HSN, Inc. Reports Fourth Quarter and Full Year 2011 Results

HSNi's Results For the Fourth Quarter 2011:

  • Net sales increased 4% with digital sales up 13%
  • Gross profit margin improved 80 basis points to 35.3%
  • Adjusted EBITDA grew 11% to $103.6 million
  • Adjusted EPS increased to $0.89 from $0.77

ST. PETERSBURG, Fla., Feb. 23, 2012 (GLOBE NEWSWIRE) -- HSN, Inc. (Nasdaq:HSNI) reported results for the fourth quarter and full year ended December 31, 2011 for HSN, Inc. ("HSNi") and its two operating segments, HSN and Cornerstone.

Table 1 Ìý Ìý Ìý
SUMMARY RESULTS AND KEY OPERATING METRICS (a)
($ in millions, except per share and average price point amounts)
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Ìý Ìý Ìý Ìý
Ìý ÌýQ4 2011Ìý ÌýQ4 2010Ìý ÌýChangeÌý ÌýFY 2011Ìý ÌýFY 2010Ìý ÌýChangeÌý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Net Sales Ìý$Ìý955.0 Ìý$Ìý915.2 4% Ìý$Ìý3,177.2 Ìý$Ìý2,996.8 6%
Non-GAAP: Ìý Ìý Ìý Ìý Ìý Ìý
Adjusted EBITDA Ìý$Ìý103.6 Ìý$Ìý93.3 11% Ìý$Ìý300.0 Ìý$Ìý257.6 16%
Adjusted Net IncomeÌý Ìý$Ìý54.2 Ìý$Ìý46.1 18% Ìý$Ìý143.8 Ìý$Ìý114.2 26%
Adjusted EPS Ìý$Ìý0.89 Ìý$Ìý0.77 16% Ìý$Ìý2.37 Ìý$Ìý1.92 23%
GAAP: Ìý Ìý Ìý Ìý Ìý Ìý
Operating Income (c) Ìý$Ìý83.7 Ìý$Ìý77.4 8% Ìý$Ìý232.0 Ìý$Ìý196.1 18%
Net Income (c) Ìý$Ìý46.5 Ìý$Ìý41.3 13% Ìý$Ìý123.1 Ìý$Ìý98.5 25%
Diluted EPS (c) Ìý$Ìý0.76 Ìý$Ìý0.69 10% Ìý$Ìý2.03 Ìý$Ìý1.65 23%
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
HSNi: Ìý Ìý Ìý Ìý Ìý
Average price point Ìý$Ìý64.50 Ìý$Ìý65.81 (2%) Ìý$Ìý64.81 Ìý$Ìý62.62 3%
Units shipped (millions) Ìý17.1 Ìý15.9 7% Ìý56.5 Ìý54.4 4%
Gross profit margin Ìý35.3% Ìý34.5% 80 bps Ìý36.2% Ìý35.4% 80 bps
Return rateÌý Ìý17.8% Ìý17.4% (40 bps) Ìý18.2% Ìý17.8% (40 bps)
Ìý 44.6% 41.3% 330 bps 42.0% 39.2% 280 bps
Digital sales penetration (b) Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
(a) HSNi's two operating segments, HSN and Cornerstone, are presented separately in Tables 2 and 3 of this release.
(b) Digital net sales as a percent of total HSNi net sales. Ìý Ìý Ìý Ìý
(c) Included in these results are $3.0 million of non-cash asset impairment charges related to certain intangible and fixed assets at one of the Cornerstone brands.Ìý The asset impairment charges were $1.9 million on an after-tax basis, or $0.03 per diluted share. Ìý Ìý Ìý Ìý

See reconciliation of Non-GAAP to GAAP measures in Table 4.

Fourth Quarter 2011 Results vs Fourth Quarter 2010 Results

  • HSNi's net sales grew 4% over the prior year to $955.0 million.ÌýHSN's net sales increased slightly to $639.2 million, including 8% growth in digital sales.ÌýCornerstone's net sales for the 14-week period in 2011 increased 13% to $315.8 million, including 19% growth in digital sales, compared to the 13-week period in 2010.
    Ìý
  • HSNi's Adjusted EBITDA increased 11% to $103.6 million.ÌýThese results were driven by a 4% increase in net sales and an 80 basis point increase in gross profit margin, partially offset by a 5% increase in operating expenses (excluding non-cash charges).ÌýOperating income increased 8% to $83.7 million.ÌýOperating income included $3.0 million of non-cash asset impairment charges related to certain intangible and fixed assets at one of the Cornerstone brands.Ìý
    Ìý
  • Adjusted EPS increased 16% to $0.89 compared to $0.77 in the prior year.ÌýGAAP diluted EPS increased 10% to $0.76 compared to $0.69 in the prior year.ÌýExcluding the non-cash asset impairment charges of $1.9 million, net of tax, or $0.03 per diluted share, GAAP diluted EPS would have been $0.79.

Full Year 2011 Results vs Full Year 2010 Results

  • HSNi's annual net sales grew 6% over the prior year to $3.2 billion.ÌýHSN's net sales increased 2% to $2.2 billion, including 9% growth in digital sales.ÌýCornerstone's net sales for the 53-week period in 2011 increased 15% to $1.0 billion, including 20% growth in digital sales, compared to the 52-week period in 2010.
    Ìý
  • HSNi's annual Adjusted EBITDA increased 16% to $300.0 million compared to $257.6 million in the prior year due to a 6% increase in net sales and an 80 basis point increase in gross profit margin, partially offset by a 6% increase in operating expenses (excluding non-cash charges).ÌýHSNi's operating income increased 18% to $232.0 million.ÌýOperating income included $3.0 million of non-cash asset impairment charges related to certain intangible and fixed assets at one of the Cornerstone brands.Ìý
    Ìý
  • Adjusted EPS increased 23% to $2.37 compared to $1.92 in the prior year.ÌýGAAP diluted EPS increased 23% to $2.03 compared to $1.65 in the prior year.ÌýExcluding the non-cash asset impairment charges of $1.9 million, net of tax, or $0.03 per diluted share, GAAP diluted EPS would have been $2.06.Ìý

"HSNi's positive performance for the quarter and the year was a result of maintaining our focus on expanding our digital presence, deepening customer engagement and emphasizing customer acquisition and retention," said Mindy Grossman, CEO of HSN, Inc. "HSN ended 2011 with its largest customer file growth in four years and Cornerstone's 12-month house file was at record levels for Frontgate, Ballard Designs and Garnet Hill. HSNi's digital growth of 13% for the quarter resulted in our highest digital penetration to date of 45%."

"We also implemented our capital return plan for shareholders in the fourth quarter and have purchased over 14% of the authorized amount to date, in addition to paying out our first quarterly dividend. These efforts reflect our ongoing commitment to drive shareholder value."

Table 2 Ìý Ìý Ìý
SEGMENT RESULTS
($ in millions)
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Three Months Ended
December 31,
Year Ended
December 31,
Ìý 2011 2010 Change 2011 2010 Change
Net Sales Ìý Ìý Ìý Ìý Ìý Ìý
HSNÌý Ìý$Ìý639.2 Ìý$Ìý636.8 0% Ìý$Ìý2,160.3 Ìý$Ìý2,115.9 2%
CornerstoneÌý Ìý315.8 Ìý278.4 13% Ìý1,016.8 Ìý880.9 15%
Total HSNi Ìý$Ìý955.0 Ìý$Ìý915.2 4% Ìý$Ìý3,177.2 Ìý$Ìý2,996.8 6%
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Gross ProfitÌý Ìý Ìý Ìý Ìý Ìý Ìý
HSN Ìý$Ìý211.9 Ìý$Ìý205.4 3% Ìý$Ìý741.3 Ìý$Ìý709.2 5%
Cornerstone Ìý124.8 Ìý110.7 13% Ìý408.8 Ìý351.8 16%
Total HSNiÌý Ìý$Ìý336.7 Ìý$Ìý316.1 7% Ìý$Ìý1,150.1 Ìý$Ìý1,061.0 8%
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Adjusted EBITDA (Non-GAAP measure) Ìý Ìý Ìý Ìý Ìý Ìý
HSNÌý Ìý$Ìý79.5 Ìý$Ìý75.1 6% Ìý$Ìý235.2 Ìý$Ìý213.6 10%
CornerstoneÌý Ìý24.1 Ìý18.2 32% Ìý64.9 Ìý44.0 47%
Total HSNi Ìý$Ìý103.6 Ìý$Ìý93.3 11% Ìý$Ìý300.0 Ìý$Ìý257.6 16%
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Operating IncomeÌý Ìý Ìý Ìý Ìý Ìý Ìý
HSNÌý Ìý$Ìý70.0 Ìý$Ìý64.2 9% Ìý$Ìý192.9 Ìý$Ìý168.7 14%
CornerstoneÌý Ìý13.7 Ìý13.2 3% Ìý39.1 Ìý27.4 43%
Total HSNi Ìý$Ìý83.7 Ìý$Ìý77.4 8% Ìý$Ìý232.0 Ìý$Ìý196.1 18%
Ìý Ìý Ìý Ìý
Table 3 Ìý Ìý Ìý
SEGMENT KEY OPERATING METRICS
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Three Months Ended
December 31,
Year Ended
December 31,
Ìý 2011 2010 ÌýChangeÌý 2011 2010 ÌýChangeÌý
HSN: Ìý Ìý Ìý Ìý Ìý Ìý
Average price point Ìý$Ìý63.65 Ìý$Ìý65.09 (2%) Ìý$Ìý62.79 Ìý$Ìý61.00 3%
Units shipped (millions) Ìý12.1 Ìý11.6 4% Ìý41.3 Ìý40.6 2%
Gross profit margin Ìý33.2% Ìý32.3% 90 bps Ìý34.3% Ìý33.5% 80 bps
Return rateÌý Ìý19.5% Ìý18.7% (80 bps) Ìý20.0% Ìý18.9% (110 bps)
Digital sales penetration (a) 36.2% 33.7% 250 bps 33.8% 31.8% 200 bps
Cornerstone: Ìý Ìý Ìý Ìý Ìý Ìý
Average price point Ìý$Ìý66.44 Ìý$Ìý67.66 (2%) Ìý$Ìý70.06 Ìý$Ìý67.22 4%
Units shipped (millions) Ìý5.0 Ìý4.3 16% Ìý15.2 Ìý13.8 10%
Gross profit margin Ìý39.5% Ìý39.8% (30 bps) Ìý40.2% Ìý39.9% 30 bps
Return rateÌý Ìý14.0% Ìý14.2% 20 bps Ìý14.3% Ìý14.8% 50 bps
Digital sales penetration (a) 61.6% 58.6% 300 bps 59.2% 57.0% 220 bps
Catalog circulation (millions) Ìý86.2 Ìý78.9 9% Ìý308.0 Ìý275.3 12%
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
(a) Digital net sales as a percent of segment net sales. Ìý Ìý Ìý

HSN Segment Results for the Fourth Quarter 2011

HSN's net sales were $639.2 million, an increase of 0.4% from the prior year.ÌýDigital sales grew 8% with penetration increasing 250 basis points to 36.2%.ÌýSales grew primarily in electronics and home design, offset by sales declines in fashion and wellness.Ìý The average price point decreased 2% and the units shipped increased 4% primarily due to mix shifts within categories.Ìý

Gross profit increased 3% to $211.9 million.ÌýGross profit margin improved 90 basis points to 33.2% from 32.3%.ÌýThe margin increase was primarily attributable to decreased inventory reserves and liquidation charges, lower inbound freight costs, and lower transaction costs; partially offset by changes in product pricing and mix.

Adjusted EBITDA increased 6% to $79.5 million compared to $75.1 million in the prior year. ÌýThe increase was due to the increase in gross profit, partially offset by an increase in operating expenses.ÌýOperating income increased 9% to $70.0 million compared to $64.2 million in the prior year.

Cornerstone Segment Results for the Fourth Quarter 2011

Net sales for Cornerstone for the 14-week period in 2011 increased 13% to $315.8 million compared to the 13-week period in 2010.ÌýDigital sales grew 19% with penetration increasing 300 basis points to 61.6%.Ìý

As a result of the sales growth, gross profit increased 13% to $124.8 million.ÌýGross profit margin decreased 30 basis points to 39.5% from 39.8%.ÌýThe margin decrease was primarily attributable to increased promotional activity, partially offset by lower inbound and outbound freight costs in the home brands.ÌýÌýÌýÌýÌýÌýÌý

Adjusted EBITDA increased 32% to $24.1 million.ÌýThe increase was primarily due to growth in net sales, partially offset by a 12% increase in selling and marketing costs, particularly catalog production and distribution costs.ÌýOperating income was $13.7 million compared to $13.2 million in the prior year.ÌýOperating income at Cornerstone included non-cash asset impairment charges of $3.0 million related to certain intangible and fixed assets at one of the Cornerstone brands.

Liquidity and Capital Resources

As of December 31, 2011, HSNi had cash and cash equivalents of $381.8 million, up from $354.3 million at December 31, 2010.ÌýNet cash provided by operating activities for the year ended December 31, 2011 was $166.3 million compared to $133.6 million in the prior year.ÌýThis increase was primarily driven by improved operating performance.Ìý

In October 2011, HSNi made a voluntary prepayment of the remaining $69.8 million balance of its term loan and in November 2011, HSNi paid its first quarterly dividend of $7.4 million.ÌýDuring the fourth quarter, HSNi repurchased approximately 791,000 shares of its common stock at a cost of $28.1 million, or an average cost of $35.46 per share, related to its share repurchase program authorized in September 2011.ÌýIncluding the additional shares repurchased through February 22, 2012, HSNi repurchased approximately 1,421,000 shares of its common stock at a cost of $50.8 million, or an average cost of $35.73.

On February 22, 2012, the Board of Directors approved a cash dividend of $0.125 per share.ÌýThe dividend will be paid on March 21, 2012 to HSNi's record holders as of March 7, 2012.

OTHER INFORMATION

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This press release may contain forward-looking statements relating to the future performance of HSNi, its operating segments and its consolidated subsidiaries that are based on current expectations, forecasts and assumptions. These statements relate to expectations concerning matters that are not historical fact.ÌýThese forward-looking statements are based largely on information currently available to our management and on our current expectations, assumptions, plans, estimates, judgments and projections about our business and our industry, and such statements involve inherent risks and uncertainties.ÌýAlthough we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance and there are a number of known and unknown risks, uncertainties, contingencies and other factors (many of which are outside our control) that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.ÌýFactors that could cause or contribute to such differences include but are not limited to:Ìýthe continued impact of the current macroeconomic environment on consumer confidence and spending levels; whether national economic stimulus initiatives and measures to improve the economy will be successful in achieving their objectives within the expected timeframes; other changes in political, business and economic conditions, particularly those that affect consumer confidence, consumer spending or digital sales growth; changes in our relationships with pay television operators, vendors, manufacturers and other third parties; changes in product delivery costs, particularly if we are unable to offset them; our ability to offer new or alternative products and services in a cost effective manner and consumer acceptance of these products and services; any technological or regulatory developments that could negatively impact the way we do business, including regulations regarding state and local sales and use taxes; HSNi's business prospects and strategy, including whether HSNi's initiatives will be effective; and the loss of any key member of our senior management team. ÌýMore information about potential factors that could affect HSNi's business and financial results is included in our filings with the U.S. Securities and Exchange Commission. ÌýOther unknown or unpredictable factors that could also adversely affect HSNi's business, financial condition and results of operations may arise from time to time. ÌýIn light of these risks and uncertainties, any forward-looking statements may not prove to be accurate.ÌýAll written or oral forward-looking statements that are made or attributable to us are expressly qualified in their entirety by this cautionary notice.ÌýAccordingly, you should not place undue reliance on any forward-looking statements, which only reflect the views of HSNi management as of the date of this press release.ÌýSuch statements speak only to the date such statements are made and HSNi does not undertake to update any forward-looking statements.ÌýHistorical results should not be considered as an indication of future performance.

Conference Call

Mindy Grossman, Chief Executive Officer, and Judy Schmeling, Executive Vice President and Chief Financial Officer, will hold a conference call on February 23, 2012 at 9:00 a.m., Eastern Time, to discuss these results.ÌýThose interested in participating in the conference call should dial 877-307-0246 or 224-357-2394 at least five minutes prior to the call.ÌýThere will also be a simultaneous audio webcast available via HSNi's website at .Ìý

A replay of the conference call can be accessed until Thursday, March 8, 2012 by dialing 855-859-2056 or 404-537-3406, plus the pass code 42849184 and will also be hosted on the company's website for a limited time.Ìý

jvidÊÓƵ HSN, Inc.

HSN, Inc. (Nasdaq:HSNI) is a $3 billion interactive multichannel retailer with strong direct-to-consumer expertise among its two operating segments, HSN and Cornerstone. HSNi offers innovative, differentiated retail experiences on TV, online, via mobile devices, in catalogs, and in brick and mortar stores. HSN, a leading interactive multi-channel retailer which offers a curated assortment of exclusive products combined with top brand names, now reaches approximately 96 million homes (24 hours a day, seven days a week, live 364 days a year). is a top 10 trafficked digital sales site that offers a differentiated digital experience by leveraging content, community and commerce. In addition to its existing media platforms, HSN is the industry leader in transactional innovation, including services such as HSN Shop by Remote®, the only service of its kind in the U.S., the HSN Shopping App for mobile handheld devices and HSN on Demand®. Cornerstone comprises leading home and apparel lifestyle brands including ÌýBallard Designs®, Frontgate®, Garnet Hill®, Grandin Road®, Improvements®, Smith + Noble®, The Territory Ahead® and TravelSmith®. Cornerstone distributes more than 300 million catalogs annually, operates eight separate digital sales sites and operates 19 retail and outlet stores.Ìý

The HSN, Inc. logo is available at

GAAP FINANCIAL STATEMENTS
HSN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Ìý Ìý Ìý Ìý
(unaudited; in thousands except per share amounts) Ìý Ìý Ìý Ìý
Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Ìý Three Months Ended
December 31,
Year Ended
December 31,
Ìý 2011 2010 2011 2010
Ìý Ìý Ìý Ìý Ìý Ìý
Net salesÌý Ìý$Ìý954,996 Ìý$Ìý915,216 Ìý$Ìý3,177,154 Ìý$Ìý2,996,780
Cost of salesÌý Ìý618,303 Ìý599,074 Ìý2,027,100 Ìý1,935,766
Gross profit Ìý336,693 Ìý316,142 Ìý1,150,054 Ìý1,061,014
Operating expenses:Ìý Ìý Ìý Ìý Ìý
Selling and marketing Ìý163,341 Ìý155,789 Ìý577,210 Ìý538,689
General and administrative Ìý63,877 Ìý57,747 Ìý241,970 Ìý226,971
Production and programming Ìý16,188 Ìý15,538 Ìý61,915 Ìý60,235
Depreciation and amortizationÌý Ìý9,621 Ìý9,624 Ìý36,960 Ìý39,032
Total operating expenses Ìý253,027 Ìý238,698 Ìý918,055 Ìý864,927
Operating income Ìý83,666 Ìý77,444 Ìý231,999 Ìý196,087
Interest expense, net Ìý(7,895) Ìý(8,054) Ìý(31,593) Ìý(32,523)
Income before income taxes Ìý75,771 Ìý69,390 Ìý200,406 Ìý163,564
Income tax provision Ìý(29,253) Ìý(28,103) Ìý(77,336) Ìý(65,041)
Net income Ìý$Ìý46,518 Ìý$Ìý41,287 Ìý$Ìý123,070 Ìý$Ìý98,523
Ìý Ìý Ìý Ìý Ìý Ìý
Net income per share: Ìý Ìý Ìý Ìý
Basic Ìý$Ìý0.79 Ìý$Ìý0.71 Ìý$Ìý2.10 Ìý$Ìý1.72
DilutedÌý Ìý$Ìý0.76 Ìý$Ìý0.69 Ìý$Ìý2.03 Ìý$Ìý1.65
Ìý Ìý Ìý Ìý Ìý Ìý
Shares used in computing earnings per share: Ìý Ìý Ìý Ìý
ÌýBasic Ìý58,818 Ìý57,817 Ìý58,636 Ìý57,414
ÌýDilutedÌý Ìý60,816 Ìý59,973 Ìý60,689 Ìý59,546
Ìý Ìý Ìý Ìý Ìý
Dividends declared per common share Ìý$Ìý-- Ìý$Ìý-- Ìý$Ìý0.125 Ìý$Ìý--
Ìý
HSN, INC. CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
Ìý December 31,
Ìý 2011 2010
ASSETS Ìý Ìý
Current assets: Ìý Ìý
Cash and cash equivalents Ìý$Ìý381,808 Ìý$Ìý354,259
Accounts receivable, net Ìý222,583 Ìý195,748
Inventories Ìý296,460 Ìý296,390
Deferred income taxes Ìý24,302 Ìý28,801
Prepaid expenses and other current assets Ìý44,966 Ìý42,443
Total current assets Ìý970,119 Ìý917,641
Property and equipment, net Ìý158,434 Ìý154,987
Intangible assets, net Ìý258,048 Ìý260,623
Other non-current assets Ìý8,372 Ìý12,492
TOTAL ASSETS Ìý$Ìý1,394,973 Ìý$Ìý1,345,743
LIABILITIES AND SHAREHOLDERS' EQUITY Ìý Ìý
Current liabilities: Ìý Ìý
Accounts payable, trade Ìý$Ìý270,227 Ìý$Ìý244,301
Current maturities of long-term debt Ìý--Ìý Ìý5,820
Accrued expenses and other current liabilities Ìý193,991 Ìý216,114
Total current liabilities Ìý464,218 Ìý466,235
Long-term debt, net of current maturities Ìý239,111 Ìý302,938
Deferred income taxes Ìý78,131 Ìý80,203
Other long-term liabilities Ìý23,816 Ìý19,904
Total liabilities Ìý805,276 Ìý869,280
Ìý Ìý Ìý
TOTAL SHAREHOLDERS' EQUITY Ìý589,697 Ìý476,463
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Ìý$Ìý1,394,973 Ìý$Ìý1,345,743
Ìý
HSN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
Ìý Ìý
Ìý Year Ended
December 31,
Ìý 2011 2010
Ìý Ìý Ìý
Cash flows from operating activities:
Net income Ìý$Ìý123,070 Ìý$Ìý98,523
Adjustments to reconcile net income to net cash provided by operating activities: Ìý Ìý
Depreciation and amortization Ìý36,960 Ìý39,032
Stock-based compensation expenseÌý Ìý26,401 Ìý21,232
Amortization of cable and satellite distribution fees Ìý850 Ìý3,358
Amortization of debt issuance costs Ìý2,941 Ìý2,571
Loss on disposition of fixed assets Ìý1,684 Ìý1,272
Deferred income taxes Ìý2,238 Ìý(2,808)
Bad debt expense Ìý19,758 19,827
Excess tax benefits from stock-based awards Ìý(10,246) Ìý(3,112)
Asset impairments Ìý2,976 Ìý--Ìý
Changes in current assets and liabilities:Ìý Ìý Ìý
Accounts receivable Ìý(46,703) Ìý(32,699)
Inventories Ìý(70) Ìý(34,917)
Prepaid expenses and other assets Ìý(2,000) Ìý3,645
Accounts payable, accrued expenses and other current liabilities Ìý8,394 Ìý17,692
Net cash provided by operating activities Ìý166,253 Ìý133,616
Cash flows from investing activities: Ìý Ìý
Capital expenditures Ìý(42,319) Ìý(37,508)
Net cash used in investing activities Ìý(42,319) Ìý(37,508)
Cash flows from financing activities: Ìý Ìý
Repayment of long-term debt Ìý(69,841) Ìý(30,159)
Cash dividends paidÌý Ìý(7,384) Ìý--
Issuance of common stock, net of withholding taxesÌý Ìý(2,585) Ìý15,277
Repurchases of common stockÌý Ìý(26,821) Ìý--
Excess tax benefits from stock-based awards Ìý10,246 Ìý3,112
Net cash used by financing activities Ìý(96,385) Ìý(11,770)
Net increase in cash and cash equivalents Ìý27,549 Ìý84,338
Cash and cash equivalents at beginning of period Ìý354,259 Ìý269,921
Cash and cash equivalents at end of period Ìý$Ìý381,808 Ìý$Ìý354,259
Ìý
Table 4
RECONCILIATIONS OF NON-GAAP TO GAAP MEASURES
HSN, INC. RECONCILIATION OF ADJUSTED EPS TO GAAP DILUTED EPS Ìý Ìý Ìý Ìý
(unaudited; in thousands except per share amounts) Ìý Ìý Ìý Ìý
Ìý Ìý Ìý Ìý Ìý
Ìý Three Months Ended
December 31,
Year Ended
December 31,
Ìý 2011 2010 2011 2010
Ìý Ìý Ìý Ìý Ìý
Adjusted EPSÌý Ìý$Ìý0.89 Ìý$Ìý0.77 Ìý$Ìý2.37 Ìý$Ìý1.92
Adjusted Net IncomeÌý Ìý$Ìý54,178 Ìý$Ìý46,091 Ìý$Ìý143,804 Ìý$Ìý114,166
Stock-based compensation expense Ìý(7,010) Ìý(6,168) Ìý(26,401) Ìý(21,232)
Amortization of intangible assets Ìý-- Ìý(140) Ìý(375) Ìý(561)
Asset impairments Ìý(2,976) Ìý-- Ìý(2,976) Ìý--
Loss on disposition of fixed assets Ìý(337) Ìý(64) Ìý(1,684) Ìý(1,272)
Impact of income taxes Ìý2,663 Ìý1,568 Ìý10,702 Ìý7,422
Net Income Ìý$Ìý46,518 Ìý$Ìý41,287 Ìý$Ìý123,070 Ìý$Ìý98,523
GAAP diluted weighted average shares outstandingÌý Ìý60,816 Ìý59,973 Ìý60,689 Ìý59,546
GAAP Diluted EPS Ìý$Ìý0.76 Ìý$Ìý0.69 Ìý$Ìý2.03 Ìý$Ìý1.65
Ìý
HSN, INC. RECONCILIATION OF NON-GAAP DETAILED SEGMENT RESULTS TO GAAP
(unaudited; in thousands) Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Ìý Ìý
Ìý Three Months Ended
December 31, 2011
Three Months Ended
December 31, 2010
Ìý ÌýHSNÌý Cornerstone ÌýTotalÌý ÌýHSNÌý Cornerstone ÌýTotalÌý
Ìý
Adjusted EBITDA Ìý$Ìý79,540 Ìý$Ìý24,070 Ìý$Ìý103,610 Ìý$Ìý75,115 Ìý$Ìý18,185 Ìý$Ìý93,300
Stock-based compensation expense Ìý(2,351) Ìý(4,659) Ìý(7,010) Ìý(3,408) Ìý(2,760) Ìý(6,168)
Depreciation and amortization Ìý(6,865) Ìý(2,756) Ìý(9,621) Ìý(7,435) Ìý(2,189) Ìý(9,624)
Asset impairments Ìý-- Ìý(2,976) Ìý(2,976) Ìý-- Ìý-- Ìý--
Loss on disposition of fixed assets Ìý(334) Ìý(3) Ìý(337) Ìý(50) Ìý(14) Ìý(64)
Operating income Ìý$Ìý69,990 Ìý$Ìý13,676 Ìý83,666 Ìý$Ìý64,222 Ìý$Ìý13,222 Ìý77,444
Interest expense, net Ìý Ìý Ìý(7,895) Ìý Ìý Ìý(8,054)
Income before income taxesÌý Ìý Ìý Ìý75,771 Ìý Ìý Ìý69,390
Income tax provision Ìý Ìý Ìý(29,253) Ìý Ìý Ìý(28,103)
Net income Ìý Ìý Ìý$Ìý46,518 Ìý Ìý Ìý$Ìý41,287
Ìý Ìý Ìý Ìý Ìý Ìý Ìý
Ìý Year Ended
December 31, 2011
Year Ended
December 31, 2010
Ìý ÌýHSNÌý Cornerstone ÌýTotalÌý ÌýHSNÌý Cornerstone ÌýTotalÌý
Ìý
Adjusted EBITDA Ìý$ 235,163 Ìý$Ìý64,857 Ìý$Ìý300,020 Ìý$ 213,612 Ìý$Ìý44,011 Ìý$ 257,623
Stock-based compensation expense Ìý(13,101) Ìý(13,300) Ìý(26,401) Ìý(13,507) Ìý(7,725) Ìý(21,232)
Depreciation and amortization Ìý(27,652) Ìý(9,308) Ìý(36,960) Ìý(30,183) Ìý(8,849) Ìý(39,032)
Asset impairments Ìý-- Ìý(2,976) Ìý(2,976) Ìý-- Ìý-- Ìý--
Loss on disposition of fixed assets Ìý(1,482) Ìý(202) Ìý(1,684) Ìý(1,198) Ìý(74) Ìý(1,272)
Operating income Ìý$ 192,928 Ìý$Ìý39,071 Ìý231,999 Ìý$ 168,724 Ìý$Ìý27,363 Ìý196,087
Interest expense, net Ìý Ìý Ìý(31,593) Ìý Ìý Ìý(32,523)
Income before income taxesÌý Ìý Ìý Ìý200,406 Ìý Ìý Ìý163,564
Income tax provision Ìý Ìý Ìý(77,336) Ìý Ìý Ìý(65,041)
Net income Ìý Ìý Ìý$Ìý123,070 Ìý Ìý Ìý$Ìý98,523

SEE IMPORTANT NOTES AT END OF THIS DOCUMENT

HSN, INC.'S PRINCIPLES OF FINANCIAL REPORTING

HSNi reports Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, all of which are supplemental measures to GAAP. These measures are among the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. ÌýThese non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. HSNi endeavors to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measures with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measures contained in this release and which we discuss below.

Definitions of Non-GAAP Measures

Adjusted EBITDA is defined as operating income excluding, if applicable: (1)Ìýnon-cash charges including: (a) stock-based compensation expense, (b)Ìýamortization of intangibles, (c)Ìýdepreciation and gains and losses on asset dispositions, and (d)Ìýgoodwill, long-lived asset and intangible asset impairments; (2)Ìýpro forma adjustments for significant acquisitions; and (3)Ìýone-time items. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered 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.ÌýAdjusted EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi's statement 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 one-time items.

Adjusted Net Income generally captures all items on the statement of operations that have been, or ultimately will be, settled in cash and is defined as net income available to common shareholders excluding, net of tax effects, if applicable: (1)Ìýstock-based compensation expense, (2)Ìýamortization of intangible assets, (3) gains and losses on asset dispositions, (4) goodwill, long-lived asset and intangible asset impairments, (5)Ìýpro forma adjustments for significant acquisitions, (6)Ìýone-time items and (7) discontinued operations.Ìý We believe Adjusted Net Income is useful to investors because it represents HSNi's consolidated results taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items.

Adjusted EPS is defined as Adjusted Net Income divided by diluted weighted average shares outstanding for Adjusted EPS purposes.Ìý We believe Adjusted EPS is useful to investors because it represents, on a per share basis, HSNi's consolidated results, taking into account charges which are not allocated to the operating businesses such as interest expense and taxes, but excluding the effects of identified non-cash expenses or one-time items.Ìý Adjusted Net Income and Adjusted EPS have the same limitations as Adjusted EBITDA.ÌýTherefore, we think it is important to evaluate these measures along with our consolidated statement of operations.

CONTACT: Felise Glantz Kissell (Analysts/Investors)
         727-872-7529
         felise.kissell@hsn.net

         Gigi Ganatra Duff (Media)
         727-872-4808
         gigi.ganatraduff@hsn.net

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Source: HSN, Inc.