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HSN Value Undercut by Cornerstone Writedown

Catalog Retail Division Cornerstone to be part of HSN Inc.

In a form 8-K filed last week with the Securities and Exchange Commission, HSN parent IAC/InterActive Corp. said it will take a writedown on goodwill of about $300 million for its catalog retail division Cornerstone Brands.

Cornerstone will be part of the new, stand-alone HSN Inc. when IAC completes its planned breakup into five separate operating companies, so the writedown could affect its spinoff value.

IAC said it performed a test of the goodwill of both HSN and Cornerstone, and it now believes that the goodwill of HSN is not impaired.

Cornerstone, however, has suffered both from "significant deterioration in the macro-economic environment for retailers" which "has been exacerbated by execution issues and turnover of management of certain catalogs within Cornerstone," IAC said.

"Cornerstone is expected to incur an operating loss for the first six months of 2008 compared to operating income of $13.7 million in the comparable year-ago period. While we expect full year profitability for Cornerstone, its results are expected to be significantly lower than 2007," the company reported.

On the HTT Top 50 Retailing Giants list, Cornerstone is No.27 with 2006 home textiles sales of $180 million, while HSN is No.50 at $62 million.

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