UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended ~~September 30, 2015~~March 31, 2016
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001-34061

HSN, INC.

(Exact name of registrant as specified in its charter)



Delaware		26-2590893
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 HSN Drive, St. Petersburg, Florida		33729
(Address of principal executive offices)		(Zip Code)

(727) 872-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non‑accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~November~~May 3, ~~2015~~2016, the registrant had ~~52,474,383~~52,285,790 shares of common stock, $0.01 par value per share, outstanding.



	TABLE OF CONTENTS
		Page
	PART I-FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1
	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	1
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	2
	Consolidated Balance Sheets as of ~~September 30, 2015,~~March 31, 2016, December 31, ~~2014,~~2015 and ~~September 30, 2014~~March 31, 2015	3
	Consolidated Statements of Shareholders' Equity for the ~~Nine~~Three Months Ended ~~September 30, 2015~~March 31, 2016 and Year Ended December 31, ~~2014~~2015	4
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1716
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2523
Item 4.	Controls and Procedures	2623

	PART II-OTHER INFORMATION

Item 1.	Legal Proceedings	2724
Item 1A.	Risk Factors	2724
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2724
Item 3.	Defaults Upon Senior Securities	2724
Item 4.	Mine Safety Disclosures	2724
Item 5.	Other Information	2825
Item 6.	Exhibits	2825
Signatures		2926

PART I—FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2015			2014			2015			2014			2016			2015
Net sales	$	864,868		$	837,477		$	2,592,397		$	2,470,101		$	816,765		$	841,887
Cost of sales	558,594			535,062			1,649,380			1,578,777			527,287			541,681
Gross profit	306,274			302,415			943,017			891,324			289,478			300,206
Operating expenses:
Selling and marketing	176,916			171,852			544,209			521,838			179,161			179,206
General and administrative	60,917			53,440			180,320			161,569			49,963			52,742
Depreciation and amortization	10,608			11,155			32,942			32,714			10,525			11,249
Total operating expenses	248,441			236,447			757,471			716,121			239,649			243,197
Operating income	57,833			65,968			185,546			175,203			49,829			57,009
Other income (expense):
Interest income	35			50			111			163			25			40
Interest expense	(4,098		)	(1,883		)	(11,352		)	(5,506		)	(4,172		)	(3,337		)
Total other expense, net	(4,063		)	(1,833		)	(11,241		)	(5,343		)	(4,147		)	(3,297		)
Income before income taxes	53,770			64,135			174,305			169,860			45,682			53,712
Income tax provision	(19,562		)	(24,604		)	(64,776		)	(65,207		)	(17,097		)	(20,023		)
Net income	$	34,208		$	39,531		$	109,529		$	104,653		$	28,585		$	33,689

Net income per share:
Basic	$	0.65		$	0.75		$	2.08		$	1.98		$	0.55		$	0.64
Diluted	$	0.64		$	0.74		$	2.04		$	1.95		$	0.54		$	0.63
Shares used in computing earnings per share:
Basic	52,736			52,420			52,658			52,829			52,378			52,573
Diluted	53,495			53,246			53,637			53,716			52,919			53,760
Dividends declared per share	$	0.35		$	0.25		$	11.05		$	0.75		$	0.35		$	10.35

The accompanying notes are an integral part of these consolidated financial statements.

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2015			2014		2015			2014		2016			2015
Net income	$	34,208		$	39,531	$	109,529		$	104,653	$	28,585		$	33,689
Other comprehensive income (loss):
Other comprehensive loss:
Change in fair value of derivative instrument, net of tax	(238		)	523		(720		)	34		(249		)	(499		)
Other comprehensive income (loss), net of tax	(238		)	523		(720		)	34
Other comprehensive loss, net of tax											(249		)	(499		)
Comprehensive income	$	33,970		$	40,054	$	108,809		$	104,687	$	28,336		$	33,190

The accompanying notes are an integral part of these consolidated financial statements.

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	September 30,			December 31,			September 30,			March 31,			December 31,			March 31,
	2015			2014			2014			2016			2015			2015
ASSETS
Current assets:
Cash and cash equivalents	$	63,174		$	159,985		$	93,063		$	46,785		$	63,926		$	77,547
Accounts receivable, net of allowance of $13,292, $18,824 and $13,426, respectively	208,464			317,785			215,574
Accounts receivable, net of allowance of $19,706, $20,631 and $16,997, respectively										217,878			306,575			218,651
Inventories	506,602			398,705			477,580			441,977			428,025			435,902
Deferred income taxes	24,106			32,668			20,428
Prepaid expenses and other current assets	60,857			44,728			56,513			55,481			45,402			57,547
Total current assets	863,203			953,871			863,158			762,121			843,928			789,647
Property and equipment, net	204,668			193,889			180,009			206,344			211,793			194,023
Intangible assets, net	256,896			261,962			262,061			255,266			255,268			261,864
Goodwill	9,858			9,858			9,858			9,858			9,858			9,858
Other non-current assets	17,250			12,614			13,593			12,718			13,724			9,306
TOTAL ASSETS	$	1,351,875		$	1,432,194		$	1,328,679		$	1,246,307		$	1,334,571		$	1,264,698
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	269,392		$	255,287		$	254,160		$	209,933		$	254,704		$	211,553
Current maturities of long-term debt	18,750			17,188			15,625			25,000			25,000			6,250
Accrued expenses and other current liabilities	188,081			241,074			203,788			204,897			235,042			221,596
Total current liabilities	476,223			513,549			473,573			439,830			514,746			439,399
Long-term debt, less current maturities	681,250			210,938			215,625
Long-term debt, less current maturities and net of unamortized deferred financing costs										592,302			608,108			660,557
Deferred income taxes	70,357			88,787			75,868			42,929			44,498			53,889
Other long-term liabilities	20,156			16,579			15,482			20,006			20,657			18,124
Total liabilities	1,247,986			829,853			780,548			1,095,067			1,188,009			1,171,969
Commitments and contingencies (Note 12)
SHAREHOLDERS’ EQUITY:
Preferred stock $0.01 par value; 25,000,000 authorized shares; no issued shares	—			—			—			—			—			—
Common stock $0.01 par value; 300,000,000 authorized shares; 52,390,584, 52,425,895 and 52,350,784 issued shares at September 30, 2015, December 31, 2014 and September 30, 2014, respectively	524			524			523
Common stock $0.01 par value; 300,000,000 authorized shares; 52,283,382, 52,377,798 and 52,565,318 issued shares at March 31, 2016, December 31, 2015 and March 31, 2015, respectively										523			524			526
Additional paid-in capital	1,103,320			1,710,581			1,724,442			1,062,128			1,085,785			1,167,777
Accumulated deficit	(999,362		)	(1,108,891		)	(1,177,222		)	(911,067		)	(939,652		)	(1,075,202		)
Accumulated other comprehensive (loss) income	(593		)	127			388
Accumulated other comprehensive loss										(344		)	(95		)	(372		)
Total shareholders’ equity	103,889			602,341			548,131			151,240			146,562			92,729
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,351,875		$	1,432,194		$	1,328,679		$	1,246,307		$	1,334,571		$	1,264,698

The accompanying notes are an integral part of these consolidated financial statements.

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total			Preferred Stock			Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total			Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Total
Balance as of December 31, 2013	—	$	—	53,002		$	530		$	1,810,072		$	(1,281,875	)	$	354		$	529,081
Net income	—	—		—		—			—			172,984			—			172,984
Other comprehensive loss	—	—		—		—			—			—			(227		)	(227		)
Stock-based compensation expense for equity awards	—	—		—		—			15,606			—			—			15,606
Cash dividends declared on common stock	—	—		—		—			(57,824		)	—			—			(57,824		)
Issuance of common stock from stock-based compensation awards, including tax benefit of $8,293	—	—		435		4			(1,816		)	—			—			(1,812		)
Repurchases of common stock	—	—		(1,011	)	(10		)	(55,457		)	—			—			(55,467		)
Balance as of December 31, 2014	—	—		52,426		524			1,710,581			(1,108,891		)	127			602,341			—	$	—	52,426		$	524		$	1,710,581		$	(1,108,891	)	$	127		$	602,341
Net income	—	—		—		—			—			109,529			—			109,529			—	—		—		—			—			169,239			—			169,239
Other comprehensive loss	—	—		—		—			—			—			(720		)	(720		)	—	—		—		—			—			—			(222		)	(222		)
Stock-based compensation expense for equity awards	—	—		—		—			13,814			—			—			13,814			—	—		—		—			18,408			—			—			18,408
Cash dividends declared on common stock	—	—		—		—			(579,516		)	—			—			(579,516		)	—	—		—		—			(597,864		)	—			—			(597,864		)
Issuance of common stock from stock-based compensation awards, including tax benefit of $11,760	—	—		784		8			10,496			—			—			10,504
Issuance of common stock from stock-based compensation awards, including tax benefit of $12,526																					—	—		900		9			13,161			—			—			13,170
Repurchases of common stock	—	—		(819	)	(8		)	(52,055		)	—			—			(52,063		)	—	—		(948	)	(9		)	(58,501		)	—			—			(58,510		)
Balance as of September 30, 2015	—	$	—	52,391		$	524		$	1,103,320		$	(999,362	)	$	(593	)	$	103,889
Balance as of December 31, 2015																					—	—		52,378		524			1,085,785			(939,652		)	(95		)	146,562
Net income																					—	—		—		—			—			28,585			—			28,585
Other comprehensive loss																					—	—		—		—			—			—			(249		)	(249		)
Stock-based compensation expense for equity awards																					—	—		—		—			5,376			—			—			5,376
Cash dividends declared on common stock																					—	—		—		—			(18,300		)	—			—			(18,300		)
Issuance of common stock from stock-based compensation awards, including tax expense of $254																					—	—		86		1			(2,064		)	—			—			(2,063		)
Repurchases of common stock																					—	—		(181	)	(2		)	(8,669		)	—			—			(8,671		)
Balance as of March 31, 2016																					—	$	—	52,283		$	523		$	1,062,128		$	(911,067	)	$	(344	)	$	151,240

The accompanying notes are an integral part of these consolidated financial statements.

HSN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2015			2014			2016			2015
Cash flows from operating activities:
Net income	$	109,529		$	104,653		$	28,585		$	33,689
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,942			32,714			10,525			11,249
Stock-based compensation expense	13,814			11,691			5,376			4,657
Asset impairment	5,000			—
Amortization of debt issuance costs	1,725			830			444			831
Deferred income taxes	(9,442		)	(2,875		)	(1,415		)	(1,925		)
Bad debt expense	21,010			14,987			4,588			5,415
Excess tax benefits from stock-based awards	(11,855		)	(6,294		)	(23		)	(3,905		)
Other	847			115			178			235
Changes in current assets and liabilities:
Accounts receivable	88,309			34,556			84,109			93,717
Inventories	(107,897		)	(150,261		)	(13,953		)	(37,197		)
Prepaid expenses and other assets	(14,756		)	(9,825		)	(9,248		)	(12,159		)
Accounts payable, accrued expenses and other current liabilities	(24,294		)	(2,083		)	(76,725		)	(58,258		)
Net cash provided by operating activities	104,932			28,208			32,441			36,349
Cash flows from investing activities:
Capital expenditures	(45,289		)	(24,975		)	(5,145		)	(13,145		)
Other	(1,402		)	(448		)
Net cash used in investing activities	(46,691		)	(25,423		)	(5,145		)	(13,145		)
Cash flows from financing activities:
Borrowings under term loan	500,000			—			—			500,000
Repayment of term loan	(228,125		)	(9,375		)	(6,250		)	(228,125		)
Borrowings under revolving credit facility	265,000			—			45,000			200,000
Repayment of revolving credit facility	(65,000		)	—			(55,000		)	(25,000		)
Repurchase of common stock	(52,063		)	(55,467		)	(8,671		)	(6,987		)
Payments of debt issuance costs	(6,624		)	—			—			(6,584		)
Cash dividends paid	(579,516		)	(39,488		)	(18,300		)	(542,748		)
Proceeds from issuance of common stock	14,755			2,093			586			3,816
Tax withholdings related to stock-based awards	(15,334		)	(10,191		)	(1,825		)	(3,919		)
Excess tax benefits from stock-based awards	11,855			6,294			23			3,905
Net cash used in financing activities	(155,052		)	(106,134		)	(44,437		)	(105,642		)
Total cash used in continuing operations	(96,811		)	(103,349		)
Total cash used in discontinued operations	—			(21		)
Net decrease in cash and cash equivalents	(96,811		)	(103,370		)	(17,141		)	(82,438		)
Cash and cash equivalents at beginning of period	159,985			196,433			63,926			159,985
Cash and cash equivalents at end of period	$	63,174		$	93,063		$	46,785		$	77,547

Supplemental disclosure of noncash investing activities:
Capital expenditures incurred but paid in advance	$	—		$	9,100

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 proprietary merchandise directly to consumers through various platforms including (i) television home shopping programming broadcast on the HSN television networks and other direct-response television marketing; (ii) catalogs, consisting primarily of the Cornerstone portfolio of leading print catalogs which includes Ballard Designs, Chasing Fireflies, Frontgate, Garnet Hill, Grandin Road, Improvements and TravelSmith; (iii) websites, which consist primarily of HSN.com, joymangano.com and the seven branded websites operated by Cornerstone; (iv) mobile applications; ~~and~~ (v) retail and outlet ~~stores.~~stores; and (vi) wholesale distribution of certain proprietary products to other retailers. HSNi’s television home shopping business, related digital sales, ~~and~~ outlet stores and wholesale distribution 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 & health (including beauty, wellness and fitness), and home & other (including home, electronics, culinary and other). Merchandise offered by Cornerstone primarily consists of home furnishings (including indoor/outdoor furniture, home décor, tabletop, textiles and other home related goods) and apparel & accessories.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of HSNi's management, all normal recurring adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with HSNi's audited consolidated financial statements and notes thereto for the year ended December 31, ~~2014.~~2015. The consolidated balance sheet as of December 31, ~~2014~~2015 and the consolidated statement of shareholders' equity for the year ended December 31, ~~2014~~2015 were derived from the audited consolidated financial statements at that date but may not include all disclosures required by GAAP. Intercompany transactions and accounts have been eliminated in consolidation.

Recent Accounting Developments

Recently Adopted Accounting Standard Updates

In ~~May 2014,~~April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. The new standard is limited to the presentation of debt issuance costs and does not affect their recognition and measurement. ASU 2015-03 is effective for periods beginning after December 15, 2015, including interim periods within that annual period. HSNi retrospectively adopted ASU 2015-03 in the first quarter of 2016 resulting in the reclassification of its debt issuance costs from "Other non-current assets" to a deduction from "Long-term debt, less current maturities and net of unamortized deferred financing costs" in the consolidated balance sheets. See Note 6 for additional information regarding the deferred issuance costs.

In April 2015, the FASB issued ASU No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"), which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. HSNi prospectively adopted ASU 2015-05 on January 1, 2016 and will apply this guidance to all arrangements entered into or materially modified after the effective date.

Accounting Standard Updates Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Additionally, ASU 2014-09 will disallow the capitalization of direct-response advertising costs which will impact the timing of recognition of Cornerstone's catalog production and distribution costs. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09. This standard will now become effective for HSNi in the first quarter of 2018. Early adoption is permitted in the first quarter of 2017. HSNi is in the process of assessing the impact of the adoption of ASU 2014-09 to its consolidated financial ~~statements.~~

~~In April 2015,~~statements and is evaluating the ~~FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation~~accounting, transition method, disclosure requirements and timing of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. The new standard is limited to the presentation of debt issuance costs and does not affect their recognition and measurement. ASU 2015-03 is effective for periods beginning after December 15, 2015, including interim periods within that annual period. HSNi will adopt ASU 2015-03 in the first quarter of 2016.adoption.

In July 2015, the FASB issued ~~Accounting Standards Update~~ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330) ("ASU 2015-11"). The amendments, which apply to inventory that is measured using any method other than the last-in, first-out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost or net realizable value. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and should be applied on a prospective ~~basis.~~basis; however, early adoption is permitted. HSNi will adopt ASU 2015-11 on January 1, 2017. HSNi is currently assessing the potential impact ASU 2015-11 will have to its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The standard is to be applied on a modified retrospective method. HSNi is currently assessing the timing of adoption of ASU 2016-02 and the impact it will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718) ("ASU 2016-09"). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The effective date for the standard is for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. HSNi is currently assessing the timing of adoption of ASU ~~2015-11~~2016-09 and the ~~potential~~ impact toit will have on its consolidated financial ~~statements.~~statements and related disclosures.

6Reclassifications

Reclassifications were made to prior period amounts to conform to the current year's presentation. Changes included the reclassification of certain operating expenses in the consolidated statement of operations and reclassification of deferred income taxes and deferred financing costs in the consolidated balance sheets due to the implementation of recent accounting standard updates. Current deferred tax assets of $31.1 million in the March 31, 2015 consolidated balance sheet were reclassified as non-current and netted against non-current deferred tax liabilities as a result of retrospectively adopting ASU 2015-17, Balance Sheet Classification of Deferred Taxes, in the fourth quarter of 2015.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

HSNi prepares its financial statements in conformity with GAAP. These principles require management to make certain estimates and assumptions during the preparation of its consolidated financial statements. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. In the opinion of HSNi's management, the assumptions underlying these interim unaudited financial statements are reasonable.

Significant estimates underlying the accompanying consolidated financial statements include: the determination of the lower of cost or market adjustment for inventory; sales returns and other revenue allowances; the allowance for doubtful accounts; the recoverability of long-lived assets; the impairment of intangible assets; the annual expected effective tax rate; the determination of deferred income taxes, including related valuation allowances; the accrual for actual, pending or threatened litigation, claims and assessments; and assumptions related to the determination of incentive compensation and contingent consideration.

NOTE 3—PROPERTY AND EQUIPMENT

The balance of property and equipment, net, is as follows (in thousands):


	September 30,			December 31,			September 30,			March 31,			December 31,			March 31,
	2015			2014			2014			2016			2015			2015
Capitalized software	$	231,701		$	223,436		$	225,492		$	237,202		$	234,249		$	225,455
Computer and broadcast equipment	93,436			89,739			90,659			93,557			91,533			90,821
Buildings and leasehold improvements	105,658			105,086			103,955			110,887			108,656			105,940
Furniture and other equipment	95,985			88,174			87,511			97,434			96,512			91,106
Projects in progress	49,140			30,794			17,615			51,860			55,294			34,549
Land and land improvements	10,511			10,541			10,471			10,635			10,597			10,542
	586,431			547,770			535,703			601,575			596,841			558,413
Less: accumulated depreciation and amortization	(381,763		)	(353,881		)	(355,694		)	(395,231		)	(385,048		)	(364,390		)
Total property and equipment, net	$	204,668		$	193,889		$	180,009		$	206,344		$	211,793		$	194,023

NOTE 4—SEGMENT INFORMATION

HSNi presents its operating segments and related financial information in a manner consistent with how the chief operating decision maker and executive management view the businesses, how the businesses are organized as to segment management, and the focus of the businesses with regards to the types of products or services offered and/or the target market. HSNi has two ~~operating~~reportable segments, HSN and Cornerstone. The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies included in HSNi's Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015. Intercompany accounts and transactions have been eliminated in consolidation.

HSNi’s primary performance metric is Adjusted EBITDA, which is defined as operating income excluding, if applicable: (1) non-cash charges including: (a) stock-based compensation expense, (b) amortization of intangibles, (c) depreciation and gains and losses on asset dispositions, and (d) goodwill, long-lived asset and intangible asset impairments; (2) pro forma adjustments for significant acquisitions; and (3) other significant items. Significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, thereby affecting the comparability of results. Adjusted EBITDA is not a measure determined in accordance with GAAP, and should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA is used as a measurement of operating efficiency and overall financial performance and HSNi believes it to be a helpful measure for those evaluating companies in the retail and media industries. Adjusted EBITDA has certain limitations in that it does not take into account the impact to HSNi’s consolidated statements of operations of certain expenses, gains and losses; including stock-based compensation, amortization of intangibles, depreciation, gains and losses on asset dispositions, asset impairment charges, acquisition-related accounting expenses and other significant items.

The following tables reconcile Adjusted EBITDA to operating income for HSNi’s operating segments and to HSNi’s consolidated net income (in thousands):

Three Months Ended September 30, 2015 Three Months Ended September 30, 2014
HSN Cornerstone Total HSN Cornerstone Total
Adjusted EBITDA $ 67,109
$ 11,028
$ 78,137
$ 66,730
$ 14,255
$ 80,985
Stock-based compensation expense (3,292 ) (1,097 ) (4,389 ) (3,086 ) (795 ) (3,881 )
Depreciation and amortization (7,318 ) (3,290 ) (10,608 ) (7,477 ) (3,678 ) (11,155 )
Distribution center closure (a) (189 ) —
(189 ) —
—
—
Asset impairment (b) —
(5,000 ) (5,000 ) —
—
—
(Loss) gain on disposition of fixed assets (115 ) (3 ) (118 ) 5
14
19
Operating income $ 56,195
$ 1,638
57,833
$ 56,172
$ 9,796
65,968
Total other expense, net (4,063 ) (1,833 )
Income before income taxes 53,770
64,135
Income tax provision (19,562 ) (24,604 )
Net income $ 34,208
$ 39,531

(a) In the third quarter of 2015, HSN recorded a $0.2 million charge associated with the planned closure of one of its distribution centers as part of its supply chain optimization initiative. See Note 13 for further information.

(b) In the third quarter of 2015, Cornerstone recognized a $5.0 million non-cash charge for the impairment of intangible assets related to the acquisition of Chasing Fireflies. See Note 8 for further information.

Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014
HSN Cornerstone Total HSN Cornerstone Total
Adjusted EBITDA $ 201,493
$ 39,820
$ 241,313
$ 188,530
$ 34,305
$ 222,835
Stock-based compensation expense (10,518 ) (3,296 ) (13,814 ) (9,283 ) (2,408 ) (11,691 )
Depreciation and amortization (22,326 ) (10,616 ) (32,942 ) (22,337 ) (10,377 ) (32,714 )
Distribution center closure (a) (3,221 ) —
(3,221 ) —
—
—
Asset impairment (b) —
(5,000 ) (5,000 ) —
—
—
CPSC settlement (c) —
—
—
—
(3,100 ) (3,100 )
Loss on disposition of fixed assets (779 ) (11 ) (790 ) (100 ) (27 ) (127 )
Operating income $ 164,649
$ 20,897
185,546
$ 156,810
$ 18,393
175,203
Total other expense, net (11,241 ) (5,343 )
Income before income taxes 174,305
169,860
Income tax provision (64,776 ) (65,207 )
Net income $ 109,529
$ 104,653

(a) In the nine months ended September 30, 2015, HSN recorded $3.2 million in charges associated with the planned closure of one of its distribution centers as part of its supply chain optimization initiative. See Note 13 for further information.

~~(c) In the first quarter of 2014, Cornerstone recorded a $3.1 million settlement of a civil penalty assessed by the Consumer Product Safety Commission.~~



	Three Months Ended March 31, 2016									Three Months Ended March 31, 2015
	HSN			Cornerstone			Total			HSN			Cornerstone			Total
Adjusted EBITDA	$	60,690		$	5,042		$	65,732		$	66,190		$	6,961		$	73,151
Stock-based compensation expense	(4,039		)	(1,337		)	(5,376		)	(3,607		)	(1,050		)	(4,657		)
Depreciation and amortization	(7,003		)	(3,522		)	(10,525		)	(7,419		)	(3,830		)	(11,249		)
Loss on disposition of fixed assets	(3		)	1			(2		)	(236		)	—			(236		)
Operating income	$	49,645		$	184		49,829			$	54,928		$	2,081		57,009
Total other expense, net							(4,147		)							(3,297		)
Income before income taxes							45,682									53,712
Income tax provision							(17,097		)							(20,023		)
Net income							$	28,585								$	33,689

The net sales for each of HSNi's reportable segments are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015
Net sales:
HSN	$	590,588	$	578,297	$	1,763,384	$	1,679,271	$	578,383	$	600,492
Cornerstone	274,280		259,180		829,013		790,830		238,382		241,395
Total	$	864,868	$	837,477	$	2,592,397	$	2,470,101	$	816,765	$	841,887

NOTE 5—EARNINGS PER SHARE

HSNi computes basic earnings per share using the weighted average number of common shares outstanding for the period. HSNi computes diluted earnings per share using the treasury stock method, which includes the weighted average number of common shares outstanding for the period plus the potential dilution that could occur if various equity awards to issue common stock were exercised or restricted equity awards were vested resulting in the issuance of common stock that could share in HSNi’s earnings.

The following table presents HSNi’s basic and diluted earnings per share (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015

Net income	$34,208		$39,531		$109,529		$104,653		$28,585		$33,689

Weighted average number of shares outstanding:
Basic	52,736		52,420		52,658		52,829		52,378		52,573
Dilutive effect of stock-based compensation awards	759		826		979		887		541		1,187
Diluted	53,495		53,246		53,637		53,716		52,919		53,760

Net income per share:
Basic	$	0.65	$	0.75	$	2.08	$	1.98	$	0.55	$	0.64
Diluted	$	0.64	$	0.74	$	2.04	$	1.95	$	0.54	$	0.63

Unexercised employee stock options and stock appreciation rights and unvested restricted stock units excluded from the diluted EPS calculation because their effect would have been antidilutive	557		790		544		792		1,919		527

NOTE 6—LONG-TERM DEBT

The balance of long-term debt, including current maturities, is as follows (in thousands):


	September 30,			December 31,			September 30,			March 31,			December 31,			March 31,
	2015			2014			2014			2016			2015			2015
Secured credit agreement terminated January 27, 2015:
Term loan	$	—		$	228,126		$	231,250
Revolving credit facility	—			—			—
Secured credit agreement expiring January 27, 2020:
Term loan	500,000			—			—			$	493,750		$	500,000		$	500,000
Revolving credit facility	200,000			—			—			130,000			140,000			175,000
Total long-term debt	700,000			228,126			231,250
Long-term debt										623,750			640,000			675,000
Unamortized deferred financing costs										(6,448		)	(6,892		)	(8,193		)
Long-term debt, net of unamortized deferred financing costs										617,302			633,108			666,807
Less: current maturities	(18,750		)	(17,188		)	(15,625		)	(25,000		)	(25,000		)	(6,250		)
Long-term debt, less current maturities	$	681,250		$	210,938		$	215,625
Long-term debt, less current maturities and net of unamortized deferred financing costs										$	592,302		$	608,108		$	660,557

On January 27, 2015, HSNi entered into a $1.25 billion five-year syndicated credit agreement ("Credit Agreement") which is secured by 100% of the voting equity securities of HSNi's U.S. subsidiaries and 65% of HSNi's first-tier foreign subsidiaries. This Credit Agreement replaced the credit agreement that was set to expire in April 2017. Certain HSNi subsidiaries have unconditionally guaranteed HSNi's obligations under the Credit Agreement. The Credit Agreement, which includes a $750 million revolving credit facility and a $500 million term loan, may be increased up to $1.75 billion subject to certain conditions and expires January 27, 2020. HSNi drew $200 million from its term loan under the Credit Agreement on January 27, 2015 to repay in full its existing term loan of $228.1 million. HSNi drew the remaining $300 million from the term loan and $200 million under the revolving credit facility, both under the Credit Agreement, on February 18, 2015 to fund a $524 million special cash dividend that was paid on February 19, 2015.

In connection with the termination of the prior credit agreement, $0.5 million of the $2.4 million of unamortized deferred financing costs were expensed in the first quarter of 2015. The remaining balance of $1.9 million along with the $6.6 million in

capitalized financing costs related to the Credit Agreement are being amortized to interest expense over the five-year term of the Credit Agreement. Capitalized financing costs, net of accumulated amortization, are presented as a deduction from the corresponding debt liability for all periods presented.

The Credit Agreement includes various covenants, limitations and events of default customary for similar facilities including a maximum leverage ratio of 3.50x and a minimum interest coverage ratio of 3.00x. HSNi was in compliance with all such covenants as of ~~September 30, 2015~~March 31, 2016 with a leverage ratio of ~~1.95~~1.8x and an interest coverage ratio of ~~32.42~~24.8x. The Credit Agreement also contains covenants that limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, pay dividends or make other distributions to third parties, repurchase or redeem our stock, make investments, sell assets, incur liens, enter into agreements restricting our subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of our assets. Dividends, loans or advances to HSNi by its subsidiaries are not restricted by the Credit Agreement.

Loans under the Credit Agreement bear interest at a per annum rate equal to LIBOR plus a predetermined margin that ranges from 1.25% to 2.25% or the Base Rate (as defined in the Credit Agreement) plus a predetermined margin that ranges from 0.25% to 1.25%. HSNi can elect to borrow at either LIBOR or the Base Rate plus a predetermined margin which is determined by HSNi's leverage ratio. The interest rate on the ~~$700.0~~$623.8 million outstanding long-term debt balance as of ~~September 30, 2015~~March 31, 2016 was ~~1.71%~~1.93%. HSNi pays a commitment fee ranging from 0.20% to 0.40% (based on the leverage ratio) on the unused portion of the revolving credit facility.

The amount available to HSNi under the revolving credit facility portion of the Credit Agreement is reduced by the amount of outstanding letters of credit issued under the revolving credit facility, which totaled $~~15.4~~8.6 million as of ~~September 30, 2015.~~March 31, 2016. The ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial covenants. As of ~~September 30, 2015,~~March 31, 2016, the amount that could be borrowed under the revolving credit facility, after consideration of the financial covenants and the outstanding letters of credit, was approximately $~~534.6~~615.1 million.

NOTE 7—DERIVATIVE INSTRUMENTS

HSNi uses derivatives in the management of its interest rate risk with respect to its variable rate debt. HSNi's strategy is to eliminate the cash flow risk on a portion of its variable rate debt caused by changes in the benchmark interest rate (LIBOR). Derivative instruments are not entered into for speculative purposes.

HSNi entered into a forward-starting interest rate swap agreement on December 20, 2012 with a notional amount of $187.5 million at a fixed rate of 0.8525%, resulting in an all-in fixed rate of 2.3525% based on HSNi's leverage ratio as of ~~September 30, 2015.~~March 31, 2016. The interest rate swap took effect on January 31, 2014 with a maturity date in April 2017. Under this swap, HSNi pays at a fixed rate and receives payments at a variable rate based on one-month LIBOR. The swap effectively fixes the floating LIBOR-based interest of our outstanding LIBOR-based debt. The interest rate swap was designated and qualified as a cash flow hedge; therefore, the effective portion of the changes in fair value is recorded in accumulated other comprehensive income (loss). Any ineffective portions of the changes in fair value of the interest rate swap will be immediately recognized in earnings in the consolidated statements of operations. The ~~change~~changes in fair value of the interest rate swap (inclusive of reclassifications to net income and net of tax) for the three months ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014 was a loss~~were losses of approximately $0.2 million and ~~income of approximately~~ $0.5 million, respectively, and were included in other comprehensive income (loss). The change in fair value of the interest rate swap (inclusive of reclassifications to net income and net of tax) for the nine months ended September 30, 2015 and 2014 was a loss of approximately $0.7 million and income of less than $0.1 million, respectively, and were included in other comprehensive income (loss).

The fair ~~value~~values of the interest rate swap at ~~September 30,~~March 31, 2016, December 31, 2015 ~~was a liability~~and March 31, 2015 were liabilities of ~~$0.9~~$0.6 million, $0.2 million and ~~was~~$0.6 million, respectively, and were recorded in "Other long-term liabilities" in the consolidated balance sheet. The fair value of the interest rate swap at December 31, 2014 and September 30, 2014 was an asset of $0.2 million and an asset of $0.6 million, respectively, and was recorded in "Other non-current assets" in the consolidated balance sheets. HSNi estimates that approximately $~~0.9~~0.5 million of unrealized losses included in accumulated other comprehensive loss related to this swap will be realized and reported in earnings within the next twelve months. See Note 8 for discussion of the fair value measurements concerning this interest rate swap.

NOTE 8—FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value assumptions are made at a specific point in time and changes in underlying assumptions could significantly affect these estimates. HSNi applies the following framework for measuring fair value which is based on a three-level hierarchy:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these items. The following table summarizes the fair value of HSNi's other financial assets and liabilities which are measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):


	September 30, 2015									March 31, 2016
		Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category							Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
				Level 1		Level 2		Level 3					Level 1		Level 2		Level 3
Liabilities:
Interest rate swap		$	949	$	—	$	949	$	—		$	552	$	—	$	552	$	—


	December 31, 2014									December 31, 2015
		Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category							Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
				Level 1		Level 2		Level 3					Level 1		Level 2		Level 3
Assets:
Liabilities:
Interest rate swap		$	208	$	—	$	208	$	—		$	169	$	—	$	169	$	—

September 30, 2014
Total Fair Value and Carrying Value on Balance Sheet Fair Value Measurement Category
Level 1 Level 2 Level 3
Assets:
Interest rate swap $ 621
$ —
$ 621
$ —



	March 31, 2015
		Total Fair Value and Carrying Value on Balance Sheet		Fair Value Measurement Category
		Total Fair Value and Carrying Value on Balance Sheet		Level 1		Level 2		Level 3
Liabilities:
Interest rate swap		$	596	$	—	$	596	$	—

HSNi's interest rate swap is carried on the balance sheet at fair value. The swap was entered into in December 2012 for the purpose of hedging the variability of interest expense and interest payments on HSNi's long-term variable rate debt. The fair value is based on a valuation model which utilizes interest rate yield curves and credit spreads as the significant inputs to the model. These inputs are observable in active markets (level 2 criteria). HSNi considers credit risk associated with its own standing as well as the credit standing of any counterparties involved in the valuation of its financial instruments.

The following table summarizes the fair value of HSNi’s financial assets and liabilities which are carried at cost (in thousands):


	September 30, 2015										March 31, 2016
	Carrying Value		Fair Value		Fair Value Measurement Category						Carrying Value		Fair Value		Fair Value Measurement Category
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Term loan expiring January 27, 2020	$	500,000	$	500,000	$	—	$	500,000	$	—	$	493,750	$	493,750	$	—	$	493,750	$	—
Revolving credit facility	$	200,000	$	200,000	$	—	$	200,000	$	—	$	130,000	$	130,000	$	—	$	130,000	$	—


	December 31, 2014										December 31, 2015
	Carrying Value		Fair Value		Fair Value Measurement Category						Carrying Value		Fair Value		Fair Value Measurement Category
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Term loan terminated January 27, 2015	$	228,126	$	228,126	$	—	$	228,126	$	—
Term loan expiring January 27, 2020											$	500,000	$	500,000	$	—	$	500,000	$	—
Revolving credit facility											$	140,000	$	140,000	$	—	$	140,000	$	—


	September 30, 2014										March 31, 2015
	Carrying Value		Fair Value		Fair Value Measurement Category						Carrying Value		Fair Value		Fair Value Measurement Category
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Term loan terminated January 27, 2015	$	231,250	$	231,250	$	—	$	231,250	$	—
Term loan expiring January 27, 2020											$	500,000	$	500,000	$	—	$	500,000	$	—
Revolving credit facility											$	175,000	$	175,000	$	—	$	175,000	$	—

The fair value of the term loan was estimated by discounting expected cash flows at the rates currently offered to HSNi for debt of the same remaining maturities (level 2 criteria).

HSNi assesses the impairment of goodwill and indefinite-lived intangible assets at fair value at least annually during the fourth quarter and whenever events or circumstances indicate that the carrying value may not be fully recoverable. ~~During~~Cornerstone continues to assess its brand portfolio, which could result in the ~~third quarter~~divestiture of ~~2015,~~underperforming, less strategic brands. HSNi ~~performed a quantitative~~considered but determined it had no triggering events requiring an impairment assessment of ~~certain~~its long-lived and intangible assets ~~related to its acquisition~~existed as of ~~Chasing Fireflies~~March 31, 2016 and concluded a fair value adjustment was necessary. An impairment charge of $5.0 million was recorded in the third quarter of 2015 within the Cornerstone segment and is included in "General and administrative" expense in the accompanying consolidated statements of operations. The fair value of the intangible assets, consisting of trademarks and tradenames, was determined using the relief from royalty method (level 3 criteria). Key inputs used in this calculation included revenue growth, discount, royalty and terminal growth rates.2015.

NOTE 9—INCOME TAXES

HSNi calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, HSNi makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax or benefit related to significant ~~unusual,~~ or ~~extraordinary~~unusual items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

In addition, the effect of changes in enacted tax laws or rates, tax status, or judgment on the realizability of beginning-of-the-year deferred taxes in future years is recognized in the interim period in which the change occurs.

The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or

the tax environment changes. To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on prior quarters is included in tax expense for the current quarter.

For the three ~~and nine~~ months ended ~~September 30, 2015,~~March 31, 2016, HSNi recorded a tax ~~provisions~~provision of ~~$19.6~~$17.1 million ~~and $64.8 million, respectively, which represents effective tax rates of~~ ~~36.4%~~ ~~and 37.2%, respectively. For the three and nine months ended September 30, 2014, HSNi recorded tax provisions of $24.6 million and $65.2 million, respectively,~~ which represents an effective tax rate of ~~38.4%~~37.4%. ~~The change in~~For the three months ended March 31, 2015, HSNi recorded a tax provision of $20.0 million which represents an effective tax rate ~~for the nine months ended results was primarily due to a decrease in state income taxes for 2015 and the non-deductibility~~ of ~~the $3.1 million settlement with the Consumer Product Safety Commission recognized in the first quarter of 2014.~~37.3%.

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. There are currently no income tax examinations in progress. New York State ~~notified HSNi~~concluded an income tax examination of ~~its intent~~the years ended December 31, 2011 through December 31, 2013. No material adjustment to ~~audit prior year returns. This audit will commence in the fourth quarter of~~our tax liabilities resulted from this ~~year.~~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~~IAC. Pursuant to ~~which, among other things,~~this agreement, each of the companies included in the spin-off (the "Spincos") ~~has~~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 prior to the spin-off.

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) ~~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 IRS private letter ruling and/or tax opinions. As a result, the Tax Sharing Agreement could subject HSNi to tax contingencies. 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 otherThis indemnification remains effective until IAC's tax returns for ~~which~~ the ~~IAC group is responsible.~~two year period after the spin-off are no longer subject to examination.

No IAC consolidated or combined federal or state tax returns for years including HSNi operations are under examination. 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 10—STOCK-BASED AWARDS

Stock-based compensation expense is included in the following line items in the accompanying consolidated statements of operations (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2015			2014			2015			2014			2016			2015
Selling and marketing	$	1,472		$	1,135		$	4,624		$	3,424		$	1,808		$	1,554
General and administrative	2,917			2,746			9,190			8,267			3,568			3,103
Stock-based compensation expense before income taxes	4,389			3,881			13,814			11,691			5,376			4,657
Income tax benefit	(1,539		)	(1,401		)	(4,897		)	(4,224		)	(1,876		)	(1,651		)
Stock-based compensation expense after income taxes	$	2,850		$	2,480		$	8,917		$	7,467		$	3,500		$	3,006

As of ~~September 30, 2015,~~March 31, 2016, there was approximately $~~27.0~~36.3 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards which is currently expected to be recognized on a straight-line basis over a weighted average period of approximately ~~2.0~~2.2 years.

The Second Amended and Restated 2008 Stock and Annual Incentive Plan, as amended (the “Plan”), authorizes the issuance of 8.0 million shares (8.8 million shares after giving effect to the anti-dilution provisions of the Plan related to the special cash ~~dividend)~~dividend paid in February 2015) of HSNi common stock for new awards granted by HSNi. The purpose of the Plan is to assist HSNi in attracting, retaining and motivating officers, employees, directors and consultants, and to provide HSNi with the ability to provide incentives more directly linked to the profitability of HSNi’s business and increases in shareholder value.

In connection with the special cash dividend of $10.00 per common share paid on February 19, 2015, and as required by the anti-dilution provisions of the Plan, adjustments were made to outstanding equity awards as of the ex-dividend date to preserve their value following the dividend, as follows: (i) the number of shares subject to outstanding restricted stock units was increased as a result of the reinvestment of the dividend; and (ii) the exercise prices of outstanding stock options and stock appreciation rights and the grant date fair value of market stock units were reduced and the number of shares subject to such awards was increased. These adjustments did not result in additional stock-based compensation expense as the fair value of the outstanding awards did not change. As further required by the Plan, the maximum number of shares issuable under the Plan was also proportionally adjusted, which resulted in approximately 0.8 million additional shares available to be issued. As of ~~September 30, 2015, after adjustment for the special dividend,~~March 31, 2016, there were approximately ~~2.7~~1.5 million shares of common stock available for grants under the Plan.

13During the first quarter of 2016, HSNi granted approximately 92,000 performance share units ("PSUs") to certain executive employees. PSUs vest after a three year performance period. PSUs have rights to receive dividend equivalents that vest concurrently with the underlying PSUs once the requisite service has been rendered. Vesting percentages range between 0% and 200% of the target award based on HSNi's Total Shareholder Return relative to a peer group at the end of the performance period.

A summary of the stock-based awards granted during the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 is as follows:


	Nine Months Ended September 30, 2015		Three Months Ended March 31, 2016
	Number of Awards Granted	Weighted Average per Share Fair Value	Number of Awards Granted	Weighted Average per Share Fair Value
Stock appreciation rights	508,420	$13.65	928,990	$7.31
Restricted stock units	230,118	$66.22	225,271	$44.89
Performance share units			92,290	$54.06
Employee stock purchase plan options	40,239	$15.07	29,965	$12.18
Stock appreciation rights and stock options due to special dividend	343,485	-
Restricted stock unit dividend equivalents due to special dividend and quarterly dividends	102,053	-
Market stock units related to special dividend	15,078	-
Dividend equivalents due to quarterly dividend			5,724	-

The fair values of the options granted under the HSN, Inc. 2010 Employee Stock Purchase Plan and the stock appreciation rights are estimated on the grant date using the Black-Scholes option pricing model. The fair value of PSUs is estimated on the grant date using a Monte-Carlo simulation pricing model which estimates the potential outcome of reaching the market condition based on simulated future stock prices. The weighted average assumptions used in the valuation of each for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 are as follows:

Nine Months Ended September 30, 2015
Stock Appreciation Rights Employee Stock Purchase Plan Options
Volatility factor 29.2 % 21.8 %
Risk-free interest rate 1.49 % 0.12 %
Expected term 4.4
0.5
Dividend yield 2.2 % 1.9 %

As a result of the special cash dividend, the exercise prices of outstanding stock options and stock appreciation rights were reduced and the number of shares subject to such awards were increased as of the ex-dividend date. The following table summarizes the information about stock options and stock appreciation rights outstanding and exercisable (after giving effect to the anti-dilution provisions of the special cash dividend) as of September 30, 2015:

Outstanding Exercisable

Number
Outstanding at
September 30, 2015

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term in Years

Number
Exercisable at
September 30, 2015

Weighted
Average
Exercise Price
$0.00 to $9.99 106,698
$ 4.92
3.2 106,698
$ 4.92
$10.00 to $19.99 70,701
15.56
3.2 70,701
15.56
$20.00 to $29.99 57,541
25.86
5.4 57,541
25.86
$30.00 to $39.99 609,562
36.54
3.8 609,562
36.54
$40.00 to $49.99 398,520
47.73
8.2 126,164
47.73
$50.00 to $59.99 300,174
51.57
7.3 190,246
51.57
$60.00 to $69.99 470,422
65.24
9.4 —
—
2,013,618
1,160,912



	Three Months Ended March 31, 2016
	Stock Appreciation Rights		Employee Stock Purchase Plan Options		Performance Share Units
Volatility factor	26.3	%	34.4	%	25.2	%
Risk-free interest rate	1.23	%	0.49	%	0.89	%
Expected term	4.5		0.5		2.9
Dividend yield	3.1	%	2.8	%	0.0	%

NOTE 11—SHAREHOLDERS’ EQUITY

Share Repurchase Program

Effective September 27, 2011, HSNi's Board of Directors approved a share repurchase program which allowed HSNi to purchase 10 million shares of its common stock from time to time through privately negotiated and/or open market transactions. During the nine months ended September 30, 2014, HSNi acquired approximately 1.0 million shares of its outstanding common stock for $55.5 million at an average price of $54.87. In July 2014, HSNi completed this share repurchase program at an aggregate cost of $451.0 million, representing an average cost of $45.10 per share. All shares were retired immediately following purchase.

Effective January 27, 2015, HSNi’s Board of Directors approved a ~~new~~ share repurchase program which allows HSNi to purchase up to 4 million shares of its common stock from time to time through privately negotiated and/or open market transactions. The timing of repurchases and actual number of shares repurchased depends on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under HSNi’s debt obligations and other market and economic conditions. During the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, HSNi acquired approximately ~~819,000~~181,000 shares of its outstanding common stock for $~~52.1~~8.7 million at an average price of $~~63.57~~48.04. All shares were retired immediately following purchase. As of March 31, 2016, approximately 2.9 million shares remain authorized for repurchase under the program.

Dividend Policy

In the ~~third~~first quarter of ~~2015,~~2016, HSNi's Board of Directors approved a quarterly cash dividend of $0.35 per common share resulting in a payment of $18.3 million on ~~September 16, 2015~~March 23, 2016 to HSNi's shareholders of record as of ~~September 2, 2015.~~March 9, 2016.

In the ~~fourth~~second quarter of ~~2015,~~2016, HSNi's Board of Directors approved a quarterly cash dividend of $0.35 per common share. The dividend will be paid on ~~December 16, 2015~~June 15, 2016 to HSNi's shareholders of record as of ~~December 2, 2015.~~June 1, 2016.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes the cumulative gains and losses of derivative instruments that qualify as cash flow hedges. The following table provides a rollforward of accumulated other comprehensive income (loss) (in thousands):

Nine Months Ended September 30,
2015 2014
Accumulated other comprehensive income as of January 1, $ 127
$ 354
Other comprehensive loss before reclassifications (2,111 ) (838 )
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the consolidated statements of operations 954
885
Income tax benefit (expense) 437
(13 )
Other comprehensive income (loss), net of tax (720 ) 34
Accumulated other comprehensive income (loss) as of September 30, $ (593 ) $ 388



	Three Months Ended March 31,
	2016			2015
Accumulated other comprehensive income (loss) as of January 1,	$	(95	)	$	127
Other comprehensive loss before reclassifications	(603		)	(1,124		)
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the consolidated statements of operations	200			320
Income tax benefit	154			305
Other comprehensive loss, net of tax	(249		)	(499		)
Accumulated other comprehensive income (loss) as of March 31,	$	(344	)	$	(372	)

NOTE 12—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, product recalls, regulatory compliance, employment matters and other claims. HSNi has established reserves for specific legal, tax or ~~tax~~other compliance matters for which it has determined the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain legal, tax or 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 also evaluates other contingent matters, including tax contingencies, to assess the probability and estimated extent of potential loss. See Note 9 for discussion related to income tax contingencies.

NOTE 13—COSTS ASSOCIATED WITH AN EXIT ACTIVITY

As part of its supply chain optimization initiative designed to increase operational efficiencies and enhance customer service, HSNi announced in June 2015 its plan to close the HSN distribution center in Roanoke, Virginia and expand the capabilities of its distribution center in Piney Flats, Tennessee. The closure will involve the eventual elimination of approximately 350 positions at the Virginia facility. HSNi expects the closure to occur in accordance with an eighteen-month transition plan and be substantially completed by the end of 2016.

HSN expects to incur approximately $4 million to $5 million in total charges related to the closure. These charges include approximately $3 million to $4 million in employee-related expenses, including severance payments and retention incentives. During the three and nine month periods ended September 30, 2015, HSN recognized $0.2 million and $3.2 million, respectively in employee-related costs which are included in "General and administrative” operating expenses in the accompanying consolidated statements of operations.

A summary of HSNi’s liability associated with exit activities, which is recorded in “Accrued expenses and other current liabilities” ~~and “Other long-term liabilities”~~ in the accompanying consolidated balance sheets, are presented in the following table (in thousands):


	Employee Related Costs		Employee Related Costs
Balance at January 1, 2015	$	—
Balance at January 1, 2016			$	3,221
Provisions	3,132		—
Payments	—		—
Adjustments	89		—
Balance at September 30, 2015	$	3,221
Balance at March 31, 2016			$	3,221



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report. Historical results and trends which might appear should not be taken as indicative of future operations. Our results of operations and financial condition, as reflected in the accompanying statements and related notes, are subject to management’s evaluation and interpretations of business conditions, changing market conditions and other factors.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are based on management’s exercise of business judgment, as well as assumptions made by and information currently available to management. When used in this document, the words “may,” “will,” “anticipate,” “believe,” “estimate,” “expect,” “intend” and words of similar import, are intended to identify any forward-looking statements. These forward-looking statements include, among other things, statements relating to the following: future financial performance, business prospects and strategy, anticipated trends and prospects in the various markets in which HSNi’s businesses operate and other similar matters. These forward-looking statements relate to expectations concerning matters that are not historical fact and are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Although we believe our expectations are based on reasonable estimates and assumptions, they are not guarantees of performance.

Should one or more of these uncertainties, risks or changes in circumstances materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those described under “Risk Factors,” included in HSNi's Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015 and the following:

the influence of the macroeconomic environment and its impact on consumer confidence and spending levels;

our ability to attract new and retain existing customers in a cost-effective manner;

our exposure to intense competition and our ability to effectively compete for customers;

changes in our relationships with pay television operators, vendors, manufacturers and other third parties;

failure to attract and retain television viewers and secure a suitable programming tier of carriage and channel placement for the HSN television network programming;

changes in product shipping and handling costs particularly if we are unable to offset them;

any technological or regulatory developments that could negatively impact the way we do business, including developments requiring us to collect and remit state and local sales and use taxes;

risks associated with possible systems failures and/or security breaches, including, any security breach that results in the theft, transfer or unauthorized disclosure of customer, employee or company information, or the failure to comply with various laws applicable to HSNi in the event of such a breach;

HSNi’s business prospects and strategy, including whether HSNi’s initiatives will be effective;

our ability to offer new or innovative products and services through various platforms in a cost effective manner and consumer acceptance of these products and services;

risks associated with ~~litigation;~~litigation, audits, claims and assessments;

risks associated with acquisitions including the ability to successfully integrate new businesses and achieve expected benefits and results; and

the loss of any key member of our senior management team.

Other unknown or unpredictable factors that could also adversely affect HSNi’s business, financial condition and results of operations may arise from time to time.

You should not place undue reliance on these forward-looking statements. All written or oral forward-looking statements that are made or are attributable to us are expressly qualified in their entirety by this cautionary notice. Such forward-looking statements speak only to the date such statements are made and we do not undertake to update, revise or otherwise publicly

release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we

can give no assurance that our expectations will materialize. Historical results should not be considered an indication of future performance.

Results of Operations

Net Sales

Net sales primarily relate to the sale of merchandise, including shipping and handling fees, and are reduced by incentive discounts and actual and estimated sales returns. Sales taxes collected are not included in net sales. Digital sales include sales placed through our ~~internet~~ websites and our mobile applications using tablets and smart phones.

Revenue is recorded when delivery to the customer has occurred. Delivery is considered to have occurred when the customer takes title and assumes the risks and rewards of ownership, which is generally on the date of shipment. HSNi’s sales policy allows customers to return virtually all merchandise for a full refund or exchange, subject to pre-established time restrictions.


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2015		Change	2014		2015		Change	2014		2016		Change	2015
	(Dollars in thousands)					(Dollars in thousands)					(Dollars in thousands)
HSN	$	590,588	2%	$	578,297	$	1,763,384	5%	$	1,679,271	$	578,383	(4)%	$	600,492
Cornerstone	274,280		6%	259,180		829,013		5%	790,830		238,382		(1)%	241,395
Total HSNi net sales	$	864,868	3%	$	837,477	$	2,592,397	5%	$	2,470,101	$	816,765	(3)%	$	841,887

HSNi net sales in the ~~third~~first quarter of ~~2015 increased~~2016 decreased 3%, or ~~$27.4~~$25.1 million, due to 2%a 4% sales ~~growth~~decline at HSN and ~~6% sales growth~~a 1% decline at Cornerstone. Digital sales grew 8%3% with penetration increasing ~~200~~290 basis points to ~~49.4%~~51.5%. Gross units shipped in the ~~third~~first quarter of ~~2015 increased 1%~~2016 decreased 1.2% to ~~15.1~~15.0 million and the average price point ~~increased 3%~~decreased 3.0% to ~~$63.95.~~

HSNi net sales in the nine months ended September 30, 2015 increased 5%, or $122.3 million, due to 5% sales growth at HSN and 5% sales growth at Cornerstone. Digital sales grew 10% with penetration increasing 240 basis points to 49.3%. Gross units shipped increased 2% to 45.0 million and the average price point increased 3% to $64.24.$59.99.

HSN

HSN net sales in the ~~third~~first quarter of ~~2015 increased 2%~~2016 decreased 4%, or ~~$12.3 million, led by sales growth~~$22.1 million. Sales grew in electronics, wellness and culinary ~~partially~~largely driven by increases in air-time on the HSN networks, offset by ~~declines~~decreases in ~~home and jewelry.~~other categories. Approximately half of the decline in net sales was attributable to the conclusion of a direct-response television marketing campaign during the current quarter. Sales from HSN's wholesale business increased in 2016 driven by an expanded product assortment sold to additional retail stores. Overall, the wholesale business represented 1.4% of HSN's net sales in the current quarter compared to 0.5% in the prior year. Digital sales grew 7%4% and penetration increased ~~170~~310 basis points to ~~40.5%~~43.8%. The return rate decreased 8090 basis points from ~~17.6%~~17.7% to 16.8% primarily due to ~~changes~~a shift in sales mix to categories with lower return rates. ~~Gross units~~Units shipped increased 2%0.2% to ~~11.7~~12.1 million and average price point ~~increased 1%~~decreased 5.4% to ~~$58.34.~~

HSN net sales in the nine months ended September 30, 2015 increased 5%, or $84.1 million, led by sales growth in electronics, partially offset by declines in home and jewelry. These results include sales from a direct-response television marketing campaign that started during the fourth quarter of 2014 and contributed 1% of total sales growth (included within the Home & Other division). Digital sales grew 12% and penetration increased 250 basis points to 40.5%. The return rate decreased 70 basis points from 18.2% to 17.5% primarily due to changes in sales mix to categories with lower return rates. Gross units shipped increased 4% to 35.1 million and average price point increased 1% to $57.94.$54.18.

Divisional retail product sales mix at HSN is provided in the table below:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015
Jewelry	8.2	%	10.0	%	9.0	%	10.8	%	8.4	%	9.3	%
Fashion (apparel & accessories)	14.1	%	15.0	%	15.8	%	15.3	%	15.4	%	15.2	%
Beauty & Health	27.5	%	27.8	%	28.6	%	28.9	%
Beauty & Health (including beauty, wellness and fitness)									30.0	%	30.3	%
Home & Other (including home, electronics, culinary and other)(a)	50.2	%	47.2	%	46.6	%	45.0	%	46.2	%	45.2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

(a) Includes product sold through direct-response television marketing.									(a) Includes product sold through direct-response television marketing.

Cornerstone

Cornerstone net sales in the ~~third~~first quarter of ~~2015 increased 6%~~2016 decreased 1%, or ~~$15.1~~$3.0 million, ~~primarily~~ due to growth in the home brands and Garnet Hill. Digital sales grew 9% and penetration increased 200 basis points to 68.3%. Catalog circulation was 82.8 million, an increase of 5% compared to the prior year. The return rate decreased 10 basis points to 13.1%.

~~Cornerstone net sales in the nine months ended September 30, 2015 increased 5%, or $38.2 million. The increase in net sales was driven by sales growth in the home brands, partially offset by~~ lower sales in the apparel ~~brands.~~brands which were impacted by a decrease in catalog circulation. Digital sales grew 8%2% with penetration increasing ~~200~~190 basis points to ~~67.9%, up from 65.9% in the prior year.~~70.0%. Catalog circulation was ~~252.4~~83.7 million, ~~an increase of 3% compared to~~consistent with the prior year. The return rate was ~~13.0%, consistent with~~13.2% compared to 13.3% in the prior year.

The brand mix at Cornerstone is provided in the table below (as a percentage of net sales):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2015		2014		2015		2014		2016		2015
Home brands (Ballard Designs, Frontgate, Grandin Road and Improvements)	77.9	%	75.6	%	79.1	%	77.3	%	76.7	%	75.2	%
Apparel brands (Chasing Fireflies, Garnet Hill and TravelSmith)	22.1	%	24.4	%	20.9	%	22.7	%	23.3	%	24.8	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Cost of Sales and Gross Profit

Cost of sales consists primarily of the cost of products sold, shipping and handling costs and compensation and other employee-related costs for personnel engaged in supply chain functions. Cost of products sold includes merchandise cost, inbound freight and duties and certain allocable general and administrative costs, including certain warehouse costs.


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2015			Change	2014			2015			Change	2014			2016			Change	2015
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
Gross profit:
HSN	$	204,527		1%	$	202,730		$	621,329		5%	$	589,805		$	199,285		(4)%	$	207,530
HSN gross profit margin rate	34.6		%	(50 bp)	35.1		%	35.2		%	10 bp	35.1		%
As a percentage of HSN net sales															34.5		%	(10 bps)	34.6		%
Cornerstone	$	101,747		2%	$	99,685		$	321,688		7%	$	301,519		$	90,193		(3)%	$	92,676
Cornerstone gross profit margin rate	37.1		%	(140 bp)	38.5		%	38.8		%	70 bp	38.1		%
As a percentage of Cornerstone net sales															37.8		%	(60 bps)	38.4		%
HSNi	$	306,274		1%	$	302,415		$	943,017		6%	$	891,324		$	289,478		(4)%	$	300,206
HSNi gross profit margin rate	35.4		%	(70 bp)	36.1		%	36.4		%	30 bp	36.1		%
As a percentage of HSNi net sales															35.4		%	(30 bps)	35.7		%

bp = basis points

HSN

Gross profit for HSN in the ~~third~~first quarter of ~~2015 increased 1%~~2016 decreased 4%, or ~~$1.8~~$8.2 million. Gross profit ~~margin rate~~as a percentage of net sales decreased 5010 basis points to ~~34.6%~~34.5% primarily due to an increase in shipping promotions and changes in product ~~mix.~~

~~Gross profit for HSN in the nine months ended September 30, 2015 increased 5%, or $31.5 million. Gross profit margin rate increased 10 basis points to 35.2%.~~mix, partially offset by lower procurement costs.

Cornerstone

Gross profit for Cornerstone in the ~~third~~first quarter of ~~2015 increased 2%~~2016 decreased 3%, or ~~$2.1 million, compared to the prior year.~~$2.5 million. Gross profit ~~margin rate~~as a percentage of net sales decreased ~~140~~60 basis points to 37.1% primarily the result of increased promotions including markdowns on end-of-season inventory. The rate was also unfavorably impacted by higher fulfillment costs due to warehouse expansion and an increase in labor costs.

~~Gross profit for Cornerstone in the nine months ended September 30, 2015 increased 7%, or $20.2 million, compared to the prior year. Gross profit margin rate increased 70 basis points to 38.8%~~37.8% primarily due to ~~improvement in overall product and shipping margins, particularly at Garnet Hill. The increases in the product and shipping margins were primarily due to lower~~increased promotional activity in the ~~first half of the year and selective price increases.~~home brands, partially offset by lower procurement costs.

Selling and Marketing Expense

Selling and marketing expense consists primarily of advertising and promotional ~~expenditures,~~expenditures; compensation and other employee-related costs (including stock-based compensation) for personnel engaged in customer service, sales and merchandising, production and programming ~~functions and~~functions; on-air distribution ~~costs.~~costs, including costs to purchase media for direct-response television marketing; and marketing partnership programs. Advertising and promotional expenditures primarily include catalog production and distribution costs and online marketing, including fees paid to search ~~engines~~engine companies and third-party distribution ~~partners.~~partners, as well as other advertising and promotional campaigns. Certain prior period amounts previously included in general and administrative expense have been reclassified to selling and marketing expense to conform to the current year's presentation.


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2015			Change	2014			2015			Change	2014			2016			Change	2015
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	100,765		1%	$	100,011		$	308,284		4%	$	295,930		$	105,570		—%	$	105,735
As a percentage of HSN net sales	17.1		%	(20 bp)	17.3		%	17.5		%	(10 bp)	17.6		%	18.3		%	70 bps	17.6		%
Cornerstone	$	76,151		6%	$	71,841		$	235,925		4%	$	225,908		$	73,591		—%	$	73,471
As a percentage of Cornerstone net sales	27.8		%	10 bp	27.7		%	28.5		%	(10 bp)	28.6		%	30.9		%	50 bps	30.4		%
HSNi	$	176,916		3%	$	171,852		$	544,209		4%	$	521,838		$	179,161		—%	$	179,206
As a percentage of HSNi net sales	20.5		%	-	20.5		%	21.0		%	(10 bp)	21.1		%	21.9		%	60 bps	21.3		%

HSNi's selling and marketing expense in the ~~third~~first quarter of ~~2015 increased 3%, or $5.1~~2016 was $179.2 million, consistent with prior year and was ~~20.5% of net sales which was consistent with the prior year. HSNi's selling and marketing expense in the nine months ended September 30, 2015 increased 4%, or $22.4 million, and was 21.0%~~21.9% of net sales compared to ~~21.1%~~21.3% in the prior year.

HSN

HSN's selling and marketing expense in the ~~third~~first quarter of ~~2015 increased 1%, or $0.8~~2016 decreased $0.2 million compared to the prior year primarily due to ~~an increase~~a decrease in ~~employee-related costs, primarily for wages and healthcare,~~media expense related to direct-response television marketing, offset by ~~lower~~higher on-air distribution ~~costs.~~costs driven by expanded carriage of HSN2 and increased advertising costs related to the recent expansion of HSN's ~~selling~~wholesale business. Selling and marketing expense was ~~17.1% of net sales compared to 17.3% in the prior year.~~

HSN's selling and marketing expense in the nine months ended September 30, 2015 increased 4%, or $12.4 million, primarily due to media expense for direct-response television marketing; and an increase in employee-related costs, primarily in its call center and for healthcare costs; offset by lower on-air distribution costs. HSN's selling and marketing expense was 17.5%18.3% of net sales compared to 17.6% in the prior ~~year.~~year largely due to the timing of advertising costs to support the recent expansion of the wholesale business.

Cornerstone

Cornerstone's selling and marketing expense in the ~~third~~first quarter of ~~2015~~2016 increased ~~6%, or $4.3~~$0.1 million ~~primarily due to higher catalog costs driven by a 5% increase in circulation~~ and ~~an increase in employee-related costs. Cornerstone's selling and marketing expense~~ was ~~27.8%~~30.9% of net sales compared to ~~27.7%~~30.4% in the prior year.

~~Cornerstone's selling and marketing expense in the nine months ended September 30, 2015 increased 4% or $10.0 million, primarily due to~~ There was an increase in ~~employee-related costs, higher~~expenses related to Cornerstone's additional retail and outlet stores that was offset by lower catalog ~~costs driven by a 3% increase in circulation and an increase in digital marketing~~ costs. ~~Cornerstone's selling and marketing expense was 28.5% of net sales compared to 28.6% in the prior year.~~

General and Administrative Expense

General and administrative expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in finance, legal, tax, human resources, information technology and executive management functions; bad debts; facilities costs; and fees for professional services. Certain prior period amounts previously included in general and administrative expense have been reclassified to selling and marketing expense to conform to the current year's presentation.


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2015			Change	2014			2015			Change	2014			2016			Change	2015
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	40,249		3%	$	39,069		$	126,070		10%	$	114,727		$	37,068		(6)%	$	39,448
As a percentage of HSN net sales	6.8		%	-	6.8		%	7.1		%	30 bp	6.8		%	6.4		%	(20 bps)	6.6		%
Cornerstone	$	20,668		44%	$	14,371		$	54,250		16%	$	46,842		$	12,895		(3)%	$	13,294
As a percentage of Cornerstone net sales	7.5		%	200 bp	5.5		%	6.5		%	60 bp	5.9		%	5.4		%	(10 bps)	5.5		%
HSNi	$	60,917		14%	$	53,440		$	180,320		12%	$	161,569		$	49,963		(5)%	$	52,742
As a percentage of HSNi net sales	7.0		%	60 bp	6.4		%	7.0		%	50 bp	6.5		%	6.1		%	(20 bps)	6.3		%

HSNi’s general and administrative expense in the ~~third~~first quarter of ~~2015 increased 14%~~2016 decreased 5%, or ~~$7.5~~$2.8 million, and was ~~7.0%~~6.1% of net sales compared to ~~6.4%~~6.3% in the prior year. ~~HSNi’s general~~The decrease is primarily due to lower employee-related costs and ~~administrative expense in the nine months ended September 30, 2015 increased 12%, or $18.8 million, and was 7.0% of net sales compared to 6.5%~~additional costs incurred in the prior ~~year.~~year associated with a special cash dividend.

HSN

HSN's general and administrative expense in the ~~third~~first quarter of ~~2015 increased 3%~~2016 decreased 6%, or ~~$1.2~~$2.4 million, and was 6.8% of net sales, consistent with the prior year. The increase is primarily due to an increase of $2.0 million in bad debt expense as a result of changes in sales mix towards electronics, which typically result in higher write-offs of Flexpay receivables.

~~HSN's general and administrative expense in the nine months ended September 30, 2015 increased 10%, or $11.3 million, and was 7.1%~~6.4% of net sales compared to ~~6.8%~~6.6% in the prior year. The ~~increase~~decrease is primarily due to ~~a $5.4 million increase~~lower employee-related costs, particularly for severance and performance-based incentives, and additional costs incurred in ~~bad debt expense; $3.2 million in costs accrued for~~ the ~~planned closure of its Virginia distribution center; and increases in employee and warehouse-related costs.~~

HSN’s general and administrative expenses for the nine months ended September 30, 2015 include approximately $3.2 million related to the planned closure of its Roanoke, Virginia distribution center. The facility closure that will occur in 2016 is part of HSNi’s supply chain optimization initiative that is designed to increase operational efficiencies and enhance customer service. As part of this initiative, HSN will be expanding the capabilities of its Piney Flats, Tennessee distribution center. HSNi expects to incur approximately $4 million to $5 million in total charges related to the closure of the Virginia facility. These charges include approximately $3 million to $4 million in employee-related expenses, including severance payments and retention incentives. The financial benefitsprior year associated with the supply chain optimization initiative, including labor and transportation savings, are expected to be realized beginning in the second half of 2016. HSNi expects to utilize much of these savings to remain competitive in the marketplace, including initiatives to drive future sales growth and enhance customer service.a special cash dividend.

Cornerstone

Cornerstone's general and administrative expense in the ~~third~~first quarter of ~~2015 increased 44%~~2016 decreased 3%, or ~~$6.3~~$0.4 million, primarily due to a decrease in employee-related costs. Cornerstone's general and administrative expense was ~~7.5%~~5.4% of net sales, compared to 5.5% in the prior year. The increase was due to a $5.0 million intangible asset impairment charge and an increase in employee-related costs, primarily for performance-based incentives. Cornerstone recognized a non-cash charge for the impairment of certain intangible assets associated with its 2012 acquisition of Chasing Fireflies. See Note 8 of Notes to Consolidated Financial Statements for further discussion of the impairment charge.

Cornerstone's general and administrative expense in the nine months ended September 30, 2015 increased 16%, or $7.4 million, primarily due to a $5.0 million intangible asset impairment charge, an increase in employee-related costs primarily for performance-based incentives, and consulting costs, offset by a $3.1 million charge related to a settlement in the prior year with the Consumer Product Safety Commission ("CPSC"). Cornerstone's general and administrative expense was 6.5% of net sales, compared to 5.9% in the prior year.

Depreciation and Amortization


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2015			Change	2014			2015			Change	2014			2016			Change	2015
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	7,318		(2)%	$	7,477		$	22,326		—%	$	22,337		$	7,003		(6)%	$	7,419
Cornerstone	3,290			(11)%	3,678			10,616			2%	10,377			3,522			(8)%	3,830
HSNi	$	10,608		(5)%	$	11,155		$	32,942		1%	$	32,714		$	10,525		(6)%	$	11,249
As a percentage of HSNi net sales	1.2		%	(10 bp)	1.3		%	1.3		%	-	1.3		%	1.3		%	-	1.3		%

Depreciation and amortization in the ~~third~~first quarter of ~~2015~~2016 decreased 5%6%, or ~~$0.5 million, compared~~$0.7 million. The depreciation of capital expenditures related to ~~the prior year. Capital expenditures in the current quarter have been for investments in our distribution centers, including our~~HSN's warehouse automation project ~~that has not yet been~~is expected to begin when it is put into service ~~information technology, digital commerce and infrastructure.~~

~~Depreciation and amortization~~ in the nine months ended September 30, 2015 increased 1%, or $0.2 million, compared to the prior year. Capital expenditures in the current year have been for investments in our distribution centers, including our warehouse automation project that has not yet been put into service, information technology and infrastructure.

mid-2016.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure. Please refer to Note 4 of the Notes to Consolidated Financial Statements for the reconciliation of Adjusted EBITDA to operating income.


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2015			Change	2014			2015			Change	2014			2016			Change	2015
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	67,109		1%	$	66,730		$	201,493		7%	$	188,530		$	60,690		(8)%	$	66,190
As a percentage of HSN net sales	11.4		%	(10 bp)	11.5		%	11.4		%	20 bp	11.2		%	10.5		%	(50 bps)	11.0		%
Cornerstone	$	11,028		(23)%	$	14,255		$	39,820		16%	$	34,305		$	5,042		(28)%	$	6,961
As a percentage of Cornerstone net sales	4.0		%	(150 bp)	5.5		%	4.8		%	50 bp	4.3		%	2.1		%	(80 bps)	2.9		%
HSNi	$	78,137		(4)%	$	80,985		$	241,313		8%	$	222,835		$	65,732		(10)%	$	73,151
As a percentage of HSNi net sales	9.0		%	(70 bp)	9.7		%	9.3		%	30 bp	9.0		%	8.0		%	(70 bps)	8.7		%

HSNi's Adjusted EBITDA in the ~~third~~first quarter of ~~2015~~2016 decreased 4%10%, or ~~$2.8~~$7.4 million, and was ~~9.0%~~8.0% of net sales compared to 9.7% in the prior year. The decrease was primarily driven by the 70 basis point decrease in the gross profit margin rate, partially offset by the 3% growth in net sales. Operating expenses as a percent of net sales (excluding non-cash charges) were 26.4%, consistent with the prior year.

HSNi's Adjusted EBITDA in the nine months ended September 30, 2015 increased 8%, or $18.5 million, and was 9.3% of net sales compared to 9.0% in the prior year. The increase was primarily due to the 5% growth in net sales and 30 basis point improvement in gross profit margin rate. Operating expenses as a percent of net sales (excluding non-cash charges and a $3.2 million charge associated with the planned closure of one of HSN's distribution centers) were 27.1%, consistent with the prior year.

~~HSN~~

HSN's Adjusted EBITDA in the third quarter of 2015 increased 1%, or $0.4 million, and was 11.4% of net sales compared to 11.5% in the prior year. The increase in Adjusted EBITDA was due to the 2% growth in net sales, offset by a 50 basis point decrease in gross profit margin rate and a 1% increase in operating expenses (excluding non-cash charges). The increase in operating expenses was primarily due to higher bad debt expense and employee-related costs, partially offset by lower on-air distribution costs.

HSN's Adjusted EBITDA for the nine months ended September 30, 2015 increased 7%, or $13.0 million, and was 11.4% of net sales compared to 11.2% in the prior year. The increase was due to the 5% growth in net sales and 10 basis point improvement in gross profit margin rate, partially offset by a 5% growth in operating expenses (excluding non-cash charges and a $3.2 million charge associated with the planned closure of its Virginia distribution center). The increase in operating expenses was primarily related to employee-related costs, media spend for direct-response television marketing and bad debt expense.

~~Cornerstone~~

~~Cornerstone's third quarter Adjusted EBITDA decreased 23%, or $3.2 million, and was 4.0% of net sales compared to 5.5%~~8.7% in the prior year. The decrease was primarily due to the ~~140~~3% decrease in net sales and 30 basis point ~~decrease in the gross profit margin rate and the increase in operating expenses. Operating expenses as a percent of net sales (excluding non-cash charges) increased 10 basis points to 33.0%.~~

Cornerstone's Adjusted EBITDA for the nine months ended September 30, 2015 increased 16%, or $5.5 million, primarily due to strong performance at Garnet Hill. Adjusted EBITDA was 4.8% of net sales compared to 4.3% in the prior year which was due to the 70 basis point improvementdecline in gross profit ~~margin rate, partially offset by the 20 basis point increase in operating expenses~~ as a ~~percent~~percentage of net ~~sales (excluding non-cash charges and the $3.1 million CPSC settlement).~~sales. Operating expenses as a percentage of net sales ~~increased primarily~~(excluding non-cash charges) were 27.4% compared to 27.0% in the prior year.

HSN

HSN's Adjusted EBITDA for the first quarter of 2016 decreased 8%, or $5.5 million. Net sales and operating expenses declined 4% and 2%, respectively, resulting in Adjusted EBITDA as a percentage of net sales of 10.5% compared to 11.0% in the prior year. Approximately $2.5 million of the decrease in Adjusted EBITDA is due to ~~higher employee-related and consulting costs, offset by improved catalog cost leverage.~~the conclusion of a direct-response television marketing campaign during the current quarter.

~~Operating Income~~

Cornerstone

Three Months Ended September 30,
Nine Months Ended September 30,
2015 Change 2014 2015 Change 2014
(Dollars in thousands) (Dollars in thousands)
HSN $ 56,195
—% $ 56,172
$ 164,649
5% $ 156,810
As a percentage of HSN net sales 9.5 % (20 bp) 9.7 % 9.3 % - 9.3 %
Cornerstone $ 1,638
(83)% $ 9,796
$ 20,897
14% $ 18,393
As a percentage of Cornerstone net sales 0.6 % (320 bp) 3.8 % 2.5 % 20 bp 2.3 %
HSNi $ 57,833
(12)% $ 65,968
$ 185,546
6% $ 175,203
As a percentage of HSNi net sales 6.7 % (120 bp) 7.9 % 7.2 % 10 bp 7.1 %
NM = not meaningful

~~HSNi's operating income in~~Cornerstone's Adjusted EBITDA for the ~~third~~first quarter of ~~2015~~2016 decreased ~~12%~~28%, or ~~$8.1~~$1.9 million, and was ~~6.7%~~2.1% of net sales compared to ~~7.9%~~2.9% in the prior year. The decrease was primarily due to lower sales in the ~~70 basis point decline~~apparel brands and a decrease in gross profit ~~margin rate and increase in operating expenses. Operating expenses~~ as a ~~percent~~percentage of net sales ~~increased primarily due~~driven largely by higher promotional activity in the home brands. Operating expenses (excluding non-cash charges) decreased $0.6 million and were 35.7% of net sales compared to 35.5% in the $5.0 million intangible asset impairment charge, an increase of $2.0 million for HSN's bad debt expense and increases in employee-related and digital marketing costs, partially offset by lower on-air distribution cost at HSN.prior year.

Operating Income



	Three Months Ended March 31,
	2016			Change	2015
	(Dollars in thousands)
HSN	$	49,645		(10)%	$	54,928
As a percentage of HSN net sales	8.6		%	(50 bps)	9.1		%
Cornerstone	$	184		(91)%	$	2,081
As a percentage of Cornerstone net sales	0.1		%	(80 bps)	0.9		%
HSNi	$	49,829		(13)%	$	57,009
As a percentage of HSNi net sales	6.1		%	(70 bps)	6.8		%

HSNi's operating income in the ~~nine months ended September 30, 2015 increased 6%~~first quarter of 2016 decreased 13%, or ~~$10.3~~$7.2 million, and was ~~7.2%~~6.1% of net sales compared to ~~7.1%~~6.8% in the prior year. The ~~increase~~decrease was driven by the ~~5% growth~~3% decrease in net sales and 30 basis point ~~improvement~~decline in gross profit ~~margin rate, offset by an increase in operating expenses. Operating expenses~~ as a ~~percent~~percentage of net sales, increased primarily due to a $5.9 million increase in bad debt expense, $5.0 million intangible asset impairment charge, an increase in employee-related costs, an increase in media spend related to HSN's direct-response television marketing and a $3.2 million charge associated with the closure of one of HSN's distribution centers,partially offset by ~~the $3.1 million CPSC settlement at Cornerstone~~a 1.5% decrease in ~~the prior year and lower on-air distribution costs at HSN.~~operating expenses.

Other Income (Expense)

Three Months Ended September 30, Nine Months Ended September 30,
2015 Change 2014 2015 Change 2014
(Dollars in thousands) (Dollars in thousands)
Interest income $ 35
(30)% $ 50
$ 111
(32)% $ 163
Interest expense (4,098 ) 118% (1,883 ) (11,352 ) 106% (5,506 )
Total other expense, net $ (4,063 ) 122% $ (1,833 ) $ (11,241 ) 110% $ (5,343 )
As a percentage of HSNi net sales 0.5 % 30 bp 0.2 % 0.4 % 20 bp 0.2 %

On January 27, 2015, HSNi entered into a $1.25 billion five-year syndicated credit agreement ("Credit Agreement") which replaced a $600 million credit agreement that was set to expire in April 2017. HSNi drew $200 million from its term loan under the Credit Agreement on January 27, 2015 to repay its existing term loan of $228.1 million and drew the remaining $300 million from its term loan and $200 million under the revolving credit facility to fund a $524 million special cash dividend that was paid on February 19, 2015.

HSNi executed an interest rate swap with a notional amount of $187.5 million that took effect on January 31, 2014 with a maturity date of April 2017. The interest rate swap effectively fixes the floating LIBOR-based interest on $187.5 million of the outstanding term loan (under both credit agreements) resulting in a fixed rate of 2.3525% (based on HSNi's leverage ratio as of September 30, 2015). See Note 7 to Notes of Consolidated Financial Statements for further information.



	Three Months Ended March 31,
	2016			Change	2015
	(Dollars in thousands)
Interest income	$	25		(34)%	$	40
Interest expense	(4,172		)	25%	(3,337		)
Total other expense, net	$	(4,147	)	26%	$	(3,297	)
As a percentage of HSNi net sales	0.5		%	10 bps	0.4		%

Interest expense for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 increased ~~$2.2~~$0.8 million ~~and $5.9 million, respectively. The increase in interest expense~~ compared to the prior year isprimarily due to a higher average outstanding debt balance and increase in interest rate, partially offset by the write-off of $0.5 million of deferred financing fees in the ~~first quarter of 2015~~prior year related to the ~~prior~~ credit ~~agreement.~~agreement that was terminated in January 2015.

Income Tax Provision

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016 and March 31, 2015, HSNi recorded a tax ~~provision~~provisions of ~~$19.6~~$17.1 million and ~~$64.8~~

$20.0 million, ~~respectively,~~ which represents effective tax rates of ~~36.4%~~37.4% and 37.2%. For the three and nine months ended September 30, 2014, HSNi recorded a tax provision of $24.6 million and $65.2 million, respectively, which represents an effective tax rate of 38.4%. The change in the effective tax rate for the nine month periods was primarily due to the non-deductibility of the $3.1 million settlement with the CPSC recognized in the first quarter of 2014 and the impact of state income taxes. The annual effective rate for 2015 is estimated to be approximately 37%.37.3%, respectively.

Liquidity and Capital Resources

As of ~~September 30, 2015,~~March 31, 2016, HSNi had ~~$63.2~~$46.8 million of cash and cash equivalents compared to ~~$160.0~~$63.9 million as of December 31, ~~2014~~2015 and ~~$93.1~~$77.5 million as of ~~September 30, 2014.~~March 31, 2015.

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$104.9~~$32.4 million compared to ~~$28.2~~$36.3 million in the prior year, ~~an increase~~a decrease of ~~$76.7~~$3.9 million. ~~The increase is primarily due to changes~~Changes in the cash used for working capital ~~including~~were primarily attributable to inventories, accounts receivable and ~~inventories.~~the timing of payments for income taxes and accrued expenses. There was a decrease in cash used for inventories in 2016 compared to the prior year stemming from HSNi's efforts in the first quarter of 2015 to rebuild inventory to more normalized levels. Collections of accounts receivable ~~increased~~were lower in ~~2015~~2016 compared to the prior year due to the ~~higher~~lower outstanding accounts receivable balance at the end of 2014 driven by the fourth quarter's sales growth and increased customer utilization of HSN's Flexpay program in the fourth quarter of 2014. The decrease in cash used for inventories was primarily due to lower inventory purchases in 2015 ~~at HSN as~~ compared to ~~the prior year when it was normalizing its inventory levels. Additionally, there was an increase in cash used for income tax payments due to the timing of earnings and temporary tax differences.~~2014.

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$46.7~~$5.1 million and was related to capital expenditures primarily for investments in ~~our distribution centers, including our warehouse automation project,~~ information technology ~~digital commerce~~ and infrastructure.

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$155.1 million and was primarily related to the funding~~$44.4 million. Net repayments of HSNi's ~~capital return plan.~~long-term debt during the current quarter, including for the term loan and revolving credit facility, were $16.2 million. HSNi paid a ~~special~~quarterly cash dividend of ~~$10.00~~$0.35 per ~~common~~ share, ~~in February 2015 and quarterly cash dividends totaling $1.05 per common share in the first nine months~~representing an aggregate payment of ~~2015, representing aggregate payments of $579.5~~$18.3 million. HSNi also paid ~~$52.1~~$8.7 million for approximately ~~819,000~~0.2 million shares of common stock repurchased during the ~~nine~~three months ended September 30, 2015. HSNi borrowed $700 million under the Credit Agreement to repay the $228.1 million term loan that was outstanding under the prior credit agreement and to fund the payment of the special cash dividend. Additionally, HSNi had a cash inflow of $14.8 million from stock option proceeds that was offset by a cash outflow of $15.3 million used to cover withholding taxes for stock-based awards. HSNi also had $11.9 million of excess tax benefits from stock-based awards.March 31, 2016.

On January 27, 2015, HSNi entered into a $1.25 billion five-year syndicated Credit Agreement. The Credit Agreement replaced the ~~existing~~prior $600 million credit agreement that was set to expire in April 2017. The Credit Agreement, which includes a $750 million revolving credit facility and a $500 million term loan, may be increased up to $1.75 billion subject to certain conditions and expires January 27, 2020. HSNi drew ~~$200~~$500 million from its term loan and $200 million under the revolving credit facility, both under the Credit Agreement, ~~on January 27,~~in the first quarter of 2015 to repay in full its existing term loan of $228.1 million and ~~drew the remaining $300 million from its term loan and $200 million under the revolving credit facility on February 18, 2015~~ to fund the $524 million special cash dividend that was paid onin February ~~19,~~ 2015.

The Credit Agreement includes various covenants, limitations and events of default customary for similar facilities including a maximum leverage ratio of 3.50x and a minimum interest coverage ratio of 3.00x. HSNi was in compliance with all such covenants as of March 31, 2016 with a leverage ratio of 1.8x and an interest coverage ratio of 24.8x. Loans under the Credit Agreement bear interest at a per annum rate equal to a LIBOR rate plus a predetermined margin that ranges from 1.25% to 2.25% or the Base Rate (as defined in the Credit Agreement) plus a predetermined margin that ranges from 0.25% to 1.25%. HSNi can elect to borrow at either a LIBOR rate or the Base Rate and the predetermined margin is determined by HSNi's leverage ratio. HSNi pays a commitment fee ranging from 0.20% to 0.40% (based on the leverage ratio) on the unused portion of the revolving credit facility.

The amount available under the Credit Agreement is reduced by the amount of commercial and standby letters of credit issued under the revolving credit facility, which totaled $~~15.4~~8.6 million as of ~~September 30, 2015.~~March 31, 2016. The ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial covenants, which may limit HSNi’s ability to draw the full amount of the facility. As of ~~September 30, 2015,~~March 31, 2016, the additional amount that could be borrowed under the revolving credit facility, in consideration of the financial covenants and outstanding letters of credit, was approximately ~~$534.6 million~~.$615.1 million.

To reduce our future exposure to rising interest rates under our credit facility, we entered into a forward-starting swap in December 2012 that effectively converts $187.5 million of our variable rate term loan (under both credit agreements) to a

fixed-rate basis beginning January 2014 through April 2017. For additional information related to our interest rate swap, refer to Note 7 of Notes to Consolidated Financial Statements.

Effective January 27, 2015, HSNi's Board of Directors authorized a new 4 million share repurchase program which allows HSNi to purchase shares of its common stock from time to time through privately negotiated and/or open market transactions. The timing of any repurchases and actual number of shares repurchased depends on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under HSNi’s debt obligations and other market and economic conditions. During the ~~nine~~three months ended ~~September 30, 2015,~~March 31, 2016, HSNi repurchased approximately ~~819,000~~181,000 shares of common stock at a cost of ~~$52.1~~$8.7 million, or an average cost of ~~$63.57~~$48.04 per share. As of ~~September 30, 2015,~~March 31, 2016, approximately ~~3.2~~2.9 million shares remain authorized for repurchase under the program.

HSNi anticipates it will need to make capital and other expenditures in connection with the development and expansion of its operations. Our capital expenditures for fiscal ~~2015~~2016 are planned at approximately $60 million to ~~$65~~$70 million and primarily relate to investments in ~~our distribution centers, including our warehouse automation project;~~ information ~~technology;~~technology, Cornerstone's retail expansion and ~~digital commerce.~~infrastructure. HSNi’s ability to fund its cash and capital needs will be affected by its ongoing ability to generate cash from operations, the overall capacity and terms of its financing arrangements as discussed above, and access to the capital markets. HSNi believes that its cash on hand, its anticipated operating cash flows, its available unused portion of the revolving credit facility and its access to capital markets will be sufficient to fund its operating needs, capital, investing and other commitments and contingencies for the foreseeable future.

In the ~~third~~second quarter of ~~2015,~~2016, HSNi's Board of Directors approved a cash dividend of $0.35 per common share. The dividend will be paid on ~~December 16, 2015~~June 15, 2016 to HSNi's record holders as of ~~December 2, 2015.~~June 1, 2016.

~~Contractual Obligations and Commercial Commitments~~

As a result of entering into the Credit Agreement in January 2015 (as discussed in Note 6 of the Notes to the Consolidated Financial Statements), certain contractual obligations of HSNi (including long-term debt and interest on debt) have changed from the amounts disclosed in the Company's Form 10-K for the year ended December 31, 2014. The following table presents HSNi’s long-term debt and related interest obligations as of September 30, 2015:

Payments Due by Period

Total
Amounts
Committed

Less Than
1 Year
1 - 3 Years 3 - 5 Years
More Than
5 Years
(In thousands)
Long-term debt, including current maturities (a) $ 700,000
$ 18,750
$ 59,375
$ 621,875
$ —
Interest on debt (a)(b) 49,717
13,287
22,640
13,790
—
Total contractual obligations $ 749,717
$ 32,037
$ 82,015
$ 635,665
$ —


~~(a)~~	~~Long-term debt and related interest are based on HSNi's debt that was outstanding as of September 30, 2015 under its $1.25 billion Credit Agreement.~~


~~(b)~~	~~Includes interest on variable rate debt estimated using the rate in effect as of September 30, 2015, net of the impact of the interest rate swap.~~

Seasonality

HSNi is affected by seasonality, although historically our business has exhibited less seasonality than many other retail businesses. Our sales levels are generally higher in the fourth quarter.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~At September 30, 2015~~For a description of HSNi's market risks, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in HSNi's Annual Report on Form 10-K for the year ended December 31, ~~2014, HSNi’s outstanding long-term debt was $700.0 million and $228.1 million, respectively, all of which pays interest at a variable rate, generally tied to LIBOR. Changes~~2015. No material changes have occurred in interest rates on our variable rate debt could affect our earnings. We are managing our future interest rate exposure through an interest rate swap with a notional amount of $187.5 million and a fixed rate of 0.8525% that took effect January 2014 with a maturity date of April 2017. See Note 7 of Notes to Consolidated Financial Statements for further information of the interest rate swap. A hypothetical 100 basis point increase in interest rates on the portion of our variable rate debt that was outstanding as of September 30, 2015 and that was not effectively hedged by the fixed-rate interest rate swap would increase our annual interest expense by approximately $5.1 million.HSNi's market risks since December 31, 2015.



ITEM 4.	CONTROLS AND PROCEDURES

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of ~~September 30, 2015.~~March 31, 2016. Based on that evaluation, management has concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~September 30, 2015~~March 31, 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II



ITEM 1.	LEGAL PROCEEDINGS

In the ordinary course of business, we are involved in various legal matters arising out of our operations. These matters may relate to claims involving property, personal injury, contract, intellectual property (including patent infringement), sales tax, product recalls, regulatory compliance, employment matters and other claims. As of the date of this filing, we are not a party to any legal proceedings that are reasonably expected to have a material adverse effect on our business, results of operations, financial condition or cash flows; however, litigation matters are subject to inherent uncertainties and the results of these matters cannot be predicted with certainty. An unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows. Moreover, any claims or regulatory actions against us, 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.

See Note 12 - Commitments and Contingencies in Part I, Item 1 for additional information regarding legal matters in which we are involved.



ITEM 1A.	RISK FACTORS

See Part I. Item 1A., “Risk Factors,” of HSNi's Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, for a detailed discussion of the risk factors affecting HSNi. There have been no material changes from the risk factors described in the annual report.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On January 27, 2015, our Board of Directors authorized us to repurchase up to 4 million shares of our common stock, principally to offset dilution related to HSNi's equity compensation programs. Under the terms of the share repurchase program, HSNi will repurchase its common stock from time to time through privately negotiated or open market transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended, or by any combination of such methods. The timing of repurchases and the actual number of shares repurchased depends on a variety of factors, including the stock price, corporate and regulatory requirements, restrictions under the company’s debt obligations and other market and economic conditions. The repurchase program may be suspended or discontinued by HSNi at any time.

Below is a summary of our common stock repurchases during the ~~third~~first quarter of ~~2015:~~2016:

Period
Number of
Shares Purchased

Average Price
Paid Per Share

Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares that May
Yet Be Purchased
under the Plans or
Programs
July 1, 2015 - July 31, 2015 —
$ —
—
3,722,449
August 1, 2015 - August 31, 2015 526,416
$ 62.37
526,416
3,196,033
September 1, 2015 - September 30, 2015 15,000
$ 59.86
15,000
3,181,033
541,416
$ 62.30
541,416



Period	Number of Shares Purchased	Average Price Paid Per Share		Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs
January 1, 2016 - January 31, 2016	180,501	$	48.04	180,501	2,871,724
February 1, 2016 - February 29, 2016	—	$	—	—	2,871,724
March 1, 2016 - March 31, 2016	—	$	—	—	2,871,724
	180,501	$	48.04	180,501



ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable



ITEM 5.	OTHER INFORMATION

None



ITEM 6.	EXHIBITS



Exhibit No.	Description of Document	Method of Filing


31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.	Filed herewith

31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act	Filed herewith

32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith

32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith

101	The following financial information from HSNi’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September 30, 2015,~~March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ (ii) Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ (iii) Consolidated Balance Sheets as of ~~September 30, 2015,~~March 31, 2016, December 31, ~~2014~~2015 and ~~September 30, 2014,~~March 31, 2015, (iv) Consolidated Statements of Shareholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2015~~March 31, 2016 and Year Ended December 31, ~~2014,~~2015, (v) Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ and (vi) Notes to the Consolidated Financial Statements.	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

2926



	Three Months Ended September 30, 2015									Three Months Ended September 30, 2014
	HSN			Cornerstone			Total			HSN			Cornerstone			Total
Adjusted EBITDA	$	67,109		$	11,028		$	78,137		$	66,730		$	14,255		$	80,985
Stock-based compensation expense	(3,292		)	(1,097		)	(4,389		)	(3,086		)	(795		)	(3,881		)
Depreciation and amortization	(7,318		)	(3,290		)	(10,608		)	(7,477		)	(3,678		)	(11,155		)
Distribution center closure (a)	(189		)	—			(189		)	—			—			—
Asset impairment (b)	—			(5,000		)	(5,000		)	—			—			—
(Loss) gain on disposition of fixed assets	(115		)	(3		)	(118		)	5			14			19
Operating income	$	56,195		$	1,638		57,833			$	56,172		$	9,796		65,968
Total other expense, net							(4,063		)							(1,833		)
Income before income taxes							53,770									64,135
Income tax provision							(19,562		)							(24,604		)
Net income							$	34,208								$	39,531



	Nine Months Ended September 30, 2015									Nine Months Ended September 30, 2014
	HSN			Cornerstone			Total			HSN			Cornerstone			Total
Adjusted EBITDA	$	201,493		$	39,820		$	241,313		$	188,530		$	34,305		$	222,835
Stock-based compensation expense	(10,518		)	(3,296		)	(13,814		)	(9,283		)	(2,408		)	(11,691		)
Depreciation and amortization	(22,326		)	(10,616		)	(32,942		)	(22,337		)	(10,377		)	(32,714		)
Distribution center closure (a)	(3,221		)	—			(3,221		)	—			—			—
Asset impairment (b)	—			(5,000		)	(5,000		)	—			—			—
CPSC settlement (c)	—			—			—			—			(3,100		)	(3,100		)
Loss on disposition of fixed assets	(779		)	(11		)	(790		)	(100		)	(27		)	(127		)
Operating income	$	164,649		$	20,897		185,546			$	156,810		$	18,393		175,203
Total other expense, net							(11,241		)							(5,343		)
Income before income taxes							174,305									169,860
Income tax provision							(64,776		)							(65,207		)
Net income							$	109,529								$	104,653



	Outstanding				Exercisable
	Number Outstanding at September 30, 2015	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Number Exercisable at September 30, 2015	Weighted Average Exercise Price
$0.00 to $9.99	106,698	$	4.92	3.2	106,698	$	4.92
$10.00 to $19.99	70,701	15.56		3.2	70,701	15.56
$20.00 to $29.99	57,541	25.86		5.4	57,541	25.86
$30.00 to $39.99	609,562	36.54		3.8	609,562	36.54
$40.00 to $49.99	398,520	47.73		8.2	126,164	47.73
$50.00 to $59.99	300,174	51.57		7.3	190,246	51.57
$60.00 to $69.99	470,422	65.24		9.4	—	—
	2,013,618				1,160,912



	Payments Due by Period
	Total Amounts Committed		Less Than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
	(In thousands)
Long-term debt, including current maturities (a)	$	700,000	$	18,750	$	59,375	$	621,875	$	—
Interest on debt (a)(b)	49,717		13,287		22,640		13,790		—
Total contractual obligations	$	749,717	$	32,037	$	82,015	$	635,665	$	—

Date: ~~November~~May 4, ~~2015~~2016

/S/ JUDY A. SCHMELING

Judy A. Schmeling,
Chief Operating Officer and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)