Qurate Retail, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Segment Information (Note)

Segment Information (Note)

6 Months Ended

Jun. 30, 2017

Segment Reporting Information, Profit (Loss) [Abstract]

SEGMENT INFORMATION

HSNi presents its operating segments and related financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered and/or the target market. HSNi has two reportable segments, HSN and Cornerstone. The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies included in HSNi's Annual Report on Form 10-K for the year ended December 31, 2016. Corporate overhead expenses, including compensation for corporate employees, board of director expenses and fees for third-party accounting, legal and advisory services, are allocated to the segments based upon specific usage or other reasonable allocation methods. Intercompany accounts and transactions have been eliminated in consolidation.

HSNi’s primary performance metric is Adjusted EBITDA, which is defined as operating income excluding, if applicable: (1) non-cash charges including: (a) stock-based compensation expense, (b) amortization of intangibles, (c) depreciation and gains and losses on asset dispositions, and (d) goodwill, long-lived asset and intangible asset impairments; (2) pro forma adjustments for significant acquisitions; and (3) other significant items. Significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered in isolation or as 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. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi’s consolidated statements of operations of certain expenses, gains and losses; including stock-based compensation, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting expenses and other significant items.

The following tables reconcile HSNi’s consolidated net income to operating income for HSNi's operating segments and Adjusted EBITDA (in thousands):



	Three Months Ended June 30, 2017									Three Months Ended June 30, 2016
	HSN			Cornerstone			Total			HSN		Cornerstone			Total
Net income							$	32,774							$	26,445
Income tax provision							18,963								15,929
Income before income taxes							51,737								42,374
Total other expense, net							3,844								3,840
Operating income (loss)	$	39,210		$	16,371		55,581			$	55,138	$	(8,924	)	46,214
Non-cash charges:
Stock-based compensation expense (a)	(677		)	(419		)	(1,096		)	3,867		1,217			5,084
Depreciation and amortization	7,816			3,221			11,037			7,275		3,426			10,701
Asset impairment (b)	—			—			—			—		20,400			20,400
Loss on disposition of fixed assets	432			92			524			—		2			2
Transaction costs (c)	3,737			1,602			5,339			—		—			—
Adjusted EBITDA	$	50,518		$	20,867		$	71,385		$	66,280	$	16,121		$	82,401

	Six Months Ended June 30, 2017									Six Months Ended June 30, 2016
	HSN			Cornerstone			Total			HSN		Cornerstone			Total
Net income							$	54,021							$	55,030
Income tax provision							32,431								33,026
Income before income taxes							86,452								88,056
Total other expense, net							7,709								7,987
Operating income (loss)	$	76,723		$	17,438		94,161			$	104,783	$	(8,740	)	96,043
Non-cash charges:
Stock-based compensation expense (a)	2,715			892			3,607			7,906		2,554			10,460
Depreciation and amortization	15,523			6,400			21,923			14,278		6,949			21,227
Asset impairment (b)	—			—			—			—		20,400			20,400
Loss on disposition of fixed assets	382			92			474			4		—			4
Transaction costs (c)	3,737			1,602			5,339			—		—			—
Adjusted EBITDA	$	99,080		$	26,424		$	125,504		$	126,971	$	21,163		$	148,134

(a) In the second quarter of 2017, HSNi reversed stock-based compensation expense of approximately $4.5 million (which was allocated to HSN and CBI at $3.4 million and $1.1 million, respectively) as a result of the former Chief Executive Officer's resignation.
(b) In the second quarter of 2016, Cornerstone recorded a non-cash impairment charge of $20.4 million associated with TravelSmith and Chasing Fireflies, two brands held for sale as of June 30, 2016 and sold on September 8, 2016. See Note 14 for further information.
(c) HSNi incurred approximately $5.3 million in transactions costs related to the Liberty Merger Agreement in the second quarter of 2017.

The net sales for each of HSNi's reportable segments are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net sales:
HSN	$	532,151	$	557,163	$	1,092,680	$	1,135,547
Cornerstone	289,210		297,145		514,116		535,527
Total	$	821,361	$	854,308	$	1,606,796	$	1,671,074