Home Shopping Network 2008 Annual Report Download - page 37

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34
and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not
accurately anticipate actual outcomes.
Inventory Valuation
Inventories are valued at the lower of cost or market, cost being determined based upon the first-in, first-out
method. Market is determined on the basis of net realizable value, giving consideration to obsolescence and other
factors. Net realizable value is estimated by HSNi based upon historical sales data, the age of inventory, the quantity
of goods on hand and the ability to return merchandise to vendors. The actual net realizable value may vary from
estimates due to changes in customer tastes or viewing habits, or judgmental decisions made by merchandising
personnel when ordering new products.
Stock-Based Compensation
We measure compensation cost for stock awards at fair value and recognize compensation over the service
period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment, and
to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected
forfeitures, including types of awards, employee class, and historical experience. The fair value of restricted stock
units is determined based on the number of shares granted and the closing price of our common stock at the grant
date. The fair value of stock options and stock appreciation rights are estimated on the grant date using the Black-
Scholes option pricing model. This model incorporates various assumptions, including expected volatility and
expected term. Expected stock price volatilities are estimated based on the historical and implied volatilities of
comparable publicly-traded companies. The expected term of awards granted is based on analyses of historical
employee termination rates and option exercise patterns, giving consideration to expectations of future employee
behavior. Actual results and future estimates may differ substantially from our current estimates.
New Accounting Pronouncements
Refer to Note 2 of Notes to Consolidated Financial Statements for a description of recent accounting
pronouncements.