HSN, Inc. Reports Third Quarter 2009 Results
ST. PETERSBURG, Fla., Nov 12, 2009 (GlobeNewswire via COMTEX News Network) — HSN, Inc. (Nasdaq:HSNI) reported results for the third quarter ended September 30, 2009 for HSN, Inc. (“HSNi”) and its two operating segments, HSN and Cornerstone.
Table 1 SUMMARY RESULTS AND KEY OPERATING METRICS (a) ($ in millions, except per share and average price point amounts) Q3 2009 Q3 2008 Change ------- ------- ------ Net Sales $ 641.2 $ 672.3 (5%) Non-GAAP: Adjusted EBITDA $ 48.8 $ 37.7 30% Adjusted Net Income $ 18.6 $ 14.9 24% Adjusted EPS $ 0.32 $ 0.26 23% GAAP: Operating Income $ 36.1 $ 12.3 193% Net Income $ 16.6 $ 2.2 660% Diluted EPS $ 0.29 $ 0.04 625% HSNi: Average price point $ 58.05 $ 61.48 (6%) Units shipped (millions) 12.4 12.3 1% Gross profit % 37.0% 35.1% 190 bps Return rate % 18.1% 18.9% (80 bps) Internet net sales % (b) 37.2% 35.2% 200 bps --------------------------------------------------------------------- (a) Segment results for HSNi's two business segments, HSN and Cornerstone, are presented separately in Tables 2 and 3 of this release. (b) Internet net sales as a percent of total HSNi net sales. See reconciliation of GAAP to non-GAAP measures in Table 4.
Third Quarter 2009 Results vs Third Quarter 2008 Results
-- HSNi's Adjusted EBITDA increased 30% to $48.8 million in the third quarter of 2009 and Adjusted EBITDA margins improved to 7.6% from 5.6% as a result of an increase in gross profit margin of 190 basis points and a reduction in operating expenses, excluding non-cash charges, of 5.4%, or $10.7 million. -- HSNi reported operating income of $36.1 million in the third quarter of 2009 compared to operating income of $12.3 million in the prior year. Operating income benefited from a reduction in operating expenses of $22.5 million, including $12.6 million of non-cash charges. -- HSNi's Adjusted EPS improved 23% to $0.32 in the third quarter of 2009 from $0.26 in the prior year. GAAP diluted EPS was $0.29 per share in the third quarter this year compared to $0.04 per share last year. -- HSNi ended the third quarter of 2009 with $238.7 million in cash and cash equivalents. Cash from operating activities during the first nine months of 2009 was $117.0 million compared to $24.0 million in the same period last year. Cash flow improved by effectively managing working capital.
“In our first year as an independent public company, we have clearly demonstrated our ability to leverage our differentiated business model, strengthen our foundation and exert strict financial and operational discipline to maximize results. Despite the continued macro-economic challenges, we emerged as a stronger company at the end of the third quarter with EBITDA growth of 30% and $238.7 million in cash,” stated Mindy Grossman, Chief Executive Officer of HSNi.
“At HSN, sales momentum continued to build as the quarter progressed. Our strategy of driving customer engagement through unique interactive experiences, differentiated brands and products, and a continued focus on customer service resulted in a 6% increase in unit sales and best customer growth of 7%. And ten years after the launch of hsn.com, we now have one of the most video pervasive sites in e-commerce and our hsn.com sales penetration now represents 30% of our total business.
Ms. Grossman concluded, “We remain on the forefront of transactional innovation. In addition to launching the first live in-flight television shopping experience, we are the only retailer streaming live video across three different screens – television, online and mobile and we continue our roll-out of Shop by Remote, the only interactive shopping platform of its kind in the U.S. We are excited about our opportunities as we continue to fully maximize our capabilities combining innovative products and lifestyle brands with our unique ability to interact with our customers across multiple platforms.”
Table 2 SEGMENT RESULTS ($ in millions) Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ------------------------- 2009 2008 Change 2009 2008 Change ------ ------ ------ -------- -------- ------ Net Sales HSN $467.0 $471.0 (1%) $1,396.1 $1,410.9 (1%) Cornerstone 174.2 201.3 (13%) 514.8 634.2 (19%) ------ ------ ------ -------- -------- ------ Total HSNi $641.2 $672.3 (5%) $1,910.9 $2,045.1 (7%) ====== ====== ====== ======== ======== ====== Gross Profit HSN $168.6 $155.5 8% $ 473.4 $ 459.7 3% Cornerstone 68.5 80.3 (15%) 206.8 260.2 (21%) ------ ------ ------ -------- -------- ------ Total HSNi $237.1 $235.8 1% $ 680.2 $ 719.9 (6%) ====== ====== ====== ======== ======== ====== Adjusted EBITDA (Non-GAAP measure) HSN $ 47.1 $ 35.7 32% $ 120.6 $ 105.8 14% Cornerstone 1.7 2.0 (12%) (2.5) 3.8 (167%) ------ ------ ------ -------- -------- ------ Total HSNi $ 48.8 $ 37.7 30% $ 118.1 $ 109.6 8% ====== ====== ====== ======== ======== ====== Operating Income (Loss) HSN $ 37.1 $ 17.3 115% $ 92.0 $ 64.2 43% Cornerstone (1.0) (5.0) 79% (11.3) (314.4) 96% ------ ------ ------ -------- -------- ------ Total HSNi $ 36.1 $ 12.3 193% $ 80.7 $ (250.2) 132% ====== ====== ====== ======== ======== ====== See reconciliation of GAAP to non-GAAP measures in Table 4. Table 3 SEGMENT KEY OPERATING METRICS Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2009 2008 Change 2009 2008 Change ------ ------ -------- ------ ------ -------- HSN: Average price point $56.25 $59.66 (6%) $56.50 $59.61 (5%) Units shipped (millions) 9.5 9.0 6% 28.0 27.1 3% Gross profit % 36.1% 33.0% 310 bps 33.9% 32.6% 130 bps Return rate % 19.5% 20.3% (80 bps) 18.8% 19.9%(110 bps) Internet net sales % (a) 29.8% 27.6% 220 bps 29.4% 28.0% 140 bps Cornerstone: Average price point $64.03 $66.60 (4%) $65.70 $66.86 (2%) Units shipped (millions) 2.9 3.2 (10%) 8.4 10.2 (18%) Gross profit % 39.3% 39.9% (60 bps) 40.2% 41.0% (80 bps) Return rate % 14.2% 15.4% (120 bps) 15.1% 16.0% (90 bps) Internet net sales % (a) 56.9% 52.9% 400 bps 56.0% 51.8% 420 bps Catalog circulation (millions) 55.5 73.5 (24%) 180.0 241.4 (25%) (a) Internet net sales as a percent of segment net sales.
HSN Segment Results
HSN’s net sales decreased less than 1% to $467.0 million, following a comparable sales growth of 4% in the prior year. Shipped units increased by 6% while the average price point decreased by 6% as a result of our continued focus on key items and price/value. Return rates improved by 80 basis points due to improved product quality, apparel fit initiatives, and lower price points. HSN.com net sales grew 7% over the prior year following the 17% growth in the prior year. Sales from e-commerce represented 29.8% of HSN’s total net sales, up from 27.6% in the prior year.
Gross profit increased 8% to $168.6 million and the gross profit margin improved 310 basis points to 36.1% in the third quarter of 2009 compared to 33.0% in the prior year. The significant improvement in gross profit was due to a reduction in inventory reserves, improved product margin and net shipping and handling costs. The improvement in net shipping and handling was due to lower fuel costs and warehouse productivity improvements. Gross profit margins also benefited from a reduction in inventory reserves related to HSN’s inventory levels. Continued efforts on aligning inventory purchases with sales demand and reducing aged inventory resulted in a decrease in inventory by $39.6 million, or 15%, compared to the same period last year.
Adjusted EBITDA increased 32% to $47.1 million in the third quarter of 2009 compared to the prior year as a result of the increase in gross profit. Operating income increased 115% to $37.1 million compared to $17.3 million in the prior year.
Cornerstone Segment Results
Net sales for Cornerstone decreased 13% to $174.2 million in the third quarter of 2009 as compared to $201.3 million in the prior year. The decrease in third quarter sales, which moderated from a decline in sales of 21% in the first half of 2009, was due to the continued softness in consumer demand for luxury home furnishings and apparel as well as a strategic reduction in catalog circulation.
Gross profit margin declined 60 basis points to 39.3% in the third quarter of 2009 compared to 39.9% in the prior year, primarily from promotional activity which offset lower shipping costs and improved return rates. Continued focus on cash flow resulted in a 25% decrease in inventories compared to the third quarter of 2008.
Operating expenses, excluding non-cash charges, decreased 15%, or $11.9 million, in the third quarter of 2009 compared to the prior year driven by lower circulation costs and reduced personnel related expenses. Despite the decline in net sales and gross profit, Adjusted EBITDA decreased by only $0.2 million to $1.7 million due to the expense management efforts described above.
Operating loss in the current quarter was ($1.0) million compared to an operating loss of ($5.0) million in the third quarter of 2008.
Other Selected Financial Results
HSNi reported operating income of $36.1 million in the third quarter of 2009 compared to $12.3 million in the prior year. Included in operating income was a reduction in non-cash expenses of $12.6 million. The reduction in non-cash expenses was primarily due to a $7.2 million reduction in non-cash compensation expense and a $3.8 million reduction in amortization of non-cash marketing expense. The third quarter of 2008 included charges associated with the modification of stock-based awards in connection with the spin-off from IAC.
HSNi’s effective tax rate from continuing operations was 39.5% for the third quarter of 2009 and 19.3% for the third quarter of 2008. The effective tax rate of 19.3% for the quarter ended September 30, 2008 was lower than the federal statutory rate of 35% due to the settlement of certain income tax related liabilities. The annual effective tax rate for 2009 is expected to be 39%.
Liquidity and Capital Resources
As of September 30, 2009, HSNi had cash and cash equivalents of $238.7 million, up from $205.9 million at June 30, 2009 and up from $177.5 million at December 31, 2008. For the nine months ended September 30, 2009, HSNi generated net cash provided by operating activities of $117.0 million compared to $24.0 million in the same period last year due to effective working capital management. Total debt was approximately $377.4 million as of September 30, 2009, resulting in a ratio of total debt to EBITDA, as defined in HSNi’s credit agreement, of approximately 2.21x, as compared to a maximum allowable leverage ratio of 2.75x.
OTHER INFORMATION
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This press release may contain forward-looking statements relating to the future performance of HSNi and its consolidated subsidiaries that are based on current expectations, forecasts and assumptions. HSNi’s actual results could differ materially from those predicted. Factors that could cause or contribute to such differences include but are not limited to: the depth and duration of the current recession, which may persist throughout and beyond 2009, and the impact of these conditions on consumer confidence and spending levels; whether national economic stimulus initiatives and measures to stabilize the economy will be successful in achieving their objectives within the expected timeframes; other changes in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or e-commerce growth; changes in the interest rate environment and developments in the overall credit markets, and particularly the impact of the current constrained credit environment, if it persists; HSNi’s business prospects and strategy, including whether HSNi’s initiatives will be effective; changes in our relationships with pay television operators, vendors, manufacturers and other third parties; technological or regulatory changes; changes in senior management; our ability to offer new or alternative products and services in a cost effective manner and consumer acceptance of these products and services; and changes in product delivery costs. More information about potential factors that could affect HSNi’s business and financial results is included in our filings with the U.S. Securities and Exchange Commission (“SEC”). Other unknown or unpredictable factors that could also adversely affect HSNi’s business, financial condition and results of operations may arise from time to time. In light of these risks and uncertainties, any forward-looking statements may not prove to be accurate. Accordingly, you should not place undue reliance on any forward-looking statements, which only reflect the views of HSNi management as of the date of this press release. Reported results should not be considered as an indication of future performance. Such statements speak only to the date such statements are made and HSNi does not undertake to update any forward-looking statements.
Conference Call
Mindy Grossman, Chief Executive Officer, and Judy Schmeling, Executive Vice President and Chief Financial Officer, will hold a conference call on November 12, 2009 at 11:00 a.m., Eastern Time, to discuss these results. Those interested in participating in the conference call should dial 719-325-4928 or 877-675-4755 at least five minutes prior to the call. There will also be a simultaneous audio webcast available via HSNi’s website at www.hsni.com.
A replay of the conference call can be accessed until Thursday, November 26, 2009 by dialing 719-457-0820 or 888-203-1112, plus the passcode 8247487, and will also be hosted on HSNi’s website (www.hsni.com) for a limited time.
About HSN, Inc.
HSN, Inc. (Nasdaq:HSNI) is a $3 billion interactive multi-channel retailer with strong direct-to-consumer expertise among its two operating segments, HSN and Cornerstone. HSNi offers innovative, differentiated retail experiences on TV, online, in catalogs, and in brick and mortar stores. HSNi ships 49 million products and handles 48 million inbound customer calls annually. HSN, which created the television retail industry 32 years ago, now reaches approximately 93 million homes (24 hours a day, seven days a week, live 364 days a year). HSN.com(r) ranks in the top 30 of the top 500 internet retailers, is one of the top 10 trafficked e-commerce sites, and has more than a quarter million unique users every day. As the first retailer to offer live video streaming across three different screens – television, online and via mobile – HSN is the leader in the multichannel industry. HSN continues to lead the transformation of electronic retail with technological innovations such as HSN Shop by Remote(r), the only service of its kind in the U.S., and Video on Demand. Cornerstone comprises leading home and apparel lifestyle brands including Ballard Designs(r), Frontgate(r), Garnet Hill(r), Grandin Road(r), Improvements(r), Smith + Noble(r), The Territory Ahead(r) and TravelSmith(r). Cornerstone distributes over 200 million catalogs annually, operates eight separate e-commerce sites and operates 25 retail stores.
GAAP FINANCIAL STATEMENTS HSN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ---------------------- 2009 2008 2009 2008 -------- -------- ---------- ---------- Net sales $641,244 $672,348 $1,910,947 $2,045,060 Cost of sales 404,176 436,522 1,230,784 1,325,185 -------- -------- ---------- ---------- Gross profit 237,068 235,826 680,163 719,875 -------- -------- ---------- ---------- Operating expenses: Selling and marketing 120,997 134,106 367,909 415,102 General and administrative 55,501 58,528 160,220 168,688 Production and programming 14,922 15,980 42,383 44,791 Amortization of non-cash marketing -- 3,761 -- 8,022 Amortization of intangible assets 140 1,755 421 5,709 Depreciation 9,430 9,380 28,510 27,801 Asset impairments -- -- -- 300,000 -------- -------- ---------- ---------- Total operating expenses 200,990 223,510 599,443 970,113 -------- -------- ---------- ---------- Operating income (loss) 36,078 12,316 80,720 (250,238) -------- -------- ---------- ---------- Other (expense) income: Interest income 124 365 212 404 Interest expense (8,768) (6,461) (26,517) (6,461) -------- -------- ---------- ---------- Total other (expense) income, net (8,644) (6,096) (26,305) (6,057) -------- -------- ---------- ---------- Income (loss) from continuing operations before income taxes 27,434 6,220 54,415 (256,295) Income tax (provision) benefit (10,849) (1,202) (21,210) 21,342 -------- -------- ---------- ---------- Income (loss) from continuing operations 16,585 5,018 33,205 (234,953) Loss from discontinued operations, net of tax (13) (2,837) (69) (3,366) -------- -------- ---------- ---------- Net income (loss) $ 16,572 $ 2,181 $ 33,136 $ (238,319) ======== ======== ========== ========== Income (loss) from continuing operations per share: Basic $ 0.29 $ 0.09 $ 0.59 $ (4.18) Diluted $ 0.29 $ 0.09 $ 0.58 $ (4.18) Net income (loss) per share: Basic $ 0.29 $ 0.04 $ 0.59 $ (4.24) Diluted $ 0.29 $ 0.04 $ 0.58 $ (4.24) Shares used in computing earnings per share: Basic 56,391 56,207 56,362 56,206 Diluted 57,502 56,665 57,151 56,206 HSN, INC. CONSOLIDATED BALANCE SHEETS (unaudited; in thousands) Sept. 30, Dec. 31, 2009 2008 ---------- ---------- ASSETS Cash and cash equivalents $ 238,740 $ 177,463 Accounts receivable 122,789 165,114 Inventories 294,682 304,172 Deferred income taxes 21,698 21,777 Prepaid expenses and other current assets 46,368 42,080 ---------- ---------- Total current assets 724,277 710,606 Property and equipment, net 151,164 157,832 Intangible assets, net 261,326 261,747 Other non-current assets 18,435 22,272 ---------- ---------- TOTAL ASSETS $1,155,202 $1,152,457 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Accounts payable, trade $ 199,894 $ 198,464 Current maturities of long-term debt 20,625 15,000 Accrued expenses and other current liabilities 186,679 190,788 ---------- ---------- Total current liabilities 407,198 404,252 Long-term debt, net of current maturities 356,799 393,528 Deferred income taxes 78,143 83,276 Other long-term liabilities 12,167 13,116 ---------- ---------- Total liabilities 854,307 894,172 TOTAL SHAREHOLDERS' EQUITY 300,895 258,285 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,155,202 $1,152,457 ========== ========== HSN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands) Nine Months Ended September 30, -------------------- 2009 2008 --------- --------- Cash flows from operating activities attributable to continuing operations: Net income (loss) $ 33,136 $(238,319) Less: Loss from discontinued operations, net of tax (69) (3,366) --------- --------- Income (loss) from continuing operations 33,205 (234,953) Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities attributable to continuing operations: Depreciation 28,510 27,801 Amortization of intangible assets 421 5,709 Asset impairments -- 300,000 Non-cash compensation expense 8,084 18,025 Amortization of cable and satellite distribution fees 2,520 3,068 Amortization of non-cash marketing -- 8,022 Amortization of debt issuance costs 1,915 482 Loss on disposition of fixed assets 398 271 Deferred income taxes (4,665) (29,882) Bad debt expense 11,757 14,048 Excess tax benefits from stock-based awards -- (135) Changes in current assets and liabilities: Accounts receivable 29,079 43,529 Inventories 9,490 (45,887) Prepaid expenses and other current assets (4,740) (6,932) Accounts payable and other current liabilities 1,037 (79,147) --------- --------- Net cash provided by operating activities attributable to continuing operations 117,011 24,019 --------- --------- Cash flows from investing activities attributable to continuing operations: Transfers from IAC -- 17,021 Capital expenditures (25,512) (26,732) --------- --------- Net cash used in investing activities attributable to continuing operations (25,512) (9,711) --------- --------- Cash flows from financing activities attributable to continuing operations: Proceeds from issuance of long-term debt, net of debt issuance costs -- 373,894 Repayment under revolving credit facility (20,000) -- Repayment of long-term debt (11,250) (140) Excess tax benefits from stock-based awards -- 135 Distribution to IAC in connection with the spin-off -- (333,799) --------- --------- Net cash (used in) provided by financing activities attributable to continuing operations (31,250) 40,090 --------- --------- Total cash provided by continuing operations 60,249 54,398 Total cash provided by (used in) operating activities attributable to discontinued operations 1,028 (6,286) Effect of exchange rate changes on cash and cash equivalents -- 2,033 --------- --------- Net increase in cash and cash equivalents 61,277 50,145 Cash and cash equivalents at beginning of period 177,463 6,220 --------- --------- Cash and cash equivalents at end of period $ 238,740 $ 56,365 ========= ========= Table 4 RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES HSN, INC. RECONCILIATION OF GAAP EPS TO ADJUSTED EPS (unaudited; in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------- 2009 2008 2009 2008 -------- -------- -------- --------- Diluted earnings (loss) per share $ 0.29 $ 0.04 $ 0.58 $ (4.24) ======== ======== ======== ========= Net income (loss) $ 16,572 $ 2,181 $ 33,136 $(238,319) Non-cash compensation expense 3,057 10,288 8,084 18,025 Amortization of non-cash marketing expense -- 3,761 -- 8,022 Amortization of intangible assets 140 1,755 421 5,709 Asset impairments -- -- -- 300,000 Loss on disposition of fixed assets 93 155 398 271 Loss from discontinued operations, net of tax 13 2,837 69 3,366 Impact of income taxes (1,300) (6,048) (3,455) (48,694) -------- -------- -------- --------- Adjusted Net Income $ 18,575 $ 14,929 $ 38,653 $ 48,380 ======== ======== ======== ========= GAAP diluted weighted average shares outstanding 57,502 56,665 57,151 56,206 Adjusted EPS $ 0.32 $ 0.26 $ 0.68 $ 0.86 ======== ======== ======== ========= HSN, INC. RECONCILIATION OF DETAILED SEGMENT RESULTS TO GAAP (unaudited; in thousands) Three Months Ended Three Months Ended September 30, 2009 September 30, 2008 --------------------------- --------------------------- HSN Cornerstone Total HSN Cornerstone Total ------- ----------- ------- ------- ----------- ------- Operating income (loss) $37,144 $ (1,066) $36,078 $17,298 $(4,982) $12,316 Non-cash compens- ation expense 2,463 594 3,057 7,438 2,850 10,288 Amortiz- ation of non- cash marketing -- -- -- 3,761 -- 3,761 Amortiz- ation of intang- ible assets 140 -- 140 142 1,613 1,755 Asset impair- ments -- -- -- -- -- -- Deprecia- tion 7,253 2,177 9,430 6,890 2,490 9,380 Loss on disposi- tion of fixed assets 61 32 93 151 4 155 ------- ----------- ------- ------- ----------- ------- Adjusted EBITDA $47,061 $ 1,737 $48,798 $35,680 $ 1,975 $37,655 ======= =========== ======= ======= =========== ======= Nine Months Ended Nine Months Ended September 30, 2009 September 30, 2008 ----------------------------- ----------------------------- HSN Cornerstone Total HSN Cornerstone Total -------- ----------- -------- -------- ----------- -------- Operating income (loss) $ 92,045 $ (11,325) $80,720 $64,205 $(314,443) $(250,238) Non-cash compens- ation expense 6,462 1,622 8,084 12,664 5,361 18,025 Amortiz- ation of non- cash marketing -- -- -- 8,022 -- 8,022 Amortiz- ation of intang- ible assets 421 -- 421 426 5,283 5,709 Asset impair- ments -- -- -- -- 300,000 300,000 Deprecia- tion 21,387 7,123 28,510 20,210 7,591 27,801 Loss on disposi- tion of fixed assets 360 38 398 266 5 271 -------- ----------- -------- -------- ----------- -------- Adjusted EBITDA $120,675 $ (2,542) $118,133 $105,793 $ 3,797 $109,590 ======== =========== ======== ======== =========== ========
SEE IMPORTANT NOTES AT END OF THIS DOCUMENT
HSN, INC.’S PRINCIPLES OF FINANCIAL REPORTING
HSNi reports Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, all of which are supplemental measures to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. HSNi endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below.
Definitions of Non-GAAP Measures
Adjusted EBITDA is defined as operating income excluding, if applicable: (1) non-cash compensation expense and amortization of non-cash marketing, (2) amortization of intangibles, (3) depreciation and gains and losses on asset dispositions, (4) goodwill, long-lived asset and intangible asset impairments, (5) pro forma adjustments for significant acquisitions, and (6) one-time items. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered 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 industry. 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 should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi’s statement of operations of certain expenses, including non-cash compensation, amortization of non-cash marketing, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting and one-time items.
Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net income available to common shareholders excluding, net of tax effects, if applicable: (1) non-cash compensation expense and amortization of non-cash marketing, (2) amortization of intangible assets, (3) gains and losses on asset dispositions, (4) goodwill, long-lived asset and intangible asset impairments, (5) pro forma adjustments for significant acquisitions, (6) one-time items, and (7) discontinued operations. We believe Adjusted Net Income is useful to investors because it represents HSNi’s consolidated results taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items.
Adjusted EPS is defined as Adjusted Net Income divided by diluted weighted average shares outstanding for Adjusted EPS purposes. We believe Adjusted EPS is useful to investors because it represents, on a per share basis, HSNi’s consolidated results, taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items. Adjusted Net Income and Adjusted EPS have the same limitations as Adjusted EBITDA. Therefore, we think it is important to evaluate these measures along with our consolidated statement of operations.
Pro Forma Results
We will only present Adjusted EBITDA, Adjusted Net Income and Adjusted EPS on a pro forma basis if we view a particular transaction as significant in size or transformational in nature. For the periods presented in this release, there are no transactions that we have included on a pro forma basis.
One-Time Items
Adjusted EBITDA, Adjusted Net Income and Adjusted EPS are presented before one-time items, if applicable. In accordance with SEC rules, these items are truly one-time in nature and non-recurring, infrequent or unusual, and have not occurred in the past two years or are not expected to recur in the next two years. GAAP results include one-time items. For the periods presented in this release, there are no adjustments for any one-time items.
Basis of Presentation
On November 5, 2007, IAC announced its plan to separate into five independent public companies in order to better achieve certain strategic objectives of the various businesses. This transaction is referred to as the “spin-off.”
On August 21, 2008, HSN, Inc. became an independent public company and began trading on the NASDAQ Global Select Market under the symbol “HSNI.” These unaudited consolidated financial statements present our results of operations, financial position, shareholders’ equity and cash flows of HSN, Inc. on a combined basis up through the spin-off and on a consolidated basis thereafter.
For the three and nine months ended September 30, 2008, we computed basic earnings per share using the number of shares of common stock outstanding immediately following the spin-off, as if such shares were outstanding for the entire period. The diluted earnings per share for prior periods was computed based upon the dilutive impact of all stock-based awards outstanding immediately following the spin-off, as if such awards were outstanding for the entire period.
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SOURCE: HSN, Inc.
CONTACT: HSN, Inc. Analysts/Investors Felise Glantz Kissell 727-872-7529 felise.kissell@hsn.net Media Brad Bohnert 727-872-7515 brad.bohnert@hsn.net
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