Home Shopping Network 2010 Annual Report Download - page 49

Table of Contents
HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cornerstone reporting unit and were due, in part, to the deterioration in the macroeconomic environment for retailers, particularly in the home
and apparel categories (which are Cornerstone’s primary markets), the negative impact of this environment on Cornerstone’s performance and
the related reduction in market valuations for retailers.
HSNi conducted its annual test for impairment as of October 1, 2008 during the fourth quarter of 2008. During the fourth quarter of 2008,
the recession deepened and consumers were spending less. As a result of the deepening recession, deteriorating consumer confidence and
uncertainties with respect to the breadth, depth and duration of the economic downturn and its potential effects on HSNi’s business, HSNi
revised its projections used to derive its future cash flows. Further, HSNi employed and considered the input of specialists to aid in valuing
assets and liabilities of its reporting units (including identified definite and indefinite-lived intangible assets) and in determining appropriate
discount rates and terminal growth rates to calculate HSNi’s discounted cash flows. The outcome of the annual impairment testing indicated the
existence of impairment associated with both the HSN and Cornerstone reporting units.
Also, during the fourth quarter of 2008, HSNi determined that the downward trend of its stock price and the overall negative environment
regarding the expected performance of the retail sector were triggering events as defined in current accounting guidance. Accordingly, HSNi
updated its impairment assessment as of December 31, 2008. As a part of this assessment, HSNi updated its valuation as of December 31, 2008,
and adjusted the rates used to discount its cash flows to support a valuation that was indicative of the 10-day average market value of HSNi’s
stock plus an estimated control premium based upon observable transactions of comparable companies.
As a result of the analyses, the goodwill impairment charges recorded in the fourth quarter of 2008 at the HSN and Cornerstone reporting
units were $2.4 billion and $271.1 million, respectively. The intangible asset impairment charges in the fourth quarter of 2008 at the HSN and
Cornerstone reporting units were $50.0 million and $174.0 million, respectively.
Charges related to the impairment of goodwill and intangible assets are included in “Asset impairments”
in the accompanying consolidated
statements of operations.
As a result of the impairment charges in 2008, HSNi no longer has goodwill recorded. Based on the annual impairment test performed in
the fourth quarter, there was no impairment of its intangible assets as of December 31, 2010. An increase in the discount rates or declines in the
future estimated cash flows or the trading value of HSNi’s common stock could result in material intangible asset impairment charges.
The balance of goodwill and intangible assets, net, is as follows (in thousands):
Intangible assets with indefinite lives relate principally to trade names and trademarks acquired in various acquisitions. When definite-
lived intangible assets are sold or expire, the cost of the asset and the related accumulated amortization are eliminated and any gain or loss is
recognized at such time.
50
December 31,
2010 2009
Goodwill
$
—
$
—
Intangible assets with indefinite lives
260,248
260,248
Intangible assets with definite lives, net
375
937
Total goodwill and intangible assets, net
$
260,623
$
261,185