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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
48
In April 2008, the FASB issued FSP No. 142-3, which amends the factors that must be considered in
developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a
recognized intangible asset under SFAS No. 142, "Goodwill and Other Intangible Assets." FSP No. 142-3 requires
an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with
its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS No. 141, "Business Combinations." FSP No. 142-3 is effective for fiscal years beginning after
December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be
applied prospectively to intangible assets acquired after the effective date. FSP No. 142-3 is not expected to have a
significant impact on HSNi's results of operations, financial position or cash flows.
In February 2008, the FASB issued FASB Statement Position ("FSP") No. 157-1 and 157-2 which partially
deferred the effective date of SFAS No. 157 for one year for certain nonfinancial assets and liabilities and removed
certain leasing transactions from the scope of SFAS No. 157. The adoption of the provisions of SFAS No. 157 did
not have an impact on HSNi's consolidated financial position, results of operations or cash flows, but requires
expanded disclosures regarding HSNi's fair value measurements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and
Liabilities" ("SFAS No. 159"). SFAS No. 159 permits companies to make an election to carry certain eligible
financial assets and liabilities at fair value, even if fair value measurement has not historically been required for such
assets and liabilities under GAAP. The provisions of SFAS No. 159 became effective for HSNi's fiscal year
beginning January 1, 2008. The adoption of the provisions of SFAS No. 159 did not have an impact on HSNi's
consolidated financial position, results of operations or cash flows as HSNi elected not to record eligible instruments
in the financial statements at their respective fair value.
NOTE 3—GOODWILL AND INTANGIBLE ASSETS
HSNi accounts for goodwill and identifiable intangible assets in accordance with SFAS No. 142. Under
this standard, HSNi assesses the impairment of goodwill and indefinite-lived identifiable intangible assets at least
annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
In performing this review, HSNi assesses the implied fair value of its goodwill and intangible assets. If it is
determined that the implied fair value of goodwill and/or indefinite-lived intangible assets is less than the carrying
amount, an impairment charge, equal to the excess is recorded. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business combination. The estimated fair value of the
reporting unit is allocated to all of the assets and liabilities of the reporting unit (including the unrecognized
intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value of
the reporting unit was the purchase price paid. The fair value of the reporting unit is determined by using a
combination of a discounted cash flow analysis and an equity analysis based on the trading value of its common
stock. The discounted cash flow analysis indicates the fair value of the reporting units based on the present value of
the cash flows expected to be generated in the future. The equity analysis is based on the trading value of its
common stock as of the valuation date or the average stock price over a range of dates prior to the valuation date,
plus an estimated control premium.
In assessing fair value, HSNi considers, among other indicators, differences between estimated and actual
cash flows, changes in the related discount rate and the relationship between the trading price of its common stock
and its per-share book value. Determining fair value requires the exercise of significant judgments, including
judgments about discount rates, perpetual growth rates, royalty rates, terminal growth rates, control premiums and
the amount and timing of future cash flows. These factors used in the determination of fair value, particularly
estimated cash flows, are sensitive to, among other things, changes in the retail consumer market and the general
economy.
In the second quarter of 2008, HSNi recorded impairment charges related to goodwill and indefinite-lived
intangible assets of $221.5 million and $78.5 million, respectively. The impairment charges were recorded at the