qvc-20200630

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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 June 30, 2020

☐ 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.

2020 QUARTERLY REPORT ON FORM 10-Q

Table of Contents


	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)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	38

	Part II
Item 6.	Exhibits	39
	Signatures	40

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


	June 30,		December 31,
(in millions, except share amounts)	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	795	561
Restricted cash	8		8
Accounts receivable, less allowance for credit losses of $142 at June 30, 2020 and $123 at December 31, 2019	1,288		1,813
Inventories	1,117		1,214
Prepaid expenses and other current assets	177		184
Total current assets	3,385		3,780
Property and equipment, net of accumulated depreciation of $1,426 at June 30, 2020 and $1,338 at December 31, 2019	1,169		1,215
Operating lease right-of-use assets (note 6)	218		214
Television distribution rights, net (note 2)	82		140
Goodwill (note 3)	5,969		5,971
Other intangible assets, net (note 3)	3,459		3,498
Other noncurrent assets	103		109
Total assets	$	14,385	14,927
Liabilities and equity
Current liabilities:
Current portion of debt and finance lease obligations (note 5)	$	18	18
Accounts payable-trade	787		913
Accrued liabilities (note 4)	1,084		1,045
Total current liabilities	1,889		1,976
Long-term portion of debt and finance lease obligations (note 5)	4,557		5,101
Deferred income taxes (note 8)	723		724
Other long-term liabilities	326		322
Total liabilities	7,495		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 capital	9,224		9,208
Accumulated deficit	(2,312)		(2,390)
Accumulated other comprehensive loss	(150)		(144)
Total QVC, Inc. stockholder's equity	6,762		6,674
Noncontrolling interest	128		130
Total equity	6,890		6,804
Total liabilities and equity	$	14,385	14,927

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QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended June 30,				Six months ended June 30,
(in millions)	2020		2019	2020	2019
Net revenue	$	2,723	2,514	5,150	5,015
Operating costs and expenses:
Cost of goods sold (exclusive of depreciation and amortization shown separately below)	1,735		1,578	3,319	3,188
Operating	187		179	364	356
Selling, general and administrative, including transaction related costs and stock-based compensation	304		268	586	538
Depreciation	43		54	86	100
Amortization	73		70	144	142
	2,342		2,149	4,499	4,324
Operating income	381		365	651	691
Other expense:
Equity in losses of investee	(1)		(1)	(2)	(1)
Losses on financial instruments	—		(1)	(4)	(3)
Interest expense, net	(64)		(60)	(129)	(121)
Foreign currency gain (loss)	1		—	2	(3)
	(64)		(62)	(133)	(128)
Income before income taxes	317		303	518	563
Income tax expense	(92)		(85)	(152)	(159)
Net income	225		218	366	404
Less net income attributable to the noncontrolling interest	(14)		(12)	(26)	(22)
Net income attributable to QVC, Inc. stockholder	$	211	206	340	382

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QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three months ended June 30,				Six months ended June 30,
(in millions)	2020		2019	2020	2019
Net income	$	225	218	366	404
Foreign currency translation adjustments, net of tax	18		14	(4)	8
Total comprehensive income	243		232	362	412
Comprehensive income attributable to noncontrolling interest	(15)		(15)	(28)	(25)
Comprehensive income attributable to QVC, Inc. stockholder	$	228	217	334	387

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QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six months ended June 30,
(in millions)	2020		2019
Operating activities:
Net income	$	366	404
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee	2		1
Deferred income taxes	—		(9)
Foreign currency (gain) loss	(2)		3
Depreciation	86		100
Amortization	144		142
Change in fair value of financial instruments and noncash interest	8		7
Stock-based compensation	16		20
Change in other long-term liabilities	3		(6)
Other non-cash charges, net	20		5
Change in operating assets and liabilities
Decrease in accounts receivable	525		539
Decrease (increase) in inventories	96		(22)
Decrease in prepaid expenses and other current assets	9		41
Decrease in accounts payable-trade	(124)		(282)
Increase (decrease) in accrued liabilities and other	30		(244)
Net cash provided by operating activities	1,179		699
Investing activities:
Capital expenditures	(92)		(153)
Expenditures for television distribution rights	(10)		(124)
Changes in other noncurrent assets	—		(13)
Other investing activities	—		29
Net cash used in investing activities	(102)		(261)
Financing activities:
Principal payments of debt and finance lease obligations	(1,226)		(1,425)
Principal borrowings of debt from senior secured credit facility	112		1,795
Principal repayment of senior secured notes	—		(400)
Proceeds from issuance of senior secured notes	575		—
Payment of debt origination fees	(8)		—
Dividends paid to Qurate Retail, Inc.	(262)		(469)
Dividends paid to noncontrolling interest	(30)		(28)
Other financing activities	(1)		(4)
Net cash used in financing activities	(840)		(531)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(3)		1
Net increase (decrease) in cash, cash equivalents and restricted cash	234		(92)
Cash, cash equivalents and restricted cash, beginning of period	569		550
Cash, cash equivalents and restricted cash, end of period	$	803	458

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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, 2018	1	$	—	9,123	(2,269)	(144)	119	6,829
Net income	—	—		—	382	—	22	404
Foreign currency translation adjustments, net of tax	—	—		—	—	5	3	8
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(469)	—	(28)	(497)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—	(17)	—	—	(17)
Withholding taxes on net share settlements of stock-based compensation	—	—		(4)	—	—	—	(4)
Stock-based compensation	—	—		20	—	—	—	20
Balance, June 30, 2019	1	$	—	9,139	(2,373)	(139)	116	6,743


	Common stock				Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Noncontrolling interest	Total equity
(in millions, except share data)	Shares	Amount
Balance, March 31, 2019	1	$	—	9,129	(2,447)	(150)	107	6,639
Net income	—	—		—	206	—	12	218
Foreign currency translation adjustments, net of tax	—	—		—	—	11	3	14
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(115)	—	(6)	(121)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—	(17)	—	—	(17)
Withholding taxes on net share settlements of stock-based compensation	—	—		(1)	—	—	—	(1)
Stock-based compensation	—	—		11	—	—	—	11
Balance, June 30, 2019	1	$	—	9,139	(2,373)	(139)	116	6,743

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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	—	—		—	340	—	26	366
Foreign currency translation adjustments, net of tax	—	—		—	—	(6)	2	(4)
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(262)	—	(30)	(292)
Impact of tax liability allocation and indemnification agreement with Qurate Retail, Inc.	—	—		—	—	—	—	—
Withholding taxes on net share settlements of stock-based compensation	—	—		—	—	—	—	—
Stock-based compensation	—	—		16	—	—	—	16
Balance, June 30, 2020	1	$	—	9,224	(2,312)	(150)	128	6,890


	Common stock				Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Noncontrolling interest	Total equity
(in millions, except share data)	Shares	Amount
Balance, March 31, 2020	1	$	—	9,213	(2,381)	(167)	128	6,793
Net income	—	—		—	211	—	14	225
Foreign currency translation adjustments, net of tax	—	—		—	—	17	1	18
Dividends paid to Qurate Retail, Inc. and noncontrolling interest	—	—		—	(140)	—	(15)	(155)
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	—	—		10	—	—	—	10
Balance, June 30, 2020	1	$	—	9,224	(2,312)	(150)	128	6,890

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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. 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 six months ended June 30, 2020 and 2019, QVC-Japan paid dividends to Mitsui of $30 million and $28 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 six months ended June 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 $4 million to Zulily for each of the six months ended June 30, 2020 and 2019. Zulily allocated expenses of $5 million and $4 million to QVC for the six months ended June 30, 2020 and 2019, respectively.

During each of the six months ended June 30, 2020 and 2019, QVC and CBI engaged in multiple transactions relating to personnel and business advisory services. QVC allocated expenses of $11 million to CBI for each of the six months ended June 30, 2020 and 2019. CBI allocated expenses of $1 million to QVC for each of the six months ended June 30, 2020 and 2019. CBI also repaid a $29 million note receivable to QVC during the six months ended June 30, 2019.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

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 for each of the three and six months ended June 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 has decided to eliminate live hours on QVC2 in the U.S. and other secondary channels within the various markets. As a result, QVC recorded $16 million of severance expense during the three months ended June 30, 2020, 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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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(2) Television Distribution Rights, Net

Television distribution rights consisted of the following:


(in millions)	June 30, 2020		December 31, 2019
Television distribution rights	$	773	764
Less accumulated amortization	(691)		(624)
Television distribution rights, net (note 2)	$	82	140

The Company recorded amortization expense of $35 million and $32 million for the three months ended June 30, 2020 and 2019, respectively, related to television distribution rights. For the six months ended June 30, 2020 and 2019, amortization expense for television distribution rights was $69 million and $66 million, respectively.

As of June 30, 2020, related amortization expense for each of the next five years ended December 31 was as follows (in millions):


Remainder of 2020	$	56
2021	22
2022	4
2023	—
2024	—

(3) Goodwill and Other Intangible Assets, Net

The changes in the carrying amount of goodwill for the six months ended June 30, 2020 were as follows:


(in millions)	QxH		QVC-International	Total
Balance as of December 31, 2019	$	5,112	859	5,971
Exchange rate fluctuations	—		(2)	(2)
Balance as of June 30, 2020	$	5,112	857	5,969

Other intangible assets consisted of the following:


	June 30, 2020						December 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	$	916	(647)	269	885	(603)	282
Affiliate and customer relationships	2,827		(2,522)	305	2,829	(2,499)	330
Debt origination fees	10		(3)	7	10	(2)	8
Trademarks (indefinite life)	2,878		—	2,878	2,878	—	2,878
	$	6,631	(3,172)	3,459	6,602	(3,104)	3,498

The Company recorded amortization expense of $38 million and $38 million for the three months ended June 30, 2020 and 2019, respectively, related to other intangible assets. For the six months ended June 30, 2020 and 2019, amortization expense for other intangible assets was $75 million and $76 million, respectively.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

As of June 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	$	92
2021	148
2022	118
2023	67
2024	62

(4) Accrued Liabilities

Accrued liabilities consisted of the following:


(in millions)	June 30, 2020		December 31, 2019
Accounts payable non-trade	$	358	369
Allowance for sales returns	231		238
Income taxes	123		23
Accrued compensation and benefits	107		112
Other	265		303
	$	1,084	1,045

(5) Long-Term Debt and Finance Lease Obligations

Long-term debt and finance lease obligations consisted of the following:


(in millions)	June 30, 2020		December 31, 2019
5.125% Senior Secured Notes due 2022	$	500	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 2027	575		—
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 2067	225		225
6.25% Senior Secured Notes due 2068	500		500
Senior secured credit facility	—		1,105
Finance lease obligations	172		181
Less debt issuance costs, net	(45)		(40)
Total debt and finance lease obligations	4,575		5,119
Less current portion	(18)		(18)
Long-term portion of debt and finance lease obligations	$	4,557	5,101

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

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.

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 June 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.

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

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 $4 million as of June 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.

Other Debt Related Information

QVC was in compliance with all of its debt covenants as of June 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 5.1% as of June 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 six months ended June 30, 2020 and 2019, were as follows:


	Three months ended				Six months ended
(in millions)	June 30, 2020		June 30, 2019	June 30, 2020	June 30, 2019
Finance lease cost
Depreciation of leased assets	$	5	5	10	10
Interest on lease liabilities	2		2	4	4
Total finance lease cost	7		7	14	14
Operating lease cost	10		8	20	14
Total lease cost	$	17	15	34	28

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QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The remaining weighted-average lease term and the weighted-average discount rate were as follows:


	June 30, 2020
Weighted-average remaining lease term (years):
Finance leases	8.9
Operating leases	11.6
Weighted-average discount rate:
Finance leases	5.1	%
Operating leases	6.0	%

Supplemental balance sheet information related to leases was as follows:


(in millions)	June 30, 2020		December 31, 2019
Operating Leases:
Operating lease right-of-use assets	$	218	214
Accrued liabilities	$	21	28
Other long-term liabilities	194		190
Total operating lease liabilities	$	215	218
Finance Leases:
Property and equipment	$	267	282
Accumulated depreciation	(123)		(129)
Property and equipmen