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Interest Expense
Interest expense for the year ended December 31, 2015 increased $8.1 million compared to the prior year. The
increase in interest expense compared to the prior year is due to a higher outstanding debt balance and the write-off of $0.5
million of deferred financing fees in the first quarter of 2015 related to the prior credit agreement.
Income Tax Provision
For the years ended December 31, 2015, 2014 and 2013, HSNi recorded tax provisions from continuing operations of
$99.6 million, $104.5 million and $97.7 million, respectively, which represent effective tax rates of 37.1%, 37.7% and 35.4%,
respectively.
The effective tax rate in 2014 was unfavorably impacted by the non-deductibility of the $3.1 million settlement with
the CPSC. The effective tax rate in 2013 was favorably impacted by discrete tax benefits of $3.7 million realized in the third
quarter and the favorable tax treatment of the fair value adjustments related to the 2012 acquisition of Chasing Fireflies
recorded in the fourth quarter. Excluding the impact of these items, the 2014 and 2013 effective tax rates would have been
approximately 37%. The effective tax rates in 2015, 2014 and 2013, excluding the impact of the above items, are higher than
the federal statutory rate of 35% due principally to state income taxes.
Liquidity and Capital Resources
As of December 31, 2015, HSNi had $63.9 million of cash and cash equivalents, down from $160.0 million as of
December 31, 2014.
Net cash provided by operating activities was $203.5 million million in 2015, up from $138.7 million in 2014. The
increase was primarily due to changes in working capital, including accounts receivable and inventories. Collections of
accounts receivable increased in 2015 compared to the prior year due to the higher outstanding balance at the end of 2014
driven by the fourth quarter's sales growth and increased customer utilization of HSN's Flexpay program in the fourth quarter
of 2014. Cash used for inventories in 2015 decreased compared to 2014 primarily due to higher growth in HSN's inventories in
2014 when it was normalizing its inventory levels.
Net cash used in investing activities in 2015 was $62.1 million. Capital expenditures in 2015 were $60.7 million and
were primarily for investments in our distribution centers, including our warehouse automation project, information technology
and infrastructure.
Net cash used in financing activities in 2015 was $237.5 million and was primarily related to HSNi's capital return
plan and related refinancing. HSNi paid a special cash dividend of $10.00 per common share in February 2015 and quarterly
cash dividends totaling $1.40 per common share, representing aggregate payments of $597.9 million. HSNi also repurchased
approximately 948,000 shares of common stock for $58.5 million.
On January 27, 2015, HSNi entered into a $1.25 billion five-year syndicated credit agreement ("Credit Agreement").
The Credit Agreement replaced the existing $600 million credit agreement that was set to expire in April 2017. The Credit
Agreement, which includes a $750 million revolving credit facility and a $500 million term loan, may be increased up to $1.75
billion subject to certain conditions and expires January 27, 2020. HSNi drew $500 million from its term loan and $200 million
under the revolving credit facility, both under the Credit Agreement, to repay in full its existing term loan of $228.1 million
under the prior credit agreement in January 2015 and to fund the $524 million special cash dividend that was paid February
2015. As of December 31, 2015, total debt of $640 million remains outstanding.
The Credit Agreement includes various covenants, limitations and events of default customary for similar facilities
including a maximum leverage ratio of 3.50x and a minimum interest coverage ratio of 3.00x. Loans under the Credit
Agreement bear interest at a per annum rate equal to a LIBOR rate plus a predetermined margin that ranges from 1.25% to
2.25% or the Base Rate (as defined in the Credit Agreement) plus a predetermined margin that ranges from 0.25% to 1.25%.
HSNi can elect to borrow at either a LIBOR rate or the Base Rate and the predetermined margin is determined by HSNi's
leverage ratio. HSNi pays a commitment fee ranging from 0.20% to 0.40% (based on the leverage ratio) on the unused portion
of the revolving credit facility.
The amount available under the credit agreements is reduced by the amount of commercial and standby letters of
credit issued under the revolving credit facility, which totaled $9.7 million as of December 31, 2015. The ability to draw funds
under the revolving credit facility is dependent upon meeting the aforementioned financial covenants, which may limit HSNi’s
ability to draw the full amount of the facility. As of December 31, 2015, the additional amount that could be borrowed under
the revolving credit facility under the prior credit agreement, in consideration of the financial covenants and outstanding letters
of credit, was approximately $600.3 million.