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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 March 31, ~~2013~~
2014

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 333-184501

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (do not check if smaller reporting company)	Smaller reporting company 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 Holdings, LLC, an indirect wholly-owned subsidiary of Liberty Interactive Corporation.

QVC, Inc.

~~2013~~2014 QUARTERLY REPORT ON FORM 10‑Q

Table of Contents




	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 Flow	I-4
	Condensed Consolidated Statement of Equity	I-5
	Notes to the Unaudited Condensed Consolidated Financial Statements	I-6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	~~I-24~~I-23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	~~I-33~~I-31
Item 4	Controls and Procedures	~~I-34~~I-32

	Part II
Item 6	Exhibits	II-1
	Signatures	II-2
	Exhibit Index	II-3

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	March 31,			December 31,
	2013			2012		March 31,			December 31,
(in millions)	(unaudited)					2014			2013
Assets
Current assets:
Cash and cash equivalents	$	439		540		$	558		457
Restricted cash	15			15		14			14
Accounts receivable, less allowance for doubtful accounts of $75 million at March 31, 2013 and $74 million at December 31, 2012	775			1,055
Accounts receivable, less allowance for doubtful accounts of $82 million at March 31, 2014 and $83 million at December 31, 2013						857			1,111
Inventories	935			909		1,017			931
Deferred income taxes	155			151		163			162
Prepaid expenses	50			53		54			47
Total current assets	2,369			2,723		2,663			2,722
Property, plant and equipment, net of accumulated depreciation of $857 million at March 31, 2013 and $866 million at December 31, 2012	1,084			1,131
Property and equipment, net of accumulated depreciation of $958 million at March 31, 2014 and $919 million at December 31, 2013						1,096			1,106
Cable and satellite television distribution rights, net	722			764		586			624
Goodwill	5,179			5,234		5,207			5,197
Other intangible assets, net	3,461			3,509		3,296			3,336
Other noncurrent assets	83			77		72			71
Total assets	$	12,898		13,438		$	12,920		13,056
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	11		12		$	12		13
Accounts payable-trade	422			566		541			494
Accrued liabilities	754			955		781			960
Total current liabilities	1,187			1,533		1,334			1,467
Long-term portion of debt and capital lease obligations	3,585			3,465		3,998			3,800
Deferred compensation	11			12		14			14
Deferred income taxes	1,367			1,410		1,273			1,326
Other long-term liabilities	158			184		140			108
Total liabilities	6,308			6,604		6,759			6,715
Equity:
QVC, Inc. shareholder's equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value	—			—		—			—
Additional paid-in capital	6,676			6,665		6,716			6,703
Accumulated deficit	(312		)	(161	)	(813		)	(620	)
Accumulated other comprehensive income	108			186		152			139
Total QVC, Inc. shareholder's equity	6,472			6,690
Total QVC, Inc. stockholder's equity						6,055			6,222
Noncontrolling interest	118			144		106			119
Total equity	6,590			6,834		6,161			6,341
Total liabilities and equity	$	12,898		13,438		$	12,920		13,056

See accompanying notes to condensed consolidated financial statements.

I-1I-1

QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended March 31,					Three months ended March 31,
(in millions)	2013			2012		2014			2013
Net revenue	$	1,974		1,932		$	1,986		1,974
Cost of goods sold	1,252			1,230		1,256			1,252
Gross profit	722			702		730			722
Operating expenses:
Operating	173			175		178			173
Selling, general and administrative, including stock-based compensation	155			142		148			155
Depreciation	30			31		33			30
Amortization of intangible assets	104			96
Amortization						111			104
	462			444		470			462
Operating income	260			258		260			260
Other income (expense):
Equity in earnings of investee	1			—
Gain on financial instruments	12			11
Interest expense	(63		)	(55	)
Interest income	—			1
Foreign currency (loss) gain	(1		)	6
Other (expense) income:
Equity in (losses) earnings of investee						(1		)	1
Gains on financial instruments						—			12
Interest expense, net						(62		)	(63	)
Foreign currency loss						(1		)	(1	)
Loss on extinguishment of debt	(41		)	—		—			(41	)
	(92		)	(37	)	(64		)	(92	)
Income before income taxes	168			221		196			168
Income tax expense	(62		)	(82	)	(74		)	(62	)
Net income	106			139		122			106
Less net income attributable to the noncontrolling interest	(12		)	(14	)	(9		)	(12	)
Net income attributable to QVC, Inc. shareholder	$	94		125
Net income attributable to QVC, Inc. stockholder						$	113		94

See accompanying notes to condensed consolidated financial statements.

I-2I-2

QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended March 31,					Three months ended March 31,
(in millions)	2013			2012		2014			2013
Net income	$	106		139		$	122		106
Foreign currency translation adjustments	(91		)	13		16			(91	)
Total comprehensive income	15			152		138			15
Comprehensive loss (income) attributable to noncontrolling interest	1			(4	)
Comprehensive income attributable to QVC, Inc. shareholder	$	16		148
Comprehensive (income) loss attributable to noncontrolling interest						(12		)	1
Comprehensive income attributable to QVC, Inc. stockholder						$	126		16

See accompanying notes to condensed consolidated financial statements.

I-3I-3

QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Three months ended March 31,					Three months ended March 31,
(in millions)	2013			2012		2014			2013
Operating activities:
Net income	$	106		139		$	122		106
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of investee	(1		)	—
Equity in losses (earnings) of investee						1			(1	)
Deferred income taxes	(22		)	(26	)	(57		)	(22	)
Foreign currency loss (gain)	1			(6	)
Foreign currency loss						1			1
Depreciation	30			31		33			30
Amortization of intangible assets	104			96
Change in fair value of interest rate swaps and noncash interest	(10		)	(9	)
Amortization						111			104
Change in fair value of financial instruments and noncash interest						2			(10	)
Loss on extinguishment of debt	41			—		—			41
Stock-based compensation	10			5		8			10
Change in other long-term liabilities	4			10		34			4
Effects of changes in working capital items	(88		)	161		6			(88	)
Net cash provided by operating activities	175			401		261			175
Investing activities:
Capital expenditures, net	(33		)	(45	)	(29		)	(33	)
Expenditures for cable and satellite television distribution rights, net	(25		)	(2	)	(8		)	(25	)
Cash paid for acquisitions of businesses, net of cash received	—			(16	)
Changes in other noncurrent assets	(4		)	—		(2		)	(4	)
Net cash used in investing activities	(62		)	(63	)	(39		)	(62	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,168		)	(319	)	(1,188		)	(1,168	)
Principal borrowings of debt from senior secured credit facility	240			275		384			240
Proceeds from issuance of senior secured notes	1,050			—
Proceeds from issuance of senior secured notes, net of original issue discount						999			1,050
Payment of debt origination fees	(14		)	—		(12		)	(14	)
Payment of bond premium fees	(33		)	—		—			(33	)
Other financing activities	4			—		7			4
Dividends paid to Liberty, net	(244		)	(238	)
Dividend paid to noncontrolling interest	(25		)	(29	)
Dividends paid to Liberty						(286		)	(244	)
Dividends paid to noncontrolling interest						(25		)	(25	)
Net cash used in financing activities	(190		)	(311	)	(121		)	(190	)
Effect of foreign exchange rate changes on cash and cash equivalents	(24		)	(9	)	—			(24	)
Net (decrease) increase in cash and cash equivalents	(101		)	18
Net increase (decrease) in cash and cash equivalents						101			(101	)
Cash and cash equivalents, beginning of period	540			560		457			540
Cash and cash equivalents, end of period	$	439		578		$	558		439
Effects of changes in working capital items:
Decrease in accounts receivable	$	274		308		$	256		274
Increase in inventories	(36		)	(50	)	(86		)	(36	)
(Increase) decrease in prepaid expenses	(2		)	3
Decrease in accounts payable‑trade	(130		)	(48	)
Increase in prepaid expenses						(6		)	(2	)
Increase (decrease) in accounts payable‑trade						49			(129	)
Decrease in accrued liabilities and other	(194		)	(52	)	(207		)	(195	)
Effects of changes in working capital items	$	(88	)	161		$	6		(88	)

See accompanying notes to condensed consolidated financial statements.

I-4I-4

QVC, Inc.

Condensed Consolidated Statements of Equity

(unaudited)


	Common stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		Noncontrolling interest		Total equity		Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income	Noncontrolling interest		Total equity
(in millions, except share data)	Shares	Amount		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		Noncontrolling interest		Total equity		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income	Noncontrolling interest		Total equity
Balance, December 31, 2012	1	$	—	6,665		(161	)	186		144		6,834
Balance, December 31, 2013														1	$	—	6,703		(620	)	139	119		6,341
Net income	—	—		—		94		—		12		106		—	—		—		113		—	9		122
Foreign currency translation adjustments	—	—		—		—		(78	)	(13	)	(91	)	—	—		—		—		13	3		16
Dividend paid to Liberty and other	—	—		(3	)	(245	)	—		(25	)	(273	)
Tax benefit resulting from exercise of employee stock options	—	—		4		—		—		—		4
Dividends paid to Liberty and noncontrolling interest														—	—		—		(286	)	—	(25	)	(311	)
Impact of tax liability allocation and indemnification agreement with Liberty														—	—		—		(20	)	—	—		(20	)
Minimum withholding taxes on net share settlements of stock-based compensation														—	—		(2	)	—		—	—		(2	)
Excess tax benefit resulting from stock-based compensation														—	—		7		—		—	—		7
Stock‑based compensation	—	—		10		—		—		—		10		—	—		8		—		—	—		8
Balance, March 31, 2013	1	$	—	6,676		(312	)	108		118		6,590
Balance, March 31, 2014														1	$	—	6,716		(813	)	152	106		6,161

See accompanying notes to condensed consolidated financial statements.

I-5I-5

QVC, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," 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~~Internet and mobile applications. In the United States, QVC's live programming is distributed via its nationally televised shopping program 24 hours aper day, 364 days per year ("QVC-U.S."). Internationally, QVC's program services are based in Japan ("QVC-Japan"), Germany ("QVC-Germany"), the United Kingdom ("QVC-U.K.") and Italy ("QVC-Italy"). QVC-Japan distributes live programming 24 hours aper day, QVC-Germany distributes its program 24 hours aper day with 2317 hours of live programming and QVC-U.K. distributes its program 24 hours aper day with 17 hours of live programming. QVC-Italy distributes programming live for 17 hours aper day on satellite and digital terrestrial television and an additional seven hours aper day of recorded programming on satellite and seven hours aper day of general interest programming on digital terrestrial television.

~~On July 4, 2012, QVC entered into~~The Company also has a joint venture with China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''), ~~for~~with a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS ~~is distributing~~distributes live programming for 1215 hours aper day and recorded programming for 12nine hours aper day. This joint venture is ~~being~~ accounted for as an equity method investment recorded as equity in (losses) earnings of investee in the condensed consolidated statements of operations.

~~The~~Additionally, the Company has a venture with Mitsui & Co. LTD ("Mitsui") for a television and multimedia retailing service in Japan. 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 three months ended March 31, ~~2013~~2014 and ~~2012~~2013, QVC-Japan paid dividends to Mitsui of $25 million and $2925 million, respectively.

We are an indirect wholly owned subsidiary of Liberty Interactive Corporation ("Liberty") (Nasdaq: LINTA, LINTB, LVNTA and ~~LINTB)~~LVNTB), which owns interests in a broad range of digital commerce businesses. We are attributed to the Liberty Interactive tracking stock, which tracks the assets and liabilities of Liberty's Interactive Group (the "Interactive Group"). The Interactive Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group. Liberty also attributes to its Interactive Group those businesses primarily focused on digital ~~commerce. Liberty also attributes to~~commerce and its ~~Interactive Group its~~approximate ~~37%~~38% ownership interest in HSN, Inc. ("HSN"), one of our two closest televised shopping competitors.

In October 2013, Liberty announced that its board has authorized management to pursue a plan to recapitalize (the "Recapitalization") its Liberty Interactive Group tracking stock into two new tracking stocks, one (currently the Liberty Interactive common stock) to be renamed the QVC Group common stock and the other to be designated as the Liberty Digital Commerce common stock. In the Recapitalization, record holders of Series A and Series B Liberty Interactive common stock would receive one share of the corresponding series of Liberty Digital Commerce common stock for each 10 shares of the renamed QVC Group common stock held by them as of the effective date. Liberty intends to attribute to the Liberty Digital Commerce Group its operating subsidiaries Provide Commerce, Inc.; Backcountry.com, Inc.; Bodybuilding.com, LLC; CommerceHub; Right Start and the Evite.com business along with cash and certain liabilities. The QVC Group, which is currently known as the Liberty Interactive Group, would have attributed to it the Company and Liberty’s approximate 38% interest in HSN, along with cash and certain liabilities.

On April 16, 2014, QVC announced plans to expand its global presence into France. Similar to its other markets, QVC plans to offer a highly immersive digital shopping experience, with strong integration across e-commerce, TV, mobile and social platforms, with the launch scheduled for the second quarter of 2015.

The condensed consolidated financial statements include the accounts of the Company and its majority‑owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

I-6

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The accompanying (a) condensed consolidated balance sheet as of December 31, ~~2012~~,2013, 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 condensed consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, ~~2012~~.2013.

I-6

~~QVC, Inc.~~

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

~~(unaudited)~~

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 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, depreciable lives of fixed assets, internally‑developed software, valuation of acquired intangible assets and goodwill, income taxes and stock‑based compensation.

In February 2013, the FASB issued ASU No. 2013-02, which amends ASC Topic 220, Comprehensive Income and requires that companies present information about reclassification adjustments from accumulated other comprehensive income in their interim and annual financial statements. The standard requires that companies present either in a single note, or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies will instead cross reference to the related footnote for additional information. QVC adopted this guidance as of January 1, 2013, and adoption did not have an impact on the QVC's condensed consolidated financial position, results of operations or cash flows.

Certain prior period amounts have been reclassified to conform with current period presentation.

(2) Cable and Satellite Television Distribution Rights, Net

Cable and satellite television distribution rights consisted of the following:


	March 31,			December 31,		March 31,			December 31,
(in millions)	2013			2012		2014			2013
Cable and satellite television distribution rights	$	2,276		2,304		$	2,335		2,324
Less accumulated amortization	(1,554		)	(1,540	)	(1,749		)	(1,700	)
Cable and satellite television distribution rights, net	$	722		764		$	586		624

The Company recorded amortization expense of $4247 million and $4142 million for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively, related to cable and satellite television distribution rights.

As of March 31, ~~2013~~2014, related amortization expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2013	$	130
2014	168
Remainder of 2014			$	132
2015	162		168
2016	161		163
2017	111		112
2018			6

(3) Goodwill

The changes in the carrying amount of goodwill were as follows:


(in millions)	QVC-U.S.		QVC-U.K.		QVC-Germany		QVC-Japan		QVC-Italy		Total		QVC-U.S.		QVC-Japan	QVC-Germany	QVC-U.K.	QVC-Italy	Total
Balance as of December 31, 2012	$	4,190	212		334		349		149		5,234
Balance as of December 31, 2013													$	4,190	288	348	216	155	5,197
Exchange rate fluctuations	—		(14	)	(9	)	(28	)	(4	)	(55	)	—		8	1	1	—	10
Balance as of March 31, 2013	$	4,190	198		325		321		145		5,179
Balance as of March 31, 2014													$	4,190	296	349	217	155	5,207

I-7I-7

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(4) Other Intangible Assets, Net

Other intangible assets consisted of the following:


	March 31,				December 31,			March 31,					December 31,
	2013				2012			2014					2013
(in millions)	Gross cost		Accumulated amortization		Gross cost	Accumulated amortization		Gross cost		Accumulated amortization		Other intangible assets, net	Gross cost	Accumulated amortization		Other intangible assets, net
Purchased and internally developed software	$	554	(340	)	575	(352	)	$	627	(412	)	215	615	(393	)	222
Affiliate and customer relationships	2,435		(1,661	)	2,445	(1,624	)	2,450		(1,846	)	604	2,450	(1,802	)	648
Debt origination fees	62		(18	)	54	(18	)	64		(15	)	49	51	(13	)	38
Trademarks (indefinite life)	2,429		—		2,429	—		2,428		—		2,428	2,428	—		2,428
	$	5,480	(2,019	)	5,503	(1,994	)	$	5,569	(2,273	)	3,296	5,544	(2,208	)	3,336

The Company recorded amortization expense of $6264 million and $5562 million for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively, related to other intangible assets.

As of March 31, ~~2013~~2014, the related amortization expense and interest expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2013	$	205
2014	261
Remainder of 2014			$	215
2015	237		265
2016	185		229
2017	120		130
2018			9

(5) Accrued Liabilities

Accrued liabilities consisted of the following:


	March 31,		December 31,	March 31,		December 31,
(in millions)	2013		2012	2014		2013
Accounts payable non-trade	$	195	264	$	202	323
Income taxes				132		126
Accrued compensation and benefits	93		100	87		98
Income taxes	95		154
Deferred revenue				86		73
Allowance for sales returns	69		92	76		108
Deferred revenue	67		85
Accrued interest	67		50	71		58
Liability for consigned goods sold	57		56
Sales and other taxes	40		62	44		79
Other	71		92	83		95
	$	754	955	$	781	960

I-8I-8

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(6) Long-Term Debt ~~and Interest Rate Swap Arrangements~~

Long-term debt consisted of the following:


	March 31,			December 31,		March 31,			December 31,
(in millions)	2013			2012		2014			2013
7.125% Senior Secured Notes due 2017	$	376		500
3.125% Senior Secured Notes due 2019, net of original issue discount						$	399		—
7.5% Senior Secured Notes due 2019, net of original issue discount	760			988		761			761
7.375% Senior Secured Notes due 2020	500			500		500			500
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
4.85% Senior Secured Notes due 2024, net of original issue discount						600			—
5.95% Senior Secured Notes due 2043, net of original issue discount	300			—		300			300
Senior secured credit facility	328			903		124			922
Capital lease obligations	82			86		76			80
Total debt	3,596			3,477		4,010			3,813
Less current portion	(11		)	(12	)	(12		)	(13	)
Long-term portion of debt and capital lease obligations	$	3,585		3,465		$	3,998		3,800

Senior Secured Notes

On March 18, 2014, QVC issued $400 million principal amount of 3.125% Senior Secured Notes due 2019 at an issue price of 99.828% and $600 million principal amount of 4.850% Senior Secured Notes due 2024 at an issue price of 99.927% (collectively, the “Notes”). The Notes are secured by a first-priority lien on the capital stock of QVC, which is the same collateral that secures QVC's existing secured indebtedness and certain future indebtedness. The net proceeds from the offerings were used to repay indebtedness under QVC’s senior secured credit facility and for working capital and other general corporate purposes. Interest is payable semi-annually.

Senior Secured Credit Facility

~~On March 1, 2013, we amended and restated our senior secured credit facility, which provides for a~~QVC had approximately $~~2.0 billion~~ ~~revolving credit facility with a~~ ~~$250 million~~ ~~sub-limit for standby letters of credit and~~ ~~$1.0 billion~~ of uncommitted incremental revolving loan commitments or incremental term loans. QVC may elect that the loans extended under the senior secured credit facility bear interest at a rate per annum equal to the ABR Rate or LIBOR, as each is defined in the senior secured credit facility agreement, plus a margin of ~~0.25%~~ to ~~2.00%~~ depending on various factors. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. Any amounts prepaid on the revolving credit facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. The senior secured credit facility is a multi-currency facility. The senior secured credit facility is secured by the stock of QVC. QVC had ~~$1.7~~1.9 billion available under the terms of the senior secured credit facility at March 31, ~~2013~~2014. The interest rate on the senior secured credit facility was ~~1.7%~~1.9% at March 31, ~~2013~~2014.

~~The purpose of the amendment was to, among other things, extend the maturity of our senior secured credit facility to March 1, 2018 and lower the interest rate on borrowings.~~

The senior secured credit facility contains certain affirmative and negative covenants, including certain restrictions 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 QVC's ratio of consolidated total debt to consolidated Adjusted OIBDA.

~~Senior Secured Notes~~

~~On March 4, 2013, QVC announced the commencement of cash tender offers (the "Offers") for any and all of its outstanding~~ ~~$500 million~~ ~~in aggregate principal amount of~~ ~~7.125%~~ ~~Senior Secured Notes due 2017 and up to~~ ~~$250 million~~ ~~in aggregate principal amount of its~~ ~~7.5%~~ ~~Senior Secured Notes due 2019. On~~ ~~March 18, 2013~~, ~~$124 million~~ ~~of the~~ ~~7.125%~~ ~~Senior Secured Notes due 2017 were tendered pursuant to the Offers, whereby holders of the~~ ~~7.125%~~ ~~Senior Secured Notes due 2017 received consideration of~~ ~~$1,039.40~~ ~~for each~~ ~~$1,000~~ ~~principal amount of tendered~~ ~~7.125%~~ ~~Senior Secured Notes due 2017. On~~ ~~March 18, 2013~~, ~~$231 million~~ ~~of the~~ ~~7.5%~~ ~~Senior Secured Notes due 2019 were tendered pursuant to the Offers, whereby holders of the~~ ~~7.5%~~ ~~Senior Secured Notes due 2019 received consideration of~~ ~~$1,120~~ ~~for each~~ ~~$1,000~~ ~~principal amount of tendered~~ ~~7.5%~~ ~~Senior Secured Notes due 2019.~~

~~On April 17, 2013, QVC completed the redemption of the remaining~~ ~~$376 million~~ ~~principal amount of its~~ ~~7.125%~~ ~~Senior Secured Notes due 2017 using a combination of borrowings on the senior secured credit facility and cash on hand.~~

I-9

~~QVC, Inc.~~

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

~~(unaudited)~~

~~On March 18, 2013, QVC issued~~ ~~$750 million~~ ~~principal amount of~~ ~~4.375%~~ ~~Senior Secured Notes due 2023 at an issue price of~~ ~~99.968%~~ ~~and issued~~ ~~$300 million~~ ~~principal amount of~~ ~~5.95%~~ ~~Senior Secured Notes due 2043 at an issue price of~~ ~~99.973%. These notes are secured by the stock of QVC, pari passu with the senior secured credit facility and QVC's existing notes. Interest is payable semi-annually.~~

~~The net proceeds from the issuance of these instruments were used to reduce the outstanding principal under QVC's existing~~ ~~7.125%~~ ~~Senior Secured Notes due 2017, the~~ ~~7.5%~~ ~~Senior Secured Notes due 2019 and the senior secured credit facility, as well as for general corporate purposes.~~

~~Additionally, as a result of these refinancing transactions in the first quarter, we incurred an extinguishment loss of~~ ~~$41 million~~ ~~recorded as loss on extinguishment of debt in the condensed consolidated statements of operations.~~

~~Interest Rate Swap Arrangements~~

~~In March 2013, QVC's notional interest rate swaps of~~ ~~$3.1 billion~~ expired. These swap arrangements did not qualify as cash flow hedges under U.S. GAAP. Accordingly, changes in the fair value of the swaps were reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. We recorded a ~~$12 million~~ ~~and an~~ ~~$11 million~~ ~~gain on financial instruments for~~ ~~three months ended March 31, 2013 and 2012, respectively.~~

At ~~December 31, 2012, the fair value of the swap instruments was a net liability position of~~ ~~$12 million, of which~~ ~~$13 million~~ ~~was included in accrued liabilities, offset by~~ ~~$1 million~~ ~~included in prepaid expenses in the condensed consolidated balance sheet.~~

Other Debt Related Information

QVC was in compliance with all of its debt covenants at March 31, ~~2013~~2014.

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

The weighted average rate applicable to all of the outstanding debt (excluding capital leases) was ~~5.8%~~5.4% as of March 31, ~~2013~~2014.

I-9

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(7) Leases and Transponder Service Arrangements

Future minimum payments under noncancelable operating leases and capital transponder leases with initial terms of one year or more at March 31, ~~2013~~2014 consisted of the following:


(in millions)	Capital transponders		Operating leases	Capital transponders		Operating leases
Remainder of 2013	$	11	16
2014	11		15
Remainder of 2014				$	11	14
2015	11		12	11		14
2016	10		8	11		12
2017	10		7	11		10
2018				12		9
Thereafter	38		96	29		104
Total	$	91	154	$	85	163

The Company has entered into ten separate agreements with transponder suppliers to transmit its signals in the U.S., Germany and the U.K. ~~via various satellites~~ at an aggregate monthly cost of $1 million. Depreciation expense related to the transponders was $43 million and $4 million for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively. Total future minimum capital lease payments of $9185 million include $9 million of imputed interest. ~~Our~~The transponder service ~~agreement~~agreements for our U.S. transponders ~~expires at the end of the lives of the satellites, which are currently estimated to be~~expire in 2019 through 2020. ~~Our~~The transponder service agreements for our international transponders expire ~~between 2013 and~~in December 2014 through 2022.

Expenses for operating leases, principally for data processing equipment and facilities and for satellite uplink service agreements, amounted to $87 million and $78 million for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively.

I-10

~~QVC, Inc.~~

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

~~(unaudited)~~

(8) 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.

For the three month period ended March 31, 2014, the Company recorded a tax provision of $74 million, which represented an effective tax rate of 37.8%. For the three month period ended March 31, 2013, the Company recorded a tax provision of $62 million, which represented an effective tax rate of 36.9%. ~~For the three month period ended~~ ~~March 31, 2012, the Company recorded a tax provision of~~ ~~$82 million, which represented an effective tax rate of~~ ~~37.1%~~. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to state tax expense.

~~The Company's tax years 2013 and 2012 are currently under examination by~~QVC is party to ongoing discussions with the Internal Revenue Service ~~(“IRS”).~~under the Compliance Assurance Process audit program. The Company files Federal tax returns on a consolidated basis with its parent company, Liberty. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of March 31, ~~2013~~2014, the Company, or one of its subsidiaries, was under examination in California, Minnesota, New Jersey, New York, the City of New York ~~City, North Carolina~~ and Pennsylvania, as well as in ~~Japan,~~ Germany and the U.K.

The amounts of the tax-related balances due to Liberty at March 31, ~~2013~~2014 and December 31, ~~2012~~2013 were $5672 million and $7078 million, respectively, and were included in accrued liabilities in the accompanying condensed consolidated balance sheets.

I-10

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The Company entered into a Tax Liability Allocation and Indemnification Agreement (the ~~“Agreement”~~“Tax Agreement”)~~, dated April 26, 2004,~~ with ~~Liberty Interactive LLC.~~Liberty. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Liberty for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Liberty ~~Interactive LLC~~ 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 Liberty, 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.

(9) 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~~Internet and telecommunication systems, third party delivery services and other technologies are critical to our business activities. Substantially all our 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~~Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, we could face a significant disruption in fulfilling our customer orders and shipment of our products. We have active disaster recovery programs in place to help mitigate risks associated with these critical business activities.

I-11

~~QVC, Inc.~~

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

~~(unaudited)~~

(10) Assets and Liabilities Measured at Fair Value

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, ~~are inputs,~~ other than quoted market prices included within Level 1, ~~that~~ 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 March 31, 2013 using					Fair value measurements at March 31, 2014 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	$	314	314	—	—	$	457	457	—	—
Long-term liabilities:
Debt (note 6)	3,703		—	3,703	—	4,069		—	4,069	—

I-11

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Fair value measurements
at December 31, 2012 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)
Curret assets:

Cash equivalents $ 424
424
—
—
Interest rate swap arrangements (note 6) 1
—
1
—
Current liabilities:

Interest rate swap arrangements (note 6) 13
—
13
—
Long-term liabilities

Debt (note 6) 3,626
—
3,626
—



			Fair value measurements at December 31, 2013 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)
Current assets:
Cash equivalents	$	342	342	—	—
Long-term liabilities:
Debt (note 6)	3,783		—	3,783	—

The majority of the Company's Level 2 financial assets and liabilities are debt instruments with quoted market prices that are not considered to be traded on ~~“active~~"active markets,”" as defined in U.S. GAAP. Accordingly, the financial instruments are reported in the foregoing tables as Level 2 fair value instruments.

U.S. GAAP requires the incorporation of a credit risk valuation adjustment in the Company's fair value measurements to estimate the impact of both its own nonperformance risk and the nonperformance risk of its counterparties. The Company estimates credit risk associated with its own and its counterparties' nonperformance primarily by using observable credit default swap rates for terms similar to those of the remaining life of the instrument, adjusted for any master netting arrangements or other factors that provide an estimate of nonperformance risk. These are Level 3 inputs. However, as the credit risk valuation adjustments were not significant, the Company reported its interest rate swaps as Level 2. The counterparties to the Company's interest rate swap arrangements were all major international financial institutions.

I-12

~~QVC, Inc.~~

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

~~(unaudited)~~

(11) Information about QVC's Operating Segments

Each of the Company's 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~~Internet and mobile applications in certain markets. The Company has operations in the United States, Japan, Germany, the United Kingdom and Italy. ~~As such, the~~The Company has identified five reportable segments: the United States, Japan, Germany, the United Kingdom and Italy.

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 as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments, including the ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among our businesses and identify strategies to improve performance. This measure of performance excludes depreciation, amortization and stock-based compensation, that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. GAAP.

Performance measures


	Three months ended March 31,				Three months ended March 31,			Three months ended March 31,				Three months ended March 31,
	2013				2012			2014				2013
(in millions)	Net revenue		Adjusted OIBDA		Net revenue	Adjusted OIBDA		Net revenue		Adjusted OIBDA		Net revenue	Adjusted OIBDA
QVC-U.S.	$	1,297	291		1,240	270		$	1,305	301		1,297	291
QVC-Japan	256		54		289	63		234		47		256	54
QVC-Germany	250		43		247	46		250		39		250	43
QVC-U.K.	140		19		140	20		165		27		140	19
QVC-Italy	31		(3	)	16	(9	)	32		(2	)	31	(3	)
Consolidated QVC	$	1,974	404		1,932	390		$	1,986	412		1,974	404

Net revenue amounts by product category are not available from our general purpose financial statements.

~~Other information~~

Three months ended March 31, Three months ended March 31,
2013 2012
(in millions) Depreciation
Amortization
Depreciation
Amortization
QVC-U.S. $ 13
88
13
80
QVC-Japan 3
2
4
3
QVC-Germany 8
9
9
8
QVC-U.K. 4
3
3
3
QVC-Italy 2
2
2
2
Consolidated QVC $ 30
104
31
96

I-13I-12

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Other information


	March 31,			December 31,		Three months ended March 31,			Three months ended March 31,
	2013			2012		2014			2013
(in millions)	Total assets		Capital expenditures	Total assets	Capital expenditures	Depreciation		Amortization	Depreciation	Amortization
QVC-U.S.	$	10,216	14	10,541	88	$	13	94	13	88
QVC-Japan	819		11	969	105	5		2	3	2
QVC-Germany	1,043		5	1,064	25	8		11	8	9
QVC-U.K.	581		2	619	22	4		3	4	3
QVC-Italy	239		1	245	6	3		1	2	2
Consolidated QVC	$	12,898	33	13,438	246	$	33	111	30	104



	March 31,				December 31,
	2014				2013
(in millions)	Total assets		Capital expenditures, net		Total assets	Capital expenditures, net
QVC-U.S.	$	10,136	16		10,322	123
QVC-Japan	741		(2	)	732	16
QVC-Germany	1,137		4		1,109	28
QVC-U.K.	624		2		613	16
QVC-Italy	282		9		280	28
Consolidated QVC	$	12,920	29		13,056	211

Long-lived assets, net of accumulated depreciation, by geographic area were as follows:


	March 31,		December 31,	March 31,		December 31,
(in millions)	2013		2012	2014		2013
QVC-U.S.	$	422	429	$	439	448
QVC-Japan	264		280	219		220
QVC-Germany	235		247	240		244
QVC-U.K.	119		128	127		129
QVC-Italy	44		47	71		65
Consolidated QVC	$	1,084	1,131	$	1,096	1,106

I-13

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

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


	Three months ended March 31,					Three months ended March 31,
(in millions)	2013			2012		2014			2013
Adjusted OIBDA	$	404		390		$	412		404
Stock‑based compensation	(10		)	(5	)	(8		)	(10	)
Depreciation and amortization	(134		)	(127	)	(144		)	(134	)
Equity in earnings of investee	1			—
Gain on financial instruments	12			11
Interest expense	(63		)	(55	)
Interest income	—			1
Foreign currency (loss) gain	(1		)	6
Equity in (losses) earnings of investee						(1		)	1
Gains on financial instruments						—			12
Interest expense, net						(62		)	(63	)
Foreign currency loss						(1		)	(1	)
Loss on extinguishment of debt	(41		)	—		—			(41	)
Income before income taxes	$	168		221		$	196		168

I-14

~~QVC, Inc.~~

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

~~(unaudited)~~

(12) Other Comprehensive Income

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

(in millions) Foreign currency translation adjustments AOCI
Balance at January 1, 2012 $ 194
194
Other comprehensive income attributable to QVC, Inc. shareholder 23
23
Balance at March 31, 2012 217
217

Balance at January 1, 2013 $ 186
186
Other comprehensive income attributable to QVC, Inc. shareholder (78 ) (78 )
Balance at March 31, 2013 108
108



(in millions)	Foreign currency translation adjustments			AOCI
Balance at January 1, 2013	$	186		186
Other comprehensive loss attributable to QVC, Inc. stockholder	(78		)	(78	)
Balance at March 31, 2013	108			108

Balance at January 1, 2014	$	139		139
Other comprehensive income attributable to QVC, Inc. stockholder	13			13
Balance at March 31, 2014	152			152

The component of other comprehensive 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 income:


(in millions)	Before-tax amount			Tax (expense) benefit		Net-of-tax amount		Before-tax amount			Tax (expense) benefit		Net-of-tax amount
Three months ended March 31, 2013:
Three months ended March 31, 2014:
Foreign currency translation adjustments	$	(116	)	25		(91	)	$	19		(3	)	16
Other comprehensive income (loss)	(116		)	25		(91	)	19			(3	)	16

Three months ended March 31, 2012:
Three months ended March 31, 2013:
Foreign currency translation adjustments	$	17		(4	)	13		$	(116	)	25		(91	)
Other comprehensive income (loss)	17			(4	)	13
Other comprehensive (loss) income								(116		)	25		(91	)

(13) Subsequent Events

~~On April 17, 2013, QVC completed the redemption of the remaining~~ ~~$376 million~~ ~~principal amount of its 7.125% Senior Secured Notes due 2017 using a combination of borrowings on the senior secured credit facility and cash on hand.~~

QVC declared and paid dividends to Liberty in the amount of $50 million subsequent to March 31, ~~2013~~2014.

I-14

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(14) 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 International LLC; QVC Rocky Mount, Inc. and QVC San Antonio, LLC) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X. Certain non-guarantor subsidiaries are ~~majority owned~~majority-owned by QVC International LLC, which is a guarantor subsidiary.

These condensed consolidating financial statements have been prepared from the ~~Company’s~~Company's financial information on the same basis of accounting as the ~~Company’s~~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 and interest income and expense. 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~~Company's condensed consolidated financial statements.

The Company adjusted the previously reported consolidating financial statements to correctly classify transactions among QVC Inc., the combined subsidiary guarantors and the combined non-guarantor subsidiaries.

The adjustments to the condensed consolidating statements of operations:

attributed net revenue of $54 million, cost of goods sold of $11 million and operating expenses of $8 million from QVC, Inc. to the combined non-guarantor subsidiaries for the three months ended March 31, 2013; and

recognized equal and offsetting increases in the equity in earnings of subsidiaries of QVC, Inc. with a corresponding elimination for the three months ended March 31, 2013.

The adjustments to the condensed consolidating statements of cash flows:

attributed net cash provided by operating activities of $37 million from QVC, Inc. to the combined non-guarantor subsidiaries primarily related to revenue net of cost of goods sold and operating expenses for the three months ended March 31, 2013;

attributed net cash provided by operating activities of $2 million from QVC, Inc. to the combined subsidiary guarantors for the three months ended March 31, 2013;

decreased net cash provided by the investing activities of $35 million of QVC, Inc., decreased net cash provided by the investing activities of $2 million of the combined subsidiary guarantors and increased net cash provided by the investing activities of $4 million of the combined non-guarantor subsidiaries, all with equal and offsetting eliminations, for the three months ended March 31, 2013; and

increased net cash provided by the financing activities of $74 million of QVC, Inc. and decreased net cash used in the financing activities of $41 million of the non-guarantor subsidiaries, all with equal and offsetting eliminations, for the three months ended March 31, 2013.

The adjustments had no impact to the Company's condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of comprehensive income, condensed consolidated statements of changes in equity or condensed consolidated statements of cash flows for any current and previously reported period.

I-15I-15

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating balance sheets


March 31, 2013
March 31, 2014											March 31, 2014
(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	$	3		168		268		—		439	$	47	218		293		—		558
Restricted cash	13			—		2		—		15	11		—		3		—		14
Accounts receivable, net	532			—		243		—		775	579		—		278		—		857
Inventories	699			—		236		—		935	737		—		280		—		1,017
Deferred income taxes	135			—		20		—		155	146		—		17		—		163
Prepaid expenses	22			—		28		—		50	27		—		27		—		54
Total current assets	1,404			168		797		—		2,369	1,547		218		898		—		2,663
Property, plant and equipment, net	243			66		775		—		1,084
Property and equipment, net											259		66		771		—		1,096
Cable and satellite television distribution rights, net	—			589		133		—		722	—		479		107		—		586
Goodwill	4,169			—		1,010		—		5,179	4,169		—		1,038		—		5,207
Other intangible assets, net	1,245			2,049		167		—		3,461	1,097		2,050		149		—		3,296
Other noncurrent assets	16			—		67		—		83	10		—		62		—		72
Investments in subsidiaries	3,599			1,750		—		(5,349	)	—	4,853		1,526		—		(6,379	)	—
Total assets	$	10,676		4,622		2,949		(5,349	)	12,898	$	11,935	4,339		3,025		(6,379	)	12,920
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	2		—		9		—		11	$	2	—		10		—		12
Accounts payable-trade	210			—		212		—		422	287		—		254		—		541
Accrued liabilities	264			95		395		—		754	249		106		426		—		781
Intercompany accounts (receivable) payable	(368		)	(315	)	683		—		—
Intercompany accounts payable (receivable)											935		(806	)	(129	)	—		—
Total current liabilities	108			(220	)	1,299		—		1,187	1,473		(700	)	561		—		1,334
Long-term portion of debt and capital lease obligations	3,527			—		58		—		3,585	3,945		—		53		—		3,998
Deferred compensation	10			—		1		—		11	13		—		1		—		14
Deferred income taxes	423			952		(8	)	—		1,367	358		912		3		—		1,273
Other long-term liabilities	136			—		22		—		158	91		—		49		—		140
Total liabilities	4,204			732		1,372		—		6,308	5,880		212		667		—		6,759
Equity:
QVC, Inc. shareholder's equity	6,472			3,890		1,459		(5,349	)	6,472
QVC, Inc. stockholder's equity											6,055		4,127		2,252		(6,379	)	6,055
Noncontrolling interest	—			—		118		—		118	—		—		106		—		106
Total equity	6,472			3,890		1,577		(5,349	)	6,590	6,055		4,127		2,358		(6,379	)	6,161
Total liabilities and equity	$	10,676		4,622		2,949		(5,349	)	12,898	$	11,935	4,339		3,025		(6,379	)	12,920

I-16I-16

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating balance sheets


December 31, 2012
December 31, 2013										December 31, 2013
(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	$	75		165		300	—		540	$	78	133		246		—		457
Restricted cash	13			—		2	—		15	11		—		3		—		14
Accounts receivable, net	747			—		308	—		1,055	816		—		295		—		1,111
Inventories	691			—		218	—		909	684		—		247		—		931
Deferred income taxes	131			—		20	—		151	146		—		16		—		162
Prepaid expenses	19			—		34	—		53	20		—		27		—		47
Total current assets	1,676			165		882	—		2,723	1,755		133		834		—		2,722
Property, plant and equipment, net	247			67		817	—		1,131
Property and equipment, net										265		67		774		—		1,106
Cable and satellite television distribution rights, net	—			618		146	—		764	—		510		114		—		624
Goodwill	4,169			—		1,065	—		5,234	4,169		—		1,028		—		5,197
Other intangible assets, net	1,280			2,049		180	—		3,509	1,128		2,050		158		—		3,336
Other noncurrent assets	14			—		63	—		77	8		—		63		—		71
Investments in subsidiaries	3,789			1,838		—	(5,627	)	—	4,894		1,628		—		(6,522	)	—
Total assets	$	11,175		4,737		3,153	(5,627	)	13,438	$	12,219	4,388		2,971		(6,522	)	13,056
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	2		—		10	—		12	$	2	—		11		—		13
Accounts payable-trade	324			—		242	—		566	336		—		158		—		494
Accrued liabilities	402			106		447	—		955	393		96		471		—		960
Intercompany accounts (receivable) payable	(226		)	(411	)	637	—		—
Intercompany accounts payable (receivable)										1,019		(879	)	(140	)	—		—
Total current liabilities	502			(305	)	1,336	—		1,533	1,750		(783	)	500		—		1,467
Long-term portion of debt and capital lease obligations	3,404			—		61	—		3,465	3,745		—		55		—		3,800
Deferred compensation	11			—		1	—		12	13		—		1		—		14
Deferred income taxes	431			964		15	—		1,410	399		923		4		—		1,326
Other long-term liabilities	137			17		30	—		184	90		—		18		—		108
Total liabilities	4,485			676		1,443	—		6,604	5,997		140		578		—		6,715
Equity:
QVC, Inc. shareholder's equity	6,690			4,061		1,566	(5,627	)	6,690
QVC, Inc. stockholder's equity										6,222		4,248		2,274		(6,522	)	6,222
Noncontrolling interest	—			—		144	—		144	—		—		119		—		119
Total equity	6,690			4,061		1,710	(5,627	)	6,834	6,222		4,248		2,393		(6,522	)	6,341
Total liabilities and equity	$	11,175		4,737		3,153	(5,627	)	13,438	$	12,219	4,388		2,971		(6,522	)	13,056

I-17I-17

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating statements of operations


Three months ended March 31, 2013
Three months ended March 31, 2014												Three months ended March 31, 2014
(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	$	1,368		183		654		(231	)	1,974		$	1,324		177		707		(222	)	1,986
Cost of goods sold	854			25		434		(61	)	1,252		842			24		447		(57	)	1,256
Gross profit	514			158		220		(170	)	722		482			153		260		(165	)	730
Operating expenses:
Operating	45			46		82		—		173		40			45		93		—		178
Selling, general and administrative, including stock-based compensation	235			—		90		(170	)	155		223			1		89		(165	)	148
Depreciation	10			1		19		—		30		9			1		23		—		33
Amortization of intangible assets	51			34		19		—		104
Amortization												52			39		20		—		111
Intercompany management expense (income)	17			(4	)	(13	)	—		—		20			(3	)	(17	)	—		—
	358			77		197		(170	)	462		344			83		208		(165	)	470
Operating income	156			81		23		—		260		138			70		52		—		260
Other income (expense):
Equity in earnings of investee	—			—		1		—		1
Gain on financial instruments	12			—		—		—		12
Interest expense	(62		)	—		(1	)	—		(63	)
Other (expense) income:
Equity in losses of investee												—			—		(1	)	—		(1	)
Interest expense, net												(53		)	—		(9	)	—		(62	)
Foreign currency (loss) gain	(1		)	(1	)	1		—		(1	)	(2		)	—		1		—		(1	)
Loss on extinguishment of debt	(41		)	—		—		—		(41	)
Intercompany interest (expense) income	(3		)	12		(9	)	—		—		(5		)	13		(8	)	—		—
	(95		)	11		(8	)	—		(92	)	(60		)	13		(17	)	—		(64	)
Income before income taxes	61			92		15		—		168		78			83		35		—		196
Income tax expense	(10		)	(28	)	(24	)	—		(62	)
Equity in earnings of subsidiaries, net of tax	55			16		—		(71	)	—
Income tax benefit (expense)												20			(24	)	(70	)	—		(74	)
Equity in earnings (losses) of subsidiaries, net of tax												24			(48	)	—		24		—
Net income (loss)	106			80		(9	)	(71	)	106		122			11		(35	)	24		122
Less net income attributable to the noncontrolling interest	(12		)	—		(12	)	12		(12	)	(9		)	—		(9	)	9		(9	)
Net income (loss) attributable to QVC, Inc. shareholder	$	94		80		(21	)	(59	)	94
Net income (loss) attributable to QVC, Inc. stockholder												$	113		11		(44	)	33		113

The increase in tax expense of the combined non-guarantor subsidiaries compared to the same period in the prior year was primarily due to an unfavorable tax audit settlement of one of our European subsidiaries. This also resulted in a tax benefit for QVC, Inc. as a result of the corresponding foreign tax credit in the U.S.

I-18I-18

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating statements of operations - Adjusted


Three months ended March 31, 2012
Three months ended March 31, 2013												Three months ended March 31, 2013
(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	$	1,310		172		672		(222	)	1,932		$	1,314		183		708		(231	)	1,974
Cost of goods sold	822			28		439		(59	)	1,230		843			25		445		(61	)	1,252
Gross profit	488			144		233		(163	)	702		471			158		263		(170	)	722
Operating expenses:
Operating	42			44		89		—		175		37			46		90		—		173
Selling, general and administrative, including stock-based compensation	224			1		80		(163	)	142		235			—		90		(170	)	155
Depreciation	9			1		21		—		31		10			1		19		—		30
Amortization of intangible assets	48			32		16		—		96
Intercompany management (income) expense	(4		)	3		1		—		—
Amortization												51			34		19		—		104
Intercompany management expense (income)												17			(4	)	(13	)	—		—
	319			81		207		(163	)	444		350			77		205		(170	)	462
Operating income	169			63		26		—		258		121			81		58		—		260
Other income (expense):
Gain on financial instruments	11			—		—		—		11
Interest expense	(55		)	—		—		—		(55	)
Interest income	—			—		1		—		1
Equity in earnings of investee												—			—		1		—		1
Gains on financial instruments												12			—		—		—		12
Interest expense, net												(62		)	—		(1	)	—		(63	)
Foreign currency (loss) gain	(2		)	4		4		—		6		(1		)	(1	)	1		—		(1	)
Loss on extinguishment of debt												(41		)	—		—		—		(41	)
Intercompany interest (expense) income	(3		)	13		(10	)	—		—		(3		)	12		(9	)	—		—
	(49		)	17		(5	)	—		(37	)	(95		)	11		(8	)	—		(92	)
Income before income taxes	120			80		21		—		221		26			92		50		—		168
Income tax expense	(34		)	(25	)	(23	)	—		(82	)	(10		)	(28	)	(24	)	—		(62	)
Equity in earnings of subsidiaries, net of tax	53			12		—		(65	)	—		90			16		—		(106	)	—
Net income (loss)	139			67		(2	)	(65	)	139
Net income												106			80		26		(106	)	106
Less net income attributable to the noncontrolling interest	(14		)	—		(14	)	14		(14	)	(12		)	—		(12	)	12		(12	)
Net income (loss) attributable to QVC, Inc. shareholder	$	125		67		(16	)	(51	)	125
Net income attributable to QVC, Inc. stockholder												$	94		80		14		(94	)	94

I-19I-19

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating statements of comprehensive income ~~(loss)~~


Three months ended March 31, 2013
Three months ended March 31, 2014											Three months ended March 31, 2014
(in millions)	Subsidiary issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries		Subsidiary issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income (loss)	$	106		80	(9	)	(71	)	106		$	122		11	(35	)	24		122
Foreign currency translation adjustments	(91		)	—	(91	)	91		(91	)	16			—	16		(16	)	16
Total comprehensive income (loss)	15			80	(100	)	20		15		138			11	(19	)	8		138
Comprehensive loss (income) attributable to noncontrolling interest	1			—	1		(1	)	1
Comprehensive income (loss) attributable to QVC, Inc. shareholder	16			80	(99	)	19		16
Comprehensive income attributable to noncontrolling interest											(12		)	—	(12	)	12		(12	)
Comprehensive income (loss) attributable to QVC, Inc. stockholder											126			11	(31	)	20		126

Condensed consolidating statements of comprehensive income - Adjusted



Three months ended March 31, 2013
(in millions)	Subsidiary issuer- QVC, Inc.			Combined subsidiary guarantors	Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	106		80	26		(106	)	106
Foreign currency translation adjustments	(91		)	—	(91	)	91		(91	)
Total comprehensive income (loss)	15			80	(65	)	(15	)	15
Comprehensive income attributable to noncontrolling interest	1			—	1		(1	)	1
Comprehensive income (loss) attributable to QVC, Inc. stockholder	16			80	(64	)	(16	)	16

I-20I-20

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating statements of ~~comprehensive income (loss)~~cash flows

Three months ended March 31, 2012
(in millions) Subsidiary
issuer-
QVC, Inc.
Combined
subsidiary
guarantors
Combined
non-guarantor
subsidiaries
Eliminations
Consolidated-
QVC, Inc. and
subsidiaries
Net income (loss) $ 139
67
(2 ) (65 ) 139
Foreign currency translation adjustments 13
—
13
(13 ) 13
Total comprehensive income (loss) 152
67
11
(78 ) 152
Comprehensive loss (income) attributable to noncontrolling interest (4 ) —
(4 ) 4
(4 )
Comprehensive income (loss) attributable to QVC, Inc. shareholder 148
67
7
(74 ) 148



Three months ended March 31, 2014
(in millions)	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	107		98		56		—		261
Investing activities:
Capital expenditures, net	(12	)	—		(17	)	—		(29	)
Expenditures for cable and satellite television distribution rights, net	—		(8	)	—		—		(8	)
Changes in other noncurrent assets	(2	)	—		—		—		(2	)
Intercompany investing activities	65		54		—		(119	)	—
Net cash provided by (used in) investing activities	51		46		(17	)	(119	)	(39	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,186	)	—		(2	)	—		(1,188	)
Principal borrowings of debt from senior secured credit facility	384		—		—		—		384
Proceeds from issuance of senior secured notes, net of original issue discount	999		—		—		—		999
Payment of debt origination fees	(12	)	—		—		—		(12	)
Other financing activities	7		—		—		—		7
Dividends paid to Liberty	(286	)	—		—		—		(286	)
Dividends paid to noncontrolling interest	—		—		(25	)	—		(25	)
Net short-term intercompany debt (repayments) borrowings	(84	)	73		11		—		—
Intercompany financing activities	(11	)	(132	)	24		119		—
Net cash (used in) provided by financing activities	(189	)	(59	)	8		119		(121	)
Effect of foreign exchange rate changes on cash and cash equivalents	—		—		—		—		—
Net (decrease) increase in cash and cash equivalents	(31	)	85		47		—		101
Cash and cash equivalents, beginning of period	78		133		246		—		457
Cash and cash equivalents, end of period	47		218		293		—		558

I-21I-21

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed ~~consolidated~~consolidating statements of cash flows - Adjusted

Three months ended March 31, 2013
(in millions) Parent
issuer-
QVC, Inc.
Combined
subsidiary
guarantors
Combined
non-guarantor
subsidiaries
Eliminations
Consolidated-
QVC, Inc. and
subsidiaries
Operating activities:

Net cash provided by (used in) operating activities 101
77
(3 ) —
175
Investing activities:

Capital expenditures, net (8 ) —
(25 ) —
(33 )
Expenditures for cable and satellite television distribution rights —
(24 ) (1 ) —
(25 )
Changes in other noncurrent assets and liabilities (3 ) 2
(3 ) —
(4 )
Intercompany investing activities 245
104
—
(349 ) —
Net cash provided by (used in) investing activities 234
82
(29 ) (349 ) (62 )
Financing activities:

Principal payments of debt and capital lease obligations (1,167 ) —
(1 ) —
(1,168 )
Principal borrowings of debt from senior secured credit facility 240
—
—
—
240
Proceeds from issuance of senior secured notes 1,050
—
—
—
1,050
Payment of debt origination fees (14 ) —
—
—
(14 )
Payment of bond premium fees (33 ) —
—
—
(33 )
Other financing activities 4
—
—
—
4
Dividends paid to Liberty, net (244 ) —
—
—
(244 )
Dividends paid to noncontrolling interest —
—
(25 ) —
(25 )
Net short-term intercompany debt (repayments) borrowings (142 ) 96
46
—
—
Intercompany financing activities (101 ) (252 ) 4
349
—
Net cash (used in) provided by financing activities (407 ) (156 ) 24
349
(190 )
Effect of foreign exchange rate changes on cash and cash equivalents —
—
(24 ) —
(24 )
Net (decrease) increase in cash and cash equivalents (72 ) 3
(32 ) —
(101 )
Cash and cash equivalents, beginning of year 75
165
300
—
540
Cash and cash equivalents, end of year 3
168
268
—
439

I-22

~~QVC, Inc.~~

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

~~(unaudited)~~

~~Condensed consolidated statements of cash flows~~


Three months ended March 31, 2012
Three months ended March 31, 2013											Three months ended March 31, 2013
(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	264		83		54		—		401		62		79		34		—		175
Investing activities:
Capital expenditures, net	(7	)	(1	)	(37	)	—		(45	)	(12	)	—		(21	)	—		(33	)
Expenditures for cable and satellite television distribution rights	—		(1	)	(1	)	—		(2	)
Cash paid for acquisitions of businesses, net of cash received	—		—		(16	)	—		(16	)
Changes in other noncurrent assets and liabilities	2		(1	)	(1	)	—		—
Expenditures for cable and satellite television distribution rights, net											—		(24	)	(1	)	—		(25	)
Changes in other noncurrent assets											(1	)	—		(3	)	—		(4	)
Intercompany investing activities	135		121		—		(256	)	—		212		104		—		(316	)	—
Net cash provided by (used in) investing activities	130		118		(55	)	(256	)	(63	)	199		80		(25	)	(316	)	(62	)
Financing activities:
Principal payments of debt and capital lease obligations	(315	)	—		(4	)	—		(319	)	(1,166	)	—		(2	)	—		(1,168	)
Principal borrowings of debt from senior secured credit facility	275		—		—		—		275		240		—		—		—		240
Dividends paid to Liberty, net	(238	)	—		—		—		(238	)
Proceeds from issuance of senior secured notes, net of original issue discount											1,050		—		—		—		1,050
Payment of debt origination fees											(14	)	—		—		—		(14	)
Payment of bond premium fees											(33	)	—		—		—		(33	)
Other financing activities											4		—		—		—		4
Dividends paid to Liberty											(244	)	—		—		—		(244	)
Dividends paid to noncontrolling interest	—		—		(29	)	—		(29	)	—		—		(25	)	—		(25	)
Net short-term intercompany debt (repayments) borrowings	(89	)	28		61		—		—		(76	)	84		(8	)	—		—
Intercompany financing activities	—		(235	)	(21	)	256		—		(94	)	(240	)	18		316		—
Net cash (used in) provided by financing activities	(367	)	(207	)	7		256		(311	)
Net cash used in financing activities											(333	)	(156	)	(17	)	316		(190	)
Effect of foreign exchange rate changes on cash and cash equivalents	—		—		(9	)	—		(9	)	—		—		(24	)	—		(24	)
Net increase (decrease) in cash and cash equivalents	27		(6	)	(3	)	—		18
Cash and cash equivalents, beginning of year	3		223		334		—		560
Cash and cash equivalents, end of year	30		217		331		—		578
Net (decrease) increase in cash and cash equivalents											(72	)	3		(32	)	—		(101	)
Cash and cash equivalents, beginning of period											75		165		300		—		540
Cash and cash equivalents, end of period											3		168		268		—		439

I-23I-22

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; Liberty’s proposed Recapitalization of its Liberty Interactive Group tracking stock into the QVC Group tracking stock and a new Liberty Digital Commerce tracking stock; new service offerings; revenue growth and subscriber trends; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash and the anticipated impact of certain contingent liabilities related to legal and tax 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 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 ~~customers~~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 ability of 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,~~FCC, and adverse outcomes from regulatory proceedings;

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

general economic and business conditions and industry trends;

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

advertising spending levels;

changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and IP television;

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

rapid technological changes;

failure to protect the security of personal information about our customers, subjecting us to potentially costly government enforcement actions 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;

fluctuation in foreign currency exchange ~~rates~~rates; and ~~political unrest in international markets;~~

Liberty's dependence on our cash flow for servicing its debt and for other ~~purposes; and~~purposes.

~~The risks identified under "Risk Factors" in~~

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For additional risk factors, please see Part I, Item ~~1A.~~I of our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2012.~~

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2013. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, 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~~Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013.

Overview

QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," 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~~merchandise‑focused televised shopping programs, the ~~internet~~Internet and mobile applications. In the United States, QVC's live programming is distributed via its nationally televised shopping program 24 hours aper day, 364 days per ~~year.~~year ("QVC-U.S."). Internationally, QVC's program services are based in Japan ("QVC-Japan"), Germany ("QVC-Germany"), the United Kingdom ("QVC-U.K.") and ~~Italy.~~Italy ("QVC-Italy"). QVC-Japan distributes live programming 24 hours aper day, QVC-Germany distributes its program 24 hours aper day with 2317 hours of live programming and QVC-U.K. distributes its program 24 hours aper day with 17 hours of live programming. QVC-Italy distributes programming live for 17 hours aper day on satellite and digital terrestrial television and an additional seven hours aper day of recorded programming on satellite and seven hours aper day of general interest programming on digital terrestrial television.

~~On July 4, 2012, QVC entered into~~The Company also has a joint venture with China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR'') ~~for~~, with a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS ~~is distributing~~distributes live programming for 1215 hours aper day and recorded programming for 12nine hours aper day. This joint venture is ~~being~~ accounted for as an equity method investment recorded as equity in (losses) earnings of investee in the condensed consolidated statements of operations.

~~The~~Additionally, the Company has a venture with Mitsui & Co. LTD ("Mitsui") for a television and multimedia retailing service in Japan. 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 three months ended March 31, 2014 and 2013, QVC-Japan paid dividends to Mitsui of $25 million and $25 million, respectively.

We are an indirect wholly owned subsidiary of Liberty Interactive Corporation ("Liberty") (Nasdaq: LINTA, LINTB, LVNTA and ~~LINTB)~~LVNTB), which owns interests in a broad range of digital commerce businesses. We are currently attributed to the Liberty Interactive tracking stock, which tracks the assets and liabilities of Liberty's Interactive Group (the "Interactive Group"). The Interactive Group does not represent a separate legal entity; rather, it represents those businesses, assets and liabilities that are attributed to that group. Liberty ~~attributed~~also attributes to its Interactive Group those businesses primarily focused on digital ~~commerce. Liberty also attributed to~~commerce and its ~~Interactive Group its 37%~~approximate 38% ownership interest in HSN, Inc. ("HSN"), one of our two closest televised shopping competitors.

In October 2013, Liberty announced that its board has authorized management to pursue a plan to recapitalize (the "Recapitalization") its Liberty Interactive Group tracking stock into two new tracking stocks, one (currently the Liberty Interactive common stock) to be renamed the QVC Group common stock and the other to be designated as the Liberty Digital Commerce common stock. In the Recapitalization, record holders of Series A and Series B Liberty Interactive common stock would receive 1 share of the corresponding series of Liberty Digital Commerce common stock for each 10 shares of the renamed QVC Group common stock held by them as of the effective date. Liberty intends to attribute to the Liberty Digital Commerce Group its operating subsidiaries Provide Commerce, Inc.; Backcountry.com, Inc.; Bodybuilding.com, LLC; CommerceHub; Right Start and the Evite.com business along with cash and certain liabilities. The QVC Group, which is currently known as the Liberty Interactive Group, would have attributed to it the Company and Liberty’s approximate 38% interest in HSN, along with cash and certain liabilities.

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Strategies and challenges of business units

QVC's goal is to become the preeminent global multimedia shopping community for people who love to shop, 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 of media including television, the ~~internet~~Internet and mobile devices. In ~~2013,~~2014, 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; (ii) source products that represent unique quality and value; (iii) create engaging presentation content ~~both~~ in televised programming, mobile and online; (iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated customer experience. In addition, QVC expects to expand globally by leveraging its existing systems, infrastructure and skills in other countries around the world.

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~~QVC's televised shopping program is already received by substantially all the multichannel television households in the U.S., Germany and the U.K.~~ QVC's future net revenue growth will primarily depend on international expansion, sales growth from e-commerce and mobile platforms, additions of new customers from households already receiving QVC's television programming and ~~growth in sales to~~increased spending from existing ~~customers and new customers as a result of expansion of the programming reach of QVC-Japan and QVC-Italy.~~customers. QVC's future net revenue may also be affected by (i) the willingness of ~~multichannel~~cable television ~~distributors~~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~~Internet video services; and (iv) general economic conditions.

~~In the first quarter of 2013, QVC-US launched over-the-air broadcasting~~The prolonged economic uncertainty in designated US markets that can be accessed by any television household regardless of whether they subscribe to a paid television service. This will allow QVC-US to reach new customers who previously did not have access to the live television broadcast through other platforms.

~~The current economic downturn in the U.S. and in other~~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 continue to experience disruptions, including increased volatility and diminished liquidity and credit availability. In particular, the current European debt crisis, particularly most recently in Greece, Italy, Ireland, Portugal and Spain, and related European financial restricting efforts may cause volatility in the European currencies and reduce the purchasing power of European customers. In the event that one or more countries were to replace the Euro with their legacy currency, then our revenue and operating results in such countries, or Europe generally, would likely be adversely affected until stable exchange rates were established and economic confidence restored. In addition, the European crisis is contributing to instability in global credit markets. The world has ~~recently~~ experienced a global macroeconomic downturn, and if economic and financial market conditions in the ~~United States~~U.S. or other key markets, including Japan and Europe, remain uncertain, persist, or deteriorate further, 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 remain weak or decline further. Such weak economic conditions may also inhibit our expansion into new ~~European~~ markets. We currently are unable to predict the extent of any of these potential adverse effects.

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Results of Operations

QVC's operating results were as follows:


	Three months ended March 31,					Three months ended March 31,
(in millions)	2013			2012		2014			2013
Net revenue	$	1,974		1,932		$	1,986		1,974
Costs of goods sold	1,252			1,230		1,256			1,252
Gross profit	722			702		730			722
Operating expenses:
Operating	173			175		178			173
SG&A expenses (excluding stock‑based compensation)	145			137
Selling, general and administrative, excluding stock-based compensation						140			145
Adjusted OIBDA	404			390		412			404
Stock-based compensation	10			5		8			10
Depreciation	30			31		33			30
Amortization of intangible assets	104			96
Amortization						111			104
Operating income	260			258		260			260
Other income (expense):
Equity in earnings of investee	1			—
Gain on financial instruments	12			11
Interest expense	(63		)	(55	)
Interest income	—			1
Foreign currency (loss) gain	(1		)	6
Other (expense) income:
Equity in (losses) earnings of investee						(1		)	1
Gains on financial instruments						—			12
Interest expense, net						(62		)	(63	)
Foreign currency loss						(1		)	(1	)
Loss on extinguishment of debt	(41		)	—		—			(41	)
	(92		)	(37	)	(64		)	(92	)
Income before income taxes	168			221		196			168
Income tax expense	(62		)	(82	)	(74		)	(62	)
Net income	106			139		122			106
Less net income attributable to the noncontrolling interest	(12		)	(14	)	(9		)	(12	)
Net income attributable to QVC, Inc. shareholder	$	94		125
Net income attributable to QVC, Inc. stockholder						$	113		94

Net revenue

Net revenue was generated in the following geographical areas:


	Three months ended March 31,			Three months ended March 31,
(in millions)	2013		2012	2014		2013
QVC-U.S.	$	1,297	1,240	$	1,305	1,297
QVC-Japan	256		289	234		256
QVC-Germany	250		247	250		250
QVC-U.K.	140		140	165		140
QVC-Italy	31		16	32		31
Consolidated QVC	$	1,974	1,932	$	1,986	1,974

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QVC's consolidated net revenue increased ~~2.2%~~0.6% for the three months ended March 31, ~~2013~~2014 as compared to the corresponding period in the prior year. The increase in net revenue was primarily comprised of ~~$93~~$24 million due to a ~~4.3%~~1.1% increase in the consolidated average selling price per unit ~~(“ASP”~~("ASP") and ~~$13 million due to~~ a ~~0.6% increase~~decrease in ~~units sold.~~estimated product returns in Germany of $12 million. These amounts were partially offset by ~~$43~~a $20 million increase in estimated product returns in the U.S. The decrease in estimated product returns in Germany was primarily due to changes in prior period estimates based on actual experience, and to a lesser extent, lower return rates in all categories except electronics. The increase in the U.S. was primarily due to higher rates in electronics, home and accessories. Consolidated returns as a percent of gross product revenue was 20.1% compared to 19.9% in the prior year as a result of the above mentioned factors. Additionally, net revenue was negatively impacted by $6 million in unfavorable foreign currency rates ~~primarily in Japan, and~~due to ~~a lesser extent,~~declines in the ~~U.K.,~~value of the Japanese Yen, which ~~were~~was partially offset by favorable foreign currency rates in ~~Germany and Italy. Net revenue was also negatively impacted by $21 million due to an increase in estimated product returns primarily as a result of~~ the ~~sales increase. Returns as a percent of gross product revenue remained relatively flat at 19.9% compared to 19.8% in the prior year.~~other markets.

During the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, the changes in revenue and expenses were affected by changes in the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. 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.

The percentage increase (decrease) in net revenue for each of QVC's geographic areas in U.S. Dollars and in local currency was as follows:


	Three months ended March 31,				Three months ended March 31,
	2013				2014
	U.S. Dollars		Local currency		U.S. Dollars		Local currency
QVC-U.S.	4.6	%	4.6	%	0.6	%	0.6	%
QVC-Japan	(11.4	)%	3.2	%	(8.6	)%	1.6	%
QVC-Germany	1.2	%	0.8	%	—	%	(3.9	)%
QVC-U.K.	—	%	1.3	%	17.9	%	10.3	%
QVC-Italy	93.8	%	89.8	%	3.2	%	2.5	%

QVC-U.S.' net revenue growth was primarily due to a ~~6.1%~~1.2% increase in units shipped and a 0.6% increase in ASP, partially offset by ~~a 1.5% decrease~~the increase in ~~units shipped. QVC-U.S. shipped sales increased mainly due to growth in sales~~estimated product returns as discussed in the ~~electronics and beauty categories. QVC-Japan~~above paragraph. QVC-U.S. experienced shipped sales growth in all categories except ~~home. QVC-Germany~~electronics. QVC-Japan's shipped sales ~~increased mainly due to~~in local currency improved primarily in the jewelry, home and beauty categories, partially offset by declines in accessories. QVC-Germany's shipped sales in local currency declined in all categories, partially offset by a decrease in estimated product returns as discussed in the above paragraph. QVC-U.K.'s shipped sales growth in local currency was primarily the result of increased sales in the home, beauty ~~apparel~~and accessories categories. QVC-Italy's shipped sales in local currency improved primarily in the beauty and accessories categories, partially offset by ~~lower jewelry sales. QVC-U.K. primarily experienced growth~~declines in ~~the home and beauty categories, somewhat offset by a decline in jewelry products. QVC-Italy's sales consisted primarily of cooking and dining, beauty and apparel products.~~home.

Gross profit

QVC's gross profit percentage was ~~36.6%~~36.8% and ~~36.3%~~36.6% for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively. The increase in gross profit percentage ~~in 2013~~ was primarily due to ~~favorable warehouse, freight and inventory obsolescence expenses~~higher product margins in the U.S.~~, somewhat offset by unfavorable product margins in Germany~~ and the U.K. Warehouse expenses were favorable in the U.S. due to sales leverage and lower packaging expenses. U.S. freight costs were favorable due to fewer units shipped and inventory obsolescence expense declined due to improved inventory control.

Operating expenses

QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees, telecommunications expenses and production costs. Operating expenses ~~decreased $2~~increased $5 million or ~~1.1%~~2.9% for the three months ended March 31, ~~2013~~2014. The ~~decrease~~increase was primarily due to a ~~$5 million effect of exchange rates, mainly from the strengthening of the U.S. Dollar against the Japanese Yen. This was offset by a $2 million increase in credit card processing fees and a $1~~$3 million increase in commissions expense ~~primarily~~ as a result of ~~the sales increase~~higher programming distribution expenses in ~~the U.S.~~Japan.

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

QVC's SG&A expenses include personnel, information technology, provision for doubtful accounts, credit card income and marketing and advertising expenses. Such expenses ~~increased $8~~decreased $5 million, and as a percent of net revenue, from ~~7.1%~~7.3% to ~~7.3%~~7.0% for the three months ended March 31, ~~2013~~2014 due to a variety of factors.

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The ~~change~~variance was primarily due to a ~~$13~~$9 million ~~increase~~decrease in personnel expenses due to ~~merit, benefits and bonus increases primarily~~a decrease in the U.S., bonus expense and to a ~~lesser extent,~~prior year personnel tax accrual in Germany. ~~Also, there~~This amount was an additional $3 million in expenses associated with duplicate running costs at QVC-Japan associated with the transition to its new headquarters, including a lease cancellation accrual. These amounts were offset by ~~a decrease~~an increase of $4$5 million in U.S. ~~franchise taxes and~~marketing expenses primarily as a ~~$3 million effect~~result of ~~exchange rates.~~online campaigns.

Stock-based compensation

Stock-based compensation includes compensation related to options and restricted stock granted to certain officers and employees. QVC recorded $108 million and $510 million of stock-based compensation expense for the three months ended March 31, ~~2013~~2014 and ~~2012~~2013, respectively. ~~The increase in stock-based~~Stock-based compensation expense ~~was primarily~~remained relatively consistent for the ~~result of~~three month period presented compared to the ~~one-time option exchange for certain officers in December 2012.~~prior year.

Depreciation and amortization

Depreciation and amortization consisted of the following:


	Three months ended March 31,			Three months ended March 31,
(in millions)	2013		2012	2014		2013
Affiliate agreements	$	38	38	$	38	38
Customer relationships	43		43	43		43
Acquisition related amortization	81		81	81		81
Property, plant and equipment	30		31
Property and equipment				33		30
Software amortization	19		12	21		19
Channel placement amortization and related expenses	4		3	9		4
Total depreciation and amortization	$	134	127	$	144	134

Equity in (losses) earnings of investee

The ~~gain~~activity was associated with our joint venture in China that is accounted for as an equity method investment.

~~Gain~~Gains on financial instruments

In 2009 and 2011, QVC entered into several interest rate swap arrangements to mitigate the interest rate risk associated with interest payments related to its variable rate debt. QVC assessed the effectiveness of its interest rate swaps using the hypothetical derivative method. QVC's elected interest terms did not effectively match the terms of the swap arrangements. As a result, the swaps did not qualify as cash flow hedges. Changes in fair value of these interest rate swaps were included in gains on financial instruments in the consolidated statements of operations. In March 2013, QVC's notional interest rate swaps of ~~$3.1~~$3.1 billion expired. These swap arrangements did not qualify as cash flow hedges under U.S. GAAP. Accordingly, changes in the fair value of the swaps were reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. We recorded a $12 million and an $11 million gain on financial instruments for three months ended March 31, 2013 and 2012, respectively.

Interest expense, net

Consolidated interest expense, ~~increased 14.5%~~net decreased 1.6% for the three months ended March 31, ~~2013~~2014 as compared to the corresponding period in the prior year. ~~The increase in 2013 was primarily due to higher average additional borrowings on our senior secured credit facility.~~

Foreign currency ~~gains (losses)~~loss

Certain loans between QVC and its subsidiaries ~~were~~are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded on the statements of operations. The change in foreign currency ~~gains (losses)~~loss was primarily due to variances in interest and operating ~~payable~~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.

Loss on extinguishment of debt

During the first quarter of 2013, QVC purchased $355 million of its 7.125% Senior Secured Notes due 2017 and 7.5% Senior Secured Notes due 2019. The ~~increase~~loss in prior year was primarily due to premiums paid for the tenders of these notes. ~~Refer to note six and the below section, "Financial Position, Liquidity and Capital Resources," for further details.~~

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Income taxes

QVC's effective tax rate was ~~36.9%~~37.8% and ~~37.1%~~36.9% for the three months ended March 31, ~~2013~~2014 and ~~2012,~~2013, respectively. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to state tax expense. We do not expect our effective tax rates to differ significantly in future periods.

Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA)

QVC defines Adjusted OIBDA as net revenue less cost of goods sold, operating expenses and selling, general and administrative expenses (excluding 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. 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 and stock-based compensation that are included in the measurement of operating income pursuant to U.S. GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, 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 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 GAAP results, including providing a reconciliation of Adjusted OIBDA to GAAP results, to enable investors to perform their own analysis of QVC's operating results. Refer to note 11 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to Income before income 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 23% of its revenue in each of the first three quarters of the year 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 Liberty, make interest payments and minimize QVC's outstanding senior secured credit facility balance.

As of March 31, ~~2013~~2014, 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 ~~Credit Facility~~Notes

On March ~~1, 2013, we amended~~18, 2014, QVC issued $400 million principal amount of 3.125% Senior Secured Notes due 2019 at an issue price of 99.828% and ~~restated our~~$600 million principal amount of 4.850% Senior Secured Notes due 2024 at an issue price of 99.927% (collectively, the “Notes”). The Notes are secured by a first-priority lien on the capital stock of QVC, which is the same collateral that secures QVC's existing secured indebtedness and certain future indebtedness. The net proceeds from the offering were used to repay indebtedness under QVC’s senior secured credit facility ~~which provides~~and for ~~a $2.0 billion revolving credit facility with a $250 million sub-limit for standby letters of credit~~working capital and $1.0 billion of uncommitted incremental revolving loan commitments or incremental term loans. QVC may elect that the loans extended under the senior secured credit facility bear interest at a rate per annum equal to the ABR Rate or LIBOR, as eachother general corporate purposes. Interest is defined in the senior secured credit facility agreement, plus a margin of 0.25% to 2.00% depending on various factors. 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. Any amounts prepaid on the revolving credit facility may be reborrowed. Payment of loans may be accelerated following certain customary events of default. The senior secured credit facility is a multi-currency facility. The senior secured credit facility is secured by the stock of QVC. payable semi-annually.

Senior Secured Credit Facility

QVC had approximately $~~1.7~~1.9 billion available under the terms of the senior secured credit facility at March 31, ~~2013~~2014. The interest rate on the senior secured credit facility was ~~1.7%~~1.9% at March 31, ~~2013~~2014.

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~~The purpose of the amendment was to, among other things, extend the maturity of our senior secured credit facility to March 1, 2018 and lower the interest rate on borrowings.~~

~~Senior Secured Notes~~

On April 17, 2013, QVC completed the redemption of the remaining $376 million principal amount of its 7.125% Senior Secured Notes due 2017 using a combination of borrowings on the senior secured credit facility and cash on hand.

The net proceeds from the issuance of these instruments were used to reduce the outstanding principal under QVC's existing 7.125% Senior Secured Notes due 2017, the 7.5% Senior Secured Notes due 2019 and the senior secured credit facility, as well as for general corporate purposes.

~~Interest Rate Swap Arrangements~~

Other Debt Related Information

QVC was in compliance with all of its debt covenants at March 31, ~~2013~~2014.

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

~~The weighted average rate applicable to all of the outstanding debt (excluding capital leases) was~~ ~~5.8%~~ ~~as of~~ ~~March 31, 2013~~.

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There are no restrictions under 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 credit facility, and QVC's consolidated leverage ratio would be no greater than 3.25 to 1.0. As a result, Liberty will, in many instances, be permitted to rely on QVC's cash flow for servicing Liberty's debt and for other purposes, including payments of dividends on Liberty's capital stock, if declared, or to fund acquisitions or other operational requirements of Liberty and its subsidiaries. These events may deplete QVC's equity or require QVC to borrow under the senior secured credit facility, increasing QVC's leverage and decreasing liquidity. QVC has made significant distributions to Liberty in the past.

Additional Cash Flow Information

During the three months ended March 31, 2014, our primary uses of cash were $1,188 million of principal payments on debt and capital lease obligations, $286 million of dividends to Liberty, $29 million of capital expenditures and a $25 million dividend payment from QVC-Japan to Mitsui. These uses of cash were funded primarily with $999 million of net proceeds from the issuance of the 3.125% Senior Secured Notes due 2019 and 4.85% Senior Secured Notes due 2024, $384 million of principal borrowings from the senior secured credit facility and $261 million of cash provided by operating activities. As of March 31, 2014, our cash balance (excluding restricted cash) was $558 million.

During the three months ended March 31, 2013, our primary uses of cash were ~~$928~~$1,168 million of ~~net~~ principal payments on debt and capital lease obligations, $244 million of ~~net~~ dividends to Liberty, ~~$58~~$33 million of ~~capital and cable and satellite television distribution rights expenditures, $33 million in~~ premiums paid for the tenders of QVC's existing 7.125% Senior Secured Notes due 2017 and 7.5% Senior Secured Notes due 2019, $33 million of capital expenditures, $25 million of cable and satellite television distribution rights expenditures and a $25 million dividend payment from QVC-Japan to Mitsui. These uses of cash were funded primarily with $1,050 million inof net proceeds from the issuance of the 4.375% Senior Secured Notes Due 2023 and 5.95% Senior Secured Notes Due 2043, $240 million of principal borrowings from the senior secured credit facility and $175 million of cash provided by operating activities. As of March 31, 2013, our cash balance (excluding restricted cash) was $439 million.

The change in cash provided by operating activities for the three months ended March 31, ~~2013~~2014 compared to the previous year was primarily due to variances in accounts payable ~~and accrued liabilities~~ balances. The ~~variance~~variances in ~~accounts payable was~~this account were primarily due to timing of inventory receipts and related payments to ~~vendors and the change in accrued liabilities was primarily due to variances in taxes payable balances as a result of timing of payments.~~vendors.

As of March 31, ~~2013~~2014, ~~$260~~$284 million of the $~~439~~558 million in cash was held by foreign subsidiaries. Cash in foreign subsidiaries is generally accessible, but certain tax consequences may reduce the net amount of cash we are able to utilize for U.S. purposes. QVC accrues taxes on the unremitted earnings of its international subsidiaries. Approximately one-half 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 as possible and meet the business needs of QVC.

During the three months ended March 31, 2012, our primary uses of cash were $238 million of net dividends to Liberty, $45 million of capital expenditures, $44 million of net principal payments on debt and capital lease obligations and a $29 million dividend payment from QVC-Japan to Mitsui. These uses of cash were funded primarily with $401 million of cash provided by operating activities. As of March 31, 2012, our cash balance (excluding restricted cash) was $578 million.

Other

Capital expenditures spending in ~~2013~~2014 is expected to be approximately ~~$260~~$200 million, including $3329 million already expended.

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 March 31, ~~2013~~2014.

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.

I-32I-30

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 March 31, ~~2013~~2014 is summarized below:


	Payments due by period						Payments due by period
(in millions)	Total		Less than 1 year	2-3 years	4-5 years	After 5 years	Total		Less than 1 year	2-3 years	4-5 years	After 5 years
Long-term debt (1)	$	3,523	376	—	—	3,147	$	3,943	—	—	124	3,819
Interest payments(2)	1,867		152	361	361	993	2,031		162	443	441	985
Capital lease obligations (including imputed interest)	91		11	22	20	38	85		11	22	23	29
Operating lease obligations	154		16	27	15	96	163		14	26	19	104

(1) Amounts exclude capital lease obligations and the issue discounts on the 7.5%, 3.125%, 4.375%, 4.85% and 5.95% Senior Secured Notes.

(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 March 31, ~~2013~~2014, (iii) assumes that our existing debt is repaid at maturity and (iv) excludes capital lease obligations.

Our purchase obligations did not materially change as of March 31, ~~2013~~2014.

~~Recent Accounting Pronouncements~~

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. QVC believes this best protects itself from interest rate risk. As

The table below summarizes the Company’s debt obligations, related interest rates and fair value of debt at March 31, ~~2013~~2014~~, QVC's debt, excluding~~:



(in millions, except percentages)	2014			2015		2016		2017		2018		Thereafter		Total		Fair Value
Fixed rate debt (1)	$	—		—		—		—		—		3,819		3,819		3,946
Weighted average interest rate on fixed rate debt	—		%	—	%	—	%	—	%	—	%	5.6	%	5.6	%	N/A
Variable rate debt	$	—		—		—		—		124		—		124		124
Average interest rate on variable rate debt	—		%	—	%	—	%	—	%	1.9	%	—	%	1.9	%	N/A

(1) Amounts exclude capital ~~leases and unamortized discounts, was comprised of $3.2 billion of fixed rate debt and $328 million of variable rate debt. The weighted average rate of all of QVC's variable rate debt was 1.7%~~lease obligations and the ~~weighted average rate of all of QVC's fixed rate debt (including capital leases) was 6.1% as of~~ ~~March 31, 2013~~.issue discounts on the 7.5%, 3.125%, 4.375%, 4.85% and 5.95% Senior Secured Notes.

~~In March 2013, QVC's notional interest rate swaps of~~ ~~$3.1 billion~~ expired. These swap arrangements did not qualify as cash flow hedges under U.S. GAAP. Accordingly, changes in the fair value of the swaps were reflected in gain on financial instruments in the accompanying condensed consolidated statements of operations. We recorded a $12 million and $11 million gain on financial instruments as of March 31, 2013 and March 31, 2012 respectively.N/A - Not applicable.

I-33I-31

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 ~~shareholder's~~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 months ended March 31, ~~2013~~2014 would have been impacted by approximately $1 million for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.

The credit facility provides QVC with the ability to borrow in multiple currencies. This allows QVC to somewhat mitigate foreign currency exchange rate risks. As of March 31, ~~2013~~,2014, QVC had borrowings of 5.5 billion Japanese Yen, equivalent to ~~$58~~$54 million based on an exchange rate of ~~94.22~~102.4 Japanese Yen per U.S. Dollar, outstanding under the credit facility. As of March 31, ~~2013~~,2014, the foreign currency exchange exposure to these borrowings approximated $1 million for every 1% change in the Japanese Yen exchange rate per U.S. Dollar.

Item 4. Controls and Procedures

~~In accordance with Exchange Act~~We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ("under the Exchange ~~Act")~~Act). As of March 31, 2014 (the Evaluation Date), an evaluation of the ~~Company~~effectiveness of our disclosure controls and procedures was carried out ~~an evaluation,~~ under the supervision and with the participation of our management, including ~~its chief executive officer~~our Chief Executive Officer and ~~its principal accounting~~Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and ~~financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures~~Chief Financial Officer concluded that, as of the end of the period covered by this ~~report. Based on that evaluation, the Executives concluded that the Company's~~report these disclosure controls and procedures were ~~effective as of~~ effective.~~March 31, 2013~~ ~~to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under~~

During the ~~Exchange Act is recorded, processed, summarized and reported within~~quarter ended on the ~~time periods specified in the Securities and Exchange Commission's rules and forms.~~

~~There has been~~Evaluation Date, there was no change in ~~the Company's~~ internal control over financial reporting ~~that occurred during~~(as defined in Rules 13a-15(f) and 15d-15(f) under the ~~three months ended~~ ~~March 31, 2013~~Exchange Act) that has materially affected, or is reasonably likely to materially affect, ~~its~~our internal control over financial reporting.

I-34I-32

PART II - OTHER INFORMATION

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):



~~10.1~~		Amended and Restated Credit Agreement, dated as of March 1, 2013, among QVC, Inc., as Borrower, J.P. Morgan Securities LLC, as Lead Arranger and Lead Bookrunner, JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, N.A., and BNP Paribas, as Syndication Agents, and the parties named therein as Lenders, Documentation Agents and Co-Lead Arrangers and Co-Bookrunners (incorporated by reference to Exhibit 99.2 to the 8-K as filed on March 7, 2013)
~~10.2~~4.1		Form of the Indenture dated as of March 18, ~~2013~~2014 among QVC, Inc., the guarantors party thereto and U.S. Bank National AssociationAssociation (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-195586) as filed on April 30, 2014 (the "S-4"))
~~10.3~~4.2		Form of the Registration Rights Agreement, dated as of March 18, ~~2013,~~2014, by and among QVC, Inc., the guarantors named therein and the initial purchasers named thereintherein (incorporated by reference to Exhibit 4.2 to the S-4)
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.

~~II-~~1II-1

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: May 9, ~~2013~~2014	By:/s/ MICHAEL A. GEORGE
	Michael A. George
	President and Chief Executive Officer (Principal Executive Officer)

Date: May 9, ~~2013~~2014	By:/s/ ~~DANIEL T. O'CONNELL~~THADDEUS J. JASTRZEBSKI
	~~Daniel T. O'Connell~~ Thaddeus J. Jastrzebski
	Executive Vice President and Chief Financial Officer ~~and Treasurer~~ (Principal Financial Officer and Principal Accounting Officer)

~~II-~~2II-2

EXHIBIT INDEX

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):



~~10.1~~		Amended and Restated Credit Agreement, dated as of March 1, 2013, among QVC, Inc., as Borrower, J.P. Morgan Securities LLC, as Lead Arranger and Lead Bookrunner, JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, N.A., and BNP Paribas, as Syndication Agents, and the parties named therein as Lenders, Documentation Agents and Co-Lead Arrangers and Co-Bookrunners (incorporated by reference to Exhibit 99.2 to the 8-K as filed on March 7, 2013)
~~10.2~~4.1		Form of the Indenture dated as of March 18, ~~2013~~2014 among QVC, Inc., the guarantors party thereto and U.S. Bank National AssociationAssociation(incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-195586) as filed on April 30, 2014 (the "S-4"))
~~10.3~~4.2		Form of the Registration Rights Agreement, dated as of March 18, ~~2013,~~2014, by and among QVC, Inc., the guarantors named therein and the initial purchasers named thereintherein (incorporated by reference to Exhibit 4.2 to the S-4)
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.

~~II-~~3II-3