Qurate Retail, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Information About Liberty's Operating Segments

Information About Liberty's Operating Segments

12 Months Ended

Dec. 31, 2017

Information About Liberty's Operating Segments

Information About Liberty's Operating Segments

(19) Information About Liberty's Operating Segments

Liberty, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video and on-line commerce 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. The segment presentation for prior periods has been conformed to the current period segment presentation.

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, number of units shipped and revenue or sales per customer equivalent. In addition, Liberty reviews nonfinancial measures such as unique website visitors, 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 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 year ended December 31, 2017, Liberty has identified the following consolidated subsidiaries as its reportable segments:

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

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

HSN – consolidated subsidiary that markets and sells a wide variety of consumer products primarily in the U.S. by means of its televised shopping programs and via the Internet and mobile transactions through its domestic websites.

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 that are also consolidated subsidiaries are the same as those described in the Company's summary of significant accounting policies.

Performance Measures


	Years ended December 31,
	2017			2016		2015
			Adjusted		Adjusted		Adjusted
	Revenue		OIBDA	Revenue	OIBDA	Revenue	OIBDA
	amounts in millions
QVC Group
QVC	$	8,771	1,897	8,682	1,840	8,743	1,894
HSN		—	—	NA	NA	NA	NA
zulily		1,613	91	1,547	112	426	21
Corporate and other		—	(35)	—	(16)	—	(28)
Inter-segment eliminations		(3)	—	(10)	—	—	—
Total QVC Group		10,381	1,953	10,219	1,936	9,169	1,887
Ventures Group
Corporate and other		23	(27)	428	3	820	59
Total Ventures Group		23	(27)	428	3	820	59
Consolidated Liberty	$	10,404	1,926	10,647	1,939	9,989	1,946

Other Information


	December 31, 2017					December 31, 2016
			Investments	Investment			Investments	Investment
	Total		in	in Liberty	Capital	Total	in	in Liberty	Capital
	assets		affiliates	Broadband	expenditures	assets	affiliates	Broadband	expenditures
	amounts in millions
QVC Group
QVC	$	11,550	40	—	152	11,545	40	—	179
HSN		2,798	—	—	—	NA	NA	NA	NA
zulily		2,323	—	—	49	2,461	—	—	27
Corporate and other		566	—	—	—	351	184	—	—
Total QVC Group		17,237	40	—	201	14,357	224	—	206
Ventures Group
Corporate and other		6,885	269	3,635	3	5,998	357	3,161	27
Total Ventures Group		6,885	269	3,635	3	5,998	357	3,161	27
Inter-group eliminations		—	—		—	—	—		—
Consolidated Liberty	$	24,122	309	3,635	204	20,355	581	3,161	233

The following table provides a reconciliation of consolidated segment Adjusted OIBDA to operating income and earnings (loss) from continuing operations before income taxes:


	Years ended December 31,
	2017		2016	2015
	amounts in millions
Consolidated segment Adjusted OIBDA	$	1,926	1,939	1,946
Stock-based compensation		(123)	(97)	(127)
Depreciation and amortization		(725)	(874)	(703)
Acquisition and restructuring related costs		(35)	—	—
Operating income		1,043	968	1,116
Interest expense		(355)	(363)	(360)
Share of earnings (loss) of affiliates, net		(200)	(68)	(178)
Realized and unrealized gains (losses) on financial instruments, net		618	1,175	114
Gains (losses) on transactions, net		410	9	110
Other, net		7	131	14
Earnings (loss) from continuing operations before income taxes	$	1,523	1,852	816

Revenue by Geographic Area

Revenue by geographic area based on the location of customers is as follows:


	Years ended December 31,
	2017		2016	2015
	amounts in millions
United States	$	7,684	7,979	7,412
Japan		934	900	811
Germany		899	866	850
Other foreign countries		887	902	916
	$	10,404	10,647	9,989

Long-lived Assets by Geographic Area


	December 31,
	2017		2016
	amounts in millions
United States	$	895	694
Japan		143	145
Germany		164	154
Other foreign countries		139	138
	$	1,341	1,131