Liberty Interactive
Liberty Interactive Corp (Form: 10-Q, Received: 05/09/2017 16:29:56)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                             to                             

Commission File Number 001-33982

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, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

(do not check if
smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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 April 30, 2017 was:

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

 

 

 

 

 

QVC Group

 

421,506,389

 

29,411,367

 

Liberty Ventures

 

81,199,016

 

4,271,867

 

 

 

 

 

 

 

 

 

 


 

Table of Contents

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-29

Item 3. Quantitative and Qualitative Disclosures about Market Risk.  

 

I-41

Item 4. Controls and Procedures.  

 

I-43

 

 

 

PART II—OTHER INFORMATION  

 

II-1

Item 1. Legal Proceedings  

 

II-1

Item 1A. Risk Factors  

 

II-1

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

II-2

Item 6. Exhibits  

 

II-3

 

 

 

SIGNATURES  

 

II-4

EXHIBIT INDEX  

 

II-5

 

 

 

I-2


 

Table of Contents

 

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2017

 

2016

 

 

 

amounts in millions

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

821

 

825

 

Trade and other receivables, net of allowance for doubtful accounts of $97 million and $99 million, respectively

 

 

969

 

1,308

 

Inventory, net

 

 

1,050

 

968

 

Other current assets

 

 

80

 

68

 

Total current assets

 

 

2,920

 

3,169

 

Investments in available-for-sale securities and other cost investments (note 7)

 

 

2,185

 

1,922

 

Investments in affiliates, accounted for using the equity method (note 8)

 

 

567

 

581

 

Investment in Liberty Broadband measured at fair value (note 8)

 

 

3,688

 

3,161

 

Property and equipment, at cost

 

 

2,211

 

2,163

 

Accumulated depreciation

 

 

(1,087)

 

(1,032)

 

 

 

 

1,124

 

1,131

 

Intangible assets not subject to amortization (note 9):

 

 

 

 

 

 

Goodwill

 

 

6,075

 

6,052

 

Trademarks

 

 

3,302

 

3,302

 

 

 

 

9,377

 

9,354

 

Intangible assets subject to amortization, net (note 9)

 

 

862

 

1,005

 

Other assets, at cost, net of accumulated amortization

 

 

35

 

32

 

Total assets

 

$

20,758

 

20,355

 

 

(continued)

 

See accompanying notes to condensed consolidated financial statements.

I-3


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

2017

 

2016

 

 

 

amounts in millions,

 

 

 

except share amounts

 

Liabilities and Equity

    

 

    

    

    

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

727

 

790

 

Accrued liabilities

 

 

601

 

706

 

Current portion of debt, including $901 million and $862 million measured at fair value (note 10)

 

 

917

 

876

 

Other current liabilities

 

 

180

 

162

 

Total current liabilities

 

 

2,425

 

2,534

 

Long-term debt, including $845 million and $805 million measured at fair value (note 10)

 

 

7,013

 

7,166

 

Deferred income tax liabilities

 

 

3,911

 

3,636

 

Other liabilities

 

 

162

 

158

 

Total liabilities

 

 

13,511

 

13,494

 

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 421,476,652 shares at March 31, 2017 and 429,005,932 shares at December 31, 2016

 

 

 5

 

 5

 

Series B QVC Group common stock, $.01 par value. Authorized 150,000,000 shares; issued and outstanding 29,411,867 shares at March 31, 2017 and 29,358,638 shares at December 31, 2016

 

 

 —

 

 —

 

Series A Liberty Ventures common stock, $.01 par value. Authorized 400,000,000 shares; issued and outstanding 81,177,231 shares at March 31, 2017 and 81,150,711 shares at December 31, 2016

 

 

 1

 

 1

 

Series B Liberty Ventures common stock, $.01 par value. Authorized 15,000,000 shares; issued and outstanding 4,271,866 shares at March 31, 2017 and 4,271,958 shares at December 31, 2016

 

 

 —

 

 —

 

Additional paid-in capital

 

 

 —

 

 —

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(243)

 

(266)

 

Retained earnings

 

 

7,399

 

7,032

 

Total stockholders' equity

 

 

7,162

 

6,772

 

Noncontrolling interests in equity of subsidiaries

 

 

85

 

89

 

Total equity

 

 

7,247

 

6,861

 

Commitments and contingencies (note 12)

 

 

 

 

 

 

Total liabilities and equity

 

$

20,758

 

20,355

 

 

See accompanying notes to condensed consolidated financial statements.

I-4


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2017

    

2016

 

 

 

amounts in millions

 

Total revenue, net

 

$

2,327

 

2,510

 

Operating costs and expenses:

 

 

 

 

 

 

Cost of sales (exclusive of depreciation shown separately below)

 

 

1,505

 

1,626

 

Operating

 

 

151

 

170

 

Selling, general and administrative, including stock-based compensation (note 4)

 

 

250

 

308

 

Depreciation and amortization

 

 

208

 

217

 

 

 

 

2,114

 

2,321

 

Operating income (loss)

 

 

213

 

189

 

Other income (expense):

 

 

 

 

 

 

Interest expense

 

 

(90)

 

(93)

 

Share of earnings (losses) of affiliates, net (note 8)

 

 

(27)

 

 3

 

Realized and unrealized gains (losses) on financial instruments, net (note 6)

 

 

701

 

(7)

 

Other, net

 

 

 1

 

38

 

 

 

 

585

 

(59)

 

Earnings (loss) from continuing operations before income taxes

 

 

798

 

130

 

Income tax (expense) benefit

 

 

(279)

 

(38)

 

Earnings (loss) from continuing operations

 

 

519

 

92

 

Earnings (loss) from discontinued operations, net of taxes

 

 

 —

 

(16)

 

Net earnings (loss)

 

 

519

 

76

 

Less net earnings (loss) attributable to the noncontrolling interests

 

 

12

 

 8

 

Net earnings (loss) attributable to Liberty Interactive Corporation shareholders

 

$

507

 

68

 

 

 

 

 

 

 

 

Net earnings (loss) attributable to Liberty Interactive Corporation shareholders:

 

 

 

 

 

 

QVC Group common stock

 

$

91

 

94

 

Liberty Ventures common stock

 

 

416

 

(26)

 

 

 

$

507

 

68

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

I-5


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2017

    

2016

 

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

 

$

0.20

 

0.19

 

Series A and Series B Liberty Ventures common stock

 

$

4.89

 

(0.07)

 

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

 

$

0.20

 

0.19

 

Series A and Series B Liberty Ventures common stock

 

$

4.84

 

(0.07)

 

 

 

 

 

 

 

 

Basic net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):

 

 

 

 

 

 

Series A and Series B QVC Group common stock

 

$

0.20

 

0.19

 

Series A and Series B Liberty Ventures common stock

 

$

4.89

 

(0.18)

 

Diluted net earnings (losses) attributable to Liberty Interactive Corporation shareholders per common share (note 5):

 

 

 

 

 

 

Series A and Series B QVC Group common stock

 

$

0.20

 

0.19

 

Series A and Series B Liberty Ventures common stock

 

$

4.84

 

(0.18)

 

 

See accompanying notes to condensed consolidated financial statements.

 

I-6


 

Table of Contents

 

 

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2017

    

2016

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

519

 

76

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

27

 

34

 

Share of other comprehensive earnings (losses) of equity affiliates

 

 

 2

 

(1)

 

Other comprehensive earnings (loss)

 

 

29

 

33

 

Comprehensive earnings (loss)

 

 

548

 

109

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

18

 

15

 

Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders

 

$

530

 

94

 

 

 

 

 

 

 

 

Comprehensive earnings (loss) attributable to Liberty Interactive Corporation shareholders:

 

 

 

 

 

 

QVC Group common stock

 

$

112

 

114

 

Liberty Ventures common stock

 

 

418

 

(20)

 

 

 

$

530

 

94

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

I-7


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Statements Of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2017

    

2016

 

 

 

amounts in millions

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings (loss)

 

$

519

 

76

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

(Earnings) loss from discontinued operations

 

 

 —

 

16

 

Depreciation and amortization

 

 

208

 

217

 

Stock-based compensation

 

 

16

 

31

 

Cash payments for stock-based compensation

 

 

 —

 

(10)

 

Share of (earnings) losses of affiliates, net

 

 

27

 

(3)

 

Cash receipts from returns on equity investments

 

 

 7

 

 9

 

Realized and unrealized (gains) losses on financial instruments, net

 

 

(701)

 

 7

 

Deferred income tax expense (benefit)

 

 

255

 

 6

 

Other, net

 

 

 3

 

(36)

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

254

 

281

 

Payables and other liabilities

 

 

(162)

 

(300)

 

Net cash provided (used) by operating activities

 

 

426

 

294

 

Cash flows from investing activities:

 

 

 

 

 

 

Cash proceeds from dispositions of investments

 

 

 —

 

 9

 

Investments in and loans to cost and equity investees

 

 

(21)

 

(22)

 

Capital expended for property and equipment

 

 

(30)

 

(51)

 

Purchases of short term and other marketable securities

 

 

 —

 

(116)

 

Sales of short term and other marketable securities

 

 

 —

 

425

 

Other investing activities, net

 

 

(1)

 

(12)

 

Net cash provided (used) by investing activities

 

 

(52)

 

233

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt

 

 

499

 

623

 

Repayments of debt

 

 

(704)

 

(598)

 

Repurchases of QVC Group common stock

 

 

(152)

 

(238)

 

Withholding taxes on net settlements of stock-based compensation

 

 

(4)

 

(8)

 

Other financing activities, net

 

 

(26)

 

(5)

 

Net cash provided (used) by financing activities

 

 

(387)

 

(226)

 

Effect of foreign currency exchange rates on cash

 

 

 9

 

(13)

 

Net cash provided (used) by discontinued operations:

 

 

 

 

 

 

Cash provided (used) by operating activities

 

 

 —

 

 6

 

Cash provided (used) by investing activities

 

 

 —

 

 —

 

Cash provided (used) by financing activities

 

 

 —

 

 —

 

Change in available cash held by discontinued operations

 

 

 —

 

 —

 

Net cash provided (used) by discontinued operations

 

 

 —

 

 6

 

Net increase (decrease) in cash and cash equivalents

 

 

(4)

 

294

 

Cash and cash equivalents at beginning of period

 

 

825

 

2,449

 

Cash and cash equivalents at end of period

 

$

821

 

2,743

 

 

See accompanying notes to condensed consolidated financial statements.

 

I-8


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Three months ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 (loss)

  

earnings

  

of subsidiaries

  

equity

 

 

 

amounts in millions

 

Balance at January 1, 2017

 

$

 —

 

 5

 

 —

 

 1

 

 —

 

 —

 

(266)

 

7,032

 

89

 

6,861

 

Net earnings

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

507

 

12

 

519

 

Other comprehensive loss

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

23

 

 —

 

 6

 

29

 

Stock compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

16

 

 —

 

 —

 

 —

 

16

 

Series A QVC Group common stock repurchases

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

(152)

 

 —

 

 —

 

 —

 

(152)

 

Distribution to noncontrolling interest

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

(22)

 

(22)

 

Option exercises

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1

 

 —

 

 —

 

 —

 

 1

 

Withholding taxes on net settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

(4)

 

 —

 

 —

 

 —

 

(4)

 

Reclassification

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

140

 

 —

 

(140)

 

 —

 

 —

 

Other  

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

(1)

 

 —

 

 —

 

 —

 

(1)

 

Balance at March 31, 2017

 

$

 —

 

 5

 

 —

 

 1

 

 —

 

 —

 

(243)

 

7,399

 

85

 

7,247

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

I-9


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

(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 online commerce industries in North America, Europe and Asia and the cable industry in North America. The Company’s wholly-owned subsidiary, QVC, Inc.’s (“QVC”) business is 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 December 31, 2016, 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, 2016.

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.   

On May 18, 2016, Liberty completed a $2.4 billion investment in Liberty Broadband Corporation (“Liberty Broadband”) (for accounting purposes a related party of the Company) in connection with the merger of Charter Communications, Inc. ("Charter") and Time Warner Cable Inc. ("TWC"). The proceeds of this investment were used by Liberty Broadband to fund, in part, its acquisition of $5 billion of stock in the new public parent company (“New Charter”) of the combined enterprises. Liberty, along with third party investors, all of whom invested on the same terms as Liberty, purchased newly issued shares of Liberty Broadband Series C common stock at a per share price of $56.23, which was determined based upon the fair value of Liberty Broadband's net assets on a sum-of-the parts basis at the time the investment agreements were executed. Liberty's investment in Liberty Broadband was funded using cash on hand and is attributed to the Ventures Group  (as defined in note 2). See note 8 for additional information related to this investment.

Liberty also exchanged, in a tax-free transaction, its shares of TWC common stock for shares of New Charter Class A common stock, on a one-for-one basis, and Liberty has granted to Liberty Broadband a proxy and a right of first refusal with respect to the shares of New Charter Class A common stock held by Liberty in the exchange.

On July 22, 2016, Liberty completed its previously announced spin-off (the “CommerceHub Spin-Off”) of its former wholly-owned subsidiary CommerceHub, Inc. (“CommerceHub”).  The CommerceHub Spin-Off was accomplished by the distribution by Liberty of a dividend of (i) 0.1 of a share of CommerceHub’s Series A common stock for each outstanding share of Liberty’s Series A Liberty Ventures common stock as of 5:00 p.m., New York City time, on July 8, 2016 (such date and time, the “Record Date”), (ii) 0.1 of a share of CommerceHub’s Series B common stock for each outstanding share of Liberty’s Series B Liberty Ventures common stock as of the Record Date and (iii) 0.2 of a share of CommerceHub’s Series C common stock for each outstanding share of Series A and Series B Liberty Ventures common stock as of the Record Date, in each case, with cash paid in lieu of fractional shares. In September 2016, the Internal

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Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

Revenue Service (“IRS”) completed its review of the CommerceHub Spin-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion. See the discussion in note 3 regarding discontinued operations treatment for the CommerceHub Spin-Off.

On November 4, 2016, Liberty completed its previously announced split-off (the “Expedia Holdings Split-Off”) of its former wholly-owned subsidiary Liberty Expedia Holdings, Inc. (“Expedia Holdings”). At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia, Inc. (“Expedia”) and Liberty’s former wholly-owned subsidiary Bodybuilding.com, LLC (“Bodybuilding”). On November 2, 2016, Expedia Holdings borrowed $350 million under a new margin loan and distributed $299 million, net of certain debt related costs, to Liberty on November 4, 2016. The Expedia Holdings Split-Off was accomplished by the redemption of (i) 0.4 of each outstanding share of Liberty’s Series A Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series A common stock at 5:00 p.m., New York City time, on November 4, 2016 (such date and time, the “Redemption Date”) and (ii) 0.4 of each outstanding share of Liberty’s Series B Liberty Ventures common stock for 0.4 of a share of Expedia Holdings Series B common stock on the Redemption Date, in each case, with cash paid in lieu of any fractional shares of Liberty Ventures common stock or Expedia Holdings common stock (after taking into account all of the shares owned of record by each holder thereof, as applicable). In February 2017, the IRS completed its review of the Expedia Holdings Split-Off and informed Liberty that it agreed with the nontaxable characterization of the transaction. Liberty received an Issue Resolution Agreement from the IRS documenting this conclusion. See the discussion in note 3 regarding discontinued operations treatment for the Expedia Holdings Split-Off.

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. This new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In March 2016, the FASB issued additional guidance which clarifies principal versus agent considerations, and in April 2016, the FASB issued further guidance which clarifies the identification of performance obligations and the implementation guidance for licensing. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a full retrospective or modified retrospective transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We have identified the Company’s various revenue streams and are working with our subsidiaries to evaluate the quantitative effects of the new guidance. The Company has not yet selected a transition method. We will continue to provide updates as to the progress of our evaluation in our quarterly reports during 2017.

 

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 beginning after December 15, 2016. The Company has adopted this guidance as of January 1, 2017, and there was no significant effect of the standard on its financial reporting.

 

In January 2016, the FASB issued new accounting guidance that is intended to improve the recognition and measurement of financial instruments.  The new guidance requires equity investments with readily determinable fair values (except those accounted for under the equity method of accounting or those that result in consolidation) to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted under certain circumstances. The Company has not yet determined the effect of the standard on its ongoing financial reporting.

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

 

In February 2016, the FASB issued new guidance which revises the accounting for leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new guidance also simplifies the accounting for sale and leaseback transactions. The new standard, to be applied via a modified retrospective transition approach, is effective for the Company for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company is currently working with its consolidated subsidiaries to evaluate the impact of the adoption of this new guidance on our consolidated financial statements, including identifying the population of leases, evaluating technology solutions and collecting lease data.

 

In March 2016, the FASB issued new guidance which simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this guidance in the third quarter of 2016 .   In accordance with the new guidance, excess tax benefits and tax deficiencies are recognized as income tax benefit or expense rather than as additional paid-in capital. The Company has elected to recognize forfeitures as they occur rather than continue to estimate expected forfeitures. In addition, pursuant to the new guidance, excess tax benefits are classified as an operating activity on the condensed consolidated statements of cash flows. The recognition of excess tax benefits and deficiencies are applied prospectively from January 1, 2016. For tax benefits that were not previously recognized and for adjustments to compensation cost based on actual forfeitures, the Company has recorded a cumulative-effect adjustment in retained earnings as of January 1, 2016.  The presentation changes for excess tax benefits were applied retrospectively in the prior year, resulting in $5 million of excess tax benefits for the three months ended March 31, 2016 being reclassified in the accompanying condensed consolidated statement of cash flows from financing activities to cash flows from operating activities.

 

In October 2016, the FASB issued new accounting guidance which requires an entity to recognize at the transaction date the income tax consequences of intercompany asset transfers. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted.  We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. 

In January 2017, the FASB issued new accounting guidance to simplify the measurement of goodwill impairment. Under the new guidance, an entity will no longer perform a Step 2 Test to measure goodwill impairment.  Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

 

As a result of repurchases of Series A QVC Group common stock, the Company’s additional paid-in capital balance was in a deficit position as of March 31, 2017.  In order to maintain a zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ($140 million) at March 31, 2017 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.

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

Liberty has entered into certain agreements with Liberty Media Corporation ("LMC") (for accounting purposes a related party of the Company), 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 $3 million and $3 million was reimbursable to LMC for the three months ended March 31, 2017 and 2016, respectively. 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 are intended to track and reflect the economic performance of the Liberty QVC Group and the Ventures Group, respectively (as defined below).  

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 agreements. 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 liabilities of the parent corporation.

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. As of March 31, 2017, the 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 subsidiaries, QVC and zulily, llc (“zulily”), our approximate 38% interest in HSN, Inc. (“HSN”), cash and certain liabilities that reside with QVC and zulily, certain liabilities related to our corporate indebtedness (see note 10) and certain deferred tax liabilities. As of March 31, 2017, the QVC Group has cash and cash equivalents of approximately $379 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. As of March 31, 2017, the Ventures Group is comprised primarily of our interests in Evite, Inc. (“Evite”), FTD Companies, Inc. (“FTD”), LendingTree, Inc. (“LendingTree”), Liberty Broadband,  investments in Charter, ILG, Inc. (“ILG”), and Time Warner Inc. (“Time Warner”),  and cash and cash equivalents of approximately $442 million. 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. 

On April 4, 2017, Liberty entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement” and the transactions contemplated thereby, the “Transactions”) with General Communication, Inc. (“GCI”), an Alaska corporation, and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Liberty (“LI LLC”), whereby Liberty will acquire GCI through a reorganization in which certain Ventures Group assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI.  Liberty and LI LLC will contribute to GCI Liberty (as defined below) its entire equity interest in Liberty Broadband, Charter and LendingTree, together with

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

the Evite operating business and certain other assets and liabilities (including, subject to certain conditions, Liberty’s equity interest in FTD), in exchange for (a) the issuance to LI LLC of (i) a number of shares of reclassified GCI Class A Common Stock and a number of shares of reclassified GCI Class B Common Stock equal to the number of outstanding shares of Series A Liberty Ventures common stock and Series B Liberty Ventures common stock outstanding on the closing date of the Contribution, respectively, (ii) certain exchangeable debentures and (iii) cash and (b) the assumption of certain liabilities by GCI Liberty (the “Contribution”).

Liberty will then effect a tax-free separation of its controlling interest in the combined company (to be named GCI Liberty, Inc. (“GCI Liberty”)) to the holders of Liberty Ventures common stock in full redemption of all outstanding shares of such stock, leaving QVC Group common stock as the only outstanding common stock of Liberty.  Holders of GCI Class A Common Stock and GCI Class B Common Stock each will receive (i) 0.63 of a share of reclassified GCI Class A Common Stock and (ii) 0.20 of a share of new GCI Series A preferred stock in exchange for each share of their existing GCI stock.   The exchange ratios were determined based on total consideration of $32.50 per share for existing GCI common stock, comprised of $27.50 per share in reclassified GCI Class A Common Stock and $5.00 per share in newly issued GCI Preferred Stock, and a Liberty Ventures reference price of $43.65 (with no premium paid for shares of GCI Class B Common Stock). The Series A preferred shares will accrue dividends at an initial rate of 5% per annum (which would increase to 7% in connection with a future reincorporation of GCI Liberty in Delaware) and will be redeemable upon the 21st anniversary of the closing.

At the closing of the Transactions, Liberty will reattribute certain assets and liabilities from the Ventures Group to the QVC Group (the “Reattribution”).  The reattributed assets and liabilities, if effected as of the date hereof, would include cash, Liberty’s interest in ILG, certain green energy investments, LI LLC’s exchangeable debentures (other than its outstanding 1.75% Exchangeable Debentures due 2046 that are exchanged for mirror debentures of GCI in an exchange offer to be conducted prior to the closing of the Transactions), and certain tax benefits.  Liberty will complete the Reattribution using similar valuation methodologies to those used in connection with its previous reattributions, including taking into account the advice of its financial advisor. The Transactions are expected to be consummated during the first quarter of 2018, subject to the satisfaction of customary closing conditions, including receipt of regulatory approval and the requisite stockholder approvals. 

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

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

(3)    Disposals

On July 22, 2016, Liberty completed the CommerceHub Spin-Off. CommerceHub is included in the Corporate and other segment through July 22, 2016 and is not presented as a discontinued operation as the CommerceHub Spin-Off did not represent a strategic shift that had a major effect on Liberty’s operations and financial results. Included in revenue in the accompanying condensed consolidated statements of operations is $22 million for the three months ended March 31, 2016 related to CommerceHub.  Included in net earnings (loss) in the accompanying condensed consolidated statements of operations are losses of $2 million for the three months ended March 31, 2016 related to CommerceHub. 

On November 4, 2016, Liberty completed the Expedia Holdings Split-Off. At the time of the Expedia Holdings Split-Off, Expedia Holdings was comprised of, among other things, Liberty’s former interest in Expedia and Liberty’s former wholly-owned subsidiary Bodybuilding. Liberty views Expedia and Bodybuilding as separate components and evaluated them separately for discontinued operations presentation. Based on a quantitative analysis, the Expedia Holdings Split-Off represents a strategic shift that has a major effect on Liberty’s operations, primarily due to prior year one-time gains on transactions recognized by Expedia.  Accordingly, the accompanying condensed consolidated financial statements of Liberty have been prepared to reflect Liberty’s interest in Expedia as a discontinued operation. The disposition of Bodybuilding as part of the Expedia Holdings Split-Off does not have a major effect on Liberty’s historical results nor is it expected to have a major effect on Liberty’s future operations. The disposition of Bodybuilding does not represent a strategic shift in Liberty’s operations. Accordingly, Bodybuilding is not presented as a discontinued operation in the accompanying condensed consolidated financial statements of Liberty. Bodybuilding is included in the Corporate and other segment through November 4, 2016. Included in revenue in the accompanying condensed consolidated statements of operations is $116 million for the three months ended March 31, 2016 related to Bodybuilding. Included in net earnings (loss) in the accompanying condensed consolidated statements of operations are earnings of $1  million for the three months ended March 31, 2016 related to Bodybuilding.

Certain financial information for Liberty’s investment in Expedia, which is included in the discontinued operations line items of the consolidated Liberty balance sheets as of March 31, 2016, is as follows:

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

2016

 

 

 

 

amounts in millions

 

Earnings (loss) before income taxes

 

 

(28)

 

Income tax (expense) benefit

 

 

12

 

The impact from discontinued operations on basic and diluted earnings (loss) per share is as follows:

 

 

 

 

 

 

 

 

March 31,

 

 

 

 

2016

 

Basic earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 3):

 

 

 

 

Series A and Series B QVC Group common stock

 

 

NA

 

Series A and Series B Liberty Ventures common stock

 

 

(0.11)

 

Diluted earnings (loss) from discontinued operations attributable to Liberty shareholders per common share (note 3):

 

 

 

 

Series A and Series B QVC Group common stock

 

 

NA

 

Series A and Series B Liberty Ventures common stock

 

 

(0.11)

 

 

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

(4)   Stock-Based Compensation

The Company has granted to certain of its directors, employees and employees of its subsidiaries, restricted stock, restricted stock units (“RSUs”) 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 (“GDFV”) 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 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 $16 million and $31 million of stock-based compensation during the three months ended March 31, 2017 and 2016, respectively.

In connection with our CEO’s employment agreement, during the three months ended March 31, 2017, Liberty granted 115 thousand performance-based RSUs of Series B QVC Group common stock which have a GDFV of $19.90 per share and cliff vest in one year, subject to satisfaction of certain performance objectives.  Performance objectives, which are subjective, are considered in determining the timing and amount of the compensation expense recognized. As the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The value of the grant is remeasured at each reporting period.

The Company has calculated the GDFV for all of its equity classified Awards and any subsequent remeasurement of its liability classified Awards and certain performance-based Awards using the Black-Scholes-Merton 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 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, 2017

 

29,585

 

$

20.80

 

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

 

Exercised

 

(390)

 

$

12.48

 

 

 

 

 

 

 

Forfeited/Cancelled

 

(450)

 

$

27.79

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

28,745

 

$

20.80

 

4.2

years

 

$

63

 

Exercisable at March 31, 2017

 

19,073

 

$

18.67

 

3.3

years

 

$

55

 

 

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QVC Group

 

 

    

 

    

 

 

    

Weighted

    

Aggregate

 

 

 

 

 

 

 

 

average

 

intrinsic

 

 

 

Series B

 

 

 

 

remaining

 

value

 

 

 

(000's)

 

WAEP

 

life

 

(millions)

 

Outstanding at January 1, 2017

 

1,489

 

$

27.50

 

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

 

Exercised

 

 —

 

$

 —

 

 

 

 

 

 

 

Forfeited/Cancelled

 

 —

 

$

 —

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

1,489

 

$

27.50

 

5.4

years

 

$

 —

 

Exercisable at March 31, 2017

 

843

 

$

25.68

 

5.9

years

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Ventures

 

 

    

 

    

 

 

    

Weighted

    

Aggregate

 

 

 

 

 

 

 

 

average

 

intrinsic

 

 

 

Series A

 

 

 

 

remaining

 

value

 

 

 

(000's)

 

WAEP

 

life

 

(millions)

 

Outstanding at January 1, 2017

 

1,974

 

$

22.18

 

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

 

Exercised

 

(43)

 

$

18.10

 

 

 

 

 

 

 

Forfeited/Cancelled

 

(10)

 

$

36.86

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

1,921

 

$

22.20

 

3.0

years

 

$

43

 

Exercisable at March 31, 2017

 

1,538

 

$

18.48

 

2.3

years

 

$

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Ventures

 

 

    

 

    

 

 

    

Weighted

    

Aggregate

 

 

 

 

 

 

 

 

average

 

intrinsic

 

 

 

Series B

 

 

 

 

remaining

 

value

 

 

 

(000's)

 

WAEP

 

life

 

(millions)

 

Outstanding at January 1, 2017

 

987

 

$

35.02

 

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

 

Exercised

 

 —

 

$

 —

 

 

 

 

 

 

 

Forfeited/Cancelled

 

 —

 

$

 —

 

 

 

 

 

 

 

Outstanding at March 31, 2017

 

987

 

$

35.02

 

4.9

years

 

$

10

 

Exercisable at March 31, 2017

 

184

 

$

36.82

 

5.7

years

 

$

 1

 

 

As of March 31, 2017, the total unrecognized compensation cost related to unvested Awards was approximately $106 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.2 years.

As of March 31, 2017, Liberty reserved for issuance upon exercise of outstanding stock options approximately 28.7 million shares of Series A QVC Group common stock, 1.5 million shares of Series B QVC Group common stock, 1.9 million shares of Series A Liberty Ventures common stock and 1.0 million shares of Series B Liberty Ventures common stock.

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 other subsidiary compensation plans are not significant to Liberty.

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LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(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  ("WASO") 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. Potentially dilutive shares are excluded from the computation of diluted EPS during periods in which losses are reported since the result would be antidilutive.

Series A and Series B QVC Group Common Stock

Excluded from diluted EPS, for the three months ended March 31, 2017 and 2016,  are 14 million and 12 million potential common shares, respectively, because their inclusion would be antidilutive.

 

 

 

 

 

 

 

 

QVC Group Common Stock

 

 

    

Three months ended 

 

 

 

March 31,

 

 

 

2017

 

2016

 

 

 

number of shares in millions

 

Basic WASO

 

453

 

485

 

Potentially dilutive shares

 

 2

 

 6

 

Diluted WASO

 

455

 

491

 

 

 

 

Series A and Series B Liberty Ventures Common Stock

 

Excluded from diluted EPS, for the three months ended March 31, 2017 and 2016 are less than a million potential common shares because their inclusion would be antidilutive.

 

 

 

 

 

 

 

 

 

 

Liberty Ventures Common Stock

 

 

    

Three months ended 

 

 

 

March 31,

 

 

 

2017

 

2016

 

 

 

number of shares in millions

 

Basic WASO

 

85

 

142

 

Potentially dilutive shares

 

 1

 

1

 

Diluted WASO

 

86

 

143

 

 

 

(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.

I-18


 

Table of Contents

LIBERTY INTERACTIVE CORPORATION AND SUBSIDIARIES

 

Notes to Condensed Consolidated Financial Statements

 

(unaudited)

 

The Company's assets and liabilities measured at fair value are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

Fair Value Measurements at

 

 

 

March 31, 2017

 

December 31, 2016

 

 

    

 

 

    

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

 

$

667

 

667

 

 —

 

625

 

625

 

 —

 

Available-for-sale securities

 

$

2,104

 

2,104

 

 —

 

1,846

 

1,846

 

 —

 

Investment in Liberty Broadband

 

$

3,688

 

3,688

 

 —

 

3,161

 

3,161

 

 —

 

Debt

 

$

1,746

 

 —

 

1,746

 

1,667

 

 —

 

1,667

 

 

The majority of the Company's Level 2 financial assets and liabilities are primarily 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. 

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 

 

 

 

March 31,

 

 

    

2017

    

2016

 

 

 

amounts in millions

 

Fair Value Option Securities - Available-for-sale securities

 

$

260