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Table of Contents
Operating Income
HSNi's operating income in 2012 increased 8%, or $19.7 million, and was 7.9% of net sales compared to 7.8% in the prior year. The
increase was primarily due to a 6% growth in net sales and 40 basis point improvement in gross profit margin, partially offset by a 7% increase
in operating expenses primarily for Cornerstone's catalog circulation, the $7.8 million sales tax settlement at Cornerstone, investments in digital
marketing and technology, and employee-related costs.
HSNi’s operating income in 2011 increased 20%, or $40.2 million, and was 7.8% of net sales compared to 6.9% in the prior year. The
increase in operating income was primarily due to the 6% growth in net sales and 90 basis point improvement in gross profit margin, partially
offset by a 7% increase in operating expenses primarily for investments in Cornerstone’s catalog circulation and compensation and employee-
related costs.
Other Income (Expense)
Interest Expense
On April 24, 2012, HSNi entered into a $600 million five-year syndicated credit agreement (“Credit Agreement”)
which replaced the credit
agreement that was set to expire in July 2013. On July 31, 2012, HSNi drew $250 million from its delayed draw term loan under the Credit
Agreement. The proceeds of the term loan were used to fully redeem the $240 million 11.25% Senior Notes due 2016 (“Senior Notes”) on
August 1, 2012 as discussed below. Interest expense in 2012 was primarily related to the Senior Notes which bore interest at 11.25% through the
August 1, 2012 redemption date and the $250 million term loan outstanding under the Credit Agreement. Interest expense in the prior year was
primarily related to the Senior Notes and the $69.8 million term loan outstanding under the prior credit agreement. As a result of these
refinancing transactions, interest expense decreased in 2012 and we expect it to further decrease in 2013 compared to prior periods.
Loss on Debt Extinguishment
On August 1, 2012, HSNi fully redeemed $240 million of its Senior Notes. The Senior Notes were redeemed for $253.5 million, or
105.625% of the principal amount. HSNi reported approximately $18.6 million in “loss on debt extinguishment” primarily associated with
redemption of the Senior Notes in the third quarter of 2012. These charges resulted from the redemption premium of $13.5 million and $5.1
million related to the write-off of unamortized issuance costs and original issue discount.
24
Year Ended December 31,
2012 Change 2011 Change 2010
(Dollars in thousands)
HSN
$
212,503
10%
$
192,928
14%
$
168,724
As a percentage of HSN net sales
9.4
%
50 bp
8.9
%
90 bp
8.0
%
Cornerstone
$
46,241
—%
$
46,114
53%
$
30,079
As a percentage of Cornerstone net sales
4.6
%
(50 bp)
5.1
%
120 bp
3.9
%
HSNi
$
258,744
8%
$
239,042
20%
$
198,803
As a percentage of HSNi net sales
7.9
%
10 bp
7.8
%
90 bp
6.9
%
Year Ended December 31,
2012 Change 2011 Change 2010
(Dollars in thousands)
Interest income
$
564
(17)%
$
679
(25)%
$
900
Interest expense
(20,811
) (35)%
(31,963
) (3)%
(33,085
)
Loss on debt extinguishment
(18,627
)
NA
—
NA
—
Total other expense, net
$
(38,874
)
24%
$
(31,284
)
(3)%
$
(32,185
)
As a percentage of HSNi net sales
1.2
%
20 bp
1.0
%
(10 bp)
1.1
%