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Table of Contents
HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 year ended December 31, 2010: volatility
factor of 56.56%, risk-free interest rate of 0.20%, expected term of .42 years, and a dividend yield of zero. For the year ended December 31,
2010, approximately $0.2 million of expense was included in the consolidated statement of operations and HSNi received cash proceeds from
the participating employees of approximately $0.7 million. Approximately 27,000 shares were issued in 2010 related to the ESPP.
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, 2010, these awards were
significantly out of the money and are not expected to result in any value.
NOTE 13—INCOME TAXES
Prior to the spin-off, HSNi was a member of IAC’s consolidated federal and state tax returns. In all periods presented, current and deferred
tax expense has been computed for HSNi on a separate return basis. HSNi’s share of IAC’s consolidated federal and state tax return liabilities
have been reflected within cash flows from operating activities in the accompanying consolidated statements of cash flows.
The components of the provision for income taxes attributable to continuing operations are as follows (in thousands):
60
Year Ended December 31,
2010 2009 2008
Current income tax provision:
Federal
$
(60,326
)
$
(47,188
)
$
(10,727
)
State
(7,523
)
(7,742
)
(553
)
Current income tax provision
(67,849
)
(54,930
)
(11,280
)
Deferred income tax (provision) benefit:
Federal
5,104
5,813
674,789
State
(2,296
)
981
67,264
Deferred income tax benefit
2,808
6,794
742,053
Income tax (provision) benefit
$
(65,041
)
$
(48,136
)
$
730,773