Liberty Interactive Corporation ("Liberty Interactive") (Nasdaq:
QVCA, QVCB, LVNTA, LVNTB) today reported third quarter 2014
results. Highlights include(1):
Liberty Interactive Corporation
- Reattributed Digital Commerce companies
and approximately $1 billion in cash from QVC Group to Liberty
Ventures Group in exchange for 67.67 million newly issued shares of
Liberty Ventures Group
- Liberty Interactive Group renamed QVC
Group and trading under new tickers QVCA and QVCB
- Newly issued Liberty Ventures Group
shares distributed to QVC Group holders tax-free
- Cash and liquid investments attributed
to Liberty Ventures Group estimated to be $2.7 billion at
year-end
- Improved trading liquidity through
Liberty Ventures Group share issuance
- Completed the spin-off of Liberty
TripAdvisor Holdings, Inc. ("Liberty TripAdvisor") on August
27th
Attributed to QVC Group
- QVC US grew revenue by 5% and adjusted
OIBDA(2) by 8% in the third quarter
- QVC.com revenue as a percent of total
US revenue increased 222 basis points to 43%
- QVC US mobile penetration was 41% of
QVC.com orders
- QVC US operating income increased by
6%
- QVC posted strong adjusted OIBDA
increases across all European operations
- QVC completed issuance of $1 billion in
new Senior Notes
Attributed to Liberty Ventures Group
- Announced additional $650 million share
repurchase authorization at Liberty Ventures Group
- Received approximately $350 million
distribution in conjunction with spin-off of Liberty
TripAdvisor
"It has been an extremely busy period for Liberty Interactive
Corporation," stated Greg Maffei, Liberty Interactive President and
CEO. "We completed the spin-off of Liberty TripAdvisor and the
reattribution between QVC Group and Liberty Ventures Group. QVC
produced very strong results in the US, and its European markets,
demonstrating its ability to expand adjusted OIBDA margins. Our
Digital Commerce companies, now attributed to Liberty Ventures
Group, posted seasonally solid results and have strong momentum
going into the fourth quarter."
On October 3, 2014, Liberty Interactive announced the
reattribution from QVC Group to Liberty Ventures Group of its
Digital Commerce companies, which were valued at $1.5 billion, and
approximately $1 billion in cash. In return, QVC Group shareholders
received approximately 67.67 million shares of Liberty Ventures
Group stock (collectively, the “Reattribution”). The reattributed
Digital Commerce companies are comprised of Backcountry.com,
Bodybuilding.com, CommerceHub, Evite, Provide Commerce and The
Right Start. In connection with the Reattribution, Liberty
Interactive Group was renamed QVC Group and its tickers symbols
were changed to QVCA and QVCB.
On July 30, 2014, Liberty Interactive executed a definitive
agreement under which FTD will acquire Liberty Interactive’s
Provide Commerce floral and gifting businesses. Under the terms of
the agreement, Liberty Interactive will receive 10.2 million shares
of FTD common stock (representing 35% of the combined company) and
$121 million in cash. The definitive proxy for the transaction was
filed on November 3, 2014 and the required vote of FTD shareholders
is expected to occur on December 11, 2014.
QVC GROUP - QVC Group's revenue increased 5% to $2.3
billion in the third quarter, adjusted OIBDA increased 9% to $431
million and operating income increased 22% to $247 million. Both
QVC and the Digital Commerce companies contributed to the increase
in revenue for the quarter. Adjusted OIBDA increased at QVC, while
the adjusted OIBDA loss at the Digital Commerce companies narrowed.
On October 3, 2014, the Digital Commerce companies were
reattributed to Liberty Ventures Group and will be reported as part
of Liberty Ventures Group beginning with the fourth quarter of
2014.
QVC
QVC's consolidated revenue increased 4% to $2.0 billion in the
third quarter. Adjusted OIBDA increased 8% to $439 million and
operating income increased 7% to $276 million.
"We delivered our strongest quarterly performance of 2014 in the
third quarter," said QVC President and CEO Mike George. "We drove
good growth and generated strong operating leverage, particularly
in the US, Germany, the UK and Italy. We continue to benefit from
our customer-centric focus, which has resulted in outstanding
customer loyalty in all our markets, as well as strong eCommerce
penetration and mobile growth."
QVC US's revenue increased 5% to $1.4 billion in the third
quarter primarily due to strength in the home, apparel and
accessories categories, partially offset by weakness in
electronics. Average selling price per unit ("ASP") increased 1% to
$58.19 from $57.88 and units sold increased 4%. Returns as a
percentage of gross product revenue improved 59 basis points.
eCommerce revenue increased 11% to $592 million and grew to 43%
from 41% as a percentage of total US revenue. Adjusted OIBDA
increased 8% to $329 million and adjusted OIBDA margin(2) increased
72 basis points. Adjusted OIBDA margin increased primarily due to
improved product margins, lower state franchise tax expense
associated with the timing of credits and audit settlements and
higher proprietary credit card income due in part to unfavorable
regulatory bank reserve adjustments experienced in the prior year,
as well as the positive impact of renegotiated contract terms.
These gains were partially offset by higher freight costs.
QVC's international revenue in US Dollars increased 1% to $652
million in the third quarter. The results included the positive
impact of the weakening of the US Dollar against the UK Pound
Sterling, which was mostly offset by the strengthening of the US
Dollar against the Japanese Yen. Adjusted OIBDA increased 6% to
$110 million and adjusted OIBDA margin increased 72 basis points.
Third quarter results included $3 million of costs related to the
scheduled launch of QVC France in the second quarter of 2015.
QVC Japan's revenue declined 4% in local currency in the third
quarter reflecting declines in all categories except beauty and
electronics. The decline in QVC Japan’s revenue in local currency
was primarily due to a local consumption tax increase that became
effective April 1, 2014. ASP in local currency decreased 2% and
units sold declined 3%. Returns as a percentage of gross product
revenue in local currency improved 207 basis points with
improvement in all categories and a lower mix of apparel and
accessories. Adjusted OIBDA in local currency decreased 7% and
adjusted OIBDA margin decreased 51 basis points. The decrease in
adjusted OIBDA margin was primarily due to lower product margins,
higher commission fees and lack of sales leverage of fixed costs,
partially offset by lower advertising and event-related
expenses.
QVC Germany's revenue increased 3% in local currency in the
third quarter. Germany experienced strength primarily in the home
category, which was partially offset by declines in apparel and
jewelry. ASP in local currency increased 6% and units sold
decreased 6%. Returns as a percentage of gross product revenue in
local currency improved 194 basis points primarily due to a
positive mix shift from apparel and jewelry to home, which
typically returns at lower rates. Adjusted OIBDA in local currency
increased 12% and adjusted OIBDA margin increased 182 basis points.
Adjusted OIBDA margin increased primarily due to lower fixed costs,
obsolescence and freight costs, which were partially offset by
lower product margins and higher bad debt expenses.
QVC UK's revenue grew 3% in local currency in the third quarter
primarily due to gains in the home and beauty categories. ASP in
local currency increased 2% and units sold increased 2%. Adjusted
OIBDA in local currency increased 9% and adjusted OIBDA margin
increased 125 basis points. The increase in adjusted OIBDA margin
was primarily due to sales leverage of fixed costs and lower
freight costs.
QVC Italy's revenue increased 18% in local currency in the third
quarter primarily due to gains in all categories except
electronics. ASP in local currency increased 1% and units sold
increased 18%. The adjusted OIBDA deficit in local currency
improved 73% and adjusted OIBDA margin improved 1,492 basis points.
The increase in adjusted OIBDA margin was primarily due to sales
leverage of fixed costs and lower product distribution
expenses.
CNRS, QVC’s joint venture in China operating under the brand CNR
Mall, generated revenue growth of 14% in local currency in the
third quarter. Adjusted OIBDA deficit in local currency increased
45% primarily due to new television distribution agreements that
will expand reach into more homes and higher fixed costs, which
were partially offset by revenue growth and improved product
margins. This joint venture is being accounted for as an equity
method investment, and as a result, QVC reported a $2 million
reduction in net income in the third quarter.
QVC's outstanding bank and bond debt was $4.1 billion at
September 30, 2014, compared with $3.9 billion at June 30,
2014.
Digital Commerce
Companies
In the aggregate, the Digital Commerce companies’ revenue
increased 12% to $310 million for the quarter. Each of the
significant Digital Commerce companies experienced varying
increases in revenue. Provide experienced modest revenue growth due
to softness in demand for their products and slightly lower average
order values. Bodybuilding and Backcountry revenue grew due to
increases in transactions on relatively stable average order
values. CommerceHub grew revenue 32% due to an equivalent
percentage increase in transactions processed. Adjusted OIBDA for
the Digital Commerce businesses increased $3 million for the three
months ended September 30, 2014, as compared to the corresponding
period in the prior year. For the three months ended September 30,
2014 and 2013, the adjusted OIBDA losses were approximately 1% and
2% as a percentage of revenue, respectively. The improvement in
adjusted OIBDA margin was primarily due to improved gross margins
at Bodybuilding and Backcountry, cost savings initiatives and the
revenue growth at CommerceHub. These improvements were partially
offset by a $5 million reserve that was recorded on RedEnvelope
inventory during the period in anticipation of winding down the
business in early 2015 combined with $2 million of transaction
costs associated with the FTD transaction. Excluding these items,
Provide was relatively flat and the other Digital Commerce
businesses experienced increases in adjusted OIBDA.
Share Repurchases
From August 1, 2014 through October 31, 2014, Liberty
Interactive repurchased approximately 5.7 million Series A QVC
Group shares (Nasdaq: QVCA) at an average cost per share of $28.73
for total cash consideration of $165 million. Beginning in
mid-September, Liberty Interactive was unable to repurchase shares,
pending the public announcement of the Reattribution and its
quarterly earnings. Since the creation of the QVC Group stock
(including its predecessor, Liberty Interactive Group) in May 2006,
Liberty Interactive has repurchased shares for aggregate cash
consideration of $5.3 billion, representing approximately 36.1% of
the shares outstanding at the time of the creation of the QVC Group
stock. All repurchases up to August 9, 2012, the date on which the
QVC Group stock was recapitalized to create the Liberty Ventures
Group stock, were comprised of shares of the combined stocks. The
total remaining repurchase authorization for QVC Group stock is
approximately $784 million, which includes $350 million authorized
by Liberty Interactive’s Board of Directors in August for
repurchase of either QVC Group or Liberty Ventures Group stock.
QVC Group consists of Liberty Interactive’s subsidiary, QVC,
Inc., and Liberty Interactive’s interest in HSN, Inc.(3)
LIBERTY VENTURES GROUP - As of September 30, 2014,
the fair value of the public equity method securities and other
public holdings attributed to the Liberty Ventures Group was $2.4
billion and $1.1 billion, respectively. When compared to June 30,
2014, the fair value of Liberty Ventures Group's public equity
method securities increased 8%. The Liberty Ventures Group's other
public holdings balance decreased 1% primarily due to changes in
market prices of certain securities during the third quarter.
On August 27, 2014, Liberty Ventures Group completed the
spin-off of Liberty TripAdvisor (Nasdaq: LTRPA, LTRPB). Liberty
TripAdvisor is comprised of, among other things, a 22% economic and
57% voting interest in TripAdvisor, as well as 100% of BuySeasons,
a costume and party supply retailer, and approximately $350 million
in corporate level net debt. Immediately prior to the spin-off,
Liberty TripAdvisor distributed approximately $350 million in cash
to Liberty Interactive, which is attributable to Liberty Ventures
Group. Following the spin-off, Liberty TripAdvisor has been
reflected as discontinued operations. Certain amounts in this
release have been adjusted to reflect Liberty TripAdvisor as
discontinued operations.
Share Repurchases
There were no repurchases of Liberty Ventures Group common stock
(Nasdaq: LVNTA) from August 1, 2014 through October 31, 2014. In
connection with the approval of the spin-off of Liberty
TripAdvisor, Liberty Interactive's Board of Directors authorized
the repurchase of $350 million worth of shares of Liberty
Interactive stock, which authorization may be used to repurchase
either QVC Group stock or Liberty Ventures Group stock. On October
9, 2014, Liberty Interactive’s Board of Directors authorized the
repurchase of up to an additional $650 million of Liberty Ventures
Group stock.
The businesses and assets attributed to the Liberty Ventures
Group are all of Liberty Interactive's businesses and assets other
than those attributed to the QVC Group, including its interest in
Expedia, its subsidiaries Provide Commerce, Backcountry.com,
Bodybuilding.com, CommerceHub, The Right Start, and Evite, and
minority interests in Time Warner, Time Warner Cable, Lending Tree
and Interval Leisure Group(3).
FOOTNOTES
1) Liberty Interactive's President and CEO, Greg Maffei,
will discuss these highlights and other matters in Liberty
Interactive's earnings conference call which will begin at 5:15
p.m. (E.S.T.) on November 4, 2014. For information regarding how to
access the call, please see “Important Notice” later in this
document. 2) For a definition of adjusted OIBDA and applicable
reconciliations and a definition of adjusted OIBDA margin, see the
accompanying schedules. 3) Pro forma for the October 3, 2014
Reattribution.
QVC GROUP
FINANCIAL METRICS - QUARTER
(amounts in millions) 3Q13 3Q14 % Change
Revenue QVC US $ 1,303 $ 1,368 5 % International 644
652 1 %
Total QVC Revenue
$ 1,947 $ 2,020 4
% Digital Commerce companies 278
310 12 %
Total QVC Group Revenue $
2,225 $ 2,330 5
% Adjusted OIBDA QVC US $ 304 $ 329 8 %
International 104 110 6 %
Total QVC Adjusted OIBDA $ 408 $
439 8 % Digital Commerce
companies (5 ) (2 ) 60 % Corporate and other (6 ) (6
) - %
Total QVC Group Adjusted OIBDA $
397 $ 431 9
% Operating Income QVC US $ 191 $ 203 6 %
International 68 73 7 %
Total
QVC Operating Income $ 259 $
276 7 % Digital Commerce
companies (43 ) (14 ) 67 % Corporate and other (14 )
(15 ) (7 ) %
Total QVC Group Operating Income $
202 $ 247 22
% (amounts in millions)
QVCA Shares
Outstanding
10/31/2013 10/31/2014 Outstanding A and
B shares 508 476 (amounts in millions)
Quarter
Quarter ended ended
QVCA and QVCB
Basic and Diluted Shares
9/30/2013 9/30/2014 Basic Weighted
Average Shares Outstanding ("WASO") 513 477 Potentially dilutive
Shares 10 10
Diluted WASO
523 487
QVC OPERATING
METRICS - QUARTER
(amounts in millions except average sale price
amounts) 3Q13 3Q14 % Change
QVC - Consolidated(1)
Revenue $ 1,947 $ 2,020 4 % Adjusted OIBDA $ 408 $ 439 8 % Adjusted
OIBDA margin 20.96 % 21.73 % 78 bps Operating Income $ 259 $ 276 7
%
eCommerce and Mobile
Metrics
eCommerce $ of total revenue $ 705 $ 781 11 % eCommerce % of total
revenue 36.21 % 38.66 % 245 bps
Mobile % of total
eCommerce(2)
32.70 % 43.03 % 1,033 bps
QVC
- US(1) Revenue $ 1,303 $ 1,368 5 % Adjusted OIBDA $ 304
$ 329 8 % Adjusted OIBDA margin 23.33 % 24.05 % 72 bps Operating
Income $ 191 $ 203 6 % Average sale price (ASP) $ 57.88 58.19 1 %
Units sold 24.82 25.80 4 % Return rate 19.63 % 19.04 % (59 ) bps
eCommerce and Mobile
Metrics
eCommerce $ of US revenue $ 535 $ 592 11 % eCommerce % of US
revenue 41.06 % 43.27 % 222 bps Mobile % of US eCommerce(2)
31.62 % 41.34 % 972 bps
QVC OPERATING
METRICS - QUARTER (CONT'D)
(amounts in millions except average sale price
amounts) 3Q13 3Q14 % Change
QVC - Japan(1)
Revenue $ 236 $ 216 (8 ) % Adjusted OIBDA $ 46 $ 41 (11 ) %
Adjusted OIBDA margin 19.49 % 18.98 % (51 ) bps Operating Income $
39 $ 33 (15 ) % Average sale price (ASP) ¥ 6,029.91 5,879.17 (2 ) %
Units sold 4.36 4.21
(3 ) %
QVC - Germany(1) Revenue $ 224 $
229 2 % Adjusted OIBDA $ 37 $ 42 14 % Adjusted OIBDA margin 16.52 %
18.34 % 182 bps Operating Income $ 19 $ 25 32 % Average sale price
(ASP) € 34.03 36.23 6 % Units sold 6.55
6.17 (6 ) %
QVC - UK(1)
Revenue $ 156 $ 173 11 % Adjusted OIBDA $ 26 $ 31 19 % Adjusted
OIBDA margin 16.67 % 17.92 % 125 bps Operating Income $ 21 $ 23 10
% Average sale price (ASP) £ 30.50 31.16 2 % Units sold
3.57 3.64 2
%
QVC - Italy(1) Revenue $ 28 $ 34 21 % Adjusted
OIBDA $ (5 ) $ (1 ) 80 % Adjusted OIBDA margin (17.86 ) % (2.94 ) %
1,492 bps Operating Income $ (11 ) $ (5 ) 55 % Average sale price
(ASP) € 31.51 31.81 1 % Units sold 0.71
0.84 18 %
QVC -
France(1) Revenue $ — — — % Adjusted OIBDA $ — (3 ) (100
) % Adjusted OIBDA margin — — — bps Operating Income $ — (3 ) (100
) % Average sale price (ASP) € — — — % Units sold
— — — %
China
JV(1)(3) Revenue $ 29 $ 33 14 % Adjusted OIBDA $ (3 ) $
(3 ) - % Adjusted OIBDA margin (10.34 ) % (9.09 ) % 125 bps (1)
Revenue change, adjusted OIBDA change and eCommerce and
Mobile Metrics calculated in US Dollars, not local currency. (2)
Based on gross US Dollar orders. (3) This joint venture is being
accounted for as an equity method investment.
NOTES
Unless otherwise noted, the foregoing discussion compares
financial information for the three months ended September 30,
2014 to the same period in 2013.
The following financial information with respect to Liberty
Interactive's equity affiliates and available for sale securities
is intended to supplement Liberty Interactive's condensed
consolidated statements of operations which are included in its
Form 10-Q.
Fair Value of Public Holdings
(amounts in millions) 6/30/2014
9/30/2014 HSN(1) $ 1,186 $ 1,228
Total Attributed QVC Group
$ 1,186 $ 1,228 Expedia(2) $
1,818 $ 2,022 Interval Leisure Group and Tree.com(3) 446 417 Other
Public Holdings(4) 1,149 1,135
Total Attributed
Liberty Ventures Group $ 3,413 $
3,574 (1) Represents fair value of QVC Group's
investment in HSN. In accordance with GAAP, QVC Group accounts for
this investment using the equity method of accounting and includes
this investment in its attributed balance sheet at its historical
carrying value which aggregated $313 million and $322 million at
June 30, 2014 and September 30, 2014, respectively. (2) Represents
fair value of Liberty Ventures Group's investment in Expedia. In
accordance with GAAP, Liberty Ventures Group accounts for this
investment using the equity method of accounting and includes this
investment in its attributed balance sheet at its historical
carrying value which aggregated $476 million and $501 million at
June 30, 2014 and September 30, 2014, respectively. (3) Represents
fair value of Liberty Ventures Group's investments. In accordance
with GAAP, Liberty Ventures Group accounts for these investments
using the equity method of accounting and includes these
investments in its attributed balance sheet at their historical
carrying values which aggregated $108 million and $111 million at
June 30, 2014 and September 30, 2014, respectively. (4) Represents
Liberty Ventures Group's other public holdings which are accounted
for at fair value. Excludes $39 million and $23 million of
long-term marketable securities as of June 30, 2014 and September
30, 2014, respectively.
Cash and Debt
The following presentation is provided to separately identify
cash and liquid investments and debt information.
(amounts in millions) 6/30/2014
9/30/2014
Cash and Liquid Investments Attributable to: QVC
Group (1) $ 701 $ 749 Liberty Ventures Group(2)(3) 1,188
1,547
Total Liberty Consolidated Cash and
Liquid Investments $ 1,889 $
2,296 Less: Short-term marketable
securities - QVC Group $ 11 $ 16 Short-term marketable securities -
Liberty Ventures Group 595 651 Long-term marketable securities -
Liberty Ventures Group 39 23
Total
Liberty Consolidated Cash (GAAP) $ 1,244
$ 1,606 Debt: Senior notes and
debentures(4) $ 791 $ 791 Senior exchangeable debentures(5) 400 400
QVC senior notes(4) 3,819 4,050 QVC bank credit facility 65 32
Other 157 157
Total Attributed QVC
Group Debt $ 5,232 $ 5,430
Unamortized discount and fair market value adjustment 2
5
Total Attributed QVC Group Debt
(GAAP) $ 5,234 $ 5,435
Senior exchangeable debentures(5) $ 2,086 $
2,082
Total Attributed Liberty Ventures Group Debt
$ 2,086 $ 2,082 Fair market value
adjustment (5 ) (22 )
Total Attributed Liberty
Ventures Group Debt (GAAP) $ 2,081
$ 2,060 Total Liberty Interactive
Corporation Debt (GAAP) $ 7,315 $
7,495 (1) Includes $11 million and $16 million
of short-term marketable securities with an original maturity
greater than 90 days as of June 30, 2014 and September 30, 2014,
respectively. (2) Includes $595 million and $651 million of
short-term marketable securities with an original maturity greater
than 90 days as of June 30, 2014 and September 30, 2014,
respectively. (3) Includes $39 million and $23 million of
marketable securities with an original maturity greater than one
year as of June 30, 2014 and September 30, 2014, respectively,
which are reflected in investments in available-for-sale securities
in Liberty Ventures Group's condensed attributed balance sheet. (4)
Face amount of Senior Notes and Debentures with no reduction for
the unamortized discount. (5) Face amount of Senior Exchangeable
Debentures with no reduction for the fair market value adjustment.
Total cash and liquid investments attributed to the QVC Group
increased by approximately $48 million during the third quarter.
Cash flow from operations and new borrowings were partially offset
by stock repurchases, debt repayments, and capital expenditures.
Total debt attributed to the QVC Group increased by $198 million,
primarily due to the issuance of $1.0 billion in new senior notes
at QVC. Net proceeds were used to redeem QVC’s 7.5% senior notes
due October 2019 and to fund working capital needs and other
general corporate purposes.
Total cash and liquid investments attributed to the Liberty
Ventures Group increased $359 million, primarily due to cash
received upon completion of the spin-off of Liberty
TripAdvisor.
Important Notice: Liberty Interactive (Nasdaq: QVCA,
QVCB, LVNTA, LVNTB) President and CEO, Greg Maffei will discuss
Liberty Interactive's earnings release in a conference call which
will begin at 5:15 p.m. (E.S.T.) on November 4, 2014. The call can
be accessed by dialing (888) 455-2271 or (719) 325-2173 at least 10
minutes prior to the start time. Replays of the conference call can
be accessed until 7:15 p.m. (E.S.T.) on November 11, 2014, by
dialing (888) 203-1112 or (719) 457-0820 plus the passcode 1670709.
The call will also be broadcast live across the Internet and
archived on our website. To access the webcast go to
http://www.libertyinteractive.com/events. Links to this press
release will also be available on Liberty's website.
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements about business strategies, market
potential, future financial prospects, international expansion,
including the launch of QVC France and the expected expenditures in
connection therewith, new service and product offerings, the
monetization of our non-core assets, the continuation of our stock
repurchase program, the estimated liabilities under exchangeable
debentures and other matters that are not historical facts. These
forward-looking statements involve many risks and uncertainties
that could cause actual results to differ materially from those
expressed or implied by such statements, including, without
limitation, possible changes in market acceptance of new products
or services, competitive issues, regulatory matters affecting our
businesses, continued access to capital on terms acceptable to
Liberty Interactive, changes in law and government regulations that
may impact the derivative instruments that hedge certain of our
financial risks, and market conditions conducive to stock
repurchases. These forward-looking statements speak only as of the
date of this presentation, and Liberty Interactive expressly
disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statement contained herein to
reflect any change in Liberty Interactive's expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statement is based. Please refer to the publicly
filed documents of Liberty Interactive, including the most recent
Forms 10-K and 10-Q, for additional information about Liberty
Interactive and about the risks and uncertainties related to
Liberty Interactive's business which may affect the statements made
in this presentation.
SUPPLEMENTAL INFORMATION
As a supplement to Liberty Interactive's condensed consolidated
statements of operations, which are included in its Form 10-Q,
the following is a presentation of quarterly information and
operating metrics on a stand-alone basis for the largest business
owned by Liberty Interactive (QVC) at September 30, 2014,
which Liberty Interactive has identified as a reportable
segment.
Please see below for the definition of adjusted OIBDA and a
discussion of why management believes the presentation of adjusted
OIBDA for QVC provides useful information for investors. Schedule 2
to this press release provides a reconciliation of adjusted OIBDA
for each identified reportable segment to that segment's operating
income for the same period, as determined under GAAP.
QUARTERLY SUMMARY
(amounts in millions)
3Q13 4Q13 1Q14 2Q14 3Q14
QVC Group QVC Revenue - US $
1,303 $ 1,932 $ 1,305 $ 1,352 $ 1,368
Revenue - International
644 809 681 662 652 Revenue -
Total $ 1,947 $ 2,741 $ 1,986 $ 2,014 $ 2,020 Adjusted OIBDA - US
304 437 301 325 329 Adjusted OIBDA - International 104
158 111 114 110 Adjusted OIBDA - Total
$ 408 $ 595 $ 412 $ 439 $ 439 Operating income - US 191 323 186 203
203 Operating income - International 68 118 74
81 73 Operating income - Total $ 259 $ 441 $ 260 $
284 $ 276 Gross margin - US 37.1 % 34.7 % 36.4 % 37.7 % 37.2 %
Gross margin - International 37.4 % 37.8 % 37.4 % 38.3 % 37.8 %
NON-GAAP FINANCIAL MEASURES
This press release includes a presentation of adjusted OIBDA,
which is a non-GAAP financial measure, for Liberty Interactive, QVC
(and certain of its subsidiaries), and the Digital Commerce
companies together with a reconciliation to that entity's operating
income, as determined under GAAP. Liberty Interactive defines
adjusted OIBDA as revenue less cost of sales, operating expenses,
and selling, general and administrative expenses, excluding all
stock based compensation, and excludes from that definition
depreciation and amortization and restructuring and impairment
charges that are included in the measurement of operating income
pursuant to GAAP. Further, this press release includes adjusted
OIBDA margin which is also a non-GAAP financial measure. Liberty
Interactive defines adjusted OIBDA margin as adjusted OIBDA divided
by revenue.
Liberty Interactive believes adjusted OIBDA is an important
indicator of the operational strength and performance of its
businesses, including each business' ability to service debt and
fund capital expenditures. In addition, this measure allows
management to view operating results and perform analytical
comparisons and benchmarking between businesses and identify
strategies to improve performance. Because adjusted OIBDA is used
as a measure of operating performance, Liberty Interactive views
operating income as the most directly comparable GAAP measure.
Adjusted OIBDA is not meant to replace or supersede operating
income or any other GAAP measure, but rather to supplement such
GAAP measures in order to present investors with the same
information that Liberty Interactive's management considers in
assessing the results of operations and performance of its assets.
Please see the attached schedules for applicable
reconciliations.
SCHEDULE 1
The following table provides a reconciliation of QVC Group's
adjusted OIBDA to its operating income calculated in accordance
with GAAP for the three months ended September 30, 2013, December
31, 2013 and March 31, 2014, June 30, 2014 and September 30,
2014, respectively.
QUARTERLY SUMMARY
(amounts in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
QVC
Group Adjusted OIBDA $ 397 $ 621 $ 436 $ 460 $ 431 Depreciation
and amortization (154 ) (166 ) (162 ) (165 ) (166 ) Stock
compensation expense (22 ) (35 ) (24 ) (24 ) (18 ) Impairment of
intangible assets (19 ) (11 ) —
(7 ) —
Operating Income $ 202
$ 409 $ 250
$ 264 $ 247
SCHEDULE 2
The following table provides a reconciliation of adjusted OIBDA
for QVC (and certain of its subsidiaries) and the Digital Commerce
businesses to that entity or such businesses' operating income
(loss) calculated in accordance with GAAP for the three months
ended September 30, 2013, December 31, 2013, March 31, 2014,
June 30, 2014 and September 30, 2014, respectively. As there
are no material reconciling items between adjusted OIBDA and
operating income for the QVC China joint venture for the referenced
periods, no reconciliation has been provided.
QUARTERLY SUMMARY
(amounts in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
QVC
Group
QVC Adjusted OIBDA QVC US $ 304 $ 437 $ 301 $ 325 $ 329
QVC Japan 46 55 47 43 41 QVC Germany 37 58 39 40 42 QVC UK
26 47 27 33 31 QVC Italy (5 ) (2 ) (2 ) (2 ) (1 ) QVC France
— — — — (3
) QVC International adjusted OIBDA $ 104 $ 158 $ 111
$ 114 $ 110 Consolidated QVC adjusted
OIBDA 408 595 412 439 439 Depreciation and amortization (139 ) (145
) (144 ) (145 ) (147 ) Stock compensation (10 ) (9 )
(8 ) (10 ) (16 )
Operating Income
$ 259 $ 441 $
260 $ 284 $ 276
Digital Commerce Companies Adjusted OIBDA (4 )
28 28 27 (2 ) Depreciation and amortization (17 ) (19 ) (18 ) (20 )
(19 ) Stock compensation (3 ) (14 ) (5 ) (7 ) 7 Impairment of
intangible assets (19 ) (11 ) —
(7 ) —
Operating Income (Loss) $
(43 ) $ (16 ) $ 5
$ (7 ) $ (14 )
LIBERTY INTERACTIVE CORPORATION
BALANCE SHEET INFORMATION
September 30, 2014 -
(unaudited)
Attributed QVC Ventures
Inter-group Consolidated Group
Group Eliminations
Liberty amounts in millions
Assets Current assets:
Cash and cash equivalents $ 733 873 — 1,606 Trade and other
receivables, net 797 3 — 800 Inventory, net 1,279 — — 1,279
Short-term marketable securities 16 651 — 667 Other current assets
256 — (169 ) 87
Total current assets
3,081 1,527 (169 ) 4,439
Investments in available-for-sale securities and other cost
investments 4 1,157 — 1,161 Investments in affiliates, accounted
for using the equity method 372 899 — 1,271 Property and equipment,
net 1,131 — — 1,131 Intangible assets not subject to amortization
8,320 — — 8,320 Intangible assets subject to amortization, net
1,303 — — 1,303 Other assets, at cost, net of accumulated
amortization 82 — — 82
Total assets
$ 14,293 3,583 (169 )
17,707 Liabilities and Equity Current liabilities:
Intergroup Payable (receivable) $ 55 (55 ) — — Accounts payable 702
— — 702 Accrued liabilities 627 19 — 646 Current portion of debt 45
927 — 972 Current deferred tax liabilities — 1,173 (169 ) 1,004
Other current liabilities 163 — — 163
Total
current liabilities 1,592 2,064
(169 ) 3,487 Long-term debt 5,390 1,133 —
6,523 Deferred income tax liabilities 1,041 787 — 1,828 Other
liabilities 241 — — 241
Total
liabilities 8,264 3,984 (169
) 12,079 Equity/Attributed net assets (liabilities)
5,908 (401 ) — 5,507 Noncontrolling interests in equity of
subsidiaries 121 — — 121
Total liabilities
and equity $ 14,293 3,583
(169 ) 17,707
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended September 30,
2014 - (unaudited)
Attributed QVC Ventures
Consolidated Group Group
Liberty amounts in millions Net retail sales $ 2,330
— 2,330
Operating costs and expenses: Cost of sales
1,488 — 1,488 Operating, including stock-based compensation 203 —
203 Selling, general and administrative, including stock-based
compensation 226 8 234 Depreciation and amortization 166
— 166 2,083 8 2,091
Operating income 247 (8 ) 239
Other income
(expense): Interest expense (80 ) (19 ) (99 ) Share of earnings
(losses) of affiliates, net 13 23 36 Realized and unrealized gains
(losses) on financial instruments, net 2 16 18 Other, net
(46 ) 8 (38 ) (111 ) 28 (83 ) Earnings (loss)
before income taxes 136 20 156 Income tax benefit (expense)
(41 ) 14 (27 ) Net earnings (loss) from continuing
operations 95 34 129 Net earnings (loss) from discontinued
operations (4 ) 14 10 Net earnings (loss) 91 48 139
Less net earnings (loss) attributable to noncontrolling interests
8 11 19 Net earnings (loss)
attributable to Liberty stockholders $ 83 37 120
QVC Shares
Outstanding
Outstanding A and B shares as of October 31, 2014 (in millions) 476
Quarter Ended
QVCA and QVCB
Basic and Diluted Shares (in millions)
9/30/2014 Basic Weighted Average Shares Outstanding
("WASO") 477 Potentially dilutive shares 10 Diluted
WASO 487
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF OPERATIONS
INFORMATION
Three months ended September 30,
2013 - (unaudited)
Attributed QVC Ventures
Consolidated Group Group Liberty
Revenue: Net retail sales $ 2,225 — 2,225
Operating costs and expenses: Cost of sales 1,423 — 1,423
Operating, including stock-based compensation 203 — 203 Selling,
general and administrative, including stock-based compensation 224
5 229 Impairment of long-lived assets 19 — 19 Depreciation and
amortization 154 — 154 2,023
5 2,028 Operating income (loss) 202 (5 ) 197
Other income (expense): Interest expense (71 ) (18 )
(89 ) Share of earnings (losses) of affiliates, net 13 16 29
Realized and unrealized gains (losses) on financial instruments,
net (18 ) 33 15 Other, net — 5 5
(76 ) 36 (40 ) Earnings (loss) before income taxes 126 31
157 Income tax benefit (expense) (38 ) 3 (35 ) Net
earnings (loss) from continuing operations 88 34 122 Net earnings
(loss) from discontinued operations (3 ) 12 9
Net earnings (loss) 85 46 131 Less net earnings (loss) attributable
to noncontrolling interests 8 10 18 Net
earnings (loss) attributable to Liberty stockholders $ 77 36
113
QVC Shares
Outstanding
Outstanding A and B shares as of October 31, 2013 (in millions) 508
Quarter ended
QVCA and QVCB
Basic and Diluted Shares (in millions)
9/30/2013 Basic Weighted Average Shares Outstanding
("WASO") 513 Potentially dilutive shares 10 Diluted
WASO 523
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Nine months ended September 30,
2014 - (unaudited)
Attributed QVC
Ventures
Consolidated Group Group
Liberty amounts in millions
CASH FLOWS FROM
OPERATING ACTIVITIES: Net earnings (loss) $ 325 30 355
Adjustments to reconcile net earnings to net cash provided by
operating activities: (Earnings) loss from discontinued operations
15 (63 ) (48 ) Depreciation and amortization 493 — 493 Stock-based
compensation 66 5 71 Cash payments for stock based compensation (13
) (2 ) (15 ) Excess tax benefit from stock based compensation (10 )
(1 ) (11 ) Share of (earnings) losses of affiliates, net (41 ) 3
(38 ) Cash receipts from return on equity investments 13 18 31
Realized and unrealized gains (losses) on financial instruments,
net (9 ) 57 48 Impairment of intangible assets 7 — 7 Loss on
extinguishment of debt 48 — 48 Deferred income tax (benefit)
expense (146 ) 79 (67 ) Other, net 2 1 3 Intergroup tax allocation
158 (158 ) — Intergroup tax payments (330 ) 330 — Changes in
operating assets and liabilities Current and other assets 166 (1 )
165 Payables and other current liabilities 71 (5 ) 66
Net cash provided (used) by operating activities
815 293 1,108
CASH FLOWS FROM INVESTING ACTIVITIES: Cash proceeds
from dispositions — 40 40 Investments in and loans to cost and
equity investees (3 ) (48 ) (51 ) Capital expended for property and
equipment (142 ) — (142 ) Purchases of short term and other
marketable securities (59 ) (364 ) (423 ) Sales of short term and
other marketable securities 43 315 358 Other investing activities,
net (28 ) 16 (12 )
Net cash provided (used) by
investing activities (189 ) (41
) (230 ) CASH FLOWS FROM FINANCING
ACTIVITIES: Borrowings of debt 3,233 — 3,233 Repayments of debt
(2,910 ) (10 ) (2,920 ) Repurchases of Liberty common stock (736 )
— (736 ) Minimum withholding taxes on net settlements of
stock-based compensation (16 ) — (16 ) Excess tax benefit from
stock-based compensation 10 1 11 Reattribution of subsidiary 25 (25
) — Other financing activities, net (49 ) — (49 )
Net cash provided (used) by financing activities
(443 ) (34 ) (477 ) Net
cash provided (used) by discontinued operations: Operating (20 )
293 273 Investing — (194 ) (194 ) Financing 3 368 371 Change in
available cash held by discontinued operations 3 (119
) (116 ) Net cash provided (used) by discontinued operations
(14 ) 348 334 Effect of
foreign currency rates on cash (31 ) — (31 ) Net
increase (decrease) in cash and cash equivalents 138 566 704 Cash
and cash equivalents at beginning of period 595 307
902
Cash and cash equivalents at end period
$ 733 873 1,606
LIBERTY INTERACTIVE CORPORATION
STATEMENT OF CASH FLOWS
INFORMATION
Nine months ended September 30,
2013 - (unaudited)
Attributed QVC Ventures
Consolidated Group Group
Liberty amounts in millions
CASH FLOWS FROM
OPERATING ACTIVITIES: Net earnings (loss) $ 314 20 334
Adjustments to reconcile net earnings to net cash provided by
operating activities: (Earnings) loss from discontinued operations
12 (52 ) (40 ) Depreciation and amortization 463 — 463 Stock-based
compensation 75 5 80 Cash payments for stock based compensation (8
) — (8 ) Excess tax benefit from stock-based compensation (9 ) — (9
) Share of losses (earnings) of affiliates, net (33 ) 8 (25 ) Cash
receipts from return on equity investments 11 14 25 Realized and
unrealized gains (losses) on financial instruments, net 1 48 49
Gains (losses) on dispositions of assets — 1 1 Impairment of
intangible assets 19 — 19 Deferred income tax (benefit) expense
(143 ) (42 ) (185 ) Other, net 59 11 70 Intergroup tax allocation
49 (49 ) — Intergroup tax payments 30 (30 ) — Changes in operating
assets and liabilities Current and other assets 99 (5 ) 94 Payables
and other current liabilities (373 ) 40 (333 )
Net
cash provided (used) by operating activities 566
(31 ) 535 CASH FLOWS
FROM INVESTING ACTIVITIES: Cash proceeds from dispositions —
1,136 1,136 Investments in and loans to cost and equity investees
(4 ) (367 ) (371 ) Capital expended for property and equipment (176
) — (176 ) Purchases of short term and other marketable securities
— (1,013 ) (1,013 ) Sales of short term and other marketable
securities — 454 454 Other investing activities, net (14 )
(3 ) (17 )
Net cash provided (used) by investing activities
(194 ) 207 13
CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of
debt 2,867 843 3,710 Repayments of debt (2,642 ) (2,362 ) (5,004 )
Repurchases of Liberty common stock (750 ) — (750 ) Minimum
withholding taxes on net settlements of stock-based compensation
(22 ) — (22 ) Excess tax benefit from stock-based compensation 9 —
9 Intergroup receipts (payments), net — — — Other financing
activities, net (39 ) — (39 )
Net cash provided
(used) by financing activities (577 )
(1,519 ) (2,096 ) Net cash provided
(used) by discontinued operations: Operating (11 ) 241 230
Investing (7 ) (174 ) (181 ) Financing — (159 ) (159 ) Change in
available cash held by discontinued operations (4 ) 92
88 Net cash provided (used) by discontinued
operations (22 ) — (22 ) Effect of foreign currency rates on cash
(21 ) — (21 ) Net increase (decrease) in cash and
cash equivalents (248 ) (1,343 ) (1,591 ) Cash and cash equivalents
at beginning of period 698 1,593 2,291
Cash and cash equivalents at end period $ 450
250 700
Liberty Interactive CorporationCourtnee Ulrich (720)
875-5420
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