Home Shopping Network 2008 Annual Report Download - page 67

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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
64
ended December 31, 2004 through 2006. The statute of limitations for these years has been extended and this
examination is expected to be completed in 2011.
As a result of the spin-off, HSNi entered into a Tax Sharing Agreement with IAC that generally provides
that each Spinco will have to indemnify IAC and the other Spincos for any taxes resulting from the spin-off of such
Spinco (and any related interest, penalties, legal and professional fees, and all costs and damages associated with
related stockholder litigation or controversies) to the extent such amounts result from (i) any act or failure to act by
such Spinco described in the covenants in the Tax Sharing Agreement, (ii) any acquisition of equity securities or
assets of such Spinco or a member of its group, and (iii) any breach by such Spinco or any member of its group of
any representation or covenant contained in the separation documents or in the documents relating to the IRS private
letter ruling and/or tax opinions.
HSNi believes that it is reasonably possible that its unrecognized tax benefits could decrease by
approximately $0.2 million within twelve months of the current reporting date due to the lapse of applicable statutes
of limitations. An estimate of other changes in unrecognized tax benefits cannot be made, but are not expected to
be significant.
NOTE 14—COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, HSNi is a party to various lawsuits. HSNi establishes reserves for
specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is
reasonably estimable. Management has also identified certain other legal matters where it believes an unfavorable
outcome is not probable and, therefore, no reserve is established. Although management currently believes that an
unfavorable resolution of claims against HSNi, including claims where an unfavorable outcome is reasonably
possible, will not have a material impact on the liquidity, results of operations, or financial condition of HSNi, these
matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
HSNi also evaluates other contingent matters, including tax contingencies, to assess the probability and estimated
extent of potential loss. See Note 13 for discussion related to income tax contingencies.
HSNi leases satellite transponders, computers, warehouse and office space, equipment and services used in
connection with its operations under various operating leases, many of which contain escalation clauses.
Future minimum payments under operating lease agreements are as follows (in thousands):
$ 30,272
25,305
18,176
15,299
2013 9,408
27,237
125,697$
Years Ending December 31,
2009
2010
2011
2012
Thereafter
Total
Expenses charged to operations under these agreements were $25.8 million, $29.3 million and
$28.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.
HSNi also has funding commitments that could potentially require its performance in the event of demands
by third parties or contingent events, as follows (in thousands):