qvc-20210331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ 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 001-38654

QVC, Inc.

(Exact name of Registrant as specified in its charter)

State of Delaware 23-2414041

(State or other jurisdiction of (I.R.S. Employer Identification

incorporation or organization) Number)

1200 Wilson Drive

West Chester, Pennsylvania 19380

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (484) 701-1000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
6.375% Senior Secured Notes due 2067	QVCD	New York Stock Exchange
6.250% Senior Secured Notes due 2068	QVCC	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer ☒ Smaller reporting company Emerging growth

☐ company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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, Qurate Retail Group, Inc., an indirect wholly-owned subsidiary of Qurate Retail, Inc.

QVC, Inc.

2021 QUARTERLY REPORT ON FORM 10-Q

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	Part I	Page

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Cash Flows	4
	Condensed Consolidated Statement of Equity	5
	Notes to the Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	36

	Part II
Item 6.	Exhibits	37
	Signatures	38

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	March 31,		December 31,
(in millions, except share amounts)	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	638	682
Restricted cash	8		8
Accounts receivable, less allowance for credit losses of $103 at March 31, 2021 and $124 at December 31, 2020	1,211		1,602
Inventories	1,171		1,119
Prepaid expenses and other current assets	306		293
Total current assets	3,334		3,704
Property and equipment, net of accumulated depreciation of $1,392 at March 31, 2021 and $1,544 at December 31, 2020	1,106		1,178
Operating lease right-of-use assets (note 6)	215		221
Television distribution rights, net (note 2)	142		63
Goodwill (note 3)	5,997		6,034
Other intangible assets, net (note 3)	3,441		3,454
Note receivable - related party (note 1)	1,825		1,825
Other noncurrent assets	71		79
Total assets	$	16,131	16,558
Liabilities and equity
Current liabilities:
Current portion of debt and finance lease obligations (note 5)	$	458	410
Accounts payable-trade	965		1,127
Accrued liabilities (note 4)	1,043		1,302
Total current liabilities	2,466		2,839
Long-term portion of debt and finance lease obligations (note 5)	4,545		4,549
Deferred income taxes (note 8)	714		711
Other long-term liabilities	313		324
Total liabilities	8,038		8,423
Commitments and contingencies (note 9)
Equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value, 1 authorized share	—		—
Additional paid-in capital	10,740		10,741
Accumulated deficit	(2,677)		(2,722)
Accumulated other comprehensive loss	(95)		(17)
Total QVC, Inc. stockholder's equity	7,968		8,002
Noncontrolling interest	125		133
Total equity	8,093		8,135
Total liabilities and equity	$	16,131	16,558

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QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended March 31,
(in millions)	2021		2020
Net revenue	$	2,710	2,427
Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	1,758		1,584
Operating	186		177
Selling, general and administrative, including stock-based compensation	283		282
Depreciation	40		43
Amortization	62		71
	2,329		2,157
Operating income	381		270
Other (expense) income:
Equity in losses of investee	—		(1)
Gains (losses) on financial instruments	1		(4)
Interest expense, net	(63)		(65)
Foreign currency (loss) gain	(2)		1
Other income	6		—
	(58)		(69)
Income before income taxes	323		201
Income tax expense	(85)		(60)
Net income	238		141
Less net income attributable to the noncontrolling interest	(16)		(12)
Net income attributable to QVC, Inc. stockholder	$	222	129

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QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended March 31,
(in millions)	2021		2020
Net income	$	238	141
Foreign currency translation adjustments, net of tax	(73)		(22)
Comprehensive loss attributable to debt credit risk adjustments	(13)		—
Total comprehensive income	152		119
Comprehensive income attributable to noncontrolling interest	(8)		(13)
Comprehensive income attributable to QVC, Inc. stockholder	$	144	106

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QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Three months ended March 31,
(in millions)	2021		2020
Operating activities:
Net income	$	238	141
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee	—		1
Deferred income taxes	3		2
Foreign currency loss (gain)	2		(1)
Depreciation	40		43
Amortization	62		71
Change in fair value of financial instruments and noncash interest	(1)		6
Stock-based compensation	9		6
Change in other long-term liabilities	(1)		(4)
Other income	(6)		—
Other non-cash charges, net	10		7
Change in operating assets and liabilities
Decrease in accounts receivable	378		403
Increase in inventories	(60)		(4)
Decrease in prepaid expenses and other current assets	29		50
Decrease in accounts payable-trade	(151)		(198)
Decrease in accrued liabilities and other	(305)		(213)
Net cash provided by operating activities	247		310
Investing activities:
Capital expenditures	(41)		(39)
Expenditures for television distribution rights	(56)		(1)
Changes in other noncurrent assets	(1)		3
Proceeds from sale of fixed assets	40		—
Net cash used in investing activities	(58)		(37)
Financing activities:
Principal payments of debt and finance lease obligations	(143)		(872)
Principal borrowings of debt from senior secured credit facility	135		112
Proceeds from issuance of senior secured notes	—		575
Payment of debt origination fees	—		(8)
Dividends paid to Qurate Retail, Inc.	(177)		(122)
Dividends paid to noncontrolling interest	(16)		(15)
Withholding taxes on net share settlements of stock-based compensation	(15)		(1)
Net cash used in financing activities	(216)		(331)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(17)		(6)
Net decrease in cash, cash equivalents and restricted cash	(44)		(64)
Cash, cash equivalents and restricted cash, beginning of period	690		569
Cash, cash equivalents and restricted cash, end of period	$	646	505

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QVC, Inc.

Condensed Consolidated Statements of Equity

(unaudited)


	Common stock			Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Noncontrolling interest	Total equity
(in millions, except share data)	Shares	Amount
Balance, December 31, 2019	1	$	—	9,208	(2,390)	(144)	130	6,804
Net income	—	—		—	129	—	12	141
Foreign currency translation adjustments, net of tax	—	—		—	—	(23)	1	(22)
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(122)	—	(15)	(137)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—	2	—	—	2
Withholding taxes on net share settlements of stock-based compensation	—	—		(1)	—	—	—	(1)
Stock-based compensation	—	—		6	—	—	—	6
Balance, March 31, 2020	1	$	—	9,213	(2,381)	(167)	128	6,793


	Common stock			Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Noncontrolling interest	Total equity
(in millions, except share data)	Shares	Amount
Balance, December 31, 2020	1	$	—	10,741	(2,722)	(17)	133	8,135
Net income	—	—		—	222	—	16	238
Foreign currency translation adjustments, net of tax	—	—		—	—	(65)	(8)	(73)
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(177)	—	(16)	(193)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		5	—	—	—	5
Withholding taxes on net share settlements of stock-based compensation	—	—		(15)	—	—	—	(15)
Stock-based compensation	—	—		9	—	—	—	9
Debt credit risk adjustment	—	—		—	—	(13)	—	(13)
Balance, March 31, 2021	1	$	—	10,740	(2,677)	(95)	125	8,093

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

QVC, Inc. and its consolidated subsidiaries (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 and mobile applications.

In the United States ("U.S."), QVC's televised shopping programs, including live and recorded content, are distributed across multiple channels nationally on a full-time basis, including QVC, QVC2, QVC3, HSN and HSN2. The Company's U.S. programming is also available on QVC.com and HSN.com, QVC's "U.S. websites"; virtual multichannel video programming distributors (including Hulu + Live TV, AT&T TV, and YouTube TV); applications via streaming video; Facebook Live, Roku, Apple TV, and Amazon Fire; mobile applications; social pag

SEC Form 10-Q filed by QVC, Inc.