Home Shopping Network 2010 Annual Report Download - page 47

Table of Contents
HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
Advertising costs principally represent offline costs, including catalog production and distribution costs, and online advertising costs.
Advertising costs are expensed in the period incurred, except for Cornerstone’s direct costs of producing and distributing its catalogs, which are
capitalized. These capitalized costs are amortized over the expected future revenue stream, which is generally three months from the date
catalogs are mailed. Such capitalized costs totaled $17.6 million and $17.2 million at of December 31, 2010 and 2009, respectively, and are
included in “Prepaid expenses and other current assets” in the accompanying consolidated balance sheets.
Of these amounts, $13.0 million and $12.9 million at December 31, 2010 and 2009, respectively, related to catalogs that had not yet been
mailed. Advertising expense was $209.2 million, $196.7 million and $256.4 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
Amortization of Non-Cash Marketing
Amortization of non-cash marketing consists of non-cash marketing and advertising provided to HSNi by IAC. The non-cash marketing
was secured by IAC from Universal Television as part of the transaction pursuant to which Vivendi Universal Entertainment LLLP (“VUE”)
was created, and the subsequent transaction by which IAC sold its partnership interests in VUE. HSNi used the non-cash advertising for
television advertising on various NBC Universal network and cable channels through the third quarter of 2008 without any cash cost.
Income Taxes
HSNi accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that
the deferred tax asset will not be realized. HSNi records interest and penalties on potential tax contingencies as a component of income tax
expense and records interest net of any applicable related income tax benefit.
HSNi recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on its
technical merits. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon
ultimate settlement.
Stock-Based Compensation
HSNi recognizes compensation expense for stock-based awards, reduced for estimated forfeitures, on a straight-
line basis over the requisite
service period of the award, which is generally the vesting term of the outstanding stock awards. Tax benefits resulting from tax deductions in
excess of the stock-based compensation expense recognized in the consolidated statements of cash flows are reported as a component of
financing cash flows. HSNi issues new shares to satisfy equity vestings and exercises. See Note 12 for a further description for our stock
compensation plans.
Earnings (Loss) Per Share
We compute basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding
during the period. We compute diluted earnings (loss) per share using the treasury stock method.
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