Home Shopping Network 2011 Annual Report Download - page 29

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the increase in operating expenses for investments in Cornerstone’s catalog circulation and on-air distribution
costs at HSN. HSN’s Adjusted EBITDA increased 9%, or $17.5 million, primarily due to a 5% increase in net
sales, partially offset by a 3% increase in operating expenses, excluding non-cash charges. Cornerstone’s
Adjusted EBITDA increased $34.0 million primarily due to a 19% increase in net sales, partially offset by a 5%
increase in operating expenses, excluding non-cash charges.
Operating Income (Loss)
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
HSN ....................................... $192,928 14% $168,724 7% $157,233
As a percentage of HSN net sales ................ 8.9% 90 bp 8.0% 20 bp 7.8%
Cornerstone ................................. $ 39,071 43% $ 27,363 1833% $ (1,579)
As a percentage of Cornerstone net sales ........... 3.8% 70 bp 3.1% 330 bp (0.2%)
HSNi ....................................... $231,999 18% $196,087 26% $155,654
As a percentage of HSNi net sales ................ 7.3% 80 bp 6.5% 80 bp 5.7%
NM = not meaningful
HSNi’s operating income in 2011 increased 18%, or $35.9 million, and was 7.3% of net sales as compared
to 6.5% in the prior year. The increase in operating income is primarily due to the 6% growth in net sales and 80
basis point improvement in gross profit margin, partially offset by a 6% increase in operating expenses primarily
for investments in Cornerstone’s catalog circulation and compensation and employee-related costs.
HSNi’s operating income in 2010 increased 26%, or $40.4 million, from 2009 and was 6.5% of net sales as
compared to 5.7% in the prior year. The increase in operating income is primarily due to a 9% growth in net
sales, partially offset by an increase in operating expenses for investments in Cornerstone’s catalog circulation, a
$10.0 million increase in stock-based compensation expense and higher on-air distribution costs at HSN.
Other Income (Expense)
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
Interest income ................................ $ 429 (29%) $ 601 75% $ 343
Interest expense ................................ (32,022) (3%) (33,124) (6%) (35,373)
Total other expense, net ......................... $(31,593) (3%) $(32,523) (7%) $(35,030)
As a percentage of HSNi net sales ................. (1.0%) 10 bp (1.1%) 20 bp (1.3%)
Interest expense primarily relates to the $240 million of 11.25% senior notes and the $150 million five-year
term loan which were issued in the third quarter of 2008 in connection with the Spin-off from IAC. The decrease
in interest expense in 2011 compared to 2010 is due to the repayments of the term loan in 2010 and 2011 and a
decrease in the average interest rate of the term loan. The decrease in the interest expense in 2010 compared to
2009 is due to the partial repayment of the term loan in 2010 and a decrease in the average interest rate of the
term loan.
Income Tax Provision
For the years ended December 31, 2011, 2010 and 2009, HSNi recorded tax provisions from continuing
operations of $77.3 million, $65.0 million and $48.1, respectively, which represent effective tax rates of 38.6%
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