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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2018~~2019

o 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 000-55409

QVC, Inc.

(Exact name of Registrant as specified in its charter)



State of Delaware (State or other jurisdiction of incorporation or organization)	23-2414041 (I.R.S. Employer Identification Number)

1200 Wilson Drive West Chester, Pennsylvania (Address of principal executive offices)	19380 (Zip Code)

Registrant's telephone number, including area code: (484) 701-1000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
6.375% Senior Secured Notes due 2067	QVCD	New York Stock Exchange

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

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). Yes x No o

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



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o	Emerging growth company o

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. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

None of the voting stock of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of voting stock of the registrant. There is one holder of record of our equity, ~~Liberty QVC Holding, LLC,~~Qurate Retail Group, Inc., an indirect wholly-owned subsidiary of Qurate Retail, Inc.

QVC, Inc.

~~2018~~2019 QUARTERLY REPORT ON FORM 10-Q

Table of Contents

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,			December 31,		June 30,			December 31,
(in millions, except share amounts)	2018			2017		2019			2018
Assets
Current assets:
Cash and cash equivalents	$	388		260		$	450		543
Restricted cash	7			8		8			7
Accounts receivable, less allowance for doubtful accounts of $83 at September 30, 2018 and $91 at December 31, 2017	951			1,388
Accounts receivable, less allowance for doubtful accounts of $114 at June 30, 2019 and $112 at December 31, 2018						1,254			1,787
Inventories	1,173			1,019		1,306			1,280
Prepaid expenses and other current assets	114			51		135			216
Total current assets	2,633			2,726		3,153			3,833
Property and equipment, net of accumulated depreciation of $1,244 at September 30, 2018 and $1,174 at December 31, 2017	981			1,005
Property and equipment, net of accumulated depreciation of $1,348 at June 30, 2019 and $1,281 at December 31, 2018						1,193			1,165
Operating lease right-of-use assets						148			—
Television distribution rights, net	107			78		199			140
Goodwill	5,051			5,075		5,976			5,972
Other intangible assets, net	2,590			2,605		3,661			3,666
Other noncurrent assets	58			61		69			80
Total assets	$	11,420		11,550		$	14,399		14,856
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	419		17
Current portion of debt and finance lease obligations						$	20		421
Accounts payable-trade	784			756		702			1,008
Accrued liabilities	679			872		857			1,026
Total current liabilities	1,882			1,645		1,579			2,455
Long-term portion of debt and capital lease obligations	4,183			5,173
Long-term portion of debt and finance lease obligations						5,072			4,699
Deferred income taxes	464			473		690			700
Other long-term liabilities	136			117		315			173
Total liabilities	6,665			7,408		7,656			8,027
Equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value, 1 authorized share	—			—		—			—
Additional paid-in capital	7,257			6,897		9,139			9,123
Accumulated deficit	(2,481		)	(2,772	)	(2,373		)	(2,269	)
Accumulated other comprehensive loss	(140		)	(93	)	(139		)	(144	)
Total QVC, Inc. stockholder's equity	4,636			4,032		6,627			6,710
Noncontrolling interest	119			110		116			119
Total equity	4,755			4,142		6,743			6,829
Total liabilities and equity	$	11,420		11,550		$	14,399		14,856

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017		2019			2018		2019			2018
Net revenue	$	2,058		2,010		6,234		5,954		$	2,514		2,556		$	5,015		$	5,158
Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	1,300			1,282		3,906		3,755		1,578			1,589		3,188			3,245
Operating	144			145		433		419		179			209		356			422
Selling, general and administrative, including transaction related costs and stock-based compensation	235			180		652		489		268			270		538			547
Depreciation	36			38		110		116		54			43		100			87
Amortization	42			91		119		324		70			55		142			111
	1,757			1,736		5,220		5,103		2,149			2,166		4,324			4,412
Operating income	301			274		1,014		851		365			390		691			746
Other (expense) income:
Equity in losses of investee	(1		)	—		(2	)	(3	)	(1		)	(2	)	(1		)	(1		)
(Losses) gains on financial instruments										(1		)	—		(3		)	1
Interest expense, net	(57		)	(54	)	(172	)	(165	)	(60		)	(68	)	(121		)	(133		)
Foreign currency (loss) gain	(1		)	4		—		(6	)
Foreign currency gain (loss)										—			2		(3		)	1
	(59		)	(50	)	(174	)	(174	)	(62		)	(68	)	(128		)	(132		)
Income before income taxes	242			224		840		677		303			322		563			614
Income tax expense	(69		)	(58	)	(224	)	(225	)	(85		)	(78	)	(159		)	(158		)
Net income	173			166		616		452		218			244		404			456
Less net income attributable to the noncontrolling interest	(11		)	(12	)	(33	)	(33	)	(12		)	(11	)	(22		)	(22		)
Net income attributable to QVC, Inc. stockholder	$	162		154		583		419		$	206		233		382			434

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017		2019			2018		2019		2018
Net income	$	173		166		616		452		$	218		244		404		456
Foreign currency translation adjustments, net of tax	(22		)	28		(48	)	110		14			(96	)	8		(26	)
Total comprehensive income	151			194		568		562		232			148		412		430
Comprehensive income attributable to noncontrolling interest	(8		)	(12	)	(32	)	(37	)	(15		)	(6	)	(25	)	(24	)
Comprehensive income attributable to QVC, Inc. stockholder	$	143		182		536		525		$	217		142		387		406

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine months ended September 30,					Six months ended June 30,
(in millions)	2018			2017		2019			2018
Operating activities:
Net income	$	616		452		$	404		456
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee	2			3
Equity in income of investee						1			1
Deferred income taxes	(9		)	(73	)	(9		)	1
Foreign currency loss	—			6
Foreign currency loss (gain)						3			(1	)
Depreciation	110			116		100			87
Amortization	119			324		142			111
Change in fair value of financial instruments and noncash interest	5			5		7			3
Stock-based compensation	30			23		20			24
Change in other long-term liabilities	19			(7	)	(6		)	2
Other non-cash charges, net						5			—
Effects of changes in working capital items	48			58		32			(33	)
Net cash provided by operating activities	940			907		699			651
Investing activities:
Capital expenditures	(125		)	(83	)	(153		)	(74	)
Expenditures for television distribution rights	(80		)	(35	)	(124		)	(61	)
Changes in other noncurrent assets	1			(2	)	(13		)	—
Other investing activities						29			(8	)
Net cash used in investing activities	(204		)	(120	)	(261		)	(143	)
Financing activities:
Principal payments of debt and capital lease obligations	(2,285		)	(1,791	)
Principal payments of senior secured credit facility and finance lease obligations						(1,425		)	(1,608	)
Principal borrowings of debt from senior secured credit facility	1,451			1,574		1,795			1,458
Proceeds from issuance of senior secured notes	225			—
Payment of debt origination fees	(8		)	—
Capital contributions received from Qurate Retail, Inc.	340			—
Principal repayment of senior secured notes						(400		)	—
Capital contribution received from Qurate Retail, Inc.						—			140
Dividends paid to Qurate Retail, Inc.	(297		)	(491	)	(469		)	(243	)
Dividends paid to noncontrolling interest	(23		)	(22	)	(28		)	(23	)
Other financing activities	(10		)	(10	)	(4		)	(14	)
Net cash used in financing activities	(607		)	(740	)	(531		)	(290	)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(2		)	13		1			4
Net increase in cash, cash equivalents and restricted cash	127			60
Net (decrease) increase in cash, cash equivalents and restricted cash						(92		)	222
Cash, cash equivalents and restricted cash, beginning of period	268			294		550			290
Cash, cash equivalents and restricted cash, end of period	$	395		354		$	458		512
Effects of changes in working capital items:
Decrease in accounts receivable	$	434		369		$	539		616
Increase in inventories	(188		)	(191	)	(22		)	(118	)
Increase in prepaid expenses and other current assets	(65		)	(4	)
Increase in accounts payable-trade	30			20
Decrease (increase) in prepaid expenses and other current assets						41			(76	)
Decrease in accounts payable-trade						(282		)	(203	)
Decrease in accrued liabilities and other	(163		)	(136	)	(244		)	(252	)
Effects of changes in working capital items	$	48		58		$	32		(33	)

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated ~~Statement~~Statements of Equity

(unaudited)


	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity		Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
Balance, December 31, 2017	1	$	—	6,897		(2,772	)	(93	)	110		4,142		1	$	—	8,576		(2,797	)	(93	)	110		5,796
Prior period adjustments due to adoption of new accounting pronouncements	—	—		—		13		—		—		13
Adjustments due to new accounting pronouncements														—	—		—		13		—		—		13
Net income	—	—		—		583		—		33		616		—	—		—		434		—		22		456
Foreign currency translation adjustments, net of tax	—	—		—		—		(47	)	(1	)	(48	)	—	—		—		—		(28	)	2		(26	)
Capital contributions received from Qurate Retail, Inc.	—	—		340		—		—		—		340
Capital contribution paid from Qurate Retail, Inc.														—	—		140		—		—		—		140
Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other	—	—		—		(297	)	—		(23	)	(320	)	—	—		—		(243	)	—		(23	)	(266	)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—		(8	)	—		—		(8	)	—	—		—		(3	)	—		—		(3	)
Withholding taxes on net share settlements of stock-based compensation	—	—		(10	)	—		—		—		(10	)	—	—		(16	)	—		—		—		(16	)
Stock-based compensation	—	—		30		—		—		—		30		—	—		24		—		—		—		24
Balance, September 30, 2018	1	$	—	7,257		(2,481	)	(140	)	119		4,755
Balance, June 30, 2018														1	$	—	8,724		(2,596	)	(121	)	111		6,118



	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
Balance, March 31, 2018	1	$	—	8,713		(2,818	)	(30	)	105		5,970
Net income	—	—		—		233		—		11		244
Foreign currency translation adjustments, net of tax	—	—		—		—		(91	)	(5	)	(96	)
Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other	—	—		—		(10	)	—		—		(10	)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—		(1	)	—		—		(1	)
Withholding taxes on net share settlements of stock-based compensation	—	—		(1	)	—		—		—		(1	)
Stock-based compensation	—	—		12		—		—		—		12
Balance, June 30, 2018	1	$	—	8,724		(2,596	)	(121	)	111		6,118

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Condensed Consolidated Statements of Equity

(unaudited)



	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
Balance, December 31, 2018	1	$	—	9,123		(2,269	)	(144	)	119		6,829
Net income	—	—		—		382		—		22		404
Foreign currency translation adjustments, net of tax	—	—		—		—		5		3		8
Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other	—	—		—		(469	)	—		(28	)	(497	)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—		(17	)	—		—		(17	)
Withholding taxes on net share settlements of stock-based compensation	—	—		(4	)	—		—		—		(4	)
Stock-based compensation	—	—		20		—		—		—		20
Balance, June 30, 2019	1	$	—	9,139		(2,373	)	(139	)	116		6,743



	Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
Balance, March 31, 2019	1	$	—	9,129		(2,447	)	(150	)	107		6,639
Net income	—	—		—		206		—		12		218
Foreign currency translation adjustments, net of tax	—	—		—		—		11		3		14
Dividends paid to Qurate Retail, Inc. and noncontrolling interest and other	—	—		—		(115	)	—		(6	)	(121	)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—		(17	)	—		—		(17	)
Withholding taxes on net share settlements of stock-based compensation	—	—		(1	)	—		—		—		(1	)
Stock-based compensation	—	—		11		—		—		—		11
Balance, June 30, 2019	1	$	—	9,139		(2,373	)	(139	)	116		6,743

See accompanying notes to condensed consolidated financial statements.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

QVC, Inc. and its consolidated subsidiaries ("QVC" or the "Company") is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.

In the United States ("U.S."), QVC's televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2, HSN and HSN2. During the first quarter of 2019, the Company transitioned its Beauty ~~iQ.~~iQ channel to QVC 3. The Company's U.S. programming is also available on QVC.com and HSN.com, QVC's U.S. ~~website;~~websites; mobile applications via streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, Amazon Fire, Facebook, etc.).

~~QVC believes that the Company's~~QVC's digital platforms ~~complement the Company's televised shopping programs by allowing~~enable consumers to purchase goods offered on our broadcast programming, along with a wide assortment of ~~goods offered on QVC's televised programs, as well as other~~ products that are available only on ~~the Company's digital platforms. The Company views e-commerce as a natural extension of the Company's business, allowing the Company to stream live video~~QVC.com and ~~offer on-demand video segments of items recently presented live on QVC's televised programs. The Company's~~HSN.com. QVC.com, HSN.com and our other digital platforms ~~allow~~(including our mobile applications, social pages and others) are natural extensions of our business model, allowing customers to engage in our 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 allows shoppers to browse, research, compare and perform targeted searches for products, read customer reviews, control the order-entry process and conveniently access their ~~QVC~~ account.

Internationally, QVC's ~~international~~ televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland ~~Italy~~ and ~~France.~~Italy. In some of the countries where QVC operates, QVC's televised shopping programs are broadcast across multiple QVC channels: QVC ~~Beauty &~~ Style and QVC2 in Germany and QVC Beauty, QVC Extra and QVC Style in the U.K. ~~The programming created for most of these markets is~~Similar to the U.S., our international businesses also ~~available~~engage customers via ~~streaming video on QVC's digital platforms.~~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.

The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui"). QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, QVC-Japan paid dividends to Mitsui of $28 million and $23 million, ~~and $22 million,~~ respectively.

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

The Company is an indirect wholly-owned subsidiary of Qurate Retail, Inc. ("Qurate Retail") (formerly Liberty Interactive Corporation) (Nasdaq: QRTEA and QRTEB), which owns interests in a broad range of digital commerce businesses, including Qurate Retail's other wholly-owned subsidiaries Zulily, LLC ("Zulily"), HSN, Inc. ("HSN") ~~and zulily, llc ("zulily")~~prior to the transfer of ownership of HSN to QVC (described below), ~~as well as~~Cornerstone Brands, Inc. (former subsidiary of HSN prior to the transfer of ownership of HSN to QVC, "CBI") and other minority investments. QVC is part of the Qurate Retail Group ("QRG"), formerly QVC Group, a portfolio of brands including QVC, HSN, ~~zulily~~Zulily and ~~the Cornerstone brands.~~CBI. On March 9, 2018, Qurate Retail, GCI Liberty, Inc. ("GCI Liberty") (formerly General Communication, Inc.), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail completed the previously announced transactions whereby Qurate Retail acquired GCI Liberty through a reorganization in which certain assets and liabilities attributed to Qurate Retail’s Ventures Group were contributed to GCI Liberty in exchange for a controlling interest in GCI Liberty. Qurate Retail then effected a tax-free separation of its controlling interest in the combined company. Qurate Retail's QVC Group common stock became the only outstanding common stock of Qurate Retail.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

On October 1, 2015, Qurate Retail acquired all of the outstanding shares of ~~zulily~~Zulily (now known as ~~zulily, llc)~~Zulily, LLC). ~~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 for a limited time period. ~~The Company believes that its business is complementary to the Company. zulily~~Zulily is not part of the results of operations or financial position of QVC presented in these condensed consolidated financial statements. During each of the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, QVC and ~~zulily~~Zulily engaged in multiple transactions relating to ~~personnel,~~ sales, sourcing of merchandise, marketing initiatives and business advisory services. ~~The gross value~~QVC allocated expenses of ~~these transactions totaled approximately $8~~$4 million and $7$2 million to Zulily for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively. Zulily allocated expenses of $4 million and ~~2017, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.~~ $3 million to QVC for the six months ended June 30, 2019 and 2018, respectively.

On ~~June 23, 2016,~~December 31, 2018, QVC amended and restated its senior secured credit facility (the ~~"Third~~"Fourth Amended and Restated Credit Agreement") increasing the revolving credit facility from ~~$2.25~~$2.65 billion to ~~$2.65~~$3.65 billion as explained further in note 6. The ~~Third~~Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or ~~zulily.~~Zulily. Under the terms of the ~~Third~~Fourth Amended and Restated Credit Agreement, QVC and ~~zulily~~Zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of ~~zulily.~~Zulily. As of ~~September~~June 30, ~~2018,~~2019, there was ~~$150~~$168 million borrowed by ~~zulily~~Zulily on the $400 million tranche of the ~~Third~~Fourth Amended and Restated Credit Agreement, none of which the Company expects to repay on behalf of ~~zulily.~~Zulily.

On December 29, 2017, Qurate Retail completed the acquisition of the remaining 62% ownership interest of HSN that it did not already own in an all-stock transaction. On December 31, 2018, Qurate Retail transferred its 100% ownership interest in HSN to QVC through a transaction among entities under common control. As a result of the transaction, the assets and liabilities of HSN (excluding its ownership interest in CBI) were transferred from Qurate Retail at Qurate Retail's historical cost to QVC through an equity contribution. CBI remained a subsidiary of Qurate Retail outside of the QVC legal structure. Beginning January 1, 2019, the Company's U.S. operations and HSN were combined to form the "QxH" reportable operating segment (see note 12). As a result of the common control transaction with Qurate Retail, the Company retrospectively adjusted certain balances within the consolidated financial statements for the three and six months ended June 30, 2018, in order to combine the financial results of the Company and HSN since Qurate Retail's acquisition of HSN on December 29, 2017. All periods presented are prepared on a combined basis and are referred to as the condensed consolidated financial statements herein. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

QVC engages with CBI, which is a wholly owned subsidiary of Qurate Retail and prior to the common control transaction between QVC and Qurate Retail, included as part of HSN. CBI is not ~~included in~~part of the results of operations or financial position of QVC presented in ~~the Company's condensed~~these consolidated financial statements. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, QVC and ~~HSN~~CBI engaged in multiple transactions relating to ~~personnel, sales,~~ sourcing of merchandise, ~~marketing initiatives,~~personnel and business advisory ~~services,~~services. QVC allocated expenses of $11 million and ~~software development. The gross value~~$26 million to CBI for the six months ended June 30, 2019 and 2018, respectively. CBI allocated expenses of ~~these transactions totaled $28~~$1 million ~~which did not have~~and $12 million to QVC for the six months ended June 30, 2019 and 2018, respectively. CBI also repaid a ~~material impact on QVC's financial position, results of operations, or liquidity.~~$29 million note receivable to QVC during the six months ended June 30, 2019.

On October ~~17,~~ 2018, QRG announced a series of initiatives designed to better position its ~~HSN and QVC- U.S.~~QxH businesses (“QRG Initiatives”). As part of the QRG Initiatives, QVC will close its fulfillment ~~center~~centers in Lancaster, Pennsylvania and Roanoke, Virginia and has entered into an agreement to lease a new fulfillment center in Bethlehem, Pennsylvania, commencing in 2019 (see note 7). ~~QVC recorded transaction related costs of $28 million during~~

In the ~~third~~fourth quarter of 2018, ~~which primarily related~~QVC announced the potential closure of its operations in France. The formal announcement to ~~severance as a result of~~execute the ~~QRG initiatives.~~closure was made in March 2019 and broadcasting for QVC in France was subsequently terminated on March 13, 2019.

The condensed consolidated financial statements include the accounts of QVC, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The accompanying (a) condensed consolidated balance sheet as of December 31, ~~2017,~~2018, 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 ("U.S. 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 U.S. 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. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent 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. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, ~~medical and other benefit related costs, depreciable lives of fixed assets,~~ internally-developed software, valuation of acquired intangible assets and goodwill and income ~~taxes and stock‑based compensation.~~taxes.

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~~Table of Contents~~

~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

Adoption of new accounting pronouncements

~~On May 28, 2014,~~In February 2016 and subsequently, the Financial Accounting Standards Board ("FASB") issued ~~Accounting Standards Update ("ASU") No. 2014-09,~~ ~~Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This~~ new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued ASU No. 2016-08, which clarifies principal versus agent considerations, in April 2016, the FASB issued ASU No. 2016-10, which clarifies the identification of performance obligations and the implementation guidance for licensing, and in May 2016, the FASB issued ASU No. 2016-12, which clarifies assessing collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. On January 1, 2018, the Company adopted the new accounting standard ASC 606, ~~Revenue from Contracts with Customers,~~ and all related amendments ("ASC 606") to all contracts using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as a $14 million adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its net income on an ongoing basis. Refer to the table below for the adoption of this guidance.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~, which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this guidance on January 1, 2018 and there was no significant effect of the standard on its condensed consolidated financial statements.

~~The cumulative effect of the changes due to the adoption of ASC 606 and ASU No. 2016-16 were as follows:~~

(in millions) Balance at December 31, 2017 Adjustments Due to ASC 606 Adjustments Due to ASU 2016-16 Balance at January 1, 2018
Assets:
Inventories $ 1,019
(22 ) —
997
Prepaid expenses and other current assets 51
—
(1 ) 50

Liabilities:
Accrued liabilities 872
(36 ) —
836

Equity:
Accumulated deficit $ (2,772 ) 14
(1 ) (2,759 )

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

~~In accordance with the new revenue standard requirements, the impact of adoption on our condensed consolidated statements of operations was as follows:~~

Statements of Operations Three months ended September 30, 2018 Nine months ended September 30, 2018
(in millions) As Reported Balances Without Adoption of ASC 606 Effect of Change Increase/(Decrease) As Reported Balances Without Adoption of ASC 606 Effect of Change Increase/(Decrease)
Net revenue $ 2,058
2,020
38
6,234
6,126
108

Costs and expenses:
Cost of goods sold 1,300
1,295
5
3,906
3,892
14
Operating 144
142
2
433
430
3
Selling, general and administrative, including transaction related costs and stock-based compensation 235
209
26
652
574
78

Income tax expense 69
68
1
224
221
3

Net income $ 173
169
4
616
606
10

The effect of changes of adoption is primarily due to the timing of revenue recognition and the classification of income for its QVC-branded credit card ("Q-Card Income"). For the three and nine months ended September 30, 2018, revenue is recognized at the time of shipment to its customers consistent with when control passes and Q-Card Income is recognized in revenue. For the three and nine months ended September 30, 2017, revenue was recognized at the time of delivery to the customers and deferred revenue was recorded to account for the shipments in-transit. In addition, Q-Card Income was recognized as an offset to selling, general and administrative expenses. The Company also recognized a separate $58 million asset (included in prepaid expenses and other current assets) related to the expected return of inventory and a $140 million liability (included in accrued liabilities) relating to its sales return reserve at September 30, 2018, instead of the net presentation of the liability that was reported at December 31, 2017 and September 30, 2017.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~, which requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this guidance during the first quarter of 2018 and there was no significant effect of the standard on its financial reporting.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~: ~~Classification of Certain Cash Receipts and Cash Payments~~, which addresses eight specific cash flow issues to reduce the diversity in practice for appropriate classification on the statement of cash flows. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company adopted this guidance during the first quarter of 2018 and there was no significant effect of the standard on its condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this guidance during the first quarter of 2018 and has reclassified prior period balances in cash and cash equivalents within the condensed consolidated statements of cash flows in order to conform with current period presentation.

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~, to provide clarity to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company adopted this guidance during the first quarter of 2018 and there was no significant effect of the standard on its condensed consolidated financial statements.

~~Accounting pronouncements issued but not yet adopted~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, which revises the accounting ~~treatment~~ related to lessee ~~accounting.~~accounting as part of Accounting Standards Codification ("ASC") 842. Under the new guidance, lessees ~~will be~~are required to recognize a lease liability and a right-of-use asset for ~~all~~most operating leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ~~In July 2018,~~The Company adopted ASC 842 on January 1, 2019 utilizing the ~~FASB issued ASU No. 2018-11,~~modified retrospective transition approach and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which ~~provides entities~~allows it to carry forward its historical lease classification, its determination regarding whether a ~~transition method in which the entity may apply the new~~contract contains a lease ~~standard at~~and any initial indirect costs that had existed prior to the adoption ~~date and recognize a cumulative-effect adjustment to the opening balance~~ of ~~retained earnings at January 1, 2019.~~this new standard. The Company ~~intends~~also elected to ~~elect this optional transition method. While~~combine both lease and non-lease components and elected for all short leases with a term of less than 12 months to not record a related operating lease right-of-use asset and operating lease liability on the consolidated balance sheet. The Company ~~is currently evaluating the effect that the updated standard will have on its ongoing financial reporting, it expects that the~~recognized $92 million of operating ~~leases listed~~lease right-of-use assets, $18 million in ~~note 7 -~~ ~~Leases~~ ~~will be recognized as right of- use assets~~short-term operating lease liabilities and $87 million of long-term operating lease liabilities on the consolidated balance ~~sheets~~sheet upon adoption of the new standard. The ~~Company does~~operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities, adjusted for deferred rent balances of $13 million, which were previously included in accrued liabilities and other long-term liabilities.

Accounting pronouncements issued but not ~~anticipate that the adoption will have a material impact on its consolidated statements of operations.~~adopted

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which addresses the effect of the change in the U.S. federal corporate tax rate due to the enactment of the December 22, 2017 Tax Cuts and Jobs Act ~~(the "Tax Act")~~ on items within accumulated other comprehensive income (loss). The Company has elected not to adopt this guidance ~~will be effective for~~as there would have been no significant effect of the ~~Company in the first quarter of 2019 with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting~~ standard ~~will have~~ on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles- Goodwill and Other- Internal-Use Software (Subtopic ~~350-40)~~350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance will be effective for the Company in the first quarter of 2020 with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(2) Television Distribution Rights, Net

Television distribution rights consisted of the following:


(in millions)	September 30, 2018			December 31, 2017		June 30, 2019			December 31, 2018
Television distribution rights	$	665		730		$	769		723
Less accumulated amortization	(558		)	(652	)	(570		)	(583	)
Television distribution rights, net	$	107		78		$	199		140

The Company recorded amortization expense of ~~$18~~$32 million and ~~$39~~$16 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, related to television distribution rights. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, amortization expense for television distribution rights was ~~$50~~$66 million and ~~$141~~$32 million, respectively. ~~The decrease in amortization expense for both periods is primarily due to the end of affiliation agreement terms for contracts in place at the time of Qurate Retail's acquisition of QVC in 2003.~~

As of ~~September~~June 30, ~~2018,~~2019, related amortization expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2018	$	14
2019	44
Remainder of 2019			$	65
2020	38		117
2021	9		14
2022	2		3
2023			—

(3) Goodwill

The changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were as follows:


(in millions)	QVC-U.S.		QVC-Germany		QVC-Japan		QVC-U.K.		QVC-Italy		Total		QxH		QVC-International	Total
Balance as of December 31, 2017	$	4,190	305		269		176		135		5,075
Balance as of December 31, 2018													$	5,112	860	5,972
Exchange rate fluctuations	—		(12	)	(2	)	(6	)	(4	)	(24	)	—		4	4
Balance as of September 30, 2018	$	4,190	293		267		170		131		5,051
Balance as of June 30, 2019													$	5,112	864	5,976

(4) Other Intangible Assets, Net

Other intangible assets consisted of the following:


	September 30, 2018					December 31, 2017				June 30, 2019					December 31, 2018
(in millions)	Gross cost		Accumulated amortization		Other intangible assets, net	Gross cost	Accumulated amortization		Other intangible assets, net	Gross cost		Accumulated amortization		Other intangible assets, net	Gross cost	Accumulated amortization		Other intangible assets, net
Purchased and internally developed software	$	758	(607	)	151	710	(548	)	162	$	937	(666	)	271	890	(640	)	250
Affiliate and customer relationships	2,412		(2,405	)	7	2,419	(2,409	)	10	2,830		(2,474	)	356	2,831	(2,450	)	381
Debt origination fees	8		(4	)	4	8	(3	)	5	10		(1	)	9	10	—		10
Trademarks (indefinite life)	2,428		—		2,428	2,428	—		2,428	3,025		—		3,025	3,025	—		3,025
	$	5,606	(3,016	)	2,590	5,565	(2,960	)	2,605	$	6,802	(3,141	)	3,661	6,756	(3,090	)	3,666

The Company recorded amortization expense of ~~$24~~$38 million and ~~$52~~$39 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, related to other intangible assets. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, amortization expense for other intangible assets was ~~$69~~$76 million and ~~$183~~$79 million, respectively. ~~The decrease in amortization expense for each period is primarily due to the end of affiliation agreement terms for contracts in place at the time of Qurate Retail's acquisition of QVC in 2003.~~

~~I-11~~

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

As of ~~September~~June 30, ~~2018,~~2019, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2018	$	25
2019	76
Remainder of 2019			$	84
2020	44		136
2021	17		112
2022	—		81
2023			67

(5) Accrued Liabilities

Accrued liabilities consisted of the following:


(in millions)	September 30, 2018		December 31, 2017	June 30, 2019		December 31, 2018
Accounts payable non-trade	$	211	279	$	303	314
Allowance for sales returns	140		96	158		242
Accrued compensation and benefits	105		119	112		146
Income taxes	67		128
Sales and other taxes	45		71	64		101
Accrued interest	38		58	56		58
Income taxes				47		37
Deferred revenue	13		58	25		24
Accrued cable distribution fees				19		39
Other	60		63	73		65
	$	679	872	$	857	1,026

(6) Long-Term Debt and ~~Capital~~Finance Lease Obligations

Long-term debt and ~~capital~~finance lease obligations consisted of the following:


(in millions)	September 30, 2018			December 31, 2017		June 30, 2019			December 31, 2018
3.125% Senior Secured Notes due 2019, net of original issue discount	$	399		399		$	—		399
5.125% Senior Secured Notes due 2022	500			500		500			500
4.375% Senior Secured Notes due 2023, net of original issue discount	750			750		750			750
4.85% Senior Secured Notes due 2024, net of original issue discount	600			600		600			600
4.45% Senior Secured Notes due 2025, net of original issue discount	599			599		599			599
5.45% Senior Secured Notes due 2034, net of original issue discount	399			399		399			399
5.95% Senior Secured Notes due 2043, net of original issue discount	300			300		300			300
6.375% Senior Secured Notes due 2067	225			—		225			225
Senior secured credit facility	675			1,496		1,565			1,185
Capital lease obligations	182			68
Build to suit lease obligation	—			101
Finance lease obligations						178			188
Less debt issuance costs, net	(27		)	(22	)	(24		)	(25	)
Total debt and capital lease obligations	4,602			5,190
Total debt and finance lease obligations						5,092			5,120
Less current portion	(419		)	(17	)	(20		)	(421	)
Long-term portion of debt and capital lease obligations	$	4,183		5,173
Long-term portion of debt and finance lease obligations						$	5,072		4,699

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Senior Secured Notes

All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to ~~QVC's~~the senior secured credit facility. With ~~the~~ exception of the notes in the following paragraph, the interest on QVC's senior secured notes is payable semi-annually. ~~At September 30, 2018, the~~The 3.125% ~~Senior Secured Notes~~senior secured notes due 2019 ~~are classified within current portion of long-term debt as they mature~~were repaid in ~~less than one year from September 30, 2018.~~April 2019.

In September 2018, QVC completed a registered debt offering for $225 million of 6.375% Senior Secured Notes due 2067 (the ~~“2067 Notes”~~"2067 Notes"). at par. The proceeds were used to partially ~~prepay~~repay existing indebtedness under QVC's senior secured credit facility and for general corporate purposes. The costs to complete the financing were deferred and are being amortized to interest expense over the term of the 2067 Notes. Interest on the 2067 Notes will be paid quarterly in March, June, September and ~~December, commencing on December 15, 2018.~~December. QVC has the option to call the 2067 Notes after 5 years at par value.

Senior Secured Credit Facility

On ~~June 23, 2016,~~December 31, 2018, QVC entered into the ~~Third~~Fourth Amended and Restated Credit Agreement with ~~zulily~~Zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a ~~$2.65~~$3.65 billion revolving credit facility with a ~~$300~~$450 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The ~~Third~~Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or ~~zulily~~Zulily with ~~an additional~~a $50 million sub-limit for standby letters of credit (see note 1). The remaining ~~$2.25~~$3.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA ~~for the most recent four fiscal quarter periods~~ (the “Combined Consolidated Leverage Ratio”). Borrowings that are London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if ~~zulily~~Zulily ceases to be controlled by Qurate Retail, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on ~~June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed.~~December 31, 2023. Payment of loans may be accelerated following certain customary events of default.

QVC had ~~$1,815~~$1,895 million ~~including the remaining portion of the $400 million tranche that zulily may also borrow on,~~ available under the terms of the ~~Third~~Fourth Amended and Restated Credit Agreement ~~at September~~as of June 30, ~~2018.~~2019, including the portion available under the $400 million tranche that Zulily may also borrow on. The interest rate on the ~~Third~~Fourth Amended and Restated Credit Agreement was ~~3.7% at September~~3.9% as of June 30, ~~2018.~~2019.

The payment and performance of the Borrowers’ obligations under the ~~Third~~Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the ~~Third~~Fourth Amended and Restated Credit Agreement). Further, the borrowings under the ~~Third~~Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of ~~QVC's~~QVC’s equity interests. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and ~~zulily~~Zulily are also guaranteed by each of ~~zulily’s~~Zulily’s Material Domestic Subsidiaries (as defined in the ~~Third~~Fourth Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of ~~zulily’s~~Zulily’s equity interests.

The ~~Third~~Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and ~~zulily~~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 the Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated Leverage Ratio.

~~I-13~~

I-12

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Interest Rate Swap Arrangements

During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement ~~does~~did not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in ~~other expense (income)~~(losses) gains on financial instruments in the accompanying condensed consolidated statements of operations. ~~At September 30,~~The swap arrangement expired in June 2019. In July 2019, the Company entered into a three-year interest swap arrangement with a notional amount of $125 million. The new swap arrangement will not qualify as a cash flow hedge under U.S. GAAP.

As of December 31, 2017, HSN had an outstanding interest rate swap that effectively converted $250 million of its variable rate bank credit facility to a fixed rate of 1.05% with a maturity date in January 2020. The Company accounted for the interest rate swap at fair value with changes recorded through (losses) gains on financial instruments in the condensed consolidated statements of operations. On December 31, 2018, the interest rate swap was terminated as a result of the termination of HSN's $1.25 billion five-year syndicated credit agreement entered into on January 27, 2015. Subsequently, QVC entered into a thirteen month interest rate swap arrangement with the same terms. The new swap instrument does not qualify as a cash flow hedge and the fair value of the swap instrument was in a net asset position of approximately $2$1 million as of June 30, 2019, which was included in prepaid expenses and other current assets.

Other Debt Related Information

QVC was in compliance with all of its debt covenants ~~at September~~as of June 30, ~~2018.~~

~~During the quarter, there were no significant changes to QVC's debt credit ratings.~~2019.

The weighted average interest rate applicable to all of the outstanding debt (excluding ~~capital~~finance leases) prior to amortization of bond discounts and related debt issuance costs was 4.6% as of ~~September~~June 30, ~~2018~~2019.

(7) Leases

The Company has finance lease agreements with transponder and transmitter network suppliers for the right to transmit its signals in the U.S., Germany and France. The Company is also party to a finance lease agreement for data processing hardware and a warehouse.

QVC also leases data processing equipment, facilities, office space and land. These leases are classified as operating leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 15 years, some of which may include the option to extend or terminate the leases.

The components of lease cost for the three and six months ended June 30, 2019, were as follows:



	Three months ended		Six months ended
(in millions)	June 30, 2019		June 30, 2019
Finance lease cost
Depreciation of leased assets	$	5	10
Interest on lease liabilities	2		4
Total finance lease cost	7		14
Operating lease cost	8		14
Total lease cost	$	15	28

For the three months ended June 30, 2018, the Company recorded depreciation expense on finance leases (previously referred to as capital leases) of $4 million and recorded operating lease expenses of $9 million. For the six months ended June 30, 2018 the Company recorded depreciation expense on finance leases (previously referred to as capital leases) of $8 million and recorded operating lease expenses of $18 million.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The remaining weighted-average lease term and the weighted-average discount rate were as follows:



	June 30, 2019
Weighted-average remaining lease term (years):
Finance leases	9.3
Operating leases	12.1
Weighted-average discount rate:
Finance leases	5.0	%
Operating leases	6.1	%

Supplemental balance sheet information related to leases was as follows:



(in millions)	June 30, 2019
Operating Leases:
Operating lease right-of-use assets	$	148
Accrued liabilities	$	21
Other long-term liabilities	147
Total operating lease liabilities	$	168
Finance Leases:
Property and equipment	$	277
Accumulated depreciation	(128		)
Property and equipment, net	$	149
Current portion of debt and finance lease obligations	$	20
Long-term portion of debt and finance lease obligations	158
Total finance lease liabilities	$	178

Supplemental cash flow information related to leases was as follows:



	Six months ended
(in millions)	June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating lease	$	12
Operating cash flows from finance leases	4
Financing cash flows from finance leases	10
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	72
Finance leases	$	—

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Future ~~minimum~~ payments under noncancelable operating leases and ~~capital~~finance leases with initial terms of one year or more ~~at September~~as of June 30, ~~2018~~2019 consisted of the following:

(in millions) Capital Leases
Operating leases
Remainder of 2018 $ 7
6
2019 27
21
2020 24
17
2021 24
11
2022 22
9
Thereafter 133
72
Total $ 237
136

The Company has entered into fourteen separate capital lease agreements with transponder and transmitter network suppliers to transmit its signals in the U.S., Germany and France at an aggregate monthly cost of $1 million. The Company is also party to a capital lease agreement for data processing hardware. Depreciation expense related to these capital leases was $3 million for each of the three months ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, depreciation expense related to these capital leases was $11 million and $9 million, respectively. Total future minimum capital lease payments of $237 million includes $55 million of imputed interest. The transponder service agreements for our U.S. transponders expire between 2019 and 2023. The transponder and transmitter network service agreements for our international transponders expire between 2019 and 2027.

Expenses for operating leases, principally for data processing equipment, facilities, satellite uplink service agreements and the California distribution center land through August 2018, amounted to $6 million and $5 million for each of the three months ended September 30, 2018 and 2017 and $18 million and $17 million for each of the nine months ended September 30, 2018 and 2017.



(in millions)	Finance leases			Operating leases		Total leases
Remainder of 2019	$	15		14		29
2020	27			29		56
2021	25			20		45
2022	23			18		41
2023	22			16		38
Thereafter	117			155		272
Total lease payments	229			252		481
Less: imputed interest	(51		)	(84	)	(135	)
Total lease liabilities	$	178		168		346

On July 2, 2015, QVC entered into a lease (the “Lease”) for a California distribution center. Pursuant to the Lease, the landlord built an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter leased the Premises to QVC as its ~~new~~ California distribution center for an initial term of 15 years. Under the Lease, QVC was required to pay an initial base rent of approximately $6 million per year, increasing to approximately $8 million per year by the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also had an option to extend the term of the Lease for up to two consecutive terms of 10 years each.

~~I-14~~

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

The Company concluded that it was the deemed owner (for accounting purposes only) of the Premises during the construction period under build to suit lease accounting. Upon opening the distribution center, the Company evaluated whether the Lease met the criteria for "sale-leaseback" treatment under U.S. GAAP and concluded that it did not and therefore treated the Lease as a financing obligation and lease payments were attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense representing an imputed cost to lease the underlying land of the Premises.

In August 2018, QVC exercised the right to purchase the Premises and related land from the landlord by entering into an amended and restated agreement ("New Lease"). QVC made an initial payment of $10 million and will make annual payments of $12 million over a term of 13 years. The Company classifies the New Lease within ~~capital~~finance lease obligations and lease payments are attributed to: (1) a reduction of the principal obligation and (2) imputed interest expense. In connection with the New Lease, QVC capitalized the related land at fair market value while the building asset is currently being depreciated over its estimated useful life of 20 years.

On October 5, 2018, ~~subsequent to the end of the third quarter of 2018,~~ QVC entered into a lease (“ECDC Lease”) for an East Coast distribution ~~center as part of the QRG Initiatives.~~center. The 1.7 million square foot rental building is located in Bethlehem, Pennsylvania and will be leased to QVC for an initial term of 15 years. QVC ~~expects the ECDC Lease~~obtained access to ~~commence in the third quarter of 2019, at which point the discounted value~~a portion of the ECDC Lease ~~will be~~during March 2019 and recorded asa right of use asset of $68 million and an ~~asset and a~~operating lease liability inof $69 million. The Company expects the ~~consolidated balance sheets in accordance with ASU No. 2016-02, which will be adopted by~~remaining portion of the ~~Company on January 1,~~lease to commence during the third quarter of 2019. Under the ECDC Lease, QVC ~~will be~~is required to pay an initial base rent of approximately $10 million per year, with payments expected to begin in the fourth quarter of 2019 and increasing to approximately $14 million per year, as well as all real estate taxes and other building operating costs. QVC also has the option to extend the term of the ECDC Lease for up to two consecutive terms of 5 years each and one final term of 4 years.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(8) Revenue

Disaggregated revenue by segment and product category consisted of the following:


	Three months ended September 30, 2018				Nine months ended September 30, 2018			Three months ended June 30, 2019				Six months ended June 30, 2019
(in millions)	QVC-U.S.		QVC-International	Total	QVC-U.S.	QVC-International	Total	QxH		QVC-International	Total	QxH	QVC-International	Total
Home	$	497	235	732	1,450	730	2,180	$	655	231	886	1,334	478	1,812
Apparel	286		113	399	898	348	1,246	344		108	452	670	220	890
Beauty	228		148	376	717	450	1,167	317		158	475	609	301	910
Accessories	180		64	244	560	203	763	247		65	312	467	127	594
Electronics								173		22	195	354	47	401
Jewelry	79		51	130	250	154	404	93		50	143	205	102	307
Electronics	115		26	141	290	74	364
Other revenue	33		3	36	97	13	110	45		6	51	92	9	101
Total net revenue	$	1,418	640	2,058	4,262	1,972	6,234	$	1,874	640	2,514	3,731	1,284	5,015



	Three months ended June 30, 2018				Six months ended June 30, 2018
(in millions)	QxH		QVC-International	Total	QxH	QVC-International	Total
Home	$	651	235	886	1,377	495	1,872
Apparel	378		116	494	703	235	938
Beauty	316		158	474	622	302	924
Accessories	230		72	302	448	139	587
Electronics	164		22	186	338	48	386
Jewelry	113		48	161	245	103	348
Other revenue	48		5	53	93	10	103
Total net revenue	$	1,900	656	2,556	3,826	1,332	5,158

Consumer Product Revenue and Other Revenue

QVC's revenue includes sales of consumer products in the following categories; home, apparel, beauty, accessories, electronics and jewelry, which are primarily sold through live merchandise-focused televised shopping programs and via our websites and other interactive media.

Other revenue consists primarily of income generated from our ~~U.S. QVC-branded credit card~~Private Label Credit Card ("~~Q-Card"~~PLCC") program in which a large consumer financial services company provides revolving credit directly to QVC's customers for the sole purpose of purchasing merchandise or services with a ~~Q-Card.~~PLCC. In return, the Company receives a portion of the net economics of the credit card program.

~~I-15~~

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

Revenue Recognition

For the three and ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively, revenue is recognized when obligations with our ~~customers~~customer are satisfied; generally this occurs at the time of shipment to our customers consistent with when control of the shipped product passes. The recognized revenue reflects the consideration we expect to receive in exchange for transferring goods, net of allowances for returns.

The Company generally recognizes revenue related to the ~~Q-Card~~PLCC program over time as the ~~Q-Card~~PLCC is used by QVC's customers.

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Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Sales, value add, use and other taxes ~~we collect~~the Company collects concurrent with revenue-producing activities are excluded from revenue.

The Company has elected to treat shipping and handling activities that occur after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company accrues the related shipping costs and recognizes revenue upon delivery of the goods to the shipping carrier. In electing this accounting policy, all shipping and handling activities will be treated as fulfillment costs.

The Company generally has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money.

Significant Judgments

Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. The Company has determined that it is generally the principal in vendor arrangements as the Company can establish control over the goods prior to shipment. Accordingly, the Company records revenue for these arrangements on a gross basis.

(9) Income Taxes

The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.

~~I-16~~

~~Table of Contents~~

~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

For the three months ended ~~September~~June 30, ~~2018~~2019 and ~~September 30, 2017,~~2018, the Company recorded a tax provision of ~~$69~~$85 million and ~~$58~~$78 million, respectively, which represented an effective tax rate of ~~28.5%~~28.1% and ~~25.9%~~24.2%, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~September 30, 2017,~~2018, the Company recorded a tax provision of ~~$224~~$159 million and ~~$225~~$158 million, respectively, which represented an effective tax rate of ~~26.7%~~28.2% and ~~33.2%~~25.7%, respectively. The Tax Act, enacted in 2017, made broad and complex changes to the U.S. tax code which included a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, changes in how foreign earnings are taxed in the U.S., the limitation on the deduction of net interest expense and other changes. The reduction in the effective tax rate for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 is a result of these changes from the Tax Act. The increase in the effective tax rate for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 is due to the impact of prior year discrete permanent differences related to foreign currency losses realized for tax purposes, partially offset by changes from the Tax Act. The 20182019 rate differs from the U.S. federal income tax rate of 21% due primarily to state and foreign tax ~~expenses.~~expenses and valuation allowances established for foreign net operating losses and excess U.S. foreign tax credits. The ~~2017~~2019 effective tax rate ~~differs~~has increased from the ~~U.S. federal income~~prior year for both periods presented primarily due to an increase in state accruals and additional valuation allowances on foreign net operating losses and foreign tax ~~rate of 35% due primarily to~~credits in the ~~impact of the aforementioned discrete permanent differences related to foreign currency losses realized for tax purposes offset by state tax expense.~~current year.

The Company ~~files Federal tax returns on~~participates in a consolidated ~~basis~~federal return filing with ~~its parent company,~~ Qurate Retail. ~~The Company is party to ongoing discussions with~~As of June 30, 2019, the ~~Internal Revenue Service ("IRS") under the Compliance Assurance Process audit program ("CAP"). The~~ Company's tax years through 2014 are closed for federal income tax purposes, and the IRS has completed its examination of the Company's 2015, 2016, and ~~2016~~2017 tax years. The Company's ~~2017~~2018 and ~~2018~~2019 tax years are being examined currently as part of the Qurate ~~Retail's~~Retail consolidated return under the ~~IRS CAP~~IRS's Compliance Assurance Process program. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of ~~September~~June 30, ~~2018,~~2019, the Company ~~or one of its subsidiaries,~~ was under examination in ~~Pennsylvania.~~the states of Florida, Pennsylvania and Wisconsin and certain of the Company's subsidiaries were under examination in Germany.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Qurate Retail. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Qurate Retail for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Qurate Retail an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Qurate Retail, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.

The amounts of the tax-related balances due to Qurate Retail ~~at September~~as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were $7$33 million and ~~$60~~$26 million, ~~respectively. These amounts~~respectively, and were included in accrued liabilities in the accompanying condensed consolidated balance sheets.

(10) Commitments and Contingencies

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 the Company 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 the amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

Network and information systems, including the Internet and telecommunication systems, third party delivery services and other technologies are critical to QVC's business activities. Substantially all of QVC's customer orders, fulfillment and delivery services are dependent upon the use of network and information systems, including the use of third party telecommunication and delivery service providers. If information systems including the Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, the Company could face a significant disruption in fulfilling QVC's customer orders and shipment of QVC's products. The Company has active disaster recovery programs in place to help mitigate risks associated with these critical business activities.

~~I-17~~

~~Table of Contents~~

~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

(11) Financial Instruments and Fair Value Measurements

For assets and liabilities required to be reported or disclosed at fair value, U.S. 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, other than quoted market prices included within Level 1, 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 or disclosed at fair value were as follows:


			Fair value measurements at September 30, 2018 using					Fair value measurements at June 30, 2019 using
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	163	163	—	—	$	222	222	—	—
Interest rate swap arrangements	2		—	2	—
Interest rate swap arrangements (note 6)						1		—	1	—
Debt (note 6)	4,341		216	4,125	—	4,980		226	4,754	—

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)


			Fair value measurements at December 31, 2017 using					Fair value measurements at December 31, 2018 using
(in millions)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)	Total		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)	Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	42	42	—	—	$	267	267	—	—
Noncurrent assets:
Interest rate swap arrangements	2		—	2	—
Interest rate swap arrangements (note 6)						5		—	5	—
Debt (note 6)	5,132		—	5,132	—	4,758		189	4,569	—

The 2067 Notes (ticker: QVCD) are considered Level 1 fair value instruments as reported in the foregoing tables as they are traded on the New York Stock Exchange, which the Company considers to be an "active market," as defined by U.S. GAAP. The remainder of the Company's Level 2 financial liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets." Accordingly, these financial instruments are reported in the foregoing tables as Level 2 fair value instruments.

During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement does not qualify as a cash flow hedge under U.S. GAAP. Accordingly, changes in the fair value of the swap are reflected in other (expense) income in the accompanying condensed consolidated statements of operations. At September 30, 2018, the fair value of the swap instrument was in a net asset position of approximately $2 million, which is included in prepaid expenses and other current assets.

(12) Information about QVC's Operating Segments

The Company has identified two reportable operating segments: QVC-U.S. and QVC-International. Both operating segments 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.

~~I-18~~

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~~QVC, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~(unaudited)~~

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. and QVC-International. 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).

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, a non-GAAP measure, as net revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding restructuring, integration and advisory fees incurred by QVC as a result of the acquisition of HSN by Qurate Retail on December 29, 2017 as well as the closure of the France market ("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.~~by identifying those items that are not directly a reflection of each segment's performance or indicative of ongoing business trends. 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 depreciation, amortization, stock-based compensation and transaction related costs 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, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.

~~Performance measures~~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. 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).

During the first quarter of 2019, the Company changed its reportable operating segments to combine QVC-U.S. and HSN into one reportable segment called QxH and presented prior period information to conform with this change. As a result of the QRG Initiatives and additional synergies between QVC-U.S. and HSN, the CODM began reviewing the QVC-U.S. and HSN information as one business unit during the first quarter.

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(in millions) Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
Net
revenue
Adjusted
OIBDA
QVC-U.S. $ 1,418
324
1,374
316
4,262
1,005
4,111
1,013
QVC-International 640
93
636
99
1,972
300
1,843
304
Consolidated QVC $ 2,058
417
2,010
415
6,234
1,305
5,954
1,317

~~Other information~~

Three months ended September 30, Nine months ended September 30,
2018 2017 2018 2017
(in millions) Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
Depreciation
Amortization
QVC-U.S. $ 22
40
24
83
68
111
70
293
QVC-International 14
2
14
8
42
8
46
31
Consolidated QVC $ 36
42
38
91
110
119
116
324

September 30, 2018 December 31, 2017
(in millions) Total
assets
Capital
expenditures
Total
assets
Capital
expenditures
QVC-U.S. $ 9,284
83
9,429
116
QVC-International 2,136
42
2,121
36
Consolidated QVC $ 11,420
125
11,550
152
For the three and six months ended June 30, 2019, QVC has identified QxH and QVC-International as its two reportable segments. Both operating segments 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.

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Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

~~Property and equipment, net of accumulated depreciation, by segment were as follows:~~Performance measures


				Three months ended June 30,					Six months ended June 30,
				2019			2018		2019		2018
(in millions)	September 30, 2018		December 31, 2017	Net revenue		Adjusted OIBDA	Net revenue	Adjusted OIBDA	Net revenue	Adjusted OIBDA	Net revenue	Adjusted OIBDA
QVC-U.S.	$	538	559
QxH				$	1,874	395	1,900	401	3,731	747	3,826	770
QVC-International	443		446	640		106	656	100	1,284	207	1,332	207
Consolidated QVC	$	981	1,005	$	2,514	501	2,556	501	5,015	954	5,158	977

Other information



	Three months ended June 30,					Six months ended June 30,
	2019			2018		2019		2018
(in millions)	Depreciation		Amortization	Depreciation	Amortization	Depreciation	Amortization	Depreciation	Amortization
QxH	$	28	67	30	52	56	136	59	105
QVC-International	26		3	13	3	44	6	28	6
Consolidated QVC	$	54	70	43	55	100	142	87	111



	June 30, 2019
(in millions)	Total assets		Capital expenditures	Property and equipment, net
QxH	$	12,244	140	776
QVC-International	2,155		13	417
Consolidated QVC	$	14,399	153	1,193

The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:


	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,					Six months ended June 30,
(in millions)	2018			2017		2018		2017		2019			2018		2019			2018
Adjusted OIBDA	$	417		415		1,305		1,317		$	501		501		$	954		$	977
Transaction related costs	(28		)	(3	)	(32	)	(3	)	(1		)	(1	)	(1		)	(9		)
Stock-based compensation	(10		)	(9	)	(30	)	(23	)	(11		)	(12	)	(20		)	(24		)
Depreciation and amortization	(78		)	(129	)	(229	)	(440	)	(124		)	(98	)	(242		)	(198		)
Equity in losses of investee	(1		)	—		(2	)	(3	)	(1		)	(2	)	(1		)	(1		)
(Losses) gains on financial instruments										(1		)	—		(3		)	1
Interest expense, net	(57		)	(54	)	(172	)	(165	)	(60		)	(68	)	(121		)	(133		)
Foreign currency (loss) gain	(1		)	4		—		(6	)
Foreign currency gain (loss)										—			2		(3		)	1
Income before income taxes	$	242		224		840		677		$	303		322		563			614

I-20

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(13) Other Comprehensive ~~(Loss)~~ Income

The change in the component of accumulated other comprehensive loss, net of taxes ("AOCL"), is summarized as follows:

(in millions) Foreign currency translation adjustments
AOCL
Balance at January 1, 2018 $ (93 ) (93 )
Other comprehensive loss attributable to QVC, Inc. stockholder (47 ) (47 )
Balance at September 30, 2018 (140 ) (140 )

Balance at January 1, 2017 $ (224 ) (224 )
Other comprehensive income attributable to QVC, Inc. stockholder 106
106
Balance at September 30, 2017 (118 ) (118 )



(in millions)	Foreign currency translation adjustments			AOCL
Balance at January 1, 2019	$	(144	)	(144	)
Other comprehensive income attributable to QVC, Inc. stockholder	5			5
Balance at June 30, 2019	(139		)	(139	)

Balance at January 1, 2018	$	(93	)	(93	)
Other comprehensive income attributable to QVC, Inc. stockholder	(28		)	(28	)
Balance at June 30, 2018	(121		)	(121	)

The component of other comprehensive ~~(loss)~~ income is reflected in QVC's condensed consolidated statements of comprehensive income, net of taxes. The following table summarizes the tax effects related to the component of other comprehensive ~~(loss)~~ income:


(in millions)	Before-tax amount			Tax (expense) benefit		Net-of-tax amount		Before-tax amount			Tax expense	Net-of-tax amount
Three months ended September 30, 2018
Foreign currency translation adjustments	$	(21	)	(1	)	(22	)
Other comprehensive loss	(21		)	(1	)	(22	)

Three months ended September 30, 2017
Three months ended June 30, 2019
Foreign currency translation adjustments	$	33		(5	)	28		$	14		—	14
Other comprehensive income	33			(5	)	28		14			—	14

Nine months ended September 30, 2018:
Foreign currency translation adjustments	$	(47	)	(1	)	(48	)
Other comprehensive loss	(47		)	(1	)	(48	)

Nine months ended September 30, 2017:
Three months ended June 30, 2018
Foreign currency translation adjustments	$	135		(25	)	110		$	(97	)	1	(96	)
Other comprehensive income	135			(25	)	110		(97		)	1	(96	)

Six months ended June 30, 2019
Foreign currency translation adjustments								$	8		—	8
Other comprehensive income								8			—	8

Six months ended June 30, 2018
Foreign currency translation adjustments								$	(26	)	—	(26	)
Other comprehensive income								(26		)	—	(26	)

(14) Subsequent Event

~~Other than those events disclosed~~Subsequent to June 30, 2019, QVC declared and paid dividends to Qurate Retail in ~~note 7, there were no other events that occurred subsequent to September 30, 2018, but prior to November 9, 2018, that had a material impact on~~ the ~~Company's consolidated financial statements.~~amount of $170 million.

I-21

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(15) Guarantor/Non-guarantor Subsidiary Financial Information

The following information contains the condensed consolidating financial statements for the Company, the parent on a stand-alone basis (QVC, Inc.), the combined subsidiary guarantors (Affiliate Relations Holdings, Inc.; Affiliate Investment, Inc.; AMI 2, Inc.; ER Marks, Inc.; QVC Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X.

In connection with the ~~Third~~Fourth Amended and Restated Credit Agreement ~~in June 2016 (see notes 1 and~~(refer to Note 6)~~, QVC International Ltd is no longer a guarantor subsidiary, and is reflected with~~ on December 31, 2018, the following subsidiaries became part of the combined ~~non-guarantor subsidiaries.~~subsidiary guarantors: QVC Deutschland GP, Inc.; HSN, Inc.; HSNi, LLC; HSN Holding LLC; AST Sub, Inc.; Home Shopping Network En Espanol, L.P.; Home Shopping Network En Espanol, L.L.C; H.O.T. Networks Holdings (Delaware) LLC; HSN of Nevada LLC; Ingenious Designs LLC; NLG Merger Corp.; Ventana Television, Inc. and Ventana Television Holdings, Inc. The Company has shown all of the subsidiaries of our HSN segment as combined subsidiary guarantors as of December 29, 2017, the date in which HSN became a subsidiary of QVC through a common control transaction with Qurate Retail.

These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company.

The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors, by dividend or loan. The Company has not presented separate notes and other disclosures concerning the subsidiary guarantors as the Company has determined that such material information is available in the notes to the Company's condensed consolidated financial statements.

I-22

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets


September 30, 2018
June 30, 2019										June 30, 2019
(in millions)	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	45	90		253		—		388	$	11	186		253		—		450
Restricted cash	5		—		2		—		7	5		—		3		—		8
Accounts receivable, net	686		—		265		—		951	783		181		290		—		1,254
Inventories	870		—		303		—		1,173	752		274		280		—		1,306
Prepaid expenses and other current assets	62		—		52		—		114	65		17		53		—		135
Total current assets	1,668		90		875		—		2,633	1,616		658		879		—		3,153
Property and equipment, net	269		56		656		—		981	268		236		689		—		1,193
Operating lease right-of-use assets										3		14		131		—		148
Television distribution rights, net	—		106		1		—		107	—		198		1		—		199
Goodwill	4,190		—		861		—		5,051	4,190		922		864		—		5,976
Other intangible assets, net	523		2,048		19		—		2,590	547		3,087		27		—		3,661
Other noncurrent assets	10		—		48		—		58	11		12		46		—		69
Investments in subsidiaries	3,689		1,650		—		(5,339	)	—	5,717		943		—		(6,660	)	—
Total assets	$	10,349	3,950		2,460		(5,339	)	11,420	$	12,352	6,070		2,637		(6,660	)	14,399
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	403	—		16		—		419
Current portion of debt and finance lease obligations										$	3	1		16		—		20
Accounts payable-trade	515		—		269		—		784	372		106		224		—		702
Accrued liabilities	148		218		313		—		679	150		372		335		—		857
Intercompany accounts payable (receivable)	438		(1,529	)	1,091		—		—	62		(1,216	)	1,154		—		—
Total current liabilities	1,504		(1,311	)	1,689		—		1,882	587		(737	)	1,729		—		1,579
Long-term portion of debt and capital lease obligations	4,030		—		153		—		4,183
Long-term portion of debt and finance lease obligations										4,921		6		145		—		5,072
Deferred income taxes	58		459		(53	)	—		464	65		684		(59	)	—		690
Other long-term liabilities	121		—		15		—		136	152		22		141		—		315
Total liabilities	5,713		(852	)	1,804		—		6,665	5,725		(25	)	1,956		—		7,656
Equity:
QVC, Inc. stockholder's equity	4,636		4,802		537		(5,339	)	4,636	6,627		6,095		565		(6,660	)	6,627
Noncontrolling interest	—		—		119		—		119	—		—		116		—		116
Total equity	4,636		4,802		656		(5,339	)	4,755	6,627		6,095		681		(6,660	)	6,743
Total liabilities and equity	$	10,349	3,950		2,460		(5,339	)	11,420	$	12,352	6,070		2,637		(6,660	)	14,399

I-23

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets


December 31, 2017
December 31, 2018										December 31, 2018
(in millions)	Parent issuer- QVC, Inc.		Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	2	33		225		—		260	$	73		192		278		—		543
Restricted cash	5		—		3		—		8	5			—		2		—		7
Accounts receivable, net	1,076		—		312		—		1,388	1,166			307		314		—		1,787
Inventories	758		—		261		—		1,019	725			310		245		—		1,280
Prepaid expenses and other current assets	28		—		23		—		51	95			73		48		—		216
Total current assets	1,869		33		824		—		2,726	2,064			882		887		—		3,833
Property and equipment, net	295		60		650		—		1,005	281			213		671		—		1,165
Television distribution rights, net	—		78		—		—		78	—			139		1		—		140
Goodwill	4,190		—		885		—		5,075	4,190			922		860		—		5,972
Other intangible assets, net	539		2,048		18		—		2,605	529			3,116		21		—		3,666
Other noncurrent assets	14		—		47		—		61	8			20		52		—		80
Investments in subsidiaries	3,579		1,626		—		(5,205	)	—	5,523			885		—		(6,408	)	—
Total assets	$	10,486	3,845		2,424		(5,205	)	11,550	$	12,595		6,177		2,492		(6,408	)	14,856
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	3	—		14		—		17	$	403		1		17		—		421
Accounts payable-trade	455		—		301		—		756	494			201		313		—		1,008
Accrued liabilities	366		227		279		—		872	358			394		274		—		1,026
Intercompany accounts payable (receivable)	453		(1,513	)	1,060		—		—
Intercompany accounts (receivable) payable										(95		)	(1,015	)	1,110		—		—
Total current liabilities	1,277		(1,286	)	1,654		—		1,645	1,160			(419	)	1,714		—		2,455
Long-term portion of debt and capital lease obligations	5,033		—		140		—		5,173	4,540			6		153		—		4,699
Deferred income taxes	52		468		(47	)	—		473	63			695		(58	)	—		700
Other long-term liabilities	92		—		25		—		117	122			34		17		—		173
Total liabilities	6,454		(818	)	1,772		—		7,408	5,885			316		1,826		—		8,027
Equity:
QVC, Inc. stockholder's equity	4,032		4,663		542		(5,205	)	4,032	6,710			5,861		547		(6,408	)	6,710
Noncontrolling interest	—		—		110		—		110	—			—		119		—		119
Total equity	4,032		4,663		652		(5,205	)	4,142	6,710			5,861		666		(6,408	)	6,829
Total liabilities and equity	$	10,486	3,845		2,424		(5,205	)	11,550	$	12,595		6,177		2,492		(6,408	)	14,856

I-24

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Three months ended September 30, 2018
Three months ended June 30, 2019												Three months ended June 30, 2019
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,459		231		701		(333	)	2,058		$	1,423		695		693		(297	)	2,514
Operating costs and expenses:
Operating costs and expenses
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	879			36		431		(46	)	1,300		847			342		422		(33	)	1,578
Operating	109			68		70		(103	)	144		101			98		67		(87	)	179
Selling, general and administrative, including transaction related costs and stock-based compensation	303			—		116		(184	)	235		286			45		114		(177	)	268
Depreciation	16			2		18		—		36		15			9		30		—		54
Amortization	21			18		3		—		42		18			48		4		—		70
	1,328			124		638		(333	)	1,757		1,267			542		637		(297	)	2,149
Operating income	131			107		63		—		301		156			153		56		—		365
Other (expense) income:
Equity in losses of investee	—			—		(1	)	—		(1	)	—			—		(1	)	—		(1	)
Losses on financial instruments												(1		)	—		—		—		(1	)
Interest (expense) income, net	(57		)	1		(1	)	—		(57	)	(59		)	—		(1	)	—		(60	)
Foreign currency loss	—			—		(1	)	—		(1	)
Intercompany interest (expense) income	(8		)	38		(30	)	—		—
Foreign currency gain (loss)												1			—		(1	)	—		—
Intercompany interest income (expense)												8			10		(18	)	—		—
	(65		)	39		(33	)	—		(59	)	(51		)	10		(21	)	—		(62	)
Income before income taxes	66			146		30		—		242		105			163		35		—		303
Income tax expense	(27		)	(29	)	(13	)	—		(69	)	(32		)	(32	)	(21	)	—		(85	)
Equity in earnings of subsidiaries, net of tax	134			4		—		(138	)	—		145			—		—		(145	)	—
Net income	173			121		17		(138	)	173		218			131		14		(145	)	218
Less net income attributable to the noncontrolling interest	(11		)	—		(11	)	11		(11	)	(12		)	—		(12	)	12		(12	)
Net income attributable to QVC, Inc. stockholder	$	162		121		6		(127	)	162		$	206		131		2		(133	)	206

I-25

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Three months ended September 30, 2017
Three months ended June 30, 2018												Three months ended June 30, 2018
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,419		234		688		(331	)	2,010		$	1,460		691		704		(299	)	2,556
Operating costs and expenses:
Operating costs and expenses
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	864			37		422		(41	)	1,282		858			335		433		(37	)	1,589
Operating	106			64		70		(95	)	145		97			123		70		(81	)	209
Selling, general and administrative, including transaction related costs and stock-based compensation	262			—		113		(195	)	180		273			62		116		(181	)	270
Depreciation	17			2		19		—		38		17			9		17		—		43
Amortization	47			35		9		—		91		19			34		2		—		55
	1,296			138		633		(331	)	1,736		1,264			563		638		(299	)	2,166
Operating income	123			96		55		—		274		196			128		66		—		390
Other (expense) income:
Equity in losses of investee	—			—		—		—		—		—			—		(2	)	—		(2	)
Interest expense, net	(54		)	—		—		—		(54	)	(57		)	(9	)	(2	)	—		(68	)
Foreign currency (loss) gain	(1		)	1		4		—		4
Foreign currency gain (loss)												6			—		(4	)	—		2
Intercompany interest (expense) income	(1		)	23		(22	)	—		—		(8		)	38		(30	)	—		—
	(56		)	24		(18	)	—		(50	)	(59		)	29		(38	)	—		(68	)
Income before income taxes	67			120		37		—		224		137			157		28		—		322
Income tax expense	(13		)	(24	)	(21	)	—		(58	)	(38		)	(27	)	(13	)	—		(78	)
Equity in earnings of subsidiaries, net of tax	112			19		—		(131	)	—		145			9		—		(154	)	—
Net income	166			115		16		(131	)	166		244			139		15		(154	)	244
Less net income attributable to the noncontrolling interest	(12		)	—		(12	)	12		(12	)	(11		)	—		(11	)	11		(11	)
Net income attributable to QVC, Inc. stockholder	$	154		115		4		(119	)	154		$	233		139		4		(143	)	233

I-26

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Nine months ended September 30, 2018
Six months ended June 30, 2019												Six months ended June 30, 2019
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	4,374		672		2,133		(945	)	6,234		$	2,810		1,408		1,390		(593	)	5,015
Operating costs and expenses:
Operating costs and expenses
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	2,615			103		1,311		(123	)	3,906		1,692			715		851		(70	)	3,188
Operating	308			184		214		(273	)	433		204			192		137		(177	)	356
Selling, general and administrative, including transaction related costs and stock-based compensation	855			1		345		(549	)	652		559			99		226		(346	)	538
Depreciation	49			7		54		—		110		31			18		51		—		100
Amortization	60			51		8		—		119		37			98		7		—		142
	3,887			346		1,932		(945	)	5,220		2,523			1,122		1,272		(593	)	4,324
Operating income	487			326		201		—		1,014		287			286		118		—		691
Other (expense) income:
Equity in losses of investee	—			—		(2	)	—		(2	)	—			—		(1	)	—		(1	)
Interest (expense) income, net	(171		)	2		(3	)	—		(172	)
Foreign currency gain (loss)	2			—		(2	)	—		—
Losses on financial instruments												(3		)	—		—		—		(3	)
Interest expense, net												(120		)	2		(3	)	—		(121	)
Foreign currency (loss) gain												(1		)	—		(2	)	—		(3	)
Intercompany interest (expense) income	(23		)	114		(91	)	—		—		16			18		(34	)	—		—
	(192		)	116		(98	)	—		(174	)	(108		)	20		(40	)	—		(128	)
Income before income taxes	295			442		103		—		840		179			306		78		—		563
Income tax expense	(87		)	(88	)	(49	)	—		(224	)	(58		)	(57	)	(44	)	—		(159	)
Equity in earnings of subsidiaries, net of tax	408			38		—		(446	)	—		283			5		—		(288	)	—
Net income	616			392		54		(446	)	616		404			254		34		(288	)	404
Less net income attributable to the noncontrolling interest	(33		)	—		(33	)	33		(33	)	(22		)	—		(22	)	22		(22	)
Net income attributable to QVC, Inc. stockholder	$	583		392		21		(413	)	583		$	382		254		12		(266	)	382

I-27

Table of Contents

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations


Nine months ended September 30, 2017
Six months ended June 30, 2018												Six months ended June 30, 2018
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	4,225		679		1,992		(942	)	5,954		$	2,915		1,423		1,432		(612	)	5,158
Operating costs and expenses:
Operating costs and expenses
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	2,557			106		1,210		(118	)	3,755		1,736			706		880		(77	)	3,245
Operating	301			182		204		(268	)	419		199			249		144		(170	)	422
Selling, general and administrative, including transaction related costs and stock-based compensation	743			—		302		(556	)	489		552			131		229		(365	)	547
Depreciation	50			6		60		—		116		33			18		36		—		87
Amortization	167			125		32		—		324		39			67		5		—		111
	3,818			419		1,808		(942	)	5,103		2,559			1,171		1,294		(612	)	4,412
Operating income	407			260		184		—		851		356			252		138		—		746
Other (expense) income:
Equity in losses of investee	—			—		(3	)	—		(3	)	—			—		(1	)	—		(1	)
Gains on financial instruments												—			1		—		—		1
Interest expense, net	(163		)	—		(2	)	—		(165	)	(114		)	(17	)	(2	)	—		(133	)
Foreign currency (loss) gain	(4		)	1		(3	)	—		(6	)	2			—		(1	)	—		1
Intercompany interest (expense) income	(3		)	68		(65	)	—		—		(15		)	76		(61	)	—		—
	(170		)	69		(73	)	—		(174	)	(127		)	60		(65	)	—		(132	)
Income before income taxes	237			329		111		—		677		229			312		73		—		614
Income tax expense	(84		)	(86	)	(55	)	—		(225	)	(60		)	(62	)	(36	)	—		(158	)
Equity in earnings of subsidiaries, net of tax	299			34		—		(333	)	—		287			34		—		(321	)	—
Net income	452			277		56		(333	)	452		456			284		37		(321	)	456
Less net income attributable to the noncontrolling interest	(33		)	—		(33	)	33		(33	)	(22		)	—		(22	)	22		(22	)
Net income attributable to QVC, Inc. stockholder	$	419		277		23		(300	)	419		$	434		284		15		(299	)	434

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

~~Condensed Consolidating Statements of Comprehensive Income~~

Three months ended September 30, 2018
(in millions) Parent
issuer-
QVC, Inc.
Combined
subsidiary
guarantors
Combined
non-guarantor
subsidiaries
Eliminations
Consolidated-
QVC, Inc. and
subsidiaries
Net income $ 173
121
17
(138 ) 173
Foreign currency translation adjustments, net of tax (22 ) —
(22 ) 22
(22 )
Total comprehensive income 151
121
(5 ) (116 ) 151
Comprehensive income attributable to noncontrolling interest (8 ) —
(8 ) 8
(8 )
Comprehensive income attributable to QVC, Inc. stockholder $ 143
121
(13 ) (108 ) 143

Condensed Consolidating Statements of Comprehensive Income


Three months ended September 30, 2017
Three months ended June 30, 2019											Three months ended June 30, 2019
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	166		115	16		(131	)	166		$	218		131	14		(145	)	218
Foreign currency translation adjustments, net of tax	28			—	28		(28	)	28		14			—	14		(14	)	14
Total comprehensive income	194			115	44		(159	)	194		232			131	28		(159	)	232
Comprehensive income attributable to noncontrolling interest	(12		)	—	(12	)	12		(12	)	(15		)	—	(15	)	15		(15	)
Comprehensive income attributable to QVC, Inc. stockholder	$	182		115	32		(147	)	182		$	217		131	13		(144	)	217

Condensed Consolidating Statements of Comprehensive Income



Three months ended June 30, 2018
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	244		139	15		(154	)	244
Foreign currency translation adjustments, net of tax	(96		)	—	(96	)	96		(96	)
Total comprehensive income	148			139	(81	)	(58	)	148
Comprehensive income attributable to noncontrolling interest	(6		)	—	(6	)	6		(6	)
Comprehensive income attributable to QVC, Inc. stockholder	$	142		139	(87	)	(52	)	142

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Comprehensive Income


Nine months ended September 30, 2018
Six months ended June 30, 2019											Six months ended June 30, 2019
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	616		392	54		(446	)	616		$	404		254	34		(288	)	404
Foreign currency translation adjustments, net of tax	(48		)	—	(48	)	48		(48	)
Foreign currency translation adjustments											8			—	8		(8	)	8
Total comprehensive income	568			392	6		(398	)	568		412			254	42		(296	)	412
Comprehensive income attributable to noncontrolling interest	(32		)	—	(32	)	32		(32	)	(25		)	—	(25	)	25		(25	)
Comprehensive income attributable to QVC, Inc. stockholder	$	536		392	(26	)	(366	)	536		$	387		254	17		(271	)	387

Condensed Consolidating Statements of Comprehensive Income


Nine months ended September 30, 2017
Six months ended June 30, 2018											Six months ended June 30, 2018
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	452		277	56		(333	)	452		$	456		284	37		(321	)	456
Foreign currency translation adjustments, net of tax	110			—	110		(110	)	110
Foreign currency translation adjustments											(26		)	—	(26	)	26		(26	)
Total comprehensive income	562			277	166		(443	)	562		430			284	11		(295	)	430
Comprehensive income attributable to noncontrolling interest	(37		)	—	(37	)	37		(37	)	(24		)	—	(24	)	24		(24	)
Comprehensive income attributable to QVC, Inc. stockholder	$	525		277	129		(406	)	525		$	406		284	(13	)	(271	)	406

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows


Nine months ended September 30, 2018
Six months ended June 30, 2019												Six months ended June 30, 2019
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	484		394		62		—		940		$	293		383		23		—		699
Investing activities:
Capital expenditures	(68		)	(3	)	(54	)	—		(125	)	(61		)	(28	)	(64	)	—		(153	)
Expenditures for television distribution rights	—			(79	)	(1	)	—		(80	)	—			(124	)	—		—		(124	)
Changes in other noncurrent assets	2			—		(1	)	—		1		(10		)	8		(11	)	—		(13	)
Other investing activities												—			29		—		—		29
Intercompany investing activities	233			(552	)	—		319		—		77			(319	)	—		242		—
Net cash provided by (used in) investing activities	167			(634	)	(56	)	319		(204	)	6			(434	)	(75	)	242		(261	)
Financing activities:
Principal payments of debt and capital lease obligations	(2,277		)	—		(8	)	—		(2,285	)
Principal payments of debt and finance lease obligations												(1,420		)	—		(5	)	—		(1,425	)
Principal borrowings of debt from senior secured credit facility	1,451			—		—		—		1,451		1,795			—		—		—		1,795
Proceeds from issuance of senior secured notes	225			—		—		—		225
Payment of debt origination fees	(8		)	—		—		—		(8	)
Capital contributions received from Qurate Retail, Inc.	340			—		—		—		340
Principal repayment of senior secured notes												(400		)	—		—		—		(400	)
Dividends paid to Qurate Retail, Inc.	(297		)	—		—		—		(297	)	(469		)	—		—		—		(469	)
Dividends paid to noncontrolling interest	—			—		(23	)	—		(23	)	—			—		(28	)	—		(28	)
Other financing activities	(10		)	—		—		—		(10	)	(4		)	—		—		—		(4	)
Net short-term intercompany debt (repayments) borrowings	(15		)	(16	)	31		—		—
Net short-term intercompany debt borrowings (repayments)												157			(201	)	44		—		—
Other intercompany financing activities	(17		)	313		23		(319	)	—		(20		)	246		16		(242	)	—
Net cash (used in) provided by financing activities	(608		)	297		23		(319	)	(607	)	(361		)	45		27		(242	)	(531	)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	—			—		(2	)	—		(2	)	—			—		1		—		1
Net increase in cash, cash equivalents and restricted cash	43			57		27		—		127
Net decrease in cash, cash equivalents and restricted cash												(62		)	(6	)	(24	)	—		(92	)
Cash, cash equivalents and restricted cash, beginning of period	7			33		228		—		268		78			192		280		—		550
Cash, cash equivalents and restricted cash, end of period	$	50		90		255		—		395		$	16		186		256		—		458

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows


Nine months ended September 30, 2017
Six months ended June 30, 2018												Six months ended June 30, 2018
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	550		306		51		—		907		$	345		252		54		—		651
Investing activities:
Capital expenditures	(54		)	(2	)	(27	)	—		(83	)	(39		)	(7	)	(28	)	—		(74	)
Expenditures for television distribution rights	—			(35	)	—		—		(35	)	—			(60	)	(1	)	—		(61	)
Other investing activities												—			(8	)	—		—		(8	)
Changes in other noncurrent assets	(1		)	—		(1	)	—		(2	)	1			—		(1	)	—		—
Intercompany investing activities	385			(1,087	)	—		702		—		89			(105	)	—		16		—
Net cash provided by (used in) investing activities	330			(1,124	)	(28	)	702		(120	)	51			(180	)	(30	)	16		(143	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,785		)	—		(6	)	—		(1,791	)	(1,442		)	(160	)	(6	)	—		(1,608	)
Principal borrowings of debt from senior secured credit facility	1,574			—		—		—		1,574		1,278			180		—		—		1,458
Capital contributions received from Qurate Retail, Inc.												140			—		—		—		140
Dividends paid to Qurate Retail, Inc.	(491		)	—		—		—		(491	)	(243		)	—		—		—		(243	)
Dividends paid to noncontrolling interest	—			—		(22	)	—		(22	)	—			—		(23	)	—		(23	)
Other financing activities	(10		)	—		—		—		(10	)	(7		)	(7	)	—		—		(14	)
Net short-term intercompany debt (repayments) borrowings	(353		)	(1,188	)	1,541		—		—		(86		)	36		50		—		—
Other intercompany financing activities	186			1,959		(1,443	)	(702	)	—		(14		)	5		25		(16	)	—
Net cash (used in) provided by financing activities	(879		)	771		70		(702	)	(740	)	(374		)	54		46		(16	)	(290	)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	—			—		13		—		13		—			—		4		—		4
Net (decrease) increase in cash, cash equivalents and restricted cash	1			(47	)	106		—		60
Net increase in cash, cash equivalents and restricted cash												22			126		74		—		222
Cash, cash equivalents and restricted cash, beginning of period	10			97		187		—		294		7			55		228		—		290
Cash, cash equivalents and restricted cash, end of period	$	11		50		293		—		354		$	29		181		302		—		512

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

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing ~~strategies and~~strategies; QRG initiatives; revenue growth; remediation of material weaknesses; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of ~~cash;~~cash and contractual obligations; interest rate swap arrangements; and the anticipated impact of certain contingent liabilities related to legal and tax ~~proceedings; the impact of interest rate and foreign currency exchange rate fluctuations~~proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

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

competitor responses to our products and services;

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

the levels of online traffic on our websites and our ability to convert visitors into consumers or contributors;

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

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

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

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

the outcome of any pending or threatened litigation;

availability of qualified personnel;

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

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

domestic and international economic and business conditions and industry trends;

changes in tariffs, trade policy and trade relations following the 2016 U.S. presidential election and the vote by the United Kingdom ("U.K.") to exit from the European Union (“~~E.U.”~~Brexit”);

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

advertising spending levels;

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

rapid technological changes;

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

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

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

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fluctuations in foreign currency exchange rates; and

Qurate Retail, Inc.’s's ("Qurate Retail") (formerly known as Liberty Interactive Corporation) dependence on our cash flow for servicing its debt and for other purposes.

For additional risk factors, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Overview

QVC, Inc. and its consolidated subsidiaries (unless otherwise indicated or required by the context, the terms "we," "our," ~~"us,"~~"QVC" or the "Company" ~~and "QVC"~~ refer to QVC, Inc. and its consolidated subsidiaries) is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications.

In the United States ("U.S."), our televised shopping programs, including live and recorded content, are broadcast across multiple channels nationally on a full-time basis, including QVC, QVC2, HSN and HSN2. During the first quarter of 2019, the Company transitioned its Beauty ~~iQ.~~iQ channel to QVC 3. Our U.S. programming is also available on QVC.com and HSN.com, our U.S. ~~website;~~websites; mobile applications via streaming video; over-the-air broadcasters; and over-the-top content platforms (Roku, Apple TV, Amazon Fire, Facebook, etc.).

~~We believe that our~~QVC's digital platforms ~~complement our televised shopping programs by allowing~~enable consumers to purchase ~~a wide assortment of~~ goods offered on our ~~televised programs, as well as other~~broadcast programming, along with a wide assortment of products that are available only on QVC.com and HSN.com. QVC.com, HSN.com and our other digital ~~platforms. We view e-commerce as a~~platforms (including our mobile applications, social pages and others) are natural ~~extension~~extensions of our business model, allowing uscustomers to ~~stream~~engage in our 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 ~~offer on-demand video segments of items recently presented live on our televised programs. Our digital platforms~~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 ~~QVC~~ account.

~~Our international~~Internationally, QVC's televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the U.K., the Republic of Ireland ~~Italy~~ and ~~France.~~Italy. In some of the countries where ~~we operate, our~~QVC operates, QVC's televised shopping programs are broadcast across multiple QVC channels: QVC ~~Beauty &~~ Style and QVC2 in Germany and QVC Beauty, QVC Extra and QVC Style in the U.K. ~~The programming created for most of these markets is~~Similar to the U.S., our international businesses also ~~available~~engage customers via ~~streaming video on our digital platforms.~~websites, mobile applications, and social pages. Our international business employs product sourcing teams who select products tailored to the interests of each local market.

The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui"). QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, QVC-Japan paid dividends to Mitsui of ~~$23~~$28 million and ~~$22~~$23 million, respectively.

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The Company is an indirect wholly-owned subsidiary of Qurate Retail (Nasdaq: QRTEA and QRTEB), which owns interests in a broad range of digital commerce businesses, including Qurate Retail's other wholly-owned subsidiaries Zulily, LLC ("Zulily"), HSN, Inc. ("HSN") ~~and zulily, llc ("zulily")~~prior to the transfer of ownership of HSN to QVC (described below), ~~as well as~~Cornerstone Brands, Inc. (former subsidiary of HSN prior to the transfer of ownership of HSN to QVC, "CBI") and other minority investments. QVC is part of the Qurate Retail Group ("QRG"), formerly QVC Group, a portfolio of brands including QVC, HSN, ~~zulily~~Zulily and ~~the Cornerstone brands.~~CBI. On March 9, 2018, Qurate Retail, GCI Liberty, Inc. ("GCI Liberty") (formerly General Communication, Inc.), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Qurate Retail completed the previously announced transactions whereby Qurate Retail acquired GCI Liberty through a reorganization in which certain assets and liabilities attributed to Qurate Retail’s Ventures Group were contributed to GCI Liberty in exchange for a controlling interest in GCI Liberty. Qurate Retail then effected a tax-free separation of its controlling interest in the combined company. Qurate Retail's QVC Group common stock became the only outstanding common stock of Qurate Retail.

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On October 1, 2015, Qurate Retail acquired all of the outstanding shares of ~~zulily~~Zulily (now known as ~~zulily, llc)~~Zulily, LLC). ~~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 for a limited time period. ~~The Company believes that its business is complementary to the Company. zulily~~Zulily is not part of the results of operations or financial position of QVC presented in the accompanying ~~condensed~~ consolidated financial statements. During each of the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018 QVC and ~~zulily~~Zulily engaged in multiple transactions relating to ~~personnel,~~ sales, sourcing of merchandise, marketing initiatives and business advisory services. ~~The gross value~~QVC allocated expenses of ~~these transactions totaled approximately $8~~$4 million and $7$2 million to Zulily for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, respectively. Zulily allocated expenses of $4 million and ~~2017, respectively, which did not have a material impact on QVC's financial position, results of operations, or liquidity.~~ $3 million to QVC for the six months ended June 30, 2019 and 2018, respectively.

On ~~June 23, 2016,~~December 31, 2018, QVC amended and restated its senior secured credit facility (the ~~"Third~~"Fourth Amended and Restated Credit Agreement") increasing the revolving credit facility from ~~$2.25~~$2.65 billion to ~~$2.65~~$3.65 billion as explained further in ~~note~~notes 1 and 6 toin the ~~Company's~~accompanying condensed consolidated financial statements. The ~~Third~~Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by QVC or ~~zulily.~~Zulily. Under the terms of the ~~Third~~Fourth Amended and Restated Credit Agreement, QVC and ~~zulily~~Zulily are jointly and severally liable for all amounts borrowed on the $400 million tranche. In accordance with the accounting guidance for obligations resulting from joint and several liability arrangements, QVC will record a liability for amounts it has borrowed under the credit facility plus any additional amount it expects to repay on behalf of ~~zulily.~~Zulily. As of ~~September~~June 30, ~~2018,~~2019, there was ~~$150~~$168 million borrowed by ~~zulily~~Zulily on the $400 million tranche of the ~~Third~~Fourth Amended and Restated Credit ~~Agreement.~~Agreement, none of which the Company expects to repay on behalf of Zulily.

On December 29, 2017, Qurate Retail completed the acquisition of the remaining 62% ownership interest of HSN that it did not already own in an all-stock transaction. On December 31, 2018, Qurate Retail transferred its 100% ownership interest in HSN to QVC through a transaction among entities under common control. As a result of the transaction, the assets and liabilities of HSN (excluding its ownership interest in CBI) were transferred from Qurate Retail at Qurate Retail's historical cost to QVC through an equity contribution. CBI remained a subsidiary of Qurate Retail outside of the QVC structure. Beginning January 1, 2019, the Company's U.S. operations and HSN were combined to form the "QxH" reportable operating segment. As a result of the common control transaction with Qurate Retail, the Company retrospectively adjusted certain balances within the consolidated financial statements for the six months ended June 30, 2018, in order to combine the financial results of the Company and HSN since Qurate Retail's acquisition of HSN on December 29, 2017. All periods presented are prepared on a combined basis and are referred to as the condensed consolidated financial statements herein. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

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Table of ~~$28 million during~~Contents

In the ~~third~~fourth quarter of 2018, ~~which primarily related~~QVC announced the potential closure of its operations in France. The formal announcement to execute the closure ~~of the Lancaster fulfillment center.~~

was made in March 2019 and broadcasting for QVC in France was subsequently terminated on March 13, 2019.

Strategies and challenges of business units

~~QVC's~~

The goal of QVC is to ~~become~~extend its leadership in video commerce, e-commerce, mobile commerce and social commerce by continuing to create the ~~preeminent global multimedia~~world’s most engaging shopping ~~community~~experiences, combining the best of retail, media, and social, highly differentiated from traditional brick-and-mortar stores or transactional e-commerce. QVC provides customers with curated collections of unique products, made personal and relevant by the power of storytelling. We curate experiences, conversations and communities for ~~people who love to shop,~~millions of highly discerning shoppers, and ~~to offer a shopping experience that is as much about entertainment and enrichment as it is about buying. QVC's objective is to provide an integrated shopping experience that utilizes all forms~~we also curate large audiences, across our many platforms, for our thousands of ~~media including television, the Internet and mobile devices.~~ brand partners.

QVC intends to employ several strategies to achieve these ~~goals and~~ objectives. Among these strategies are to (i) extend the breadth, relevance and exposure of the QVC ~~brand;~~and HSN brands; (ii) source products that represent unique quality and value; (iii) create engaging, ~~presentation content in televised programming,~~video-rich shopping experiences across our broadcast networks, websites, mobile applications and ~~online;~~social pages; (iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated customer service experience. In addition, ~~QVC expects~~we are exploring opportunities to ~~expand globally by leveraging its existing systems, infrastructure and skills~~evolve the International operating model to pursue growth opportunities in ~~other countries around the world.~~a more leveraged way across markets.

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

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Economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for our products and services since a substantial portion of our revenue is derived from discretionary spending by individuals, which typically falls 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, become uncertain or deteriorate, our customers may respond by suspending, delaying or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, our ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments decline. Such weak economic conditions may also inhibit our expansion into new European orand other markets. We currently are unable to predict the extent of any of these potential adverse effects.

On June 23, 2016, the U.K. held a referendum in which British citizens approved an exit from the ~~E.U.~~European Union (the "E.U."), commonly referred to as “Brexit.” As a result of the referendum, the global markets and currencies have been adversely impacted, including a sharp decline in the value of the U.K. Pound Sterling as compared to the U.S. Dollar. Volatility in exchange rates is expected to continue in the short term as the U.K. negotiates its exit from the E.U. In the longer term, any impact from Brexit on us will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, or whether the U.K. will leave the E.U. with any agreement as to the terms of its withdrawal, it is possible that new terms may adversely affect our operations and financial ~~results. On March 29, 2017, the~~results in a number of ways, not all of which are currently readily apparent. The U.K. ~~invoked Article 50 of the Treaty of Lisbon, which~~ is ~~the first step of the U.K.’s formal exit~~scheduled to withdraw from the E.U. ~~This started~~no later than October 31, 2019. The U.K. government’s draft agreement on the ~~two-year window in which the U.K. and the European Commission can negotiate future terms for imports, exports, taxes, employment, immigration and other areas, ending in the exit~~withdrawal of the U.K. from the E.U. was defeated in the House of Commons on January 15, 2019. As a result, the final terms of the U.K.’s exit from the E.U. are, and will remain for the immediate future, unclear. The U.K. may leave the E.U. without any agreement as to the terms of its withdrawal or the future economic relationship between the U.K. and the E.U. It is also possible that the U.K. will withdraw its notification to leave the E.U. or that there will be a second referendum on Brexit.

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The current President of the U.S. has expressed apprehension towards trade agreements, such as the Trans-Pacific Partnership, and suggested that the U.S. would renegotiate or withdraw from certain trade agreements. He has advocated for and imposed tariffs on certain goods imported into the ~~United States,~~U.S., particularly from China. On January 23, 2017, the President of the U.S. signed a presidential memorandum to withdraw the U.S. from the Trans-Pacific Partnership. On October 1, 2018, the U.S., Mexico and Canada agreed to the terms of the United States-Mexico-Canada Agreement, a successor to the North American Free Trade Agreement, which will impact imports and exports among those countries. These and other proposed actions, if implemented, could adversely affect our business because we sell imported products.

Results of Operations

~~I-36~~QVC's operating results were as follows:



	Three months ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019		2018
Net revenue	$	2,514		2,556		5,015		5,158
Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	1,578			1,589		3,188		3,245
Operating	179			209		356		422
Selling, general and administrative, excluding transaction related costs and stock-based compensation	256			257		517		514
Adjusted OIBDA (defined below)	501			501		954		977
Transaction related costs	1			1		1		9
Stock-based compensation	11			12		20		24
Depreciation	54			43		100		87
Amortization	70			55		142		111
Operating income	365			390		691		746
Other (expense) income:
Equity in losses of investee	(1		)	(2	)	(1	)	(1	)
(Losses) gains on financial instruments	(1		)	—		(3	)	1
Interest expense, net	(60		)	(68	)	(121	)	(133	)
Foreign currency gain (loss)	—			2		(3	)	1
	(62		)	(68	)	(128	)	(132	)
Income before income taxes	303			322		563		614
Income tax expense	(85		)	(78	)	(159	)	(158	)
Net income	218			244		404		456
Less net income attributable to the noncontrolling interest	(12		)	(11	)	(22	)	(22	)
Net income attributable to QVC, Inc. stockholder	$	206		233		382		434

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~~Results of Operations~~

~~QVC's operating results were as follows:~~

Three months ended September 30, Nine months ended September 30,
(in millions) 2018
2017
2018
2017
Net revenue $ 2,058
2,010
6,234
5,954
Operating costs and expenses:

Costs of goods sold (exclusive of depreciation and amortization shown separately below) 1,300
1,282
3,906
3,755
Operating 144
145
433
419
Selling, general and administrative, excluding transaction related costs and stock-based compensation 197
168
590
463
Adjusted OIBDA 417
415
1,305
1,317
Transaction related costs 28
3
32
3
Stock-based compensation 10
9
30
23
Depreciation 36
38
110
116
Amortization 42
91
119
324
Operating income 301
274
1,014
851
Other (expense) income:
Equity in losses of investee (1 ) —
(2 ) (3 )
Interest expense, net (57 ) (54 ) (172 ) (165 )
Foreign currency (loss) gain (1 ) 4
—
(6 )

(59 ) (50 ) (174 ) (174 )
Income before income taxes 242
224
840
677
Income tax expense (69 ) (58 ) (224 ) (225 )
Net income 173
166
616
452
Less net income attributable to the noncontrolling interest (11 ) (12 ) (33 ) (33 )
Net income attributable to QVC, Inc. stockholder $ 162
154
583
419

Net revenue

Net revenue by segment was as follows:


	Three months ended September 30,			Nine months ended September 30,		Three months ended June 30,			Six months ended June 30,
(in millions)	2018		2017	2018	2017	2019		2018	2019	2018
QVC-U.S.	$	1,418	1,374	4,262	4,111
QxH						$	1,874	1,900	3,731	3,826
QVC-International	640		636	1,972	1,843	640		656	1,284	1,332
Consolidated QVC	$	2,058	2,010	6,234	5,954	$	2,514	2,556	5,015	5,158

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QVC's consolidated net revenue ~~increased 2.4%~~decreased 1.6% and ~~4.7%~~2.8% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to the corresponding ~~periods~~period in the prior year. The three month ~~increase~~decrease in net revenue ~~of $48 million was~~is primarily ~~comprised of $39 million~~ due to a ~~1.7%~~0.6% decrease in units shipped and $26 million in unfavorable foreign exchange rates across all markets, which was partially offset by a slight increase in average selling price per unit ("ASP")~~, $26 million due to the inclusion of QVC-branded credit card income ("Q-Card Income")~~. The six months decrease in ~~the U.S., as a result of the adoption of Accounting Standards Codifications ("ASC") 606,~~ ~~Revenue from Contracts with Customers,~~ which was previously recorded as an offset to selling, general and administrative expense for the three months ended September 30, 2017 and a $9 million increase in shipping and handling revenue. This was offset by a decrease of $16 millionnet revenue is primarily due to a ~~0.7%~~1.9% decrease in units ~~sold, $5~~shipped and $61 million in unfavorable foreign ~~currency~~ exchange rates ~~and an increase~~across all markets, which was partially offset by a $23 million decrease in estimated product returns, ~~of $3 million. The nine month~~primarily driven by the decrease in sales volume at QxH and a slight increase in net revenue of $280 million was primarily comprised of a $223 million increase due to a 3.3% increase in units sold, $98 million in favorable foreign currency exchange rates, $78 million due to the inclusion of Q-Card Income in the U.S. and a $15 million increase in shipping and handling revenue. The increase was offset by a $93 million decrease due to a 1.3% decrease in ASP ~~and an increase in estimated product returns of $38 million. The changes in units sold, foreign exchange rates, ASP and estimated products returns are partially impacted~~driven by the change in the timing of revenue recognition as part of the adoption of ASC 606. The impact of this change was a $12 million and $30 million increase to net revenue for the three and nine months ended September 30, 2018, respectively, in comparison to net revenue for the three and nine months ended September 30, 2018 without the adoption of ASC 606.international market.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the changes in revenue and expenses were affected by changes in the exchange rates for the ~~Japanese Yen,~~U.K. Pound Sterling, the Euro and the ~~U.K. Pound Sterling.~~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 discussing our operating results, the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. Dollar. We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the prior period's currency exchange rates. Throughout our discussion, we refer to the results of this calculation as the impact of currency exchange rate fluctuations. When we refer to constant currency operating results, this means operating results without the impact of the currency exchange rate fluctuations. The disclosure of constant currency amounts or results permits investors to understand better QVC’s underlying performance without the effects of currency exchange rate fluctuations.

The percentage change in net revenue for each of QVC's segments in U.S. Dollars and in constant currency was as follows:


	Three months ended September 30, 2018						Nine months ended September 30, 2018						Three months ended June 30, 2019						Six months ended June 30, 2019
	U.S. Dollars		Foreign Currency Exchange Impact		Constant currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant Currency		U.S. Dollars		Foreign Currency Exchange Impact		Constant Currency
QVC-U.S.	3.2	%	—	%	3.2	%	3.7	%	—	%	3.7	%
QxH													(1.3	)%	—	%	(1.3	)%	(2.5	)%	—	%	(2.5	)%
QVC-International	0.6	%	(0.9	)%	1.5	%	7.0	%	5.3	%	1.7	%	(2.4	)%	(3.7	)%	1.3	%	(3.6	)%	(4.6	)%	1.0	%

~~QVC-U.S.~~QxH net revenue ~~increase~~decrease for the three months ended ~~September~~June 30, ~~2018~~2019 was primarily due to ~~the $26 million inclusion of Q-Card Income, which was previously recorded as an offset to selling, general administrative expenses for the three months ended September 30, 2017,~~ a ~~0.8% increase~~2.6% decrease in ASP partially offset by a ~~$11 million increase in shipping and handling revenue and a 0.1%~~1.2% increase in units shipped. ~~The increase was offset by a $7 million increase in estimated product returns.~~ For the three months ended ~~September~~June 30, ~~2018, QVC-U.S.~~2019, QxH experienced shipped sales ~~increases~~declines in jewelry and apparel, partially offset by growth in accessories ~~beauty~~ and electronics while home and ~~decreases in home, jewelry and apparel.~~beauty remained flat. For the ~~nine~~six months ended ~~September~~June 30, ~~2018, QVC U.S.~~2019, QxH net revenue ~~increase was~~decreased due to a ~~4.5% increase~~1.7% decrease in units shipped ~~$78 million due to the inclusion of Q-Card Income~~ and a ~~$15 million increase~~1.3% decline in ~~shipping and handling revenue. The increase~~ASP which was partially offset by a ~~decrease of 2.3% in ASP and a $37~~$23 million ~~increase~~decrease in estimated product ~~returns.~~returns, primarily driven by the decrease in sales volume. For the ~~nine~~six months ended ~~September~~June 30, ~~2018, QVC-U.S.~~2019, QxH experienced shipped sales ~~increases~~decline in ~~home,~~all categories except accessories ~~apparel,~~ and ~~beauty, and decreases in electronics and jewelry.~~electronics.

QVC-International net revenue growth in constant currency for the three months ended ~~September~~June 30, ~~2018~~2019 was primarily due to a ~~3.3%~~6.7% increase in ASP, driven by ASP increases in all markets as well as a $2 million decrease in estimated product returns which was partially offset by a 4.5% decrease in units shipped driven by Germany and the U.K. The decrease in estimated product returns was primarily due to a lower return rate offset by increased sales volume. QVC-International net revenue growth in constant currency for the six months ended June 30, 2019 was primarily due to a 3.8% increase in ASP in all markets, ~~except France and a $3 million decrease in estimated product returns. This increase~~which was partially offset by a ~~2.1%~~2.3% decrease in units shipped driven by ~~decreases in~~ Germany and ~~Japan.~~the U.K. For both the three and six months ended ~~September~~June 30, ~~2018,~~2019, QVC-International experienced shipped sales growth in constant currency in home, electronics, and beauty, with decreases in accessories, apparel and jewelry. Net revenue growth in constant currency for the nine months ended September 30, 2018 was primarily due to a 1.3% increase in units shipped, primarily driven by increases in the U.K., and a 0.3% increase in ASP, primarily driven by Germany and Italy, offset by the other markets. This was offset by a $1 million increase in estimated product returns. For the nine months ended September 30, 2018, QVC-International experienced shipped sales growth in constant currency in electronics, home, and beauty, with decreases in apparel, accessories, and jewelry.all categories except accessories.

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Cost of goods sold (excluding depreciation and amortization)

QVC's cost of goods sold as a percentage of net revenue was ~~63.2%~~62.8% and ~~62.7%~~63.6% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, compared to ~~63.8%~~62.2% and ~~63.1%~~62.9% for the three and ~~nine~~six months ended ~~September 30, 2017. For both the three and nine months ended September~~June 30, 2018, ~~the decrease~~respectively. The increase in cost of goods sold as a percentage of revenue is primarily due to ~~the inclusion of Q-Card Income~~an increase in ~~net revenue, which was previously recorded as an offset to selling, general and administrative expenses, offset somewhat by higher warehouse and freight costs.~~product fulfillment costs at QxH.

Operating expenses

QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees and telecommunications expenses. Operating expenses decreased $1$30 million or ~~0.7%~~14% and ~~increased $14~~$66 million or ~~3.3%~~16% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, respectively, as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~2018.

For the three months ended ~~September~~June 30, ~~2018,~~2019, operating expenses decreased primarily due to a $2$25 million decrease in commissions ~~primarily~~at QxH, a $4 million decrease in ~~the U.S. This was partially offset by~~personnel costs at QxH and a $1$2 million ~~increase in credit card fees in the U.S.~~decrease due to favorable exchange rates. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, operating expenses ~~increased~~decreased primarily due to a $53 million decrease in commissions at QxH, an $8 million ~~increase~~decrease in ~~credit card fees~~personnel costs at QxH and a $5 million decrease due to favorable exchange rates. The decrease in ~~the U.S.~~commissions for both comparable periods is primarily due to new longer term television distribution rights agreements entered into at HSN, which led to increased capitalization of television distribution rights agreements and ~~$7 million from unfavorable foreign currency exchange rates.~~favorable terms on commissions.

Selling, general and administrative expenses (excluding transaction related costs and stock-based compensation)

QVC's selling, general, and administrative expenses (excluding transaction related costs as defined below and stock-based compensation) include personnel, information technology, provision for doubtful accounts, production costs, and marketing and advertising ~~expenses and during 2017, credit card income.~~expenses. Such expenses ~~increased $29~~decreased $1 million and ~~$127~~increased $3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, as compared to the ~~same periods in the prior year.~~three and six months ended June 30, 2018. As a percentage of net revenue, such expenses ~~increased from 8.4% to 9.6%~~were 10.2% and 10.3% for the three and six months ended ~~September~~June 30, 2019, respectively and were 10.1% and 10.0% for the three and six months ended June 30, 2018, ~~and increased from 7.8% to 9.5% for the nine months ended September 30, 2018, compared to the same periods in the prior year.~~respectively.

For the three months ended ~~September~~June 30, ~~2018,~~2019, the ~~increase~~decrease was primarily due to ~~the reclassification of Q-Card Income, attributing $26~~a $7 million as a result of the adoption of ASC 606, which was previously recorded as an offset to selling, general and administrative expenses for the three months ended September 30, 2017. Additionally, there was a $11 million increasedecrease in ~~outside services~~personnel costs primarily in ~~the U.S.,~~QxH, France and the U.K.~~, Germany~~ offset by increases in Japan, and ~~Italy,~~a $4 million decrease due to favorable exchange rates. The decreases were partially offset by a $6 million increase in bad debt expense ~~primarily in the U.S. and to a lesser extent, Japan,~~ and a $5 million increase in outside services primarily in QxH. For the six months ended June 30, 2019, the increase was primarily due to a $5 million increase in online marketing expenses primarily in ~~the U.S. The~~QxH, a $10 million increase in bad debt expense ~~is due to favorability~~and a $9 million increase in ~~default rates from prior periods, mostly related to the Easy-Pay program~~outside services primarily in ~~the U.S. during the three months ended September 30, 2017.~~QxH. These increases were partially offset by a $13 million decrease in personnel costs primarily in QxH, France and the ~~U.S.,~~U.K. offset by increases in Japan and Germany, and ~~Japan, and~~ a $1$9 million decrease due to favorable exchange rates.

For the nine months ended September 30, 2018, the increase was primarily due to the reclassification of Q-Card Income, attributing $78 million as a result of the adoption of ASC 606, which was previously recorded as an offset to selling, general and administrative expenses for the nine months ended September 30, 2017. Additionally, there was a $20 million increase in outside services, primarily in the U.S., the U.K., Germany and Italy, a $14 million increase due to unfavorable exchange rates, a $10 million increase in bad debt expense primarily in the U.S. and to a lesser extent, Japan, and an $8 million increase in marketing expense primarily in the U.S. The increase in bad debt expense for both comparable periods is primarily due to ~~favorability in default rates from prior periods, mostly related~~increased Easy Pay usage and the number of installments taken at QxH, and to ~~the Easy-Pay program in the U.S. during the nine months ended September 30, 2017. The increase was offset by~~ a ~~$5 million decrease in personnel costs primarily in the U.S. and~~lesser extent, Germany.

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Transaction related costs

Transaction related costs include restructuring, integration, and advisory fees ("transaction related costs") that were incurred by QVC as it relates to Qurate Retail's acquisition of HSN on December 29, ~~2017.~~2017 as well as the closure of France operations that was effective in March 2019. QVC recorded ~~$28~~$1 million ~~and $32 million of transaction related costs for the three and nine months ended September 30, 2018, respectively. QVC recorded $3 million of~~in transaction related costs for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. The increase~~2019 and recorded $1 million and $9 million in transaction related costs ~~is primarily related to severance payments during~~for the ~~third quarter of~~three and six months ended June 30, 2018, ~~related to the future closure of QVC's Lancaster, PA fulfillment center and other initiatives to deliver long term growth.~~respectively.

Stock-based compensation

Stock-based compensation includes compensation related to options and restricted stock units granted to certain officers and employees. QVC recorded ~~$10~~$11 million and $9$20 million of stock-based compensation expense for the three and six months ended ~~September~~June 30, ~~2018 and 2017,~~2019, respectively, and ~~$30~~recorded $12 million and ~~$23~~$24 million of stock-based compensation expense for the ~~nine~~three and six months ended ~~September~~June 30, 2018, ~~and 2017,~~ respectively. The ~~increase~~decrease in stock compensation expense is primarily due to ~~transfers~~forfeitures of ~~certain zulily employees into the Company subsequent to June 30, 2017 and the timing~~non-vested options from terminated individuals.

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Table of ~~the issuance of grants.~~Contents

Depreciation and amortization

Depreciation and amortization consisted of the following:


	Three months ended September 30,			Nine months ended September 30,		Three months ended June 30,			Six months ended June 30,
(in millions)	2018		2017	2018	2017	2019		2018	2019	2018
Affiliate agreements	$	—	25	1	98	$	1	1	2	2
Customer relationships	1		28	3	112	12		12	24	24
Other technology						4		4	8	8
Acquisition related amortization	1		53	4	210	17		17	34	34
Property and equipment	36		38	110	116	54		43	100	87
Software amortization	23		24	66	70	22		22	44	46
Channel placement amortization and related expenses	18		14	49	44	31		16	64	31
Total depreciation and amortization	$	78	129	229	440	$	124	98	242	198

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, acquisition related~~2019, channel placement amortization expense ~~decreased~~increased primarily due to new television distribution contracts entered into at HSN. For the ~~end~~three and six months ended June 30, 2019, property and equipment depreciation increased due to the disposition of ~~the useful lives of certain affiliate agreements and customer relationships established at the time of Qurate Retail's acquisition of QVC~~assets in ~~2003.~~France.

Equity in losses of investee

The ~~losses were~~loss that was associated with our joint venture in China ~~that~~ is accounted for as an equity method ~~investment.~~investments.

Interest expense, net

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, consolidated interest expense, net ~~increased $3~~decreased $8 million ~~or 5.6%~~ and ~~increased $7~~$12 million, ~~or 4.2%,~~ respectively, as compared to the corresponding ~~period~~periods in the prior year. The ~~increase is~~decreases are primarily related to ~~increases~~a decrease in the ~~interest rates used~~average debt balances during the three and six months ended June 30, 2019 compared to ~~service the debt.~~June 30, 2018.

Foreign currency (loss) gain

Certain loans between QVC and its subsidiaries are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded in the ~~accompanying~~ condensed consolidated statements of operations. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the change in foreign currency ~~(loss) gain~~loss was also due to variances in interest and operating payables balances between QVC and its international subsidiaries denominated in the currency of the subsidiary and the effects of currency exchange rate changes on those balances.

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Income taxes

Our effective tax rate was ~~28.5%~~28.1% and ~~26.7%~~28.2% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively, compared to an effective tax rate of ~~25.9%~~24.2% and ~~33.2%~~25.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. The Tax Cuts and Jobs Act (the "Tax Act"), enacted in 2017, made broad and complex changes to the U.S. tax code which included a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, changes in how foreign earnings are taxed in the U.S., the limitation on the deduction of net interest expense and other changes. The reduction in the effective tax rate for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 is a result of these changes from the Tax Act. The increase in the effective tax rate for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 is due to the impact of prior year discrete permanent differences related to foreign currency losses realized for tax purposes, partially offset by changes from the Tax Act. The 2018 tax2019 rate differs from the U.S. federal income tax rate of 21% due primarily to state and foreign tax ~~expenses.~~expenses, and valuation allowances established for foreign net operating losses and excess U.S. foreign tax credits. The 2019 effective tax rate has increased from the prior year for both periods presented primarily due to an increase in state accruals and additional valuation allowances on foreign net operating losses and foreign tax credits in the current year.

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Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA)

To provide investors with additional information regarding our financial statements, we disclose Adjusted OIBDA, which is a non-GAAP measure. QVC defines Adjusted OIBDA as net revenue less cost of goods sold, operating expenses and selling, general and administrative expenses (excluding transaction related costs and stock-based compensation). QVC's chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate the businesses and make decisions about allocating resources among the businesses. QVC believes that this is an important indicator of the operational strength and performance of the ~~businesses, including the ability to service debt and fund capital expenditures.~~segments by identifying those items that are not directly a reflection of each segment's performance or indicative of ongoing business trends. In addition, this measure allows QVC to view operating results, perform analytical comparisons and perform benchmarking among its businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation, amortization, stock-based compensation and transaction related costs (including restructuring, integration, and advisory fees) that are included in the measurement of operating income pursuant to U.S. generally accepted accounting principles ("U.S. 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 U.S. GAAP.

The primary material limitations associated with the use of Adjusted OIBDA as compared to U.S. GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in the industry, and (ii) it excludes financial information that some may consider important in evaluating QVC's performance. QVC compensates for these limitations by providing disclosure of the difference between Adjusted OIBDA and U.S. GAAP results, including providing a reconciliation of Adjusted OIBDA to U.S. GAAP results, to enable investors to perform their own analysis of QVC's operating results. ~~See~~Refer to note 12 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to income before income ~~taxes.~~taxes.

Seasonality

QVC's business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping. In recent years, QVC has earned, on average, between 22% and 24% of its revenue in each of the first three quarters of the year and between 30% and 32% of its revenue in the fourth quarter of the year.

Financial Position, Liquidity and Capital Resources

General

Historically, QVC's primary sources of cash have been cash provided by operating activities and borrowings. In general, QVC uses this cash to fund its operations, make capital purchases, make payments to Qurate Retail, make interest payments and minimize QVC's outstanding senior secured credit facility balance.

As of ~~September~~June 30, ~~2018,~~2019, substantially all of QVC's cash and cash equivalents were invested in AAA rated money market funds and time deposits with banks rated equal to or above A.

Senior Secured Notes

All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to ~~QVC's~~the senior secured credit facility. With ~~the~~ exception of the ~~notes~~6.375% Senior Secured Notes due 2067, in which the ~~following paragraph,~~interest is payable quarterly, the interest on QVC's senior secured notes is payable semi-annually. ~~At September 30, 2018, the 3.125% Senior Secured Notes due 2019 are classified within current portion of long-term debt as they mature in less than one year from September 30, 2018.~~

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In September 2018, QVC completed a registered debt offering for $225 million of 6.375% Senior Secured Notes due 2067 (the “2067 Notes”). The proceeds were used to partially prepay existing indebtedness under QVC's senior secured credit facility and for general corporate purposes. The costs to complete the financing were deferred and are being amortized to interest expense over the term of the 2067 Notes. Interest on the 2067 Notes will be paid quarterly in March, June, September, and December, commencing on December 15, 2018. QVC has the option to call the 2067 Notes after 5 years at par value.

Senior Secured Credit Facility

On ~~June 23, 2016,~~December 31, 2018, QVC entered into the ~~Third~~Fourth Amended and Restated Credit Agreement with ~~zulily~~Zulily as borrowers (collectively, the “Borrowers”), which is a multi-currency facility that provides for a ~~$2.65~~$3.65 billion revolving credit facility with a ~~$300~~$450 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The ~~Third~~Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or ~~zulily~~Zulily with ~~an additional~~a $50 million sub-limit for standby letters of credit. The remaining ~~$2.25~~$3.25 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA for the most recent four fiscal quarter ~~periods~~period (the “Combined Consolidated Leverage Ratio”). Borrowings that are London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if ~~zulily~~Zulily ceases to be controlled by Qurate Retail, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on ~~June 23, 2021, except that $140 million of the $2.25 billion commitment available to QVC matures on March 9, 2020. Any amounts prepaid on the revolving facility may be reborrowed.~~December 31, 2023. Payment of loans may be accelerated following certain customary events of default.

The payment and performance of the Borrowers’ obligations under the ~~Third~~Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the ~~Third~~Fourth Amended and Restated Credit Agreement). Further, the borrowings under the ~~Third~~Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of ~~the capital stock of QVC.~~QVC’s equity interests. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and ~~zulily~~Zulily are also guaranteed by each of ~~zulily’s~~Zulily’s Material Domestic Subsidiaries (as defined in the ~~Third~~Fourth Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of ~~zulily’s~~Zulily’s equity interests.

Other Debt Related Information

QVC was in compliance with all of its debt covenants ~~at September~~as of June 30, ~~2018.~~

~~During the quarter, there were no significant changes to QVC's debt credit ratings.~~2019.

There are no restrictions under ~~QVC's~~the debt agreements on QVC's ability to pay dividends or make other restricted payments if QVC is not in default on its senior secured notes or ~~senior secured credit facility,~~the Fourth Amended and ~~as long as both~~Restated Credit Agreement, and QVC's consolidated leverage ratio, and a Combined Consolidated Leverage Ratio for both QVC and ~~zulily,~~Zulily, would be no greater than 3.5 to 1.0. As a result, Qurate Retail will, in many instances, be permitted to rely on QVC's cash flow for servicing Qurate Retail's debt and for other purposes, including repurchases of Qurate Retail's common stock, or to fund acquisitions or other operational requirements of Qurate Retail and its subsidiaries. These events may ~~deplete QVC's equity~~increase accumulated deficit or require QVC to borrow under the ~~senior secured credit facility,~~Fourth Amended and Restated Credit Agreement, increasing QVC's leverage and decreasing liquidity. QVC has made significant distributions to Qurate Retail in the past.

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Interest Rate Swap Arrangements

Additional Cash Flow Information

During the ~~nine~~six months ended ~~September~~June 30, 2019, QVC's primary uses of cash were $1,425 million of principal payments of the senior secured credit facility and finance lease obligations, $469 million of dividends to Qurate Retail, $400 million of principal repayments of our senior secured notes, $277 million of capital and television distribution rights expenditures and $28 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,795 million of principal borrowings from the senior secured credit facility and $699 million of cash provided by operating activities. As of June 30, 2019, QVC's cash, cash equivalents and restricted cash balance was $458 million.

During the six months ended June 30, 2018, QVC's primary uses of cash were ~~$2,285~~$1,608 million of principal payments on debt and ~~capital~~finance lease obligations, ~~$297~~$243 million of ~~dividend payments~~dividends to Qurate Retail, ~~$205~~$135 million of capital and television distribution rights expenditures and $23 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with ~~$1,451~~$1,458 million of principal borrowings from the senior secured credit facility, ~~$225 million from the issuance of the 2067 Notes, $940~~$651 million of cash provided by operating activities and ~~$340~~a $140 million in capital ~~contributions~~contribution from Qurate Retail. As of ~~September~~June 30, 2018, QVC's cash, cash equivalents balance and restricted cash ~~balance~~ was ~~$395 million.~~

During the nine months ended September 30, 2017, QVC's primary uses of cash were $1,791 million of principal payments on debt and capital lease obligations, $491 million of dividends to Qurate Retail, $118 million of capital and television distribution rights expenditures and $22 million in dividend payments from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,574 million of principal borrowings from the senior secured credit facility and $907 million of cash provided by operating activities. As of September 30, 2017, QVC's cash, cash equivalents and restricted cash balance was $354$512 million.

The change in cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the previous year was primarily due to ~~the increase in net income excluding the impact of non-cash items. Cash provided by operating activities is also subject to~~ changes in working ~~capital.~~capital offset by lower net income. Working capital at any specific point in time is subject to many variables, including seasonality, inventory management, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

As of ~~September~~June 30, ~~2018, $221~~2019, $210 million of the ~~$395~~$458 million in cash, cash equivalents and restricted cash was held by foreign subsidiaries. Cash in foreign subsidiaries is available for domestic purposes with no significant tax consequences upon repatriation to the U.S. QVC accrues taxes on the unremitted earnings of its international subsidiaries. Approximately ~~66%~~64% of this foreign cash balance was that of QVC-Japan. QVC owns 60% of QVC-Japan and shares all profits and losses with the 40% minority interest holder, Mitsui. We believe that we currently have appropriate legal structures in place to repatriate foreign cash as ~~tax-efficiently~~tax efficiently as possible and meet the business needs of QVC.

Other

Capital expenditures ~~spending~~ in ~~2018 is~~2019 are expected to be between ~~$220 and $230~~$330 to $350 million, including ~~$125~~$153 million already ~~expended.~~

expended and $48 million in non-cash capital additions for the six months ended June 30, 2019.

Refer to the chart under the "Off-balance Sheet Arrangements and Aggregate Contractual Obligations" section below for additional information concerning the amount and timing of expected future payments under QVC's contractual obligations ~~at September~~as of June 30, ~~2018.~~2019.

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QVC has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible QVC may incur losses upon the 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, that may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

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Off-balance Sheet Arrangements and Aggregate Contractual Obligations

Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations ~~at September~~as of June 30, ~~2018~~2019 is summarized below:


	Payments due by period								Payments due by period
(in millions)	Remainder of 2018		2019	2020	2021	2022	Thereafter	Total	Remainder of 2019		2020	2021	2022	2023	Thereafter	Total
Long-term debt (1)	$	—	400	—	675	500	2,875	4,450	$	—	—	—	500	2,315	2,125	4,940
Interest payments (2)	31		202	198	183	168	1,396	2,178	116		235	234	234	192	1,270	2,281
Capital lease obligations (including imputed interest)	7		27	24	24	22	133	237
Finance lease obligations (including imputed interest)									15		27	25	23	22	117	229
Operating lease obligations	6		21	17	11	9	72	136	$	14	29	20	18	16	155	252
Purchase obligations and other (3)	$	1,357	707	23	11	3	1	2,102

(1) Amounts exclude ~~capital~~Finance lease obligations and the issue discounts on ~~our 3.125%,~~the 4.375%, ~~4.85%~~4.45%, ~~4.45%~~4.85%, 5.45% and 5.95% Senior Secured Notes. ~~Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.~~

(2) Amounts (i) are based on the terms of QVC's senior secured credit facility and senior secured notes, (ii) assumes the interest rates on the floating rate debt remain constant at the rates in effect as of ~~September~~June 30, ~~2018,~~2019, (iii) assumes that our existing debt is repaid at maturity and (iv) excludes ~~capital~~finance lease obligations.

~~(3) Amounts include open purchase orders for inventory and non-inventory purchases along with other contractual obligations.~~

Adoption of new accounting pronouncements

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~~Accounting pronouncements issued but not yet adopted~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~, which revises the accounting ~~treatment~~ related to lessee ~~accounting.~~accounting as part of Accounting Standards Codification ("ASC") 842. Under the new guidance, lessees ~~will be~~are required to recognize a lease liability and a right-of-use asset for ~~all~~most operating leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ~~In July 2018,~~The Company adopted ASC 842 on January 1, 2019 utilizing the ~~FASB issued ASU No. 2018-11,~~modified retrospective transition approach and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which ~~provides entities~~allows it to carry forward its historical lease classification, its determination regarding whether a ~~transition method in which the entity may apply the new~~contract contains a lease ~~standard at~~and any initial indirect costs that had existed prior to the adoption ~~date and recognize a cumulative-effect adjustment to the opening balance~~ of ~~retained earnings at January 1, 2019.~~this new standard. The Company ~~intends~~also elected to ~~elect this optional transition method. While~~combine both lease and non-lease components and elected for all short leases with a term of less than 12 months to not record a related operating lease right-of-use asset and operating lease liability on the consolidated balance sheet. The Company ~~is currently evaluating the effect that the updated standard will have on its ongoing financial reporting, it expects that the~~recognized $92 million of operating ~~leases listed~~lease right-of-use assets, $18 million in ~~note 7 -~~ ~~Leases~~ ~~to the accompanying consolidated financial statements will be recognized as right of- use assets~~short-term operating lease liabilities and $87 million of long-term operating lease liabilities on the consolidated balance ~~sheets~~sheet upon adoption of the new standard. The ~~Company does~~operating lease liabilities were determined based on the present value of the remaining minimum rental payments and the operating lease right-of-use asset was determined based on the value of the lease liabilities, adjusted for deferred rent balances of $13 million, which were previously included in accrued liabilities and other long-term liabilities.

Accounting pronouncements issued but not ~~anticipate that the adoption will have a material impact on its consolidated statements of operations.~~adopted

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which addresses the effect of the change in the U.S. federal corporate tax rate due to the enactment of the December 22, 2017 Tax Cuts and Jobs Act on items within accumulated other comprehensive income (loss). The Company has elected not to adopt this guidance ~~will be effective for~~as there would have been no significant effect of the ~~Company in the first quarter of 2019 with early adoption permitted. The Company is currently assessing the impact that adopting this new accounting~~ standard ~~will have~~ on its consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Interest rate risk

QVC is exposed to changes in interest rates primarily as a result of borrowing activities. Over the long-term, QVC manages the exposure to interest rates by maintaining what QVC believes is an appropriate mix of fixed and variable rate debt.

The table below summarizes the Company’s debt obligations, related interest rates and fair value of debt at ~~September~~June 30, ~~2018:~~2019:


(in millions, except percentages)	Remainder of 2018			2019		2020		2021		2022		Thereafter		Total		Fair Value	Remainder of 2019			2020		2021		2022		2023		Thereafter		Total		Fair Value
Fixed rate debt (1)	$	—		400		—		—		500		2,875		3,775		3,666	$	—		—		—		500		750		2,125		3,375		3,415
Weighted average interest rate on fixed rate debt	—		%	3.1	%	—	%	—	%	5.1	%	5.0	%	4.8	%	N/A	—		%	—	%	—	%	5.1	%	4.4	%	5.2	%	5.0	%	N/A
Variable rate debt (1)	$	—		—		—		675		—		—		675		675	$	—		—		—		—		1,565		—		1,565		1,565
Average interest rate on variable rate debt	—		%	—	%	—	%	3.7	%	—	%	—	%	3.7	%	N/A	—		%	—	%	—	%	—	%	3.9	%	—	%	3.9	%	N/A

(1) Amounts exclude ~~capital~~finance lease obligations and the issue discounts on ~~our 3.125%,~~the 4.375%, ~~4.85%~~4.45%, ~~4.45%~~4.85%, 5.45% and 5.95% Senior Secured Notes. ~~Additionally, the presentation assumes there is no amount outstanding on the $140 million commitment under our senior secured credit facility that matures on March 9, 2020.~~

N/A - Not applicable.

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Foreign currency exchange rate risk

QVC is exposed to foreign exchange rate fluctuations related to the monetary assets and liabilities and the financial results of its 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 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 other comprehensive income as a separate component of stockholder's 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 transactions) or realized upon settlement of the transactions. Cash flows from operations in foreign countries are translated at the average rate for the period. Accordingly, QVC may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 would have been impacted by approximately $1 million and $3$2 million, respectively, for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.

The ~~Third~~Fourth Amended and Restated Credit Agreement provides QVC with the ability to borrow in multiple currencies. This allows QVC to somewhat mitigate foreign currency exchange rate risks. As of ~~September~~June 30, ~~2018,~~2019, no borrowings in foreign currencies were outstanding.

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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 "Exchange Act"), 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 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 not effective as of ~~September~~June 30, 2019 because of the material weaknesses in our internal control over financial reporting as discussed in more detail in our Form 10-K for the year ended December 31, 2018. Management has continued to monitor the implementation of the remediation plan described in our 10-K for the year ended December 31, 2018, 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.as described below.

Changes in Internal Control Over Financial Reporting

~~There~~During the three months ending June 30, 2019, we continued to review the design of our controls, made adjustments and continued implementing controls to alleviate the noted control deficiencies. Other than these items, there has been no change in the Company's internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting

In response to the material weaknesses identified in Management’s Report on Internal Control Over Financial Reporting as set forth in Part II, Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2018, the Company developed a plan with oversight from the Audit Committee of the Board of Directors of Qurate Retail to remediate the material weaknesses. The remediation efforts being implemented include the following:

Improvement of the design and operation of control activities and procedures associated with user and administrator access to the affected IT systems, including removing all inappropriate IT system access associated with the information technology general controls ("ITGCs") material weakness;

Improvement of change management and computer operation control activities that contributed to the ITGC material weakness;

Implementation of user activity monitoring for control activities contributing to the ITGC material weakness;

Delivery of training to control owners addressing control operating protocols including ITGCs and policies; and

Enhancement of the design and operation of control activities meant to validate the completeness and accuracy of revenue recorded in the U.K.

The Company believes the foregoing efforts will remediate the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. Because the reliability of the internal control process requires repeatable execution, the successful on-going remediation of the material weaknesses will require on-going review and evidence of effectiveness prior to concluding that the controls are effective. Our remediation efforts are underway, and we expect that the remediation of these material weaknesses will be completed prior to the end of 2019.

Additionally, the Company will continue to enhance the ITGC and U.K. revenue risk assessment process, evaluate talent and address identified gaps, deliver training on internal control over financial reporting, and monitor information system access and program changes to determine whether additional adjustments should be made to reduce or eliminate the occurrence of access and program change management issues.

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PART II

Item 6. Exhibits

(a) Exhibits

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



~~4.1~~		Indenture, dated September 13, 2018, by and among QVC, Inc., Affiliate Investment, Inc., Affiliate Relations Holdings, Inc., AMI 2, Inc., ER Marks, Inc., QVC Global Holdings I, Inc., QVC Global Holdings II, Inc., QVC Rocky Mount, Inc., QVC San Antonio, LLC and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to QVC, Inc.’s Form 8-A (File No. 001-38654), as filed on September 13, 2018).
~~4.2~~		First Supplemental Indenture, dated September 13, 2018, by and among QVC, Inc., Affiliate Investment, Inc., Affiliate Relations Holdings, Inc., AMI 2, Inc., ER Marks, Inc., QVC Global Holdings I, Inc., QVC Global Holdings II, Inc., QVC Rocky Mount, Inc., QVC San Antonio, LLC and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to QVC, Inc.’s Form 8-A (File No. 001-38654), as filed on September 13, 2018).
~~4.3~~		~~Form of 6.375% Senior Secured Notes due 2067 (incorporated herein by reference to Exhibit 4.3 to QVC, Inc.’s Form 8-A (File No. 001-38654), as filed on September 13, 2018).~~
31.1		Rule 13a-14(a)/15d-14(a) Certification*
31.2		Rule 13a-14(a)/15d-14(a) Certification*
32.1		Section 1350 Certification**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Definition Document*

*Filed herewith.

**Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

QVC, Inc.



Date: ~~November 9, 2018~~August 8, 2019	By:/s/ MICHAEL A. GEORGE
	Michael A. George
	President and Chief Executive Officer (Principal Executive Officer)

Date: ~~November 9, 2018~~August 8, 2019	By:/s/ JEFFREY A. DAVIS
	Jeffrey A. Davis
	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

II-2



	Part I	Page

Item 1.	Financial Statements (unaudited)	I-1
	Condensed Consolidated Balance Sheets	I-1
	Condensed Consolidated Statements of Operations	I-2
	Condensed Consolidated Statements of Comprehensive Income	I-3
	Condensed Consolidated Statements of Cash Flows	I-4
	Condensed Consolidated Statement of Equity	I-5
	Notes to the Condensed Consolidated Financial Statements (unaudited)	~~I-6~~I-7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	I-33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~I-46~~I-45
Item 4.	Controls and Procedures	I-47

	Part II
Item 6.	Exhibits	II-1
	Signatures	II-2



(in millions)	Balance at December 31, 2017			Adjustments Due to ASC 606		Adjustments Due to ASU 2016-16		Balance at January 1, 2018
Assets:
Inventories	$	1,019		(22	)	—		997
Prepaid expenses and other current assets	51			—		(1	)	50

Liabilities:
Accrued liabilities	872			(36	)	—		836

Equity:
Accumulated deficit	$	(2,772	)	14		(1	)	(2,759	)



Statements of Operations	Three months ended September 30, 2018				Nine months ended September 30, 2018
(in millions)	As Reported		Balances Without Adoption of ASC 606	Effect of Change Increase/(Decrease)	As Reported	Balances Without Adoption of ASC 606	Effect of Change Increase/(Decrease)
Net revenue	$	2,058	2,020	38	6,234	6,126	108

Costs and expenses:
Cost of goods sold	1,300		1,295	5	3,906	3,892	14
Operating	144		142	2	433	430	3
Selling, general and administrative, including transaction related costs and stock-based compensation	235		209	26	652	574	78

Income tax expense	69		68	1	224	221	3

Net income	$	173	169	4	616	606	10



(in millions)	Capital Leases		Operating leases
Remainder of 2018	$	7	6
2019	27		21
2020	24		17
2021	24		11
2022	22		9
Thereafter	133		72
Total	$	237	136