Annual report pursuant to Section 13 and 15(d)

Segment Information (Note)

v3.6.0.2
Segment Information (Note)
 12 Months Ended
Dec. 31, 2016
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 reportable 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 consolidated net income to operating income for HSNi's operating segments and Adjusted EBITDA (in thousands):
 
 
Year Ended December 31, 2016
 
 
HSN
 
Cornerstone
 
Total
Net income
 
 
 
 
 
$
118,708

Income tax provision
 
 
 
 
 
71,020

Income before income taxes
 
 
 
 
 
189,728

Interest expense, net
 
 
 
 
 
16,079

Operating income (loss)
 
$
216,301

 
$
(10,494
)
 
$
205,807

Stock-based compensation expense
 
15,073

 
4,160

 
19,233

Depreciation and amortization
 
29,328

 
13,384

 
42,712

Loss on sale of businesses and asset impairments (a)
 
—

 
31,232

 
31,232

Loss on disposition of fixed assets
 
134

 
38

 
172

Adjusted EBITDA
 
$
260,836

 
$
38,320

 
$
299,156

 
 
 
 
 
 
 
(a) Non-GAAP results for the year ended December 31, 2016 exclude a loss on sale and asset impairment charges of $31.2 million for the divestitures of TravelSmith and Chasing Fireflies.

 
 
Year Ended December 31, 2015
 
 
HSN
 
Cornerstone
 
Total
Net income
 
 
 
 
 
$
169,239

Income tax provision
 
 
 
 
 
99,615

Income before income taxes
 
 
 
 
 
268,854

Interest expense, net
 
 
 
 
 
15,180

Operating income
 
$
253,622

 
$
30,412

 
$
284,034

Stock-based compensation expense
 
13,889

 
4,519

 
18,408

Depreciation and amortization
 
29,371

 
14,047

 
43,418

Asset impairments (a)
 
—

 
5,568

 
5,568

Exit and reorganization costs (b)
 
5,208

 
—

 
5,208

Loss on disposition of fixed assets
 
791

 
15

 
806

Adjusted EBITDA
 
$
302,881

 
$
54,561

 
$
357,442

 
 
 
 
 
 
 

(a) Non-GAAP 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) Non-GAAP results for 2015 exclude $2.0 million of severance costs associated with a reorganization at HSN and $3.2 million for certain costs associated with the planned closure of one of HSN's distribution centers.
 
 
Year Ended December 31, 2014
 
 
HSN
 
Cornerstone
 
Total
Net income
 
 
 
 
 
$
172,984

Income tax provision
 
 
 
 
 
104,543

Income before income taxes
 
 
 
 
 
277,527

Interest expense, net
 
 
 
 
 
7,082

Operating income
 
$
252,098

 
$
32,511

 
$
284,609

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

Adjusted EBITDA
 
$
289,141

 
$
53,199

 
$
342,340

 
 
 
 
 
 
 

(a) Non-GAAP results for the year ended December 31, 2014 exclude $5.0 million of breakage income related to the initial reversal of certain customer credits that had accumulated over many years.
(b) Non-GAAP results for the year ended December 31, 2014 exclude a $3.1 million settlement with the Consumer Product Safety Commission ("CPSC").

Financial information by segment is as follows (thousands):

 
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Net sales:
 
 
 
 
 
 
HSN
 
$
2,474,554

 
$
2,542,107

 
$
2,476,088

Cornerstone
 
1,092,931

 
1,148,468

 
1,111,907

Total
 
$
3,567,485

 
$
3,690,575

 
$
3,587,995

Identifiable assets:
 
 
 
 
 
 
HSN
 
$
1,020,531

 
$
1,029,475

 
$
1,107,932

Cornerstone
 
284,002

 
305,096

 
289,154

Total
 
1,304,533

 
1,334,571

 
1,397,086

Capital expenditures:
 
 
 
 
 
 
HSN
 
$
25,089

 
$
44,844

 
$
32,307

Cornerstone
 
16,653

 
15,848

 
15,009

Total
 
$
41,742

 
$
60,692

 
$
47,316


 
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.