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 September 30, 2017 Three Months Ended September 30, 2016 HSN Cornerstone Total HSN Cornerstone Total Net income $ 16,227 $ 20,158 Income tax provision 12,700 12,716 Income before income taxes 28,927 32,874 Total other expense, net 4,017 4,001 Operating income (loss) $ 30,999 $ 1,945 32,944 $ 46,963 $ (10,088 ) 36,875 Non-cash charges: Stock-based compensation expense 2,978 1,048 4,026 3,671 568 4,239 Depreciation and amortization 7,690 3,444 11,134 7,304 3,214 10,518 Loss on sale of businesses and asset impairment (a) — — — — 11,195 11,195 Loss on disposition of fixed assets (15 ) 1 (14 ) 82 — 82 Transaction costs (b) 921 384 1,305 — — — Adjusted EBITDA $ 42,573 $ 6,822 $ 49,395 $ 58,020 $ 4,889 $ 62,909 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 HSN Cornerstone Total HSN Cornerstone Total Net income $ 70,249 $ 75,188 Income tax provision 45,130 45,742 Income before income taxes 115,379 120,930 Total other expense, net 11,726 11,988 Operating income (loss) $ 107,722 $ 19,383 127,105 $ 151,745 $ (18,827 ) 132,918 Non-cash charges: Stock-based compensation expense (c) 5,693 1,940 7,633 11,577 3,121 14,698 Depreciation and amortization 23,213 9,845 33,058 21,582 10,163 31,745 Loss on sale of businesses and asset impairment (a) — — — — 31,595 31,595 Loss on disposition of fixed assets 368 92 460 86 — 86 Transaction costs (b) 4,657 1,986 6,643 — — — Adjusted EBITDA $ 141,653 $ 33,246 $ 174,899 $ 184,990 $ 26,052 $ 211,042 (a) Cornerstone recorded a loss on the sale of TravelSmith and Chasing Fireflies of $11.2 million in the third quarter of 2016. In the second quarter of 2016, Cornerstone classified the two brands as held for sale and recorded a non-cash asset impairment charge of $20.4 million. See Note 14 of Notes to Consolidated Financial Statements for further information. (b) HSNi incurred approximately $1.3 million and $6.6 million for the three and nine months ended September 30, 2017, respectively, in transactions costs related to the Liberty Merger Agreement. (c) In the second quarter of 2017, HSNi reversed stock-based compensation expense of approximately $4.5 million (allocated $3.4 million and $1.1 million to HSN and CBI, respectively) as a result of the former Chief Executive Officer's resignation. The net sales for each of HSNi's reportable segments are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net sales: HSN $ 536,200 $ 569,669 $ 1,628,880 $ 1,705,215 Cornerstone 246,362 253,354 760,478 788,881 Total $ 782,562 $ 823,023 $ 2,389,358 $ 2,494,096 |