Home Shopping Network 2010 Annual Report Download - page 31

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Table of Contents
Interest expense for the years ended December 31, 2010 and 2009 primarily relates to the $240 million of 11.25% senior notes and the
$150 million five-year term loan which were issued in the third quarter of 2008 in connection with the spin-off from IAC. The decrease in
interest expense in 2010 compared to 2009 is due to the partial repayment of the term loan and a decrease in the average interest rate of the term
loan. The increase in the interest expense in 2009 compared to 2008 is due to the longer period in which the debt was outstanding, offset slightly
by the lower interest rate on the term loan in 2009.
Income Tax Provision
For the years ended December 31, 2010 and 2009, HSNi recorded tax provisions from continuing operations of $65.0 million and $48.1
million, respectively, which represent effective tax rates of 39.8% and 39.9%, respectively. The 2010 and 2009 tax rates are higher than the
federal statutory rate of 35% due principally to state income taxes.
For the year ended December 31, 2008, HSNi recorded a tax benefit from continuing operations of $730.8 million, which represents an
effective tax rate of 23.4%. The 2008 tax rate is lower than the federal statutory rate of 35% due principally to the non-deductible impairment
charges of goodwill and intangible assets. This rate is also lower than the 35% federal statutory rate due to the reversal of an interest accrual on a
tax liability and adjustments related to state income tax rates.
Included in the 2008 income tax benefit is the reversal of $753.3 million of deferred tax liabilities related to the goodwill and intangible
asset impairments. These deferred tax liabilities for both HSN and Cornerstone were recorded upon the acquisition of certain business operations
and interests in prior years in accordance with the prescribed accounting rules.
Discontinued Operations
Discontinued operations in the accompanying consolidated statements of operations include HSNi’s international subsidiaries that
previously conducted business in the United Kingdom (which was dissolved in September 2009), Belgium and Mexico. Loss from discontinued
operations, net of tax, in 2010, 2009 and 2008 was less than $0.1 million, $0.1 million and $3.4 million, respectively. Loss from discontinued
operations, net of tax, in 2008 primarily relates to 2007 income tax returns filed in 2008. The entities included in discontinued operations are not
expected to generate any material income, losses or cash flows in future periods.
Liquidity and Capital Resources
As of December 31, 2010, HSNi had $354.3 million of cash and cash equivalents, up from $269.9 million as of December 31, 2009.
Net cash provided by operating activities attributable to continuing operations was $133.6 million in 2010 compared to $202.6 million in
2009, a decrease of $68.9 million. This decrease was primarily due to an increase in inventories to support sales growth and increased payments
of income taxes and trade payables, partially offset by the improved operating performance. Gross inventory balances have increased 13% from
December 31, 2009.
Net cash used in investing activities attributable to continuing operations in 2010 of $37.5 million resulted from capital expenditures. The
capital expenditures were primarily at HSN and were for investments in information technology, campus renovations and broadcasting-related
investments. Net cash used in investing activities attributable to continuing operations in 2009 of $41.4 million resulted from capital
expenditures primarily at HSN and were for investments in equipment relating to high-definition television programming, campus renovations
and other information technology and broadcast-related investments.
Net cash used in financing activities attributable to continuing operations in 2010 was $11.8 million which included a $30.2 million
repayment of long-term debt under the term loan, $15.3 million of cash proceeds received from the issuance of common stock pursuant to stock-
based awards net of withholding taxes, and $3.1 million of
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