Home Shopping Network 2008 Annual Report Download - page 45

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
42
NOTE 1 - ORGANIZATION
Company Overview
HSN, Inc. (“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.”
HSN offerings primarily consist of jewelry, apparel & accessories, health & beauty and home & other.
Merchandise offered by Cornerstone primarily consists of home furnishings (including indoor/outdoor furniture,
window treatments and other home related goods) and apparel & accessories.
Basis of Presentation
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 these consolidated financial statements, the separation transaction is referred to as the
“spin-off”. In anticipation of the spin-off, 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 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 Note 7.
In conjunction with the spin-off, HSNi completed the following transactions: (1) extinguished all
intercompany receivable balances from IAC, which totaled $1.5 billion by recording a non-cash distribution to IAC,
(2) recapitalized the invested equity balance with common stock, whereby holders of IAC common stock and/or
Class B common stock received one-fifth of a share of HSNi common stock for every share of IAC common stock
and/or Class B common stock held at the close of business on August 11, 2008, the record date for the spin-off, as
more fully described in our Registration Statement on Form S-1, as amended, (3) raised $390 million through a
combination of $240 million of privately issued debt securities and $150 million from a secured credit facility (See
Note 11), and (4) transferred to IAC all cash in excess of $50 million, which totaled $333.8 million.
These consolidated financial statements present our results of operations, financial position, shareholders’
equity 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