Home Shopping Network 2008 Annual Report Download - page 32

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Discontinued Operations
Discontinued operations in the accompanying consolidated statements of operations include Home
Shopping Europe GMbH & Co. KG, and its affiliated station HSE24 (“HSE”) through June 19, 2007. (Losses)
income from discontinued operations, net of tax, in 2008, 2007 and 2006 were losses of $3.4 million, income of
$29.0 million and a loss of $10.7 million, respectively. Loss from discontinued operations, net of tax, in 2008
primarily relates to 2007 income tax returns filed in 2008. Income from discontinued operations, net of tax, in 2007
primarily includes the income of HSE. Additionally, in 2007, HSNi recognized an after-tax gain on the sale of HSE
of $30.6 million.
Liquidity and Capital Resources
As of December 31, 2008, HSNi had $177.5 million of cash and cash equivalents.
Net cash provided by operating activities attributable to continuing operations was $137.1 million in 2008
and $137.6 million in 2007, a decrease of $0.5 million. The operating cash flow results in 2008 are due to a decrease
in accounts receivable as a result of a concerted effort to minimize Flexpay utilization during the year at HSN, offset
by other changes in working capital.
Net cash used in investing activities attributable to continuing operations in 2008 of $22.9 million resulted
primarily from capital expenditures of $39.7 million, partially offset by cash transfers of $16.7 million from IAC.
The cash transfers from IAC primarily relate to IAC’s centrally managed U.S. treasury function. The capital
expenditures were primarily at HSN and were for campus renovations, IT and broadcast related expenditures. Net
cash used in investing activities attributable to continuing operations in 2007 of $140.2 million resulted from cash
transfers to IAC of $91.6 million and capital expenditures of $48.7 million. HSNi expects its capital expenditures in
2009 will approximate $40 to $50 million for continuing investments in IT, broadcast, high-definition, fulfillment
center and other maintenance projects.
Net cash provided by financing activities attributable to continuing operations in 2008 was $60.1 million.
In connection with the spin-off, HSNi raised $390 million of long-term debt through a combination of $240 million
of privately issued debt securities (the “Senior Notes”) and a $300 million secured credit agreement, consisting of a
$150 million term loan and a $150 million revolving credit facility. As of December 31, 2008, $150 million was
outstanding under the term loan and $20 million was outstanding under the revolving credit facility. Debt issuance
costs, including the $1.6 million original issue discount on the issuance of the Senior Notes, totaled $16.1 million
resulting in net proceeds of $373.8 million. In connection with the spin-off, HSNi made a $333.8 million cash
distribution to IAC. Net cash provided by financing activities attributable to continuing operations in 2007 of
$2.4 million was due to excess tax benefits from stock-based awards.
The credit agreement contains financial covenants consisting of a leverage ratio and an interest coverage
ratio, among other covenants. HSNi was in compliance with all such covenants as of December 31, 2008. The
amount available to us under the credit agreement is reduced by the amount of commercial and standby letters of
credit issued under the revolving credit facility portion of the agreement. As of December 31, 2008, there were
$14.7 million of outstanding commercial and standby letters of credit issued under the revolving credit facility. The
ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial
covenants, which may limit HSNi’s ability to draw the full amount of the facility. As of December 31, 2008, the
additional amount that could be borrowed under the revolving credit facility, in consideration of the financial
covenants, was approximately $47.0 million. Total debt at December 31, 2008 was approximately $408.5 million
resulting in a ratio of total debt to EBITDA, as defined in our credit agreement, of approximately 2.47x for 2008.
The $40 million borrowed under the revolving credit facility in the fourth quarter of 2008 was done due to
the uncertainty in the credit markets and in order to ensure financial flexibility and support working capital needs.
As of December 31, 2008, $20 million of the borrowings were repaid. The remaining $20 million was repaid during
the first quarter of 2009.