s U.S. websites; virtual multichannel video programming distributors (including Hulu + Live TV, AT&T TV, and You Tube TV); applications via streaming video; Facebook Live, Roku, Apple TV and Amazon Fire; mobile applications; social pages and over-the-air broadcasters.
QVC’s digital platforms enable consumers to purchase goods offered on its televised programming, along with a wide assortment of products that are available only on QVC.com and HSN.com. QVC.com and HSN.com and QVC’s other digital platforms (including mobile applications, social pages, and others) are natural extensions of its business model, allowing customers to engage in its shopping experience wherever they are, with live or on-demand content customized to the device they are using. In addition to offering video content, QVC.com and HSN.com allow shoppers to browse, research, compare and perform targeted searches for products, read customer reviews, control the order-entry process and conveniently access their 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 and Italy. In some of the countries where QVC operates, its televised shopping programs are distributed across multiple QVC channels: QVC Style and QVC2 in Germany and QVC Beauty, QVC Extra, and QVC Style in the U.K. Similar to the U.S., QVC’s international businesses also engage customers via websites, mobile applications, and social pages. 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. 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 three months ended March 31, 2021 and 2020, QVC-Japan paid dividends to Mitsui of $16 million and $15 million, respectively.
QVC's operating results were as follows:
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Net revenue |
| $ | 2,710 |
| 2,427 | |
Cost of sales | (1,758) |
| (1,584) | |||
Operating expenses | (186) |
| (177) | |||
SG&A expenses (excluding stock-based compensation and transaction related costs) | (274) |
| (276) | |||
Adjusted OIBDA | 492 |
| 390 | |||
Stock-based compensation | (9) |
| (6) | |||
Depreciation and amortization | (102) |
| (114) | |||
Operating income |
| $ | 381 |
| 270 | |
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Net revenue was generated in the following geographical areas:
Three months ended |
| ||||||
March 31, |
| ||||||
| 2021 |
| 2020 |
| |||
amounts in millions |
| ||||||
QxH |
| $ | 1,936 |
| 1,792 | ||
QVC International | 774 | 635 | |||||
Consolidated QVC |
| $ | 2,710 | 2,427 | |||
QVC's consolidated net revenue increased 11.7% for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The three month increase in net revenue is primarily due to a 8.1% increase in units shipped, a $27 million decrease in estimated product returns, primarily driven by QxH, a $9 million increase in shipping and handling revenue and $47 million in favorable foreign exchange rates, which was partially offset by a 0.8% decline in average selling price per unit ("ASP"), primarily driven by QxH.
During the three months ended March 31, 2021 and 2020, the changes in revenue and expenses were affected by changes in the exchange rates for the U.K. Pound Sterling, the Euro and the Japanese Yen. 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.
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 change in net revenue for each of QVC's geographic areas in U.S. Dollars and in constant currency was as follows:
Three months ended | ||||||||||
March 31, 2021 | ||||||||||
| U.S. Dollars | Foreign Currency Exchange Impact | Constant Currency | |||||||
QxH |
| 8.0 | % | — | % | 8.0 | % | |||
QVC International |
| 21.9 | % | 7.4 | % | 14.5 | % | |||
The increase in QxH net revenue for the three months ended March 31, 2021 was primarily due to a 7.9% increase in units shipped, a $30 million decrease in estimated product returns and a $6 million increase in shipping and handling revenue, which was partially offset by a 2.5% decline in ASP. For the three months ended March 31, 2021, QxH experienced shipped sales growth in home, accessories and electronics. The decrease in estimated product returns was primarily driven by a shift in product mix to lower return rate categories, partially offset by an increase in sales volume.
QVC International net revenue growth in constant currency for the three months ended March 31, 2021 was primarily due to an 8.4% increase in units shipped, driven by increases in units shipped across all markets, and a 3.7% increase in ASP, driven by ASP increases across all markets. For the three months ended March 31, 2021, QVC-International experienced shipped sales growth in constant currency across all product categories.
QVC's future net revenue growth will primarily depend on sales growth from e-commerce, mobile platforms, and applications via streaming video, additions of new customers from households already receiving QVC's televised 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
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because of video-on-demand technologies and Internet video services; (iv) QVC’s ability to source new and compelling products; and (v) general economic conditions.
The current economic uncertainty in various regions of the world in which QVC’s subsidiaries and affiliates operate could adversely affect demand for its products and services since a substantial portion of its revenue is derived from discretionary spending by individuals, which typically declines during times of economic instability. Global financial markets have recently experienced disruptions, including increased volatility and diminished liquidity and credit availability. If economic and financial market conditions in the U.S. or other key markets, including Japan and Europe, continue to be uncertain, QVC’s customers may respond by suspending, delaying or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, QVC’s ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments decline.
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.” The Brexit process and negotiations have created political and economic uncertainty, particularly in the U.K. and the E.U. and this uncertainty may last for years, and could potentially have a negative impact on QVC’s business. The potential impacts include, but are not limited to, unfavorable new trade agreements, the possible imposition of trade or other regulatory barriers which could result in shipping delays or shortages of products, and a negative impact to the global economy and consumer demand.
QVC's cost of sales as a percentage of net revenue was 64.9% for the three months ended March 31, 2021, compared to 65.3% for the three months ended March 31, 2020. The decrease in cost of goods sold as a percentage of revenue for the three months ended March 31, 2021 is primarily due to favorable estimated product returns at QxH and strategic promotional and pricing initiatives, which decreased product costs as a percentage of net revenue across all markets. These decreases were partially offset by increased freight primarily at QxH and higher obsolescence charges across all markets.
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 $9 million for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. For the three months ended March 31, 2021 the increase was primarily due to a $4 million increase in customer service expenses, primarily at QxH and a $3 million increase due to unfavorable exchange rates.
QVC's SG&A expenses (excluding stock-based compensation) include personnel, information technology, provision for doubtful accounts, production costs, and marketing and advertising expenses. Such expenses decreased $2 million for the three months ended March 31, 2021, as compared to the same period in the prior year, and as a percentage of net revenue, decreased from 11.4% to 10.1% for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. For the three months ended March 31, 2021, the decrease was primarily due to a $25 million decrease in estimated credit losses primarily at QxH and to a lesser extent, the U.K., and a $2 million decrease in travel expenses across all markets. These decreases were partially offset by an $18 million increase in online marketing primarily at QxH, a $3 million increase in personnel costs and $5 million in unfavorable exchange rates. The decrease to estimated credit losses was due to a decrease in the number of installment counts offered to and taken by customers, an increase to our reserve as a result of COVID-19 for the three months ended March 31, 2020, favorable adjustments based on actual collections and enhanced risk screening. The decrease in travel expenses was primarily due to less travel as a result of COVID-19. The increase in personnel costs is primarily due to an increase to our estimated incentive pay across all markets except QxH.
Stock-based compensation includes compensation related to options and restricted stock units granted to certain officers and employees. QVC recorded $9 million and $6 million of stock-based compensation expense for the three months ended March 31, 2021 and 2020, respectively. The increase in stock compensation expense for the three months ended March 31, 2021 is primarily related to certain officers not reaching performance targets for restricted stock units for the three months ended March 31, 2020.
Depreciation and amortization decreased $12 million for the three months ended March 31, 2021 and included $16 million and $17 million of acquisition related amortization for the three months ended March 31, 2021 and 2020,
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respectively. Channel placement amortization decreased $8 million for the three months ended March 31, 2021 compared to the same period in the prior year, due to certain channel placement agreements becoming fully amortized.
Zulily. 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 consumers shop. Through its app, mobile and desktop experiences, 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, accessories and beauty products.
Zulily's stand-alone operating results for the three months ended March 31, 2021 and 2020 were as follows:
Three months ended |
| |||||
March 31, |
| |||||
| 2021 |
| 2020 |
| ||
amounts in millions |
| |||||
Net revenue |
| $ | 377 |
| 316 | |
Costs of sales | (288) |
| (240) | |||
Operating expenses | (10) |
| (9) | |||
SG&A expenses (excluding stock-based compensation) | (73) |
| (65) | |||
Adjusted OIBDA | 6 |
| 2 | |||
Stock-based compensation | (4) |
| (2) | |||
Depreciation and amortization | (20) |
| (20) | |||
Operating income (loss) |
| $ | (18) |
| (20) | |
Zulily's consolidated net revenue increased 19.3% for the three months ended March 31, 2021, as compared to the corresponding period in the prior year. The increase in net revenue for the three months ended March 31, 2021 was primarily related to an increase of 15.4% in total units shipped and a 14.8% increase in active customers driven by increased demand for online shopping and Zulily’s merchandise, coupled with a 4.8% increase in average sale price primarily to offset shipping costs.
Zulily's cost of sales as a percentage of net revenue was 76.4% and 75.9% for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, the increase was primarily due to higher shipping costs, partially offset by favorable product margin.
Operating expenses are principally comprised of credit card processing fees and customer service expenses. For the three months ended March 31, 2021, operating expenses increased compared to the corresponding period in the prior year, driven by increased sales volumes.
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 March 31, 2021, as a percentage of net revenue, these expenses decreased from 20.6% to 19.4%. The decrease is primarily attributable to better leverage attributable to the increase in sales, partially offset by an increase in marketing spend.
Zulily’s total depreciation and amortization expense remained flat for the three months ended March 31, 2021, as compared to the corresponding period in the prior year.
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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 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 March 31, 2021, 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 |
| ||||||||||
QxH and QVC International |
| $ | NA | NA | % | $ | 4,664 | 4.9 | % | ||
Zulily | $ | 75 | 1.6 | % | $ | — | — | % | |||
Corporate and other |
| $ | — | — | % | $ | 1,986 | 5.3 | % | ||
Qurate Retail 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 separate component of stockholders' equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from our operations in foreign countries are translated at the average rate for the period. Accordingly, Qurate Retail may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the three months ended March 31, 2021 would have been impacted by approximately $1 million, for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.
We periodically assess the effectiveness of our derivative financial instruments. With regard to interest rate swaps, we monitor the fair value of interest rate swaps as well as the effective interest rate the interest rate swap yields, in comparison to historical interest rate trends. We believe that any losses incurred with regard to interest rate swaps would be largely offset by the effects of interest rate movements on the underlying debt facilities. These measures allow our management to evaluate the success of our use of derivative instruments and to determine when to enter into or exit from derivative instruments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended, the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls
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and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal control over financial reporting that occurred during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Programs
In May 2019, the board authorized the repurchase of $500 million of Series A or Series B common stock.
Series A Qurate Retail 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 |
| ||||||
January 1 - 31, 2021 |
| 1,131,344 | $ | 11.15 |
| 1,131,344 | $414 | million | |||
February 1 - 28, 2021 |
| — | $ | — |
| — | $414 | million | |||
March 1 - 31, 2021 |
| 2,336,742 | $ | 12.21 |
| 2,336,742 | $386 | million | |||
Total |
| 3,468,086 | $ | 11.86 |
| 3,468,086 | |||||
There were no repurchases of Series B Qurate Retail common stock or Preferred Stock during the three months ended March 31, 2021.
During the three months ended March 31, 2021, no shares of Series A common stock, Series B common stock or Preferred Stock were surrendered by our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock, restricted stock units, and options.
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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):
10.1 | ||
10.2 | ||
31.1 | ||
31.2 | ||
32 | ||
99.1 | ||
101.INS | Inline XBRL Instance Document* - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document* | |
101.LAB | Inline XBRL Taxonomy Label Linkbase Document* | |
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document* | |
101.DEF | Inline XBRL Taxonomy Definition Document* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* | Filed herewith |
** | Furnished herewith |
II-2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
QURATE RETAIL, INC. | |||
Date: May 7, 2021 | By: | /s/ MICHAEL A.GEORGE | |
Michael A. George President and Chief Executive Officer | |||
Date: May 7, 2021 | By: | /s/ BRIAN J. WENDLING | |
Brian J. Wendling Chief Accounting Officer and Principal Financial Officer | |||
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