Home Shopping Network 2011 Annual Report Download - page 32

businesses, on which its internal budgets are based and by which management is compensated. HSNi believes
that investors should have access to the same information that it uses in analyzing its results.
Adjusted EBITDA 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) one-time items. 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 measures the amount of income
generated each period that could be used to service debt, pay taxes and fund capital expenditures. 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, including stock-based 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.
Non-Cash Expenses That Are Excluded From HSNi's Non-GAAP Measure
Stock-based compensation expense consists principally of expense associated with the grants of restricted
stock, restricted stock units, stock options and stock appreciation rights, including expense associated with the
modification and acceleration of such awards in connection with the Spin-off. These expenses are not paid in
cash, and HSNi includes the related shares in its calculations of diluted shares outstanding. Upon vesting of
restricted stock and restricted stock units and the exercise of certain stock options and stock appreciation rights,
the awards can be settled, at HSNi's discretion, on a net basis, with HSNi remitting the required tax withholding
amount from its current funds.
Amortization of intangibles is a non-cash expense relating primarily to acquisitions. At the time of an
acquisition, the intangible assets of the acquired company, such as distribution agreements, customer
relationships and merchandise agreements, are valued and amortized over their estimated lives.
Depreciation, gains and losses on asset dispositions and long-lived asset impairment charges are non-cash
items relating to our long-lived assets and have been excluded from Adjusted EBITDA. Goodwill and intangible
asset impairment charges are also non-cash expenses that have been excluded from Adjusted EBITDA.
Reconciliation of Adjusted EBITDA
See Note 6 of Notes to Consolidated Financial Statements for the reconciliation between Adjusted EBITDA
and net income for the years ended December 31, 2011, 2010 and 2009.
Critical Accounting Policies and Estimates
The following disclosure is provided to supplement the descriptions of HSNi's accounting policies contained
in Note 2 of Notes to Consolidated Financial Statements in regard to significant areas of judgment. HSNi's
management is required to make certain estimates and assumptions during the preparation of its consolidated
financial statements in accordance with GAAP. These estimates and assumptions impact the reported amount of
assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial
statements. They also impact the reported amount of net income during any period. Actual results could differ
from those estimates. Because of the size of the financial statement elements to which they relate, some of
HSNi's accounting policies and estimates have a more significant impact on its consolidated financial statements
than others. The following is a discussion of some of HSNi's more significant accounting policies and estimates.
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