Home Shopping Network 2008 Annual Report Download - page 23

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20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spin-Off
On November 5, 2007, IAC/InterActiveCorp (“IAC”) announced that its Board of Directors approved a
plan to separate IAC into five publicly traded companies, identifying HSN and Cornerstone, collectively, as one of
those five companies. In the consolidated financial statements, we refer to the separation transaction as the “spin-
off”. In anticipation of the spin-off, HSN, Inc. (“HSNi”) was incorporated as a Delaware corporation in May 2008.
Effective August 20, 2008, HSNi completed the spin-off and HSNi’s shares began trading on The Nasdaq Global
Select Stock Market under the symbol “HSNI”. Prior to the spin-off, HSNi was a wholly owned subsidiary of IAC
and did not have any material assets or liabilities, nor did HSNi engage in any business or other activities and, other
than in connection with the spin-off, did not acquire or incur any material assets or liabilities. Since completion of
the spin-off, HSNi now consists of HSN and Cornerstone, the principal businesses that formerly comprised most of
IAC’s Retailing segment. HSN primarily consists of the HSN television network and HSN.com, and Cornerstone
includes the Cornerstone Brands portfolio of leading print catalogs, related websites and a limited number of retail
stores. The businesses operated by HSNi following the spin-off are referred to herein as the “HSNi Businesses.”
HSNi also includes the entity classified as discontinued operations in the Management Overview under the heading
“Discontinued Operations.”
Basis of Presentation
The consolidated financial statements present our results of operations, financial position, shareholders’
equity and comprehensive income, and cash flows on a combined basis up through the spin-off on August 20, 2008,
and on a consolidated basis thereafter. We prepared these financial statements relating to periods prior to the spin-
off on a combined basis because they excluded certain investments and assets that were owned, either directly or
indirectly, by legal entities that comprise the HSNi Businesses. The ownership of these investments and assets were
retained by IAC after the spin-off. The historical combined financial statements of HSNi and its subsidiaries reflect
the contribution or other transfer to HSNi of all of the subsidiaries and assets and the assumption by HSNi of all of
the liabilities relating to the HSNi Businesses in connection with the spin-off and the allocation to HSNi of certain
IAC corporate expenses relating to the HSNi Businesses. Accordingly, the historical combined financial statements
of HSNi reflect the historical financial position, results of operations and cash flows of the HSNi Businesses since
their respective dates of acquisition by IAC, based on the historical consolidated financial statements and accounting
records of IAC and using the historical results of operations and historical bases of the assets and liabilities of the
HSNi Businesses with the exception of accounting for income taxes. For purposes of these financial statements,
income taxes have been principally computed for HSNi on an as if stand-alone, separate tax return basis.
In the opinion of HSNi’s management, the assumptions underlying the consolidated statements are
reasonable. However, this financial information does not necessarily reflect what the historical financial position,
results of operations and cash flows of HSNi would have been had HSNi been a stand-alone company during the
periods presented.
Management Overview
HSNi markets and sells a wide range of third party and private label merchandise directly to consumers
through (i) television home shopping programming broadcast on the HSN television network, (ii) catalogs, which
consist primarily of the Cornerstone portfolio of leading print catalogs which includes Frontgate, Garnet Hill,
Ballard Designs, Improvements, Smith & Noble, The Territory Ahead and TravelSmith and (iii) websites, which
consist primarily of HSN.com and branded websites operated by Cornerstone. HSNi’s television home shopping
business and related internet commerce is referred to herein as “HSN” and all catalog operations, including related
internet commerce, are collectively referred to herein as “Cornerstone.”