QuickLinks -- Click here to rapidly navigate through this document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o 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 001-33982
LIBERTY INTERACTIVE CORPORATION
(Exact name of Registrant as specified in its charter)
|
| |
State of Delaware (State or other jurisdiction of incorporation or organization) | 84-1288730 (I.R.S. Employer Identification No.) |
| |
12300 Liberty Boulevard Englewood, Colorado (Address of principal executive offices) | 80112 (Zip Code) |
Registrant's telephone number, including area code: (720) 875-5300
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. |
| | | |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o (do not check if smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
The number of outstanding shares of Liberty Interactive Corporation's common stock as of October 31, 2012 was:
|
| | | | | |
| Series A | | Series B |
Liberty Interactive common stock | 514,845,576 |
| | 28,945,353 |
|
Liberty Ventures common stock | 34,966,386 |
| | 1,448,416 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited) |
| | | | | | |
| September 30, 2012 | | December 31, 2011 |
| amounts in millions |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,793 |
| | 847 |
|
Trade and other receivables, net | 711 |
| | 1,054 |
|
Inventory, net | 1,247 |
| | 1,071 |
|
Other current assets | 95 |
| | 148 |
|
Total current assets | 3,846 |
| | 3,120 |
|
Investments in available-for-sale securities and other cost investments (note 7) | 1,642 |
| | 1,168 |
|
Investments in affiliates, accounted for using the equity method, including $236 million pledged as collateral at September 30, 2012 (note 8) | 1,309 |
| | 1,135 |
|
Property and equipment, at cost | 2,149 |
| | 2,002 |
|
Accumulated depreciation | (942 | ) | | (869 | ) |
| 1,207 |
| | 1,133 |
|
Intangible assets not subject to amortization (note 9): | | | |
Goodwill | 5,968 |
| | 5,978 |
|
Trademarks | 2,525 |
| | 2,518 |
|
| 8,493 |
| | 8,496 |
|
Intangible assets subject to amortization, net (note 9) | 1,964 |
| | 2,209 |
|
Other assets, at cost, net of accumulated amortization | 82 |
| | 78 |
|
Total assets | $ | 18,543 |
| | 17,339 |
|
|
(continued) | |
See accompanying notes to condensed consolidated financial statements.
I-1
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Continued) (unaudited) |
| | | | | | |
| September 30, 2012 | | December 31, 2011 |
| amounts in millions |
Liabilities and Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 646 |
| | 599 |
|
Accrued liabilities | 687 |
| | 801 |
|
Current portion of debt (note 10) | 1,551 |
| | 1,189 |
|
Deferred income tax liabilities | 786 |
| | 851 |
|
Other current liabilities | 474 |
| | 128 |
|
Total current liabilities | 4,144 |
| | 3,568 |
|
Long-term debt, including $2,837 million and $2,443 million measured at fair value (note 10) | 5,806 |
| | 4,850 |
|
Deferred income tax liabilities | 2,090 |
| | 2,046 |
|
Other liabilities | 221 |
| | 248 |
|
Total liabilities | 12,261 |
| | 10,712 |
|
Equity | |
| | |
|
Stockholders' equity (note 11): | |
| | |
|
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued | — |
| | — |
|
Series A Liberty Interactive common stock, $.01 par value. Authorized 4,000,000,000 shares; issued and outstanding 513,954,401 shares at September 30, 2012 and 549,361,673 shares at December 31, 2011 | 5 |
| | 6 |
|
Series B Liberty Interactive common stock, $.01 par value. Authorized 150,000,000 shares; issued and outstanding 28,945,353 shares at September 30, 2012 and 28,989,160 at December 31, 2011 | — |
| | — |
|
Series A Liberty Ventures common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 25,777,902 shares at September 30, 2012 and zero shares at December 31, 2011 | — |
| | — |
|
Series B Liberty Ventures common stock, $.01 par value. Authorized 7,500,000 shares; issued and outstanding 1,448,416 shares at September 30, 2012 and zero at December 31, 2011 | — |
| | — |
|
Additional paid-in capital | 2,034 |
| | 2,681 |
|
Accumulated other comprehensive earnings, net of taxes | 154 |
| | 152 |
|
Retained earnings | 3,938 |
| | 3,654 |
|
Total stockholders' equity | 6,131 |
| | 6,493 |
|
Noncontrolling interests in equity of subsidiaries | 151 |
| | 134 |
|
Total equity | 6,282 |
| | 6,627 |
|
Commitments and contingencies (note 12) |
|
| |
|
|
Total liabilities and equity | $ | 18,543 |
| | 17,339 |
|
See accompanying notes to condensed consolidated financial statements.
I-2
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Operations (unaudited)
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions, except per share amounts |
Net retail sales | $ | 2,196 |
| | 2,133 |
| | 6,875 |
| | 6,537 |
|
Cost of sales (exclusive of depreciation shown separately below) | 1,407 |
| | 1,364 |
| | 4,361 |
| | 4,139 |
|
Gross Profit | 789 |
| | 769 |
| | 2,514 |
| | 2,398 |
|
Operating costs and expenses: | | | | | | | |
Operating | 201 |
| | 209 |
| | 608 |
| | 621 |
|
Selling, general and administrative, including stock-based compensation (note 4) | 213 |
| | 185 |
| | 693 |
| | 604 |
|
Impairment of goodwill (note 9) | 39 |
| | — |
| | 39 |
| | — |
|
Depreciation and amortization | 147 |
| | 151 |
| | 437 |
| | 448 |
|
| 600 |
| | 545 |
| | 1,777 |
| | 1,673 |
|
Operating income | 189 |
| | 224 |
| | 737 |
| | 725 |
|
Other income (expense): | | | | | | | |
Interest expense | (111 | ) | | (105 | ) | | (324 | ) | | (326 | ) |
Share of earnings (losses) of affiliates, net (note 8) | 43 |
| | 62 |
| | 89 |
| | 119 |
|
Realized and unrealized gains (losses) on financial instruments, net (note 6) | (160 | ) | | (91 | ) | | (338 | ) | | (61 | ) |
Gains (losses) on dispositions, net (note 8) | — |
| | — |
| | 288 |
| | — |
|
Other, net | (2 | ) | | (9 | ) | | 31 |
| | 12 |
|
| (230 | ) | | (143 | ) | | (254 | ) | | (256 | ) |
Earnings (loss) from continuing operations before income taxes | (41 | ) | | 81 |
| | 483 |
| | 469 |
|
Income tax (expense) benefit | 15 |
| | (56 | ) | | (155 | ) | | (186 | ) |
Earnings (loss) from continuing operations | (26 | ) | | 25 |
| | 328 |
| | 283 |
|
Earnings (loss) from discontinued operations, net of taxes (note 3) | — |
| | (32 | ) | | — |
| | 378 |
|
Net earnings (loss) | (26 | ) | | (7 | ) | | 328 |
| | 661 |
|
Less net earnings (loss) attributable to the noncontrolling interests | 15 |
| | 12 |
| | 44 |
| | 34 |
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders | $ | (41 | ) | | (19 | ) | | 284 |
| | 627 |
|
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders: | | | | | | | |
Liberty Capital common stock | NA |
| | (90 | ) | | NA |
| | 211 |
|
Liberty Starz common stock | NA |
| | 58 |
| | NA |
| | 177 |
|
Liberty Interactive Corporation common stock | $ | (31 | ) | | 13 |
| | 294 |
| | 239 |
|
Liberty Interactive common stock | 38 |
| | NA |
| | 38 |
| | NA |
|
Liberty Ventures common stock | (48 | ) | | NA |
| | (48 | ) | | NA |
|
| $ | (41 | ) | | (19 | ) | | 284 |
| | 627 |
|
| | | | | | | |
| (Continued) | |
See accompanying notes to condensed consolidated financial statements.
I-3
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Operations (Continued) (unaudited) |
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions, except per share amounts | |
Basic net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5): | | | | | | | |
Series A and Series B Liberty Capital common stock | NA |
| | — |
| | NA |
| | 0.12 |
|
Series A and Series B Liberty Starz common stock | NA |
| | — |
| | NA |
| | — |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | (0.06 | ) | | 0.02 |
| | 0.53 |
| | 0.40 |
|
Series A and Series B Liberty Interactive common stock | $ | 0.07 |
| | NA |
| | 0.07 |
| | NA |
|
Series A and Series B Liberty Ventures common stock | $ | (1.66 | ) | | NA |
| | (1.66 | ) | | NA |
|
Diluted net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5): | | | | | | | |
Series A and Series B Liberty Capital common stock | NA |
| | — |
| | NA |
| | 0.12 |
|
Series A and Series B Liberty Starz common stock | NA |
| | — |
| | NA |
| | — |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | (0.06 | ) | | 0.02 |
| | 0.52 |
| | 0.40 |
|
Series A and Series B Liberty Interactive common stock | $ | 0.07 |
| | NA |
| | 0.07 |
| | NA |
|
Series A and Series B Liberty Ventures common stock | $ | (1.60 | ) | | NA |
| | (1.60 | ) | | NA |
|
Basic net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5): | | | | | | | |
Series A and Series B Liberty Capital common stock | NA |
| | (1.11 | ) | | NA |
| | 2.60 |
|
Series A and Series B Liberty Starz common stock | NA |
| | 1.14 |
| | NA |
| | 3.47 |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | (0.06 | ) | | 0.02 |
| | 0.53 |
| | 0.40 |
|
Series A and Series B Liberty Interactive common stock | $ | 0.07 |
| | NA |
| | 0.07 |
| | NA |
|
Series A and Series B Liberty Ventures common stock | $ | (1.66 | ) | | NA |
| | (1.66 | ) | | NA |
|
Diluted net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5): | | | | | | | |
Series A and Series B Liberty Capital common stock | NA |
| | (1.11 | ) | | NA |
| | 2.54 |
|
Series A and Series B Liberty Starz common stock | NA |
| | 1.09 |
| | NA |
| | 3.34 |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | (0.06 | ) | | 0.02 |
| | 0.52 |
| | 0.40 |
|
Series A and Series B Liberty Interactive common stock | $ | 0.07 |
| | NA |
| | 0.07 |
| | NA |
|
Series A and Series B Liberty Ventures common stock | $ | (1.60 | ) | | NA |
| | (1.60 | ) | | NA |
|
See accompanying notes to condensed consolidated financial statements.
I-4
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Comprehensive Earnings (Loss)
(unaudited)
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Net earnings (loss) | $ | (26 | ) | | (7 | ) | | 328 |
| | 661 |
|
Other comprehensive earnings (loss), net of taxes: | | | | | | | |
Foreign currency translation adjustments | 35 |
| | (65 | ) | | (1 | ) | | 5 |
|
Share of other comprehensive earnings (losses) of equity affiliates | 1 |
| | (4 | ) | | — |
| | — |
|
Other comprehensive earnings (loss) from discontinued operations | — |
| | (8 | ) | | — |
| | (26 | ) |
Other comprehensive earnings (loss) | 36 |
| | (77 | ) | | (1 | ) | | (21 | ) |
Comprehensive earnings (loss) | 10 |
| | (84 | ) | | 327 |
| | 640 |
|
Less comprehensive earnings (loss) attributable to the noncontrolling interests | 18 |
| | 16 |
| | 41 |
| | 38 |
|
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders | $ | (8 | ) | | (100 | ) | | 286 |
| | 602 |
|
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders: | | | | | | | |
Liberty Capital common stock | NA |
| | (110 | ) | | NA |
| | 179 |
|
Liberty Starz common stock | NA |
| | 60 |
| | NA |
| | 173 |
|
Liberty Interactive Corporation common stock | $ | (17 | ) | | (50 | ) | | 277 |
| | 250 |
|
Liberty Interactive common stock | 57 |
| | NA |
| | 57 |
| | NA |
|
Liberty Ventures common stock | (48 | ) | | NA |
| | (48 | ) | | NA |
|
| $ | (8 | ) | | (100 | ) | | 286 |
| | 602 |
|
See accompanying notes to condensed consolidated financial statements.
I-5
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(unaudited) |
| | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
| amounts in millions |
Cash flows from operating activities: | | | |
Net earnings (loss) | $ | 328 |
| | 661 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
(Earnings) loss from discontinued operations | — |
| | (378 | ) |
Depreciation and amortization | 437 |
| | 448 |
|
Stock-based compensation | 53 |
| | 32 |
|
Cash payments for stock-based compensation | (9 | ) | | (2 | ) |
Share of (earnings) losses of affiliates, net | (89 | ) | | (119 | ) |
Cash receipts from returns on equity investments | 21 |
| | 15 |
|
Realized and unrealized (gains) losses on financial instruments, net | 338 |
| | 61 |
|
(Gains) losses on disposition of assets, net | (288 | ) | | — |
|
Impairment of goodwill | 39 |
| | — |
|
Deferred income tax expense (benefit) | (34 | ) | | (61 | ) |
Other, net | (22 | ) | | (4 | ) |
Changes in operating assets and liabilities | | | |
Current and other assets | 162 |
| | 106 |
|
Payables and other liabilities | 8 |
| | (243 | ) |
Net cash provided (used) by operating activities | 944 |
| | 516 |
|
Cash flows from investing activities: | | | |
Cash proceeds from dispositions | 348 |
| | — |
|
Investments in and loans to cost and equity investees | (192 | ) | | — |
|
Capital expended for property and equipment | (237 | ) | | (192 | ) |
Net sales (purchases) of short term investments | 46 |
| | (89 | ) |
Other investing activities, net | (40 | ) | | (21 | ) |
Net cash provided (used) by investing activities | (75 | ) | | (302 | ) |
Cash flows from financing activities: | | | |
Borrowings of debt | 2,043 |
| | 195 |
|
Repayments of debt | (1,238 | ) | | (673 | ) |
Repurchases of Liberty Interactive common stock | (690 | ) | | (87 | ) |
Other financing activities, net | (30 | ) | | (50 | ) |
Net cash provided (used) by financing activities | 85 |
| | (615 | ) |
Effect of foreign currency exchange rates on cash | (8 | ) | | (7 | ) |
Net cash provided (used) by discontinued operations: | | | |
Cash provided (used) by operating activities | — |
| | 304 |
|
Cash provided (used) by investing activities | — |
| | (104 | ) |
Cash provided (used) by financing activities | — |
| | (264 | ) |
Change in available cash held by discontinued operations | — |
| | 15 |
|
Net cash provided (used) by discontinued operations | — |
| | (49 | ) |
Net increase (decrease) in cash and cash equivalents | 946 |
| | (457 | ) |
Cash and cash equivalents at beginning of period | 847 |
| | 1,353 |
|
Cash and cash equivalents at end of period | $ | 1,793 |
| | 896 |
|
See accompanying notes to condensed consolidated financial statements.
I-6
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement Of Equity
(unaudited)
Nine months ended September 30, 2012
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stockholders' Equity | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Liberty Interactive | | Liberty Ventures | | | | | | | | | | |
| | | | | | | Accumulated other comprehensive earnings | | | | Noncontrolling interest in equity of subsidiaries | | |
| Preferred Stock | | Series A | | Series B | | Series A | | Series B | | Additional paid-in capital | | | Retained Earnings | | | Total equity |
| amounts in millions |
Balance at January 1, 2012 | $ | — |
| | 6 |
| | — |
| | — |
| | — |
| | 2,681 |
| | 152 |
| | 3,654 |
| | 134 |
| | 6,627 |
|
Net earnings (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 284 |
| | 44 |
| | 328 |
|
Other comprehensive earnings (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | (3 | ) | | (1 | ) |
Stock compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 39 |
| | — |
| | — |
| | — |
| | 39 |
|
Issuance of common stock upon exercise of stock options | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
Series A Liberty Interactive stock repurchases | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (689 | ) | | — |
| | — |
| | — |
| | (690 | ) |
Distribution to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) |
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | 5 |
|
Balance at September 30, 2012 | $ | — |
| | 5 |
| | — |
| | — |
| | — |
| | 2,034 |
| | 154 |
| | 3,938 |
| | 151 |
| | 6,282 |
|
See accompanying notes to condensed consolidated financial statements.
I-7
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The accompanying condensed consolidated financial statements include the accounts of Liberty Interactive Corporation (formerly known as Liberty Media Corporation) and its controlled subsidiaries (collectively, "Liberty" or the "Company" unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated in consolidation.
Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the video and on-line commerce industries in North America, Europe and Asia.
The accompanying (a) condensed consolidated balance sheet as of December 31, 2011, 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 ("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 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 Liberty's Annual Report on Form 10-K for the year ended December 31, 2011.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of 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. Liberty considers (i) fair value measurement, (ii) accounting for income taxes, (iii) assessments of other-than-temporary declines in fair value of its investments and (iv) estimates of retail-related adjustments and allowances to be its most significant estimates.
Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making process or business management practices of these affiliates. Accordingly, Liberty relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that Liberty uses in the application of the equity method. In addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on Liberty's condensed consolidated financial statements.
(2) Tracking Stocks
On August 9, 2012 Liberty completed the approved recapitalization of its common stock through the creation of the Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. In the recapitalization, each holder of Liberty Interactive Corporation common stock remained a holder of the same amount and series of Liberty Interactive common stock and received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a dividend, with cash issued in lieu of fractional shares of Liberty Ventures common stock.
Tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty has two tracking stocks—Liberty Interactive common stock and Liberty Ventures common stock, which are intended to track and reflect the economic performance of the Interactive Group and Ventures Group, respectively. While the Interactive Group and the Ventures Group have separate collections of businesses, assets and liabilities
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
attributed to them, no group is a separate legal entity and therefore cannot own assets, issue securities or enter into legally binding agreements. Holders of tracking stocks have no direct claim to the group's stock or assets and are not represented by separate boards of directors. Instead, holders of tracking stock are stockholders of the parent corporation, with a single board of directors and subject to all of the risks and liabilities of the parent corporation.
The term "Ventures Group" does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. The Ventures Group is primarily comprised of our interests in Expedia, Inc., TripAdvisor, Inc., Interval Leisure Group, Inc., Tree.com, Inc., investments in Time Warner Inc., Time Warner Cable Inc. and AOL, Inc., as well as cash in the amount of approximately $1,235 million (at September 30, 2012). The Ventures Group also has attributed to it certain liabilities related to our Exchangeable Debentures and certain deferred tax liabilities. The Ventures Group is primarily focused on the maximization of the value of these investments and investing in new business opportunities.
The term "Interactive Group" does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. The Interactive Group is primarily focused on our video and e-commerce operating businesses and has attributed to it the remainder of our businesses and assets, including our operating subsidiaries QVC, Provide Commerce, Inc., Backcountry.com, Inc., Bodybuilding.com, LLC, Celebrate Interactive Holdings, LLC and CommerceHub as well as our interest in HSN, Inc. including cash of approximately $558 million (at September 30, 2012), including subsidiary cash. The Interactive Group has attributed to it liabilities that reside with QVC and the other entities listed as well as our outstanding senior notes and certain deferred tax liabilities.
At the time of issuance of the Liberty Ventures common stock, cash of $1,346 million was reattributed to the Ventures Group from the Interactive Group. The Interactive Group borrowed funds under QVC's credit facility just prior to the completion of the recapitalization in order for Liberty to have an appropriate amount of cash available to be attributed to each tracking stock group. The reattribution of cash between the tracking stock groups had no consolidated impact on Liberty.
See Exhibit 99.1 to this Quarterly Report on Form 10-Q for unaudited attributed financial information for Liberty's tracking stock groups.
| |
(3) | Discontinued Operations |
Prior to the Split-Off (as defined below), Liberty's equity was structured into three separate tracking stocks. As discussed above, a tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty had three tracking stocks: Liberty Interactive common stock, Liberty Starz common stock and Liberty Capital common stock, which were intended to track and reflect the economic performance of the separate businesses, assets and liabilities attributed to each group. These attributed businesses, assets and liabilities were not separate legal entities and therefore could not own assets, issue securities or enter into legally binding agreements. Holders of the tracking stocks did not have a direct claim to the group's stock or assets and were not represented by separate boards of directors.
On September 23, 2011, Liberty completed the split-off of a wholly owned subsidiary, Liberty Media Corporation ("LMC") (formerly known as Liberty CapStarz, Inc. and prior thereto known as Liberty Splitco, Inc.) (the "Split-Off"). At the time of the Split-Off, LMC owned all the assets, businesses and liabilities attributed to our former Capital and Starz tracking stock groups immediately prior to the Split-Off. The Split-Off was effected by means of a redemption of all of the Liberty Capital common stock and Liberty Starz common stock of Liberty in exchange for the common stock of LMC. This transaction has been accounted for at historical cost due to the pro rata nature of the distribution.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Following the Split-Off, Liberty and LMC operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the Split-Off, Liberty and LMC entered into certain agreements in order to govern certain of the ongoing relationships between the two companies after the Split-Off and to provide for an orderly transition. These agreements include a Reorganization Agreement, a Services Agreement, a Facilities Sharing Agreement and a Tax Sharing Agreement.
The Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and LMC and other agreements related to tax matters. Pursuant to the Services Agreement, LMC provides Liberty with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty reimburses LMC for direct, out-of-pocket expenses incurred by LMC in providing these services and for Liberty's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Liberty. Under the Facilities Sharing Agreement, Liberty shares office space with LMC and related amenities at LMC's corporate headquarters. Under these various agreements, approximately $9 million of allocated expenses were reimbursed from Liberty to LMC for the nine months ended September 30, 2012.
The condensed consolidated financial statements and accompanying notes of Liberty have been prepared to reflect LMC as discontinued operations. Accordingly, the relevant financial statement balances and activities of the businesses, assets and liabilities owned by LMC at the time of Split-Off (for periods prior to the Split-Off) have been excluded from the respective captions in the accompanying condensed consolidated balance sheets, statements of operations, comprehensive earnings and cash flows in such condensed consolidated financial statements.
Certain combined financial information for LMC, which is included in earnings (loss) from discontinued operations, is as follows:
|
| | | | | | |
| Three months ended September 30, 2011 | | Nine months ended September 30, 2011 |
| amounts in millions |
Revenue | $ | 497 |
| | 2,008 |
|
Earnings (loss) before income taxes | $ | (74 | ) | | 628 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
The per share impact from discontinued operations is as follows:
|
| | | | | | |
| Three months ended September 30, 2011 | | Nine months ended September 30, 2011 |
Basic earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4): | |
Series A and Series B Liberty Capital common stock | $ | (1.11 | ) | | 2.48 |
|
Series A and Series B Liberty Starz common stock | $ | 1.14 |
| | 3.47 |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | — |
| | — |
|
Diluted earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4): | | | |
Series A and Series B Liberty Capital common stock | $ | (1.11 | ) | | 2.42 |
|
Series A and Series B Liberty Starz common stock | $ | 1.09 |
| | 3.34 |
|
Series A and Series B Liberty Interactive Corporation common stock | $ | — |
| | — |
|
The businesses, assets and liabilities that were attributed to our former Liberty Starz and Liberty Capital tracking stock groups immediately prior to the Split-Off were owned by LMC at the time of the Split-Off and have been included in discontinued operations. Certain assets and liabilities not owned by Liberty at the time of the Split-Off were attributed to the Liberty Interactive tracking stock group in prior periods and certain assets and liabilities not owned by LMC at the time of the Split-Off were attributed to the Liberty Capital tracking stock group in prior periods. This results in Liberty Interactive common stock participating in the discontinued operations for the amount attributable to Liberty Interactive common stock for those items in periods prior to the Split-Off. Additionally, certain prior period EPS calculations for Liberty Capital common stock include continuing operations due to the attribution of certain debt and equity instruments in those periods to the Liberty Capital group that remained with Liberty after the Split-Off as a result of the change in attribution of those assets and liabilities prior to the Split-Off.
(4) Stock-Based Compensation
The Company has granted to certain of its directors, employees and employees of its subsidiaries stock appreciation rights ("SARs"), restricted stock grants and options to purchase shares of Liberty common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock grants) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award (such as stock appreciation rights that will be settled in cash) based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation (amounts in millions):
|
| | | |
Three months ended: | |
September 30, 2012 | $ | 18 |
|
September 30, 2011 | $ | 2 |
|
Nine months ended: | |
|
September 30, 2012 | $ | 53 |
|
September 30, 2011 | $ | 32 |
|
During the nine months ended September 30, 2012, Liberty granted, primarily to QVC employees, 2.7 million options to purchase shares of Series A Liberty Interactive common stock. Such options had a weighted average grant-date fair value of $8.38 per share and vest semi-annually over the 4 year vesting period.
The Company has calculated the grant-date fair value for all of its equity classified Awards and any subsequent remeasurement of its liability classified Awards using the Black-Scholes Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of Liberty's stock and the implied volatility of publicly traded Liberty options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.
Liberty—Outstanding Awards
The following tables present the number and weighted average exercise price ("WAEP") of the Awards to purchase Liberty Interactive and Liberty Ventures common stock granted to certain officers, employees and directors of the Company. In connection with the recapitalization, in August 2012, all outstanding option awards and SARs with respect to the then-existing Series A and Series B Liberty Interactive common stock (each an "original Liberty Interactive award") were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that a holder of an original Liberty Interactive award received (i) an adjustment to the exercise price or base price, as applicable, and number of shares relating to the original Liberty Interactive award (as so adjusted, an "adjusted Liberty Interactive award") and (ii) an equity award relating to shares of the corresponding series of Liberty Ventures common stock (a "new Liberty Ventures award"). The exercise prices and number of shares subject to the new Liberty Ventures award and the adjusted Liberty Interactive award were determined based on 1) the exercises prices and number of shares subject to the original Liberty Interactive award, 2) the distribution ratio of 0.05, 3) the pre-distribution trading price of the Liberty Interactive common stock and 4) the post-distribution trading prices of the Liberty Interactive common stock and Liberty Ventures common stock, such that the pre-distribution intrinsic value of the original Liberty Interactive award was allocated between the new Liberty Ventures award and the adjusted Liberty Interactive award for the Company's corporate employees and directors. For employees of subsidiaries attributed to the Liberty Interactive Group, the pre-distribution intrinsic value of the original Liberty Interactive award was maintained solely within the adjusted Liberty Interactive award.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
|
| | | | | | | | | | | | | |
| Liberty Interactive |
| Series A (000's) | | WAEP | | Series B (000's) | | WAEP |
Outstanding at January 1, 2012 | 45,223 |
| | $ | 12.06 |
| | 450 |
| | $ | 19.74 |
|
Granted | 2,717 |
| | $ | 18.63 |
| | — |
| | $ | — |
|
Exercised | (5,634 | ) | | $ | 8.18 |
| | — |
| | $ | — |
|
Forfeited/Cancelled | (279 | ) | | $ | 16.59 |
| | — |
| | $ | — |
|
Liberty Ventures Adjustment | 413 |
| | $ | 8.39 |
| | (18 | ) | | $ | 17.92 |
|
Outstanding at September 30, 2012 | 42,440 |
| | $ | 11.71 |
| | 432 |
| | $ | 17.92 |
|
Exercisable at September 30, 2012 | 15,394 |
| | $ | 11.76 |
| | 432 |
| | $ | 17.92 |
|
|
| | | | | | | | | | | | | |
| Liberty Ventures |
| Series A (000's) | | WAEP | | Series B (000's) | | WAEP |
Outstanding at January 1, 2012 | — |
| | $ | — |
| | — |
| | $ | — |
|
Granted | — |
| | $ | — |
| | — |
| | $ | — |
|
Exercised | (48 | ) | | $ | 18.95 |
| | — |
| | $ | — |
|
Forfeited/Cancelled | — |
| | $ | — |
| | — |
| | $ | — |
|
Liberty Ventures Adjustment | 1,588 |
| | $ | 30.69 |
| | 22 |
| | $ | 46.69 |
|
Outstanding at September 30, 2012 | 1,540 |
| | $ | 31.06 |
| | 22 |
| | $ | 46.69 |
|
Exercisable at September 30, 2012 | 519 |
| | $ | 33.74 |
| | 22 |
| | $ | 46.69 |
|
The following table provides additional information about outstanding Awards to purchase Liberty common stock at September 30, 2012.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| No. of outstanding Awards (000's) | | WAEP of outstanding Awards | | Weighted average remaining life | | Aggregate intrinsic value (000's) | | No. of exercisable Awards (000's) | | WAEP of exercisable Awards | | Weighted average remaining life | | Aggregate intrinsic value (000's) |
Series A Liberty Interactive | 42,440 |
| | $ | 11.71 |
| | 5.1 years | | $ | 294,820 |
| | 15,394 |
| | $ | 11.76 |
| | 2.8 years | | $ | 110,418 |
|
Series B Liberty Interactive | 432 |
| | $ | 17.92 |
| | 2.7 years | | $ | 225 |
| | 432 |
| | $ | 17.92 |
| | 2.7 years | | $ | 225 |
|
Series A Liberty Ventures | 1,540 |
| | $ | 31.06 |
| | 4.6 years | | $ | 29,338 |
| | 519 |
| | $ | 33.74 |
| | 2.1 years | | $ | 8,974 |
|
Series B Liberty Ventures | 22 |
| | $ | 46.69 |
| | 2.7 years | | $ | 58 |
| | 22 |
| | $ | 46.69 |
| | 2.7 years | | $ | 58 |
|
As of September 30, 2012, the total unrecognized compensation cost related to unvested Liberty outstanding equity Awards was approximately $97 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.6 years.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
| |
(5) | Earnings (Loss) Per Common Share |
Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented.
Series A and Series B Liberty Capital Common Stock
For the three months ended September 30, 2011, the EPS calculation for basic EPS is based on 81 million weighted average outstanding shares and for diluted EPS 81 million weighted average shares outstanding. For the nine months ended September 30, 2011, the EPS calculation for basic EPS is based on 81 million weighted average outstanding shares and for diluted EPS 83 million weighted average shares outstanding. As discussed in more detail in note 2, Liberty Capital common stock was redeemed for shares in a subsidiary in the third quarter of 2011. Therefore, there is no Liberty Capital common stock outstanding at September 30, 2012.
Series A and Series B Liberty Starz Common Stock
For the three and nine months ended September 30, 2011, the EPS calculation for basic EPS is based on 51 million weighted average outstanding shares and for diluted EPS 53 million weighted average shares outstanding. As discussed in more detail in note 2, Liberty Starz common stock was redeemed for shares in a subsidiary in the third quarter of 2011. Therefore, there is no Liberty Starz common stock outstanding at September 30, 2012.
Series A and Series B Liberty Interactive Corporation Common Stock
The basic and diluted EPS calculation for Liberty Interactive Corporation prior to the recapitalization is based on the following weighted average outstanding shares. Excluded from diluted EPS, for the current year periods prior to the recapitalization, are 6 million potential common shares because their inclusion would be antidilutive.
|
| | | | | | | | | | | |
| Liberty Interactive Corporation Common Stock |
| July 1, 2012 through August 9, 2012 | | January 1, 2012 through August 9, 2012 | | Three months ended September 30, 2011 | | Nine months ended September 30, 2011 |
| numbers of shares in millions |
Basic EPS | 542 |
| | 559 |
| | 597 |
| | 598 |
|
Stock options | 10 |
| | 9 |
| | 7 |
| | 7 |
|
Diluted EPS | 552 |
| | 568 |
| | 604 |
| | 605 |
|
Series A and Series B Liberty Interactive Common Stock
Liberty completed a recapitalization on August 9, 2012, whereby each holder of current Liberty Interactive Corporation common stock became a holder of the same number of Liberty Interactive common stock. For the period from the recapitalization through September 30, 2012, the basic EPS calculation is based on 542 million basic weighted average outstanding shares and for diluted EPS 552 million diluted weighted average shares outstanding. Excluded from diluted EPS, for the period from the recapitalization through September 30, 2012, are 6 million potential common shares because their inclusion would be antidilutive.
Series A and Series B Liberty Ventures Common Stock
Liberty completed a recapitalization on August 9, 2012, whereby each holder of then-existing Liberty Interactive common stock received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a dividend, with cash paid in lieu of fractional shares of Liberty Ventures common stock. Additionally, as part of the recapitalization Liberty distributed subscription rights, which were priced at a discount to the market value, to all holders
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
of Liberty Ventures common stock, see further discussion in note 11. The rights offering, because of the discount, is considered a stock dividend which requires retroactive treatment for prior periods for the weighted average shares outstanding. For the period from the recapitalization through September 30, 2012, the basic EPS calculation is based on 29 million basic weighted average outstanding shares and for diluted EPS 30 million diluted weighted average shares outstanding.
| |
(6) | Assets and Liabilities Measured at Fair Value |
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
The Company's assets and liabilities measured at fair value are as follows:
|
| | | | | | | | | | | | |
| | | Fair Value Measurements at September 30, 2012 |
Description | Total | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| | | amounts in millions |
Cash equivalents | $ | 1,611 |
| | 1,611 |
| | — |
| | — |
|
Available-for-sale securities | $ | 1,639 |
| | 1,639 |
| | — |
| | — |
|
Financial instruments, net | $ | 311 |
| | 282 |
| | 29 |
| | — |
|
Debt | $ | 2,837 |
| | — |
| | 2,837 |
| | — |
|
The majority of the Company's Level 2 financial assets and liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets," as defined in GAAP. Accordingly, the financial instruments are reported in the table above as Level 2 fair value and based on their significance are included in the other current liabilities line item in the condensed consolidated balance sheet.
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Non-strategic Securities | $ | 237 |
| | (239 | ) | | 418 |
| | (90 | ) |
Exchangeable senior debentures | (293 | ) | | 137 |
| | (510 | ) | | (28 | ) |
Other derivatives | (104 | ) | | 11 |
| | (246 | ) | | 57 |
|
| $ | (160 | ) | | (91 | ) | | (338 | ) | | (61 | ) |
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
(7) Investments in Available-for-Sale Securities and Other Cost Investments
All marketable equity and debt securities held by the Company are classified as available-for-sale ("AFS") and are carried at fair value based on quoted market prices. GAAP permits entities to choose to measure many financial instruments, such as AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the entity's statement of operations (the "fair value option"). In prior years, Liberty entered into economic hedges for certain of its non-strategic AFS securities (although such instruments were not accounted for as fair value hedges by the Company). Changes in the fair value of these economic hedges were reflected in Liberty's statement of operations as unrealized gains (losses). In order to better match the changes in fair value of the subject AFS securities and the changes in fair value of the corresponding economic hedges in the Company's financial statements, Liberty elected the fair value option for those of its AFS securities which it considered to be non-strategic ("Non-strategic Securities"). Accordingly, changes in the fair value of Non-strategic Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial instruments in the accompanying condensed consolidated statements of operations.
Investments in AFS securities, the majority of which are considered Non-strategic Securities, and other cost investments are summarized as follows:
|
| | | | | | |
| September 30, 2012 | | December 31, 2011 |
| amounts in millions |
Interactive Group | | | |
Other | $ | 3 |
| | 3 |
|
Total Interactive Group | 3 |
| | 3 |
|
Ventures Group | | | |
Time Warner Inc. | 988 |
| | 787 |
|
Time Warner Cable Inc. | 520 |
| | 348 |
|
AOL Inc. | 70 |
| | 30 |
|
Other | 61 |
| | — |
|
Total Ventures Group | 1,639 |
| | 1,165 |
|
Consolidated Liberty | $ | 1,642 |
| | 1,168 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
| |
(8) | Investments in Affiliates Accounted for Using the Equity Method |
Liberty has various investments accounted for using the equity method. The following table includes Liberty's carrying amount and percentage ownership of the more significant investments in affiliates at September 30, 2012 and the carrying amount at December 31, 2011:
|
| | | | | | | | | | | | | |
| September 30, 2012 | | December 31, 2011 |
| Percentage ownership | | Market value (level 1) | | Carrying amount | | Carrying amount |
| | | dollars in millions |
Interactive Group | | | | | | | |
HSN, Inc. | 36 | % | | $ | 982 |
| | $ | 241 |
| | 217 |
|
Other | various |
| | N/A |
| | 64 |
| | 13 |
|
Total Interactive Group | | | | | 305 |
| | 230 |
|
Ventures Group | | | | | | | |
Expedia, Inc. (a) | 26 | % | | 2,002 |
| | 681 |
| | 621 |
|
TripAdvisor, Inc. (b) | 18 | % | | 861 |
| | 199 |
| | 184 |
|
Other | various |
| | N/A |
| | 124 |
| | 100 |
|
Total Ventures Group | | | | | 1,004 |
| | 905 |
|
Consolidated Liberty | |
| | |
| | $ | 1,309 |
| | 1,135 |
|
| |
(a) | Liberty entered into a forward sales contract on 12 million shares of Expedia common stock in March 2012 at a per share forward price of $34.316. The forward contract was settled in October 2012 for total cash proceeds of $412 million and the 12 million shares of Expedia common stock, held as collateral, were released to the counterparty. During the nine months ended September 30, 2012 the Company has recognized losses of $282 million on the forward contract in the realized and unrealized gains (losses) on financial instruments, net line item in the statement of operations. The carrying value of the shares, held as collateral by the counterparty, was $236 million and the fair value was $694 million as of September 30, 2012. At the time the forward contract is settled, in the fourth quarter of 2012, the difference between the fair value of the Expedia shares and the carrying value of the shares will be recognized in the gain (loss) on dispositions, net line item in the statement of operations. |
| |
(b) | In May 2012, Liberty sold approximately 8.5 million shares of TripAdvisor, Inc. for cash proceeds of $338 million. The sale resulted in a $288 million gain recorded in gain (losses) on dispositions, net, based on the average cost, in the statement of operations. |
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
The following table presents Liberty's share of earnings (losses) of affiliates:
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Interactive Group | | | | | | | |
HSN, Inc. | $ | 10 |
| | 10 |
| | 34 |
| | 30 |
|
Other | (4 | ) | | (4 | ) | | (8 | ) | | (12 | ) |
Total Interactive Group | 6 |
| | 6 |
| | 26 |
| | 18 |
|
Ventures Group | | | | | | | |
Expedia, Inc. (1) | 41 |
| | 56 |
| | 65 |
| | 104 |
|
TripAdvisor, Inc. (1) | 10 |
| | — |
| | 33 |
| | — |
|
Other | (14 | ) | | — |
| | (35 | ) | | (3 | ) |
Total Ventures Group | 37 |
| | 56 |
| | 63 |
| | 101 |
|
Consolidated Liberty | $ | 43 |
| | 62 |
| | 89 |
| | 119 |
|
| |
(1) | During the fourth quarter of 2011 Expedia, Inc. completed the pro-rata split-off of TripAdvisor, Inc. ("TripAdvisor"), its wholly owned subsidiary. As of the TripAdvisor split-off date, the Company had a 26% economic ownership interest in each of Expedia, Inc. and TripAdvisor and, through ownership of class B common stock with 10 votes per share, had an approximate 58% voting interest in each respective company. Through a stockholders agreement, Liberty has given Barry Diller, Chairman and Senior Executive Officer of both companies, the right to vote all of the common stock owned by Liberty. Through a governance agreement, Liberty has the right to nominate up to 20% of the board members for each entity and currently two members on each company's 10 member board were nominated by Liberty. Because of Liberty's board representation, it was determined that the Company has significant influence over each respective company and the Company continues to apply the equity method of accounting to its interests in TripAdvisor. As discussed above, in May 2012 Liberty sold shares of TripAdvisor which decreased Liberty's ownership percentage below 20%. As Liberty's board representation on the TripAdvisor board continues to be 20%, subsequent to the sale of securities discussed above, it was determined that significant influence still exists and the application of the equity method of accounting is appropriate. |
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Expedia
Summarized unaudited financial information for Expedia is as follows:
Expedia Consolidated Balance Sheets
|
| | | | | | |
| September 30, 2012 | | December 31, 2011 |
| amounts in millions |
Current assets | $ | 3,091 |
| | 2,274 |
|
Property and equipment, net | 393 |
| | 320 |
|
Goodwill | 3,007 |
| | 2,877 |
|
Intangible assets | 828 |
| | 744 |
|
Other assets | 189 |
| | 290 |
|
Total assets | $ | 7,508 |
| | 6,505 |
|
Current liabilities | $ | 3,299 |
| | 2,553 |
|
Deferred income taxes | 353 |
| | 280 |
|
Long-term debt | 1,249 |
| | 1,249 |
|
Other liabilities | 135 |
| | 118 |
|
Noncontrolling interest | 107 |
| | 105 |
|
Equity | 2,365 |
| | 2,200 |
|
Total liabilities and equity | $ | 7,508 |
| | 6,505 |
|
Expedia Consolidated Statements of Operations
|
| | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Revenue | $ | 1,199 |
| | 1,021 |
| | 3,055 |
| | $ | 2,662 |
|
Cost of revenue | (243 | ) | | (207 | ) | | (673 | ) | | (578 | ) |
Gross profit | 956 |
| | 814 |
| | 2,382 |
| | 2,084 |
|
Selling, general and administrative expenses | (717 | ) | | (585 | ) | | (1,925 | ) | | (1,660 | ) |
Amortization | (10 | ) | | (5 | ) | | (22 | ) | | (17 | ) |
Restructuring charges and other | (2 | ) | | (15 | ) | | (5 | ) | | (19 | ) |
Operating income (loss) | 227 |
| | 209 |
| | 430 |
| | 388 |
|
Interest expense | (22 | ) | | (23 | ) | | (65 | ) | | (68 | ) |
Other income (expense), net | (2 | ) | | 17 |
| | — |
| | 13 |
|
Income tax (expense) benefit | (36 | ) | | (31 | ) | | (70 | ) | | (67 | ) |
Income (loss) from continuing operations | 167 |
| | 172 |
| | 295 |
| | 266 |
|
Earnings (loss) from discontinued operations | 2 |
| | 39 |
| | (22 | ) | | 138 |
|
Net earnings (loss) | 169 |
| | 211 |
| | 273 |
| | 404 |
|
Less net earnings (loss) attributable to noncontrolling interests | 2 |
| | (1 | ) | | — |
| | (2 | ) |
Net earnings (loss) attributable to Expedia, Inc. shareholders | $ | 171 |
| | 210 |
| | 273 |
| | $ | 402 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
(9) Intangible Assets
Goodwill
Changes in the carrying amount of goodwill are as follows:
|
| | | | | | | | | |
| QVC | | E-commerce | | Total |
| amounts in millions |
Balance at January 1, 2012 | $ | 5,354 |
| | 624 |
| | 5,978 |
|
Foreign currency translation adjustments | (3 | ) | | — |
| | (3 | ) |
Acquisitions | 15 |
| | 17 |
| | 32 |
|
Impairment (1) | — |
| | (39 | ) | | (39 | ) |
Balance at September 30, 2012 | $ | 5,366 |
| | 602 |
| | 5,968 |
|
(1) Liberty recorded an impairment at our subsidiary Celebrate Interactive Holdings, Inc. due to continued declining operating results in that particular business and disappointing third quarter trends. Each distinct business within our E-commerce companies is considered a separate reporting unit. It was determined the fair value of that reporting unit was less than its carrying amount and the entirety of the goodwill associated with this business was impaired during the three months ended September 30, 2012. Fair value was determined based on company projections of future operating performance using a combination of market multiples and a discounted cash flow calculation (level 3).
Intangible Assets Subject to Amortization
Amortization expense for intangible assets with finite useful lives was $331 million and $333 million for the nine month periods ended September 30, 2012 and 2011, respectively. Based on its amortizable intangible assets as of September 30, 2012, Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):
|
| | | |
Remainder of 2012 | $ | 122 |
|
2013 | $ | 451 |
|
2014 | $ | 423 |
|
2015 | $ | 380 |
|
2016 | $ | 336 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
(10) Long-Term Debt
Debt is summarized as follows:
|
| | | | | | | | | | | |
| | Outstanding principal at September 30, 2012 | | Carrying value |
| | September 30, 2012 | | December 31, 2011 |
| | amounts in millions |
Interactive Group | | | | | |
| 5.7% Senior Notes due 2013 | $ | 279 |
| | 278 |
| | 308 |
|
| 8.5% Senior Debentures due 2029 | 287 |
| | 285 |
| | 285 |
|
| 8.25% Senior Debentures due 2030 | 504 |
| | 501 |
| | 501 |
|
| QVC 7.125% Senior Secured Notes due 2017 | 500 |
| | 500 |
| | 500 |
|
| QVC 7.5% Senior Secured Notes due 2019 | 1,000 |
| | 987 |
| | 986 |
|
| QVC 7.375% Senior Secured Notes due 2020 | 500 |
| | 500 |
| | 500 |
|
| QVC 5.125% Senior Secured Notes due 2022 | 500 |
| | 500 |
| | — |
|
| QVC Bank Credit Facilities | 851 |
| | 851 |
| | 434 |
|
| Other subsidiary debt | 118 |
| | 118 |
| | 82 |
|
Total Interactive Group debt | 4,539 |
| | 4,520 |
| | 3,596 |
|
Ventures Group | | | | | |
| 3.125% Exchangeable Senior Debentures due 2023 | 1,138 |
| | 1,586 |
| | 1,275 |
|
| 4% Exchangeable Senior Debentures due 2029 | 469 |
| | 304 |
| | 258 |
|
| 3.75% Exchangeable Senior Debentures due 2030 | 460 |
| | 276 |
| | 235 |
|
| 3.5% Exchangeable Senior Debentures due 2031 | 371 |
| | 283 |
| | 341 |
|
| 3.25% Exchangeable Senior Debentures due 2031 | 414 |
| | 388 |
| | 334 |
|
Total Ventures Group debt | 2,852 |
| | 2,837 |
| | 2,443 |
|
| | | | | |
| Total consolidated Liberty debt | $ | 7,391 |
| | 7,357 |
| | 6,039 |
|
| Less current maturities | |
| | (1,551 | ) | | (1,189 | ) |
| Total long-term debt | | | $ | 5,806 |
| | 4,850 |
|
QVC Bank Credit Facilities
The QVC Bank Credit Facilities provide for a $2 billion revolving credit facility, with a $250 million sub-limit for standby letters of credit. Availability under the QVC Bank Credit Facilities at September 30, 2012 was $1,149 million. The $851 million outstanding principal matures in September 2015. On August 8, 2012, $800 million was drawn on the QVC Bank Credit Facility in order for Liberty to have a sufficient cash balance to attribute cash to the Ventures Group at the date of the recapitalization of Liberty's common stock into two tracking stocks.
QVC was in compliance with all of its debt covenants at September 30, 2012.
In July 2012, QVC issued $500 million principal amount of 5.125% Senior Secured Notes due 2022 at par. The net proceeds from the issuance of these instruments were used to reduce the outstanding principal under the QVC Bank Credit Facilities and for general corporate purposes.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
QVC Interest Rate Swap Arrangements
During the third quarter of 2009, QVC entered into seven forward interest rate swap arrangements with an aggregate notional amount of $1.8 billion. Such arrangements provide for payments that began in March 2011 through March 2013. QVC will make fixed payments at rates ranging from 2.98% to 3.67% and receive variable payments at 3 month LIBOR (0.39% at September 30, 2012). Additionally, during 2011, QVC entered into seven additional swap arrangements with an aggregate notional amount of $1.4 billion requiring QVC to make variable payments, that began in June 2011 through March 2013, at 3 month LIBOR (0.39% at September 30, 2012) and receive fixed payments, that began in June 2011 through March 2013, ranging from 0.57% to 0.95%. These swap arrangements do not qualify as cash flow hedges under GAAP. Accordingly, changes in the fair value of the swaps are reflected in realized and unrealized gains or losses on financial instruments in the accompanying condensed consolidated statements of operations.
Other Subsidiary Debt
Other subsidiary debt at September 30, 2012 is comprised of capitalized satellite transponder lease obligations and bank debt of certain subsidiaries.
Fair Value of Debt
Liberty estimates the fair value of its debt based on the quoted market prices for the same or similar issues or on the current rate offered to Liberty for debt of the same remaining maturities (level 2). The fair value of Liberty's publicly traded debt securities that are not reported at fair value in the accompanying condensed consolidated balance sheet at September 30, 2012 is as follows (amounts in millions):
|
| | | |
Senior notes | $ | 285 |
|
Senior debentures | $ | 838 |
|
QVC senior secured notes | $ | 2,732 |
|
Due to the variable rate nature, Liberty believes that the carrying amount of its subsidiary debt not discussed above approximated fair value at September 30, 2012.
(11) Stockholders' Equity
As of September 30, 2012, Liberty reserved for issuance upon exercise of outstanding stock options approximately 42.4 million shares of Series A Liberty Interactive common stock and 432,000 shares of Series B Liberty Interactive common stock and 1.5 million shares of Series A Liberty Ventures common stock and 22,000 shares of Series B Liberty Ventures common stock.
In addition to the Series A and Series B Liberty Interactive and Liberty Ventures common stock there are 4 billion shares of Series C Liberty Interactive and 200 million shares of Series C Liberty Ventures common stock authorized for issuance. As of September 30, 2012, no shares of any Series C Liberty Interactive and Liberty Ventures common stock were issued or outstanding.
On August 9, 2012, in connection with the creation of its new Liberty Ventures tracking stock, the Company distributed subscription rights to purchase shares of Series A Liberty Ventures common stock (each, a “Series A Right”). Each whole Series A Right entitled its holder to subscribe, at a per share subscription price of $35.99, for one share of Series A Liberty Ventures common stock pursuant to a basic subscription privilege, and also entitled the holder to subscribe for additional shares of Series A Liberty Ventures common stock pursuant to an oversubscription privilege. The rights offering commenced on Wednesday, September 12, 2012, and expired on Tuesday, October 9, 2012. In the fourth quarter of 2012, the Company issued approximately 9 million shares in connection with the rights offering and raised approximately $328 million of cash.
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
(12) Commitments and Contingencies
Litigation
Liberty has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Liberty may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
(13) Information About Liberty's Operating Segments
Liberty, through its ownership interests in subsidiaries and other companies, is primarily engaged in the video and on-line commerce industries. Liberty identifies its reportable segments as (A) those consolidated subsidiaries that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of Liberty's annual pre-tax earnings. The segment presentation for prior periods has been conformed to the current period segment presentation.
Liberty evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per customer equivalent. In addition, Liberty reviews nonfinancial measures such as unique website visitors, conversion rates and active customers, as appropriate.
Liberty defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). Liberty believes this measure is an important indicator of the operational strength and performance of its businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Liberty generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
For the nine months ended September 30, 2012, Liberty has identified the following consolidated subsidiaries and equity method affiliates as its reportable segments:
| |
• | QVC—consolidated subsidiary that markets and sells a wide variety of consumer products in the United States and several foreign countries, primarily by means of its televised shopping programs and via the Internet through its domestic and international websites and mobile applications. |
| |
• | Expedia, Inc.—an equity method affiliate in which we hold a 26% ownership interest (see note 7) that operates an easily accessible global travel marketplace, allowing customers to research, plan and book travel products and services from travel suppliers and allowing these travel suppliers to efficiently reach and provide their products and services to Expedia customers. |
Additionally, for presentation purposes, Liberty is providing financial information of the E-commerce businesses on an aggregated basis. The consolidated businesses do not contribute significantly to the overall operations of Liberty on an individual basis; however, Liberty believes that on an aggregated basis they provide relevant information for
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
users of these financial statements. While these businesses may not meet the aggregation criteria under relevant accounting literature Liberty believes the information is relevant and helpful for a more complete understanding of the consolidated results.
| |
• | E-commerce—the aggregation of certain consolidated subsidiaries that market and sell a wide variety of consumer products via the Internet. Categories of consumer products include perishable and personal gift offerings (Provide Commerce, Inc.), active lifestyle gear and clothing (Backcountry.com, Inc.), fitness and health goods (Bodybuilding.com, LLC) and celebration offerings from invitations to costumes (Celebrate Interactive Holdings, Inc.). |
Liberty's operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segments that are also consolidated subsidiaries are the same as those described in the Company's summary of significant accounting policies.
Performance Measures
|
| | | | | | | | | | | | |
| Nine months ended September 30, |
| 2012 | | 2011 |
| Revenue | | Adjusted OIBDA | | Revenue | | Adjusted OIBDA |
| amounts in millions |
QVC | $ | 5,824 |
| | 1,225 |
| | 5,619 |
| | 1,154 |
|
E-commerce | 1,051 |
| | 61 |
| | 918 |
| | 74 |
|
Expedia, Inc. | 3,055 |
| | 623 |
| | 2,662 |
| | 561 |
|
Corporate and other | — |
| | (20 | ) | | — |
| | (23 | ) |
Total | 9,930 |
| | 1,889 |
| | 9,199 |
| | 1,766 |
|
Eliminate equity method affiliates | (3,055 | ) | | (623 | ) | | (2,662 | ) | | (561 | ) |
Consolidated | $ | 6,875 |
| | 1,266 |
| | 6,537 |
| | 1,205 |
|
|
| | | | | | | | | | | | |
| Three months ended September 30, |
| 2012 | | 2011 |
| Revenue | | Adjusted OIBDA | | Revenue | | Adjusted OIBDA |
| amounts in millions |
QVC | $ | 1,918 |
| | 397 |
| | 1,886 |
| | 373 |
|
E-commerce | 278 |
| | 4 |
| | 247 |
| | 9 |
|
Expedia, Inc. | 1,199 |
| | 298 |
| | 1,021 |
| | 279 |
|
Corporate and other | — |
| | (8 | ) | | — |
| | (5 | ) |
Total | 3,395 |
| | 691 |
| | 3,154 |
| | 656 |
|
Eliminate equity method affiliates | (1,199 | ) | | (298 | ) | | (1,021 | ) | | (279 | ) |
Consolidated | $ | 2,196 |
| | 393 |
| | 2,133 |
| | 377 |
|
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Other Information
|
| | | | | | | | | |
| September 30, 2012 |
| Total assets | | Investments in affiliates | | Capital expenditures |
| amounts in millions |
QVC | $ | 13,051 |
| | 53 |
| | 165 |
|
E-commerce | 1,533 |
| | 11 |
| | 72 |
|
Expedia, Inc. | 7,508 |
| | — |
| | — |
|
Corporate and other | 3,959 |
| | 1,245 |
| | — |
|
Total | 26,051 |
| | 1,309 |
| | 237 |
|
Eliminate equity method affiliates | (7,508 | ) | | — |
| | — |
|
Consolidated | $ | 18,543 |
| | 1,309 |
| | 237 |
|
The following table provides a reconciliation of segment Adjusted OIBDA to earnings (loss) from continuing operations before income taxes:
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Consolidated segment Adjusted OIBDA | $ | 393 |
| | 377 |
| | 1,266 |
| | 1,205 |
|
Stock-based compensation | (18 | ) | | (2 | ) | | (53 | ) | | (32 | ) |
Impairment of goodwill | (39 | ) | | — |
| | (39 | ) | | — |
|
Depreciation and amortization | (147 | ) | | (151 | ) | | (437 | ) | | (448 | ) |
Interest expense | (111 | ) | | (105 | ) | | (324 | ) | | (326 | ) |
Share of earnings (loss) of affiliates, net | 43 |
| | 62 |
| | 89 |
| | 119 |
|
Realized and unrealized gains (losses) on financial instruments, net | (160 | ) | | (91 | ) | | (338 | ) | | (61 | ) |
Gains (losses) on dispositions, net | — |
| | — |
| | 288 |
| | — |
|
Other, net | (2 | ) | | (9 | ) | | 31 |
| | 12 |
|
Earnings (loss) from continuing operations before income taxes | $ | (41 | ) | | 81 |
| | 483 |
| | 469 |
|
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; new service offerings; revenue growth at QVC, Inc.; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash; and the anticipated non-material impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
| |
• | customer demand for our products and services and our ability to adapt to changes in demand; |
| |
• | competitor responses to our products and services, and the products and services of the entities in which we have interests; |
| |
• | uncertainties inherent in the development and integration of new business lines and business strategies; |
| |
• | uncertainties associated with product and service development and market acceptance, including the development and provision of additional connections to consumers as technologies progress and shift consumer shopping behaviors; |
| |
• | our future financial performance, including availability, terms and deployment of capital; |
| |
• | our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire; |
| |
• | the ability of suppliers and vendors to deliver products, equipment, software and services; |
| |
• | the ability to renew affiliate agreements on terms that are acceptable to us; |
| |
• | the outcome of any pending or threatened litigation; |
| |
• | availability of qualified personnel; |
| |
• | changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings; |
| |
• | changes in the nature of key strategic relationships with partners, vendors and joint venturers; |
| |
• | general economic and business conditions and industry trends including the current economic downturn; |
| |
• | consumer spending levels, including the availability and amount of individual consumer debt; |
| |
• | changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and IP television and their impact on home shopping networks; |
| |
• | increased digital TV penetration and the impact on channel positioning of our channels; |
| |
• | rapid technological changes; |
| |
• | the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate; |
| |
• | threatened terrorist attacks and ongoing military action in the Middle East and other parts of the world; and |
| |
• | fluctuations in foreign currency exchange rates and political unrest in international markets. |
For additional risk factors, please see Part II, Item 1A of this Quarterly Report on Form 10-Q. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2011.
Overview
We own controlling and non-controlling interests in a broad range of video and on-line commerce companies. Our largest business, which is also our principal reportable segment, is QVC, Inc. QVC markets and sells a wide variety of consumer products in the United States and several foreign countries, primarily by means of its televised shopping programs and via the Internet through its domestic and international websites and mobile applications. Additionally, we own entire or majority interests in consolidated subsidiaries which operate on-line commerce businesses in a broad range of retail categories. The more significant of these include Backcountry.com, Inc., Bodybuilding.com, LLC, Celebrate Interactive Holdings, LLC and Provide Commerce, Inc. Backcountry operates websites offering sports gear and clothing for outdoor and active individuals in a variety of categories. Bodybuilding manages websites related to sports nutrition, body building and fitness. Celebrate operates websites that offer costumes, accessories, décor, party supplies and invitations. Provide operates an e-commerce marketplace of websites for perishable goods, including flowers, fruits and desserts, as well as upscale personalized gifts.
Our "Corporate and Other" category includes our corporate ownership interests in other unconsolidated businesses and corporate expenses. We hold ownership interests in Expedia, Inc., HSN, Inc., Interval Leisure Group, Inc. and Tree.com, Inc. which we account for as equity method investments; and we continue to maintain investments and related financial instruments in public companies such as Time Warner Inc., Time Warner Cable Inc. and AOL, Inc., which are accounted for at their respective fair market values and are included in "Corporate and Other."
On August 9, 2012 Liberty completed the approved recapitalization of its common stock through the creation of the Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. In the recapitalization, each holder of Liberty Interactive Corporation common stock remained a holder of the same amount and series of Liberty Interactive common stock and received 0.05 of a share of the corresponding series of Liberty Ventures common stock, by means of a dividend, with cash issued in lieu of fractional shares of Liberty Ventures common stock.
The term "Ventures Group" does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. The Ventures Group is comprised primarily of our interests in Expedia, Inc., TripAdvisor, Inc., Interval Leisure Group, Inc., Tree.com, Inc., investments in Time Warner Inc., Time Warner Cable Inc. and AOL, Inc., as well as cash in the amount of approximately $1,235 million (at September 30, 2012). The Ventures Group also has attributed to it certain liabilities related to our Exchangeable Debentures and certain deferred tax liabilities. The Ventures Group is primarily focused on the maximization of the value of these investments and investing in new business opportunities.
The term "Interactive Group" does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. The Interactive Group is primarily focused on our video and e-commerce operating businesses and has attributed to it the remainder of our businesses and assets, including our operating subsidiaries QVC, Provide Commerce, Inc., Backcountry.com, Inc., Bodybuilding.com, LLC, Celebrate Interactive Holdings, LLC and CommerceHub as well as our interest in HSN, Inc. including cash of approximately $558 million (at September 30, 2012), including subsidiary cash. The Interactive Group has attributed to it liabilities that reside with QVC and the other entities listed as well as our outstanding senior notes and certain deferred tax liabilities.
Discontinued Operations
Prior to the Split-Off (as defined below), Liberty's equity was structured into three separate tracking stock groups. Tracking stock is a type of common stock that the issuing company intends to reflect or "track" the economic performance of a particular business or "group," rather than the economic performance of the company as a whole. Liberty had three tracking stocks: Liberty Interactive common stock, Liberty Starz common stock and Liberty Capital common stock, which were intended to track and reflect the economic performance of the separate businesses, assets and liabilities attributed to each group.
On September 23, 2011, Liberty completed the split-off of its wholly owned subsidiary, Liberty Media Corporation ("LMC") (formerly known as Liberty CapStarz, Inc. and prior thereto known as Liberty Splitco, Inc.) (the "Split-Off"). At the time of the Split-Off, LMC owned all the assets, businesses and liabilities attributed to our former Capital and Starz tracking stock groups immediately prior to the Split-Off. The Split-Off was effected by means of a redemption of all of the Liberty Capital common stock and Liberty Starz common stock of Liberty for all of the common stock of LMC. This transaction has been accounted for at historical cost due to the pro rata nature of the distribution.
Following the Split-Off, Liberty and LMC operate as separate, publicly traded companies and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the Split-Off, Liberty and LMC entered into certain agreements in order to govern certain of the ongoing relationships between the two companies after the Split-Off and to provide for an orderly transition.
The condensed consolidated financial statements of Liberty have been prepared to reflect LMC as discontinued operations. Accordingly, the assets and liabilities, revenue, costs and expenses, and cash flows of LMC (for periods prior to the Split-Off) have been excluded from the respective captions in the accompanying condensed consolidated balance sheets, statements of operations, comprehensive earnings and cash flows in such condensed consolidated financial statements.
Results of Operations—Consolidated
General. We provide in the tables below information regarding our Consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our reportable segment and our E-commerce businesses. The "corporate and other" category consists of those assets or businesses which we do not disclose separately. For a more detailed discussion and analysis of the financial results of the principal reporting segment, see "Results of Operations—Businesses" below.
Operating Results
|
| | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
| amounts in millions |
Revenue | | | | | | | |
QVC | $ | 1,918 |
| | 1,886 |
| | 5,824 |
| | 5,619 |
|
E-commerce | 278 |
| | 247 |
| | 1,051 |
| | 918 |
|
Corporate and other | — |
| | — |
| | — |
| | — |
|
Consolidated | $ | 2,196 |
| | 2,133 |
| | 6,875 |
| | 6,537 |
|
| | | | | | | |
Adjusted OIBDA | | | | | | |