Guarantor/Non-guarantor Subsidiary Financial Information | Guarantor/Non-guarantor Subsidiary Financial Information The following information contains the 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 Ltd; QVC Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X. Certain non-guarantor subsidiaries are majority-owned by QVC International Ltd, which is a guarantor subsidiary. These consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company. During the year ended December 31, 2014 , an intangible asset held by certain non-guarantor subsidiaries was sold to QVC, Inc. resulting in a gain of $20 million reflected in intercompany interest and other income for the non-guarantor subsidiaries and also included in equity in earnings of subsidiaries for the subsidiary guarantors. The gain is eliminated in the eliminations column. The impact of these earnings has been eliminated in the presentation of intangible assets and equity in earnings of subsidiaries of the parent 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 consolidated financial statements. Consolidating Balance Sheets December 31, 2015 (in millions) Parent Combined Combined Eliminations Consolidated- Assets Current assets: Cash and cash equivalents $ — 112 215 — 327 Restricted cash 9 — 2 — 11 Accounts receivable, net 1,114 — 256 — 1,370 Inventories 714 — 215 — 929 Prepaid expenses 18 — 24 — 42 Total current assets 1,855 112 712 — 2,679 Property and equipment, net 295 67 640 — 1,002 Cable and satellite television distribution rights, net — 297 42 — 339 Goodwill 4,190 — 845 — 5,035 Other intangible assets, net 842 2,050 44 — 2,936 Other noncurrent assets 5 — 62 — 67 Investments in subsidiaries 3,569 2,687 — (6,256 ) — Total assets $ 10,756 5,213 2,345 (6,256 ) 12,058 Liabilities and equity Current liabilities: Current portion of debt and capital lease obligations $ 3 — 6 — 9 Accounts payable-trade 396 — 262 — 658 Accrued liabilities 229 207 436 — 872 Intercompany accounts payable (receivable) 562 1,271 (1,833 ) — — Total current liabilities 1,190 1,478 (1,129 ) — 1,539 Long-term portion of debt and capital lease obligations 5,342 — 51 — 5,393 Deferred compensation 14 — (1 ) — 13 Deferred income taxes 94 744 (11 ) — 827 Other long-term liabilities 98 — 70 — 168 Total liabilities 6,738 2,222 (1,020 ) — 7,940 Equity: QVC, Inc. stockholder's equity 4,018 2,991 3,265 (6,256 ) 4,018 Noncontrolling interest — — 100 — 100 Total equity 4,018 2,991 3,365 (6,256 ) 4,118 Total liabilities and equity $ 10,756 5,213 2,345 (6,256 ) 12,058 Consolidating Balance Sheets December 31, 2014 (in millions) Parent Combined Combined Eliminations Consolidated- Assets Current assets: Cash and cash equivalents $ 2 123 222 — 347 Restricted cash 10 — 2 — 12 Accounts receivable, net 909 — 287 — 1,196 Inventories 680 — 202 — 882 Prepaid expenses 25 — 25 — 50 Total current assets 1,626 123 738 — 2,487 Property and equipment, net 273 68 685 — 1,026 Cable and satellite television distribution rights, net — 388 73 — 461 Goodwill 4,184 — 907 — 5,091 Other intangible assets, net 982 2,051 69 — 3,102 Other noncurrent assets 1 — 57 — 58 Investments in subsidiaries 4,681 1,386 — (6,067 ) — Total assets $ 11,747 4,016 2,529 (6,067 ) 12,225 Liabilities and equity Current liabilities: Current portion of debt and capital lease obligations $ 2 — 7 — 9 Accounts payable-trade 420 — 209 — 629 Accrued liabilities 282 143 460 — 885 Intercompany accounts payable (receivable) 1,384 (921 ) (463 ) — — Total current liabilities 2,088 (778 ) 213 — 1,523 Long-term portion of debt and capital lease obligations 4,524 — 55 — 4,579 Deferred compensation 16 — 1 — 17 Deferred income taxes 77 877 (43 ) — 911 Other long-term liabilities 99 — 50 — 149 Total liabilities 6,804 99 276 — 7,179 Equity: QVC, Inc. stockholder's equity 4,943 3,917 2,150 (6,067 ) 4,943 Noncontrolling interest — — 103 — 103 Total equity 4,943 3,917 2,253 (6,067 ) 5,046 Total liabilities and equity $ 11,747 4,016 2,529 (6,067 ) 12,225 Consolidating Statements of Operations Year ended December 31, 2015 (in millions) Parent Combined Combined Eliminations Consolidated- Net revenue $ 6,416 962 2,717 (1,352 ) 8,743 Cost of goods sold 4,018 109 1,624 (223 ) 5,528 Gross profit 2,398 853 1,093 (1,129 ) 3,215 Operating expenses: Operating 338 265 293 (289 ) 607 Selling, general and administrative, including stock-based compensation 1,180 1 404 (840 ) 745 Depreciation 43 8 83 — 134 Amortization 233 163 58 — 454 1,794 437 838 (1,129 ) 1,940 Operating income 604 416 255 — 1,275 Other (expense) income: Equity in losses of investee — — (9 ) — (9 ) Interest expense, net (205 ) — (3 ) — (208 ) Foreign currency gain (loss) 15 (1 ) — — 14 Loss on extinguishment of debt (21 ) — — — (21 ) Intercompany interest (expense) income (7 ) (51 ) 58 — — (218 ) (52 ) 46 — (224 ) Income before income taxes 386 364 301 — 1,051 Income tax expense (136 ) (153 ) (100 ) — (389 ) Equity in earnings of subsidiaries, net of tax 412 262 — (674 ) — Net income 662 473 201 (674 ) 662 Less net income attributable to the noncontrolling interest (34 ) — (34 ) 34 (34 ) Net income attributable to QVC, Inc. stockholder $ 628 473 167 (640 ) 628 Consolidating Statements of Operations Year ended December 31, 2014 (in millions) Parent Combined Combined Eliminations Consolidated- Net revenue $ 6,198 920 2,992 (1,309 ) 8,801 Cost of goods sold 3,907 108 1,807 (275 ) 5,547 Gross profit 2,291 812 1,185 (1,034 ) 3,254 Operating expenses: Operating 288 269 296 (235 ) 618 Selling, general and administrative, including stock-based compensation 1,142 1 426 (799 ) 770 Depreciation 39 5 91 — 135 Amortization 223 153 76 — 452 1,692 428 889 (1,034 ) 1,975 Operating income 599 384 296 — 1,279 Other (expense) income: Equity in losses of investee — — (8 ) — (8 ) Interest expense, net (230 ) — (9 ) — (239 ) Foreign currency gain (loss) 16 (3 ) (10 ) — 3 Loss on extinguishment of debt (48 ) — — — (48 ) Intercompany interest and other (expense) income (22 ) 51 (9 ) (20 ) — (284 ) 48 (36 ) (20 ) (292 ) Income before income taxes 315 432 260 (20 ) 987 Income tax expense (73 ) (135 ) (146 ) — (354 ) Equity in earnings of subsidiaries, net of tax 391 25 — (416 ) — Net income 633 322 114 (436 ) 633 Less net income attributable to the noncontrolling interest (39 ) — (39 ) 39 (39 ) Net income attributable to QVC, Inc. stockholder $ 594 322 75 (397 ) 594 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 in one of the Company's 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. Consolidating Statements of Operations Year ended December 31, 2013 (in millions) Parent Combined Combined Eliminations Consolidated- Net revenue $ 5,979 893 2,977 (1,226 ) 8,623 Cost of goods sold 3,804 107 1,831 (277 ) 5,465 Gross profit 2,175 786 1,146 (949 ) 3,158 Operating expenses: Operating 234 267 289 (180 ) 610 Selling, general and administrative, including stock-based compensation 1,083 — 431 (769 ) 745 Depreciation 38 6 83 — 127 Amortization 204 146 81 — 431 1,559 419 884 (949 ) 1,913 Operating income 616 367 262 — 1,245 Other (expense) income: Equity in losses of investee — — (4 ) — (4 ) Gains on financial intstruments 12 — 3 — 15 Interest expense, net (214 ) — — — (214 ) Foreign currency (loss) gain (7 ) — 8 — 1 Loss on extinguishment of debt (57 ) — — — (57 ) Intercompany interest (expense) income (16 ) 51 (35 ) — — (282 ) 51 (28 ) — (259 ) Income before income taxes 334 418 234 — 986 Income tax expense (119 ) (132 ) (102 ) — (353 ) Equity in earnings of subsidiaries, net of tax 418 76 — (494 ) — Net income 633 362 132 (494 ) 633 Less net income attributable to the noncontrolling interest (45 ) — (45 ) 45 (45 ) Net income attributable to QVC, Inc. stockholder $ 588 362 87 (449 ) 588 Consolidating Statements of Comprehensive Income Year ended December 31, 2015 (in millions) Parent Combined Combined Eliminations Consolidated- Net income $ 662 473 201 (674 ) 662 Foreign currency translation adjustments (102 ) — (102 ) 102 (102 ) Total comprehensive income 560 473 99 (572 ) 560 Comprehensive income attributable to noncontrolling interest (33 ) — (33 ) 33 (33 ) Comprehensive income attributable to QVC, Inc. stockholder $ 527 473 66 (539 ) 527 Consolidating Statements of Comprehensive Income Year ended December 31, 2014 (in millions) Parent Combined Combined Eliminations Consolidated- Net income $ 633 322 114 (436 ) 633 Foreign currency translation adjustments (191 ) — (191 ) 191 (191 ) Total comprehensive income (loss) 442 322 (77 ) (245 ) 442 Comprehensive income attributable to noncontrolling interest (26 ) — (26 ) 26 (26 ) Comprehensive income (loss) attributable to QVC, Inc. stockholder $ 416 322 (103 ) (219 ) 416 Consolidating Statements of Comprehensive Income Year ended December 31, 2013 (in millions) Parent Combined Combined Eliminations Consolidated- Net income $ 633 362 132 (494 ) 633 Foreign currency translation adjustments (72 ) — (72 ) 72 (72 ) Total comprehensive income 561 362 60 (422 ) 561 Comprehensive income attributable to noncontrolling interest (20 ) — (20 ) 20 (20 ) Comprehensive income attributable to QVC, Inc. stockholder $ 541 362 40 (402 ) 541 Consolidating Statements of Cash Flows Year ended December 31, 2015 (in millions) Parent Combined Combined Eliminations Consolidated- Operating activities: Net cash provided by operating activities $ 274 314 440 — 1,028 Investing activities: Capital expenditures (154 ) (9 ) (52 ) — (215 ) Expenditures for cable and satellite television distribution rights — (68 ) (4 ) — (72 ) Decrease (increase) in restricted cash 1 — (1 ) — — Changes in other noncurrent assets 12 — (12 ) — — Other investing activities 2 — — — 2 Intercompany investing activities 525 413 — (938 ) — Net cash provided by (used in) investing activities 386 336 (69 ) (938 ) (285 ) Financing activities: Principal payments of debt and capital lease obligations (2,170 ) — (7 ) — (2,177 ) Principal borrowings of debt from senior secured credit facility 2,974 — — — 2,974 Payment of debt origination fees (3 ) — — — (3 ) Payment of bond premium fees (18 ) — — — (18 ) Other financing activities (15 ) — — — (15 ) Dividends paid to Liberty (1,485 ) — — — (1,485 ) Dividends paid to noncontrolling interest — — (36 ) — (36 ) Net short-term intercompany debt (repayments) borrowings (822 ) 2,192 (1,370 ) — — Other intercompany financing activities 877 (2,853 ) 1,038 938 — Net cash used in financing activities (662 ) (661 ) (375 ) 938 (760 ) Effect of foreign exchange rate changes on cash and cash equivalents — — (3 ) — (3 ) Net increase in cash and cash equivalents (2 ) (11 ) (7 ) — (20 ) Cash and cash equivalents, beginning of period 2 123 222 — 347 Cash and cash equivalents, end of period $ — 112 215 — 327 Consolidating Statements of Cash Flows Year ended December 31, 2014 (in millions) Parent Combined Combined Eliminations Consolidated- Operating activities: Net cash provided by operating activities $ 343 459 411 — 1,213 Investing activities: Capital expenditures (161 ) (7 ) 5 (20 ) (183 ) Expenditures for cable and satellite television distribution rights, — (31 ) — — (31 ) Decrease in restricted cash 1 — 1 — 2 Other investing activities 1 — — — 1 Intercompany investing activities 607 267 — (874 ) — Net cash provided by (used in) investing activities 448 229 6 (894 ) (211 ) Financing activities: Principal payments of debt and capital lease obligations (3,039 ) — (10 ) — (3,049 ) Principal borrowings of debt from senior secured credit facility 1,852 — — — 1,852 Proceeds from issuance of senior secured notes, net of original issue discount 1,997 — — — 1,997 Payment of debt origination fees (24 ) — — — (24 ) Payment of bond premium fees (32 ) — — — (32 ) Other financing activities (3 ) — — — (3 ) Dividends paid to Liberty (1,765 ) — — — (1,765 ) Dividends paid to noncontrolling interest — — (42 ) — (42 ) Net short-term intercompany debt borrowings (repayments) 365 (42 ) (323 ) — — Other intercompany financing activities (218 ) (656 ) (20 ) 894 — Net cash used in financing activities (867 ) (698 ) (395 ) 894 (1,066 ) Effect of foreign exchange rate changes on cash and cash equivalents — — (46 ) — (46 ) Net decrease in cash and cash equivalents (76 ) (10 ) (24 ) — (110 ) Cash and cash equivalents, beginning of period 78 133 246 — 457 Cash and cash equivalents, end of period $ 2 123 222 — 347 Consolidating Statements of Cash Flows Year ended December 31, 2013 (in millions) Parent Combined Combined Eliminations Consolidated- Operating activities: Net cash provided by operating activities $ 373 389 211 — 973 Investing activities: Capital expenditures (106 ) (8 ) (100 ) — (214 ) Expenditures for cable and satellite television distribution rights — (56 ) (2 ) — (58 ) Decrease in restricted cash 2 — (1 ) — 1 Other investing activities — — 3 — 3 Changes in other noncurrent assets (1 ) — (1 ) — (2 ) Intercompany investing activities 368 277 — (645 ) — Net cash provided by (used in) investing activities 263 213 (101 ) (645 ) (270 ) Financing activities: Principal payments of debt and capital lease obligations (2,375 ) — (12 ) — (2,387 ) Principal borrowings of debt from senior secured credit facility 1,674 — — — 1,674 Proceeds from issuance of senior secured notes, net of original issue discount 1,050 — — — 1,050 Payment of debt origination fees (16 ) — — — (16 ) Payment of bond premium fees (46 ) — — — (46 ) Other financing activities 12 — — — 12 Dividends paid to Liberty (1,005 ) — — — (1,005 ) Dividends paid to noncontrolling interest — — (45 ) — (45 ) Net short-term intercompany debt borrowings (repayments) 190 (63 ) (127 ) — — Other intercompany financing activities (117 ) (571 ) 43 645 — Net cash used in financing activities (633 ) (634 ) (141 ) 645 (763 ) Effect of foreign exchange rate changes on cash and cash equivalents — — (23 ) — (23 ) Net (decrease) increase in cash and cash equivalents 3 (32 ) (54 ) — (83 ) Cash and cash equivalents, beginning of period 75 165 300 — 540 Cash and cash equivalents, end of period $ 78 133 246 — 457 |