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Other Income (Expense)
Year Ended December 31,
2013 Change 2012 Change 2011
(Dollars in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 205 (64)% $ 564 (17)% $ 679
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,718) (68)% (20,811) (35)% (31,963)
Loss on debt extinguishment. . . . . . . . . . . . . . . . . . . . — NA (18,627) NA —
Total other expense, net. . . . . . . . . . . . . . . . . . . . . . . . $ (6,513) (83)% $ (38,874) 24% $ (31,284)
As a percentage of HSNi net sales . . . . . . . . . . . . . . . 0.2% (100 bp) 1.2% 20 bp 1.0%
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. As a result of these refinancing
transactions, interest expense decreased 68% in 2013, or $14.1 million.
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 2011
primarily related to the Senior Notes and the $69.8 million term loan outstanding under the prior credit agreement.
Loss on Debt Extinguishment
On August 1, 2012, HSNi fully redeemed its $240 million 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.
Income Tax Provision
For the years ended December 31, 2013, 2012 and 2011, HSNi recorded tax provisions from continuing operations of
$97.7 million, $83.4 million and $80.1 million, respectively, which represent effective tax rates of 35.4%, 37.9% and 38.6%,
respectively.
The change in the effective tax rate in 2013 from the prior periods was primarily due to discrete tax benefits of $3.7
million realized in the third quarter of 2013 and the favorable tax treatment of the fair value adjustments related to the 2012
acquisition of Chasing Fireflies recorded in the fourth quarter of 2013. Excluding the impact of these items, the 2013 effective
tax rate for continuing operations would have been 37%. The adjusted rate of 37% in 2013, as well as the 2012 and 2011 tax
rates, are higher than the federal statutory rate of 35% due principally to state income taxes.
Discontinued Operations
In May 2012, substantially all of the assets and certain liabilities of Smith+Noble, a Cornerstone brand specializing in
window treatments, were sold for $5.5 million. The operating results for Smith+Noble are included in “Loss from discontinued
operations, net of tax” in the consolidated statements of operations for all periods presented. Cornerstone recorded an after-tax
loss on the sale of $0.1 million in the second quarter of 2012, which is included in “Loss from discontinued operations, net of
tax” in the accompanying consolidated statements of operations.
In July 2012, substantially all of the assets and certain liabilities of The Territory Ahead, a Cornerstone brand
specializing in casual apparel for men and women, were sold for approximately $1.1 million. The operating results for The
Territory Ahead are included in “Loss from discontinued operations, net of tax” in the consolidated statements of operations for
all periods presented. An impairment charge of $5.9 million was recorded in the second quarter of 2012 to reduce the carrying