Home Shopping Network 2011 Annual Report Download - page 30

39.8% and 39.9%, respectively. The 2011, 2010 and 2009 tax rates are higher than the federal statutory rate of
35% due principally to state income taxes.
Liquidity and Capital Resources
As of December 31, 2011, HSNi had $381.8 million of cash and cash equivalents, up from $354.3 million as
of December 31, 2010.
Net cash provided by operating activities was $166.3 million in 2011 compared to $133.6 million in 2010,
an increase of $32.7 million. This increase was primarily due to improved operating performance.
Net cash used in investing activities in 2011 of $42.3 million and in 2010 of $37.5 million resulted from
capital expenditures. The capital expenditures in both years were primarily at HSN and were for investments in
information technology, headquarter renovations and broadcasting-related investments.
Net cash used in financing activities in 2011 was $96.4 million and was primarily due to a $69.8 million
voluntary prepayment of the remaining balance of the term loan and $26.8 million used to repurchase our
common stock. HSNi also declared a cash dividend of $0.125 per common share resulting in a $7.4 million
payment during the fourth quarter of 2011. Additionally, in 2011 HSNi had an inflow of $10.2 million for excess
tax benefits from stock-based awards and a net outflow of $2.6 million for the issuance of common stock which
included $8.8 million of cash proceeds from stock option and employee stock purchase plan exercises, offset by
$11.5 million used to cover withholding taxes for our stock-based awards.
Net cash used in financing activities 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 excess tax benefits from stock-
based awards. The repayment of long-term debt under the term loan included a voluntary prepayment of
approximately $25.4 million in December 2010, of which approximately $19.6 million would have been required
to be paid in 2011. The $15.3 million of proceeds received from the issuance of common stock included $18.0
million of cash proceeds from stock option and employee stock purchase plan exercises, offset by $2.7 million
used to cover withholding taxes for our stock-based awards.
The credit agreement contains two principal financial covenants, each as defined in the credit agreement,
consisting of a maximum leverage ratio of 2.75x and a minimum interest coverage ratio of 3.00x, among other
covenants. HSNi was in compliance with all such covenants as of December 31, 2011, with a leverage ratio of
0.82x and an interest coverage ratio of 10.38x. The amount available under the credit agreement is reduced by the
amount of commercial and standby letters of credit issued under the revolving credit facility portion of the
agreement. As of December 31, 2011, there were $31.0 million of outstanding commercial and standby letters of
credit issued under the revolving credit facility. The ability to draw funds under the revolving credit facility is
dependent upon meeting the aforementioned financial covenants, which may limit HSNi’s ability to draw the full
amount of the facility. As of December 31, 2011, the additional amount that could be borrowed under the
revolving credit facility, in consideration of the financial covenants and outstanding letters of credit, was
approximately $119.0 million.
HSNi does not currently have any material commitments for capital expenditures; however, management
does anticipate that HSNi will need to make capital and other expenditures in connection with the development
and expansion of its operations. HSNi’s ability to fund its cash and capital needs will be affected by its ongoing
ability to generate cash from operations, the overall capacity and terms of its financing arrangements as discussed
above, and access to the capital markets. HSNi believes that its cash on hand, its anticipated operating cash
flows, its available unused portion of the revolving credit facility and its access to capital markets will be
sufficient to fund its operating needs, capital, investing and other commitments and contingencies for the
foreseeable future.
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