Annual report pursuant to Section 13 and 15(d)

Information about QVC's Operating Segments

v3.10.0.1
Information about QVC's Operating Segments
 12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segment reporting disclosure
Information about QVC's Operating Segments and Geographical Data
The Company has identified three reportable segments: QVC-U.S., QVC-International and HSN, which are retailers of a wide range of consumer products which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets.
QVC allocates certain corporate costs for management reporting purposes from its QVC-U.S. segment to the QVC-International segment and beginning in the second quarter of 2018, QVC-U.S. began allocating costs to HSN. These management cost allocations are related to certain functions such as merchandising, commerce platforms, information technology, human resources, legal, finance, brand and communications, corporate development and administration that support all of QVC’s operations. For the years ended December 31, 2018, 2017 and 2016, the costs allocated to QVC-International totaled approximately $39 million, $36 million and $31 million respectively. For the year ended December 31, 2018 the costs allocated to HSN totaled approximately $8 million.
QVC's chief operating decision maker ("CODM") is QVC's Chief Executive Officer. QVC's CODM has ultimate responsibility for enterprise decisions. QVC's CODM determines, in particular, resource allocation for, and monitors performance of, the consolidated enterprise, QVC-U.S., QVC-International and HSN. The segment managers have responsibility for operating decisions, allocating resources and assessing performance within their respective segments. QVC's CODM relies on internal management reporting that analyzes enterprise results and segment results to the Adjusted OIBDA level (see below).
QVC-U.S., QVC-International and HSN are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets.
The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as net revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per subscriber equivalent. The Company defines Adjusted OIBDA, which is unaudited, as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding transaction related costs and stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments, including the ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among the Company's businesses and identify strategies to improve performance. This measure of performance excludes impairment, depreciation, amortization, transaction related costs and stock-based compensation that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, and cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.
Performance measures
 
Years ended December 31,
 
 
2018
 
2017
 
2016
 
(in millions)
Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

Net
revenue

Adjusted
OIBDA

QVC-U.S.
$
6,349

1,417

6,140

1,455

6,120

1,435

QVC-International
2,738

429

2,631

451

2,562

405

HSN
2,202

213

—

—

—

—

Intersegment eliminations
(7
)
—

—

—

—

—

Consolidated QVC
$
11,282

2,059

8,771

1,906

8,682

1,840



Other information
 
Years ended December 31,
 
 
2018
 
2017
 
2016
 
(in millions)
Depreciation

Amortization

Depreciation

Amortization

Depreciation

Amortization

QVC-U.S.
$
90

147

93

330

78

414

QVC-International
56

10

62

34

64

49

HSN
28

80

—

—

—

—

Consolidated QVC
$
174

237

155

364

142

463


 
Years ended December 31,
 
 
2018
 
2017
 
(in millions)
Total
assets

Capital
expenditures

Total
assets

Capital
expenditures

QVC-U.S.
$
9,785

143

9,429

116

QVC-International
2,154

67

2,121

36

HSN
2,917

18

2,769

—

Consolidated QVC
$
14,856

228

14,319

152


Property and equipment, net of accumulated depreciation, by segment were as follows:
 
December 31,
 
(in millions)
2018

2017

QVC-U.S.
$
555

559

QVC-International
454

446

HSN
156

165

Consolidated QVC
$
1,165

1,170


The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:
 
Years ended December 31,
 
(in millions)
2018

2017

2016

Adjusted OIBDA
$
2,059

1,906

1,840

Impairment loss
(30
)
—

—

Transaction related costs
(60
)
(39
)
—

Stock-based compensation
(46
)
(39
)
(32
)
Depreciation and amortization
(411
)
(519
)
(605
)
Equity in losses of investee
(3
)
(3
)
(6
)
(Losses) gains on financial instruments
(2
)
—

2

Interest expense, net
(243
)
(214
)
(210
)
Foreign currency (loss) gain
—

(6
)
38

Loss on extinguishment of debt
(2
)
—

—

Income before income taxes
$
1,262

1,086

1,027


The following table summarizes net revenues based on revenues generated by subsidiaries located within the identified geographic area:
 
Years ended December 31,
 
(in millions)
2018

2017

2016

United States
$
8,544

6,140

6,120

Japan
947

934

897

Germany
943

899

865

United Kingdom
679

640

654

Other countries
169

158

146

Consolidated QVC
$
11,282

8,771

8,682


The following table summarizes property and equipment, net of accumulated depreciation, based on physical location:
 
December 31,
 
(in millions)
2018

2017

United States
$
712

724

Germany
161

164

Japan
165

143

United Kingdom
77

84

Other countries
50

55

Consolidated QVC
$
1,165

1,170