Table of Contents -- Click here to rapidly navigate through this document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

OR

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

For the transition period from to

Commission File Number 000-55409

QVC, Inc.

(Exact name of Registrant as specified in its charter)

State of Delaware (State or other jurisdiction of incorporation or organization)	23-2414041 (I.R.S. Employer Identification Number)
1200 Wilson Drive West Chester, Pennsylvania (Address of principal executive offices)	19380 (Zip Code)

Registrant's telephone number, including area code: (484) 701-1000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (do not check if smaller reporting company)	Smaller reporting company o

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

None of the voting stock of the registrant is held by a non-affiliate of the registrant. There is no publicly traded market for any class of voting stock of the registrant. There is one holder of record of our equity, Liberty QVC Holdings, LLC, an indirect wholly-owned subsidiary of Liberty Interactive Corporation.

---

QVC, Inc.

2015 QUARTERLY REPORT ON FORM 10-Q

Table of Contents

	Part I	Page
Item 1.	Financial Statements (unaudited)	I-1
	Condensed Consolidated Balance Sheets	I-1
	Condensed Consolidated Statements of Operations	I-2
	Condensed Consolidated Statements of Comprehensive Income	I-3
	Condensed Consolidated Statements of Cash Flows	I-4
	Condensed Consolidated Statement of Equity	I-5
	Notes to the Unaudited Condensed Consolidated Financial Statements	I-6
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-40
Item 4.	Controls and Procedures	I-41
	Part II
Item 6.	Exhibits	II-1
	Signatures	II-2
	Exhibit Index	II-3

---

Item 1. Financial Statements

QVC, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

	June 30,			December 31,
(in millions)	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	445		347
Restricted cash	12			12
Accounts receivable, less allowance for doubtful accounts of $85 at June 30, 2015 and $91 at December 31, 2014	799			1,196
Inventories	964			882
Deferred income taxes	210			210
Prepaid expenses	57			50
Total current assets	2,487			2,697
Property and equipment, net of accumulated depreciation of $901 at June 30, 2015 and $884 at December 31, 2014	982			1,026
Cable and satellite television distribution rights, net	409			461
Goodwill	5,049			5,091
Other intangible assets, net	3,037			3,143
Other noncurrent assets	61			58
Total assets	$	12,025		12,476
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	9		9
Accounts payable-trade	566			629
Accrued liabilities	689			885
Total current liabilities	1,264			1,523
Long-term portion of debt and capital lease obligations	4,507			4,620
Deferred compensation	13			17
Deferred income taxes	1,079			1,121
Other long-term liabilities	170			149
Total liabilities	7,033			7,430
Equity:
QVC, Inc. stockholder's equity:
Common stock, $0.01 par value, 1 authorized share	—			—
Additional paid-in capital	6,807			6,787
Accumulated deficit	(1,796		)	(1,805	)
Accumulated other comprehensive loss	(116		)	(39	)
Total QVC, Inc. stockholder's equity	4,895			4,943
Noncontrolling interest	97			103
Total equity	4,992			5,046
Total liabilities and equity	$	12,025		12,476

See accompanying notes to condensed consolidated financial statements.

I-1

---

QVC, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
Net revenue	$	1,998		2,014		3,936		4,000
Cost of goods sold	1,234			1,250		2,455		2,506
Gross profit	764			764		1,481		1,494
Operating expenses:
Operating	175			180		343		358
Selling, general and administrative, including stock-based compensation	147			155		297		303
Depreciation	35			33		68		66
Amortization	113			112		233		223
	470			480		941		950
Operating income	294			284		540		544
Other (expense) income:
Equity in losses of investee	(3		)	(2	)	(4	)	(3	)
Interest expense, net	(50		)	(60	)	(109	)	(122	)
Foreign currency (loss) gain	(11		)	1		(1	)	—
Loss on extinguishment of debt	(21		)	—		(21	)	—
	(85		)	(61	)	(135	)	(125	)
Income before income taxes	209			223		405		419
Income tax expense	(85		)	(83	)	(157	)	(157	)
Net income	124			140		248		262
Less net income attributable to the noncontrolling interest	(8		)	(10	)	(17	)	(19	)
Net income attributable to QVC, Inc. stockholder	$	116		130		231		243

See accompanying notes to condensed consolidated financial statements.

I-2

---

QVC, Inc.

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
Net income	$	124		140		248		262
Foreign currency translation adjustments	22			2		(80	)	18
Total comprehensive income	146			142		168		280
Comprehensive income attributable to noncontrolling interest	(6		)	(10	)	(14	)	(22	)
Comprehensive income attributable to QVC, Inc. stockholder	$	140		132		154		258

See accompanying notes to condensed consolidated financial statements.

I-3

---

QVC, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Six months ended June 30,
(in millions)	2015			2014
Operating activities:
Net income	$	248		262
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in losses of investee	4			3
Deferred income taxes	(42		)	(108	)
Foreign currency loss	1			—
Depreciation	68			66
Amortization	233			223
Noncash interest	4			4
Loss on extinguishment of debt	21			—
Stock-based compensation	15			18
Change in other long-term liabilities	18			55
Effects of changes in working capital items	35			26
Net cash provided by operating activities	605			549
Investing activities:
Capital expenditures, net	(79		)	(57	)
Expenditures for cable and satellite television distribution rights, net	(45		)	(8	)
Changes in other noncurrent assets	(3		)	—
Net cash used in investing activities	(127		)	(65	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,216		)	(1,419	)
Principal borrowings of debt from senior secured credit facility	1,098			554
Proceeds from issuance of senior secured notes, net of original issue discount	—			999
Payment of debt origination fees	(3		)	(12	)
Payment of bond premium fees	(18		)	—
Other financing activities	(1		)	(4	)
Dividends paid to Liberty	(210		)	(480	)
Dividends paid to noncontrolling interest	(20		)	(25	)
Net cash used in financing activities	(370		)	(387	)
Effect of foreign exchange rate changes on cash and cash equivalents	(10		)	(6	)
Net increase in cash and cash equivalents	98			91
Cash and cash equivalents, beginning of period	347			457
Cash and cash equivalents, end of period	$	445		548
Effects of changes in working capital items:
Decrease in accounts receivable	$	385		357
Increase in inventories	(92		)	(57	)
Increase in prepaid expenses	(10		)	(10	)
Decrease in accounts payable-trade	(61		)	(14	)
Decrease in accrued liabilities and other	(187		)	(250	)
Effects of changes in working capital items	$	35		26

See accompanying notes to condensed consolidated financial statements.

I-4

---

QVC, Inc.

Condensed Consolidated Statement of Equity

(unaudited)

	Common stock					Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Noncontrolling interest		Total equity
(in millions, except share data)	Shares		Amount
Balance, December 31, 2014	1		$	—		6,787		(1,805	)	(39	)	103		5,046
Net income	—		—			—		231		—		17		248
Foreign currency translation adjustments	—		—			—		—		(77	)	(3	)	(80	)
Dividends paid to Liberty and noncontrolling interest and other	—		—			—		(219	)	—		(20	)	(239	)
Impact of tax liability allocation and indemnification agreement with Liberty	—		—			—		(3	)	—		—		(3	)
Minimum withholding taxes on net share settlements of stock-based compensation	—		—			(5	)	—		—		—		(5	)
Excess tax benefit resulting from stock-based compensation	—		—			10		—		—		—		10
Stock-based compensation	—		—			15		—		—		—		15
Balance, June 30, 2015	1		$	—		6,807		(1,796	)	(116	)	97		4,992

See accompanying notes to condensed consolidated financial statements.

I-5

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," the "Company" and "QVC" refer to QVC, Inc. and its consolidated subsidiaries) is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications. In the United States, QVC's live programming is distributed via its nationally televised shopping program 24 hours per day, 364 days per year ("QVC-U.S."). Internationally, QVC's program services are based in Germany ("QVC-Germany"), Japan ("QVC-Japan"), the United Kingdom ("QVC-U.K.") and Italy ("QVC-Italy"). QVC-Germany distributes its program 24 hours per day with 17 hours of live programming, QVC-Japan distributes live programming 24 hours per day, and QVC-U.K. distributes its program 24 hours per day with 16 hours of live programming. Effective March 9, 2015, QVC-U.K. reduced its total live programming from 17 hours to 16 hours by distributing recorded programming during the 1am to 2am hour. QVC-Italy distributes programming live for 17 hours per day on satellite and digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television.

The Company's Japanese operations are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the six months ended June 30, 2015 and 2014, QVC-Japan paid dividends to Mitsui of $20 million and $25 million, respectively.

The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. Live programming is distributed for 17 hours per day and recorded programming for seven hours per day. This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.

On April 16, 2014, QVC announced plans to expand its global presence into France ("QVC-France"). Similar to its other markets, QVC plans to offer a highly immersive digital shopping experience, with strong integration across e-commerce, TV, mobile and social platforms. QVC-France launched its website on June 23, 2015 with the launch of live programming in August 2015.

We are an indirect wholly owned subsidiary of Liberty Interactive Corporation ("Liberty"), which owns interests in a broad range of digital commerce businesses. On October 3, 2014, we declared and paid a dividend in cash to Liberty in the amount of $1 billion with funds drawn from the Company's credit facility. Additionally, Liberty reattributed from the Interactive Group to the Ventures Group $970 million in cash and certain of its digital commerce companies, including Backcountry.com, Inc., Bodybuilding.com, LLC, CommerceHub, Provide Commerce, Inc., Evite, Inc. and LMC Right Start, Inc. As a result of these transactions, the Interactive Group is now referred to as the QVC Group, which tracks our Company and Liberty's 38% equity interest in HSN, Inc., one of our two closest televised shopping competitors, along with cash and certain liabilities. 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. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group common stock.”

The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.

I-6

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

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 U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in QVC's Annual Report on Form 10-K for the year ended December 31, 2014.

The preparation of financial statements in conformity with U.S. 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. Estimates include, but are not limited to, sales returns, uncollectible receivables, inventory obsolescence, depreciable lives of fixed assets, internally-developed software, valuation of acquired intangible assets and goodwill, income taxes and stock-based compensation.

On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which 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 ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. In July 2015, the FASB voted to delay the original effective date of this standard to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is expected to be permitted for annual reporting periods beginning after December 15, 2016, which was the original effective date. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying 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. This ASU intends to simplify the presentation of debt issuance costs. This standard will more closely align the presentation of debt issuance costs under U.S. 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 and interim periods 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 has determined there is no significant effect of the standard on its ongoing financial reporting.

In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2015. The Company has determined there is no significant effect of the standard on its ongoing financial reporting.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, 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 determined there is no significant effect of the standard on its ongoing financial reporting.

I-7

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(2) Cable and Satellite Television Distribution Rights, Net

Cable and satellite television distribution rights consisted of the following:

(in millions)	June 30, 2015			December 31, 2014
Cable and satellite television distribution rights	$	2,257		2,308
Less accumulated amortization	(1,848		)	(1,847	)
Cable and satellite television distribution rights, net	$	409		461

The Company recorded amortization expense of $48 million and $46 million for the three months ended June 30, 2015 and 2014, respectively, related to cable and satellite television distribution rights. For the six months ended June 30, 2015 and 2014, amortization expense for cable and satellite television distribution rights was $95 million and $93 million, respectively.

As of June 30, 2015, related amortization expense for each of the next five years ended December 31 was as follows (in millions):

Remainder of 2015	$	86
2016	171
2017	119
2018	12
2019	9

The decrease in future amortization expense in 2018 is primarily due to the end of affiliation agreement terms for contracts in place at the time of Liberty's acquisition of QVC in 2003.

(3) Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2015 were as follows:

(in millions)	QVC-U.S.			QVC-Germany		QVC-Japan		QVC-U.K.		QVC-Italy		Total
Balance as of December 31, 2014	$	4,190		308		253		203		137		5,091
Exchange rate fluctuations	—			(26	)	(7	)	2		(11	)	(42	)
Balance as of June 30, 2015	$	4,190		282		246		205		126		5,049

I-8

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(4) Other Intangible Assets, Net

Other intangible assets consisted of the following:

	June 30, 2015							December 31, 2014
(in millions)	Gross cost			Accumulated amortization		Other intangible assets, net		Gross cost		Accumulated amortization		Other intangible assets, net
Purchased and internally developed software	$	579		(394	)	185		568		(369	)	199
Affiliate and customer relationships	2,415			(2,034	)	381		2,428		(1,958	)	470
Debt origination fees	53			(10	)	43		60		(14	)	46
Trademarks (indefinite life)	2,428			—		2,428		2,428		—		2,428
	$	5,475		(2,438	)	3,037		5,484		(2,341	)	3,143

The Company recorded amortization expense of $65 million and $66 million for the three months ended June 30, 2015 and 2014, respectively, related to other intangible assets. For the six months ended June 30, 2015 and 2014, amortization expense for other intangible assets was $138 million and $130 million, respectively.

As of June 30, 2015, the related amortization and interest expense for each of the next five years ended December 31 was as follows (in millions):

Remainder of 2015	$	136
2016	259
2017	168
2018	20
2019	9

The decrease in future amortization expense in 2018 is primarily due to the end of the useful lives of the affiliate and customer relationships in place at the time of Liberty's acquisition of QVC in 2003.

(5) Accrued Liabilities

Accrued liabilities consisted of the following:

(in millions)	June 30, 2015			December 31, 2014
Accounts payable non-trade	$	173		200
Accrued compensation and benefits	103			110
Allowance for sales returns	80			109
Deferred revenue	76			85
Accrued interest	67			79
Income taxes	66			137
Sales and other taxes	49			83
Other	75			82
	$	689		885

I-9

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(6) Long-Term Debt

Long-term debt consisted of the following:

(in millions)	June 30, 2015			December 31, 2014
3.125% Senior Secured Notes due 2019, net of original issue discount	$	399		399
7.375% Senior Secured Notes due 2020	—			500
5.125% Senior Secured Notes due 2022	500			500
4.375% Senior Secured Notes due 2023, net of original issue discount	750			750
4.85% Senior Secured Notes due 2024, net of original issue discount	600			600
4.45% Senior Secured Notes due 2025, net of original issue discount	599			599
5.45% Senior Secured Notes due 2034, net of original issue discount	399			399
5.95% Senior Secured Notes due 2043, net of original issue discount	300			300
Senior secured credit facility	895			508
Capital lease obligations	74			74
Total debt	4,516			4,629
Less current portion	(9		)	(9	)
Long-term portion of debt and capital lease obligations	$	4,507		4,620

Senior Secured Notes

All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to the senior secured credit facility. The interest on all of QVC's senior secured notes is payable semi-annually.

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, the Company recorded an extinguishment loss in the condensed consolidated statements of operations of $21 million for the three and six month periods ended June 30, 2015.

Senior Secured Credit Facility

On March 9, 2015, QVC amended and restated its senior secured credit facility (the "Second Amended and Restated Credit Agreement"), 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 loans. 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 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 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 our senior secured credit facility to March 9, 2020 and lower the interest rate on borrowings.

QVC had $1.4 billion available under the terms of the senior secured credit facility at June 30, 2015. The interest rate on the senior secured credit facility was 1.6% at June 30, 2015.

I-10

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

The Second Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company 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 the Company’s consolidated leverage ratio, which is defined in QVC’s senior secured credit facility as the ratio of consolidated total debt to consolidated Adjusted OIBDA for the most recent four fiscal quarter period. The Company defines Adjusted OIBDA as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation).

Other Debt Related Information

QVC was in compliance with all of its debt covenants at June 30, 2015.

During the quarter, there were no significant changes to QVC's debt credit ratings.

The weighted average rate applicable to all of the outstanding debt (excluding capital leases) was 4.1% as of June 30, 2015.

(7) Leases and Transponder Service Arrangements

Future minimum payments under noncancelable operating leases and capital transponder leases with initial terms of one year or more at June 30, 2015 consisted of the following:

(in millions)	Capital transponders			Operating leases
Remainder of 2015	$	5		11
2016	11			19
2017	12			17
2018	13			15
2019	12			13
Thereafter	27			96
Total	$	80		171

The Company has entered into eleven separate capital lease agreements with transponder suppliers to transmit its signals in the U.S., Germany and France at an aggregate monthly cost of $1 million. Depreciation expense related to the transponders was $4 million and $3 million for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, depreciation expense related to the transponders was $7 million and $6 million, respectively. Total future minimum capital lease payments of $80 million include $6 million of imputed interest. The transponder service agreements for our U.S. transponders expire between 2019 and 2023. The transponder service agreements for our international transponders expire between 2019 and 2024.

Expenses for operating leases, principally for data processing equipment and facilities and for satellite uplink service agreements, amounted to $6 million and $7 million for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, expenses for operating leases were $12 million and $14 million, respectively.

I-11

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(8) Income Taxes

The Company calculates its interim income tax provision by applying its best estimate of the annual expected effective tax rate to its ordinary year-to-date income or loss. The tax or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on the prior quarters is included in the tax expense for the current quarter.

For the three months ended June 30, 2015, the Company recorded a tax provision of $85 million, which represented an effective tax rate of 40.7%. For the six months ended June 30, 2015, the Company recorded a tax provision of $157 million, which represented an effective tax rate of 38.8%. These rates differ from the U.S. federal income tax rate of 35.0% due primarily to state tax expense.

QVC is party to ongoing discussions with the Internal Revenue Service under the Compliance Assurance Process audit program. The Company files Federal tax returns on a consolidated basis with its parent company, Liberty. The Company, or one of its subsidiaries, files income tax returns in various states and foreign jurisdictions. As of June 30, 2015, the Company, or one of its subsidiaries, was under examination in California, New York State, New York City, Pennsylvania, and Virginia as well as in Germany, the U.K, and Italy.

The amounts of the tax-related balances due to Liberty at June 30, 2015 and December 31, 2014 were $10 million and $55 million, respectively, and were included in accrued liabilities in the accompanying condensed consolidated balance sheets.

The Company is a party to a Tax Liability Allocation and Indemnification Agreement (the “Tax Agreement”) with Liberty. The Tax Agreement establishes the methodology for the calculation and payment of income taxes in connection with the consolidation of the Company with Liberty for income tax purposes. Generally, the Tax Agreement provides that the Company will pay Liberty an amount equal to the tax liability, if any, that it would have if it were to file as a consolidated group separate and apart from Liberty, with exceptions for the treatment and timing of certain items, including but not limited to deferred intercompany transactions, credits, and net operating and capital losses. To the extent that the separate company tax expense is different from the payment terms of the Tax Agreement, the difference is recorded as either a dividend or capital contribution.

(9) Commitments and Contingencies

The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company 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 the amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

Network and information systems, including the Internet and telecommunication systems, third party delivery services and other technologies are critical to our business activities. Substantially all our customer orders, fulfillment and delivery services are dependent upon the use of network and information systems, including the use of third party telecommunication and delivery service providers. If information systems including the Internet or telecommunication services are disrupted, or if the third party delivery services experience a disruption in their transportation delivery services, we could face a significant disruption in fulfilling our customer orders and shipment of our products. We have active disaster recovery programs in place to help mitigate risks associated with these critical business activities.

I-12

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(10) Assets and Liabilities Measured at Fair Value

For assets and liabilities required to be reported or disclosed at fair value, U.S. 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, other than quoted market prices included within Level 1, 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 or disclosed at fair value were as follows:

				Fair value measurements at June 30, 2015 using
(in millions)	Total			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	356		356		—		—
Long-term liabilities:
Debt (note 6)	4,390			—		4,390		—

				Fair value measurements at December 31, 2014 using
(in millions)	Total			Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Current assets:
Cash equivalents	$	245		245		—		—
Long-term liabilities:
Debt (note 6)	4,626			—		4,626		—

The majority of the Company's Level 2 financial liabilities are debt instruments with quoted market prices that are not considered to be traded on "active markets," as defined in U.S. GAAP. Accordingly, the financial instruments are reported in the foregoing tables as Level 2 fair value instruments.

I-13

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(11) Information about QVC's Operating Segments

Each of the Company's operating segments are retailers of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised-shopping programs as well as via the Internet and mobile applications in certain markets. The Company has identified six reportable operating segments: the United States, Germany, Japan, the United Kingdom, Italy and France.

The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as net revenue, Adjusted OIBDA, gross margin, average sales price per unit, number of units shipped and revenue or sales per subscriber equivalent. The Company defines Adjusted OIBDA as revenue less cost of goods sold, operating expenses, and selling, general and administrative expenses (excluding stock-based compensation). The Company believes this measure is an important indicator of the operational strength and performance of its segments, including the ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking among our businesses and identify strategies to improve performance. This measure of performance excludes depreciation, amortization and stock-based compensation, that are included in the measurement of operating income pursuant to U.S. 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 U.S. GAAP.

Performance measures

	Three months ended June 30,										Six months ended June 30,
	2015					2014					2015				2014
(in millions)	Net revenue			Adjusted OIBDA		Net revenue		Adjusted OIBDA			Net revenue		Adjusted OIBDA		Net revenue		Adjusted OIBDA
QVC-U.S.	$	1,406		349		1,352		325			2,748		655		2,657		626
QVC-Germany	191			35		227		40			403		74		477		79
QVC-Japan	199			37		223		43			398		76		457		90
QVC-U.K.	173			35		178		33			329		63		343		60
QVC-Italy	29			(1	)	34		(2	)		58		(3	)	66		(4	)
QVC-France	—			(6	)	—		—			—		(9	)	—		—
Consolidated QVC	$	1,998		449		2,014		439			3,936		856		4,000		851

Net revenue amounts by product category are not available from our general purpose financial statements.

Other information

	Three months ended June 30,										Six months ended June 30,
	2015					2014					2015				2014
(in millions)	Depreciation			Amortization		Depreciation		Amortization			Depreciation		Amortization		Depreciation		Amortization
QVC-U.S.	$	16		100		14		99			32		206		27		192
QVC-Germany	6			8		8		8			13		16		16		19
QVC-Japan	5			2		4		2			10		4		9		4
QVC-U.K.	5			3		4		3			8		6		8		7
QVC-Italy	3			—		3		—			5		1		6		1
Consolidated QVC	$	35		113		33		112			68		233		66		223

I-14

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

	June 30, 2015					December 31, 2014
(in millions)	Total assets			Capital expenditures, net		Total assets		Capital expenditures, net
QVC-U.S.	$	9,811		60		10,133		141
QVC-Germany	834			3		915		10
QVC-Japan	606			1		644		2
QVC-U.K.	543			4		537		16
QVC-Italy	216			1		245		12
QVC-France	15			10		2		1
Consolidated QVC	$	12,025		79		12,476		182

Long-lived assets, net of accumulated depreciation, by geographic area were as follows:

(in millions)	June 30, 2015			December 31, 2014
QVC-U.S.	$	463		463
QVC-Germany	183			209
QVC-Japan	161			176
QVC-U.K.	116			120
QVC-Italy	49			57
QVC-France	10			1
Consolidated QVC	$	982		1,026

The following table provides a reconciliation of Adjusted OIBDA to income before income taxes:

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
Adjusted OIBDA	$	449		439		856		851
Stock-based compensation	(7		)	(10	)	(15	)	(18	)
Depreciation and amortization	(148		)	(145	)	(301	)	(289	)
Equity in losses of investee	(3		)	(2	)	(4	)	(3	)
Interest expense, net	(50		)	(60	)	(109	)	(122	)
Foreign currency (loss) gain	(11		)	1		(1	)	—
Loss on extinguishment of debt	(21		)	—		(21	)	—
Income before income taxes	$	209		223		405		419

I-15

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(12) Other Comprehensive (Loss) Income

The change in the component of accumulated other comprehensive (loss) income, net of taxes ("AOCI"), is summarized as follows:

(in millions)	Foreign currency translation adjustments			AOCI
Balance at January 1, 2015	$	(39	)	(39	)
Other comprehensive loss attributable to QVC, Inc. stockholder	(77		)	(77	)
Balance at June 30, 2015	(116		)	(116	)
Balance at January 1, 2014	$	139		139
Other comprehensive income attributable to QVC, Inc. stockholder	15			15
Balance at June 30, 2014	154			154

The component of other comprehensive income is reflected in QVC's condensed consolidated statements of comprehensive income, net of taxes. The following table summarizes the tax effects related to the component of other comprehensive income:

(in millions)	Before-tax amount			Tax benefit (expense)		Net-of-tax amount
Three months ended June 30, 2015:
Foreign currency translation adjustments	$	48		(26	)	22
Other comprehensive income	48			(26	)	22
Three months ended June 30, 2014:
Foreign currency translation adjustments	$	2		—		2
Other comprehensive income	2			—		2
Six months ended June 30, 2015:
Foreign currency translation adjustments	$	(80	)	—		(80	)
Other comprehensive loss	(80		)	—		(80	)
Six months ended June 30, 2014:
Foreign currency translation adjustments	$	21		(3	)	18
Other comprehensive income	21			(3	)	18

I-16

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(13) Subsequent Events

Dividends paid to Liberty

QVC declared and paid dividends to Liberty in the amount of $233 million subsequent to June 30, 2015.

New West Coast Distribution Center

On July 2, 2015, QVC entered into a lease (the “Lease”) for a new distribution center. Pursuant to the Lease, the landlord will build an approximately one million square foot rental building in Ontario, California (the “Premises”), and thereafter lease the Premises to QVC as its new west coast distribution center for an initial term of 15 years. Under the Lease, QVC is required to pay an initial base rent of approximately $6 million a year, increasing to approximately $8 million a year by the final year of the initial term, as well as all real estate taxes and other building operating costs. QVC also has an option to extend the term of the Lease for up to two consecutive terms of ten years each.

The Lease has escalating rental payments and initial periods of free rent. The aggregate future minimum lease payments are approximately $96 million and are currently estimated to be paid, beginning in July 2015, as follows: $472 thousand for 2015, $0 for 2016, $5 million for 2017, $6 million for 2018, $6 million for 2019 and $79 million for 2020 and thereafter in the aggregate. QVC has the right to obtain the Premises and related land from the landlord by entering into an amended and restated lease at any time during the twenty-fifth or twenty-sixth months of the Lease's initial term with a $10 million initial payment and annual payments of $12 million over a term of 13 years.

We have concluded that we are the deemed owner (for accounting purposes only) of the Premises during the construction period under build to suit lease accounting. Building construction began in July of 2015. During the construction period, we will be recording estimated project construction costs incurred by the landlord as a construction-in-progress asset and a corresponding long-term liability in “Property and equipment, net” and “Other long-term liabilities,” respectively, on our consolidated balance sheet. In addition, the Company will pay for normal tenant improvements and certain structural improvements and will record these amounts as part of the construction-in-progress asset.

Once the landlord completes the construction of the Premises (estimated to be mid 2016), we will evaluate the Lease in order to determine whether the Lease meets the criteria for “sale-leaseback” treatment under U.S. GAAP. If the Lease meets the “sale-leaseback” criteria, we will remove the asset and the related liability from our consolidated balance sheet and treat the Lease as either an operating or capital lease based on the our assessment of the accounting guidance. However, we currently expect that upon completion of construction of the Premises that the Lease will not meet the "sale-leaseback" criteria.

If the Lease does not meet “sale-leaseback” criteria, we will treat the Lease as a financing obligation and lease payments will be attributed to: (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense representing an imputed cost to lease the underlying land of the Premises. In addition, the building asset will be depreciated over its estimated useful life. Although we will not begin making monthly lease payments pursuant to the Lease until February 2017, the portion of the lease obligations allocated to the land will be treated for accounting purposes as an operating lease that commenced in 2015. If the Company does not exercise its right to obtain the Premises and related land, the Company will derecognize both the net book values of the asset and the financing obligation at the conclusion of the lease term.

I-17

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

(14) Guarantor/Non-guarantor Subsidiary Financial Information

The following information contains the condensed consolidating financial statements for the Company, the parent on a stand-alone basis (QVC, Inc.), the combined subsidiary guarantors (Affiliate Relations Holdings, Inc.; Affiliate Investment, Inc.; AMI 2, Inc.; ER Marks, Inc.; QVC International Ltd; QVC Rocky Mount, Inc.; and QVC San Antonio, LLC) and the combined non-guarantor subsidiaries pursuant to Rule 3-10 of Regulation S-X. Certain non-guarantor subsidiaries are majority-owned by QVC International Ltd, which is a guarantor subsidiary.

These condensed consolidating financial statements have been prepared from the Company's financial information on the same basis of accounting as the Company's condensed consolidated financial statements. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, such as management fees, royalty revenue and expense, interest income and expense and gains on intercompany asset transfers. In the fourth quarter of 2014 the Company revised the presentation of intercompany management expense (income) and prior period amounts have been reclassified to conform with the current period presentation. Goodwill and other intangible assets have been allocated to the subsidiaries based on management’s estimates. Certain costs have been partially allocated to all of the subsidiaries of the Company.

During the three months ended June 30, 2014, an intangible asset held by certain non-guarantor subsidiaries was sold to QVC, Inc. resulting in a gain of $20 million reflected in intercompany interest and other income for the non-guarantor subsidiaries and also included in equity in earnings of subsidiaries for the subsidiary guarantors. The gain is eliminated in the eliminations column. The impact of these earnings has been eliminated in the presentation of intangible assets and equity in earnings of subsidiaries of the parent company.

The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors, by dividend or loan. The Company has not presented separate notes and other disclosures concerning the subsidiary guarantors as the Company has determined that such material information is available in the notes to the Company's condensed consolidated financial statements.

I-18

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets

June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	52		183		210		—		445
Restricted cash	10			—		2		—		12
Accounts receivable, net	558			—		241		—		799
Inventories	727			—		237		—		964
Deferred income taxes	175			—		35		—		210
Prepaid expenses	26			—		31		—		57
Total current assets	1,548			183		756		—		2,487
Property and equipment, net	275			68		639		—		982
Cable and satellite television distribution rights, net	—			354		55		—		409
Goodwill	4,191			—		858		—		5,049
Other intangible assets, net	935			2,051		51		—		3,037
Other noncurrent assets	6			—		55		—		61
Investments in subsidiaries	3,695			1,129		1,354		(6,178	)	—
Total assets	$	10,650		3,785		3,768		(6,178	)	12,025
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	3		—		6		—		9
Accounts payable-trade	336			—		230		—		566
Accrued liabilities	138			145		406		—		689
Intercompany accounts payable (receivable)	437			1,341		(1,778	)	—		—
Total current liabilities	914			1,486		(1,136	)	—		1,264
Long-term portion of debt and capital lease obligations	4,456			—		51		—		4,507
Deferred compensation	13			—		—		—		13
Deferred income taxes	259			857		(37	)	—		1,079
Other long-term liabilities	113			—		57		—		170
Total liabilities	5,755			2,343		(1,065	)	—		7,033
Equity:
QVC, Inc. stockholder's equity	4,895			1,442		4,736		(6,178	)	4,895
Noncontrolling interest	—			—		97		—		97
Total equity	4,895			1,442		4,833		(6,178	)	4,992
Total liabilities and equity	$	10,650		3,785		3,768		(6,178	)	12,025

I-19

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Balance Sheets

December 31, 2014
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Assets
Current assets:
Cash and cash equivalents	$	2		123		222		—		347
Restricted cash	10			—		2		—		12
Accounts receivable, net	909			—		287		—		1,196
Inventories	680			—		202		—		882
Deferred income taxes	192			—		18		—		210
Prepaid expenses	25			—		25		—		50
Total current assets	1,818			123		756		—		2,697
Property and equipment, net	273			68		685		—		1,026
Cable and satellite television distribution rights, net	—			388		73		—		461
Goodwill	4,184			—		907		—		5,091
Other intangible assets, net	1,023			2,051		69		—		3,143
Other noncurrent assets	1			—		57		—		58
Investments in subsidiaries	4,681			1,386		—		(6,067	)	—
Total assets	$	11,980		4,016		2,547		(6,067	)	12,476
Liabilities and equity
Current liabilities:
Current portion of debt and capital lease obligations	$	2		—		7		—		9
Accounts payable-trade	420			—		209		—		629
Accrued liabilities	282			143		460		—		885
Intercompany accounts payable (receivable)	1,384			(921	)	(463	)	—		—
Total current liabilities	2,088			(778	)	213		—		1,523
Long-term portion of debt and capital lease obligations	4,565			—		55		—		4,620
Deferred compensation	16			—		1		—		17
Deferred income taxes	269			877		(25	)	—		1,121
Other long-term liabilities	99			—		50		—		149
Total liabilities	7,037			99		294		—		7,430
Equity:
QVC, Inc. stockholder's equity	4,943			3,917		2,150		(6,067	)	4,943
Noncontrolling interest	—			—		103		—		103
Total equity	4,943			3,917		2,253		(6,067	)	5,046
Total liabilities and equity	$	11,980		4,016		2,547		(6,067	)	12,476

I-20

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations

Three months ended June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,432		220		640		(294	)	1,998
Cost of goods sold	856			23		382		(27	)	1,234
Gross profit	576			197		258		(267	)	764
Operating expenses:
Operating	98			61		89		(73	)	175
Selling, general and administrative, including stock-based compensation	260			—		81		(194	)	147
Depreciation	11			1		23		—		35
Amortization	60			41		12		—		113
	429			103		205		(267	)	470
Operating income	147			94		53		—		294
Other (expense) income:
Equity in losses of investee	—			—		(3	)	—		(3	)
Interest expense, net	(49		)	—		(1	)	—		(50	)
Foreign currency (loss) gain	(7		)	(13	)	9		—		(11	)
Loss on extinguishment of debt	(21		)	—		—		—		(21	)
Intercompany interest (expense) income	—			(20	)	20		—		—
	(77		)	(33	)	25		—		(85	)
Income before income taxes	70			61		78		—		209
Income tax expense	(14		)	(38	)	(33	)	—		(85	)
Equity in earnings of subsidiaries, net of tax	68			28		47		(143	)	—
Net income	124			51		92		(143	)	124
Less net income attributable to the noncontrolling interest	(8		)	—		(8	)	8		(8	)
Net income attributable to QVC, Inc. stockholder	$	116		51		84		(135	)	116

I-21

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations

Three months ended June 30, 2014
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	1,388		199		719		(292	)	2,014
Cost of goods sold	850			23		432		(55	)	1,250
Gross profit	538			176		287		(237	)	764
Operating expenses:
Operating	82			57		100		(59	)	180
Selling, general and administrative, including stock-based compensation	243			—		90		(178	)	155
Depreciation	10			1		22		—		33
Amortization	58			38		16		—		112
	393			96		228		(237	)	480
Operating income	145			80		59		—		284
Other (expense) income:
Equity in losses of investee	—			—		(2	)	—		(2	)
Interest expense, net	(60		)	—		—		—		(60	)
Foreign currency (loss) gain	(1		)	—		2		—		1
Intercompany interest (expense) income	(5		)	13		12		(20	)	—
	(66		)	13		12		(20	)	(61	)
Income before income taxes	79			93		71		(20	)	223
Income tax expense	(27		)	(28	)	(28	)	—		(83	)
Equity in earnings of subsidiaries, net of tax	88			29		—		(117	)	—
Net income	140			94		43		(137	)	140
Less net income attributable to the noncontrolling interest	(10		)	—		(10	)	10		(10	)
Net income attributable to QVC, Inc. stockholder	$	130		94		33		(127	)	130

I-22

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations

Six months ended June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	2,812		422		1,297		(595	)	3,936
Cost of goods sold	1,715			48		768		(76	)	2,455
Gross profit	1,097			374		529		(519	)	1,481
Operating expenses:
Operating	199			118		178		(152	)	343
Selling, general and administrative, including stock-based compensation	502			—		162		(367	)	297
Depreciation	21			4		43		—		68
Amortization	119			81		33		—		233
	841			203		416		(519	)	941
Operating income	256			171		113		—		540
Other (expense) income:
Equity in losses of investee	—			—		(4	)	—		(4	)
Interest expense, net	(107		)	—		(2	)	—		(109	)
Foreign currency gain (loss)	5			(13	)	7		—		(1	)
Loss on extinguishment of debt	(21		)	—		—		—		(21	)
Intercompany interest (expense) income	(6		)	(9	)	15		—		—
	(129		)	(22	)	16		—		(135	)
Income before income taxes	127			149		129		—		405
Income tax expense	(40		)	(63	)	(54	)	—		(157	)
Equity in earnings of subsidiaries, net of tax	161			39		47		(247	)	—
Net income	248			125		122		(247	)	248
Less net income attributable to the noncontrolling interest	(17		)	—		(17	)	17		(17	)
Net income attributable to QVC, Inc. stockholder	$	231		125		105		(230	)	231

I-23

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Operations

Six months ended June 30, 2014
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net revenue	$	2,731		390		1,451		(572	)	4,000
Cost of goods sold	1,692			48		878		(112	)	2,506
Gross profit	1,039			342		573		(460	)	1,494
Operating expenses:
Operating	161			113		201		(117	)	358
Selling, general and administrative, including stock-based compensation	466			(1	)	181		(343	)	303
Depreciation	19			3		44		—		66
Amortization	110			77		36		—		223
	756			192		462		(460	)	950
Operating income	283			150		111		—		544
Other (expense) income:
Equity in losses of investee	—			—		(3	)	—		(3	)
Interest expense, net	(113		)	—		(9	)	—		(122	)
Foreign currency (loss) gain	(3		)	—		3		—		—
Intercompany interest (expense) income	(10		)	26		4		(20	)	—
	(126		)	26		(5	)	(20	)	(125	)
Income before income taxes	157			176		106		(20	)	419
Income tax expense	(7		)	(52	)	(98	)	—		(157	)
Equity in earnings of subsidiaries, net of tax	112			(19	)	—		(93	)	—
Net income	262			105		8		(113	)	262
Less net income attributable to the noncontrolling interest	(19		)	—		(19	)	19		(19	)
Net income attributable to QVC, Inc. stockholder	$	243		105		(11	)	(94	)	243

I-24

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Comprehensive Income

Three months ended June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	124		51		92		(143	)	124
Foreign currency translation adjustments	22			—		22		(22	)	22
Total comprehensive income	146			51		114		(165	)	146
Comprehensive income attributable to noncontrolling interest	(6		)	—		(6	)	6		(6	)
Comprehensive income attributable to QVC, Inc. stockholder	$	140		51		108		(159	)	140

Condensed Consolidating Statements of Comprehensive Income

Three months ended June 30, 2014
(in millions)	Subsidiary issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	140		94		43		(137	)	140
Foreign currency translation adjustments	2			—		2		(2	)	2
Total comprehensive income	142			94		45		(139	)	142
Comprehensive income attributable to noncontrolling interest	(10		)	—		(10	)	10		(10	)
Comprehensive income attributable to QVC, Inc. stockholder	$	132		94		35		(129	)	132

I-25

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Comprehensive Income

Six months ended June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	248		125		122		(247	)	248
Foreign currency translation adjustments	(80		)	—		(80	)	80		(80	)
Total comprehensive income	168			125		42		(167	)	168
Comprehensive income attributable to noncontrolling interest	(14		)	—		(14	)	14		(14	)
Comprehensive income (loss) attributable to QVC, Inc. stockholder	$	154		125		28		(153	)	154

Condensed Consolidating Statements of Comprehensive Income

Six months ended June 30, 2014
(in millions)	Subsidiary issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Net income	$	262		105		8		(113	)	262
Foreign currency translation adjustments	18			—		18		(18	)	18
Total comprehensive income	280			105		26		(131	)	280
Comprehensive income attributable to noncontrolling interest	(22		)	—		(22	)	22		(22	)
Comprehensive income attributable to QVC, Inc. stockholder	$	258		105		4		(109	)	258

I-26

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2015
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	352		166		87		—		605
Investing activities:
Capital expenditures, net	(55		)	(5	)	(19	)	—		(79	)
Expenditures for cable and satellite television distribution rights, net	—			(45	)	—		—		(45	)
Changes in other noncurrent assets	(1		)	—		(2	)	—		(3	)
Intercompany investing activities	1,147			296		(1,307	)	(136	)	—
Net cash provided by (used in) investing activities	1,091			246		(1,328	)	(136	)	(127	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,212		)	—		(4	)	—		(1,216	)
Principal borrowings of debt from senior secured credit facility	1,098			—		—		—		1,098
Payment of debt origination fees	(3		)	—		—		—		(3	)
Payment of bond premium fees	(18		)	—		—		—		(18	)
Other financing activities	(1		)	—		—		—		(1	)
Dividends paid to Liberty	(210		)	—		—		—		(210	)
Dividends paid to noncontrolling interest	—			—		(20	)	—		(20	)
Net short-term intercompany debt (repayments) borrowings	(947		)	2,262		(1,315	)	—		—
Other intercompany financing activities	(100		)	(2,614	)	2,578		136		—
Net cash (used in) provided by financing activities	(1,393		)	(352	)	1,239		136		(370	)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—		(10	)	—		(10	)
Net increase (decrease) in cash and cash equivalents	50			60		(12	)	—		98
Cash and cash equivalents, beginning of period	2			123		222		—		347
Cash and cash equivalents, end of period	$	52		183		210		—		445

I-27

---

QVC, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

(unaudited)

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2014
(in millions)	Parent issuer- QVC, Inc.			Combined subsidiary guarantors		Combined non-guarantor subsidiaries		Eliminations		Consolidated- QVC, Inc. and subsidiaries
Operating activities:
Net cash provided by operating activities	$	217		172		160		—		549
Investing activities:
Capital expenditures, net	(74		)	(1	)	38		(20	)	(57	)
Expenditures for cable and satellite television distribution rights, net	—			(8	)	—		—		(8	)
Intercompany investing activities	114			27		—		(141	)	—
Net cash provided by investing activities	40			18		38		(161	)	(65	)
Financing activities:
Principal payments of debt and capital lease obligations	(1,414		)	—		(5	)	—		(1,419	)
Principal borrowings of debt from senior secured credit facility	554			—		—		—		554
Proceeds from issuance of senior secured notes, net of original issue discount	999			—		—		—		999
Payment of debt origination fees	(12		)	—		—		—		(12	)
Other financing activities	(4		)	—		—		—		(4	)
Dividends paid to Liberty	(480		)	—		—		—		(480	)
Dividends paid to noncontrolling interest	—			—		(25	)	—		(25	)
Net short-term intercompany debt borrowings (repayments)	65			65		(130	)	—		—
Other intercompany financing activities	(25		)	(226	)	90		161		—
Net cash used in financing activities	(317		)	(161	)	(70	)	161		(387	)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—		(6	)	—		(6	)
Net (decrease) increase in cash and cash equivalents	(60		)	29		122		—		91
Cash and cash equivalents, beginning of period	78			133		246		—		457
Cash and cash equivalents, end of period	$	18		162		368		—		548

I-28

---

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; international expansion including the launch of QVC-France; new service offerings; revenue growth and subscriber trends; the recoverability of our goodwill and other long-lived assets; our projected sources and uses of cash and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:

•	customer demand for our products and services and our ability to adapt to changes in demand;

•	competitor responses to our products and services;

•	increased digital TV penetration and the impact on channel positioning of our programs;

•	the levels of online traffic on our websites and our ability to convert visitors into consumers or contributors;

•	uncertainties inherent in the development and integration of new business lines and business strategies;

•	our future financial performance, including availability, terms and deployment of capital;

•	our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;

•	the ability of suppliers and vendors to deliver products, equipment, software and services;

•	the outcome of any pending or threatened litigation;

•	availability of qualified personnel;

•	changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;

•	changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors;

•	domestic and international economic and business conditions and industry trends;

•	consumer spending levels, including the availability and amount of individual consumer debt;

•	advertising spending levels;

•	changes in distribution and viewing of television programming, including the expanded deployment of personal video recorders, video on demand and IP television and their impact on home shopping programming;

•	rapid technological changes;

•	failure to protect the security of personal information, subjecting us to potentially costly government enforcement actions and/or private litigation and reputational damage;

•	the regulatory and competitive environment of the industries in which we operate;

•	threatened terrorist attacks, political unrest in international markets and ongoing military action around the world;

•	fluctuations in foreign currency exchange rates; and

•	Liberty Interactive Corporation's ("Liberty") dependence on our cash flow for servicing its debt and for other purposes.

I-29

---

For additional risk factors, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

QVC, Inc. (unless otherwise indicated or required by the context, the terms "we," "our," "us," the "Company" and "QVC" refer to QVC, Inc. and its consolidated subsidiaries) is a retailer of a wide range of consumer products, which are marketed and sold primarily by merchandise-focused televised shopping programs, the Internet and mobile applications. In the United States, QVC's live programming is distributed via its nationally televised shopping program 24 hours per day, 364 days per year ("QVC-U.S."). Internationally, QVC's program services are based in Germany ("QVC-Germany"), Japan ("QVC-Japan"), the United Kingdom ("QVC-U.K.") and Italy ("QVC-Italy"). QVC-Germany distributes its program 24 hours per day with 17 hours of live programming, QVC-Japan distributes live programming 24 hours per day, and QVC-U.K. distributes its program 24 hours per day with 16 hours of live programming. Effective March 9, 2015, QVC-U.K. reduced its total live programming from 17 hours to 16 hours by distributing recorded programming during the 1am to 2am hour. QVC-Italy distributes programming live for 17 hours per day on satellite and digital terrestrial television and an additional seven hours per day of recorded programming on satellite and seven hours per day of general interest programming on digital terrestrial television.

The Company's Japanese operations are conducted through a joint venture with Mitsui & Co., LTD ("Mitsui") for a television and multimedia retailing service in Japan. QVC-Japan is owned 60% by the Company and 40% by Mitsui. The Company and Mitsui share in all profits and losses based on their respective ownership interests. During the six months ended June 30, 2015 and 2014, QVC-Japan paid dividends to Mitsui of $20 million and $25 million, respectively.

The Company also has a joint venture with CNR Media Group, formerly known as China Broadcasting Corporation, a limited liability company owned by China National Radio (''CNR''). The Company owns a 49% interest in a CNR subsidiary, CNR Home Shopping Co., Ltd. (''CNRS''). CNRS operates a retail business in China through a shopping television channel with an associated website. Live programming is distributed for 17 hours per day and recorded programming for seven hours per day. This joint venture is accounted for as an equity method investment recorded as equity in losses of investee in the condensed consolidated statements of operations.

On April 16, 2014, QVC announced plans to expand its global presence into France ("QVC-France"). Similar to its other markets, QVC plans to offer a highly immersive digital shopping experience, with strong integration across e-commerce, TV, mobile and social platforms. QVC-France launched its website on June 23, 2015 with the launch of live programming in August 2015.

We are an indirect wholly owned subsidiary of Liberty, which owns interests in a broad range of digital commerce businesses. On October 3, 2014, we declared and paid a dividend in cash to Liberty in the amount of $1 billion with funds drawn from the Company's credit facility. Additionally, Liberty reattributed from the Interactive Group to the Ventures Group $970 million in cash and certain of its digital commerce companies, including Backcountry.com, Inc., Bodybuilding.com, LLC, CommerceHub, Provide Commerce, Inc., Evite, Inc. and LMC Right Start, Inc. As a result of these transactions, the Interactive Group is now referred to as the QVC Group, which tracks our Company and Liberty's 38% equity interest in HSN, Inc., one of our two closest televised shopping competitors, along with cash and certain liabilities. 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. Effective June 4, 2015, the name of the “Liberty Interactive common stock” was changed to the “QVC Group common stock.”

I-30

---

Strategies and challenges of business units

QVC's goal is to become the preeminent global multimedia shopping community for people who love to shop, and to offer a shopping experience that is as much about entertainment and enrichment as it is about buying. QVC's objective is to provide an integrated shopping experience that utilizes all forms of media including television, the Internet and mobile devices. QVC intends to employ several strategies to achieve these goals and objectives. Among these strategies are to (i) extend the breadth, relevance and exposure of the QVC brand; (ii) source products that represent unique quality and value; (iii) create engaging presentation content in televised programming, mobile and online; (iv) leverage customer loyalty and continue multi-platform expansion; and (v) create a compelling and differentiated customer experience. In addition, QVC expects to expand globally by leveraging its existing systems, infrastructure and skills in other countries around the world.

QVC's future net revenue growth will primarily depend on international expansion, sales growth from e-commerce and mobile platforms, additions of new customers from households already receiving QVC's television programming and increased spending from existing customers. QVC's future net revenue may also be affected by (i) the willingness of cable television and direct-to-home satellite system operators to continue carrying QVC's programming service; (ii) QVC's ability to maintain favorable channel positioning, which may become more difficult due to governmental action or from distributors converting analog customers to digital; (iii) changes in television viewing habits because of personal video recorders, video-on-demand and Internet video services; and (iv) general economic conditions.

The prolonged economic uncertainty in various regions of the world in which our subsidiaries and affiliates operate could adversely affect demand for our products and services since a substantial portion of our revenue is derived from discretionary spending by individuals, which typically falls during times of economic instability. Global financial markets continue to experience disruptions, including increased volatility and diminished liquidity and credit availability. If economic and financial market conditions in the U.S. or other key markets, including Japan and Europe, remain uncertain, persist, or deteriorate further, our customers may respond by suspending, delaying, or reducing their discretionary spending. A suspension, delay or reduction in discretionary spending could adversely affect revenue. Accordingly, our ability to increase or maintain revenue and earnings could be adversely affected to the extent that relevant economic environments remain weak or decline. Such weak economic conditions may also inhibit our expansion into new European and other markets. We currently are unable to predict the extent of any of these potential adverse effects.

I-31

---

Results of Operations

QVC's operating results were as follows:

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
Net revenue	$	1,998		2,014		3,936		4,000
Costs of goods sold	1,234			1,250		2,455		2,506
Gross profit	764			764		1,481		1,494
Operating expenses:
Operating	175			180		343		358
Selling, general and administrative, excluding stock-based compensation	140			145		282		285
Adjusted OIBDA	449			439		856		851
Stock-based compensation	7			10		15		18
Depreciation	35			33		68		66
Amortization	113			112		233		223
Operating income	294			284		540		544
Other (expense) income:
Equity in losses of investee	(3		)	(2	)	(4	)	(3	)
Interest expense, net	(50		)	(60	)	(109	)	(122	)
Foreign currency (loss) gain	(11		)	1		(1	)	—
Loss on extinguishment of debt	(21		)	—		(21	)	—
	(85		)	(61	)	(135	)	(125	)
Income before income taxes	209			223		405		419
Income tax expense	(85		)	(83	)	(157	)	(157	)
Net income	124			140		248		262
Less net income attributable to the noncontrolling interest	(8		)	(10	)	(17	)	(19	)
Net income attributable to QVC, Inc. stockholder	$	116		130		231		243

Net revenue

Net revenue was generated in the following geographical areas:

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
QVC-U.S.	$	1,406		1,352		2,748		2,657
QVC-Germany	191			227		403		477
QVC-Japan	199			223		398		457
QVC-U.K.	173			178		329		343
QVC-Italy	29			34		58		66
Consolidated QVC	$	1,998		2,014		3,936		4,000

I-32

---

QVC's consolidated net revenue decreased 0.8% and 1.6% for the three and six month periods ended June 30, 2015 as compared to the corresponding periods in the prior year. The three month decrease in net revenue of $16 million was primarily comprised of $108 million in unfavorable foreign currency rates in all countries, an increase in estimated product returns of $28 million primarily in the U.S. and Germany and a decrease in shipping and handling revenue of $26 million primarily in the U.S. These amounts were partially offset by $74 million due to a 3.3% increase in units sold and $74 million due to a 3.1% increase in the consolidated average selling price per unit ("ASP"). The six month decrease in net revenue of $64 million was primarily comprised of $205 million in unfavorable foreign currency rates in all countries, an increase in estimated product returns of $54 million primarily in the U.S. and Germany, a decrease in shipping and handling revenue of $35 million and a decrease in retail and outlet store revenues of $3 million primarily in the U.S. These amounts were partially offset by $140 million due to a 3.1% increase in units sold and $95 million due to a 2.0% increase in the consolidated ASP.

For both the three and six month periods ended June 30, 2015, the increase in estimated product returns in the U.S. and Germany was primarily due to the sales increases and a shift in the product mix to apparel which return at a higher rate. As expected, shipping and handling revenue decreased in the U.S. as a result of the Company's new shipping and handling pricing which became effective February 2, 2015 that provides for changes in standard shipping rates and a change in QVC’s shipping and handling refund policy.

During the three and six month periods ended June 30, 2015, the changes in revenue and expenses were affected by changes in the exchange rates for the Japanese Yen, the Euro and the U.K. Pound Sterling. In the event the U.S. Dollar continues to strengthen against these foreign currencies in the future, QVC's revenue and operating cash flow will be negatively affected.

The percentage increase (decrease) in net revenue for each of QVC's geographic areas in U.S. Dollars and in local currency was as follows:

	Three months ended June 30, 2015				Six months ended June 30, 2015
	U.S. Dollars		Local currency		U.S. Dollars		Local currency
QVC-U.S.	4.0	%	4.0	%	3.4	%	3.4	%
QVC-Germany	(15.9	)%	4.4	%	(15.5	)%	3.8	%
QVC-Japan	(10.8	)%	6.3	%	(12.9	)%	2.2	%
QVC-U.K.	(2.8	)%	6.6	%	(4.1	)%	5.1	%
QVC-Italy	(14.7	)%	4.2	%	(12.1	)%	6.6	%

QVC-U.S. net revenue growth for the three and six month periods ended June 30, 2015 was primarily due to a 4.0% and 3.6% increase in units shipped and a 2.6% and 2.0% increase in ASP, offset by the increase in estimated product returns and lower shipping and handling revenue as discussed in the above paragraph. For both the three and six month periods ended June 30, 2015, QVC-U.S. and QVC-Germany experienced shipped sales growth in local currency primarily in the home and apparel categories. Both markets experienced softness in electronics and an increase in estimated product returns, as discussed in the paragraph above. For the three months ended June 30, 2015, QVC-Japan's shipped sales in local currency increased in home, jewelry, beauty and accessories partially offset by declines in apparel and electronics. For the six months ended June 30, 2015, QVC-Japan's shipped sales in local currency increased in home, beauty and electronics partially offset by declines in apparel, accessories and jewelry. For the three and six month periods ended June 30, 2015, QVC-U.K.'s shipped sales growth in local currency increased primarily in the home and jewelry categories. For both the three and six month periods ended June 30, 2015, QVC-Italy's shipped sales growth in local currency increased primarily in the beauty and apparel categories.

Gross profit

QVC's gross profit percentage was 38.2% and 37.6% for the three and six month periods ended June 30, 2015, respectively, compared to 37.9% and 37.4% for the three and six month periods ended June 30, 2014. For both the three and six month periods ended June 30, 2015, the gross profit percentages increased primarily due to improved product margins in the U.S.

I-33

---

Operating expenses

QVC's operating expenses are principally comprised of commissions, order processing and customer service expenses, credit card processing fees, telecommunications expenses and production costs. Operating expenses decreased $5 million or 2.8% and decreased $15 million or 4.2% for the three and six month periods ended June 30, 2015, respectively.

For the three months ended June 30, 2015, operating expenses decreased due to foreign currency exchange rate impacts of $12 million, partially offset by a $5 million increase in commissions and a $2 million increase in credit card processing fees. For the six months ended June 30, 2015, operating expenses decreased due to foreign currency exchange rate impacts of $23 million, partially offset by a $5 million increase in commissions and a $4 million increase in credit card processing fees.

For both the three and six month periods ended June 30, 2015, the increase in commission expenses was primarily due to increased sales in the U.S. and higher programming distribution expenses in Japan. The increase in credit card processing fees was primarily due to the U.S. sales increase.

Selling, general and administrative expenses (excluding stock-based compensation)

QVC's SG&A expenses include personnel, information technology, provision for doubtful accounts, credit card income and marketing and advertising expenses. Such expenses decreased $5 million and $3 million for the three and six month periods ended June 30, 2015. SG&A expenses as a percent of net revenue decreased from 7.2% to 7.0% and increased from 7.1% to 7.2% for the three and six month periods ended June 30, 2015, respectively, as compared to the three and six month periods ended June 30, 2014.

For the three months ended June 30, 2015, the decrease was primarily due to the impact of foreign currency exchange rates of $11 million, a $5 million decrease in the provision for doubtful accounts, a $5 million decrease in outside services and a $4 million increase in credit card income, offset by an increase of $20 million in personnel costs. For the six months ended June 30, 2015, the decrease was primarily due to the impact of foreign currency exchange rates of $21 million, a $9 million increase in credit card income, a $5 million decrease in the provision for doubtful accounts, and a $3 million decrease in outside services, offset by an increase of $34 million in personnel costs.

For both the three and six month periods ended June 30, 2015 the decrease in the provision for doubtful accounts was primarily in the U.S. and Germany due to improved Easy-Pay collections and a mix shift away from electronic Easy-Pay sales in the U.S. which typically default at a higher rate. The QVC Easy-Pay Plan (known as Q Pay in Germany and Italy) permits customers to pay for items in two or more installments. When the QVC Easy-Pay Plan is offered by QVC and elected by the customer, the first installment is billed to the customer’s credit card upon shipment. Generally, the customer’s credit card is subsequently billed up to five additional monthly installments until the total purchase price of the products has been billed by QVC. The increase in credit card income was due to favorable economics of the Q-Card portfolio in the U.S. The decrease in outside services was primarily driven by lower spend in global market expansion, information technology, and commerce platform projects in the U.S. The increase in personnel costs was due to an increase in bonus, benefits and merit primarily in the U.S. and Japan and staffing for the France start-up. The Company also experienced higher severance costs in both periods.

Stock-based compensation

Stock-based compensation includes compensation related to options and restricted stock granted to certain officers and employees. QVC recorded $7 million and $10 million of stock-based compensation expense for the three months ended June 30, 2015 and 2014, respectively and $15 million and $18 million of stock-based compensation expense for the six months ended June 30, 2015 and 2014, respectively.

I-34

---

Depreciation and amortization

Depreciation and amortization consisted of the following:

	Three months ended June 30,					Six months ended June 30,
(in millions)	2015			2014		2015		2014
Affiliate agreements	$	36		38		73		76
Customer relationships	42			43		85		86
Acquisition related amortization	78			81		158		162
Property and equipment	35			33		68		66
Software amortization	24			22		53		43
Channel placement amortization and related expenses	11			9		22		18
Total depreciation and amortization	$	148		145		301		289

The increases in software amortization in 2015 were primarily due to solutions to enhance customer service and productivity in the U.S., Germany and Italy.

Equity in losses of investee

The losses were associated with our joint venture in China that is accounted for as an equity method investment.

Interest expense, net

For the three and six month periods ended June 30, 2015, consolidated interest expense, net decreased $10 million or 16.7% and $13 million or 10.7%, respectively, as compared to the corresponding period in the prior year. The decrease is due to lower average interest rates as a result of the redemption on April 15, 2015 of QVC's $500 million principal amount of its 7.375% Senior Secured Notes due 2020 and the $769 million principal amount of its 7.5% Senior Secured Notes due 2019 which were not redeemed until the second-half of 2014. As a result of the redemptions, QVC increased its borrowing on the senior secured credit facility which has lower average interest rates than the senior secured notes mentioned above.

Foreign currency (loss) gain

Certain loans between QVC and its subsidiaries are deemed to be short-term in nature, and accordingly, the translation of these loans is recorded in the condensed consolidated statements of operations. The change in foreign currency (loss) gain was also due to variances in interest and operating payables balances between QVC and its international subsidiaries denominated in the currency of the subsidiary and the effects of currency exchange rate changes on those balances.

Loss on extinguishment of debt

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, the Company recorded an extinguishment loss in the condensed consolidated statements of operations of $21 million for the three and six month periods ended June 30, 2015.

Income taxes

Our effective tax rate was 40.7%, and 38.8% for the three and six month periods ended June 30, 2015, respectively, and our effective tax rate for the three and six month periods ended June 30, 2014 was 37.2% and 37.5%, respectively. These rates differ from the U.S. federal income tax rate of 35.0% primarily due to state tax expense. We do not expect our effective tax rates to differ significantly in future periods.

I-35

---

Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA)

QVC defines Adjusted OIBDA as net revenue less cost of goods sold, operating expenses and selling, general and administrative expenses (excluding stock-based compensation). QVC's chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate the businesses and make decisions about allocating resources among the businesses. QVC believes that this is an important indicator of the operational strength and performance of the businesses, including the ability to service debt and fund capital expenditures. In addition, this measure allows QVC to view operating results, perform analytical comparisons and perform benchmarking among its businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation, amortization and stock-based compensation that are included in the measurement of operating income pursuant to U.S. generally accepted accounting principles ("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 U.S. GAAP.

The primary material limitations associated with the use of Adjusted OIBDA as compared to GAAP results are (i) it may not be comparable to similarly titled measures used by other companies in the industry, and (ii) it excludes financial information that some may consider important in evaluating QVC's performance. QVC compensates for these limitations by providing disclosure of the difference between Adjusted OIBDA and GAAP results, including providing a reconciliation of Adjusted OIBDA to GAAP results, to enable investors to perform their own analysis of QVC's operating results. Refer to note 11 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to income before income taxes.

Seasonality

QVC's business is seasonal due to a higher volume of sales in the fourth calendar quarter related to year-end holiday shopping. In recent years, QVC has earned, on average, between 22% and 23% of its revenue in each of the first three quarters of the year and 32% of its revenue in the fourth quarter of the year.

Financial Position, Liquidity and Capital Resources

General

Historically, QVC's primary sources of cash have been cash provided by operating activities and borrowings. In general, QVC uses this cash to fund its operations, make capital purchases, make payments to Liberty, make interest payments and minimize QVC's outstanding senior secured credit facility balance.

As of June 30, 2015, substantially all of QVC's cash and cash equivalents were invested in AAA rated money market funds and time deposits with banks rated equal to or above A.

Senior Secured Notes

All of QVC's senior secured notes are secured by the capital stock of QVC and certain of its subsidiaries and have equal priority to the senior secured credit facility. The interest on all of QVC's senior secured notes is payable semi-annually.

On April 15, 2015, QVC completed the redemption of $500 million principal amount of its 7.375% Senior Secured Notes due 2020. Refer to "Loss on extinguishment of debt" section above for more information.

Senior Secured Credit Facility

On March 9, 2015, QVC amended and restated its senior secured credit facility (the "Second Amended and Restated Credit Agreement"), 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 loans. 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 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 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 our senior secured credit facility to March 9, 2020 and lower the interest rate on borrowings.

I-36

---

QVC had $1.4 billion available under the terms of the senior secured credit facility at June 30, 2015. The interest rate on the senior secured credit facility was 1.6% at June 30, 2015.

The Second Amended and Restated Credit Agreement contains certain affirmative and negative covenants, including certain restrictions on the Company 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 the Company’s consolidated leverage ratio, which is defined in QVC’s senior secured credit facility as the ratio of consolidated total debt to consolidated Adjusted OIBDA for the most recent four fiscal quarter period.

Other Debt Related Information

QVC was in compliance with all of its debt covenants at June 30, 2015.

During the quarter, there were no significant changes to QVC's debt credit ratings.

There are no restrictions under the debt agreements on QVC's ability to pay dividends or make other restricted payments if QVC is not in default on its senior secured notes or credit facility, and QVC's consolidated leverage ratio would be no greater than 3.5 to 1.0. As a result, Liberty will, in many instances, be permitted to rely on QVC's cash flow for servicing Liberty's debt and for other purposes, including repurchases of Liberty's common stock, or to fund acquisitions or other operational requirements of Liberty and its subsidiaries. These events may deplete QVC's equity or require QVC to borrow under the senior secured credit facility, increasing QVC's leverage and decreasing liquidity. QVC has made significant distributions to Liberty in the past.

Additional Cash Flow Information

During the six months ended June 30, 2015, QVC's primary uses of cash were $1,216 million of principal payments on debt and capital lease obligations, $210 million of dividends to Liberty, $124 million of capital and cable and satellite television distribution rights expenditures, $20 million in dividend payments from QVC-Japan to Mitsui, and $18 million of bond premium fees. These uses of cash were funded primarily with $1,098 million of principal borrowings from the senior secured credit facility and $605 million of cash provided by operating activities. As of June 30, 2015, QVC's cash and cash equivalents balance (excluding restricted cash) was $445 million.

During the six months ended June 30, 2014, our primary uses of cash were $1,419 million of principal payments on debt and capital lease obligations, $480 million of dividends to Liberty, $57 million of capital expenditures and a $25 million dividend payment from QVC-Japan to Mitsui. These uses of cash were funded primarily with $999 million of net proceeds from the issuance of 3.125% Senior Secured Notes due 2019 and 4.85% Senior Secured Notes due 2024, $554 million of principal borrowings from the senior secured credit facility and $549 million of cash provided by operating activities. As of June 30, 2014, our cash balance (excluding restricted cash) was $548 million.

The change in cash provided by operating activities for the six months ended June 30, 2015 compared to the comparable period was primarily due to lower deferred income taxes and variances in accrued liabilities, offset by variances in accounts payable and inventories. The variance in accrued liabilities and accounts payable is primarily due to timing of payments to vendors. The variance in inventories is primarily due to increases in inventory balances in the U.S. and Germany.

As of June 30, 2015, $198 million of the $445 million in cash and cash equivalents was held by foreign subsidiaries. Cash in foreign subsidiaries is generally accessible, but certain tax consequences may reduce the net amount of cash we are able to utilize for U.S. purposes. QVC accrues taxes on the unremitted earnings of its international subsidiaries. Approximately one-half of this foreign cash balance was that of QVC-Japan. QVC owns 60% of QVC-Japan and shares all profits and losses with the 40% minority interest holder, Mitsui. We believe that we currently have appropriate legal structures in place to repatriate foreign cash as tax efficiently as possible and meet the business needs of QVC.

I-37

---

Other

Capital expenditures spending in 2015 is expected to be between $190 to $200 million, including $79 million already expended.

Refer to the chart under the "Off-balance Sheet Arrangements and Aggregate Contractual Obligations" section below for additional information concerning the amount and timing of expected future payments under QVC's contractual obligations at June 30, 2015.

QVC has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible QVC may incur losses upon the 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, that may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.

Off-balance Sheet Arrangements and Aggregate Contractual Obligations

Information concerning the amount and timing of required payments, both accrued and off-balance sheet, under our contractual obligations at June 30, 2015 is summarized below:

	Payments due by period
(in millions)	Remainder of 2015			2016		2017		2018		2019		Thereafter		Total
Long-term debt (1)	$	—		—		—		—		400		4,045		4,445
Interest payments (2)	93			185		185		185		178		1,219		2,045
Capital lease obligations (including imputed interest)	5			11		12		13		12		27		80
Operating lease obligations	11			19		17		15		13		96		171

(1) Amounts exclude capital lease obligations and the issue discounts on the 3.125%, 4.375%, 4.85%, 4.45%, 5.45% and 5.95% Senior Secured Notes.

(2) Amounts (i) are based on the terms of QVC's senior secured credit facility and senior secured notes, (ii) assumes the interest rates on the floating rate debt remain constant at the rates in effect as of June 30, 2015, (iii) assumes that our existing debt is repaid at maturity and (iv) excludes capital lease obligations.

Our purchase obligations did not materially change as of June 30, 2015.

I-38

---

Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which 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 ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. In July 2015, the FASB voted to delay the original effective date of this standard to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is expected to be permitted for annual reporting periods beginning after December 15, 2016, which was the original effective date. The Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying 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. This ASU intends to simplify the presentation of debt issuance costs. This standard will more closely align the presentation of debt issuance costs under U.S. 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 and interim periods 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 has determined there is no significant effect of the standard on its ongoing financial reporting.

In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2015. The Company has determined there is no significant effect of the standard on its ongoing financial reporting.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, 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 determined there is no significant effect of the standard on its ongoing financial reporting.

I-39

---

Item 3. Quantitative and Qualitative Disclosures about Market Risk

QVC is exposed to market risk in the normal course of business due to ongoing investing and financial activities and the conduct of operations by subsidiaries in different foreign countries. Market risk refers to the risk of loss arising from adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. QVC has established procedures and internal processes governing the management of market risks and the use of financial instruments to manage exposure to such risks.

Interest rate risk

QVC is exposed to changes in interest rates primarily as a result of borrowing activities. Over the long-term, QVC manages the exposure to interest rates by maintaining what QVC believes is an appropriate mix of fixed and variable rate debt. QVC believes this best protects itself from interest rate risk.

The table below summarizes the Company’s debt obligations, related interest rates and fair value of debt at June 30, 2015:

(in millions, except percentages)	2015			2016		2017		2018		2019		Thereafter		Total		Fair Value
Fixed rate debt (1)	$	—		—		—		—		400		3,150		3,550		3,495
Weighted average interest rate on fixed rate debt	—		%	—	%	—	%	—	%	3.1	%	4.9	%	4.7	%	N/A
Variable rate debt	$	—		—		—		—		—		895		895		895
Average interest rate on variable rate debt	—		%	—	%	—	%	—	%	—	%	1.6	%	1.6	%	N/A

(1) Amounts exclude capital lease obligations and the issue discounts on the 3.125%, 4.375%, 4.85%, 4.45%, 5.45% and 5.95% Senior Secured Notes.

N/A - Not applicable.

Foreign currency exchange rate risk

QVC is exposed to foreign exchange rate fluctuations related to the monetary assets and liabilities and the financial results of its foreign subsidiaries. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated into U.S. Dollars at period-end exchange rates, and the statements of operations are translated at the average exchange rate for the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. Dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded in other comprehensive income as a separate component of stockholder's equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in income as unrealized (based on period-end transactions) or realized upon settlement of the transactions. Cash flows from operations in foreign countries are translated at the average rate for the period. Accordingly, QVC may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. QVC's reported Adjusted OIBDA for the three and six month periods ended June 30, 2015 would have been impacted by approximately $1 million and $2 million, respectively, for every 1% change in foreign currency exchange rates relative to the U.S. Dollar.

The credit facility provides QVC with the ability to borrow in multiple currencies. This allows QVC to somewhat mitigate foreign currency exchange rate risks. As of June 30, 2015, no borrowings in foreign currencies were outstanding.

I-40

---

Item 4. Controls and Procedures

Disclosure Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2015 because of the continued material weakness in our internal control over financial reporting as discussed in more detail in our Form 10-K for the year ended December 31, 2014 under Part II, Item 9A. Management has begun implementation of the remediation plan described in our 10-K for the year ended December 31, 2014 and updated below to address this material weakness and is monitoring that implementation.

Changes in Internal Control over Financial Reporting

During the second quarter of 2015, we continued to review the design of our controls, made adjustments and continued implementing controls to alleviate the noted control deficiencies. In addition, we are implementing a new suite of products to automate and better control user access. Other than these items, there has been no change in the Company's internal control over financial reporting that occurred during the three months ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

In response to the material weakness identified in Management’s Report on Internal Control over Financial Reporting as set forth in Part II, Item 9A in our Form 10-K for the year ended December 31, 2014, the Company has developed a plan with oversight from the Audit Committee of the Board of Directors of Liberty to remediate the material weakness. The remediation efforts to be implemented include the following:

•

Establish a more comprehensive review and approval process for authorizing user access to information technology systems and monitoring user access to ensure that all information technology controls designed to restrict access to operating systems, applications and data, and the ability to make program changes, are operating in a manner that provides the Company with assurance that such access is properly restricted to the appropriate personnel.

•	Evaluate responsibilities to provide for appropriate segregation of duties among the personnel.

•	Develop and implement adequate training for the Company's personnel to reinforce pre-established and new information technology controls and their financial reporting objectives enabling a better understanding of the internal control environment to improve our ability to detect and prevent potential deficiencies.

•	Engage external experts to assess and improve financial application access rights to optimize appropriate segregation of duties.

Throughout the process, the Company has been closely monitoring the implementation of these initiatives and has been making necessary changes to the overall design to ensure operational effectiveness. As described above, we are implementing a new suite of products to automate and better control user access and testing controls we have put into place. These steps are critical to the successful execution of management's remediation initiatives. Under the direction of the Audit Committee of the Board of Directors of Liberty, the Company’s management will continue to review and make necessary changes to the overall design of the Company's internal control environment to improve the overall effectiveness of internal control over financial reporting.

Once fully implemented, the Company believes the foregoing efforts will effectively remediate the material weakness. Because the reliability of the internal control process requires repeatable execution, the successful remediation of this material weakness will require review and evidence of effectiveness prior to concluding that the controls are effective and there is no assurance that additional remediation steps will not be necessary.

Although no assurance can be given as to when the remediation plan will be completed, the Company believes the remediation efforts will be completed during the third quarter of 2015 and will test and re-evaluate the effectiveness of the Company's information technology general controls thereafter.

I-41

---

PART II

Item 6. Exhibits

(a) Exhibits

Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):

31.1		Rule 13a-14(a)/15d-14(a) Certification*
31.2		Rule 13a-14(a)/15d-14(a) Certification*
32.1		Section 1350 Certification**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Definition Document*

*Filed herewith.

**Furnished herewith.

II-1

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

QVC, Inc.

Date: August 6, 2015	By:/s/ MICHAEL A. GEORGE
	Michael A. George
	President and Chief Executive Officer (Principal Executive Officer)
Date: August 6, 2015	By:/s/ THADDEUS J. JASTRZEBSKI
	Thaddeus J. Jastrzebski
	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

II-2

---

EXHIBIT INDEX

Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):

31.1		Rule 13a-14(a)/15d-14(a) Certification*
31.2		Rule 13a-14(a)/15d-14(a) Certification*
32.1		Section 1350 Certification**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Definition Document*

* Filed herewith.

**Furnished herewith.

II-3