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 Rocky Mount, Inc.; QVC San Antonio, LLC; QVC Global Holdings I, Inc.; and QVC Global Holdings II, Inc.) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X. In connection with the Third Amended and Restated Credit Agreement (refer to note 8), QVC International Ltd is no longer a guarantor subsidiary, and is reflected with the combined non-guarantor subsidiaries as of and for the year ended December 31, 2016. 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. With One Q, beginning in 2016, as mentioned in note 15, QVC began allocating certain additional corporate costs for management reporting purposes, which were historically included in its QVC-U.S segment, to the QVC-International segment. 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, 2017 (in millions) Parent Combined Combined Eliminations Consolidated- Assets Current assets: Cash and cash equivalents $ 2 33 225 — 260 Restricted cash 5 — 3 — 8 Accounts receivable, net 1,076 — 312 — 1,388 Inventories 758 — 261 — 1,019 Prepaid expenses and other current assets 28 — 23 — 51 Total current assets 1,869 33 824 — 2,726 Property and equipment, net 295 60 650 — 1,005 Television distribution rights, net — 78 — — 78 Goodwill 4,190 — 885 — 5,075 Other intangible assets, net 539 2,048 18 — 2,605 Other noncurrent assets 14 — 47 — 61 Investments in subsidiaries 3,579 1,626 — (5,205 ) — Total assets $ 10,486 3,845 2,424 (5,205 ) 11,550 Liabilities and equity Current liabilities: Current portion of debt and capital lease obligations $ 3 — 14 — 17 Accounts payable-trade 455 — 301 — 756 Accrued liabilities 366 227 279 — 872 Intercompany accounts payable (receivable) 453 (1,513 ) 1,060 — — Total current liabilities 1,277 (1,286 ) 1,654 — 1,645 Long-term portion of debt and capital lease obligations 5,033 — 140 — 5,173 Deferred income taxes 52 468 (47 ) — 473 Other long-term liabilities 92 — 25 — 117 Total liabilities 6,454 (818 ) 1,772 — 7,408 Equity: QVC, Inc. stockholder's equity 4,032 4,663 542 (5,205 ) 4,032 Noncontrolling interest — — 110 — 110 Total equity 4,032 4,663 652 (5,205 ) 4,142 Total liabilities and equity $ 10,486 3,845 2,424 (5,205 ) 11,550 Consolidating Balance Sheets December 31, 2016 (in millions) Parent Combined Combined Eliminations Consolidated- Assets Current assets: Cash and cash equivalents $ 2 97 185 — 284 Restricted cash 8 — 2 — 10 Accounts receivable, net 958 — 288 — 1,246 Inventories 726 — 224 — 950 Prepaid expenses and other current assets 22 — 24 — 46 Total current assets 1,716 97 723 — 2,536 Property and equipment, net 317 63 651 — 1,031 Television distribution rights, net — 167 16 — 183 Goodwill 4,190 — 805 — 4,995 Other intangible assets, net 666 2,049 23 — 2,738 Other noncurrent assets 15 — 47 — 62 Investments in subsidiaries 3,389 1,030 — (4,419 ) — Total assets $ 10,293 3,406 2,265 (4,419 ) 11,545 Liabilities and equity Current liabilities: Current portion of debt and capital lease obligations $ 3 — 11 — 14 Accounts payable-trade 425 — 253 — 678 Accrued liabilities 74 234 461 — 769 Intercompany accounts payable (receivable) 623 (246 ) (377 ) — — Total current liabilities 1,125 (12 ) 348 — 1,461 Long-term portion of debt and capital lease obligations 5,132 — 143 — 5,275 Deferred income taxes 145 707 (74 ) — 778 Other long-term liabilities 96 — 40 — 136 Total liabilities 6,498 695 457 — 7,650 Equity: QVC, Inc. stockholder's equity 3,795 2,711 1,708 (4,419 ) 3,795 Noncontrolling interest — — 100 — 100 Total equity 3,795 2,711 1,808 (4,419 ) 3,895 Total liabilities and equity $ 10,293 3,406 2,265 (4,419 ) 11,545 Consolidating Statements of Operations Year ended December 31, 2017 (in millions) Parent Combined Combined Eliminations Consolidated- Net revenue $ 6,298 1,000 2,848 (1,375 ) 8,771 Operating costs and expenses: Cost of goods sold (exclusive of depreciation and amortization shown separately below) 3,877 157 1,744 (180 ) 5,598 Operating 433 265 277 (374 ) 601 Selling, general and administrative, including stock-based compensation 1,097 2 428 (821 ) 706 Depreciation 67 7 81 — 155 Amortization 187 142 35 — 364 5,661 573 2,565 (1,375 ) 7,424 Operating income 637 427 283 — 1,347 Other (expense) income: Equity in losses of investee — — (3 ) — (3 ) Interest (expense) income, net (215 ) 1 — — (214 ) Foreign currency (loss) gain (5 ) 1 (2 ) — (6 ) Intercompany interest (expense) income (12 ) 96 (84 ) — — (232 ) 98 (89 ) — (223 ) Income before income taxes 405 525 194 — 1,124 Income tax (expense) benefit (129 ) 80 (103 ) — (152 ) Equity in earnings of subsidiaries, net of tax 696 47 — (743 ) — Net income 972 652 91 (743 ) 972 Less net income attributable to the noncontrolling interest (46 ) — (46 ) 46 (46 ) Net income attributable to QVC, Inc. stockholder $ 926 652 45 (697 ) 926 Consolidating Statements of Operations Year ended December 31, 2016 (in millions) Parent Combined Combined Eliminations Consolidated- Net revenue $ 6,179 1,001 2,787 (1,285 ) 8,682 Operating costs and expenses: Cost of goods sold (exclusive of depreciation and amortization shown separately below) 3,855 169 1,726 (210 ) 5,540 Operating 414 258 274 (340 ) 606 Selling, general and administrative, including stock-based compensation 1,116 1 346 (735 ) 728 Depreciation 57 7 78 — 142 Amortization 245 168 50 — 463 5,687 603 2,474 (1,285 ) 7,479 Operating income 492 398 313 — 1,203 Other (expense) income: Equity in losses of investee — — (6 ) — (6 ) Gain on financial instruments 2 — — — 2 Interest (expense) income, net (211 ) — 1 — (210 ) Foreign currency gain 17 — 21 — 38 Intercompany interest (expense) income (2 ) 1 1 — — (194 ) 1 17 — (176 ) Income before income taxes 298 399 330 — 1,027 Income tax expense (114 ) (156 ) (115 ) — (385 ) Equity in earnings of subsidiaries, net of tax 458 189 — (647 ) — Net income 642 432 215 (647 ) 642 Less net income attributable to the noncontrolling interest (38 ) — (38 ) 38 (38 ) Net income attributable to QVC, Inc. stockholder $ 604 432 177 (609 ) 604 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 Operating costs and expenses: Cost of goods sold (exclusive of depreciation and amortization shown separately below) 4,018 109 1,624 (223 ) 5,528 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 5,812 546 2,462 (1,352 ) 7,468 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 Comprehensive Income Year ended December 31, 2017 (in millions) Parent Combined Combined Eliminations Consolidated- Net income $ 972 652 91 (743 ) 972 Foreign currency translation adjustments, net of tax 135 — 135 (135 ) 135 Total comprehensive income 1,107 652 226 (878 ) 1,107 Comprehensive income attributable to noncontrolling interest (50 ) — (50 ) 50 (50 ) Comprehensive income attributable to QVC, Inc. stockholder $ 1,057 652 176 (828 ) 1,057 Consolidating Statements of Comprehensive Income Year ended December 31, 2016 (in millions) Parent Combined Combined Eliminations Consolidated- Net income $ 642 432 215 (647 ) 642 Foreign currency translation adjustments, net of tax (83 ) — (83 ) 83 (83 ) Total comprehensive income 559 432 132 (564 ) 559 Comprehensive income attributable to noncontrolling interest (39 ) — (39 ) 39 (39 ) Comprehensive income attributable to QVC, Inc. stockholder $ 520 432 93 (525 ) 520 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, net of tax (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 Cash Flows Year ended December 31, 2017 (in millions) Parent Combined Combined Eliminations Consolidated- Operating activities: Net cash provided by operating activities $ 641 507 54 — 1,202 Investing activities: Capital expenditures (103 ) (4 ) (45 ) — (152 ) Expenditures for television distribution rights — (50 ) — — (50 ) Decrease (increase) in restricted cash 3 — (1 ) — 2 Changes in other noncurrent assets (1 ) — — — (1 ) Intercompany investing activities 545 (1,507 ) — 962 — Net cash provided by (used in) investing activities 444 (1,561 ) (46 ) 962 (201 ) Financing activities: Principal payments of debt and capital lease obligations (2,268 ) — (10 ) — (2,278 ) Principal borrowings of debt from senior secured credit facility 2,162 — — — 2,162 Dividends paid to Liberty Interactive Corporation (866 ) — — — (866 ) Dividends paid to noncontrolling interest — — (40 ) — (40 ) Other financing activities (16 ) — — — (16 ) Net short-term intercompany debt (repayments) borrowings (170 ) (1,267 ) 1,437 — — Other intercompany financing activities 73 2,257 (1,368 ) (962 ) — Net cash (used in) provided by financing activities (1,085 ) 990 19 (962 ) (1,038 ) Effect of foreign exchange rate changes on cash and cash equivalents — — 13 — 13 Net (decrease) increase in cash and cash equivalents — (64 ) 40 — (24 ) Cash and cash equivalents, beginning of period 2 97 185 — 284 Cash and cash equivalents, end of period $ 2 33 225 — 260 Consolidating Statements of Cash Flows Year ended December 31, 2016 (in millions) Parent Combined Combined Eliminations Consolidated- Operating activities: Net cash provided by operating activities $ 555 408 215 — 1,178 Investing activities: Capital expenditures (141 ) (2 ) (36 ) — (179 ) Expenditures for television distribution rights — (38 ) — — (38 ) Decrease in restricted cash 1 — — — 1 Other investing activities (12 ) — 9 — (3 ) Changes in other noncurrent assets (2 ) — 1 — (1 ) Intercompany investing activities 452 131 — (583 ) — Net cash provided by (used in) investing activities 298 91 (26 ) (583 ) (220 ) Financing activities: Principal payments of debt and capital lease obligations (1,727 ) — (6 ) — (1,733 ) Principal borrowings of debt from senior secured credit facility 1,505 — — — 1,505 Payment of debt origination fees (2 ) — — — (2 ) Dividends paid to Liberty (703 ) — — — (703 ) Dividends paid to noncontrolling interest — — (39 ) — (39 ) Other financing activities (9 ) — — — (9 ) Net short-term intercompany debt borrowings (repayments) 61 (1,517 ) 1,456 — — Other intercompany financing activities 24 1,003 (1,610 ) 583 — Net cash used in financing activities (851 ) (514 ) (199 ) 583 (981 ) Effect of foreign exchange rate changes on cash and cash equivalents — — (20 ) — (20 ) Net increase (decrease) in cash and cash equivalents 2 (15 ) (30 ) — (43 ) Cash and cash equivalents, beginning of period — 112 215 — 327 Cash and cash equivalents, end of period $ 2 97 185 — 284 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 television distribution rights — (68 ) (4 ) — (72 ) Decrease (increase) in restricted cash 1 — (1 ) — — Other investing activities 2 — — — 2 Changes in other noncurrent assets 12 — (12 ) — — 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 ) Dividends paid to Liberty (1,485 ) — — — (1,485 ) Dividends paid to noncontrolling interest — — (36 ) — (36 ) Other financing activities (15 ) — — — (15 ) 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 decrease 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 |