Quarterly report pursuant to Section 13 or 15(d)

Segment Information

 v2.3.0.11
Segment Information
 6 Months Ended
Jun. 30, 2011
Segment Information  
Segment Information

NOTE 4—SEGMENT INFORMATION

HSNi presents its operating segments and related financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered or the target market. HSNi has two operating segments, HSN and Cornerstone. The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies included in HSNi's Annual Report on Form 10-K for the year ended December 31, 2010. Intercompany accounts and transactions have been eliminated in consolidation.

HSNi's primary metric is Adjusted EBITDA, which is defined as operating income excluding, if applicable: (1) non-cash charges including: (a) stock-based compensation expense, (b) amortization of intangibles, (c) depreciation and gains and losses on asset dispositions, and (d) goodwill, long-lived asset and intangible asset impairments; (2) pro forma adjustments for significant acquisitions; and (3) one-time items. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA is used as a measurement of operating efficiency and overall financial performance and HSNi believes it to be a helpful measure for those evaluating companies in the retail and media industries. Adjusted EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi's consolidated statements of operations of certain expenses, including stock-based compensation, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting expenses and one-time items.

 

The following tables reconcile Adjusted EBITDA to operating income for HSNi's operating segments and to HSNi's consolidated net income (in thousands):

 

     Three Months Ended June 30, 2011     Three Months Ended June 30, 2010  
     HSN     Cornerstone     Total     HSN     Cornerstone     Total  

Adjusted EBITDA

    $ 51,624      $ 24,425      $ 76,049      $ 45,064      $ 18,489      $ 63,553   

Stock-based compensation expense

      (3,781 )      (3,174 )      (6,955 )      (2,771 )      (2,196 )      (4,967 ) 

Depreciation and amortization of intangible assets

      (6,976 )      (2,225 )      (9,201 )      (7,403 )      (2,348 )      (9,751 ) 

(Loss) gain on disposition of fixed assets

      (52 )      5        (47 )      (426 )      (59 )      (485 ) 
                                                

Operating income

    $ 40,815      $ 19,031        59,846      $ 34,464      $ 13,886        48,350   
                                    

Other expense, net

          (7,814 )          (8,061 ) 
                        

Income before income taxes

          52,032            40,289   

Income tax provision

          (20,065 )          (15,583 ) 
                        

Net income

        $ 31,967          $ 24,706   
                        
     Six Months Ended June 30, 2011     Six Months Ended June 30, 2010  
     HSN     Cornerstone     Total     HSN     Cornerstone     Total  

Adjusted EBITDA

    $ 103,822      $ 29,505      $ 133,327      $ 95,378      $ 19,967      $ 115,345   

Stock-based compensation expense

      (7,958 )      (5,324 )      (13,282 )      (6,042 )      (3,268 )      (9,310 ) 

Depreciation and amortization of intangible assets

      (14,174 )      (4,431 )      (18,605 )      (15,149 )      (4,553 )      (19,702 ) 

Loss on disposition of fixed assets

      (106 )      (199 )      (305 )      (428 )      (60 )      (488 ) 
                                                

Operating income

    $ 81,584      $ 19,551        101,135      $ 73,759      $ 12,086        85,845   
                                    

Other expense, net

          (15,773 )          (16,370 ) 
                        

Income before income taxes

          85,362            69,475   

Income tax provision

          (33,115 )          (27,116 ) 
                        

Net income

        $ 52,247          $ 42,359   
                        

The net sales for each of HSNi's reportable segments are as follows (in thousands):

 

     Three Months Ended
June 30, 		     Six Months Ended
June 30, 		 
     2011      2010      2011      2010  

Net sales:

      

HSN

    $ 481,994       $ 466,411       $ 1,008,168       $ 985,330   

Cornerstone

      264,945         223,581         462,753         387,875   
                                   

Total

    $ 746,939       $ 689,992       $ 1,470,921       $ 1,373,205