Home Shopping Network 2011 Annual Report Download - page 27

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distribution costs associated with an 11% increase in Cornerstone’s catalog circulation, an increase in
compensation and other employee-related costs primarily due to increased headcount, an increase in on-air
distribution costs and strategic investments in brand and event marketing at HSN. The increase in on-air
distribution costs was primarily due to HSN2, HSN’s second television shopping channel that debuted in August
2010.
General and Administrative Expense
General and administrative expense consists primarily of compensation and other employee-related costs
(including stock-based compensation) for personnel engaged in finance, legal, tax, human resources, information
technology and executive management functions, bad debts, facilities costs and fees for professional services.
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
HSN...................................... $166,847 4% $160,361 0% $159,869
As a percentage of HSN net sales ............... 7.7% 10 bp 7.6% (40 bp) 8.0%
Cornerstone ................................ $ 75,123 13% $ 66,610 6% $ 62,595
As a percentage of Cornerstone net sales ......... 7.4% (20 bp) 7.6% (80 bp) 8.4%
HSNi ..................................... $241,970 7% $226,971 2% $222,464
As a percentage of HSNi net sales .............. 7.6% 0 bp 7.6% (50 bp) 8.1%
HSNi’s general and administrative expense in 2011 increased 7%, or $15.0 million, and was 7.6% of net
sales, consistent with the prior year. The increase in expense was primarily driven by an increase in
compensation and other employee-related costs including $4.5 million of additional stock-based compensation,
higher insurance costs and $3.0 million of intangible and fixed asset impairment charges recorded by one of the
Cornerstone brands during the fourth quarter of 2011. These expenses were partially offset by a decrease in legal
costs due to a $2.5 million settlement recorded in the prior year.
HSNi’s general and administrative expense in 2010 increased 2%, or $4.5 million, and was 7.6% of net sales
as compared to 8.1% in the prior year. The increase in expense was driven by an increase in compensation and
other employee-related costs primarily due to stock-based compensation, partially offset by a decrease in
performance driven incentives.
Production and Programming Expense
Production and programming expense consists primarily of compensation and other employee-related costs
(including stock-based compensation) for personnel engaged in production and programming at HSN. Expenses
associated with on-air distribution of HSN, including expenses relating to pay television operators, are included
in selling and marketing expense.
Year Ended December 31,
2011 Change 2010 Change 2009
(Dollars in thousands)
Production and programming expense ............... $61,915 3% $60,235 6% $57,090
As a percentage of HSN net sales ................... 2.9% 10 bp 2.8% 0 bp 2.8%
Production and programming expense for 2011 increased 3%, or $1.7 million, and was 2.9% of HSN’s net
sales, as compared to 2.8% in the prior year. The increase in expense is primarily due to an increase in
compensation and employee-related costs, partially offset by a decrease in expense related to prior year
marketing events.
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