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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
65
Total Amounts
Committed Less Than 1 Year 1 - 3 Years 3 - 5 Years
More Than
5 Years
Letters of credit and surety bonds
$ 17,926
$ 17,876
$ 50
$ -
$ -
Purchase Obligations 221,289 109,057 112,232 - -
Total Commercial commitments 239,215$ 126,933$ 112,282$ -$ -$
Amount of Commitment Expiration Per Period
The letters of credit ("LOCs") primarily consist of trade LOCs, which are used for inventory purchases.
Trade LOCs are guarantees of payment based upon the delivery of goods. The surety bonds primarily consist of
customs bonds, which relate to the import of merchandise into the United States.
The purchase obligations primarily relate to cable contracts and include obligations for future cable
distribution and commission guarantees.
NOTE 15—DERIVATIVE INSTRUMENTS
During the second quarter of 2003, one of HSNi's foreign subsidiaries entered into a five-year foreign
exchange forward contract with a notional amount of $38.6 million, which was used to hedge against the change in
value of a liability denominated in a currency other than the subsidiary's functional currency. This derivative
contract was designated as a cash flow hedge for accounting purposes and foreign exchange remeasurement gains
and losses related to the contract and liability were recognized each period in the statement of operations and were
offsetting. In addition, the remaining effective portion of the derivative gain or loss was recorded in other
comprehensive income until the derivative liability was extinguished in June 2007 in connection with the sale of
HSE. Subsequent to the sale of HSE, HSNi does not have any significant exposure to foreign currency risk and did
not hold any derivative instruments at December 31, 2008 or 2007.
NOTE 16—RELATED PARTY TRANSACTIONS
Relationship Between IAC and HSNi Prior to the Spin-off
HSNi’s expenses prior to the spin-off include allocations from IAC of costs associated with IAC’s
accounting, treasury, legal, tax, corporate support, human resources and internal audit functions. These expenses
were allocated based on the ratio of HSNi’s revenue as a percentage of IAC’s total revenue. Allocated costs were
$3.3 million and $8.1 million for the years ended December 31, 2008 and 2007, respectively, and are included in
“General and administrative expense” in the accompanying consolidated statements of operations. It is not
practicable to determine the amounts of these expenses that would have been incurred had HSNi operated as an
unaffiliated entity. In the opinion of management, the allocation method is reasonable.
The portion of the interest expense reflected in the consolidated statements of operations that is
intercompany in nature was $1.7 million for the year ended December 31, 2007. There was no interest expense that
is intercompany in nature for the year ended December 31, 2008. This intercompany interest expense, which is
included in discontinued operations, arose from the transfer of cash from IAC to HSE that occurred in connection
with IAC’s treasury operations.
During 2008 and 2007, IAC provided HSNi with non-cash advertising totaling $8.0 million and
$4.4 million, respectively. See the amortization of non-cash marketing discussion in Note 2 for a further description
of this arrangement.
In accordance with the terms of the spin-off, HSNi transferred its investment in ARO stock and related
derivative asset to IAC. See Note 17 for a further description of this transfer.