Qurate Retail, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
Mar. 31, 2024
Commitments and Contingencies.
Commitments and Contingencies	(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. Fire at Rocky Mount Fulfillment Center On December 18, 2021, QVC experienced a fire at its Rocky Mount fulfillment center in North Carolina. Rocky Mount was QVC’s second-largest fulfillment center for the operating segment comprised of QVC U.S. and HSN (“QxH”) and QVC’s primary returns center for hard goods. QVC maintains property, general liability and business interruption insurance coverage. Based on provisions of QVC's insurance policies, the Company recorded insurance recoveries for fire related costs for which recovery is deemed probable. In June 2023, QVC agreed to a final insurance settlement with its insurance company and received all remaining proceeds related to the Rocky Mount claim. As of December 31, 2023, QVC recorded cumulative fire related costs of $439 million, which included $119 million of costs that were not reimbursable by QVC’s insurance policies. As of December 31, 2023, QVC received cumulative insurance proceeds of $660 million, and recorded net gains, representing the proceeds received in excess of recoverable losses recognized of $208 million. Of the $280 million of insurance proceeds received during the year ended December 31, 2023, $210 million represents recoveries for business interruption losses. During the three months ended March 31, 2023, QVC received $55 million of insurance proceeds and recognized a gain of $15 million on insurance proceeds received in excess of fire losses, which was partially offset by $11 million of other fire related costs. In February 2023, QVC sold the Rocky Mount fulfillment center to an independent third party and received cumulative net cash proceeds of $19 million as of December 31, 2023, of which $15 million was received during the three months ended March 31, 2023. QVC recognized a $13 million gain on the sale during the three months ended March 31, 2023, calculated as the difference between the aggregate consideration received and the carrying value of the property. Project Athens On June 27, 2022, Qurate Retail announced a five-point turnaround plan designed to stabilize and differentiate its core QVC U.S. and HSN brands and expand the Company's leadership in video streaming commerce (“Project Athens”). Project Athens main initiatives include: (i) improve customer experience and grow relationships; (ii) rigorously execute core processes; (iii) lower cost to serve; (iv) optimize the brand portfolio; and (v) build new high growth businesses. During 2022, QVC commenced the first phase of Project Athens including actions to reduce inventory and a planned workforce reduction that was completed in February 2023. During the three months ended March 31, 2023, QVC recorded restructuring charges of $13 million. These initiatives are consistent with QVC’s strategy to operate more efficiently as it implements its turnaround plan. Zulily Restructuring In the first quarter of 2022, Zulily began to execute a series of transformation initiatives, beginning with the announcement of the closure of its fulfillment center in Bethlehem, Pennsylvania, and reduction in corporate workforce. These initiatives were consistent with Zulily’s strategy to operate more efficiently as it implemented its turnaround plan. Zulily recorded $4 million of restructuring charges during the three months ended March 31, 2023 related to its reduction in corporate workforce. See note 1 for a discussion regarding the Company’s divestiture of Zulily on May 24, 2023. Gains on sale leaseback transactions In November 2022, QVC entered into agreements to sell two properties located in Germany and the United Kingdom (“U.K.”) to an independent third party. Under the terms of the agreements, QVC received net cash proceeds of $102 million related to its German facility and $80 million related to its U.K. facility when the sale closed in January 2023. Concurrent with the sale, the Company entered into agreements to lease each of the properties back from the purchaser over an initial term of 20 years with the option to extend the terms of the property leases for up to four consecutive terms of five years. QVC recorded a gain of $69 million and $44 million related to the successful sale leaseback of the German and U.K. properties, respectively, during the first quarter of 2023 calculated as the difference between the aggregate consideration received and the carrying value of the properties. QVC accounted for the leases as operating at the close of the sale leaseback transaction, leases and recorded a $42 million and $32 million right-of-use asset and operating lease liability for the German and U.K. properties, respectively. In December 2023, QVC entered into an agreement to sell an owned and operated property in Germany to an independent third party. This property was owned as of December 31, 2023, and is included in other assets in the condensed consolidated balance sheet. Under the terms of the agreement, QVC received net cash proceeds of $6 million related to its German facility when the sale closed in February 2024. QVC recognized a $1 million gain related to the sale during the first quarter of 2024, calculated as the difference between the aggregate consideration received and the carrying value of the property. Concurrent with the sale, QVC entered into an agreement to lease a portion of the property back over 2 years and recorded an operating lease right-of-use asset and operating lease liability of $1 million. On October 31, 2022, the Company entered into foreign currency forward contracts with an aggregate notional amount of $167 million to mitigate the foreign currency risk associated with the sale and leaseback of Germany and U.K. properties. The forwards did not qualify as cash flow hedges under GAAP. Changes in the fair value of the forwards are reflected in realized and unrealized gains (losses) on financial instruments, net in the condensed consolidated statements of operations. The contracts expired in January 2023 which resulted in a net cash settlement of $12 million.

Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies.

Commitments and Contingencies

(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.

Fire at Rocky Mount Fulfillment Center

On December 18, 2021, QVC experienced a fire at its Rocky Mount fulfillment center in North Carolina. Rocky Mount was QVC’s second-largest fulfillment center for the operating segment comprised of QVC U.S. and HSN (“QxH”) and QVC’s primary returns center for hard goods. QVC maintains property, general liability and business interruption insurance coverage. Based on provisions of QVC's insurance policies, the Company recorded insurance recoveries for fire related costs for which recovery is deemed probable.

In June 2023, QVC agreed to a final insurance settlement with its insurance company and received all remaining proceeds related to the Rocky Mount claim. As of December 31, 2023, QVC recorded cumulative fire related costs of $439 million, which included $119 million of costs that were not reimbursable by QVC’s insurance policies. As of December 31, 2023, QVC received cumulative insurance proceeds of $660 million, and recorded net gains, representing the proceeds received in excess of recoverable losses recognized of $208 million. Of the $280 million of insurance proceeds received during the year ended December 31, 2023, $210 million represents recoveries for business interruption losses.

During the three months ended March 31, 2023, QVC received $55 million of insurance proceeds and recognized a gain of $15 million on insurance proceeds received in excess of fire losses, which was partially offset by $11 million of other fire related costs.

In February 2023, QVC sold the Rocky Mount fulfillment center to an independent third party and received cumulative net cash proceeds of $19 million as of December 31, 2023, of which $15 million was received during the three months ended March 31, 2023. QVC recognized a $13 million gain on the sale during the three months ended March 31, 2023, calculated as the difference between the aggregate consideration received and the carrying value of the property.

Project Athens

On June 27, 2022, Qurate Retail announced a five-point turnaround plan designed to stabilize and differentiate its core QVC U.S. and HSN brands and expand the Company's leadership in video streaming commerce (“Project Athens”). Project Athens main initiatives include: (i) improve customer experience and grow relationships; (ii) rigorously execute core processes; (iii) lower cost to serve; (iv) optimize the brand portfolio; and (v) build new high growth businesses.

During 2022, QVC commenced the first phase of Project Athens including actions to reduce inventory and a planned workforce reduction that was completed in February 2023. During the three months ended March 31, 2023, QVC recorded restructuring charges of $13 million. These initiatives are consistent with QVC’s strategy to operate more efficiently as it implements its turnaround plan.

Zulily Restructuring

In the first quarter of 2022, Zulily began to execute a series of transformation initiatives, beginning with the announcement of the closure of its fulfillment center in Bethlehem, Pennsylvania, and reduction in corporate workforce. These initiatives were consistent with Zulily’s strategy to operate more efficiently as it implemented its turnaround plan. Zulily recorded $4 million of restructuring charges during the three months ended March 31, 2023 related to its reduction in corporate workforce. See note 1 for a discussion regarding the Company’s divestiture of Zulily on May 24, 2023.

Gains on sale leaseback transactions

In November 2022, QVC entered into agreements to sell two properties located in Germany and the United Kingdom (“U.K.”) to an independent third party. Under the terms of the agreements, QVC received net cash proceeds of $102 million related to its German facility and $80 million related to its U.K. facility when the sale closed in January 2023. Concurrent with the sale, the Company entered into agreements to lease each of the properties back from the purchaser over an initial term of 20 years with the option to extend the terms of the property leases for up to four consecutive terms of five years. QVC recorded a gain of $69 million and $44 million related to the successful sale leaseback of the German and U.K. properties, respectively, during the first quarter of 2023 calculated as the difference between the aggregate consideration received and the carrying value of the properties. QVC accounted for the leases as operating at the close of the sale

leaseback transaction, leases and recorded a $42 million and $32 million right-of-use asset and operating lease liability for the German and U.K. properties, respectively.

In December 2023, QVC entered into an agreement to sell an owned and operated property in Germany to an independent third party. This property was owned as of December 31, 2023, and is included in other assets in the condensed consolidated balance sheet. Under the terms of the agreement, QVC received net cash proceeds of $6 million related to its German facility when the sale closed in February 2024. QVC recognized a $1 million gain related to the sale during the first quarter of 2024, calculated as the difference between the aggregate consideration received and the carrying value of the property. Concurrent with the sale, QVC entered into an agreement to lease a portion of the property back over 2 years and recorded an operating lease right-of-use asset and operating lease liability of $1 million.

On October 31, 2022, the Company entered into foreign currency forward contracts with an aggregate notional amount of $167 million to mitigate the foreign currency risk associated with the sale and leaseback of Germany and U.K. properties. The forwards did not qualify as cash flow hedges under GAAP. Changes in the fair value of the forwards are reflected in realized and unrealized gains (losses) on financial instruments, net in the condensed consolidated statements of operations. The contracts expired in January 2023 which resulted in a net cash settlement of $12 million.