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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the outstanding stock options and SARs as of December 31, 2011 is as follows:
Number of
options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2011 ................... 4,735,466 $19.50
Granted ...................................... 348,137 29.72
Exercised .................................... (943,912) 10.98
Forfeited ..................................... (114,229) 12.18
Expired ...................................... (16,035) 10.95
Outstanding at December 31, 2011 (1) ............. 4,009,427 22.63 6.2 $58,039,855
Vested and expected to vest at December 31, 2011 .... 3,935,472 22.58 6.2 $57,201,989
Exercisable at December 31, 2011 ................. 2,614,591 23.04 5.5 $37,125,954
(1) Approximately 0.9 million stock options outstanding as of December 31, 2011 were held by employees of
the other Spincos.
The aggregate intrinsic value in the table above represents the pre-tax difference between the closing price
of HSNi’s common stock on December 31, 2011 of $36.26 and the exercise price for all “in the money” awards
at December 31, 2011. This amount changes based on the fair market value of HSNi’s common stock. The
intrinsic value of the stock options and SARs exercised during the years ended December 31, 2011, 2010 and
2009 was approximately $20.5 million, $13.0 million and $0.7 million, respectively. Cash received from stock
option exercises for the years ended December 31, 2011, 2010 and 2009 was $7.5 million, $17.1 million and
$0.9 million, respectively. The tax benefit realized from stock option exercises for the years ended December 31,
2011, 2010 and 2009 was $7.4 million, $3.7 million and less than $0.5 million, respectively.
The fair value of each stock option and SAR award, which HSNi intends to settle in stock, is estimated on
the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model
incorporates various assumptions, including expected volatility and expected term. For purposes of this model,
no dividends have been assumed. Expected stock price volatilities are estimated based on the historical and
implied volatilities of comparable publicly-traded companies. The risk-free interest rates are based on U.S.
Treasury yields for notes with comparable terms as the awards in effect at the grant date. The expected term of
options granted is based on analyses of historical employee termination rates and option exercise patterns, giving
consideration to expectations of future employee behavior.
The weighted average assumptions used in the Black-Scholes option pricing model are as follows:
Year Ended December 31,
2011 2010 2009
Volatility factor .......................................... 46.5% 46.5% 47.3%
Risk-free interest rate ..................................... 2.33% 2.39% 2.31%
Expected term ........................................... 5.0 5.0 5.5
Dividend yield ........................................... — — —
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