Quarterly report pursuant to Section 13 or 15(d)

Segment Information (Note)

v3.3.0.814
Segment Information (Note)
 9 Months Ended
Sep. 30, 2015
Segment Reporting Information, Profit (Loss) [Abstract]  
Segment Information
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 and/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, 2014. Intercompany accounts and transactions have been eliminated in consolidation.
HSNi’s primary performance 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) other significant items. Significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results. 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 has certain limitations in that it does not take into account the impact to HSNi’s consolidated statements of operations of certain expenses, gains and losses; including stock-based compensation, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting expenses and other significant 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 September 30, 2015
 
Three Months Ended September 30, 2014
 
HSN
 
Cornerstone
 
Total
 
HSN
 
Cornerstone
 
Total
Adjusted EBITDA
$
67,109

 
$
11,028

 
$
78,137

 
$
66,730

 
$
14,255

 
$
80,985

Stock-based compensation expense
(3,292
)
 
(1,097
)
 
(4,389
)
 
(3,086
)
 
(795
)
 
(3,881
)
Depreciation and amortization
(7,318
)
 
(3,290
)
 
(10,608
)
 
(7,477
)
 
(3,678
)
 
(11,155
)
Distribution center closure (a)
(189
)
 
—

 
(189
)
 
—

 
—

 
—

Asset impairment (b)
—

 
(5,000
)
 
(5,000
)
 
—

 
—

 
—

(Loss) gain on disposition of fixed assets
(115
)
 
(3
)
 
(118
)
 
5

 
14

 
19

Operating income
$
56,195

 
$
1,638

 
57,833

 
$
56,172

 
$
9,796

 
65,968

Total other expense, net
 
 
 
 
(4,063
)
 
 
 
 
 
(1,833
)
Income before income taxes
 
 
 
 
53,770

 
 
 
 
 
64,135

Income tax provision
 
 
 
 
(19,562
)
 
 
 
 
 
(24,604
)
Net income
 
 
 
 
$
34,208

 
 
 
 
 
$
39,531

 
(a) In the third quarter of 2015, HSN recorded a $0.2 million charge associated with the planned closure of one of its distribution centers as part of its supply chain optimization initiative. See Note 13 for further information.
(b) In the third quarter of 2015, Cornerstone recognized a $5.0 million non-cash charge for the impairment of intangible assets related to the acquisition of Chasing Fireflies. See Note 8 for further information.

 
Nine Months Ended September 30, 2015
 
Nine Months Ended September 30, 2014
 
HSN
 
Cornerstone
 
Total
 
HSN
 
Cornerstone
 
Total
Adjusted EBITDA
$
201,493

 
$
39,820

 
$
241,313

 
$
188,530

 
$
34,305

 
$
222,835

Stock-based compensation expense
(10,518
)
 
(3,296
)
 
(13,814
)
 
(9,283
)
 
(2,408
)
 
(11,691
)
Depreciation and amortization
(22,326
)
 
(10,616
)
 
(32,942
)
 
(22,337
)
 
(10,377
)
 
(32,714
)
Distribution center closure (a)
(3,221
)
 
—

 
(3,221
)
 
—

 
—

 
—

Asset impairment (b)
—

 
(5,000
)
 
(5,000
)
 
—

 
—

 
—

CPSC settlement (c)
—

 
—

 
—

 
—

 
(3,100
)
 
(3,100
)
Loss on disposition of fixed assets
(779
)
 
(11
)
 
(790
)
 
(100
)
 
(27
)
 
(127
)
Operating income
$
164,649

 
$
20,897

 
185,546

 
$
156,810

 
$
18,393

 
175,203

Total other expense, net
 
 
 
 
(11,241
)
 
 
 
 
 
(5,343
)
Income before income taxes
 
 
 
 
174,305

 
 
 
 
 
169,860

Income tax provision
 
 
 
 
(64,776
)
 
 
 
 
 
(65,207
)
Net income
 
 
 
 
$
109,529

 
 
 
 
 
$
104,653

 
 
 
 
 
 
 
 
 
 
 
 
(a) In the nine months ended September 30, 2015, HSN recorded $3.2 million in charges associated with the planned closure of one of its distribution centers as part of its supply chain optimization initiative. See Note 13 for further information.
(b) In the third quarter of 2015, Cornerstone recognized a $5.0 million non-cash charge for the impairment of intangible assets related to the acquisition of Chasing Fireflies. See Note 8 for further information.
(c) In the first quarter of 2014, Cornerstone recorded a $3.1 million settlement of a civil penalty assessed by the Consumer Product Safety Commission.
 

The net sales for each of HSNi's reportable segments are as follows (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales:
 
 
 
 
 
 
 
 
HSN
 
$
590,588

 
$
578,297

 
$
1,763,384

 
$
1,679,271

Cornerstone
 
274,280

 
259,180

 
829,013

 
790,830

Total
 
$
864,868

 
$
837,477

 
$
2,592,397

 
$
2,470,101