Basis Of Presentation |
6 Months Ended |
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Jun. 30, 2018 | |
| Organization, Consolidation and Presentation of Financial Statements | |
| Basis of Presentation |
The accompanying condensed consolidated financial statements include the accounts of ߲ݴý. (formerly named Liberty Interactive Corporation, prior to the Transactions defined and described below, or “Liberty”) and its controlled subsidiaries (collectively, "߲ݴý," the "Company," “Consolidated ߲ݴý,” “us,” “we,” or “our” unless the context otherwise requires). All significant intercompany accounts and transactions have been eliminated in consolidation. ߲ݴý is made up of wholly-owned subsidiaries QVC, Inc. (“QVC”), zulily, llc (“zulily”), and HSN, Inc. (“HSNi” which includes its televised shopping business “HSN” and its catalog retail business “Cornerstone”), an equity investment in FTD Companies, Inc. (“FTD”) and an investment in ILG, Inc. (“ILG”). ߲ݴý is primarily engaged in the video and online commerce industries in North America, Europe and Asia. The businesses of the Company’s wholly-owned subsidiaries, QVC and HSNi, are seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping. The accompanying (a) condensed consolidated balance sheet as of December31,2017, 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 Form10-Q and Article10 of RegulationS-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. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in ߲ݴý's Annual Report on Form10-K for the year ended December31,2017. 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. ߲ݴý 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. Prior to the Transactions (described and defined below), the Company utilized tracking stocks in its capital structure. 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. ߲ݴý had two tracking stocks—QVC Group common stock and Liberty Ventures common stock, which were intended to track and reflect the economic performance of the businesses, assets and liabilities attributed to the QVC Group and the Ventures Group, respectively.The QVC Group was comprised of the Company’s wholly-owned subsidiaries QVC, zulily and HSNi (as of December 29, 2017), among other assets and liabilities.The Ventures Group was comprised of businesses not included in the QVC Group including Evite, Inc. (“Evite”) and our interests in Liberty Broadband Corporation (“Liberty Broadband”), LendingTree, Inc. (“LendingTree”), FTD,investments in Charter Communications, Inc. (“Charter”) and ILG, among other assets and liabilities. The Company’s results are attributed to the QVC Group and the Ventures Group through March 9, 2018. On December 29, 2017, ߲ݴý acquired the approximately 62% of HSNi it did not already own in an all-stock transaction making HSNi a wholly-owned subsidiary. HSNi stockholders (other than ߲ݴý) received fixed consideration of 1.65 shares of Series A QVC Group common stock (“QVCA”) for each share of HSNi common stock. ߲ݴý issued 53.6 million shares QVCA common stock to HSNi stockholders. On March9, 2018, ߲ݴý completed the transactions contemplated by the Agreement and Plan of Reorganization (as amended, the “Reorganization Agreement,” and the transactions contemplated thereby, the “Transactions”) among General Communication,Inc. (“GCI”), an Alaska corporation, and Liberty InteractiveLLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty (“LILLC”). Pursuant to the Reorganization Agreement, GCI amended and restated its articles of incorporation (which resulted in GCI being renamed GCI Liberty,Inc. (“GCI Liberty”)) and effected a reclassification and auto conversion of its common stock. After market close on March 8, 2018, ߲ݴý’s board of directors approved the reattribution of certain assets and liabilities from ߲ݴý’s Ventures Group to its QVC Group, which was effective immediately. The reattributed assets and liabilities included cash, ߲ݴý’s interest in ILG, FTD, certain green energy investments, LI LLC’s exchangeable debentures, and certain tax benefits. Following these events, ߲ݴý acquired GCI (renamed “GCI Liberty, Inc.”) through a reorganization in which certain ߲ݴý interests, assets and liabilities attributed to the Ventures Group were contributed (the “contribution”) to GCI Liberty in exchange for a controlling interest in GCI Liberty. ߲ݴý and LILLC contributed to GCI Liberty their entire equity interest in Liberty Broadband, Charter, and LendingTree, the Evite operating business and other assets and liabilities attributed to ߲ݴý’s Venture Group (following the reattribution), in exchange for (a)the issuance to LILLC ofa number of shares of GCI Liberty ClassA Common Stock and a number of shares of GCI Liberty ClassB Common Stock equal to the number of outstanding shares of SeriesA Liberty Ventures common stock and SeriesB Liberty Ventures common stock on March9, 2018, respectively, (b)cash and (c)the assumption of certain liabilities by GCI Liberty. Following the contribution, ߲ݴý effected a tax-free separation of its controlling interest in the combined company (the “GCI Liberty Split-Off”), GCI Liberty, to the holders of Liberty Ventures common stock in full redemption of all outstanding shares of such stock, in which each outstanding share of SeriesA Liberty Ventures common stock was redeemed for one share of GCI Liberty ClassA common stock and each outstanding share of SeriesB Liberty Ventures common stock was redeemed for one share of GCI Liberty ClassB common stock.Simultaneous with the closing of the Transactions, QVC Group common stock became the only outstanding common stock of ߲ݴý, and thus QVC Group common stock ceased to function as a tracking stock. On April 9, 2018, Liberty Interactive Corporation was renamed ߲ݴý. On May 23, 2018, ߲ݴý amended its charter to eliminate the tracking stock capitalization structure and reclassify each share of QVC Group common stock into one share of the corresponding series of new common stock of ߲ݴý. With respect to events on or after May 23, 2018, we refer to our Series A and Series B common stock as “߲ݴý common stock.” In July 2018, the Internal Revenue Service (“IRS”) completed its review of the GCI Liberty Split-Off and informed ߲ݴý that it agreed with the nontaxable characterization of the transactions. ߲ݴý received an Issue Resolution Agreement from the IRS documenting this conclusion. As a result of repurchases of Series A ߲ݴý common stock and the GCI Liberty Split-Off, the Company’s additional paid-in capital balance was in a deficit position as of June30, 2018.In order to ensure that the additional paid-in capital account is not negative, we reclassified the amount of the deficit ($3.8 billion) at June30, 2018 to retained earnings. ߲ݴý holds investments that are accounted for using the equity method. ߲ݴý does not control the decision making process or business management practices of these affiliates. Accordingly, ߲ݴý relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that ߲ݴý uses in the application of the equity method. In addition, ߲ݴý 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 ߲ݴý's condensed consolidated financial statements.
߲ݴý has entered into certain agreements with Liberty Media Corporation ("LMC") (for accounting purposes, a related party of the Company), a separate publicly traded company. These agreements include a reorganization agreement, services agreement and facilities sharing agreement. Neither ߲ݴý nor LMC has any stock ownership, beneficial or otherwise, in the other.
The reorganization agreement with LMC provides for, among other things, provisions governing the relationship between ߲ݴý and LMC, including certain cross-indemnities. Pursuant to the services agreement, LMC provides ߲ݴý with certain general and administrative services including legal, tax, accounting, treasury and investor relations support. ߲ݴý reimburses LMC for direct, out-of-pocket expenses incurred by LMC in providing these services and for ߲ݴý's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to ߲ݴý. Under the facilities sharing agreement, LMC shares office space and related amenities at its corporate headquarters with ߲ݴý. Under these various agreements, approximately$2 million and $3 million was reimbursable to LMC for the three months endedJune30, 2018 and 2017, respectively, and $4 million and $5 million was reimbursable to LMC for the six months ended June30,2018 and 2017, respectively.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. The Tax Act significantly changed U.S. tax law by, among other things, lowering theU.S. corporate income tax rate, implementing a territorial tax system and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. In the prior year, we recognized the provisional tax impacts related to the one-time transition tax and the revaluation of deferred tax balances and included these estimates in our consolidated financial statements for the year ended December 31, 2017. We are still in the process of analyzing the impact of the various provisions of the Tax Act. The ultimate impact may materially differ from these provisional amounts due to, among other things, continued analysis of the estimates and further guidance and interpretations on the application of the law. We expect to complete our analysis by December 2018. |