Qurate Retail(QRTEB) - 2020 Q4 - Annual Report

Business Overview General Development of Business Qurate Retail, Inc., formerly Liberty Interactive Corporation, operates in video and online commerce across North America, Europe, and Asia, with a history of corporate restructurings and a service agreement with LMC for administrative support - Qurate Retail, Inc. (formerly Liberty Interactive Corporation) primarily operates in the video and online commerce industries through its subsidiaries and affiliates across North America, Europe, and Asia[12] - The company's history includes the LMC spin-off (2011), tracking stock structure adjustments (created 2012, renamed QVC Group common stock 2015), and the 2018 GCI Liberty transaction, culminating in its renaming to Qurate Retail, Inc. on April 9, 2018, and the elimination of the tracking stock structure on May 23, 2018[13][16][21] - The company has a service agreement with Liberty Media Corporation (LMC) for general administrative services, including legal, tax, accounting, finance, and investor relations support, reimbursing LMC for direct and shared service costs, with Qurate Retail currently bearing 19% of Chairman Gregory B. Maffei's compensation[14][15] Description of Business This section details the operational models and market presence of Qurate Retail's core brands: QVC, Zulily, and Cornerstone QVC QVC is a leading global video retailer, offering interactive shopping to approximately 218 million homes, with 92% of 2020 global shipped sales from repeat customers and e-commerce contributing 56.2% to consolidated net revenue - QVC provides interactive shopping experiences to approximately 218 million homes globally through broadcast networks, websites (QVC.com, HSN.com), virtual multichannel video programming distributors (Hulu+ Live TV, AT&T TV, YouTube TV), streaming apps (Facebook Live, Roku, Apple TV, Amazon Fire), and mobile apps[30] - QVC's operating strategies include: (i) curating distinctive products with compelling value; (ii) expanding video reach and relevance; (iii) reinventing everyday digital discovery; (iv) growing and engaging its loyal community; and (v) providing delightful customer service[30] - QVC maintains broad distribution, favorable channel positioning, and significant competitive advantages through long-term agreements with major US television distributors such as Comcast, Charter, Cox, DISH Network, DIRECTV, Verizon, and AT&T[31] QVC Key Performance Indicators | Indicator | 2020 Data | | :--- | :--- | | Global shipped sales from repeat and reactivated customers | Approximately 92% | | New customer count | Approximately 4.7 million | | Global e-commerce as a percentage of consolidated net revenue | 56.2% | | Global unique customer count | Approximately 16.5 million | | QxH customer count | 11.6 million | | QVC International customer count | 4.9 million | QVC Global Merchandise Sales Mix (by Product Category) | Product Category | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Home | 42% | 38% | 38% | | Beauty | 18% | 18% | 18% | | Apparel | 14% | 16% | 16% | | Accessories | 11% | 11% | 11% | | Electronics | 10% | 11% | 11% | | Jewelry | 5% | 6% | 6% | | Total | 100% | 100% | 100% | Zulily Zulily is an online retailer offering unique products via daily flash sales, utilizing proprietary technology and a minimal inventory model for wide selection, with significant sales during the fourth-quarter holiday season - Zulily is an online retailer offering unique and valuable products through daily flash sales, primarily featuring women's, children's, and men's apparel, home goods, accessories, and beauty products[61] - Zulily's business model relies on sourcing merchandise from thousands of vendors and providing a customized shopping experience through proprietary technology, data analytics, and personalization tools[63] - Zulily operates with a minimal inventory intermediary model, typically procuring inventory from vendors only after receiving customer orders, which enables a broader product selection and greater sales for vendors[66] - Zulily's sales are significantly impacted by the fourth-quarter holiday shopping season, accounting for 30.7% and 28.8% of its total revenue in Q4 2020 and 2019, respectively[72] Cornerstone Cornerstone Brands, including Ballard Designs and Garnet Hill, sells home and apparel products through catalogs, websites, and 21 physical stores, focusing on proprietary items and exclusive distribution to enhance brand recognition - Cornerstone Brands owns a portfolio of home and apparel brands, including Ballard Designs, Frontgate, Grandin Road (home), and Garnet Hill (apparel)[73][74] - The company sells products through mailed full-color catalogs (approximately 166 million total circulation in 2020) and brand-specific websites (e.g., BallardDesigns.com, Frontgate.com)[75][76] - Cornerstone differentiates its brands by offering innovative proprietary and branded products and seeking exclusive distribution rights[77][79] - The company also expands its distribution platform through 21 physical retail stores and outlet locations to enhance brand awareness and regional demand[73][79] Regulatory Matters Qurate Retail's operations are subject to extensive domestic and international regulations, including FCC rules for video programming and data privacy laws like GDPR and CCPA for online commerce, requiring adaptation to an evolving legal landscape - QVC's video programming services are regulated by the US Federal Communications Commission (FCC), covering program licensing, transmission, ownership rules, and closed captioning requirements[80][81][83][84][86][87] - The company's online commerce business is subject to federal and state laws and regulations, including the Children's Online Privacy Protection Act (COPPA), the CAN-SPAM Act, the Digital Millennium Copyright Act (DMCA), and data privacy regulations such as the EU's General Data Protection Regulation (GDPR) and California's Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA)[88][89][91][92] - The company must also comply with traditional retail regulatory requirements, such as Federal Trade Commission (FTC) rules on truthful and accurate claims, and sales and use tax regulations that may impact online commerce transactions[93] - The regulatory environment is continuously changing, and new laws or changes in the interpretation of existing regulations may emerge, potentially having an adverse effect on the company's business[97] Competition Qurate Retail's video and online commerce businesses operate in a highly competitive retail environment, facing diverse rivals from department stores to e-commerce giants, with product quality, value, and customer service as key competitive factors - Qurate Retail's video and online commerce businesses operate in a highly competitive retail environment, with competitors including large department stores, specialty stores, e-commerce retailers (e.g., Amazon and Walmart), direct sales retailers, wholesale clubs, discount retailers, television shopping retailers (e.g., ShopHQ, Jupiter Shop Channel, HSE 24, Ideal World), and mail-order and catalog companies[98] - Key competitive factors include product quality, brand recognition, selection, value, convenience, price, website performance, customer service, and order fulfillment accuracy[98] Human Capital As of December 31, 2020, Qurate Retail employed approximately 26,424 individuals, fostering a diverse and inclusive culture while implementing comprehensive safety and support measures in response to COVID-19 - As of December 31, 2020, Qurate Retail's consolidated subsidiaries employed approximately 26,424 full-time and part-time employees[100] - The company is committed to fostering a diverse, equitable, and inclusive (DEI) corporate culture, supporting employee development and enhancing customer experience through employee resource groups, DEI training, and diverse hiring practices[101][103] - In response to COVID-19, the company implemented remote work, on-site safety measures (e.g., reduced on-site personnel, enhanced cleaning, social distancing), and employee support programs (e.g., flexible work arrangements, paid leave, mental health resources, and special bonuses)[105] Risk Factors This section outlines the significant risks that could materially affect Qurate Retail's business, financial condition, and operating results Risks Related to Our Financial Condition and Business The company faces significant financial and business risks, including reliance on TV distributors, ongoing negative COVID-19 impacts, evolving regulations, intense retail competition, and challenges in customer acquisition and retention - QVC's business relies on television distributors, and there is no guarantee that distribution agreements can be maintained and renewed on favorable terms, potentially leading to program distribution disruptions and impacting revenue and growth[110][113] - The COVID-19 pandemic has negatively impacted the company's business, key financial, and operational metrics, including employee remote work, production limitations, shipping delays, supply chain disruptions, labor shortages, and increased costs; the long-term effects and vaccine distribution uncertainties may lead to an economic recession, further affecting the company's financial condition[114][116][117][119][120][122] - The company's business is subject to domestic and international government regulations concerning consumer protection, data privacy, retail licensing, merchandise import/export, and sales taxes, with non-compliance potentially leading to fines or business harm[123][124][125] - The company faces intense competition in the video and online commerce sectors, with competitive factors including products, pricing, service, digital platform usability, and many competitors possessing greater resources and brand recognition, potentially employing aggressive pricing and free/discounted shipping strategies[129][130] - The company relies on attracting new customers, retaining existing ones, and anticipating and responding to consumer preferences; increased marketing investment, shifts in consumer behavior (e.g., towards online content), and saturation or decline of the flash sale model could impact sales and profitability[131][133][135][136][137][138][141] - QVC's satellite transmission capabilities are critical, and any disruption could result in revenue loss; FCC reallocation of C-band spectrum for 5G may cause transmission interruptions[142][143] - The company's installment payment options (Easy-Pay, Flexpay, Smart-Pay) and co-branded credit card programs carry risks of customer bad debt, and mismanagement could affect operating results[143][144][146][147][148] - Failure to adequately protect intellectual property or allegations of infringing third-party intellectual property could lead to costly litigation, diversion of management resources, and damage to brand reputation[149] - Natural disasters, public health crises (e.g., COVID-19), political crises, or other uncontrollable events could damage company or third-party facilities, impact consumer spending, and adversely affect the business[150][151] Risks Related to Technology and Information Security The company faces risks from rapid technological obsolescence, third-party platform algorithm changes, system outages, stringent data privacy regulations, and cybersecurity vulnerabilities, exacerbated by remote work - Rapid technological advancements may render the company's products and services obsolete or uncompetitive, and failure to adapt to emerging technologies (e.g., mobile and tablet computing, cloud computing) could lead to customer attrition and revenue decline[152] - Changes in algorithms by third-party digital platforms (e.g., Google and Facebook) could negatively impact paid advertising distribution and organic search rankings, leading to reduced website traffic and increased marketing costs[153] - System outages, lack of infrastructure integration, and redundancy could affect television program transmission, website operations, transaction processing, customer inquiry response, and cost efficiency[154] - The processing, storage, sharing, use, disclosure, and protection of personal data face increasingly stringent government regulations (e.g., GDPR, CCPA, CPRA) and evolving legal requirements, with non-compliance potentially resulting in fines, litigation, and reputational damage[155][156][157] - The company faces cybersecurity risks, including hacking, fraud, employee error, or third-party data theft, which could lead to unauthorized access or loss of sensitive data, causing operational disruptions, increased costs, fines, litigation, and reputational harm; remote work models exacerbate these risks[159][160][161] Risks Related to Third Parties Suppliers and Vendors Business operations depend heavily on distribution facilities and third-party transporters, facing risks from operational disruptions, supply chain issues, loss of key vendors, and inventory management challenges, particularly during seasonal peaks - The company's business relies on a limited number of global distribution facilities, and any damage, operational disruption, or understaffing could lead to inventory loss, shipping interruptions, and increased costs[162][163][164] - The company depends on third-party shipping carriers to deliver products, facing risks of transportation disruptions, delays (e.g., due to package volume surges from COVID-19), and increased shipping costs, which could harm reputation, lead to customer attrition, and impact profits[165] - The company's business relies on relationships with third-party suppliers and vendors, and any adverse changes, loss of key suppliers, or industry consolidation could affect product supply, quality, sales, and profitability[166][167] - The company faces significant inventory risks, especially during seasonal sales and new product launches; failure to accurately forecast demand, changes in product cycles, or shifts in consumer behavior (e.g., due to COVID-19) could lead to excess or insufficient inventory, affecting operating results[168][170] - The seasonal nature of the business (e.g., higher fourth-quarter sales) places additional pressure on operations, potentially leading to delayed supplier deliveries, system outages, understaffing, and logistical challenges[171] Risks Related to Management and Key Personnel The company's success hinges on retaining key talent, faces uncertainty regarding CEO succession, and potential conflicts of interest due to overlapping directors and officers with affiliated companies - The success of the company's business largely depends on its ability to recruit and retain key employees with expertise in retail, television production, direct marketing, and the internet; CEO Michael A. George plans to retire by the end of 2021, and finding a suitable successor presents uncertainty[172] - The company has overlapping directors and officers with Liberty Media Corporation (LMC), Liberty TripAdvisor Holdings, Inc., Liberty Broadband, and Liberty Media Acquisition Corporation, which could lead to conflicts of interest and influence company decisions and transaction terms in acquisitions, corporate opportunities, and related-party transactions[173][175] Risks Related to Economic Conditions International operations face currency fluctuations, economic downturns, and trade policy changes, while global economic weakness and specific trade policies, like those concerning China's Xinjiang region, pose risks to revenue, costs, and reputation - The company's overseas operations face various operational and financial risks, including exchange rate fluctuations, extended payment cycles, economic recessions, restrictions on fund repatriation, tax implications, changes in trade policies, government regulations, and geopolitical events[176][178] - US trade policies towards China (e.g., new tariffs) and uncertainties arising from Brexit could affect the company's ability to meet customer demand, increase merchandise costs, lead to shipping delays, and disrupt supply chains, thereby significantly impacting business and operating results[179][180][181] - Weak global economic conditions could lead to reduced consumer discretionary spending, thereby affecting demand for the company's products and services and adversely impacting revenue and profitability[182][183] - Trade policy changes related to forced labor and human rights abuses in China's Xinjiang region (e.g., US government bans, WROs) could result in import restrictions, supply chain disruptions, increased costs, and reputational damage[185] Risks Related to Our Indebtedness and Common Stock QVC carries substantial debt, limiting financial flexibility and requiring potential refinancing, with restrictive covenants and significant consolidated debt at the operating subsidiary level, alongside risks from insider stock transactions and anti-takeover provisions - QVC has substantial debt (as of December 31, 2020, $4.448 billion in secured debt and $2.93 billion in unused credit facilities), which may increase its vulnerability to adverse economic and industry conditions, limit its cash flow for operations and future business opportunities, and expose it to risks of rising interest rates[186][187][192] - QVC may need to refinance its debt, but there is no guarantee it can do so on commercially reasonable terms or at all, which could lead to accelerated debt maturity[190] - QVC's debt agreements contain restrictive covenants that limit its ability to incur debt, pay dividends, make investments, sell assets, and engage in related-party transactions; violations of these covenants could lead to accelerated debt maturity[191][193][195] - Most of the company's consolidated debt is at the operating subsidiary level, and it may not be able to obtain sufficient cash in the future (e.g., through subsidiary dividends) to repay its debt and other financial obligations[196] - The company has disposed of some of the underlying reference shares for its exchangeable senior debentures, and any exercise of exchange rights or cash distribution will require the company to raise funds from its own resources, increasing liquidity risk[197][198] - Stock transactions or hedging activities by company insiders (e.g., John C. Malone, Gregory B. Maffei, Michael George) could create negative market perceptions, thereby depressing the market price of the company's common stock[200] - Certain provisions in the company's certificate of incorporation and bylaws (e.g., multiple series of common stock, classified board, restrictions on shareholder action) could deter, delay, or prevent a third-party acquisition of the company, even if it might be beneficial to shareholders[201] Unresolved Staff Comments There are no unresolved staff comments in this report - There are no unresolved staff comments in this report[202] Properties Qurate Retail's headquarters are leased in Colorado, while subsidiaries QxH, QVC International, Zulily, and Cornerstone operate various owned and leased facilities, including headquarters, call centers, distribution centers, and retail stores globally - Qurate Retail's headquarters are located in Englewood, Colorado, leased through a facilities agreement with LMC[203] - QxH owns its headquarters and operations center in West Chester, Pennsylvania (including offices, broadcast studios, showrooms), and call centers in San Antonio, Texas, and Chesapeake, Virginia; its distribution centers are located in Lancaster, Pennsylvania, Piney Flats, Tennessee, Suffolk, Virginia, Rocky Mount, North Carolina, Florence, South Carolina, and Ontario, California, and it leases a distribution center in Bethlehem, Pennsylvania[204] - QVC International has call centers in Bochum and Kassel, Germany, and Chiba City, Japan; its distribution centers are in Chiba, Japan, and Hückelhoven, Germany; additionally, QVC International owns multi-purpose buildings in Knowsley, UK, Chiba, Japan, Brugherio, Italy, and Düsseldorf, Germany, and leases a multi-purpose building in London, UK[207] - Zulily leases its headquarters in Seattle, Washington, fulfillment centers in Lockbourne, Ohio, McCarran, Nevada, and Bethlehem, Pennsylvania, and offices in Gahanna, Ohio, and Shenzhen, China[208] - Cornerstone owns offices in New Hampshire and leases fulfillment centers in Butler and Warren Counties, Ohio, and Phoenix, Arizona, as well as 21 retail stores and outlet locations across the United States[209] Legal Proceedings The company currently has no material legal proceedings requiring disclosure - The company currently has no material legal proceedings requiring disclosure[211] Mine Safety Disclosures This item is not applicable - This item is not applicable[212] Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. This section provides information on the trading market for Qurate Retail's common stock, shareholder details, dividend policies, and share repurchase activities Market Information Qurate Retail's Series A and B common stock trade on Nasdaq, with Series B experiencing inactive trading and lower market liquidity after the 2018 capital structure reorganization - Qurate Retail's Series A and Series B common stock trade on the Nasdaq Global Select Market under the symbols "QRTEA" and "QRTEB," respectively[215] - On May 23, 2018, the company reorganized its certificate of incorporation, eliminating the tracking stock capital structure and reclassifying QVC Group common stock into new Series A and Series B common stock[215] - Series B common stock (QRTEB) is thinly traded and has lower market liquidity[215] Qurate Retail Series B Common Stock (QRTEB) High and Low Sales Prices | Year | Quarter | High Price | Low Price | | :--- | :--- | :--- | :--- | | 2019 | Q1 | $22.37 | $15.91 | | | Q2 | $17.50 | $11.62 | | | Q3 | $14.62 | $10.10 | | | Q4 | $10.62 | $7.84 | | 2020 | Q1 | $6.04 | $2.39 | | | Q2 | $5.96 | $3.32 | | | Q3 | $28.46 | $5.60 | | | Q4 | $12.00 | $6.78 | Holders As of January 31, 2021, the company had 2,335 registered holders for Series A common stock and 67 for Series B common stock - As of January 31, 2021, the company had 2,335 registered holders for its Series A common stock and 67 registered holders for its Series B common stock[217] Dividends In 2020, Qurate Retail declared and paid two special dividends totaling approximately $1.25 billion in cash and $1.3 billion in preferred stock liquidation preference, with future dividends subject to board discretion - On August 21, 2020, Qurate Retail declared a special dividend comprising $1.50 per share in cash (totaling approximately $626 million) and 0.03 shares of 8.0% Series A Cumulative Redeemable Preferred Stock per share (with an initial liquidation preference of $100 per share, totaling approximately $1.3 billion in liquidation preference)[218] - On November 20, 2020, the company declared another special cash dividend of $1.50 per share (totaling approximately $625 million)[221] - Except for the aforementioned special dividends, the company has not paid other cash dividends, and future dividend payments will be determined by the Board of Directors based on earnings, financial condition, and other relevant factors[222] Purchases of Equity Securities by the Issuer The company repurchased 6,521,782 Series A common shares for $70 million in Q4 2020 under a $500 million authorization, with additional shares surrendered by executives for tax withholding - In May 2019, the Board of Directors authorized the repurchase of $500 million of Series A or Series B Qurate Retail common stock[223] - In Q4 2020, company executives and employees surrendered 2,537 shares of Series A common stock and 45 shares of preferred stock to cover withholding taxes and other deductions related to restricted stock vesting[225] Q4 2020 Series A Qurate Retail Common Stock Repurchases | Period | Total Shares Purchased | Average Price Per Share | Total Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plan or Program | | :--- | :--- | :--- | :--- | :--- | | October 1-31, 2020 | — | $— | — | $497 million | | November 1-30, 2020 | 1,149,206 | $11.36 | 1,149,206 | $484 million | | December 1-31, 2020 | 5,372,576 | $10.57 | 5,372,576 | $427 million | | Total | 6,521,782 | | 6,521,782 | | Selected Financial Data. This item is not applicable - This item is not applicable[226] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Qurate Retail's financial performance, liquidity, capital resources, and key factors influencing its operations Overview Qurate Retail operates in video and online commerce via QxH, QVC International, and Zulily, undergoing significant restructuring and experiencing varied COVID-19 impacts, including increased online demand and operational challenges - Qurate Retail primarily engages in video and online commerce through its subsidiaries, including QxH (QVC US and HSN), QVC International, and Zulily[228] - The company underwent significant restructurings, including tracking stock structure adjustments and the GCI Liberty spin-off, and was renamed Qurate Retail, Inc. in 2018, with the tracking stock structure eliminated[229][230][231][234] - In 2018, the company initiated the QRG program to optimize HSN and QVC US operations, merging them into the QxH reporting segment in 2019[235] - The COVID-19 pandemic significantly impacted company operations, including remote work for non-essential employees, reduced on-set personnel for production, enhanced cleaning protocols, shipping delays, and increased labor costs; the pandemic also led to increased online shopping demand, attracting new customers, though future impacts remain uncertain[235][236][237][238][239][240][241] Disposals Following the GCI Liberty spin-off, Qurate Retail classified its Liberty Broadband interest as discontinued operations due to significant impact, while Evite and LendingTree disposals were not similarly classified - Following the GCI Liberty spin-off, Qurate Retail classified its interest in Liberty Broadband as discontinued operations due to its significant impact on the company's operations[242] - The disposals of Evite and LendingTree did not have a material impact on the company's historical and future operations and were therefore not classified as discontinued operations[242] Strategies and Challenges QVC aims to lead in video, e-commerce, mobile, and social commerce through product curation and customer engagement, while Zulily seeks daily customer integration via new customer acquisition and supplier relations, both facing market and operational uncertainties - QVC aims to solidify its leadership in video commerce, e-commerce, mobile commerce, and social commerce by curating distinctive products, expanding video reach, reinventing digital discovery, growing its community, and providing excellent customer service[243][244] - QVC's future revenue growth primarily depends on e-commerce, mobile platforms, and streaming sales, as well as new customer acquisition and increased spending by existing customers, but faces challenges related to distributor partnerships, channel positioning, changing consumer habits, and economic conditions[245][247][249] - Zulily's goal is to become part of customers' daily shopping routines by acquiring new customers, increasing customer loyalty, strengthening supplier relationships, and investing in mobile platforms and supply chain[252] - Zulily faces uncertainties regarding supplier availability, pricing, and new product acquisition, as well as challenges in managing diverse suppliers and cost-effective expansion[253][254][256] - Uncertainties surrounding Brexit and US trade policies towards China could adversely affect QVC's operations and financial performance[250][251] Results of Operations—Consolidated This section provides a consolidated overview of Qurate Retail's financial performance, including revenue, operating income, and adjusted OIBDA, highlighting key drivers and changes across its business segments Operating Results In 2020, consolidated revenue grew 5.3% to $14.177 billion, driven by strong performance across QVC International, QxH, Zulily, and Cornerstone, leading to a significant increase in consolidated operating income and adjusted OIBDA - 2020 consolidated revenue increased by 5.3%, primarily due to revenue growth in QVC International (+$258 million), QxH (+$228 million), and Zulily (+$65 million), as well as strong performance in Cornerstone's home categories (+$169 million)[258][259] - 2020 consolidated operating income significantly increased by $1.388 billion, mainly due to a reduction in Zulily's intangible asset impairment loss (-$1.079 billion) and increased operating income from QxH (+$155 million) and QVC International (+$85 million)[261][262] - 2020 consolidated adjusted OIBDA increased by $169 million, primarily driven by increased adjusted OIBDA from QVC International (+$64 million), Zulily (+$35 million), and QxH (+$11 million), along with strong revenue and product margin performance in Cornerstone's home categories[267][268] - Adjusted OIBDA is defined as operating income (loss) plus depreciation and amortization, share-based compensation, separately reported litigation settlements, transaction-related costs (including restructuring, integration, and consulting fees), and impairment losses[264][266] Consolidated Operating Results (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | | | | | QxH | $8,505 | $8,277 | $8,544 | | QVC International | $2,967 | $2,709 | $2,738 | | Zulily | $1,636 | $1,571 | $1,817 | | Corporate and other | $1,070 | $901 | $973 | | Consolidated Total Revenue | $14,177 | $13,458 | $14,070 | | Operating Income (Loss) | | | | | QxH | $1,128 | $973 | $1,161 | | QVC International | $439 | $354 | $351 | | Zulily | $(12) | $(1,091) | $(95) | | Corporate and other | $17 | $(52) | $(93) | | Consolidated Operating Income | $1,572 | $184 | $1,324 | | Adjusted OIBDA | | | | | QxH | $1,547 | $1,536 | $1,630 | | QVC International | $510 | $446 | $429 | | Zulily | $83 | $48 | $108 | | Corporate and other | $58 | $(1) | $(13) | | Consolidated Adjusted OIBDA | $2,198 | $2,029 | $2,154 | Other Income and Expense Net other income and expense improved to -$521 million in 2020, driven by reduced unrealized losses on exchangeable senior debentures and a net gain from asset disposals, despite increased interest expense - 2020 interest expense increased by $34 million, primarily due to higher interest rates from QVC's refinancing and preferred stock dividends, partially offset by a reduction in outstanding debt balance[271][273] - 2020 share of earnings (losses) of affiliates decreased by $4 million, mainly due to reduced losses from alternative energy solution entities, partially offset by increased non-temporary impairment losses on QVC China equity investments[274] - 2020 net realized and unrealized gains (losses) on financial instruments improved from -$251 million in 2019 to -$110 million, primarily due to reduced unrealized losses on exchangeable senior debentures and increased unrealized gains on indemnification assets[275] - 2020 net gains on dispositions totaled $224 million, primarily from the sale of an alternative energy investment[276] - 2020 tax sharing expense with Liberty Broadband increased to $39 million; other net amounts decreased due to a $40 million loss on early extinguishment of debt[277][278][279] Other Income and Expense (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Interest expense | $(408) | $(374) | $(381) | | Share of earnings (losses) of affiliates, net | $(156) | $(160) | $(162) | | Realized and unrealized gains (losses) on financial instruments, net | $(110) | $(251) | $76 | | Net gains (losses) on dispositions | $224 | $(1) | $1 | | Tax sharing income (expense) with Liberty Broadband | $(39) | $(26) | $32 | | Other, net | $(32) | $6 | $(7) | | Other Income (Expense) | $(521) | $(806) | $(441) | Income taxes The company reported a $211 million income tax benefit in 2020 with an effective tax rate of 20.1%, primarily influenced by tax credits from corporate restructuring and alternative energy investments - 2020 income tax benefit was primarily influenced by tax credits generated from corporate restructuring and alternative energy investments[280] - 2019 effective tax rate was higher than the US federal statutory rate of 21%, primarily benefiting from tax credits generated from alternative energy investments and losses carried forward to high-tax years, partially offset by non-deductible intangible asset impairment and increased valuation allowance for deferred tax assets[281] - 2018 effective tax rate was lower than the US federal statutory rate of 21%, primarily benefiting from tax credits generated from alternative energy investments, a reduction in the state effective tax rate due to the GCI Liberty spin-off, and changes in state law[281] Income Tax Benefit (Expense) and Effective Tax Rate | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Income tax benefit (expense) | $211 million | $217 million | $(60) million | | Effective tax rate | 20.1% | 34.9% | 6.8% | Net earnings (loss) Net earnings significantly improved to $1.262 billion in 2020 from a $405 million net loss in 2019, reflecting fluctuations in revenue, expenses, and other gains and losses - The change in net earnings (loss) is attributable to fluctuations in revenue, expenses, and other gains and losses[282] Net Earnings (Loss) (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net earnings (loss) | $1,262 | $(405) | $964 | Liquidity and Capital Resources As of December 31, 2020, Qurate Retail maintained $806 million in cash and $2.93 billion in available credit, with operating activities providing $2.455 billion in cash, primarily used for dividends, debt repayment, and capital expenditures - As of December 31, 2020, the company had $806 million in cash and cash equivalents, and $2.93 billion in available borrowing capacity under the QVC Bank Credit Facility[286] - The company's primary sources of liquidity include available cash balances, equity issuances, dividend and interest income, proceeds from asset sales, debt (including available capacity under the QVC Bank Credit Facility), and cash flow from operating activities of its wholly-owned subsidiaries[284] - In 2020, the company's primary cash uses included $1.3 billion for common stock dividends, $779 million for net debt repayments, $257 million for capital expenditures, $119 million for investments and loans to equity method investees, and $70 million for common stock repurchases, partially offset by $271 million in proceeds from investment dispositions[288] - The company anticipates that future cash flows and borrowing capacity will be sufficient to meet operating expenses, debt service, capital expenditures, stock repurchases, preferred stock dividend payments, and new business investments[289] Qurate Retail Liquidity Position (as of December 31, 2020, Millions of US Dollars) | Entity | Cash and Cash Equivalents | | :--- | :--- | | QVC | $682 | | Zulily | $6 | | Corporate and other | $118 | | Qurate Retail Total | $806 | Cash Flow Information (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,455 | $1,284 | $1,273 | | Net cash provided by (used in) investing activities | $(161) | $(600) | $47 | | Net cash provided by (used in) financing activities | $(2,181) | $(661) | $(1,574) | Off-Balance Sheet Arrangements and Aggregate Contractual Obligations The company retains potential liabilities from past asset sales and faces contingent liabilities from legal and tax matters, with total contractual obligations amounting to $17.248 billion as of December 31, 2020, primarily comprising long-term debt and related interest - The company may retain liabilities in asset sale agreements related to pre-sale events, such as tax, environmental, litigation, and employment matters, and typically indemnifies purchasers; these indemnification obligations may extend for many years, but historical experience indicates the company has not made significant indemnification payments[290][291][292] - The company also has contingent liabilities related to legal and tax proceedings, which management believes will not have a material adverse effect on the consolidated financial statements[293] Consolidated Aggregate Contractual Obligations (as of December 31, 2020, Millions of US Dollars) | Contractual Obligation | Total | Within 1 Year | 2-3 Years | 4-5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $6,654 | $11 | $772 | $1,224 | $4,647 | | Interest payments | $4,695 | $344 | $682 | $548 | $3,121 | | Finance and operating lease obligations | $700 | $106 | $184 | $130 | $280 | | Preferred stock | $2,277 | $100 | $200 | $200 | $1,777 | | Purchase orders and other obligations | $2,922 | $2,848 | $51 | $13 | $10 | | Total | $17,248 | $3,409 | $1,889 | $2,115 | $9,835 | Critical Accounting Estimates The company relies on critical accounting estimates for fair value measurements, retail-related adjustments, and income tax accounting, all involving significant judgment and potential for material differences from actual results - The company relies on several critical accounting estimates in preparing its financial statements, including fair value measurements, income tax accounting, and retail-related adjustments and reserves[296][471] - Fair value measurements involve valuing financial instruments (e.g., equity securities, exchangeable senior debentures) and non-financial instruments (e.g., goodwill, trademarks, and other long-lived assets), requiring significant judgment regarding future cash flows, discount rates, and market multiples[299][300][302][303][437][439][440] - Retail-related adjustments and reserves include sales returns (15.6% of QVC's gross product revenue in 2020), inventory obsolescence reserves ($170 million in 2020), and allowance for doubtful accounts ($124 million in 2020), all estimated based on historical experience[306] - Income tax accounting requires estimating current tax payable or refundable and deferred income tax liabilities and assets, involving judgments about future tax law changes, operating jurisdictions, and future taxable income[307] Non-Amortizable Intangible Assets (as of December 31, 2020, Millions of US Dollars) | Reporting Segment | Goodwill | Trademarks | Total | | :--- | :--- | :--- | :--- | | QxH | $5,228 | $2,878 | $8,106 | | QVC International | $921 | — | $921 | | Zulily | $477 | $290 | $767 | | Corporate and other | $12 | — | $12 | | Total | $6,638 | $3,168 | $9,806 | Results of Operations—Businesses This section provides a detailed analysis of the operating results for Qurate Retail's individual business segments, QVC and Zulily, highlighting their specific revenue drivers, cost structures, and key performance indicators QVC QVC's consolidated net revenue grew 4.4% to $11.472 billion in 2020, driven by increased unit volume and reduced product returns, leading to improved operating income despite higher operating and SG&A expenses - 2020 QVC consolidated net revenue increased by 4.4% ($486 million), primarily due to a 2.6% increase in units shipped, a $172 million reduction in product returns, and a favorable foreign currency exchange impact of $54 million[313] - 2020 cost of sales as a percentage of net revenue decreased from 65.1% in 2019 to 64.7%, mainly due to reduced product returns and strategic promotional pricing at QxH, partially offset by increased shipping and handling costs at QxH[320] - 2020 operating expenses increased by $18 million, primarily due to higher customer service and credit card processing fees at QxH, partially offset by reduced commissions[321] - 2020 SG&A expenses (excluding share-based compensation and transaction-related costs) increased by $123 million, mainly due to higher personnel costs (including incentive compensation and remote work allowances) and increased online marketing spend, partially offset by reduced credit loss estimates and lower travel expenses[324][325] - QVC recorded no intangible asset impairment losses in 2020, compared to $147 million and $30 million in HSN trademark impairment losses in 2019 and 2018, respectively[327] QVC Operating Results (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net revenue | $11,472 | $10,986 | $11,282 | | Cost of sales | $(7,418) | $(7,148) | $(7,248) | | Operating expenses | $(786) | $(768) | $(881) | | SG&A expenses (excluding share-based compensation and transaction-related costs) | $(1,211) | $(1,088) | $(1,094) | | Adjusted OIBDA | $2,057 | $1,982 | $2,059 | | Intangible asset impairment | — | $(147) | $(30) | | Share-based compensation | $(37) | $(39) | $(46) | | Depreciation and amortization | $(453) | $(468) | $(411) | | Transaction-related costs | — | $(1) | $(60) | | Operating income | $1,567 | $1,327 | $1,512 | QVC Net Revenue by Geographic Region (Millions of US Dollars) | Geographic Region | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | QxH | $8,505 | $8,277 | $8,544 | | QVC International | $2,967 | $2,709 | $2,738 | | Total | $11,472 | $10,986 | $11,282 | QVC Net Revenue Growth Rate (US Dollars and Constant Exchange Rates) | Business | 2020 (US Dollars) | 2020 (Constant Exchange Rates) | 2019 (US Dollars) | 2019 (Constant Exchange Rates) | | :--- | :--- | :--- | :--- | :--- | | QxH | 2.8% | 2.8% | (3.1)% | (3.1)% | | QVC International | 9.5% | 7.5% | (1.1)% | 1.5% | Zulily Zulily's net revenue increased 4.1% to $1.636 billion in 2020, primarily due to higher average selling prices and unit volumes driven by increased online demand during COVID-19, while benefiting from reduced marketing expenses - 2020 Zulily net revenue increased by 4.1% ($65 million), primarily due to a 4.3% increase in average selling price and a 0.2% increase in units shipped, attributed to increased online shopping demand during the COVID-19 pandemic[334] - 2020 cost of sales as a percentage of net revenue increased slightly from 75.0% in 2019 to 75.1%, mainly due to higher shipping costs and fulfillment center wages, partially offset by favorable product margins[335] - 2020 SG&A expenses as a percentage of net revenue decreased from 19.2% in 2019 to 17.2%, primarily due to reduced marketing spend and leverage from increased sales[337] - In 2019, Zulily recorded $1.02 billion in intangible asset impairment losses, primarily related to trademarks and goodwill, while no impairment losses were recorded in 2020[342][492] Zulily Operating Results (Millions of US Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net revenue | $1,636 | $1,571 | $1,817 | | Cost of sales | $(1,228) | $(1,179) | $(1,346) | | Operating expenses | $(44) | $(42) | $(50) | | SG&A expenses (excluding share-based compensation and transaction-related costs) | $(281) | $(302) | $(313) | | Adjusted OIBDA | $83 | $48 | $108 | | Share-based compensation | $(15) | $(15) | $(17) | | Depreciation and amortization | $(80) | $(104) | $(186) | | Intangible asset impairment | — | $(1,020) | — | | Operating income (loss) | $(12) | $(1,091) | $(95) | Quantitative and Qualitative Disclosures about Market Risk. The company manages interest rate risk through a mix of fixed and floating rate debt and addresses foreign currency exchange rate fluctuations, particularly from QVC's international subsidiaries, by regularly evaluating derivative financial instruments - The company faces interest rate risk and foreign currency exchange rate fluctuation risk, stemming from its investment, financing activities, and operations of overseas subsidiaries[343] - Interest rate risk is managed by maintaining an appropriate mix of fixed and floating rate debt; as of December 31, 2020, QxH and QVC International's debt was all fixed-rate ($4.668 billion with an average interest rate of 4.9%), while corporate and other debt was also fixed-rate ($1.986 billion with an average interest rate of 5.3%)[344] - Foreign currency exchange rate fluctuation risk primarily arises from QVC's foreign subsidiaries, where exchange rate movements could lead to economic losses and negative impacts on earnings and equity; in 2020, every 1% change in exchange rates would impact QVC's reported adjusted OIBDA by approximately $5 million[344][346] - The company regularly assesses the effectiveness of derivative financial instruments (e.g., interest rate swaps) to manage market risks and believes that losses from interest rate swaps will be largely offset by changes in interest rates on the underlying debt facilities[347] Financial Statements and Supplementary Data. This section includes Qurate Retail's consolidated financial statements, such as balance sheets, statements of operations, comprehensive income, cash flows, and changes in equity, along with their accompanying notes - This section contains Qurate Retail's consolidated financial statements, including the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income (loss), consolidated statements of cash flows, and consolidated statements of changes in equity, along with the related notes to the financial statements[348][387][388][389][390][391][392][393][394][396][397][399] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There are no changes in or disagreements with accountants on accounting and financial disclosure reported in this document - There are no changes in or disagreements with accountants on accounting and financial disclosure in this report[349] Controls and Procedures. This section details the company's disclosure controls, internal controls over financial reporting, and remediation activities, along with management's and the independent auditor's reports on their effectiveness Disclosure Controls and Procedures As of December 31, 2020, management assessed and confirmed the effectiveness of the company's disclosure controls and procedures, ensuring timely and accurate reporting under the Securities Exchange Act - As of December 31, 2020, the company's management assessed and determined that its disclosure controls and procedures were effective, providing reasonable assurance that information required to be disclosed under the Securities Exchange Act is timely recorded, processed, summarized, and reported[350] Changes in Internal Control Over Financial Reporting No material changes in the company's internal control over financial reporting occurred during the quarter ended December 31, 2020 - No material changes in the company's internal control over financial reporting occurred during the quarter ended December 31, 2020[351] Remediation Activities The company successfully remediated previously reported material weaknesses in internal control over financial reporting by enhancing IT system access controls and conducting ongoing risk assessments, confirming their effective design and operation by December 31, 2020 - In response to the material weaknesses in internal control over financial reporting reported in 2019, the company implemented remediation measures, including removing inappropriate IT system access in its German subsidiary, strengthening ITGC control activities to restrict access to financially significant systems, and continuously performing ITGC risk assessments for high-risk applications[353][358] - As of December 31, 2020, the company completed control testing and evaluation, determining that these controls were designed and operating effectively, thereby remediating the previously reported material weaknesses[355] Management's Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining effective internal control over financial reporting, which was assessed and deemed effective as of December 31, 2020, based on the COSO framework - Company management is responsible for establishing and maintaining effective internal control over financial reporting[359] - As of December 31, 2020, management assessed and determined that the company's internal control over financial reporting was effective, based on the COSO framework[360] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the effectiveness of Qurate Retail's internal control over financial reporting and its consolidated financial statements as of December 31, 2020, highlighting revenue audit evidence as a key audit matter - KPMG LLP issued an unqualified opinion on the effectiveness of Qurate Retail, Inc.'s internal control over financial reporting as of December 31, 2020[362] - KPMG LLP issued an unqualified opinion on the company's consolidated balance sheets as of December 31, 2020, and 2019, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and changes in equity for the three years ended December 31, 2020[363][370] - The sufficiency of audit evidence for revenue was identified as a critical audit matter, as it involves multiple IT systems and highly subjective auditor judgment[375][377] Other Information. No other information requiring disclosure is presented in this report - No other information requiring disclosure is presented in this report[357] Part III Part III incorporates information on directors, executive compensation, security ownership, related party transactions, and auditor fees by reference to the company's 2021 Annual Meeting Proxy Statement - Part III includes information on directors, executive officers and corporate governance, executive compensation, security ownership, certain relationships and related transactions, and director independence, as well as principal accountant fees and services[635] - This information is incorporated by reference to the company's definitive proxy statement for its 2021 Annual Meeting of Stockholders, expected to be filed with the US Securities and Exchange Commission on or before April 30, 2021[635] Part IV. This section lists the exhibits and financial statement schedules filed as part of the report, along with a statement on the Form 10-K Summary Exhibits and Financial Statement Schedules. This section lists exhibits filed as part of the report, including corporate governance documents and material contracts, while financial statement schedules are omitted due to inapplicability or prior disclosure - This section lists the exhibits filed as part of the report, including the company's certificate of incorporation, bylaws, securities holder rights documents, material contracts (e.g., incentive plans, service agreements, debt covenants), and other compliance documents[639][641][645][647][649][651] - Financial statement schedules are omitted because they are not applicable, not material, or the required information is presented in the financial statements or their notes[638] Form 10-K Summary. This item is not applicable - This item is not applicable[653]