Home Shopping Network 2011 Annual Report Download - page 58

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2011 and 2010, HSNi granted approximately 57,000 and 27,000 options,
respectively, under the ESPP. The fair value of each option granted under the ESPP is determined on the grant
date using the Black-Scholes option pricing model. The following are the weighted average assumptions used in
the valuation of the ESPP options for the years ended December 31, 2011 and 2010:
Year Ended December 31,
2011 2010
Volatility factor ......................................... 56.6% 56.6%
Risk-free interest rate ..................................... 0.15% 0.20%
Expected term ........................................... 0.50 0.42
Dividend yield .......................................... — —
For the years ended December 31, 2011 and 2010, approximately $0.5 million and $0.2 million,
respectively, of expense was included in the consolidated statements of operations. For the years ended
December 31, 2011 and 2010, HSNi received cash proceeds from the participating employees of approximately
$1.4 million and $0.7 million, respectively.
Restricted Common Equity in Cornerstone Brands
In connection with the acquisition of Cornerstone Brands by IAC in 2005 certain members of Cornerstone
Brand’s management were granted restricted common equity in Cornerstone Brands. These awards were granted
on April 1, 2005 and were initially measured at fair value, which was amortized to expense over the vesting
period. These awards vested ratably over four years, or earlier based upon the occurrence of certain prescribed
events. The awards vest in non-voting restricted common shares of Cornerstone Brands.
These shares are subject to a put right by the holders, some of which became exercisable in the first quarter
of 2010 and others of which become exercisable annually thereafter, and a call right by HSNi, which is not
exercisable until the first quarter of 2012 and annually thereafter. The value of these shares upon exercise of the
put or call is equal to their fair value, determined by negotiation or arbitration, reduced by the accreted value of
the preferred interest that was taken by IAC upon the purchase of Cornerstone Brands. The initial value of the
preferred interest was equal to the acquisition price of Cornerstone Brands. The preferred interest accretes value
at a 15% annual rate. Upon exercise of the put or call the consideration is payable in HSNi shares or cash or a
combination thereof at HSNi's option. As of December 31, 2011, these awards were significantly out of the
money and are not expected to result in any cost should HSNi exercise its call right.
NOTE 12—INCOME TAXES
The components of the provision for income taxes are as follows (in thousands):
Year Ended December 31,
2011 2010 2009
Current income tax provision:
Federal ......................................................... $(66,190) $(60,326) $(47,188)
State ........................................................... (8,908) (7,523) (7,742)
Current income tax provision ........................................ (75,098) (67,849) (54,930)
Deferred income tax (provision) benefit:
Federal ......................................................... (1,838) 5,104 5,813
State ........................................................... (400) (2,296) 981
Deferred income tax (provision) benefit ............................... (2,238) 2,808 6,794
Income tax provision .............................................. $(77,336) $(65,041) $(48,136)
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