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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as
follows (in thousands):
2011 2010 2009
Balance at beginning of year ................................................ $630 $514 $414
Additions based on tax positions related to the current year ....................... 225 191 —
Additions for tax positions of prior years ...................................... — 135 312
Reductions for tax positions of prior years ..................................... (191) (210) (212)
Balance at end of year ..................................................... $664 $630 $514
As of December 31, 2011 and 2010, the unrecognized tax benefits, including interest, were $0.7 million.
Included in unrecognized tax benefits at December 31, 2011 and 2010 is approximately $0.2 million and
$0.4 million for tax positions which the ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility. Because of the impact of deferred tax accounting, the disallowance of the
shorter deductibility period would not affect the annual effective tax rate, other than the interest and penalties,
but would accelerate the payment of cash to the taxing authorities to an earlier period.
HSNi recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax
expense. There is no material interest on unrecognized tax benefits included in income tax expense for the years
ended December 31, 2011, 2010 and 2009. At December 31, 2011 and 2010, HSNi has no material accrual for
the payment of interest or penalties.
HSNi believes that it is reasonably possible that its unrecognized tax benefits could decrease by an
immaterial amount within twelve months of the current reporting date due to settlement with the taxing authority.
An estimate of other changes in unrecognized tax benefits cannot be made but are not expected to be significant.
By virtue of previously filed separate company and consolidated tax returns with IAC, HSNi is routinely
under audit by federal, state, local and foreign tax authorities. These audits include questioning the timing and the
amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include
amounts considered sufficient to pay assessments that may result from examination of prior year returns;
however, the amount paid upon resolution of issues raised may differ from the amount provided. Differences
between the reserves for tax contingencies and the amounts owed by HSNi are recorded in the period they
become known.
In connection with the Spin-off, HSNi entered into a Tax Sharing Agreement with IAC pursuant to which,
among other things, each of the Spincos has indemnified 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 shareholder 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 Internal Revenue Service (“IRS”) private letter ruling and/or tax opinions. In the
event an adjustment with respect to a pre-Spin-off period for which IAC is responsible results in a tax benefit to
HSNi in a post-Spin-off period, HSNi will be required to pay such tax benefit to IAC. In general, IAC controls all
audits and administrative matters and other tax proceedings relating to the consolidated federal income tax return
of the IAC group and any other tax returns for which the IAC group is responsible. The provisions set forth in the
Tax Sharing Agreement could subject HSNi to future tax contingencies.
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