Qurate Retail Annual Report 2020 Form 10-K (NASDAQ:QRTEB) Published: February 26th, 2020 PDF generated by stocklight.com UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 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 QURATE RETAIL, INC. (Exact name of Registrant as specified in its charter) State of Delaware 84-1288730 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12300 Liberty Boulevard Englewood, Colorado 80112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (720) 875-5300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of exchange on which registered Series A Common Stock, par value $.01 per QRTEA share The Nasdaq Stock Market LLC Series B Common Stock, par value $.01 per QRTEB share The Nasdaq Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting stock held by nonaffiliates of Qurate Retail, Inc. computed by reference to the last sales price of Qurate Retail, Inc. common stock, as of the closing of trading on June 28, 2019, was approximately $4.8 billion. The number of outstanding shares of Qurate Retail, Inc.'s common stock as of January 31, 2020 was: Series A common stock 386,702,662 Series B common stock 29,278,424 Documents Incorporated by Reference The Registrant's definitive proxy statement for its 2020 Annual Meeting of Stockholders is hereby incorporated by reference into Part III of this Annual Report on Form 10-K . QURATE RETAIL, INC. 2019 ANNUAL REPORT ON FORM 10‑K Table of Contents Part I Page Item 1. Business I-3 Item 1A. Risk Factors I-18 Item 1B. Unresolved Staff Comments I-36 Item 2. Properties I-36 Item 3. Legal Proceedings I-37 Item 4. Mine Safety Disclosures I-37 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities II-1 Item 6. Selected Financial Data II-2 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations II-4 Item 7A. Quantitative and Qualitative Disclosures About Market Risk II-22 Item 8. Financial Statements and Supplementary Data II-23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure II-23 Item 9A. Controls and Procedures II-23 Item 9B. Other Information II-24 Part III Item 10. Directors, Executive Officers and Corporate Governance III‑1 Item 11. Executive Compensation III‑1 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters III‑1 Item 13. Certain Relationships and Related Transactions, and Director Independence III‑1 Item 14. Principal Accounting Fees and Services III‑1 Part IV Item 15. Exhibits and Financial Statement Schedules IV‑1 Item 16. Form 10-K Summary IV‑8 I-2 Item 1. Business. General Development of Business Qurate Retail, Inc. ("Qurate Retail", the “Company”, “we”, “us” and “our”), formerly known as Liberty Interactive Corporation prior to the Transactions (defined and described below), owns interests in subsidiaries and other companies which are primarily engaged in the video and online commerce industries. Through our subsidiaries and affiliates, we operate in North America, Europe and Asia. Our principal businesses and assets include our consolidated subsidiaries QVC, Inc. ("QVC"), which includes HSN, Inc. (“HSN”) following the transfer of ownership of HSN to QVC (described below), Cornerstone Brands, Inc. (former subsidiary of HSN prior to the transfer of ownership of HSN to QVC), Zulily, LLC (“Zulily”) and other cost and equity method investments. On September 23, 2011, Qurate Retail completed the split-off (the "LMC Split-Off") of a wholly owned subsidiary, Liberty Media Corporation ("LMC"). Following the LMC Split-Off, Qurate Retail and LMC operate as separately publicly traded companies and neither has any stock ownership, beneficial or otherwise, in the other. Qurate Retail and LMC entered into certain agreements in order to govern certain of the ongoing relationships between the two companies. These agreements include a reorganization agreement, a services agreement (the “Services Agreement”), a facilities sharing agreement (the “Facilities Sharing Agreement”) and a tax sharing agreement. Pursuant to the Services Agreement, LMC provides Qurate Retail with general and administrative services including legal, tax, accounting, treasury and investor relations support. See below for a description of an amendment to the services agreement entered into in December 2019. Qurate Retail reimburses LMC for direct, out-of-pocket expenses incurred by LMC in providing these services and for Qurate Retail's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Qurate Retail. Under the Facilities Sharing Agreement, Qurate Retail shares office space with LMC and related amenities at LMC's corporate headquarters. In December 2019, the Company entered into an amendment to the Services Agreement with LMC in connection with LMC’s entry into a new employment arrangement with Gregory B. Maffei, the Company’s Chairman of the Board (the “Chairman”). Under the amended Services Agreement, components of his compensation will either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc. (“TripAdvisor Holdings”), GCI Liberty, Inc. (“GCI Liberty”), and Liberty Broadband Corporation (“Liberty Broadband”) (collectively, the “Service Companies”) or reimbursed to LMC, in each case, based on allocations among LMC and the Service Companies set forth in the amended Services Agreement, currently set at 19% for the Company. The new agreement provides for a five year employment term which began on January 1, 2020 and ends December 31, 2024, with an aggregate annual base salary of $3 million (with no contracted increase), an aggregate one-time cash commitment bonus of $5 million, an aggregate annual target cash performance bonus of $17 million, aggregate annual equity awards of $17.5 million and aggregate equity awards granted in connection with his entry into his new agreement of $90 million (the “upfront awards”). A portion of the grants made to our Chairman in the year ended December 31, 2019 related to our Company’s allocable portion of these upfront awards. On August 9, 2012, Qurate Retail completed the approved recapitalization of its common stock through the creation of the Liberty Interactive common stock and Liberty Ventures common stock as tracking stocks. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group common stock.” 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. Prior to the Transactions, Qurate Retail had two tracking stocks, QVC Group common stock and Liberty Ventures common stock, which were intended to track and reflect the economic performance of Qurate Retail’s QVC Group and Ventures Group, respectively. While the QVC Group and the Ventures Group had separate collections of businesses, assets and liabilities attributed to them, no group was a separate legal entity and therefore no group could own assets, issue securities or enter into legally binding agreements. Holders of tracking stock had no direct claim to the group's stock or assets and were not represented by separate boards of directors. Instead, holders of tracking stock were stockholders of the parent corporation, with a single board of directors and subject to all of the risks and liabilities of the parent corporation. I-3 On October 1, 2015, Qurate Retail acquired zulily, inc.