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Table of Contents
modification and acceleration of such awards in connection with the spin-
off. These expenses are not paid in cash, and HSNi includes the related
shares in its calculations of diluted shares outstanding. Upon vesting of restricted stock and restricted stock units and the exercise of certain stock
options and stock appreciation rights, the awards can be settled, at HSNi’s discretion, on a net basis, with HSNi remitting the required tax
withholding amount from its current funds.
Amortization of non-cash marketing consists of non-cash advertising provided to HSNi by IAC. The non-cash marketing was secured by
IAC from Universal Television and was available to HSN for television advertising on various NBC Universal network and cable channels
without any cash cost through the third quarter of 2008. The expense for this advertising is excluded from Adjusted EBITDA because it is non-
cash and is incremental to the marketing and advertising that HSNi would otherwise undertake as a result of its ordinary cost/benefit marketing
planning process. Nonetheless, it is likely that HSNi did derive benefits from it, though management believes such benefits were generally less
than those received through its regular marketing and advertising for the reasons stated above. Adjusted EBITDA therefore has the limitation of
including those benefits while excluding the associated expense.
Amortization of intangibles is a non-cash expense relating primarily to acquisitions. At the time of an acquisition, the intangible assets of
the acquired company, such as distribution agreements, customer relationships and merchandise agreements, are valued and amortized over their
estimated lives.
Depreciation, gains and losses on asset dispositions and long-lived asset impairment charges are non-cash items relating to our long-lived
assets and have been excluded from Adjusted EBITDA. Goodwill and intangible asset impairment charges are also non-cash expenses that have
been excluded from Adjusted EBITDA.
Reconciliation of Adjusted EBITDA
See Note 6 of Notes to Consolidated Financial Statements for the reconciliation between Adjusted EBITDA and net income (loss) for the
years ended December 31, 2010, 2009 and 2008.
Critical Accounting Policies and Estimates
The following disclosure is provided to supplement the descriptions of HSNi’s accounting policies contained in Note 2 of Notes to
Consolidated Financial Statements in regard to significant areas of judgment. HSNi’s management is required to make certain estimates and
assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates and assumptions impact
the reported amount 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 income during any period. Actual results could differ from those estimates. Because of
the size of the financial statement elements to which they relate, some of HSNi’s accounting policies and estimates have a more significant
impact on its consolidated financial statements than others. The following is a discussion of some of HSNi’
s more significant accounting policies
and estimates.
Recoverability of Long-Lived Assets
HSNi reviews the carrying value of all long-lived assets, primarily property and equipment and definite-lived intangible assets, for
impairment whenever triggering events or changes in circumstances indicate that the carrying value of an asset may be impaired. In accordance
with accounting guidance pertaining to the accounting for the impairment or disposal of long-lived assets, impairment is considered to have
occurred whenever the carrying value of a long-
lived asset exceeds the sum of the undiscounted cash flows that is expected to result from the use
and eventual disposition of the asset. The impairment is measured by comparing the fair value of the asset to its carrying value. Our valuation
methodologies include, but are not limited to, discounting the future cash flows from the asset being tested. Significant judgments include
determining if a triggering event has
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