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, 2016~~March 31, 2017
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
Emerging growth company o	If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 4, 2016~~May 1, 2017, the registrant had ~~52,190,377~~52,375,050 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, 2017 and 2016 ~~and 2015~~	1
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	2
	Consolidated Balance Sheets as of ~~September 30, 2016,~~March 31, 2017, December 31, ~~2015~~2016 and ~~September 30, 2015~~March 31, 2016	3
	Consolidated Statements of Shareholders' Equity for the ~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 2017 and Year Ended December 31, ~~2015~~2016	4
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1715
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2824
Item 4.	Controls and Procedures	2824

	PART II-OTHER INFORMATION

Item 1.	Legal Proceedings	2925
Item 1A.	Risk Factors	2925
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2925
Item 3.	Defaults Upon Senior Securities	2925
Item 4.	Mine Safety Disclosures	3025
Item 5.	Other Information	3026
Item 6.	Exhibits	3026
Signatures		3127

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,
	2016			2015			2016			2015			2017			2016
Net sales	$	823,023		$	864,868		$	2,494,096		$	2,592,397		$	785,435		$	816,765
Cost of sales	542,947			558,594			1,612,718			1,649,380			512,298			527,287
Gross profit	280,076			306,274			881,378			943,017			273,137			289,478
Operating expenses:
Selling and marketing	178,785			181,281			546,002			556,590			167,299			179,161
General and administrative	42,703			51,552			139,118			162,939			56,373			49,963
Depreciation and amortization	10,518			10,608			31,745			32,942			10,886			10,525
Loss on sale and asset impairment	11,195			5,000			31,595			5,000
Total operating expenses	243,201			248,441			748,460			757,471			234,558			239,649
Operating income	36,875			57,833			132,918			185,546			38,579			49,829
Other income (expense):
Interest income	125			35			223			111			213			25
Interest expense	(4,126		)	(4,098		)	(12,211		)	(11,352		)	(4,077		)	(4,172		)
Total other expense, net	(4,001		)	(4,063		)	(11,988		)	(11,241		)	(3,864		)	(4,147		)
Income before income taxes	32,874			53,770			120,930			174,305			34,715			45,682
Income tax provision	(12,716		)	(19,562		)	(45,742		)	(64,776		)	(13,467		)	(17,097		)
Net income	$	20,158		$	34,208		$	75,188		$	109,529		$	21,248		$	28,585

Net income per share:
Basic	$	0.39		$	0.65		$	1.44		$	2.08		$	0.41		$	0.55
Diluted	$	0.38		$	0.64		$	1.42		$	2.04		$	0.40		$	0.54
Shares used in computing earnings per share:
Basic	52,356			52,736			52,376			52,658			52,432			52,378
Diluted	52,844			53,495			52,901			53,637			52,821			52,919
Dividends declared per share	$	0.35		$	0.35		$	1.05		$	11.05		$	0.35		$	0.35

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,
	2016		2015			2016			2015			2017		2016
Net income	$	20,158	$	34,208		$	75,188		$	109,529		$	21,248	$	28,585
Other comprehensive income (loss):
Change in fair value of derivative instrument, net of tax	857		(238		)	(630		)	(720		)	327		(249		)
Other comprehensive income (loss), net of tax	857		(238		)	(630		)	(720		)	327		(249		)
Comprehensive income	$	21,015	$	33,970		$	74,558		$	108,809		$	21,575	$	28,336

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,
	2016			2015			2015			2017			2016			2016
ASSETS
Current assets:
Cash and cash equivalents	$	67,442		$	63,926		$	63,174		$	48,246		$	42,734		$	46,785
Accounts receivable, net of allowance of $15,487, $20,631 and $13,292, respectively	226,589			306,575			208,464
Accounts receivable, net of allowance of $18,926, $19,086 and $19,706, respectively										236,828			335,005			217,878
Inventories	450,671			428,025			506,602			409,663			391,106			441,977
Prepaid expenses and other current assets	56,309			45,402			60,857			49,128			44,173			55,481
Total current assets	801,011			843,928			839,097			743,865			813,018			762,121
Property and equipment, net	207,216			211,793			204,668			210,382			211,106			206,344
Intangible assets, net	253,619			255,268			256,896			253,634			253,623			255,266
Goodwill	9,858			9,858			9,858			9,858			9,858			9,858
Other non-current assets	12,809			13,724			9,910			18,275			16,928			12,718
TOTAL ASSETS	$	1,284,513		$	1,334,571		$	1,320,429		$	1,236,014		$	1,304,533		$	1,246,307
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	241,637		$	254,704		$	269,392		$	217,129		$	293,816		$	209,933
Current maturities of long-term debt	25,000			25,000			18,750			28,125			25,000			25,000
Accrued expenses and other current liabilities	191,775			235,042			188,081			208,144			225,265			204,897
Total current liabilities	458,412			514,746			476,223			453,398			544,081			439,830
Long-term debt, less current maturities and net of unamortized deferred financing costs	600,687			608,108			673,910			495,932			484,878			592,302
Deferred income taxes	43,145			44,498			46,251			60,665			59,760			42,929
Other long-term liabilities	20,199			20,657			20,156			24,638			20,328			20,006
Total liabilities	1,122,443			1,188,009			1,216,540			1,034,633			1,109,047			1,095,067
Commitments and contingencies (Note 12)
SHAREHOLDERS’ EQUITY:
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; 52,187,351, 52,377,798 and 52,390,584 issued shares at September 30, 2016, December 31, 2015 and September 30, 2015, respectively	522			524			524
Common stock $0.01 par value; 300,000,000 authorized shares; 52,374,108, 52,239,795 and 52,283,382 issued shares March 31, 2017, December 31, 2016 and March 31, 2016, respectively										523			522			523
Additional paid-in capital	1,026,737			1,085,785			1,103,320			998,007			1,013,688			1,062,128
Accumulated deficit	(864,464		)	(939,652		)	(999,362		)	(799,696		)	(820,944		)	(911,067		)
Accumulated other comprehensive loss	(725		)	(95		)	(593		)
Accumulated other comprehensive income (loss)										2,547			2,220			(344		)
Total shareholders’ equity	162,070			146,562			103,889			201,381			195,486			151,240
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,284,513		$	1,334,571		$	1,320,429		$	1,236,014		$	1,304,533		$	1,246,307

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, 2014	—	$	—	52,426		$	524		$	1,710,581		$	(1,108,891	)	$	127		$	602,341
Balance as of December 31, 2015																					—	$	—	52,378		$	524		$	1,085,785		$	(939,652	)	$	(95	)	$	146,562
Net income	—	—		—		—			—			169,239			—			169,239			—	—		—		—			—			118,708			—			118,708
Other comprehensive loss	—	—		—		—			—			—			(222		)	(222		)
Other comprehensive income																					—	—		—		—			—			—			2,315			2,315
Stock-based compensation expense for equity awards	—	—		—		—			18,408			—			—			18,408			—	—		—		—			19,233			—			—			19,233
Cash dividends declared on common stock	—	—		—		—			(597,864		)	—			—			(597,864		)	—	—		—		—			(73,151		)	—			—			(73,151		)
Issuance of common stock from stock-based compensation awards, including tax benefit of $12,526	—	—		900		9			13,161			—			—			13,170
Issuance of common stock from stock-based compensation awards, including tax effect of $658																					—	—		219		2			(1,616		)	—			—			(1,614		)
Repurchases of common stock	—	—		(948	)	(9		)	(58,501		)	—			—			(58,510		)	—	—		(357	)	(4		)	(16,563		)	—			—			(16,567		)
Balance as of December 31, 2015	—	—		52,378		524			1,085,785			(939,652		)	(95		)	146,562
Balance as of December 31, 2016																					—	—		52,240		522			1,013,688			(820,944		)	2,220			195,486
Net income	—	—		—		—			—			75,188			—			75,188			—	—		—		—			—			21,248			—			21,248
Other comprehensive loss	—	—		—		—			—			—			(630		)	(630		)
Other comprehensive income																					—	—		—		—			—			—			327			327
Stock-based compensation expense for equity awards	—	—		—		—			14,698			—			—			14,698			—	—		—		—			4,704			—			—			4,704
Cash dividends declared on common stock	—	—		—		—			(54,880		)	—			—			(54,880		)	—	—		—		—			(18,331		)	—			—			(18,331		)
Issuance of common stock from stock-based compensation awards, including income tax effect of $440	—	—		166		2			(2,304		)	—			—			(2,302		)
Repurchases of common stock	—	—		(357	)	(4		)	(16,562		)	—			—			(16,566		)
Balance as of September 30, 2016	—	$	—	52,187		$	522		$	1,026,737		$	(864,464	)	$	(725	)	$	162,070
Issuance of common stock from stock-based compensation awards																					—	—		134		1			(2,054		)	—			—			(2,053		)
Balance as of March 31, 2017																					—	$	—	52,374		$	523		$	998,007		$	(799,696	)	$	2,547		$	201,381

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,
	2016			2015			2017			2016
Cash flows from operating activities:
Net income	$	75,188		$	109,529		$	21,248		$	28,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	31,745			32,942			10,886			10,525
Stock-based compensation expense	14,698			13,814			4,704			5,376
Loss on sale and asset impairment	27,768			5,000
Amortization of debt issuance costs	1,329			1,725			429			444
Deferred income taxes	(1,420		)	(9,442		)	(1,500		)	(1,415		)
Bad debt expense	13,664			21,010			6,083			4,588
Excess tax benefits from stock-based awards	(130		)	(11,855		)
Other	(52		)	847			(249		)	178
Changes in current assets and liabilities:
Accounts receivable	65,796			88,309			92,094			84,109
Inventories	(51,935		)	(107,897		)	(18,557		)	(13,953		)
Prepaid expenses and other assets	(14,347		)	(14,756		)	(4,808		)	(9,248		)
Accounts payable, accrued expenses and other current liabilities	(48,299		)	(24,294		)	(87,991		)	(76,725		)
Net cash provided by operating activities	114,005			104,932			22,339			32,464
Cash flows from investing activities:
Capital expenditures	(28,504		)	(45,289		)	(9,859		)	(5,145		)
Other	(627		)	(1,402		)	(794		)	—
Net cash used in investing activities	(29,131		)	(46,691		)	(10,653		)	(5,145		)
Cash flows from financing activities:
Borrowings under term loan	—			500,000
Repayments of term loan	(18,750		)	(228,125		)	(6,250		)	(6,250		)
Borrowings under revolving credit facility	152,000			265,000			110,000			45,000
Repayments of revolving credit facility	(142,000		)	(65,000		)	(90,000		)	(55,000		)
Repurchase of common stock	(16,566		)	(52,063		)	—			(8,671		)
Payments of debt issuance costs	—			(6,624		)
Cash dividends paid	(54,880		)	(579,516		)	(18,331		)	(18,300		)
Proceeds from issuance of common stock	1,824			14,755			423			586
Tax withholdings related to stock-based awards	(3,116		)	(15,334		)
Excess tax benefits from stock-based awards	130			11,855
Payments of tax withholdings related to stock-based awards							(2,016		)	(1,825		)
Net cash used in financing activities	(81,358		)	(155,052		)	(6,174		)	(44,460		)
Net increase in cash and cash equivalents	3,516			(96,811		)
Net increase (decrease) in cash and cash equivalents							5,512			(17,141		)
Cash and cash equivalents at beginning of period	63,926			159,985			42,734			63,926
Cash and cash equivalents at end of period	$	67,442		$	63,174		$	48,246		$	46,785

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;~~networks; (ii) catalogs, consisting primarily of the Cornerstone portfolio of leading print catalogs which includes Ballard Designs, Frontgate, Garnet Hill, Grandin Road and Improvements; (iii) websites, which consist primarily of HSN.com, joymangano.com and the five branded websites operated by Cornerstone; (iv) mobile applications; (v) retail and outlet stores; and (vi) wholesale distribution of certain proprietary products to other retailers. HSNi’s television home shopping business, related digital sales, 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.” Chasing Fireflies and TravelSmith, two of the apparel brands in the Cornerstone portfolio, were sold in September 2016. See Note 14 for further discussion.

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, ~~2015.~~2016. The consolidated balance sheet as of December 31, ~~2015~~2016 and the consolidated statement of shareholders' equity for the year ended December 31, ~~2015~~2016 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 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~~July 2015, the FASB issued ASU No. ~~2015-05, Customer's Accounting~~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 ~~Fees Paid in~~fiscal years, and interim periods within those years, beginning after December 15, 2016 and should be applied on 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.prospective basis. HSNi ~~prospectively~~ adopted ASU ~~2015-05~~2015-11 on January 1, 2017. The adoption of ASU 2015-11 did not have a material impact to HSNi's consolidated financial statements.

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 ~~will apply~~the financial statement presentation of excess tax benefits and 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. HSNi adopted ASU 2016-09 on January 1, 2017. Amendments related to accounting for excess tax benefits and deficiencies have been adopted prospectively resulting in the recognition of $0.4 million of tax expense within HSNi's consolidated statements of earnings rather than as a reduction to additional paid in capital for the three months ended March 31, 2017. Also, excess tax benefits related to share-based payments are now included in operating cash flows rather than financing cash flows in the statement of cash flows. This change has been applied retrospectively in accordance with ASU 2016-09 and prior period amounts which are considered immaterial have been reclassified. We have previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows; therefore there is no change related to this ~~guidance to all arrangements entered into or materially modified after the effective date.~~requirement. The amendments

allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by previous guidance. HSNi has elected to continue estimating forfeitures under the previous guidance.

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~~

In 2015, HSNi established an implementation team (“team”) to assess the overall impact the adoption ~~is permitted in the first quarter~~ of ~~2017. HSNi~~ASU 2014-09 will have on its consolidated financial statements, processes, systems and controls. The team is in the process of developing its conclusions and assessing the impact of several aspects of the ~~adoption~~standard including principal versus agent considerations, identification of performance obligations and the determination of when control of goods transfers to the company’s customers. HSNi will adopt ASU 2014-09 ~~to its consolidated financial statements and~~on January 1, 2018. HSNi is still evaluating the accounting, transition method and disclosure ~~requirements and timing of adoption.~~

In July 2015, the FASB issued 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; 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.requirements.

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,~~January 2017, the FASB issued ASU No. ~~2016-09, Compensation-Stock Compensation~~2017-04, Intangibles - Goodwill and Other (Topic ~~718)~~350) ("ASU ~~2016-09"~~2017-04"). ~~This standard makes several modifications~~ASU 2017-04 simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. ASU No. 2017-04 is effective for HSNi in the first quarter of 2020, with early adoption permitted and is to ~~Topic 718 related to the accounting for forfeitures, employer tax withholding~~be applied 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.a prospective basis. 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 the provisions of ASU ~~2016-09 and the~~No. 2017-04 is not expected to have a material impact ~~it will have~~ on ~~its~~HSNi's consolidated financial ~~statements and related disclosures.~~position or results of operations.

~~Reclassifications~~

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 $24.1 million in the September 30, 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~~net realizable value 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.~~compensation.

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,
	2016			2015			2015			2017			2016			2016
Capitalized software	$	248,389		$	234,249		$	231,701		$	256,717		$	252,741		$	237,202
Computer and broadcast equipment	98,842			91,533			93,436			89,708			91,119			93,557
Buildings and leasehold improvements	110,711			108,656			105,658			118,016			113,731			110,887
Furniture and other equipment	123,799			96,512			95,985			125,940			124,518			97,434
Projects in progress	25,806			55,294			49,140			27,366			27,666			51,860
Land and land improvements	10,615			10,597			10,511			10,584			10,584			10,635
	618,162			596,841			586,431			628,331			620,359			601,575
Less: accumulated depreciation and amortization	(410,946		)	(385,048		)	(381,763		)	(417,949		)	(409,253		)	(395,231		)
Total property and equipment, net	$	207,216		$	211,793		$	204,668		$	210,382		$	211,106		$	206,344

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 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, ~~2015.~~2016. 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~~HSNi’s consolidated net income to operating income for ~~HSNi’s~~HSNi's operating segments and ~~to HSNi’s consolidated net income~~Adjusted EBITDA (in thousands):


	Three Months Ended September 30, 2016									Three Months Ended September 30, 2015									Three Months Ended March 31, 2017								Three Months Ended March 31, 2016
	HSN			Cornerstone			Total			HSN			Cornerstone			Total			HSN			Cornerstone		Total			HSN		Cornerstone			Total
Adjusted EBITDA	$	58,020		$	4,889		$	62,909		$	67,109		$	11,028		$	78,137
Net income																								$	21,248							$	28,585
Income tax provision																								13,467								17,097
Income before income taxes																								34,715								45,682
Total other expense, net																								3,864								4,147
Operating income																			$	37,512		$	1,067	38,579			$	49,645	$	184		49,829
Non-cash charges:
Stock-based compensation expense	(3,671		)	(568		)	(4,239		)	(3,292		)	(1,097		)	(4,389		)	3,392			1,312		4,704			4,039		1,337			5,376
Depreciation and amortization	(7,304		)	(3,214		)	(10,518		)	(7,318		)	(3,290		)	(10,608		)	7,707			3,179		10,886			7,003		3,522			10,525
Distribution center closure (a)	—			—			—			(189		)	—			(189		)
Loss on sale of businesses and asset impairment (b)(c)	—			(11,195		)	(11,195		)	—			(5,000		)	(5,000		)
Loss on disposition of fixed assets	(82		)	—			(82		)	(115		)	(3		)	(118		)
Operating income (loss)	$	46,963		$	(10,088	)	36,875			$	56,195		$	1,638		57,833
Total other expense, net							(4,001		)							(4,063		)
Income before income taxes							32,874									53,770
Income tax provision							(12,716		)							(19,562		)
Net income							$	20,158								$	34,208
Gain (loss) on disposition of fixed assets																			(49		)	—		(49		)	3		(1		)	2
Adjusted EBITDA																			$	48,562		$	5,558	$	54,120		$	60,690	$	5,042		$	65,732


	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015
	HSN			Cornerstone			Total			HSN			Cornerstone			Total
Adjusted EBITDA	$	184,990		$	26,052		$	211,042		$	201,493		$	39,820		$	241,313
Stock-based compensation expense	(11,577		)	(3,121		)	(14,698		)	(10,518		)	(3,296		)	(13,814		)
Depreciation and amortization	(21,582		)	(10,163		)	(31,745		)	(22,326		)	(10,616		)	(32,942		)
Distribution center closure (a)	—			—			—			(3,221		)	—			(3,221		)
Loss on sale of businesses and asset impairment (b)(c)	—			(31,595		)	(31,595		)	—			(5,000		)	(5,000		)
Loss on disposition of fixed assets	(86		)	—			(86		)	(779		)	(11		)	(790		)
Operating income (loss)	$	151,745		$	(18,827	)	132,918			$	164,649		$	20,897		185,546
Total other expense, net							(11,988		)							(11,241		)
Income before income taxes							120,930									174,305
Income tax provision							(45,742		)							(64,776		)
Net income							$	75,188								$	109,529

(a) HSN recorded $0.2 million and $3.2 million in the third quarter and nine months ended September 30, 2015, respectively, for certain costs associated with the planned closure of one of its distribution centers.
(b) Cornerstone recorded a loss on the sale of TravelSmith and Chasing Fireflies of $11.2 million in the third quarter of 2016 and related asset impairment charges of $20.4 million in the second quarter of 2016. See Note 14 for further information.
(c) Cornerstone recorded a $5.0 million non-cash charge for the impairment of intangible assets related to Chasing Fireflies in the third quarter of 2015.

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,
	2016		2015		2016		2015		2017		2016
Net sales:
HSN	$	569,669	$	590,588	$	1,705,215	$	1,763,384	$	560,529	$	578,383
Cornerstone	253,354		274,280		788,881		829,013		224,906		238,382
Total	$	823,023	$	864,868	$	2,494,096	$	2,592,397	$	785,435	$	816,765

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,
	2016		2015		2016		2015		Three Months Ended March 31,
									2017		2016
Net income	$20,158		$34,208		$75,188		$109,529		$21,248		$28,585

Weighted average number of shares outstanding:
Basic	52,356		52,736		52,376		52,658		52,432		52,378
Dilutive effect of stock-based compensation awards	488		759		525		979		389		541
Diluted	52,844		53,495		52,901		53,637		52,821		52,919

Net income per share:
Basic	$	0.39	$	0.65	$	1.44	$	2.08	$	0.41	$	0.55
Diluted	$	0.38	$	0.64	$	1.42	$	2.04	$	0.40	$	0.54

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	2,121		557		1,963		544		3,814		1,919

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,
	2016			2015			2015			2017			2016			2016
Secured credit agreement expiring January 27, 2020:
Term loan	$	481,250		$	500,000		$	500,000		$	468,750		$	475,000		$	493,750
Revolving credit facility	150,000			140,000			200,000			60,000			40,000			130,000
Long-term debt	631,250			640,000			700,000			528,750			515,000			623,750
Unamortized deferred financing costs	(5,563		)	(6,892		)	(7,340		)	(4,693		)	(5,122		)	(6,448		)
Long-term debt, net of unamortized deferred financing costs	625,687			633,108			692,660			524,057			509,878			617,302
Less: current maturities	(25,000		)	(25,000		)	(18,750		)	(28,125		)	(25,000		)	(25,000		)
Long-term debt, less current maturities and net of unamortized deferred financing costs	$	600,687		$	608,108		$	673,910		$	495,932		$	484,878		$	592,302

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.

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. The Credit Agreement also contains provisions that limit the ability of HSNi to make Restricted Payments, defined as cash dividends, distribution of other property, repurchase of the Company’s common stock, prepayment or redemption of debt, etc., however, so long as the Company’s leverage ratio is below 3.00x after giving pro forma effect to any proposed Restricted Payments, the amount of such Restricted Payments are not limited. In the event the Company’s leverage ratio is equal to or greater than 3.00x or after giving pro forma effect to any proposed Restricted Payments, then such Restricted Payments are limited to $150 million in any such fiscal year. The current cash dividend of $1.40 annually per share represents a Restricted Payment of approximately $73.2 million. Dividends, loans or advances to HSNi by its subsidiaries are not restricted by the Credit Agreement.20.0x.

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 ~~$631.3~~$528.8 million outstanding long-term debt balance as of ~~September 30, 2016~~March 31, 2017 was ~~2.02%~~2.45%. 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 $~~13.9~~7.2 million as of ~~September 30, 2016.~~March 31, 2017. The ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial covenants. As of ~~September 30, 2016,~~March 31, 2017, 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 $~~586.1~~472.6 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 uses interest rate swap contracts to eliminate the cash flow risk on a portion of its variable rate debt. HSNi pays at a fixed rate and receives payments at a variable rate based on one-month LIBOR. The swaps effectively fix the floating LIBOR-based interest of our outstanding LIBOR-based debt. The interest rate swaps were designated and qualified as cash flow hedges; therefore, the effective portions of the changes in fair value are recorded in accumulated other comprehensive income (loss). Any ineffective portions of the changes in fair value of the interest rate swaps will be immediately recognized in earnings in the consolidated statements of operations.

The interest rate swaps effectively convert $187.5 million of our variable rate term loan to a ~~fixed-rate~~fixed rate of 0.8525% through April 2017, and then increases to $250.0 million in April 2017 with a maturity date in January 2020 with a fixed rate of 1.05% (in both cases the swapped fixed rate is exclusive of the credit spread under the Credit Agreement). Based on HSNi's leverage ratio as of ~~September 30, 2016,~~March 31, 2017, the all-in fixed rate was 2.3525%. The changes in fair value of the interest rate swaps (inclusive of reclassifications to net income and net of tax) for the three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ were income of approximately ~~$0.9~~$0.3 million and a loss of approximately $0.2 million, respectively, and were included in other comprehensive income (loss). The changes 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, 2016 and 2015 were losses of approximately $0.6 million and $0.7 million, respectively, and were included in other comprehensive income (loss).

The fair values of the interest rate swaps at ~~September 30, 2016,~~March 31, 2017 and December 31, ~~2015 and September 30, 2015~~2016 were ~~liabilities~~assets of ~~$1.2 million, $0.2~~$4.1 million and ~~$0.9~~$3.6 million, respectively, and were recorded in "Other non-current assets." The fair value of the interest rate swaps at March 31, 2016 was a liability of $0.6 million and was recorded in "Other long-term liabilities" in the consolidated balance sheets. HSNi estimates that approximately ~~$0.6~~$0.5 million of unrealized ~~losses~~income included in accumulated other comprehensive ~~loss~~income related to these swaps will be realized and reported in earnings within the next twelve months. See Note 8 for discussion of the fair value measurements concerning these interest rate swaps.

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, 2016									March 31, 2017
		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:
Assets:
Interest rate swaps		$	1,160	$	—	$	1,160	$	—		$	4,077	$	—	$	4,077	$	—

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



	December 31, 2016
		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
Assets:
Interest rate swaps		$	3,577	$	—	$	3,577	$	—


	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	$	—

HSNi's interest rate swaps are carried on the balance sheet at fair value. The swaps are entered into 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, 2016

Carrying
Value
Fair Value Fair Value Measurement Category
Level 1 Level 2 Level 3
Term loan expiring January 27, 2020 $ 481,250
$ 481,250
$ —
$ 481,250
$ —
Revolving credit facility $ 150,000
$ 150,000
$ —
$ 150,000
$ —

December 31, 2015

Carrying
Value
Fair Value Fair Value Measurement Category
Level 1 Level 2 Level 3
Term loan expiring January 27, 2020 $ 500,000
$ 500,000
$ —
$ 500,000
$ —
Revolving credit facility $ 140,000
$ 140,000
$ —
$ 140,000
$ —

September 30, 2015

Carrying
Value
Fair Value Fair Value Measurement Category
Level 1 Level 2 Level 3
Term loan expiring January 27, 2020 $ 500,000
$ 500,000
$ —
$ 500,000
$ —
Revolving credit facility $ 200,000
$ 200,000
$ —
$ 200,000
$ —

~~The fair value~~carrying amount of the term loan ~~was estimated by discounting expected cash flows at~~and revolving credit facility outstanding under the Credit Agreement approximates fair value as these instruments have variable interest rates ~~currently offered to HSNi for debt of the same remaining maturities~~which approximate current market rates (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. HSNi also measures certain assets, such as property and equipment and definite-lived intangible assets, at fair value on a non-recurring basis.

At June 30, 2016, the assets and liabilities of Chasing Fireflies and TravelSmith were considered to be a disposal group held for sale. Therefore, the disposal group was measured at its fair value less the estimated costs to sell which resulted in a non-cash asset impairment charge of $20.4 million that was recognized during the second quarter. On September 8, 2016, Cornerstone completed the divestiture of Chasing Fireflies and TravelSmith and recorded a loss on sale of $11.2 million during the three months ended September 30, 2016. See Note 14 for further discussion. As a result of the divestiture, HSNi performed a qualitative assessment of its goodwill and noted no impairment as of September 30, 2016.

During the third quarter of 2015, HSNi performed a quantitative assessment of certain intangible assets related to its acquisition of Chasing Fireflies 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 "Loss on sale of businesses and asset impairment" 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 and discount, royalty and terminal growth rates.

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 expense or benefit related to significant or 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, excess tax benefits and deficiencies related to share-based awards and 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 isare 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 and permanent and temporary ~~differences, and the likelihood of recovering deferred tax assets generated in the current year.~~differences. 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,~~March 31, 2017, HSNi recorded a tax provision of $13.5 million which represents an effective tax rate of 38.8%. For the three months ended March 31, 2016, HSNi recorded a tax ~~provisions~~provision of ~~$12.7~~$17.1 million ~~and $45.7 million, respectively,~~ which represents an effective tax rates of 38.7% and 37.8%. For the three and nine months ended September 30, 2015, HSNi recorded tax provisions of $19.6 million and $64.8 million, respectively, which represents effective tax rates of 36.4% and 37.2%37.4%.

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~~Currently, HSNi’s 2013 through 2015 tax returns are ~~currently no income tax examinations in progress. New York State concluded an income tax examination~~under audit by the state of ~~the years ended December 31, 2011 through December 31, 2013. No~~Florida. HSNi does not anticipate any material ~~adjustment~~adjustments to our tax liabilities ~~resulted from this~~as a result of the examination.

HSNi and several companies previously owned by IAC/InterActiveCorp, or IAC, were spun-off from IAC on August 20, 2008. In connection with the spin-off, HSNi entered into a Tax Sharing Agreement with IAC. Pursuant to this agreement, each of the companies included in the spin-off (the "Spincos") was indemnified by IAC for additional tax liabilities related to consolidated or combined federal and state tax returns prepared and filed by IAC prior to the spin-off. However, each Spinco agreed to, among other things, assume any additional tax liabilities related to their separately filed state income tax returns. All examinations have concluded or statutes of limitations have expired related to IAC's consolidated or combined federal and state tax returns for years including HSNi operations 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) act or failure to act by such Spinco described in the covenants in the Tax Sharing Agreement, (ii) acquisition of equity, securities, or assets of such Spinco or a member of its group, and (iii) breach by such Spinco or any member of its group of any representation or covenant contained in the separation documents or in the documents relating to the IRS private letter ruling and/or tax opinions. This indemnification remains effective until IAC's tax returns for the two year period after the spin-off are no longer subject to examination.

NOTE 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,
	2016			2015			2016			2015			2017			2016
Selling and marketing	$	1,369		$	1,472		$	4,880		$	4,624		$	1,588		$	1,808
General and administrative	2,870			2,917			9,818			9,190			3,116			3,568
Stock-based compensation expense before income taxes	4,239			4,389			14,698			13,814			4,704			5,376
Income tax benefit	(1,493		)	(1,539		)	(5,134		)	(4,897		)	(1,240		)	(1,876		)
Stock-based compensation expense after income taxes	$	2,746		$	2,850		$	9,564		$	8,917		$	3,464		$	3,500

As of ~~September 30, 2016,~~March 31, 2017, there was approximately $~~26.0~~38.5 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 ~~1.8~~2.3 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 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. As of ~~September 30, 2016,~~March 31, 2017, there were approximately ~~1.6~~0.5 million shares of common stock available for grants under the Plan.

During the first quarter of ~~2016,~~2017, HSNi granted ~~approximately 92,000~~96,439 performance share units ("PSUs") to certain executive employees. PSUs cliff 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. The compensation expense for these PSUs is based on the fair value of the awards measured at the grant date and is expensed ratably over the vesting term.

A summary of the stock-based awards granted during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 is as follows:


	Nine Months Ended September 30, 2016		Three Months Ended March 31, 2017
	Number of Awards Granted	Weighted Average per Share Fair Value	Number of Awards Granted	Weighted Average per Share Fair Value
Stock appreciation rights	928,990	$7.31
Maximum value stock appreciation rights (a)			1,144,049	$6.36
Restricted stock units	264,774	$45.52	291,420	$38.14
Performance share units(b)	92,290	$54.06	192,878	$57.36
Employee stock purchase plan options	61,091	$11.70	31,729	$8.63
Dividend equivalents due to quarterly dividend	19,438	-	8,940	-
(a) Maximum value SARs are similar to traditional SARs, except these instruments contain a predetermined cap of 200% on the maximum earnings potential a recipient can expect to receive upon exercise.			(a) Maximum value SARs are similar to traditional SARs, except these instruments contain a predetermined cap of 200% on the maximum earnings potential a recipient can expect to receive upon exercise.
(b) PSUs are reflected at the maximum 200% potential value.			(b) PSUs are reflected at the maximum 200% potential value.

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 values of the maximum value ofstock appreciation rights and PSUs isare 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, 2016~~March 31, 2017 are as follows:


	Nine Months Ended September 30, 2016						Three Months Ended March 31, 2017
	Stock Appreciation Rights		Employee Stock Purchase Plan Options		Performance Share Units		Maximum Value Stock Appreciation Rights		Employee Stock Purchase Plan Options		Performance Share Units
Volatility factor	26.3	%	32.3	%	25.2	%	27.4	%	38.7	%	30.0	%
Risk-free interest rate	1.23	%	0.43	%	0.89	%	1.79	%	0.65	%	1.40	%
Expected term	4.5		0.5		2.9		4.7		0.5		2.9
Dividend yield	3.1	%	2.8	%	0.0	%	3.6	%	4.1	%	0.0	%

NOTE 11—SHAREHOLDERS’ EQUITY

Share Repurchase Program

Effective January 27, 2015, HSNi’s Board of Directors approved a 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,~~March 31, 2017, there were no share repurchases. During the three months ended March 31, 2016, HSNi acquired approximately ~~357,000~~181,000 shares of its outstanding common stock for $~~16.6~~8.7 million at an average price of $~~46.45~~48.04. All shares were retired immediately following purchase. As of ~~September 30, 2016,~~March 31, 2017, approximately 2.7 million shares remain authorized for repurchase under the program.

Dividend Policy

In the ~~third~~first quarter of ~~2016,~~2017, 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~~March 22, ~~2016~~2017 to HSNi's shareholders of record as of ~~September 7, 2016.~~March 8, 2017.

In the ~~fourth~~second quarter of ~~2016,~~2017, HSNi's Board of Directors approved a quarterly cash dividend of ~~$0.35~~$0.35 per common share. The dividend will be paid on ~~December 20, 2016~~June 21, 2017 to HSNi's shareholders of record as of ~~December~~June 7, ~~2016.~~

2017.

Accumulated Other Comprehensive Income (Loss) ~~Income~~

Accumulated other comprehensive income (loss) ~~income~~ 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,
2016 2015
Accumulated other comprehensive (loss) income as of January 1, $ (95 ) $ 127
Other comprehensive loss before reclassifications (1,579 ) (2,111 )
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the consolidated statements of operations 567
954
Income tax benefit 382
437
Other comprehensive loss, net of tax (630 ) (720 )
Accumulated other comprehensive (loss) income as of September 30, $ (725 ) $ (593 )



	Three Months Ended March 31,
	2017			2016
Accumulated other comprehensive income (loss) as of January 1,	$	2,220		$	(95	)
Other comprehensive loss before reclassifications	(242		)	(603		)
Amounts reclassified from accumulated other comprehensive income to interest expense in the consolidated statements of operations	742			200
Income tax (expense) benefit	(173		)	154
Other comprehensive income (loss), net of tax	327			(249		)
Accumulated other comprehensive income (loss) as of March 31,	$	2,547		$	(344	)

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 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 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, 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 a two-year transition plan and~~ be ~~substantially~~ completed in ~~2017.~~2018.

~~HSN~~HSNi 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.~~incentives, $3.2 million of which were recognized in fiscal 2015.

A summary of HSNi’s liability associated with exit activities, which is recorded in ~~“Accrued~~“Other long-term liabilities" as of March 31, 2017 and "Accrued expenses and other current ~~liabilities”~~liabilities" as of March 31, 2016 in the accompanying consolidated balance sheets, are presented in the following table (in thousands):


	Employee Related Costs			Employee Related Costs
Balance at January 1, 2016	$	3,221
				2017			2016
Balance at January 1				$	3,100		$	3,221
Provisions	—			—			—
Payments	(65		)	(63		)	—
Adjustments	—			—			—
Balance at September 30, 2016	$	3,156
Balance at March 31				$	3,037		$	3,221

NOTE 14—DIVESTITURES

On September 8, 2016, HSNi completed the sale of substantially all of the assets and certain liabilities of Chasing Fireflies and TravelSmith, two of the apparel brands included within the Cornerstone ~~segment. The~~segment for a sale price of $1 million. The sales agreement included ~~$1 million in cash and~~contingent consideration of $2 million ~~of contingent consideration~~ that iswas based on the achievement of certain performance metrics in ~~2016. As of September 30,~~ 2016 ~~HSNi~~which were not achieved. No value was assigned ~~no value~~ to the contingent consideration as it was not considered probable of being earned. During the third quarter of 2016, Cornerstone recorded a pre-tax loss on sale of $11.2 million. The transaction included cash charges of approximately $3.8 million related to transactions costs and employee and lease liabilities. As of September 30, 2016, there was approximately $1.8 million in exit-related liabilities that were included in "Accrued expenses and other current liabilities" in the accompanying balance sheet.

The assets and liabilities of the two brands were classified as held for sale as of June 30, 2016 which resulted in a non-cash asset impairment charge of $20.4 million recorded in the second quarter of ~~2016.~~

~~The~~2016 within the Cornerstone segment. During the year ended December 31, 2016, Cornerstone recorded an additional pre-tax loss on sale ~~and asset impairment~~of $10.8 million. The transaction included cash charges of approximately $3.5 million related to transactions costs and employee and lease liabilities.

HSNi entered into a transition services agreement with the buyer to provide fulfillment and various back office support services through February 2017. Fees earned by HSNi under this ~~sale~~transition services agreement of approximately $0.9 million for the three months ended ended March 31, 2017 are recorded in net sales in the consolidated statements of operations in the line item “Loss on sale and asset impairment.” The assets sold were largely represented by $29.3 million of inventory and $8.4 million of other assets, and approximately $8.6 million of current liabilities.operations.

HSNi determined the sale of these businesses would not represent a strategic shift in its business nor ~~will~~would it have a major effect on its consolidated results of operations, financial position or cash flows. Accordingly, the disposal group is not presented in the consolidated financial statements as a discontinued operation.

NOTE 15—SUBSEQUENT EVENT

On April 26, 2017, HSNi announced Mindy Grossman, the Company's Chief Executive Officer, had resigned effective May 24, 2017 and she will not stand for reelection to the Board of Directors at the Annual Meeting of Shareholders on May 24, 2017. The Board has retained a national search firm to assist with the search for a successor that will include both internal and external candidates. In addition, until a successor is named, the Board has established the Office of the Chief Executive consisting of Rod R. Little, Chief Financial Officer, William C. Brand, Chief Marketing Officer of HSNi and President of HSN; and Judy A. Schmeling, Chief Operating Officer of HSNi and President of Cornerstone Brands, Inc. Mr. Little will be acting as the Company's interim principal executive officer.



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, ~~2015~~2016 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;

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

failure to attract and retain television viewers and/or changes in consumer viewing habits of our programming;

consolidation and/or divestiture in the cable industry, increases in on-air distribution costs and failure to secure a suitable programming tier of carriage and channel placement for the HSN television network programming;

changes ~~in product shipping~~to international and ~~handling costs particularly if we are unable~~national trade laws, regulations and policies (particularly those related to ~~offset them;~~or restricting global trade) could significantly impair HSNi's profitability;

interruption, lack of redundancy or difficulties implementing new or upgraded technology in our systems or infrastructure could affect our ability to broadcast, operate websites, process and fulfill transactions, respond to customer inquiries and/or maintain cost efficient operations;

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;~~taxes in states where we do not currently do so;

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;

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

changes in consumer expectations for reduced shipping charges and faster delivery times particularly if we are unable to meet them;

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, audits, claims and assessments;

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

our chief executive officer transition, and our ability to appoint a new chief executive officer with the required level of experience and expertise in a timely manner; or the loss of any additional 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

~~Divestiture~~Overview of Results

OnHSNi’s net sales in the first quarter of 2017 decreased 4% to $785.4 million. Net sales at HSN decreased 3% to $560.5 million and Cornerstone’s net sales decreased 6% to $224.9 million. The prior year period included the benefit of an additional day for leap year within the HSN segment and the net sales from two Cornerstone brands that were divested in September 8,2016. Excluding these effects, HSNi's net sales decreased 1%; HSN's net sales decreased 2%; and Cornerstone's net sales increased 1%. Both segments were impacted by a challenging and highly competitive retail environment. We also continued to experience increased pressure on shipping and handling revenues in both the HSN and Cornerstone segments, a trend we expect to continue through 2017.

Digital commerce remains an essential part of our strategy to optimize the content of all our brands across multiple distributed commerce platforms. HSNi digital sales penetration represents 54% of our business. Sales from mobile devices, including smart phones and tablets, grew 11% and represent 24% of our total business. We will continue to invest in digital technologies to enable us to offer a highly personalized and engaging experience based on customer profile, preferences and usage.

In September 2016, HSNi ~~divested~~completed the divestiture of two of the under-performing apparel brands within the Cornerstone portfolio, TravelSmith and Chasing Fireflies, ~~two~~allowing us to exclusively focus on improving the performance of ~~the apparel brands in the Cornerstone portfolio.~~our strategic brands. The results of TravelSmith ofand Chasing Fireflies are included in the results of HSNi and Cornerstone through the date of the divestiture. ~~Unless explicitly excluded, the results~~

As part of ~~TravelSmith~~our distributed commerce strategies, we continued to invest in Cornerstone's experiential retail stores in key markets to expand consumer touch points with our brands. We have seen increased demand and ~~Chasing Fireflies are included~~higher lifetime-value customers in the regions where our retail stores are located. During the first quarter of 2017, we opened one new Ballard Designs retail store and have plans to open one Frontgate and two additional Ballard Designs retail stores in 2017.

HSNi continued implementation of its supply chain optimization initiative which includes the automation and consolidation of certain HSNi distribution centers. HSN began phasing in its expanded automation capabilities in its Piney Flats, Tennessee distribution center in the third quarter of 2016. HSN incurred additional costs of approximately $4 million in the first quarter of 2017 related to the implementation in the form of increased labor, operational inefficiencies and increased consulting costs. These costs negatively impacted gross profit by $2.4 million and operating expenses by $1.6 million. We expect that approximately $6 million of additional related charges will be incurred in 2017, with approximately half impacting gross profit. Upon the project's completion, we expect to realize financial and operational benefits of the supply chain optimization initiative in the form of increased labor efficiencies, more efficient space utilization, lower transportation costs and faster customer deliveries.

As part of the supply chain optimization, HSN will be closing its Roanoke, Virginia distribution center which is expected to occur in 2018. 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, which were recognized in fiscal 2015. See Note 13 of Notes to Consolidated Financial Statements for further discussion of the planned closure of the Roanoke, Virginia distribution center.

HSNi's net income in the first quarter of 2017, decreased 26% to $21.2 million. The decrease in net income was primarily due to gross profit compression as a result of the lower sales, heightened promotional activity in shipping and ~~analysis within Management's Discussion~~handling and ~~Analysis~~the additional costs incurred related to the supply chain optimization implementation. The decrease was partially offset by lower operating expenses as a result of ~~Financial Condition and Results of Operations.~~the divested businesses.

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 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,
	2016		Change	2015		2016		Change	2015		2017		Change	2016
	(Dollars in thousands)					(Dollars in thousands)					(Dollars in thousands)
HSN	$	569,669	(4)%	$	590,588	$	1,705,215	(3)%	$	1,763,384	$	560,529	(3)%	$	578,383
Cornerstone	253,354		(8)%	274,280		788,881		(5)%	829,013		224,906		(6)%	238,382
Total HSNi net sales	$	823,023	(5)%	$	864,868	$	2,494,096	(4)%	$	2,592,397	$	785,435	(4)%	$	816,765

HSNi net sales in the ~~third~~first quarter of ~~2016~~2017 decreased 5%4%, or ~~$41.8~~$31.3 million, due to a ~~3.5% sales~~3% decline at HSN and ~~an 8%~~a 6% decline at Cornerstone. Excluding the results of ~~TravelSmith~~the divestitures and ~~Chasing Fireflies~~the benefit of the additional day for leap year at HSN from ~~both periods,~~the prior year, HSNi net sales in the first quarter of 2017 decreased 3%1%, or ~~$27.4~~$11.4 million, ~~in the third quarter of 2016~~ compared to the prior year. HSNi's results were also impacted by a highly promotional retail environment, the impact of a weaker season in the outdoor category and viewership distractions including the presidential election process and the Summer Olympics. HSNi expects it will continue to be impacted in the fourth quarter of 2016 by the competitive retail landscape as well as potential viewership distractions such as the presidential election process.year period. Digital sales ~~which remain a key area of strategic focus as HSNi pursues opportunities~~were flat to ~~optimize its content across multiple distributed commerce platforms, grew 2% compared to the~~ prior ~~year. Digital sales~~year while penetration increased ~~330~~200 basis points to ~~52.7%~~53.8%. Mobile sales grew 11% and as a percentage of digital sales were 44.7%, up from 40.5% in the prior year. Gross units shipped in the ~~third~~first quarter of ~~2016~~2017 decreased 2%8% to ~~14.9~~13.8 million ~~and~~while the average price point ~~decreased 3%~~increased 5% to ~~$61.75.~~

HSNi net sales in the nine months ended September 30, 2016 decreased 4%, or $98.3 million, due to a 3% sales decline at HSN and a 5% decline at Cornerstone. Digital sales grew 2% with penetration increasing 300 basis points to 52.3%. Gross units shipped in the nine months ended September 30, 2016 decreased 2% to 44.1 million and the average price point decreased 2% to $62.65. Excluding the results of TravelSmith and Chasing Fireflies from both periods, net sales decreased 3%, or $71.4 million, in the nine months ended September 30, 2016 compared to the prior year period.$62.99.

HSN

HSN net sales in the ~~third~~first quarter of 2017 decreased 3%, or $17.9 million. Excluding the benefit of having an additional day for leap year in the first quarter of 2016, HSN's net sales decreased 4%2%. Digital sales grew 3% and penetration increased 290 basis points to 46.7%. Mobile sales grew 12% and as a percentage of digital sales were 54.0%, ~~or $20.9 million.~~up from 49.9% in the prior year. Sales grew in apparel & accessories, kitchen and ~~accessories and wellness, primarily~~home, offset by decreases in ~~fitness, shipping and handling revenues and electronics.~~other categories. Shipping and handling revenues decreased primarily due to an ~~increase in shipping and handling promotions and a~~August 2016 reduction in HSN's standard shipping rates ~~which became effective in August 2016. A decline in shipping~~ and handling revenues is a trend we expect to continue. Digital sales grew 6.7% with penetration increasing 430 basis points to 44.8%. The return rate improved 30 basis points from 16.8% to 16.5%. Units shipped increased 1% to 11.8 million. Average price point decreased 5% to $55.64 largely due to an increase in clearance activity and changes in product mix.

HSN net sales in the nine months ended September 30, 2016 decreased 3%, or $58.2 million. Sales grew in wellness, electronics, and apparel and accessories, offset by decreases in other categories and in shipping and handling revenues. Approximately one-third of the decline in net sales was attributable to the conclusion of a direct-response television marketing campaign during the first quarter of 2016. Shipping and handling revenues decreased primarily due to an increase in shipping and handling ~~promotions and a reduction in HSN's standard shipping rates which became effective in August 2016. Digital sales grew 5% and penetration increased 360 basis points to 44.1%.~~promotions. The return rate improved 60160 basis points from ~~17.5%~~16.8% to ~~16.9%~~15.2% primarily due to a shift in sales mix to categories with lower return ~~rates. Units shipped were 35.0 million, consistent with the prior year, and average~~rates as well as continuing to experience lower than historical return rates in many product categories. Average price point ~~decreased~~increased 4% to ~~$55.65~~$56.49 driven by changes in product mix. Units shipped decreased 8% to 11.2 million.

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,
	2016		2015		2016		2015		2017		2016
Jewelry	8.2	%	8.3	%	8.7	%	9.0	%	8.0	%	8.6	%
Fashion (apparel & accessories)	16.3	%	14.1	%	16.7	%	15.9	%	16.7	%	15.6	%
Beauty & Health (including beauty, wellness and fitness)	22.1	%	24.1	%	24.1	%	25.1	%	25.5	%	26.6	%
Home & Other (including home, electronics, culinary and other) (a)	53.4	%	53.5	%	50.5	%	50.0	%
Home & Other (including home, electronics, kitchen and other)									49.8	%	49.2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

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

Cornerstone

Cornerstone net sales in the ~~third~~first quarter of ~~2016~~2017 decreased 8%6%, or ~~$20.9~~$13.5 million. Excluding the results of TravelSmith and Chasing Fireflies from both periods, net sales decreased 3%, or $6.5 million, primarily due to weakness in the outdoor category and lower catalog circulation in the home brands. The home brands were impacted by a highly competitive environment leading to increased promotional activity to drive sales demand. Digital sales decreased 5% ~~but~~while penetration increased ~~210~~60 basis points to ~~70.4%~~71.5%. Mobile sales grew 7% and as a percentage of digital sales were 29.6%, up from 26.4% in the prior year. Catalog circulation ~~decreased 10%~~was 66.1 million, a decrease of 21% compared to ~~73.2 million. Excluding the impact of TravelSmith and Chasing Fireflies, catalog circulation decreased 6% due to the strategic decision to reduce circulation in certain brands.~~prior year. The return rate was ~~12.3%~~14.0% compared to ~~13.1%~~13.2% in the prior ~~year primarily due to changes in product mix.~~year. Units shipped decreased 11% and average price point increased 8%. Cornerstone added ~~three~~one retail ~~stores and two outlet stores~~store during the first quarter of 2017 with a total of 17 stores open as of ~~September 30, 2016~~March 31, 2017 compared to ~~a total of 12~~14 stores as of ~~September 30, 2015.~~March 31, 2016. Cornerstone expects to open an additional three retail stores in 2017.

~~Cornerstone net sales in the nine months ended September 30, 2016 decreased 5%, or $40.1 million. Excluding the results~~

The divestiture of TravelSmith and Chasing Fireflies ~~from both~~which occurred in September 2016 impacted the comparability between periods of net sales ~~decreased 2% primarily due to weakness in the outdoor category~~ and ~~lower catalog circulation in the home brands. Catalog circulation was 237.6 million, a decrease~~ of ~~5% compared to prior year.~~certain sales-related operating metrics. Excluding the ~~impact~~divestitures, net sales increased 1%; units shipped increased 2% and average price point increased 2%. Excluding the divestitures, digital sales grew 2% with penetration increasing 120 basis points; mobile sales grew 15% and as a percentage of ~~TravelSmith and Chasing Fireflies,~~digital sales increased 330 basis points. Excluding the divestitures, catalog circulation decreased ~~2%. Digital sales decreased 2%, but~~14% which was largely due to timing and the strategic decision to allocate additional spend towards digital ~~sales penetration increased 200 basis points to 69.9%. The return rate was 12.7% compared to 13.0% in the prior year.~~advertising.

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,
	2016		2015		2016		2015		2017		2016 (b)
Home brands (Ballard Designs, Frontgate, Grandin Road and Improvements) (a)	81.5	%	77.9	%	80.8	%	79.1	%	81.5	%	76.7	%
Apparel brands (Chasing Fireflies, Garnet Hill and TravelSmith) ~~(b)~~(a)	18.5	%	22.1	%	19.2	%	20.9	%	18.5	%	23.3	%
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
(a) Classification is based on the brands' primary product category of which it sells; however, each brand sells products from other categories, to a lesser extent.
(b) Includes the results of Chasing Fireflies and TravelSmith through the date of the divestiture on September 8, 2016.
(a) Classification is based on the brands' primary product category which it sells; however, each brand sells products from other categories to a lesser extent.									(a) Classification is based on the brands' primary product category which it sells; however, each brand sells products from other categories to a lesser extent.
(b) The first quarter of 2016 includes the results of Chasing Fireflies and TravelSmith.									(b) The first quarter of 2016 includes the results of Chasing Fireflies and TravelSmith.

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,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
Gross profit:
HSN	$	189,961		(7)%	$	204,527		$	586,361		(6)%	$	621,329		$	191,132		(4)%	$	199,285
As a percentage of HSN net sales	33.3		%	(130 bps)	34.6		%	34.4		%	(80 bps)	35.2		%	34.1		%	(40 bps)	34.5		%
Cornerstone	$	90,115		(11)%	$	101,747		$	295,017		(8)%	$	321,688		$	82,005		(9)%	$	90,193
As a percentage of Cornerstone net sales	35.6		%	(150 bps)	37.1		%	37.4		%	(140 bps)	38.8		%	36.5		%	(130 bps)	37.8		%
HSNi	$	280,076		(9)%	$	306,274		$	881,378		(7)%	$	943,017		$	273,137		(6)%	$	289,478
As a percentage of HSNi net sales	34.0		%	(140 bps)	35.4		%	35.3		%	(110 bps)	36.4		%	34.8		%	(60 bps)	35.4		%

bp = basis points

HSN

Gross profit for HSN in the ~~third~~first quarter of ~~2016~~March 31, 2017 decreased 7%4%, or ~~$14.6~~$8.2 million. Gross profit as a percentage of net sales decreased ~~130~~40 basis points to ~~33.3%~~34.1% primarily due to a decrease in shipping revenues and ~~to a lesser extent, increased~~higher fulfillment costs, partially offset by an increase in product margins. The increase in fulfillment costs of approximately 40 basis points was primarily associated with the ongoing implementation of HSNi's supply chain optimization initiative which resulted in higher labor costs and operational inefficiencies during the quarter. Product margins were favorably impacted in the first quarter of 2017 by less clearance ~~activity.~~activity; however, HSN ~~continues to carry~~is carrying excess inventories in certain product categories that could create future margin pressure in the form of markdowns.

Cornerstone

Gross profit for ~~HSN~~Cornerstone in the ~~nine months ended September 30, 2016~~first quarter of 2017 decreased 6%9%, or ~~$35.0~~$8.2 million. Gross profit as a percentage of net sales decreased 80130 basis points to ~~34.4% primarily due to an increase in shipping promotions.~~

~~Cornerstone~~

~~Gross profit for Cornerstone in~~36.5%. Excluding the ~~third quarter of 2016 decreased 11%, or $11.6 million, and~~divestitures, gross profit as a percentage of net sales decreased ~~150 basis points to 35.6%. Excluding the impact of TravelSmith's and Chasing Fireflies' results from both periods, gross profit as a percentage of net sales decreased 90 basis points~~3% primarily due to ~~lower product and~~a decrease in shipping margins ~~driven by higher~~as a result of increased promotional activity in the home ~~brands.~~

Gross profit for Cornerstone in the nine months ended September 30, 2016 decreased 8%, or $26.7 million, and gross profit as a percentage of net sales decreased 140 basis points to 37.4%. Excluding the impact of TravelSmith's and Chasing Fireflies' results from both periods, gross profit as a percentage of net sales decreased 120 basis pointsbrands, partially offset by higher product margins primarily ~~due to lower product and shipping margins~~ driven by ~~higher promotional activity in the home brands.~~strategic pricing initiatives.

Selling and Marketing Expense

Selling and marketing expense consists primarily of advertising and promotional expenditures; compensation and other employee-related costs (including stock-based compensation) for personnel engaged in customer service, sales and merchandising, production and programming functions; on-air distribution 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 engine companies and third-party distribution 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,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	103,809		2%	$	101,783		$	310,251		—%	$	311,268		$	102,432		(3)%	$	105,570
As a percentage of HSN net sales	18.2		%	100 bps	17.2		%	18.2		%	50 bps	17.7		%	18.3		%	-	18.3		%
Cornerstone	$	74,976		(6)%	$	79,498		$	235,751		(4)%	$	245,322		$	64,867		(12)%	$	73,591
As a percentage of Cornerstone net sales	29.6		%	60 bps	29.0		%	29.9		%	30 bps	29.6		%	28.8		%	(210 bps)	30.9		%
HSNi	$	178,785		(1)%	$	181,281		$	546,002		(2)%	$	556,590		$	167,299		(7)%	$	179,161
As a percentage of HSNi net sales	21.7		%	70 bps	21.0		%	21.9		%	40 bps	21.5		%	21.3		%	(60 bps)	21.9		%

HSNi's selling and marketing expense in the ~~third~~first quarter of ~~2016~~March 31, 2017 was ~~$178.8~~$167.3 million, a decrease of 1% from prior year and was 21.7% of net sales compared to 21.0% in the prior year. HSNi's selling and marketing expense in the nine months ended September 30, 2016 was $546.0 million, a decrease of $10.6$11.9 million from prior year, and was ~~21.9%~~21.3% of net sales compared to ~~21.5%~~21.9% in the prior year.

HSN

HSN's selling and marketing expense in the ~~third~~first quarter of ~~2016 increased $2.0~~2017 decreased $3.1 million compared to the prior year and was 18.3% of net sales, consistent with the prior year. The decrease in expense is primarily due to ~~increases in on-air distribution~~higher advertising and media costs ~~and digital marketing expenses, partially offset by lower employee compensation. Selling and marketing expense was 18.2% of net sales, compared to 17.2%~~ in the prior ~~year.~~

~~HSN's selling and marketing expense in the nine months ended September 30, 2016 decreased $1.0 million compared to the prior~~ year primarily due to a decrease in media expense related to direct-response television marketing and lower employee compensation expense; offset by higher on-air distribution costs driven by expanded carriage of HSN2, increased advertising costs related to the expansion of HSN's wholesale business and ~~increased~~direct-response television marketing; lower employee-related costs primarily in our sales and customer service center; and a decrease in on-air distribution costs; partially offset by an increase in digital marketing expense. ~~Selling and marketing expense was 18.2% of net sales compared to 17.7% in the prior year.~~

Cornerstone

Cornerstone's selling and marketing expense in the ~~third~~first quarter of ~~2016~~2017 decreased ~~$4.5~~$8.7 million and was ~~29.6%~~28.8% of net sales compared to ~~29.0%~~30.9% in the prior year. ~~The decrease~~Excluding the divestitures, selling and marketing expense was ~~due~~consistent with the prior year; however, in connection with Cornerstone's strategy to focus more on digital marketing, there was a ~~10%~~ decrease in catalog ~~circulation, partially~~costs that were offset by ~~an increase~~increases in expenses related to ~~Cornerstone's~~digital marketing and the additional retail ~~and outlet~~ stores.

Cornerstone's selling and marketing expense in the nine months ended September 30, 2016 decreased $9.6 million and was 29.9% of net sales compared to 29.6% in the prior year. The decrease was due to a 5% decrease in catalog circulation, partially offset by an increase in expenses related to Cornerstone's additional retail and outlet stores.

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,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	31,884		(19)%	$	39,231		$	102,783		(16)%	$	123,086		$	43,481		17%	$	37,068
As a percentage of HSN net sales	5.6		%	(100 bps)	6.6		%	6.0		%	(100 bps)	7.0		%	7.8		%	140 bps	6.4		%
Cornerstone	$	10,819		(12)%	$	12,321		$	36,335		(9)%	$	39,853		$	12,892		—%	$	12,895
As a percentage of Cornerstone net sales	4.3		%	(20 bps)	4.5		%	4.6		%	(20 bps)	4.8		%	5.7		%	30 bps	5.4		%
HSNi	$	42,703		(17)%	$	51,552		$	139,118		(15)%	$	162,939		$	56,373		13%	$	49,963
As a percentage of HSNi net sales	5.2		%	(80 bps)	6.0		%	5.6		%	(70 bps)	6.3		%	7.2		%	110 bps	6.1		%

HSNi’s general and administrative expense in the ~~third~~first quarter of ~~2016 decreased 17%~~2017 increased 13%, or ~~$8.8~~$6.4 million, and was ~~5.2%~~7.2% of net sales compared to ~~6.0% in the prior year. HSNi’s general and administrative expense in the nine months ended September 30, 2016 decreased 15%, or $23.8 million, and was 5.6% of net sales compared to 6.3%~~6.1% in the prior year.

HSN

HSN's general and administrative expense in the ~~third~~first quarter of ~~2016 decreased 19%~~2017 increased 17%, or ~~$7.3~~$6.4 million, and was ~~5.6%~~7.8% of net sales compared to ~~6.6%~~6.4% in the prior year. The ~~decrease~~increase is primarily due to ~~lower~~an increase in employee-related costs, ~~particularly for performance-based incentives,~~additional

consulting costs of $1.6 million incurred from the supply chain optimization implementation and a ~~decrease~~$1.4 million increase in bad debt expense.

HSN's general and administrative expense in the nine months ended September 30, 2016 decreased 16%, or $20.3 million, and was 6.0% of net sales compared to 7.0% in the prior year. The decrease is primarily due to lower employee-related costs, particularly for performance-based incentives and severance, a decrease in bad debt expense and $3.2 million in costs accrued in the prior year for the planned closure of its Virginia distribution center.

HSN’s general and administrative expenses for 2015 include $3.2 million related to the planned closure of its Roanoke, Virginia distribution center. The facility closure is planned to occur in 2017 as part of HSNi’s supply chain optimization initiative that will include the consolidation of two distribution centers. Additional information regarding HSNi's supply chain optimization initiative is included in the section "Operating Income (Loss)" within Management's Discussion and Analysis of Financial Condition and Results of Operations. As part of this initiative, HSNi will be expanding the capabilities of its Piney Flats, Tennessee distribution center through automation of the facility. 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. See Note 13 of Notes to Consolidated Financial Statements for further discussion of the planned closure of the Roanoke, Virginia distribution center.

Cornerstone

Cornerstone's general and administrative expense in the ~~third~~first quarter of ~~2016 decreased 12%, or $1.5 million, due to decreases in employee-related costs, primarily performance-based incentives. Cornerstone's general~~2017 was consistent with prior year and ~~administrative expense~~ was ~~4.3%~~5.7% of net sales, compared to ~~4.5%~~5.4% in the prior year.

~~Cornerstone's~~ Within general and administrative expense, there was a decrease in expense as a result of the ~~nine months ended September 30, 2016 decreased 9%, or $3.5 million, due to decreases~~divestitures, offset by an increase in ~~employee-related costs, primarily performance-based incentives, and consulting costs. Cornerstone's general and administrative expense was 4.6% of net sales, compared to 4.8% in the prior year.~~

incentive-based employee compensation.

Depreciation and Amortization


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	7,304		—%	$	7,318		$	21,582		(3)%	$	22,326		$	7,707		10%	$	7,003
Cornerstone	3,214			(2)%	3,290			10,163			(4)%	10,616			3,179			(10)%	3,522
HSNi	$	10,518		(1)%	$	10,608		$	31,745		(4)%	$	32,942		$	10,886		3%	$	10,525
As a percentage of HSNi net sales	1.3		%	10 bps	1.2		%	1.3		%	-	1.3		%	1.4		%	10 bps	1.3		%

Depreciation and amortization in the ~~third~~first quarter of ~~2016 decreased 1%~~2017 increased 3%, or ~~$0.1~~$0.4 million. ~~Depreciation and amortization~~The increase in ~~the nine months ended September 30, 2016 decreased 4%, or $1.2 million. Approximately $40.8 million in capital assets~~HSN's depreciation expense is primarily related to ~~HSN's warehouse automation project were placed into service in September of 2016.~~

~~Loss on Sale and related Asset Impairment~~

~~During~~ the ~~second quarter of 2016, HSNi committed to a plan to sell Chasing Fireflies and TravelSmith, two of~~assets associated with the apparel brands included within the Cornerstone segment. The assets and liabilities of the two brands were classified as held for sale as of June 30, 2016 and measured at their fair values less the estimated selling costs. As a result, Cornerstone recorded a non-cash asset impairment charge of $20.4 million in the second quarter of 2016.

On September 8, 2016, Cornerstone completed the divestiture of TravelSmith and Chasing Fireflies. In the third quarter of 2016, Cornerstone recorded a loss on sale of $11.2 million, which includes $3.8 million of cash charges related to transaction costs and employee and lease liabilities. The sale price included $1 million in cash and a potential additional $2 million of contingent consideration that is based on the achievement of certain performance metrics in 2016.

Net sales for Chasing Fireflies and TravelSmith were $12.5 million and $43.6 million for the three and nine month periods ended September 30, 2016, respectively, and were $99.2 million for the year ended December 31, 2015. The pre-tax operating loss for the two brands, excluding asset impairment charges and the loss on sale, was approximately $4 million and $13 million for the three and nine month periods ended September 30, 2016. respectively, and $12 million for the year ended December 31, 2015. Included in these results are fixed costs (approximately $7 million on an annual basis) which will be wholly or partially reabsorbed by the remaining Cornerstone brands following the divestitures. See Note 14 of Notes to Consolidated Financial Statements for further discussion.supply chain optimization.

Operating Income ~~(Loss)~~


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	46,963		(16)%	$	56,195		$	151,745		(8)%	$	164,649		$	37,512		(24)%	$	49,645
As a percentage of HSN net sales	8.2		%	(130 bps)	9.5		%	8.9		%	(40 bps)	9.3		%	6.7		%	(190 bps)	8.6		%
Cornerstone	$	(10,088	)	(716)%	$	1,638		$	(18,827	)	(190)%	$	20,897		$	1,067		479%	$	184
As a percentage of Cornerstone net sales	(4.0		)%	(460 bps)	0.6		%	(2.4		)%	(490 bps)	2.5		%	0.5		%	40 bps	0.1		%
HSNi	$	36,875		(36)%	$	57,833		$	132,918		(28)%	$	185,546		$	38,579		(23)%	$	49,829
As a percentage of HSNi net sales	4.5		%	(220 bps)	6.7		%	5.3		%	(190 bps)	7.2		%	4.9		%	(120 bps)	6.1		%

HSNi's operating income in the ~~third~~first quarter of ~~2016, which includes a loss on the sale of $11.2 million,~~2017 decreased ~~36%~~23%, or ~~$21.0~~$11.2 million, and was ~~4.5%~~4.9% of net sales compared to ~~6.7% in the prior year. HSN's operating income in the third quarter of 2016 decreased 16%, or $9.2 million, and was 8.2% of net sales compared to 9.5%~~6.1% in the prior year. The ~~decline~~decrease was ~~driven by decreases~~due to a 4% decrease in net sales and 60 basis point decline in gross profit as a percentage of net sales, partially offset by a ~~$5.2~~$5.1 million decrease in operating expenses. ~~Cornerstone's~~

HSN

HSN's operating ~~loss~~income in the ~~third~~first quarter of ~~2016~~2017 decreased 24%, or $12.1 million, and was ~~$10.1 million~~6.7% of net sales, compared to ~~operating income of $1.6 million in~~8.6% the prior year. The decrease iswas due to ~~the $11.2 million loss on sale of TravelSmith and Chasing Fireflies and the lower gross profit, partially offset by the~~a 3% decrease ~~in operating expenses.~~

HSNi's operating income in the nine months ended September 30, 2016 decreased 28%, or $52.6 million, and was 5.3% of net sales compared to 7.2% in the prior year. HSN's operating income in the nine months ended September 30, 2016

~~decreased 8%, or $12.9 million, and was 8.9%, compared to 9.3% the prior year. The decline was driven by decreases~~ in net sales, ~~and~~40 basis point decline in gross profit as a percentage of net sales ~~partially offset by lower~~and $4 million increase in operating expenses. The supply chain optimization implementation resulted in an additional $4 million in costs which negatively impacted gross profit by $2.4 million and operating expenses by $1.6 million.

Cornerstone

Cornerstone's operating ~~loss~~income in the ~~nine months ended September 30, 2016~~first quarter of 2017 increased $0.9 million to $1.1 million and was ~~$18.8 million~~0.5% of net sales compared to ~~operating income of $20.9 million~~0.1% in the prior year. ~~The decrease is due to the $11.2 million loss on the sale of~~Excluding TravelSmith and Chasing Fireflies, ~~recorded~~operating income decreased $3.9 million due to lower performance in the ~~third quarter of 2016, the $20.4 million non-cash asset impairment charge recorded in the second quarter of 2016~~home brands and the ~~$26.7~~absorption of approximately $1 million ~~decrease~~ in ~~gross profit attributable~~fixed costs previously allocated to the ~~5% decrease in net sales and lower gross profit rate.~~divested businesses.

As a part of HSNi’s supply chain optimization initiative, HSN began phasing in its expanded automation capabilities in its Piney Flats, Tennessee distribution center in the third quarter. In October, the center experienced issues in its ability to satisfy order fulfillment within traditional shipping time frames resulting in delays in merchandise deliveries. While these delays in order fulfillment have not affected third quarter results, HSN’s fourth quarter results will be impacted in the form of increased customer credits and accommodations, expedited shipping and handling costs, operating expenses and order cancellations. Despite the delays experienced in its Piney Flats facility, the Company continues to ship substantially all of its orders within its normal time frames.

Based upon information available as of the date of this filing, we expect that incremental related costs, customer credits and accommodations during the fourth quarter will range from $10 million to $15 million. Costs could exceed this range should the resolution to these matters persist into the first quarter of 2017. We expect to realize financial and operational benefits of the supply chain optimization initiative in the form of increased labor efficiencies, more efficient space utilization, lower transportation costs and faster customer deliveries upon the project's completion.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure. Please refer to Note 4 of the Notes to Consolidated Financial Statements for a discussion of the usefulness of this metric and for the reconciliation of operating income to Adjusted EBITDA ~~to operating income~~ for HSNi's operating segments and to HSNi's consolidated net income.


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
HSN	$	58,020		(14)%	$	67,109		$	184,990		(8)%	$	201,493		$	48,562		(20)%	$	60,690
As a percentage of HSN net sales	10.2		%	(120 bps)	11.4		%	10.8		%	(60 bps)	11.4		%	8.7		%	(180 bps)	10.5		%
Cornerstone	$	4,889		(56)%	$	11,028		$	26,052		(35)%	$	39,820		$	5,558		10%	$	5,042
As a percentage of Cornerstone net sales	1.9		%	(210 bps)	4.0		%	3.3		%	(150 bps)	4.8		%	2.5		%	40 bps	2.1		%
HSNi	$	62,909		(19)%	$	78,137		$	211,042		(13)%	$	241,313		$	54,120		(18)%	$	65,732
As a percentage of HSNi net sales	7.6		%	(140 bps)	9.0		%	8.5		%	(80 bps)	9.3		%	6.9		%	(110 bps)	8.0		%

HSNi's Adjusted EBITDA in the ~~third~~first quarter of ~~2016~~2017 decreased ~~19%~~18%, or ~~$15.2~~$11.6 million, and was ~~7.6%~~6.9% of net sales compared to ~~9.0%~~8.0% in the prior year. The ~~decline~~decrease in Adjusted EBITDA was ~~primarily~~ due ~~to the~~a 4% decrease in net sales and ~~decline~~60 basis point decrease in gross profit as a percentage of net sales, partially offset by ~~lower operating expenses. HSNi has focused on managing~~a $4.7 million decrease in operating expenses ~~through ongoing talent realignment, operational efficiencies~~(excluding non-cash charges identified in Note 4 to Notes to Consolidated Financial Statements). Operating expenses as a percentage of net sales excluding certain non-cash charges (identified in Note 4 to Notes to Consolidated Financial Statements) were 27.9% compared to 27.4% in the prior year.

HSN

HSN's Adjusted EBITDA in the first quarter of 2017 decreased 20%, or $12.1 million, and ~~through strategic rationalization~~was 8.7% of ~~Cornerstone's catalog circulation.~~net sales compared to 10.5% in the prior year. Adjusted EBITDA includes approximately $4 million of additional costs related to the supply chain optimization implementation. Operating expenses as a percentage of net sales (excluding non-cash charges ~~and other non-GAAP adjustments identified in Note 4 to the Notes to Consolidated Financial Statements) were 26.4%, consistent with the prior year.~~

HSNi's Adjusted EBITDA in the nine months ended September 30, 2016 decreased 13%, or $30.3 million, and was 8.5% of net sales compared to 9.3% in the prior year. The decline was primarily due to the decrease in net sales and decline in gross profit as a percentage of net sales, partially offset by lower operating expenses. Operating expenses as a percentage of net sales (excluding non-cash charges and other non-GAAP adjustments identified in Note 4 to Notes to Consolidated Financial Statements) were ~~26.9%~~25.4% compared to ~~27.1% in the prior year.~~

~~HSN~~

HSN's Adjusted EBITDA for the third quarter of 2016 decreased 14%, or $9.1 million, and was 10.2% of net sales compared to 11.4% in the prior year. The decline was primarily due to the decrease in net sales and decline in gross profit as a percentage of net sales, partially offset by lower operating expenses. Operating expenses as a percentage of net sales (excluding non-cash charges) were 23.2% compared to 23.3% in the prior year.

HSN's Adjusted EBITDA for the nine months ended September 30, 2016 decreased 8%, or $16.5 million, and was 10.8% of net sales compared to 11.4% in the prior year. The decline was primarily due to the decrease in net sales and decline in gross profit as a percentage of net sales, partially offset by lower operating expenses. Operating expenses as a percentage of net sales (excluding non-cash charges and the $3.2 million charge in the prior year related to the planned closure of one of HSN's distribution centers) were 23.5% compared to 23.8%24.0% in the prior year.

Cornerstone

Cornerstone's Adjusted EBITDA ~~for~~in the ~~third~~first quarter of ~~2016 decreased 56%~~2017 increased 10%, or ~~$6.1~~$0.5 million, and was ~~1.9%~~2.5% of net sales compared to ~~4.0%~~2.1% in the prior year. ~~The decline was primarily due~~Excluding non-cash charges (identified in Note 4 to ~~a decrease in net sales and decline in gross profit~~Notes to Consolidated Financial Statements), operating expenses as a percentage of net sales ~~partially offset by improved operating expense leverage. Operating expenses (excluding non-cash charges~~were 34.0% compared to 35.7% in the prior year.

Excluding TravelSmith and ~~the $11.2 million loss on sale)~~Chasing Fireflies, Adjusted EBITDA decreased ~~$5.5~~$4.1 million and ~~were 33.6%~~was 2.5% of net sales compared to ~~33.1% in the prior year.~~

~~Cornerstone's Adjusted EBITDA for the nine months ended September 30, 2016 decreased 35%, or $13.8 million, and was 3.3% of net sales compared to 4.8%~~4.3% in the prior year. The ~~decline~~decrease was ~~primarily~~ due to ~~a decrease~~lower performance in ~~net sales~~the home brands and ~~decline~~the absorption of approximately $1 million in ~~gross profit~~fixed costs that were previously allocated to the divested businesses. Excluding the divestitures and non-cash charges (identified in Note 4 to Notes to Consolidated Financial Statements), operating expenses as a percentage of net sales ~~partially offset by lower operating expenses. Operating expenses (excluding non-cash charges and the $11.2 million loss on sale) decreased $12.9 million and~~ were ~~34.1% of net sales~~34.0% compared to ~~34.0%~~33.6% in the prior year.

Other Income (Expense)


	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
	2016			Change	2015			2016			Change	2015			2017			Change	2016
	(Dollars in thousands)							(Dollars in thousands)							(Dollars in thousands)
Interest income	$	125		257%	$	35		$	223		101%	$	111		$	213		736%	$	25
Interest expense	(4,126		)	1%	(4,098		)	(12,211		)	8%	(11,352		)	(4,077		)	(2)%	(4,172		)
Total other expense, net	$	(4,001	)	(2)%	$	(4,063	)	$	(11,988	)	7%	$	(11,241	)	$	(3,864	)	(7)%	$	(4,147	)
As a percentage of HSNi net sales	0.5		%	-	0.5		%	0.5		%	10 bps	0.4		%	0.5		%	-	0.5		%

Interest expense for the ~~third~~first quarter ended ~~September 30, 2016~~March 31, 2017 was ~~$4.0~~$4.1 million, relatively unchanged from the prior ~~year. Interest expense for the nine months ended September 30, 2016 increased $0.7 million compared~~year, due to ~~the prior year primarily due to~~lower average outstanding debt balances being offset by a higher average ~~outstanding debt balance driven by the funding~~interest rate. The interest rate swaps as of March 31, 2017 and 2016 effectively converted $187.5 million of our variable rate term loan to a ~~special cash dividend~~fixed rate. Beginning in ~~February 2015 and an increase in~~April 2017, the interest rate ~~partially offset by the write-off of $0.5~~swaps will effectively convert $250.0 million of ~~deferred financing fees~~our variable rate term loan to a fixed rate. See further discussion in ~~the prior year related to the credit agreement that was terminated in January 2015.~~Liquidity and Capital Resources.

Income Tax Provision

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and March 31, 2016, HSNi recorded a tax ~~provisions $12.7~~provision of $13.5 million and ~~$45.7~~$17.1 million, which represents effective tax rates of ~~38.7%~~38.8% and ~~37.8%, respectively. For the three and nine months ended September 30, 2015, HSNi recorded a tax provision of $19.6 million and $64.8 million, which represents effective tax rates of 36.4% and 37.2%~~37.4%, respectively. The change in the effective tax rate was primarily due to the adoption of ASU 2016-09 on January 1, 2017 which impacted how the tax effects of share-based awards are recognized. The adoption of ASU 2016-09 introduces a ~~reduction~~degree of volatility to HSNi's interim and annual effective tax rate. The excess or deficiencies in the ~~estimated permanent~~ tax ~~differences for~~benefits of share-based compensation are impacted by the ~~year coupled with lower forecasted income, and as~~value of the Company's shares at the time when awards are vested or exercised.

As a result of ~~adjustments~~the resignation of Mindy Grossman, Chief Executive Officer, effective May 24, 2017, the Company is expecting it could incur additional income tax expense in the third quarter of 2017 related to ~~the filing~~certain vested equity awards that are out-of-the-money as of ~~the prior year federal income tax return. The Company expects its annual 2016~~May 2, 2017. If these awards expire unexercised, it could result in an effective tax rate for the third quarter of 2017 of up to be46%, resulting in an annual effective tax rate of approximately ~~38%~~39%.

Liquidity and Capital Resources

As of ~~September 30, 2016,~~March 31, 2017, HSNi had ~~$67.4~~$48.2 million of cash and cash equivalents compared to ~~$63.9~~$42.7 million as of December 31, ~~2015~~2016 and ~~$63.2~~$46.8 million as of ~~September 30, 2015.~~March 31, 2016.

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$114.0~~$22.3 million compared to ~~$104.9~~$32.5 million in the prior year, ~~an increase~~a decrease of ~~$9.1~~$10.2 million, which was primarily due to a decrease in operating performance and changes in working capital. Working capital ~~related to inventories and accounts receivables. There were lower investments~~was negatively impacted in ~~inventories in 2016 driven~~2017 by the timing of accounts payable. Inventories were a higher ~~than planned~~use of cash due to the inventory ~~levels~~growth at Cornerstone as a result of the ~~end~~additional retail stores as well as the timing of 2015. The decrease in inventories as of September 30, 2016 compared to December 31, 2015 was impacted by the divestiture of TravelSmith and Chasing Fireflies in September 2016 which resulted in the sale of approximately $29.3 million of inventories.inventory receipts. Cash provided by accounts receivables in ~~2016 decreased~~2017 increased compared to the prior year due to a higher outstanding accounts receivable balance at the end of 2016 compared to 2015, partially offset by higher utilization and expanded offers of HSN's Flexpay offering in ~~2016 and~~ the ~~lower outstanding accounts receivable balance at the end of 2015 compared to 2014.~~three months ended March 31, 2017. HSN expects to continue to use its offering of Flexpay, when appropriate, as a tool to drive profitable revenue growth.

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$29.1~~$10.7 million and was related to capital expenditures primarily for investments in ~~our distribution centers, including our warehouse automation project, information technology,~~ Cornerstone's retail store expansion, information technology, and infrastructure.

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 was ~~$81.4~~$6.2 million. ~~Net repayments~~Borrowings of HSNi's long-term debt net of repayments during the current quarter, including for the term loan and revolving credit facility, were ~~$8.8~~$13.8 million. HSNi paid quarterly cash dividends ~~totaling $1.05~~of $0.35 per share, ~~in the first nine months of 2016,~~ representing an aggregate payment of ~~$54.9~~$18.3 million. ~~HSNi also paid $16.6 million for approximately 0.4 million shares of common stock repurchased during the nine months ended September 30, 2016.~~

On January 27, 2015, HSNi entered into a $1.25 billion five-year syndicated Credit Agreement. ~~The Credit Agreement replaced the 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 $500~~As of March 31, 2017, total debt of $528.8 million from its term loan and $200 million under the revolving credit facility, both under the Credit Agreement, in the first quarter of 2015 to repay in full its existing term loan of $228.1 million and to fund the $524 million special cash dividend that was ~~paid in February 2015.~~outstanding.

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, 2016~~March 31, 2017 with a leverage ratio of 1.9x and an interest coverage ratio of ~~22.7x.~~20.0x. 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. The Credit Agreement also contains provisions that limit the ability of HSNi to make Restricted Payments, defined as cash dividends, distribution of other property, repurchase of the Company’s common stock, prepayment or redemption of debt, etc., however, so long as the Company’s leverage ratio is below 3.00x after giving pro forma effect to any proposed Restricted Payments, the amount of such Restricted Payments are not limited. In the event the Company’s leverage ratio is equal to or greater than 3.00x or after giving pro forma effect to any proposed Restricted Payments, then such Restricted Payments are limited to $150 million in any such fiscal year. The current quarter cash dividend of ~~$1.40 annually~~$0.35 per share, or approximately $1.40 on an annualized basis, represents a Restricted Payment of approximately ~~$73.2~~$18.3 million. 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 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 ~~$13.9~~$7.2 million million as of ~~September 30, 2016.~~March 31, 2017. 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, 2016,~~March 31, 2017, 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 ~~$586.1~~$472.6 million.

To reduce our future exposure to rising interest rates under our credit facility, we entered into interest rate swaps that effectively ~~convert~~converted $187.5 million of our variable rate term loan to a fixed-rate of 0.8525% through April 2017, and then ~~increases~~increased to $250.0 million through January 2020 with a fixed rate of 1.05% (in both cases the swapped fixed rate is exclusive of the credit spread under the Credit Agreement). Based on HSNi's leverage ratio as of ~~September 30, 2016,~~March 31, 2017, the all-in fixed rate was 2.3525%. 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 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, 2016, HSNi repurchased approximately 357,000~~March 31, 2017, there were no shares ~~of common stock at a cost of $16.6 million, or an average cost of $46.45 per share.~~repurchased. As of ~~September 30, 2016,~~March 31, 2017, approximately 2.7 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 ~~2016~~2017 are expected to be approximately ~~$40~~$55 million to ~~$45~~$60 million and primarily relate to investments in information technology, approximately $12 million for Cornerstone's retail ~~expansion~~expansion; our distribution centers, including our warehouse automation project; and ~~infrastructure.~~digital commerce. 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 ~~fourth~~second quarter of ~~2016,~~2017, HSNi's Board of Directors approved a cash dividend of ~~$0.35~~$0.35 per common share. The dividend will be paid on ~~December 20, 2016~~June 21, 2017 to HSNi's record holders as of ~~December~~June 7, ~~2016.~~2017.

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

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, ~~2015.~~2016. No material changes have occurred in HSNi's market risks since December 31, ~~2015.~~2016.



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, 2016.~~March 31, 2017. 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, 2016~~March 31, 2017 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, ~~2015,~~2016, 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.~~report other than as set forth below.

We are undergoing a chief executive officer transition, which could cause disruption to our business, and our failure to appoint a new chief executive officer with the required level of experience and expertise in a timely manner could have an adverse impact on our operations and business strategy.



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~~As of ~~our common stock repurchases during~~March 31, 2017, there were 2,695,579 shares available for repurchase. During the ~~third~~first quarter of ~~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, 2016 - July 31, 2016 5,498
$ 47.99
5,498
2,814,492
August 1, 2016 - August 31, 2016 66,813
$ 45.04
66,813
2,747,679
September 1, 2016 - September 30, 2016 52,100
$ 41.53
52,100
2,695,579
124,411
$ 43.70
124,411

2017, there were no repurchases.

Refer to Note 6 toof the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis- Liquidity and Capital Resources for a discussion of restrictions on the payment of dividends.



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


10.1	HSN, Inc. Employee Stock Purchase Plan, as Amended August 20, 2012	Filed herewith

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, 2016,~~March 31, 2017, 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, 2017 and 2016, ~~and 2015,~~ (ii) Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ (iii) Consolidated Balance Sheets as of ~~September 30, 2016,~~March 31, 2017, December 31, ~~2015~~2016 and ~~September 30, 2015,~~March 31, 2016, (iv) Consolidated Statements of Shareholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 2017 and Year Ended December 31, ~~2015,~~2016, (v) Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ 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.

3127



	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		Level 1		Level 2		Level 3
Liabilities:
Interest rate swap		$	169	$	—	$	169	$	—



	September 30, 2016
	Carrying Value		Fair Value		Fair Value Measurement Category
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Term loan expiring January 27, 2020	$	481,250	$	481,250	$	—	$	481,250	$	—
Revolving credit facility	$	150,000	$	150,000	$	—	$	150,000	$	—



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, 2016 - July 31, 2016	5,498	$	47.99	5,498	2,814,492
August 1, 2016 - August 31, 2016	66,813	$	45.04	66,813	2,747,679
September 1, 2016 - September 30, 2016	52,100	$	41.53	52,100	2,695,579
	124,411	$	43.70	124,411

Date: ~~November 7, 2016~~May 3, 2017

/S/ J~~UDY~~ ~~A. SCHMELING~~Rod Little

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