NOTE 1—ORGANIZATION

Company Overview

HSN, Inc. ("HSNi") is an interactive multi-channel retailer that markets and sells a wide range of third party and private label merchandise directly to consumers through various platforms including (i) television home shopping programming broadcast on the HSN television networks; (ii) catalogs, which consist primarily of the Cornerstone portfolio of leading print catalogs which includes Frontgate, Ballard Designs, Garnet Hill, Grandin Road, Smith+Noble, The Territory Ahead, TravelSmith and Improvements; (iii) websites, which consist primarily of HSN.com and the eight branded websites operated by Cornerstone; (iv) retail and outlet stores; and (v) mobile devices. HSNi's television home shopping business, related digital sales and retail and outlet stores are referred to herein as "HSN" and all catalog operations, including related digital sales and stores, are collectively referred to herein as "Cornerstone."

HSN offerings primarily consist of jewelry, fashion (apparel & accessories), beauty & wellness, and home & other (including housewares, home fashions, electronics, culinary, fitness and other). Merchandise offered by Cornerstone primarily consists of home furnishings (including indoor/outdoor furniture, window treatments and other home related goods) and apparel & accessories.

Basis of Presentation

HSNi was incorporated in Delaware in May 2008 in connection with the spin-off of several businesses previously owned by IAC/InterActiveCorp, or IAC. The spin-off from IAC occurred August 20, 2008 concurrent with the spin-offs from IAC of Interval Leisure Group, Inc., Ticketmaster Entertainment, Inc. (now a wholly-owned subsidiary of Live Nation Entertainment, Inc.), and Tree.com, Inc. Throughout these financial statements, the separation transaction is referred to as the "Spin-off" and each of these companies as "Spincos." In connection with the Spin-off, HSNi's shares began trading on the NASDAQ Global Select Market under the symbol "HSNI."

The consolidated financial statements include the accounts of HSN, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated.

Fiscal Year

HSNi's consolidated financial results are reported on a calendar year basis ending on December 31. HSN's reporting period is the same as HSNi. Cornerstone has a 4-4-5 week accounting cycle with the fiscal year ending on the Saturday on or immediately preceding December 31. Cornerstone's fiscal years 2011, 2010 and 2009 include 53, 52 and 52 weeks, respectively. There are no intervening events that materially affect HSNi's consolidated balance sheets or consolidated statements of operations.

Restatement of Previously Issued Financial Information

As part of our 2011 year-end closing process, HSNi performed a review of its accounting for deferred tax assets and liabilities that were recorded as a part of the Spin-off. As a result, HSNi identified an error in the application of its accounting policies on the recognition of deferred tax liabilities created by partnership investment basis differences. These differences originated from two separate transactions involving HSNi predecessor companies occurring in 1996 and 2002. The correction of the error is to record deferred tax liabilities and to reduce equity for periods presented prior to the Spin-off and as of September 30, 2008 by $263.5 million. These additional deferred tax liabilities would have been realized during the fourth quarter of 2008 when the underlying partnership investment basis differences were eliminated as a part of HSNi's goodwill and intangible asset impairments.

The net effect of this error on HSNi's financial statements as of and for the year ended December 31, 2008 was that its income tax benefit was understated; and additional paid-in capital and accumulated deficit were overstated by $263.5 million such that there is no effect on total shareholders' equity. Net loss for the year ended December 31, 2008, which was previously reported as $2.40 billion, has been restated to $2.13 billion; and net loss per basic and diluted share for the year ended December 31, 2008, which was previously reported as $42.54, has been restated to $37.85. The correction of this error had no effect on total assets, liabilities or total shareholders' equity as of or subsequent to December 31, 2008.

Additional paid-in capital and accumulated deficit for the years ended December 31, 2008, 2009 and 2010 were overstated by $263.5 million each such that there is no effect on total shareholders' equity and have been adjusted herein.

The restatement had no impact on reported cash flows and did not impact HSNi's compliance with debt covenants or other contractual requirements. Further, the restatement did not affect any reported results of operations subsequent to 2008. Based on our evaluation of quantitative and qualitative factors, HSNi believes the identified misstatements are not material to its financial statements presented herein.

All referenced amounts in this Annual Report on Form 10-K for current and prior periods (and prior-period comparisons) reflect the balances and amounts on a restated basis, as applicable.

Reclassifications

Certain reclassifications were made to prior period amounts in the consolidated statements of operations and cash flows to conform to the current year presentation.