Cablevision 2013 Annual Report Download - page 74

(68)
Technical and operating expenses (excluding depreciation and amortization shown below) for 2012
increased $326,045 (14%) as compared to 2011. The net increase is attributable to the following:
Increase in programming costs due primarily to contractual rate increases and new channel
launches, partially offset by lower subscribers in our service area ................................................... $125,154
Expenses, net of programming and other credits, incurred as a result of Superstorm Sandy in 2012
(see discussion above) ................................................................................................................... 57,252
Increase in employee related costs, which includes increases related to the compensation study
(see discussion below) of approximately $14,100 ........................................................................... 46,291
Adjustment recorded in the fourth quarter of 2011 related to estimated programming costs
recorded in years prior to 2011 resulting from the renewals of contracts that expired in previous
years.............................................................................................................................................. 42,900
Increase in network, field operations and customer premise equipment repairs and maintenance
costs .............................................................................................................................................. 18,791
Increase in high-speed data and voice-related costs, and other voice related fees ................................ 19,503
Increase in contractor costs due to increased truck rolls ..................................................................... 12,168
Contract termination cost related to an equipment purchase commitment ........................................... 9,356
Employee overtime and repair costs attributed to two severe storms in 2011 ...................................... (16,300)
Other net increases .......................................................................................................................... 10,930
$326,045
Technical and operating expenses consist primarily of programming costs (including costs of video-on-
demand and pay-per-view) and direct costs associated with providing and maintaining services to our
customers. These costs typically rise due to increases in contractual programming rates and general
inflationary cost increases for employees, contractors, insurance and other various expenses. Certain of
these costs are also variable based on the number of customers. Our programming costs increased 12% in
2012. Costs of field operations also increase as the portion of our expenses that we are able to capitalize
decrease due to lower new customer installations and lower new service upgrades. Network related costs
also fluctuate as capitalizable network upgrade and enhancement activity changes. Franchise fees are
payable to the state governments and local municipalities where we operate and are primarily based on a
percentage of certain categories of revenue, primarily video revenue, which vary by state and
municipality. These costs change in relation to changes in such categories of revenues or rate changes.
As a result of a comprehensive study of its non-executive compensation practices with a focus on
individual competitive pay and career advancement, certain compensation changes were implemented
during the second quarter of 2012, most of which were effective May 1, 2012, resulting in an increase in
costs for the year ended December 31, 2012 as reflected in the table above and below.
Selling, general and administrative expenses increased $64,694 (6%) for 2012 as compared to 2011. The
net increase is attributable to the following:
Increase in employee related costs, which includes increases related to the compensation study
(see discussion above) of approximately $18,900 .........................................................................
.
$48,417
Expenses incurred as a result of Superstorm Sandy in 2012 (see discussion above) ..........................
.
15,118
Increase in share-based compensation expense ................................................................................
.
10,978
Decrease in advertising and marketing costs ...................................................................................
.
(8,469)
Decrease in customer payment processing fees related to a reduction in rates ..................................
.
(6,383)
Executive separation costs in the fourth quarter of 2011 ..................................................................
.
(3,040)
Employee overtime attributed to two severe storms in 2011 ............................................................
.
(3,800)
Other net increases, including allocations of corporate overhead costs .............................................
.
11,873
$64,694
Selling, general and administrative expenses include customer related costs, principally from the
operation and maintenance of our call center facilities that handle customer inquiries and billing and
collection activities. These costs generally rise as the number of customers grow and also as a result of