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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 September 30, 2020
OR
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 classTrading SymbolName of each exchange on which registered
6.375% Senior Secured Notes due 2067QVCDNew York Stock Exchange
6.250% Senior Secured Notes due 2068QVCCNew 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.
2020 QUARTERLY REPORT ON FORM 10-Q


Table of Contents

Part IPage
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 6.



Item 1. Financial Statements
QVC, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
September 30,December 31,
(in millions, except share amounts)20202019
Assets
Current assets:
Cash and cash equivalents$574 561 
Restricted cash8 8 
Accounts receivable, less allowance for credit losses of $139 at September 30, 2020 and $123 at December 31, 2019 1,102 1,813 
Inventories1,268 1,214 
Prepaid expenses and other current assets156 184 
Total current assets3,108 3,780 
Property and equipment, net of accumulated depreciation of $1,491 at September 30, 2020 and $1,338 at December 31, 20191,162 1,215 
Operating lease right-of-use assets (note 6)216 214 
Television distribution rights, net (note 2)80 140 
Goodwill (note 3)5,996 5,971 
Other intangible assets, net (note 3)3,444 3,498 
Other noncurrent assets101 109 
Total assets$14,107 14,927 
Liabilities and equity
Current liabilities:
Current portion of debt and finance lease obligations (note 5)$18 18 
Accounts payable-trade973 913 
Accrued liabilities (note 4)961 1,045 
Total current liabilities1,952 1,976 
Long-term portion of debt and finance lease obligations (note 5)4,549 5,101 
Deferred income taxes (note 8)733 724 
Other long-term liabilities326 322 
Total liabilities7,560 8,123 
Commitments and contingencies (note 9)
Equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value, 1 authorized share  
Additional paid-in capital9,234 9,208 
Accumulated deficit(2,713)(2,390)
Accumulated other comprehensive loss(103)(144)
Total QVC, Inc. stockholder's equity6,418 6,674 
Noncontrolling interest129 130 
Total equity6,547 6,804 
Total liabilities and equity$14,107 14,927 
1

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QVC, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended September 30,Nine months ended September 30,
(in millions)2020201920202019
Net revenue$2,703 2,504 7,853 7,519 
Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization shown separately below)1,722 1,615 5,041 4,803 
Operating184 181 548 537 
Selling, general and administrative, including transaction related costs and stock-based compensation295 266 881 804 
Depreciation45 43 131 143 
Amortization69 69 213 211 
2,315 2,174 6,814 6,498 
Operating income388 330 1,039 1,021 
Other (expense) income:
Equity in earnings (losses) of investee1  (1)(1)
Gains (losses) on financial instruments1 (2)(3)(5)
Interest expense, net(65)(61)(194)(182)
Foreign currency gain (loss)1  3 (3)
Loss on extinguishment of debt(42) (42) 
(104)(63)(237)(191)
Income before income taxes284 267 802 830 
Income tax expense(80)(79)(232)(238)
Net income204 188 570 592 
Less net income attributable to the noncontrolling interest(15)(14)(41)(36)
Net income attributable to QVC, Inc. stockholder$189 174 529 556 
2

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QVC, Inc.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three months ended September 30,Nine months ended September 30,
(in millions)2020201920202019
Net income$204 188 570 592 
Foreign currency translation adjustments, net of tax49 (36)45 (28)
Total comprehensive income 253 152 615 564 
Comprehensive income attributable to noncontrolling interest(17)(13)(45)(38)
Comprehensive income attributable to QVC, Inc. stockholder$236 139 570 526 
3

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QVC, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended September 30,
(in millions)20202019
Operating activities:
Net income$570 592 
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee1 1 
Deferred income taxes8 (4)
Foreign currency (gain) loss(3)3 
Depreciation131 143 
Amortization 213 211 
Change in fair value of financial instruments and noncash interest9 10 
Loss on extinguishment of debt42  
Stock-based compensation26 30 
Change in other long-term liabilities9 (26)
Other non-cash charges, net30 8 
Change in operating assets and liabilities
Decrease in accounts receivable718 575 
Increase in inventories(49)(169)
Decrease in prepaid expenses and other current assets30 32 
Increase (decrease) in accounts payable-trade56 (111)
Decrease in accrued liabilities and other(111)(277)
Net cash provided by operating activities1,680 1,018 
Investing activities:
Capital expenditures(140)(225)
Expenditures for television distribution rights(41)(128)
Changes in other noncurrent assets (9)
Other investing activities 29 
Net cash used in investing activities(181)(333)
Financing activities:
Principal payments of debt and finance lease obligations(1,230)(1,648)
Principal borrowings of debt from senior secured credit facility112 2,061 
Principal repayment of senior secured notes(500)(400)
Payment of premium on redemption of senior secured notes(41) 
Proceeds from issuance of senior secured notes 1,075  
Payment of debt origination fees(15) 
Capital contribution received from Qurate Retail, Inc. 50 
Dividends paid to Qurate Retail, Inc.(845)(698)
Dividends paid to noncontrolling interest(46)(34)
Other financing activities(1)(4)
Net cash used in financing activities(1,491)(673)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash5 (3)
Net increase in cash, cash equivalents and restricted cash13 9 
Cash, cash equivalents and restricted cash, beginning of period569 550 
Cash, cash equivalents and restricted cash, end of period$582 559 
4

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QVC, Inc.
Condensed Consolidated Statements of Equity
(unaudited)
Common stockAdditional paid-in capitalAccumulated deficitAccumulated other
comprehensive loss
Noncontrolling interestTotal equity
(in millions, except share data)SharesAmount
Balance, December 31, 20181 $ 9,123 (2,269)(144)119 6,829 
Net income— —  556  36 592 
Foreign currency translation adjustments, net of tax— —   (30)2 (28)
Capital contribution paid from Qurate Retail, Inc.— — 50    50 
Dividends paid to Qurate Retail, Inc. and noncontrolling interest— —  (698) (34)(732)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.— —  (18)  (18)
Withholding taxes on net share settlements of stock-based compensation— — (4)   (4)
Stock-based compensation— — 30    30 
Balance, September 30, 20191$ 9,199 (2,429)(174)123 6,719 
Common stockAdditional paid-in capitalAccumulated deficitAccumulated other
comprehensive loss
Noncontrolling interestTotal equity
(in millions, except share data)SharesAmount
Balance, June 30, 20191 $ 9,139 (2,373)(139)116 6,743 
Net income— —  174  14 188 
Foreign currency translation adjustments, net of tax— —   (35)(1)(36)
Capital contribution paid from Qurate Retail, Inc.— — 50    50 
Dividends paid to Qurate Retail, Inc. and noncontrolling interest— —  (229) (6)(235)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.— —  (1)  (1)
Withholding taxes on net share settlements of stock-based compensation— —      
Stock-based compensation— — 10    10 
Balance, September 30, 20191$ 9,199 (2,429)(174)123 6,719 



5

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QVC, Inc.
Condensed Consolidated Statements of Equity
(unaudited)
Common stockAdditional paid-in capitalAccumulated deficit
Accumulated other
comprehensive loss
Noncontrolling interestTotal equity
(in millions, except share data)SharesAmount
Balance, December 31, 20191 $ 9,208 (2,390)(144)130 6,804 
Net income— —  529  41 570 
Foreign currency translation adjustments, net of tax— —   41 4 45 
Dividends paid to Qurate Retail, Inc. and noncontrolling interest— —  (845) (46)(891)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.— —  (7)  (7)
Stock-based compensation— 2626
Balance, September 30, 20201$ 9,234 (2,713)(103)129 6,547 
Common stockAdditional paid-in capitalAccumulated deficitAccumulated other
comprehensive loss
Noncontrolling interestTotal equity
(in millions, except share data)SharesAmount
Balance, June 30, 20201 $ 9,224 (2,312)(150)128 6,890 
Net income— —  189  15 204 
Foreign currency translation adjustments, net of tax— —   47 2 49 
Dividends paid to Qurate Retail, Inc. and noncontrolling interest— —  (583) (16)(599)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.— —  (7)  (7)
Stock-based compensation— — 10   10
Balance, September 30, 20201$ 9,234 (2,713)(103)129 6,547 
6

Table of Contents
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. During the first quarter of 2019, the Company transitioned its televised Beauty iQ channel to QVC3 and Beauty iQ content was moved to a digital only platform. The Company's U.S. programming is also available on QVC.com and HSN.com, QVC's "U.S. websites"; applications via streaming video; Facebook Live, Roku, Apple TV, and Amazon Fire; mobile applications; social pages and over-the-air broadcasters.
QVC's digital platforms enable consumers to purchase goods offered on our televised programming, along with a wide assortment of products that are available only on our U.S. websites. QVC.com, HSN.com and our other digital platforms (including our mobile applications, social pages and others) are natural extensions of our business model, allowing customers to engage in our shopping experience wherever they are, with live or on-demand content customized to the device they are using. In addition to offering video content, our U.S. websites allow shoppers to browse, research, compare and perform targeted searches for products, read customer reviews, control the order-entry process and conveniently access their QVC account.
Internationally, QVC's televised shopping programs, including live and recorded content, are distributed to households outside of the U.S., primarily in Germany, Austria, Japan, the United Kingdom ("U.K."), the Republic of Ireland and Italy. In some of the countries where QVC operates, QVC's televised shopping programs are distributed across multiple QVC channels: QVC Style and QVC2 in Germany and QVC Beauty, QVC Extra and QVC Style in the U.K. Similar to the U.S., our international businesses also engage customers via websites, mobile applications, and social pages. QVC's international business employs product sourcing teams who select products tailored to the interests of each local market.
The Company's Japanese operations ("QVC-Japan") are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui"). QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the nine months ended September 30, 2020 and 2019, QVC-Japan paid dividends to Mitsui of $46 million and $34 million, respectively.
The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. This joint venture is accounted for as an equity method investment recorded as equity in income (losses) of investee in the condensed consolidated statements of operations.
The Company is an indirect wholly-owned subsidiary of Qurate Retail, Inc. ("Qurate Retail") (Nasdaq: QRTEA and QRTEB), which owns interests in a broad range of digital commerce businesses, including Qurate Retail's other wholly-owned subsidiaries Zulily, LLC ("Zulily") and Cornerstone Brands, Inc. ("CBI"), as well as other minority investments. QVC is part of the Qurate Retail Group, formerly QVC Group, a portfolio of brands including QVC, HSN, Inc. ("HSN"), Zulily and CBI.
During each of the nine months ended September 30, 2020 and 2019, QVC and Zulily engaged in multiple transactions relating to sales, sourcing of merchandise, marketing initiatives and business advisory services. QVC allocated expenses of $6 million and $5 million to Zulily for the nine months ended September 30, 2020 and 2019, respectively. Zulily allocated expenses of $8 million and $7 million to QVC for the nine months ended September 30, 2020 and 2019, respectively.
In September 2020, QVC and Zulily executed a Master Promissory Note ("Promissory Note") whereby Zulily may borrow up to $100 million at a variable interest rate equal to the LIBOR rate plus an applicable margin rate. The Promissory Note matures in September 2030. As of September 30, 2020, there were no borrowings on the Promissory Note.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
During each of the nine months ended September 30, 2020 and 2019, QVC and CBI engaged in multiple transactions relating to personnel and business advisory services. QVC allocated expenses of $18 million and $20 million to CBI for the nine months ended September 30, 2020 and 2019, respectively. CBI allocated expenses of $1 million to QVC for each of the nine months ended September 30, 2020 and 2019. CBI also repaid a $29 million note receivable to QVC during the nine months ended September 30, 2019.
In December 2019, a new coronavirus disease ("COVID-19'") pandemic was reported to have surfaced in Wuhan, China and has subsequently spread across the globe, including all of the countries in which QVC operates. As a result of the spread of the virus, certain local governmental agencies have imposed travel restrictions, local quarantines or stay at home restrictions to contain the spread, which has caused a significant disruption to most sectors of the economy.
As a result of COVID-19, management has increased the amounts of certain estimated reserves including, but not limited to, uncollectible receivables and inventory obsolescence during the three and nine months ended September 30, 2020. Other than these changes, management is not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require the Company to update our estimates, judgments or revise the carrying value of our assets or liabilities. Management's estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.

In July 2020, QVC implemented a planned workforce reduction. As part of the workforce reduction, QVC decided to eliminate live hours on QVC2 in the U.S. and other secondary channels within the various markets. As a result, QVC recorded $2 million and $18 million of severance expense during the three and nine months ended September 30, 2020, respectively, which is recorded in selling, general and administrative expense.

The condensed consolidated financial statements include the accounts of QVC, Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, 2019.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, internally-developed software, valuation of acquired intangible assets and goodwill and income taxes.
Adoption of new accounting pronouncements
In August 2018, the Financial Accounting Standards Board issued ASU 2018-15, Intangibles- Goodwill and Other- Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company prospectively adopted this new standard as of January 1, 2020 and it did not have a material impact on its consolidated financial statements.



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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(2) Television Distribution Rights, Net
Television distribution rights consisted of the following:
(in millions)September 30, 2020December 31, 2019
Television distribution rights$816 764 
Less accumulated amortization(736)(624)
Television distribution rights, net$80 140 
The Company recorded amortization expense of $33 million for each of the three months ended September 30, 2020 and 2019 related to television distribution rights. For the nine months ended September 30, 2020 and 2019, amortization expense for television distribution rights was $102 million and $99 million, respectively.
As of September 30, 2020, related amortization expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2020$31 
202137 
202212 
2023 
2024 

(3) Goodwill and Other Intangible Assets, Net
The changes in the carrying amount of goodwill for the nine months ended September 30, 2020 were as follows:
(in millions)QxHQVC-InternationalTotal
Balance as of December 31, 2019$5,112 859 5,971 
Exchange rate fluctuations 25 25 
Balance as of September 30, 2020$5,112 884 5,996 
Other intangible assets consisted of the following:
September 30, 2020December 31, 2019
(in millions)Gross
cost
Accumulated
amortization
Other intangible assets, net Gross
cost
Accumulated
amortization
Other intangible assets, net
Purchased and internally developed software$942 (675)267 885 (603)282 
Affiliate and customer relationships2,835 (2,542)293 2,829 (2,499)330 
Debt origination fees10 (4)6 10 (2)8 
Trademarks (indefinite life)2,878 — 2,878 2,878 — 2,878 
$6,665 (3,221)3,444 6,602 (3,104)3,498 
The Company recorded amortization expense of $36 million for each of the three months ended September 30, 2020 and 2019 related to other intangible assets. For the nine months ended September 30, 2020 and 2019, amortization expense for other intangible assets was $111 million and $112 million, respectively.

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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
As of September 30, 2020, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):
Remainder of 2020$41 
2021154 
2022125 
202389 
202463 

(4) Accrued Liabilities
Accrued liabilities consisted of the following:
(in millions)September 30, 2020December 31, 2019
Accounts payable non-trade$298 369 
Allowance for sales returns193 238 
Accrued compensation and benefits181 112 
Other289 326 
$961 1,045 


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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(5) Long-Term Debt and Finance Lease Obligations
Long-term debt and finance lease obligations consisted of the following:
(in millions)September 30, 2020December 31, 2019
5.125% Senior Secured Notes due 2022$ 500 
4.375% Senior Secured Notes due 2023, net of original issue discount 750 750 
4.85% Senior Secured Notes due 2024, net of original issue discount 600 600 
4.45% Senior Secured Notes due 2025, net of original issue discount 599 599 
4.75% Senior Secured Notes due 2027575  
4.375% Senior Secured Notes due 2028500  
5.45% Senior Secured Notes due 2034, net of original issue discount 399 399 
5.95% Senior Secured Notes due 2043, net of original issue discount 300 300 
6.375% Senior Secured Notes due 2067225 225 
6.25% Senior Secured Notes due 2068 500 500 
Senior secured credit facility 1,105 
Finance lease obligations170 181 
Less debt issuance costs, net(51)(40)
Total debt and finance lease obligations4,567 5,119 
Less current portion(18)(18)
Long-term portion of debt and finance lease obligations4,549 5,101 
Senior Secured Notes
All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to the senior secured credit facility. The interest on QVC's senior secured notes is payable semi-annually with the exception of the 6.375% Senior Secured Notes due 2067 (the "2067 Notes") and the 6.25% Senior Secured Notes due 2068 (the "2068 Notes"), which is payable quarterly.
4.75% Senior Secured Notes due 2027
On February 4, 2020, QVC completed a registered debt offering for $575 million of the 4.75% Senior Secured Notes due 2027 (the "2027 Notes") at par. Interest on the 2027 Notes will be paid semi-annually in February and August, with payments commencing on August 15, 2020.

4.375% Senior Secured Notes due 2028
On August 20, 2020, QVC completed a registered debt offering for $500 million of the 4.375% Senior Secured Notes due 2028 (the "2028 Notes") at par. Interest on the 2028 Notes will be paid semi-annually in March and September, with payments commencing on March 1, 2021.

In connection with the offering of the 2028 Notes, QVC completed a cash tender offer (the "Tender Offer") to purchase any and all of its outstanding 5.125% Senior Secured Notes due 2022 (the "2022 Notes"). QVC also issued a notice of redemption exercising its right to optionally redeem any of the 2022 Notes that remained outstanding following the Tender Offer. As a result of the Tender Offer and the redemption, the Company recorded a loss on extinguishment of debt in the condensed consolidated statements of operations of $42 million for the three and nine months ended September 30, 2020.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)

Senior Secured Credit Facility
On December 31, 2018, QVC entered into the Fourth Amended and Restated Credit Agreement with Zulily as borrowers (collectively, the “Borrowers”) which is a multi-currency facility that provides for a $2.95 billion revolving credit facility with a $450 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term loans. The Fourth Amended and Restated Credit Agreement includes a $400 million tranche that may be borrowed by the Company or Zulily with a $50 million sub-limit for standby letters of credit. The remaining $2.55 billion and any incremental loans may be borrowed only by the Company. Borrowings that are alternate base rate loans will bear interest at a per annum rate equal to the base rate plus a margin that varies between 0.25% and 0.75% depending on the Borrowers’ combined ratio of Consolidated Total Debt to Consolidated EBITDA (the “Combined Consolidated Leverage Ratio”). Borrowings that are London Interbank Offered Rate ("LIBOR") loans will bear interest at a per annum rate equal to the applicable LIBOR rate plus a margin that varies between 1.25% and 1.75% depending on the Borrowers’ Combined Consolidated Leverage Ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. No mandatory prepayments will be required other than when borrowings and letter of credit usage exceed availability; provided that, if Zulily ceases to be controlled by Qurate Retail, all of its loans must be repaid and its letters of credit cash collateralized. The facility matures on December 31, 2023. Payment of loans may be accelerated following certain customary events of default.
QVC had $2.93 billion available under the terms of the Fourth Amended and Restated Credit Agreement as of September 30, 2020, including the portion available under the $400 million tranche that Zulily may also borrow on.
The payment and performance of the Borrowers’ obligations under the Fourth Amended and Restated Credit Agreement are guaranteed by each of QVC’s Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement). Further, the borrowings under the Fourth Amended and Restated Credit Agreement are secured, pari passu with QVC’s existing notes, by a pledge of all of QVC’s equity interests. The payment and performance of the Borrowers’ obligations with respect to the $400 million tranche available to both QVC and Zulily are also guaranteed by each of Zulily’s Material Domestic Subsidiaries (as defined in the Fourth Amended and Restated Credit Agreement), if any, and are secured by a pledge of all of Zulily’s equity interests.
The Fourth Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company and Zulily and each of their respective restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting the Company’s consolidated leverage ratio and the Borrowers’ Combined Consolidated Leverage Ratio.
Interest Rate Swap Arrangements
During the year ended December 31, 2016, QVC entered into a three-year interest rate swap arrangement with a notional amount of $125 million to mitigate the interest rate risk associated with interest payments related to its variable rate debt. The swap arrangement did not qualify as a cash flow hedge under U.S. GAAP. The swap arrangement expired in June 2019. In July 2019, the Company entered into a three-year interest swap arrangement with a notional amount of $125 million. The swap arrangement did not qualify as a cash flow hedge under U.S. GAAP and the fair value of the swap instrument was in a net liability position of $3 million as of September 30, 2020, which was included in other long-term liabilities.
On December 31, 2018, QVC entered into a thirteen month interest rate swap arrangement that effectively converted $250 million of its variable rate bank credit facility to a fixed rate of 1.05%, which expired in January of 2020.

Changes in the fair value of the swaps are reflected in losses on financial instruments in the condensed consolidated statements of operations.


12

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
Other Debt Related Information
QVC was in compliance with all of its debt covenants as of September 30, 2020.
The weighted average interest rate applicable to all of the outstanding debt (excluding finance leases) prior to amortization of bond discounts and related debt issuance costs was 5.0% as of September 30, 2020.

(6) Leases
The Company has finance lease agreements with transponder and transmitter network suppliers for the right to transmit its signals in the U.S. and Germany. The Company is also party to a finance lease agreement for data processing hardware and a warehouse.
QVC also leases data processing equipment, facilities, office space and land. These leases are classified as operating leases. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments using our incremental borrowing rate. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our leases have remaining lease terms of less than 1 year to 14 years, some of which may include the option to extend or terminate the leases.
The components of lease cost for the three and nine months ended September 30, 2020 and 2019, were as follows:
Three months ended September 30,Nine months ended September 30,
(in millions)2020201920202019
Finance lease cost
     Depreciation of leased assets$5 6 15 16 
     Interest on lease liabilities2 2 6 6 
Total finance lease cost7 8 21 22 
Operating lease cost 9 8 29 22 
     Total lease cost$16 16 50 44 
The remaining weighted-average lease term and the weighted-average discount rate were as follows:
September 30, 2020
Weighted-average remaining lease term (years):
     Finance leases8.7
     Operating leases11.5
Weighted-average discount rate:
     Finance leases5.1 %
     Operating leases6.0 %







13

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
Supplemental balance sheet information related to leases was as follows:
(in millions)September 30, 2020December 31, 2019
Operating Leases:
  Operating lease right-of-use assets$216 214 
  Accrued liabilities$23 28 
  Other long-term liabilities192 190 
      Total operating lease liabilities$215 218 
Finance Leases:
   Property and equipment$272 282 
   Accumulated depreciation(132)(129)
     Property and equipment, net$140 153 
   Current portion of debt and finance lease obligations$18 18 
   Long-term portion of debt and finance lease obligations152 163 
     Total finance lease liabilities$170 181 
Supplemental cash flow information related to leases was as follows:
Nine months ended September 30,
(in millions)20202019
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating lease$33 18 
     Operating cash flows from finance leases6 6 
     Financing cash flows from finance leases14 17 
Right-of-use assets obtained in exchange for lease obligations:
      Operating leases22 150 
      Finance leases$  
Future payments under noncancelable operating leases and finance leases with initial terms of one year or more as of September 30, 2020 consisted of the following:
(in millions)Finance leasesOperating leasesTotal leases
Remainder of 2020$7 10 17 
202126 32 58 
202225 28 53 
202325 25 50 
202423 23 46 
Thereafter109 185 294 
Total lease payments215 303 518 
Less: imputed interest(45)(88)(133)
Total lease liabilities$170 215 385 

14

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
On October 5, 2018, QVC entered into a lease (“ECDC Lease”) for an East Coast distribution center. The 1.7 million square foot rental building is located in Bethlehem, Pennsylvania and the ECDC Lease has an initial term of 15 years. QVC obtained initial access to a portion of the ECDC Lease during March 2019 and obtained access to the remaining portion during September 2019. In total, QVC recorded a right of use asset of $141 million and an operating lease liability of $131 million relating to the ECDC Lease, with the difference attributable to prepaid rent. QVC is required to pay an initial base rent of $10 million per year, with payments that began in the third quarter of 2019 and increasing to $14 million per year, as well as all real estate taxes and other building operating costs. QVC also has the option to extend the term of the ECDC Lease for up to two consecutive terms of 5 years each and one final term of 4 years.


15

Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(7) Revenue

Disaggregated revenue by segment and product category consisted of the following:
Three months ended September 30, 2020Nine months ended September 30, 2020
(in millions)QxHQVC-InternationalTotalQxHQVC-InternationalTotal
Home$819 286 1,105 2,303 829 3,132 
Beauty297 168 465 910 499 1,409 
Apparel312 115 427 913 316 1,229 
Accessories219 67 286 676 188 864 
Electronics197 25 222 588 78 666 
Jewelry93 59 152 273 155 428 
Other revenue43 3 46 119 6 125 
Total net revenue$1,980 723 2,703 5,782 2,071 7,853 
Three months ended September 30, 2019Nine months ended September 30, 2019
(in millions)QxHQVC-InternationalTotalQxHQVC-InternationalTotal
Home$670 236 906 2,009 714 2,723 
Beauty303 161 464 915 462 1,377 
Apparel334 107 441 1,005 327 1,332 
Accessories199 63 262 667 190 857 
Electronics209 21 230 564 68 632 
Jewelry98 59 157 303 161 464 
Other revenue41 3 44 122 12 134 
Total net revenue$1,854 650 2,504 5,585 1,934 7,519 

Consumer Product Revenue and Other Revenue

QVC's revenue includes sales of consumer products in the following categories; home, beauty, apparel, accessories, electronics and jewelry, which are primarily sold through live merchandise-focused televised shopping programs and via our websites and other interactive media.

Other revenue consists primarily of income generated from our U.S. Private Label Credit Card ("PLCC") in which a large consumer financial services company provides revolving credit directly to QVC's customers for the sole purpose of purchasing merchandise or services with a PLCC. In return, the Company receives a portion of the net economics of the credit card program.

Revenue Recognition

For each of the three and nine months ended September 30, 2020 and 2019, revenue is recognized when obligations with our customers are satisfied; generally this occurs at the time of shipment to our customers consistent with when control of the shipped product passes. The recognized revenue reflects the consideration we expect to receive in exchange for transferring goods, net of allowances for returns.

The Company generally recognizes revenue related to the PLCC program over time as the PLCC is used by QVC's customers.

Sales, value add, use and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.

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Table of Contents
QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
The Company elected to treat shipping and handling activities that occur after the customer obtains control of the goods as a fulfillment cost and not as a promised good or service. Accordingly, the Company accrues the related shipping costs and recognizes revenue upon delivery of the goods to the shipping carrier. In electing this accounting policy, all shipping and handling activities will be treated as fulfillment costs.

The Company generally extends payment terms with its customers of one year or less and does not consider the time value of money when recognizing revenue.

Significant Judgments

Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. The Company has determined that it is generally the principal in vendor arrangements as the Company can establish control over the goods prior to shipment. Accordingly, the Company records revenue for these arrangements on a gross basis.

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QVC, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(8) Income Taxes
The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income ear