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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The IRS has substantially completed its review of the IAC consolidated tax returns for the years ended
December 31, 2001 through 2006, which includes the operations of HSNi. The settlement for these years has not
yet been submitted to the Joint Committee on Taxation for approval. The IRS began its review of the IAC
consolidated tax returns for the years ended December 31, 2007 through 2009 in July 2011. The statute of
limitations for the years 2001 through 2007 has been extended to December 31, 2012. Various IAC consolidated
tax returns filed with state, local and foreign jurisdictions are currently under examination, the most significant of
which are California, New York and New York City, for various tax years beginning with 2005. By virtue of the
Tax Sharing Agreement with IAC, HSNi is indemnified with respect to additional tax liabilities for consolidated
or combined federal and state tax returns prepared and filed by IAC prior to the Spin-off, but is liable for any
additional tax liabilities for HSNi separately filed state income tax returns.
NOTE 13—COMMITMENTS AND CONTINGENCIES
In January 2010, one of HSNi’s direct-to-consumer subsidiaries received a preliminary notification from a
state taxing authority alleging that the subsidiary was required to collect and remit sales taxes for the period from
September 2002 through August 2009. In October 2010, the state presented the subsidiary with an assessment
relating to this matter. Additionally during 2010, the same taxing authority notified two other direct-to-consumer
subsidiaries of its intent to conduct sales tax audits for the period from 2004 through 2010. HSNi does not
believe that any of these subsidiaries were obligated to collect and remit such taxes, and intends to vigorously
defend its position. At this time, no contingent liability has been recorded and no assurances can be given as to
the outcome of this situation.
In the ordinary course of business, HSNi is a party to various audits and lawsuits. These audits or litigation
may relate to claims involving property, personal injury, contract, intellectual property (including patent
infringement), sales tax, regulatory compliance and other claims. HSNi has established reserves for specific legal
or tax compliance matters that it has determined 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 its liquidity, results of operations, financial condition or
cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may
change in the future and an unfavorable resolution of such a proceeding could have such a material impact.
Moreover, any claims or regulatory actions against HSNi, whether meritorious or not, could be time-consuming,
result in costly litigation, require significant amounts of management time and result in the diversion of
significant operational resources.
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):
Years Ending December 31,
2012 ............................................................................. $ 24,324
2013 ............................................................................. 23,523
2014 ............................................................................. 19,923
2015 ............................................................................. 18,331
2016 ............................................................................. 14,413
Thereafter ......................................................................... 40,125
Total ......................................................................... $140,639
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