Annual report pursuant to Section 13 and 15(d)

Segment Information (Note)

v3.3.1.900
Segment Information (Note)
 12 Months Ended
Dec. 31, 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. 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):
 
 
Year Ended December 31, 2015
 
 
HSN
 
Cornerstone
 
Total
Adjusted EBITDA
 
$
302,881

 
$
54,561

 
$
357,442

Stock-based compensation expense
 
(13,889
)
 
(4,519
)
 
(18,408
)
Depreciation and amortization
 
(29,371
)
 
(14,047
)
 
(43,418
)
Asset impairments, net (a)
 
—

 
(5,568
)
 
(5,568
)
Exit and reorganization costs (b)
 
(5,208
)
 
—

 
(5,208
)
Loss on disposition of fixed assets
 
(791
)
 
(15
)
 
(806
)
Operating income
 
$
253,622

 
$
30,412

 
284,034

Total other expense, net
 
 
 
 
 
(15,180
)
Income from continuing operations before income taxes
 
 
 
 
 
268,854

Income tax provision
 
 
 
 
 
(99,615
)
Net income
 
 
 
 
 
$
169,239

(a) Results for the year ended December 31, 2015 exclude $6.7 million of charges for the impairment of intangible assets and $1.1 million of other non-cash adjustments.
(b) Results for the year ended December 31, 2015 exclude $3.2 million for certain costs associated with the planned closure of one of HSN's distribution centers as part of its supply chain optimization initiative and $2.0 million of severance costs associated with a reorganization at HSN.
 
 
Year Ended December 31, 2014
 
 
HSN
 
Cornerstone
 
Total
Adjusted EBITDA
 
$
289,141

 
$
53,199

 
$
342,340

Stock-based compensation expense
 
(12,224
)
 
(3,382
)
 
(15,606
)
Depreciation and amortization
 
(29,762
)
 
(14,172
)
 
(43,934
)
Breakage income (a)
 
4,962

 
—

 
4,962

CPSC settlement (b)
 
—

 
(3,100
)
 
(3,100
)
Loss on disposition of fixed assets
 
(19
)
 
(34
)
 
(53
)
Operating income
 
$
252,098

 
$
32,511

 
284,609

Total other expense, net
 
 
 
 
 
(7,082
)
Income from continuing operations before income taxes
 
 
 
 
 
277,527

Income tax provision
 
 
 
 
 
(104,543
)
Net income
 
 
 
 
 
$
172,984

(a) Results for the year ended December 31, 2014 include $5.0 million of breakage income related to the reversal of certain customer credits.
(b) Results for the year ended December 31, 2014 include a $3.1 million settlement with the Consumer Product Safety Commission ("CPSC").


 
 
Year Ended December 31, 2013
 
 
HSN
 
Cornerstone
 
Total
Adjusted EBITDA
 
$
261,292

 
$
76,574

 
$
337,866

Stock-based compensation expense
 
(10,657
)
 
(3,386
)
 
(14,043
)
Depreciation and amortization
 
(28,372
)
 
(12,217
)
 
(40,589
)
Asset impairment (a)
 
—

 
(3,040
)
 
(3,040
)
Fair value adjustment to contingent consideration obligation (a)
 
—

 
3,600

 
3,600

Loss on disposition of fixed assets
 
(1,079
)
 
(61
)
 
(1,140
)
Operating income
 
$
221,184

 
$
61,470

 
282,654

Total other expense, net
 
 
 
 
 
(6,513
)
Income from continuing operations before income taxes
 
 
 
 
 
276,141

Income tax provision
 
 
 
 
 
(97,692
)
Net income
 
 
 
 
 
$
178,449


(a) Results for the year ended December 31, 2013 include fair value adjustments of $3.6 million related to a contingent consideration liability and $3.0 million for the impairment of indefinite-lived intangible assets, both related to the 2012 acquisition of Chasing Fireflies, one of the Cornerstone brands.
Financial information by segment is as follows (thousands):

 
 
Year Ended December 31,
 
 
2015
 
2014
 
2013
Net sales:
 
 
 
 
 
 
HSN
 
$
2,542,107

 
$
2,476,088

 
$
2,312,382

Cornerstone
 
1,148,468

 
1,111,907

 
1,091,601

Total
 
$
3,690,575

 
$
3,587,995

 
$
3,403,983

Identifiable assets:
 
 
 
 
 
 
HSN
 
$
1,036,367

 
$
1,110,372

 
$
1,035,769

Cornerstone
 
305,096

 
289,154

 
272,393

Total
 
1,341,463

 
1,399,526

 
1,308,162

Capital expenditures:
 
 
 
 
 
 
HSN
 
$
44,844

 
$
32,307

 
$
36,156

Cornerstone
 
15,848

 
15,009

 
15,796

Total
 
$
60,692

 
$
47,316

 
$
51,952


 
HSNi does not report revenue from external customers for each product or each group of similar products as it is impracticable to do so. HSNi maintains operations principally in the United States with no long-lived assets and insignificant net sales in all other countries.