Home Shopping Network 2015 Annual Report Download - page 60

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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.
The Internal Revenue Service ("IRS") has concluded its examination of HSNi's consolidated federal income tax return for
the year ended December 31, 2010 and its limited scope examination of HSNi's consolidated federal income tax return for the
year ended December 31, 2011. No material adjustments resulted from these IRS examinations. New York State is in the
process of doing an income tax examination. HSNi does not anticipate any material adjustments to our tax liabilities resulting
from this examination.
HSNi and several companies previously owned by IAC/InterActiveCorp, or IAC, were spun-off from IAC on August 20,
2008. In connection with the spin-off, HSNi entered into a Tax Sharing Agreement with IAC. Pursuant to this agreement, each
of the companies included in the spin-off ("Spincos") was indemnified by IAC for additional tax liabilities related to
consolidated or combined federal and state tax returns prepared and filed by IAC prior to the spin-off. However, each Spinco
agreed to, among other things, assume any additional tax liabilities related to their separately filed state income tax returns. All
examinations have concluded or statutes of limitations have expired related to IAC's consolidated or combined federal and state
tax returns for years including HSNi operations.
The Tax Sharing Agreement also provides, among other things, that each Spinco indemnifies 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 any
post spin-off (i) act or failure to act by such Spinco described in the covenants in the Tax Sharing Agreement, (ii) acquisition of
equity, securities, or assets of such Spinco or a member of its group, and (iii) 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 IRS private letter
ruling and/or tax opinions. This indemnification remains effective until IAC's tax returns for the two year period after the spin-
off are no longer subject to examination.
NOTE 13—COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, HSNi is a party to various audits, claims and lawsuits. These audits or litigation may
relate to claims involving property, personal injury, contract, intellectual property (including patent infringement), sales tax,
regulatory compliance, employment matters and other claims. HSNi establishes 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 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 a satellite transponder, 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,
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,018
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,241
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,842
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,021
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,083
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,261
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111,466