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Table of Contents
Non-GAAP Measure
HSNi reports Adjusted EBITDA as a supplemental measure to generally accepted accounting principles ("GAAP"). This measure is one of
the primary metrics by which HSNi evaluates the performance of its 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) other significant items. Significant items, while
periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby
affecting the comparability of results. 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 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 intangibles,
depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting and other significant items.
Items 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. 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.
Other Significant Items represent transactions that may vary significantly from period to period and have a disproportionate effect in a
given period, thereby affecting the comparability of results.
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, 2012, 2011 and 2010.
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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