Home Shopping Network 2008 Annual Report Download - page 49

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon
ultimate settlement.
Foreign Currency Translation and Transaction Gains and Losses
The financial position and operating results of substantially all foreign operations are consolidated using
the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of
exchange as of the balance sheet date, and local currency revenue and expenses are translated at average rates of
exchange during the period. Resulting translation gains or losses are included as a component of accumulated other
comprehensive income (loss), a component of equity. Transaction gains and losses arising from transactions
denominated in a currency other than the functional currency of the entity are included in the consolidated
statements of operations.
Foreign currency transaction gains and losses arose from entities that are presented in these statements as
discontinued operations and, accordingly, are included in "Income from discontinued operations, net of tax" in the
accompanying consolidated statements of operations.
Stock-Based Compensation
Effective January 1, 2006, HSNi adopted the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), using the modified prospective transition
method and therefore has not restated results for prior periods. HSNi recognizes compensation expense, reduced for
estimated forfeitures, on a straight-line basis over the requisite service period of the award, which is generally the
vesting term of the outstanding stock awards. In accordance with SFAS No. 123R, tax benefits resulting from tax
deductions in excess of the stock-based compensation expense recognized in the consolidated statement of
operations are reported as a component of financing cash flows. HSNi issues new shares to satisfy equity vestings
and exercises. See Note 12 for a further description for our stock compensation plans.
Earnings (Loss) Per Share
We compute basic earnings (loss) per share by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. We compute diluted earnings (loss) per share using the treasury
stock or as if converted methods, as applicable.
Fair Value of Financial Instruments
Effective January 1, 2008, HSNi adopted the provisions of SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”) which applies to financial assets and liabilities that are being measured and reported on a fair
value basis and expands disclosures about fair value measurements. The adoption of SFAS No. 157 for financial
assets and liabilities had no effect on HSNi’s existing fair-value measurement practices but requires disclosure of a
fair-value hierarchy of inputs used to value an asset or a liability. The three levels of the fair-value hierarchy
include:
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 carrying amount of debt outstanding pursuant to the
credit agreement (the term loan and revolving credit facility) approximates fair value as interest rates on these
instruments approximate current market rates (level 2 criteria).