Home Shopping Network 2013 Annual Report Download - page 26

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24
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure and is defined in Note 6 of Notes to Consolidated Financial Statements.
Year Ended December 31,
2013 Change 2012 Change 2011
(Dollars in thousands)
HSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 261,292 4% $ 250,836 7% $ 235,164
As a percentage of HSN net sales . . . . . . . . . . . . . . . . . 11.3% 20 bp 11.1% 20 bp 10.9%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,574 4% $ 73,441 9% $ 67,595
As a percentage of Cornerstone net sales . . . . . . . . . . . 7.0% (30 bp) 7.3% (10 bp) 7.4%
HSNi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 337,866 4% $ 324,277 7% $ 302,759
As a percentage of HSNi net sales . . . . . . . . . . . . . . . . 9.9% 0 bp 9.9% 0 bp 9.9%
HSNi's Adjusted EBITDA in 2013 increased 4%, or $13.6 million, and was 9.9% of net sales, consistent with the prior
year. The increase in Adjusted EBITDA was due to a 4% increase in net sales, partially offset by a 4% increase in operating
expenses (excluding non-cash charges and $7.8 million sales tax settlement in the prior year). HSN's Adjusted EBITDA
increased 4%, or $10.5 million, primarily due to a 2% increase in net sales, partially offset by a 20 basis point decline in gross
margin. HSN's operating expenses (excluding non-cash charges) were 23.2% of net sales compared to 23.7% in the prior year.
Decreases in HSN's professional services fees and bad debt expense were offset by increases in employee-related and digital
marketing costs. Cornerstone's Adjusted EBITDA increased 4%, or $3.1 million, primarily due to a 9% increase in net sales,
partially offset by a 10% increase in operating expenses (excluding non-cash charges and a $7.8 million sales tax settlement in
the prior year). The increase in operating expenses was largely due to catalog costs associated with the 5% increase in
circulation; employee-related costs; the incremental expenses from the addition of Chasing Fireflies to the portfolio in April
2012 and investments in digital marketing.
HSNi's Adjusted EBITDA in 2012 increased 7%, or $21.5 million, and was 9.9% of net sales, consistent with the prior
year. The increase in Adjusted EBITDA was primarily due to a 6% increase in net sales and a 40 basis point improvement in
gross margin, partially offset by an 8% increase in operating expenses (excluding non-cash charges and a $7.8 million sales tax
settlement). HSN's Adjusted EBITDA increased 7%, or $15.7 million, primarily due to a 5% increase in net sales and a 40
basis point improvement in gross margin, partially offset by a 6% increase in operating expenses (excluding non-cash charges)
primarily for employee-related costs, digital and brand marketing and bad debt expense. Cornerstone's Adjusted EBITDA
increased 9%, or $5.8 million, primarily due to the acquisition of Chasing Fireflies in April 2012.
Operating Income
Year Ended December 31,
2013 Change 2012 Change 2011
(Dollars in thousands)
HSN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221,184 4% $ 212,503 10% $ 192,928
As a percentage of HSN net sales . . . . . . . . . . . . . . . . 9.6% 20 bp 9.4% 50 bp 8.9%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,470 33% $ 46,241 —% $ 46,114
As a percentage of Cornerstone net sales . . . . . . . . . . 5.6% 100 bp 4.6% (50 bp) 5.1%
HSNi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282,654 9% $ 258,744 8% $ 239,042
As a percentage of HSNi net sales . . . . . . . . . . . . . . . 8.3% 40 bp 7.9% 10 bp 7.8%
HSNi's operating income in 2013 increased 9%, or $23.9 million, and was 8.3% of net sales compared to 7.9% in the
prior year. The increase was primarily due to 4% growth in net sales offset by a 2% increase in operating expenses. The
increase in operating expenses was primarily due to increases in employee-related costs, catalog costs and digital marketing,
partially offset by a $7.8 million unfavorable sales tax settlement at Cornerstone in the prior year and decreases in professional
services fees and bad debt expenses at HSN.
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 6% growth in net sales and 40 basis point improvement in gross margin, partially
offset by a 7% increase in operating expenses primarily for Cornerstone's catalog circulation and $7.8 million sales tax
settlement, digital marketing and technology costs, and employee-related costs.