Home Shopping Network 2015 Annual Report Download - page 28

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direct-response television marketing and higher net marketing expense. HSN's operating expenses (excluding non-cash
charges) were 22.6% of net sales compared to 23.2% in the prior year.
Cornerstone
Cornerstone's Adjusted EBITDA in 2015 increased 3%, or $1.4 million, and was 4.8% of net sales, consistent with the
prior year. The increase was due to a 3% increase in net sales, a 50 basis point increase in gross profit as a percentage of net
sales, partially offset by a 60 basis point increase in operating expenses as a percentage of net sales (excluding non-cash
charges and the prior year's $3.1 million CPSC settlement). The increase in operating expenses is primarily due to higher
catalog costs associated with a 2% increase in circulation; employee-related costs; costs associated with its expanded retail
strategy; and digital marketing expense.
Cornerstone's Adjusted EBITDA in 2014 decreased 31%, or $23.4 million, primarily due to a 180 basis point decrease
in gross profit as a percentage of net sales and 40 basis point increase in operating expenses as a percentage of net sales
(excluding non-cash charges and the $3.1 million CPSC settlement). The increase in operating expenses is primarily due to
higher catalog costs associated with a 2% increase in circulation; employee-related costs and digital marketing expense.
Operating Income
Year Ended December 31,
2015 Change 2014 Change 2013
(Dollars in thousands)
HSN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 253,622 1% $ 252,098 14% $ 221,184
As a percentage of HSN net sales . . . . . . . . . . . . . . . . 10.0% (20 bp) 10.2% 60 bp 9.6%
Cornerstone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,412 (6)% $ 32,511 (47)% $ 61,470
As a percentage of Cornerstone net sales . . . . . . . . . . 2.6% (30 bp) 2.9% (270 bp) 5.6%
HSNi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 284,034 —% $ 284,609 1% $ 282,654
As a percentage of HSNi net sales . . . . . . . . . . . . . . . 7.7% (20 bp) 7.9% (40 bp) 8.3%
HSNi's operating income in 2015 decreased $0.6 million to $284.0 million and was 7.7% of net sales compared to
7.9% in the prior year. The 3% growth in net sales and 10 basis point improvement in gross profit as a percentage of net sales
were offset by a 4% increase in operating expenses. The increase in operating expenses was primarily due to increases in
employee-related costs, including a $2.8 million increase in stock-based compensation and a $5.2 million increase in severance
costs for the planned closure of a distribution center and for the HSN reorganization; bad debt expense; $6.7 million
impairment of intangibles related to Chasing Fireflies; media spend for direct-response television marketing; and catalog costs;
partially offset by lower on-air distribution costs and the prior year's $3.1 million CPSC settlement.
HSNi's operating income in 2014 increased 1%, or $2.0 million, and was 7.9% of net sales compared to 8.3% in the
prior year. The increase was primarily due to 5% growth in net sales offset by 60 basis point decrease in gross margin and a
4% increase in operating expenses. The increase in operating expenses was primarily due to increases in employee-related
costs; selling and marketing costs, including catalog costs; additional distribution costs for HSN2; incremental depreciation
expense; and the $3.1 million CPSC settlement.
Other Income (Expense)
Year Ended December 31,
2015 Change 2014 Change 2013
(Dollars in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136 (26)% $ 184 (10)% $ 205
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,316) 111% (7,266) 8% (6,718)
Total other expense, net. . . . . . . . . . . . . . . . . . . . . . . . $ (15,180) 114% $ (7,082) 9% $ (6,513)
As a percentage of HSNi net sales . . . . . . . . . . . . . . . 0.4% 20 bp 0.2% - 0.2%