UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2015  

OR

For the transition period from                             to                             

Commission File Number 001-33982

LIBERTY INTERACTIVE CORPORATION

(Exact name of Registrant as specified in its charter)

 

incorporation or organization)	Identification No.)
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  ☒    No  ☐

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  ☒     No  ☐

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  ☒	Accelerated filer  ☐	Non-accelerated filer  ☐ (do not check if smaller reporting company)	Smaller reporting company  ☐

 

Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes  ☐     No  ☒

The number of outstanding shares of Liberty Interactive Corporation's common stock as of July 31, 2015 was:

 

		Series A		Series B
QVC Group		431,719,984		29,252,683
Liberty Ventures		134,701,104		7,092,111

 

 

 

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Table of Contents

 

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (unaudited)		I- 3
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Operations (unaudited)		I- 5
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Comprehensive Earnings (Loss) (unaudited)		I- 7
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements Of Cash Flows (unaudited)		I- 8
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement Of Equity (unaudited)		I- 9
LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited)		I- 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		I- 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk.		I- 41
Item 4. Controls and Procedures.		I- 42
PART II—OTHER INFORMATION		II- 1
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		II- 1
Item 6. Exhibits		II- 2
SIGNATURES		II- 3
EXHIBIT INDEX		II- 4

 

 

 

I- 2

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Table of Contents

 

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

		June 30,			December 31,
		2015			2014
		amounts in millions
Assets
Current assets:
Cash and cash equivalents		$	2,589		2,306
Trade and other receivables, net of allowance for doubtful accounts of $86 million and $92 million, respectively			859		1,232
Inventory, net			1,029		1,049
Short term marketable securities (note 6)			845		889
Other current assets			77		72
Total current assets			5,399		5,548
Investments in available-for-sale securities and other cost investments (note 7)			1,405		1,224
Investments in affiliates, accounted for using the equity method (note 8)			1,521		1,633
Property and equipment, at cost			1,954		2,030
Accumulated depreciation			(934)		(937)
			1,020		1,093
Intangible assets not subject to amortization (note 9):
Goodwill			5,266		5,404
Trademarks			2,453		2,489
			7,719		7,893
Intangible assets subject to amortization, net (note 9)			1,014		1,185
Other assets, at cost, net of accumulated amortization			64		65
Total assets		$	18,142		18,641

 

(continued)

 

See accompanying notes to condensed consolidated financial statements.

I- 3

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Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

 

		June 30,			December 31,
		2015			2014
		amounts in millions,
		except share amounts
Liabilities and Equity
Current liabilities:
Accounts payable		$	601		735
Accrued liabilities			615		743
Current portion of debt (note 10)			916		946
Deferred income tax liabilities			1,040		972
Other current liabilities			237		343
Total current liabilities			3,409		3,739
Long-term debt, including $2,635 million and $2,574  million measured at fair value (note 10)			7,065		7,105
Deferred income tax liabilities			1,739		1,849
Other liabilities			202		168
Total liabilities			12,415		12,861
Equity
Stockholders' equity (note 11):
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued			—		—
Series A QVC Group common stock, $.01 par value. Authorized 4,000,000,000 shares; issued and outstanding   435,767,426 shares at June 30, 2015 and 447,451,702 shares at December 31, 2014			5		5
Series B QVC Group common stock, $.01 par value. Authorized 150,000,000 shares; issued and outstanding   29,252,683 shares at June 30, 2015 and 28,877,554 shares at December 31, 2014			—		—
Series A Liberty Ventures common stock, $.01 par value. Authorized 400,000,000 shares at June 30, 2015 and 200,000,000 shares at December 31, 2014 ; issued and outstanding   134,629,854 shares at June 30, 2015 and 134,525,874 shares at December 31, 2014			1		1
Series B Liberty Ventures common stock, $.01 par value. Authorized 15,000,000 shares at June 30, 2015 and 7,500,000 shares at December 31, 2014; issued and outstanding 7,092,111 shares at June 30, 2015 and 6,991,127 shares at December 31, 2014			—		—
Additional paid-in capital			—		4
Accumulated other comprehensive earnings (loss), net of taxes			(188)		(94)
Retained earnings			5,821		5,757
Total stockholders' equity			5,639		5,673
Noncontrolling interests in equity of subsidiaries			88		107
Total equity			5,727		5,780
Commitments and contingencies (note 12)
Total liabilities and equity		$	18,142		18,641

 

See accompanying notes to condensed consolidated financial statements.

I- 4

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Table of Contents

 

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)

 

 

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015			2014
		amounts in millions
Total revenue, net		$	2,252		2,483			4,466		4,917
Operating costs and expenses:
Cost of sales (exclusive of depreciation shown separately below)			1,409		1,558			2,824		3,114
Operating			198		217			389		430
Selling, general and administrative, including stock-based compensation (note 4)			215		278			419		534
Impairment of intangible assets			—		7			—		7
Depreciation and amortization			161		164			329		327
			1,983		2,224			3,961		4,412
Operating income			269		259			505		505
Other income (expense):
Interest expense			(90)		(98)			(185)		(193)
Share of earnings (losses) of affiliates, net (note 8)			87		4			90		2
Realized and unrealized gains (losses) on financial instruments, net (note 6)			32		(41)			28		(66)
Gains (losses) on dispositions, net (note 3)			111		—			111		—
Other, net			(29)		3			(14)		10
			111		(132)			30		(247)
Earnings (loss) from continuing operations before income taxes			380		127			535		258
Income tax (expense) benefit			(122)		(40)			(125)		(80)
Net earnings (loss) from continuing operations			258		87			410		178
Earnings (loss) from discontinued operations, net of taxes			—		19			—		38
Net earnings (loss)			258		106			410		216
Less net earnings (loss) attributable to the noncontrolling interests			16		29			25		57
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders		$	242		77			385		159
Net earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock		$	112		105			263		215
Liberty Ventures common stock			130		(28)			122		(56)
		$	242		77			385		159
										(Continued)

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements .

I- 5

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Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations (Continued)

(unaudited)

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015			2014
Basic net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	0.24		0.23			0.56		0.46
Series A and Series B Liberty Ventures common stock		$	0.92		(0.47)			0.87		(0.92)
Diluted net earnings (losses) from continuing operations attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	0.24		0.23			0.55		0.45
Series A and Series B Liberty Ventures common stock		$	0.91		(0.47)			0.85		(0.92)
Basic net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	0.24		0.22			0.56		0.44
Series A and Series B Liberty Ventures common stock		$	0.92		(0.38)			0.87		(0.77)
Diluted net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	0.24		0.21			0.55		0.43
Series A and Series B Liberty Ventures common stock		$	0.91		(0.38)			0.85		(0.77)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Net earnings (loss)		$	258		106		410		216
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments			21		2		(81)		19
Share of other comprehensive earnings (losses) of equity affiliates			(1)		1		(15)		1
Share of other comprehensive earnings (losses) of discontinued operations			—		11		—		19
Other comprehensive earnings (loss)			20		14		(96)		39
Comprehensive earnings (loss)			278		120		314		255
Less comprehensive earnings (loss) attributable to the noncontrolling interests			14		39		23		79
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders		$	264		81		291		176
Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders:
QVC Group common stock		$	149		109		184		232
Liberty Ventures common stock			115		(28)		107		(56)
		$	264		81		291		176

 

See accompanying notes to condensed consolidated financial statements.

 

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Cash Flows

(unaudited)

 

		Six months ended
		June 30,
		2015			2014
		amounts in millions
Cash flows from operating activities:
Net earnings (loss)		$	410		216
Adjustments to reconcile net earnings to net cash provided by operating activities:
(Earnings) loss from discontinued operations			—		(38)
Depreciation and amortization			329		327
Stock-based compensation			44		51
Cash payments for stock-based compensation			(10)		(6)
Excess tax benefit from stock-based compensation			(16)		(10)
Share of (earnings) losses of affiliates, net			(90)		(2)
Cash receipts from returns on equity investments			27		20
Realized and unrealized (gains) losses on financial instruments, net			(28)		66
(Gains) losses on dispositions			(111)		—
Impairment of intangible assets			—		7
Deferred income tax expense (benefit)			(30)		(66)
Other, net			32		7
Changes in operating assets and liabilities
Current and other assets			287		311
Payables and other liabilities			(246)		(51)
Net cash provided (used) by operating activities			598		832
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired			(20)		—
Cash proceeds from dispositions of investments			271		25
Investments in and loans to cost and equity investees			(98)		(31)
Cash receipts from returns of equity investments			200		—
Capital expended for property and equipment			(104)		(85)
Purchases of short term and other marketable securities			(626)		(257)
Sales of short term and other marketable securities			677		237
Other investing activities, net			(47)		5
Net cash provided (used) by investing activities			253		(106)
Cash flows from financing activities:
Borrowings of debt			1,467		1,895
Repayments of debt			(1,628)		(1,744)
Repurchases of Liberty Interactive common stock			(377)		(478)
Minimum withholding taxes on net settlements of stock-based compensation			(13)		(14)
Excess tax benefit from stock-based compensation			16		10
Other financing activities, net			(24)		(36)
Net cash provided (used) by financing activities			(559)		(367)
Net cash provided (used) by discontinued operations:
Operating			—		255
Investing			—		(11)
Financing			—		(24)
Effect of foreign currency rates on cash			—		3
Change in available cash held by discontinued operations			—		(235)
Net cash provided (used) by discontinued operations			—		(12)
Effect of foreign currency exchange rates on cash			(9)		(5)
Net increase (decrease) in cash and cash equivalents			283		342
Cash and cash equivalents at beginning of period			2,306		902
Cash and cash equivalents at end of period		$	2,589		1,244

 

See accompanying notes to condensed consolidated financial statements.

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Six months ended   June 30, 2015

 

		Stockholders' Equity
					Common stock										Accumulated
					QVC				Liberty				Additional		other				Noncontrolling
		Preferred			Group				Ventures				paid-in		comprehensive		Retained		interest in equity		Total
		stock			Series A		Series B		Series A		Series B		capital		earnings		earnings		of subsidiaries		equity
		amounts in millions
Balance at January 1, 2015		$	—		5		—		1		—		4		(94)		5,757		107		5,780
Net earnings (loss)			—		—		—		—		—		—		—		385		25		410
Other comprehensive earnings (loss)			—		—		—		—		—		—		(94)		—		(2)		(96)
Stock-based compensation			—		—		—		—		—		28		—		—		—		28
Series A QVC Group common stock repurchases			—		—		—		—		—		(377)		—		—		—		(377)
Stock issued upon exercise of stock options			—		—		—		—		—		21		—		—		—		21
Minimum withholding taxes on net share settlements of stock-based compensation			—		—		—		—		—		(13)		—		—		—		(13)
Excess tax benefit from stock-based compensation			—		—		—		—		—		16		—		—		—		16
Distribution to noncontrolling interest			—		—		—		—		—		—		—		—		(42)		(42)
Reclassification (note 1)			—		—		—		—		—		321		—		(321)		—		—
Balance at June 30, 2015		$	—		5		—		1		—		—		(188)		5,821		88		5,727

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

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(1)   Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Liberty Interactive 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,   2014 , 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. 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 Liberty's Annual Report on Form 10-K for the year ended December 31,   2014 .

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.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue from contracts with customers.  The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 , with early application permitted .  The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its revenue recognition but does not believe that the standard will significantly impact its financial statements and related disclosures.

In April 2015, the FASB issued new accounting guidance on the presentation of debt issuance costs ,   which requires debt issuance   costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability.   The new guidance intends to simplify the presentation of debt issuance costs. This standard will more closely align the presentation of   debt issuance costs under GAAP with the presentation under comparable International Financial Reporting Standards. The amendments in this new accounting standard are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those years.  Early adoption is permitted for financial statements that have not been previously issued and retrospective application is required for each balance sheet presented.  We plan to adopt this new guidance in the fourth quarter of 2015.  The Company is evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures but other than a reclassification of deferred loan costs on the consolidated balance sheets, the Company does not believe that the standard will significantly impact its financial statements and related disclosures.

In July 2015, the FASB issued new accounting guidance that changes the measurement   principle for inventory from the lower of cost or market to lower of cost and net realizable value. The new principle is part of   the FASB’s simplification initiative and applies to entities that measure inventory using a method other than last-in, first-out   (LIFO) or the retail inventory method. The new standard is effective for the Company for fiscal years and interim periods  

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beginning after December 15, 2016. The Company has determined there is no significant effect of the standard on its ongoing   financial reporting.

As a result of repurchases of Series A QVC Group common stock (formerly the Series A Liberty Interactive common stock) , the Company’s additional paid-in capital balance was in a deficit position as of June 30, 2015 . In order to maintain a zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ( $ 321 million) for the six months ended June 30, 2015 to retained earnings .  

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.

Liberty has entered into certain agreements with Liberty Media Corporation ("LMC"), a separate publicly traded company, neither of which has any stock ownership, beneficial or otherwise, in the other, in order to govern relationships between the companies. These agreements include a Reorganization Agreement, Services Agreement, Facilities Sharing Agreement and Tax Sharing Agreement.

The Reorganization Agreement provides for, among other things, provisions governing the relationship between Liberty and LMC, including certain cross-indemnities. 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, LMC shares office space and related amenities at its corporate headquarters with Liberty. Under these various agreements, approximately $2 million and $3 million for the three months ended   June 30, 2015 and 2014 , respectively, and $5 million and $6 million for the six months ended   June 30, 2015 and 2014 , respectively, were reimbursable to LMC. Additionally, 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.

 

(2)   Tracking Stocks

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 has   two tracking stocks— QVC Group common stock and Liberty Ventures common stock, which ar e intended to track and reflect the economic performance of the QVC   Group and the Ventures Group, respectively.

While the QVC Group and the Ventures Group have separate collections of businesses, assets and liabilities attributed to them, no group is a separate legal entity and therefore cannot own assets, issue securities or enter into legally binding agreem ents. Holders of tracking stock 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 liabili ties of the parent corporation.

On October 3, 2014, Liberty announced that its board of directors approved the change in attribution from the QVC Group (referred to as the “ Interactive Group ” prior to the reattribution) to the Ventures Group of certain of its Digital C ommerce companies (defined below) and   cash , which was provided by QVC, Inc. (“QVC”) as a result of a draw-down of QVC’s credit facility . In return, holders of Liberty Interactive common stock received a dividend of approximately 67.7 million shares of Liberty Ventures common stock, or 0.14217 of a Liberty Ventures share for each share of Liberty Interactive common stock outstanding on October 13, 2014, the record date of the dividend. The distribution date for the dividend was October 20, 2014, and the Liberty Interactive common stock began trading ex-dividend on October 15, 2014. The reattributed   D igital C ommerce companies we re comprised of Liberty’s consolidated subsidiaries Backcountry.com  

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(“Backcountry”) , Bodybuilding.com, LLC, Provide Commerce, Inc. (“Provide”), CommerceHub, Evite, Inc. and LMC Right Start , Inc. (collectively, the “Digital Commerce” companies). The reattribution of the Digital Commerce companies is presented on a prospective basis from the date of the reattribution in Liberty’s condensed consolidated financial statements and attributed financial information, with October 1, 2014 used as a proxy for the date of the reattribution.   In connection with the reattribution, the Liberty Interactive tracking stock trading symbol “LINTA” was changed to "QVCA" and the "LINTB" trading symbol was changed to "QVCB," effective October 7, 2014. Other than the issuance of Liberty Ventures shares in the fourth quarter of 2014, the reattribution of tracking stock groups had no consolidated impact on Liberty. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group common stock.”  

The term "QVC Group" does not represent a separate legal entity, rather it represents those businesses, assets and liabilities that have been attributed to that group. Following the reattribution, t he QVC Group is primarily comprised of our merchandise-focused televised-shopping programs, Internet and mobile application businesses   and has attributed to it our wholly-owned subsidiary QVC and our approximate 38% interest in HSN, Inc., along with cash and certain liabilities   that reside with QVC as well as certain liabilities related to our corporate indebtedness (see note 10) and certain deferred tax liabilities. As of June 30, 2015 ,   the QVC Group has cash and cash equivalents of approximately $497 million , which includes subsidiary cash .  

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. Following the reattribution,   t he Ventures Group is primarily comprised of our Digital Commerce businesses (see note 3 for discussion of disposed businesses) and interests in Expedia, Inc ., FTD Companies, Inc. (“FTD”), Interval Leisure Group, Inc. and   LendingTree , Inc.,   available-for-sale securities   i n Time Warner Inc. and Time Warner Cable Inc., as well as cash and cash equivalents of approximately $2,092 million at   June 30, 2015 . The Ventures Group also has attributed to it certain liabilities related to our Exchangeable Debentures (see note 10) 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. 

In May 2015, Liberty announced its entry into an agreement with Liberty Broadband Corporation   ("Liberty Broadband") ,   a separate publicly traded company, whereby Liberty will invest $2.4 billion in Liberty Broadband in connection with (and contingent upon) the closing of the proposed merger of Charter Communications, Inc. ("Charter") and Time Warner Cable Inc. ("TWC"). The proceeds of this investment will be used by Liberty Broadband to fund, in part, its agreement to acquire $4.3 billion of Charter stock. Liberty Broadband's acquisition will be made in support of (and contingent upon) the closing of the Charter-TWC merger. In connection with these transactions, it is expected that Charter will undergo a corporate reorganization, resulting in New Charter, a current subsidiary of Charter ,   becoming the publicly traded parent com pany. Liberty 's investment in Liberty Broadband will be funded using cash and short term investments and will be attributed to the Ventures Group.

Liberty, along with third party investors, all of whom will invest on the same terms as Liberty, have agreed to purchase newly issued shares of Liberty Broadband Series C common stock (the "Series C Shares") at a per share price of $56.23 , which was determined based upon the fair value of Liberty Broadband's net asset s on a sum-of-the parts basis at the time the investment agreements were executed . In the aggregate, Liberty Broadband has ente red into investment agreements with respect to $4.4 billion of its Series C Shares. Liberty's investment in Liberty Broadband is subject to customary closing conditions and funding will only occur upon the completion of the Charter-TWC merger. Liberty Broadband intends to seek stockholder approval for the issuance of the Series C Shares in accordance with the rules and requirements of the Nasdaq Stock Market. If, for any reason, Liberty Broadband does not receive the requisite stockholder approval for the issuance of the Series C Shares, the purchasers will instead acquire a limited number of Series C Shares, together with shares of a newly issued series of non-convertible preferred stock of Liberty Broadband. Further, Liberty Broadband has the right, and may determine, to incur debt financing (subject to certain conditions) to fund a portion of the purchase price for its investment in New Charter, in which case Liberty Broadband may reduce the aggregate subscription for Series C Shares by up to 25% , with such reduction applied pro rata to all investors, including Liberty.

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Liberty and Liberty Broadband have also entered into an agreement with Charter which provides that Liberty and Liberty Broadband will exchange, in a tax-free transaction, the shares of TWC common stock held by each company for shares of New Charter Class A common stock (subject to certain limitations). In addition, Liberty has also agreed to grant Liberty Broadband a proxy over the shares of New Charter stock it receives in the exchange, along with a right of first refusal with respect to the underlying New Charter stock.

As the outcome of the transaction with Liberty Broadband and the Charter-TWC merger are uncertain due to pending stockholder and regulatory approvals, respectively, Liberty has not reflected any financial impacts in the condensed consolidated financial statements related to the respective agreements as of June 30, 2015.

See Exhibit 99.1 to this Quarterly Report on Form 10-Q for unaudited attributed financial information for Liberty's tracking stock groups.

(3) Disposals

On August 27, 2014, Liberty completed the spin-off to holders of its Liberty Ventures common stock shares of its former wholly-owned subsidiary, Liberty TripAdvisor Holdings, Inc. (“TripAdvisor Holdings”) (the “TripAdvisor Holdings Spin-Off”). TripAdvisor Holdings is comprised of Liberty’s former 22% economic and 57% voting interest in TripAdvisor, Inc. as well as BuySeasons, Inc., Liberty’s former wholly-owned subsidiary, and a corporate level net debt balance of $350 million. In connection with the TripAdvisor Holdings Spin-Off during August 2014, TripAdvisor Holdings drew down $400  million in margin loans and distributed approximately $350  million to Liberty. This transaction has been recorded at historical cost due to the pro rata nature of the distribution. Following the completion of the TripAdvisor Holdings Spin-Off, Liberty and TripAdvisor Holdings operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. The condensed consolidated financial statements of Liberty have been prepared to reflect TripAdvisor Holdings as discontinued operations. Accordingly, the revenue, costs and expenses, and cash flows of the businesses, assets and liabilities owned by TripAdvisor Holdings at the time of the TripAdvisor Holdings Spin-Off have been excluded from the respective captions in the accompanying condensed consolidated statements of operations, comprehensive earnings and cash flows in such condensed consolidated financial statements. Additionally, TripAdvisor, Inc. and BuySeasons, Inc. are no longer reflected in the segment financial information for all periods presented.

 

In connection with the TripAdvisor Holdings Spin-off, Liberty and TripAdvisor Holdings entered into a tax sharing agreement (the “Tax Sharing Agreement”).  The Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and TripAdvisor Holdings and other agreements related to tax matters.  Among other things, pursuant to the Tax Sharing Agreement, TripAdvisor Holdings has agreed to indemnify Liberty, subject to certain limited exceptions, for losses and taxes resulting from the TripAdvisor Holdings Spin-Off to the extent such losses or taxes result primarily from, individually or in the aggregate, the breach of certain restrictive covenants made by TripAdvisor Holdings (applicable to actions or failures to act by TripAdvisor Holdings and its subsidiaries following the completion of the TripAdvisor Holdings Spin-Off).

 

In October 2014, the IRS completed its examination of the TripAdvisor Holdings Spin-Off and notified Liberty that it agreed with the nontaxable characterization of the transaction.  Liberty expects to execute a closing agreement with the IRS documenti ng this conclusion during 2015.

 

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Certain combined financial information for TripAdvisor Holdings, which is included in earnings (loss) from discontinued operations, is as follows (amounts in millions, except per share amounts):

 

		Three months ended			Six months ended
		June 30, 2014			June 30, 2014
Revenue		$	335		629
Earnings (loss) before income taxes		$	28		55
Earnings (loss) attributable to Liberty Interactive Corporation shareholders		$	(1)		—

 

Earnings per share of discontinued operations

 

The combined impact from discontinued operations, discussed above, is as follows:

 

		Three months ended			Six months ended
		June 30, 2014			June 30, 2014
Basic earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	(0.01)		(0.02)
Series A and Series B Liberty Ventures common stock		$	0.09		0.15
Diluted earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 5):
Series A and Series B QVC Group common stock		$	(0.01)		(0.02)
Series A and Series B Liberty Ventures common stock		$	0.09		0.15

 

The assets and liabilities included in the TripAdvisor Holdings Spin-Off, and their resulting impacts on the attributed statements of operations, were included in discontinued operations based on which group owned the assets at the time of the TripAdvisor Holdings Spin-Off.

Provide was included in the Digital Commerce companies prior to the sale of Provide to FTD on December 31, 2014 in exchange for cash and shares of FTD common stock representing approximately 35% of the combined company (see note 8 for additional information related to this transaction). Subsequent to this transaction, the Company’s interest in FTD, accounted for under the equity method, is included in the Digital Commerce companies. Given Liberty’s significant continuing involvement with FTD, Provide is not presented as a discontinued operation in the Company’s condensed consolidated financial statements.

 

On June 30, 2015, Liberty sold Backcountry for aggregate consideration, including assumption of debt, amounts held in escrow , and a noncontrolling interest, of approximately $350 million.  The sale resulted in a $105 million gain, which is included in “Gains (losses) on dispositions, net” in the accompanying condensed consolidated statement of operations.  Backcountry is included in the Digital Commerce companies through June 30, 2015 and is not presented as a discontinued operation as the sale does not represent a strategic shift that has a major effect on Liberty’s operations and financial results.  Included in revenue in the accompanying condensed consolidated statements of operations is $105 million and $99 million for the three months ended June 30, 2015 and 2014, respectively, and $227 million and $211 million for the six months ended June 30, 2015 and 2014, respectively, related to Backcountry.  Included in net earnings (loss) in the accompanying condensed consolidated statements of operations are losses of $4 million and $3 million for the three months ended June 30, 2015 and 2014, respectively, and losses of $3 million and $4 million for the six months ended June 30, 2015 and 2014, respectively, related to Backcountry.  Included in total assets in the accompanying condensed consolidated balance sheets as of December 31, 2014 is $323 million related to Backcountry.

 

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(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, performance-based restricted stock units 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) 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 SARs 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.

Included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are $29 million and   $26 million of stock-based compensation during the three months ended   June 30,   2015 and 2014 , respectively, and $ 44 million and $ 51 million during the six months ended   June 30,   2015 and 2014 , respectively.

 

Durin g the six months ended June 30,   2015 , Liberty granted 2.0 million options to QVC employees to purchase shares of Series A QVC Group common stock.  Such options had a weighted average grant-date fair value of $11.87 per share and vest semi-annually over 4  years.

Also during the   six months ended June 30,   2015 , Liberty granted to Liberty employees 2.3 million and 652 thousand options to purchase shares of Series A QVC Group common stock and Series A Liberty Ventures common stock, respectively.  Such options had a weighted average grant-date fair value of $11.79 and $18.27 per share , respectively, and each grant contains options that vest over two different periods, annually over three   years and 50% on each of December 31, 2019 and 2020 .  

In connection with our CEO’s employment agreement, Liberty also granted 132 thousand and 135 thousand performance-based options of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively, and 182 thousand and 13 thousand performance-based restricted stock units of Series B QVC Group common stock and Series B Liberty Ventures common stock, respectively.  Such options had a weighted average grant-date fair value of $10.10 per share and $17.16 per share, respectively. The restricted stock units had a weighted average grant-date fair value of $29.41 per share and $42.33 per share, respectively. The options and restricted   stock units cliff vest in one   year, subject to satisfaction of certain performance objectives.

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.

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Liberty—Outstanding Awards

The following tables present the number and weighted average exercise price ("WAEP") of the Awards to purchase QVC Group and Liberty Ventures common stock granted to certain officers, employees and directors of the Company.

 

 

		QVC Group
							Weighted			Aggregate
							average			intrinsic
		Series A					remaining			value
		(000's)		WAEP			life			(millions)
Outstanding at January 1, 2015		24,900		$	17.49
Granted		4,347		$	28.98
Exercised		(2,633)		$	15.57
Forfeited/Cancelled		(483)		$	22.69
Outstanding at June 30, 2015		26,131		$	19.50		4.5	years		$	221
Exercisable at June 30, 2015		15,497		$	16.71		3.7	years		$	171

 

 

 

 

		QVC Group
							Weighted			Aggregate
							average			intrinsic
		Series B					remaining			value
		(000's)		WAEP			life			(millions)
Outstanding at January 1, 2015		1,044		$	24.78
Granted		132		$	29.41
Exercised		(398)		$	16.51
Outstanding at June 30, 2015		778		$	29.79		6.5	years		$	—
Exercisable at June 30, 2015		—		$	—		—	years		$	—

 

 

 

 

		Liberty Ventures
							Weighted			Aggregate
							average			intrinsic
		Series A					remaining			value
		(000's)		WAEP			life			(millions)
Outstanding at January 1, 2015		3,997		$	19.10
Granted		652		$	41.40
Exercised		(278)		$	19.92
Forfeited/Cancelled		(3)		$	26.45
Outstanding at June 30, 2015		4,368		$	22.37		4.5	years		$	75
Exercisable at June 30, 2015		2,874		$	18.79		3.7	years		$	59

 

 

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		Liberty Ventures
							Weighted			Aggregate
							average			intrinsic
		Series B					remaining			value
		(000's)		WAEP			life			(millions)
Outstanding at January 1, 2015		1,507		$	36.24
Granted		135		$	42.33
Exercised		(100)		$	16.82
Outstanding at June 30, 2015		1,542		$	38.04		6.5	years		$	5
Exercisable at June 30, 2015		—		$	—		—	years		$	—

 

As of June 30, 2015 , the total unrecognized compensation cost related to unvested Awards was approximately $121 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.8 years .

Other

Certain of the Company's other subsidiaries have stock based compensation plans under which employees and non-employees are granted options or similar stock based awards. Awards made under these plans vest and become exercisable over various terms. The awards and compensation recorded, if any, under these plans is not significant to Liberty.

 

 

(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 QVC Group Common Stock

Excluded from diluted EPS, for the three months ended   June 30,   2015 and 2014 , are 4 million and 2 million potential common shares, respectively, because their inclusion would be antidilutive. Excluded from diluted EPS, for the six months ended   June 30,   2015 and 2014 , are 4 million and 2 million potential common shares, respectively, because their inclusion would be antidilutive.

 

 

		QVC Group Common Stock
		Three months ended				Six months ended
		June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
		number of shares in millions
Basic EPS		469		486		471		490
Potentially dilutive shares		7		10		7		10
Diluted EPS		476		496		478		500

 

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Series A and Series B Liberty Ventures Common Stock

 

As discussed in note 11, Liberty completed a two for one stock split on April 11, 2014 on its Series A and Series B Liberty Ventures common stock. Therefore, all prior period outstanding share amounts have been retroactively adjusted for comparability.  Excluded from diluted EPS, for all periods presented, are less than a million potential common shares because their inclusion would be antidilutive.

 

 

		Liberty Ventures Common Stock
		Three months ended				Six months ended
		June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
		number of shares in millions
Basic EPS		141		73		141		73
Potentially dilutive shares		2		1		2		1
Diluted EPS		143		74		143		74

 

(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							Fair Value Measurements at
		June 30, 2015							December 31, 2014
					Quoted						Quoted
					prices						prices
					in active		Significant				in active		Significant
					markets for		other				markets for		other
					identical		observable				identical		observable
					assets		inputs				assets		inputs
Description		Total			(Level 1)		(Level 2)		Total		(Level 1)		(Level 2)
		amounts in millions
Cash equivalents		$	2,420		2,420		—		2,147		2,147		—
Short term marketable securities		$	845		249		596		889		277		612
Available-for-sale securities		$	1,360		1,351		9		1,220		1,203		17
Debt		$	2,635		—		2,635		2,574		—		2,574

 

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. The fair values for such instruments are derived from a typical model using observable market data as the significant inputs. 

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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					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Fair Value Option Securities		$	165		90		148		80
Exchangeable senior debentures			(133)		(131)		(120)		(146)
		$	32		(41)		28		(66)

 

 

(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 has historically 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 statements 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 th e 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 ("Fair Value Option Securities"). Accordingly, changes in the fair value of Fair Value Option Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial instruments in the accompanying condensed consoli dated statements of op erations.

Investments in AFS securities, the majority of which are considered Fair Value Option Securities, and other cost investments are summarized as follows:

 

 

		June 30,			December 31,
		2015			2014
		amounts in millions
QVC Group
Other investments		$	4		4
Total attributed QVC Group			4		4
Ventures Group
Time Warner Inc.			384		375
Time Warner Cable Inc.			955		815
Other investments			62		30
Total attributed Ventures Group			1,401		1,220
Consolidated Liberty		$	1,405		1,224

 

 

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(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, fair value, and percentage ownership of the more significant investments in affiliates at June 30, 2015 and the carrying amount at December 31,   2014 :

 

										December 31,
		June 30, 2015								2014
		Percentage		Fair value			Carrying			Carrying
		ownership		(Level 1)			amount			amount
				dollar amounts in millions
QVC Group
HSN, Inc. (1)		38	%	$	1,405		$	151		328
Other		various			NA			45		47
Total QVC Group								196		375
Ventures Group
Expedia, Inc.		18	%	$	2,581			587		514
FTD Companies, Inc.		36	%		288			358		355
Other		various			NA			380		389
Total Ventures Group								1,325		1,258
Consolidated Liberty							$	1,521		1,633

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The following table presents Liberty's share of e arnings (losses) of affiliates:

		Three months ended  June 30,					Six months ended June 30,
		2015			2014		2015		2014
		amounts in millions
QVC Group
HSN, Inc.		$	12		9		37		31
Other			(3)		(2)		(4)		(3)
Total QVC Group			9		7		33		28
Ventures Group
Expedia, Inc.			76		10		80		4
FTD Companies, Inc. (1)			7		NA		5		NA
Other			(5)		(13)		(28)		(30)
Total Ventures Group			78		(3)		57		(26)
Consolidated Liberty		$	87		4		90		2

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(9 )   Intangible Assets

Goodwill

Changes in the carrying amount of goodwill are as follows:

 

					Digital
		QVC			Commerce		Total
		amounts in millions
Balance at January 1, 2015		$	5,206		198		5,404
Foreign currency translation adjustments			(42)		—		(42)
Disposition			—		(105)		(105)
Other			—		9		9
Balance at June 30, 2015		$	5,164		102		5,266

 

Intangible Assets Subject to Amortization

Amortization expense for intangible assets with finite useful lives was $123 million and $125 million for the three months ended   June 30, 2015 and 2014 , respectively, and $252 million and $249 million for the six months ended June 30,     2015 and 2014 , respectively. Based on its amortizable intangible assets as of June 30, 2015 , Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):

 

Remainder of 2015		$	221
2016		$	443
2017		$	290
2018		$	33
2019		$	14

 

 

 

 

 

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(10)   Long-Term Debt

Debt is summarized as follows:

 

		Outstanding
		principal at			Carrying value
		June 30, 2015			June 30, 2015			December 31, 2014
		amounts in millions
QVC Group
Corporate level debentures
8.5% Senior Debentures due 2029		$	287			285		285
8.25% Senior Debentures due 2030			505			501		501
1% Exchangeable Senior Debentures due 2043			346			392		444
Subsidiary level notes and facilities
QVC 3.125% Senior Secured Notes due 2019			400			399		399
QVC 7.375% Senior Secured Notes due 2020			—			—		500
QVC 5.125% Senior Secured Notes due 2022			500			500		500
QVC 4.375% Senior Secured Notes due 2023			750			750		750
QVC 4.850% Senior Secured Notes due 2024			600			600		600
QVC 4.45% Senior Secured Notes due 2025			600			599		599
QVC 5.45% Senior Secured Notes due 2034			400			399		399
QVC 5.95% Senior Secured Notes due 2043			300			300		300
QVC Bank Credit Facilities			895			895		508
Other subsidiary debt			74			74		75
Total QVC Group debt		$	5,657			5,694		5,860
Ventures Group
Corporate level debentures
4% Exchangeable Senior Debentures due 2029		$	436			285		294
3.75% Exchangeable Senior Debentures due 2030			438			290		291
3.5% Exchangeable Senior Debentures due 2031			351			307		325
0.75% Exchangeable Senior Debentures due 2043			850			1,361		1,220
Subsidiary level notes and facilities			44			44		61
Total Ventures Group debt		$	2,119			2,287		2,191
Total consolidated Liberty debt		$	7,776			7,981		8,051
Less current classification						(916)		(946)
Total long-term debt					$	7,065		7,105

 

QVC Senior Secured Notes

On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured Notes due 2020, whereby holders received consideration of $1,036.88 for each $1,000 of principal tendered. As a result of the redemption, a   $21   million extinguishment loss is included in “Other, net” in the accompanying condensed consolidated statement of operations for the three and six month periods ended June 30, 2015 .  

QVC Bank Credit Facilities

On March 9, 2015, QVC entered into a second amended and restated senior secured credit agreement (the “Second Amended and Restated   Credit A greement”) which is a multi-currency facility that provides for a $2.25 billion revolving credit facility with a $250 million sub-limit for standby letters of credit and $1.5 billion of uncommitted incremental revolving loan commitments or incremental term lo ans. QVC may elect that the loans extended under the senior secured credit facility bear interest at a rate per annum equal to the ABR or LIBOR , as each is defined in the senior secured credit

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facility agreement, plus a margin of 0.25% to 1.75% depending on   various factors. Each loan may be prepaid in whole or in part without penalty at any time other than customary breakage costs. Any amounts prepaid on the revolving credit facility may be reborrowed. Payment of the loans may be accelerated following certain customary events of default. The senior secured credit facility is secured by the capital stock of QVC . The purpose of the amendment was to, among other things, extend the maturity of QVC’s senior secured credit facility to March 9, 2020 and lower the interest rate on borrowings.

 

The interest rate on borrowings outstanding under the QVC Bank Credit Facilities was 1.6% at June 30, 2015 . Availability under the Second Amended and Restated Credit Agreement at June 30, 2015 was $1.4 billion.

 

The Second Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on QVC and each of its restricted subsidiaries (subject to certain exceptions) with respect to, among other things: incurring additional indebtedness; creating liens on property or assets; making certain loans or investments; selling or disposing of assets; paying certain dividends and other restricted payments; dissolving, consolidating or merging; entering into certain transactions with affiliates; entering into sale or leaseback transactions; restricting subsidiary distributions; and limiting QVC’s consolidated leverage ratio , which is defined in QVC’s senior secured credit facility as the ratio of consolidated total debt to consolidated OIBDA for the most recent four fiscal quarter period .  

Exchangeable Senior Debentures

Liberty has elected to account for the exchangeable senior debentures using the fair value option. Accordingly, changes in the fair value of these instruments are recognized as unrealized gains (losses) in the statements of operations.  As of June 30, 2015 the balance of the 4% Exchangeable Senior Debentures due 2029, the 3.75% Exchangeable Senior Debentures due 2030 and the 3.5% Exchangeable Senior Debentures due 2031 have been classified as current because Liberty does not own shares to redeem the debentures.  For the remaining exchangeables, Liberty reviews the terms of the debentures on a quarterly basis to determine whether a triggering event has occurred to require current classification of the exchangeables upon a call event. 

 

As discussed in note 8, HSNi declared a special dividend during January 2015 of $10 per share from which Liberty received approximately $200 million in cash during February 2015.  Pursuant to the terms of the 1% Exchangeable Senior Debentures due 2043 (the “HSNi Exchangeables”), a portion of the special dividend was passed through to the holders of the notes ($ 54 million) and the outstanding principal balance of the HSNi Exchangeables was reduced during March 2015 . Additionally, HSNi declared cash dividends of $0.35 per share on March 9, 2015 and June 1, 2015.  The portion of the quarterly dividend in excess of the regular cash dividend of $ 0.18 per share was passed through to bondholders during the first two quarters of 2015.

 

Debt Covenants

Liberty and QVC are in compliance with all debt covenants at June 30, 2015.

Other Subsidiary Debt

Other subsidiary debt at June 30, 2015 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

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traded debt securities that are not reported at fair value in the accompanying condensed consolidated balance sheet at June 30, 2015 are as follows (amounts in millions):

 

 

Due to the variable rate nature, Liberty believes that the carrying amount of its other debt, not discussed above, approximated fair value at June 30, 2015 .

 

(11)   Stockholders' Equity

At the Annual Meeting of Stockholders held on June 2, 2015, the Company’s stockholders approved an amendment to the Restated Certificate of Incorporation that increased (i) the total number of shares of the Company’s capital stock which the Company will have the authority to issue to 9,015   million shares, (ii) the number of shares of the Company’s capital stock designated as “Common Stock” to 8,965   million shares and (iii) the number of shares of Common Stock designated as “Series A Liberty Ventures Common Stock,” “Series B Liberty Ventures Common Stock” and “Series C Liberty Ventures Common Stock” to 400   million shares, 15   million shares and 400   million shares, respectively.

As of June 30, 2015 , Liberty reserved for issuance upon exercise of outstanding stock options approximately 26.1 million shares of Series A QVC Group common stock, 778 thousand shares of Series B QVC Group common stock, 4.4 million shares of Series A Liberty Ventures common stock and 1.5 million shares of Series B Liberty Ventures common stock.

In addition to the Series A and Series B QVC Group and Liberty Ventures common stock , there are 4 billion shares of Series C QVC Group and 4 00 million shares of Series C Liberty Ventures common stock authorized for issuance. As of June 30, 2015 ,   no shares of any Series C QVC Group or Liberty Ventures common stock were issued or outstanding .  

On February 27, 2014, Liberty's board approved a two for one stock split of Series A and Series B Liberty Ventures common stock, effected by means of a dividend. The stock   split was done in order to bring Liberty into compliance with a Nasdaq listing requirement regarding the minimum number of publicly held shares of the Series B Liberty Ventures common stock. In the stock split, a dividend was paid on April 11, 2014 of one share of Series A or Series B Liberty Ventures common stock to holders of each share of Series A or Series B Liberty Ventures common stock, respectively, held by them as of 5:00 pm, New York City time, on April 4, 2014.  The stock split has been recorded retroactively for all periods presented for comparability purposes.

 

Additionally, as discussed in note 2, on October 3, 2014, Liberty attributed from the QVC Group to the Ventures Group its Digital Commerce companies.  Holders of QVC Group common shares received 0.14217 of a Liberty Ventures share for e ach share of QVC Group common shares held, as of the record date.  The shares issued and subsequently di stributed to QVC Group common stock shareholders in the form of a dividend did not require retroactive treatment. 

 

(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.

 

 

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(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.

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 all 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 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 six months ended June 30,   2015 , Liberty has identified the following consolidated subsidiary as its reportable segment:

Additionally, for presentation purposes, Liberty is providi ng financial information of the D igital C ommerce businesses on an aggregated basis. The consolidated D igital C ommerce 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 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.

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 are the same as those described in the Company's summary of significant accounting policies in the Annual Report on Form 10-K for the year ended December 31,   2014 .

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Performance Measures

 

		Three months ended  June 30,
		2015					2014
					Adjusted				Adjusted
		Revenue			OIBDA		Revenue		OIBDA
		amounts in millions
QVC Group
QVC		$	1,998		449		2,014		439
Digital Commerce			NA		NA		469		27
Corporate and other			—		(4)		—		(6)
Total QVC Group			1,998		445		2,483		460
Ventures Group
Digital Commerce			254		19		NA		NA
Corporate and other			—		(5)		—		(4)
Total Ventures Group			254		14		—		(4)
Consolidated Liberty		$	2,252		459		2,483		456

 

 

		Six months ended June 30,
		2015					2014
					Adjusted				Adjusted
		Revenue			OIBDA		Revenue		OIBDA
		amounts in millions
QVC Group
QVC		$	3,936		856		4,000		851
Digital Commerce			NA		NA		917		55
Corporate and other			—		(10)		—		(10)
Total QVC Group			3,936		846		4,917		896
Ventures Group
Digital Commerce			530		41		NA		NA
Corporate and other			—		(9)		—		(6)
Total Ventures Group			530		32		—		(6)
Consolidated Liberty		$	4,466		878		4,917		890

 

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Other Information

		June 30, 2015
		Total			Investments		Capital
		assets			In affiliates		expenditures
		amounts in millions
QVC Group
QVC		$	12,019		45		80
Corporate and other			332		151		—
Total QVC Group			12,351		196		80
Ventures Group
Digital Commerce			847		358		24
Corporate and other			5,148		967		—
Total Ventures Group			5,995		1,325		24
Inter-group eliminations			(204)		—		—
Consolidated Liberty		$	18,142		1,521		104

The following table provides a reconciliation of segment Adjusted OIBDA to earnings (loss) before income taxes:

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Consolidated segment Adjusted OIBDA		$	459		456		878		890
Stock-based compensation			(29)		(26)		(44)		(51)
Impairment of intangible assets			—		(7)		—		(7)
Depreciation and amortization			(161)		(164)		(329)		(327)
Interest expense			(90)		(98)		(185)		(193)
Share of earnings (loss) of affiliates, net			87		4		90		2
Realized and unrealized gains (losses) on financial instruments, net			32		(41)		28		(66)
Gains (losses) on dispositions, net			111		—		111		—
Other, net			(29)		3		(14)		10
Earnings (loss) before income taxes		$	380		127		535		258