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27
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure and is defined in Note 6 of Notes to Consolidated Financial
Statements.
2008
%
Change 2007
%
Change 2006
HSN
160,279$ (8%) 174,397$ (22%) 223,716$
As a percentage of HSN net sales
8% (102 bp) 9% (266 bp) 12%
Cornerstone (1,375)$ (102%) 59,316$ (19%) 72,869$
As a percentage of Cornerstone net sales 0% (600 bp) 6% (150 bp) 7%
HSNi 158,904$ (32%) 233,713$ (21%) 296,585$
As a percentage of HSNi net sales 6% (241 bp) 8% (227 bp) 10%
Year Ended December 31,
(Dollars in thousands)
HSNi’s Adjusted EBITDA in 2008 decreased $74.8 million from 2007 primarily due to a decrease in gross
profit margins. Gross profit margins at HSN were adversely impacted by the product mix shift to lower gross margin
products, primarily electronics and housewares, promotional activity and shipping and handling costs. Adjusted
EBITDA at Cornerstone decreased 102% to ($1.4) million, primarily as a result of a decrease in sales and gross
margins in a highly promotional retail environment, partially offset by reduced costs associated with a 19% planned
reduction in catalog circulation.
HSNi’s Adjusted EBITDA in 2007 decreased $62.9 million from 2006, primarily due to a 125 basis point
decrease in gross profit margins and increased general and administrative and selling and marketing expenses.
Operating (Loss) Income
2008
%
Change 2007
%
Change 2006
HSN
(2,332,789)
$
NM
135,298
$
(18%)
165,221
$
As a percentage of HSN net sales
-119%
NM
7%
(162 bp)
9%
Cornerstone
(769,522)
$
NM
34,493
$
(28%)
47,975
$
As a percentage of Cornerstone net sales
-89%
NM
3%
(143 bp)
5%
HSNi
(3,102,311)
$
NM
169,791
$
(20%)
213,196
$
As a percentage of HSNi net sales -110% NM 6% (157 bp) 7%
NM = not meaningful
Year Ended December 31,
(Dollars in thousands)
HSNi’s operating loss for 2008 was $3.1 billion as compared to $169.8 million of operating income in
2007. The decrease in operating income is primarily attributed to the $3.2 billion in asset impairment charges at
HSN and Cornerstone, the decline in gross profit for the reasons discussed previously under the heading “Adjusted
EBITDA”, and the $8.1 million increase in non-cash compensation expense.
In the second quarter of 2008, HSNi recorded impairment charges related to goodwill and indefinite-lived
intangible assets of $300.0 million. These impairment charges were recorded at the Cornerstone reporting unit and
were due, in part, to the significant deterioration in the macroeconomic environment for retailers, particularly in the