Segment Information | 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 |