Home Shopping Network 2011 Annual Report Download - page 50

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HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HSNi does not report revenue from external customers for each product or each group of similar products as
it is impracticable to do so. HSNi maintains operations principally in the United States with no long-lived assets
and insignificant net sales in all other countries.
NOTE 7—FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. HSNi applies the following framework for measuring fair value
which is based on a three-level hierarchy:
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 following table summarizes the fair value of the
Company’s financial assets and liabilities which are carried at cost (in thousands):
December 31, 2011
Carrying
Value Fair Value
Fair Value Measurement Category
Level 1 Level 2 Level 3
Senior Notes ................................... $240,000 $264,000 $264,000 $ — $ —
Term Loan .................................... — — — — —
December 31, 2010
Carrying
Value Fair Value
Fair Value Measurement Category
Level 1 Level 2 Level 3
Senior Notes ................................... $240,000 $273,900 $273,900 $ — $ —
Term Loan .................................... 69,841 69,841 — — 69,841
The fair value of the senior notes was based upon quoted market information (level 1 criteria) and the fair
value of the term loan was based upon discounted future cash flows (level 3 criteria).
HSNi measures certain assets, such as property and equipment and intangible assets, at fair value on a
non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. During the year
ended December 31, 2011, HSNi recognized fair value adjustments of $2.2 million for indefinite-lived intangible
assets and $0.8 million for long-lived assets. There were no fair value adjustments recognized through earnings
for the year ended December 31, 2010.
The fair value of the intangible assets, consisting principally of trademarks and trade names, was assessed
using the relief from royalty method (level 3 criteria). Key inputs used in this calculation included revenue
growth, discount, royalty and terminal growth rates. The fair value adjustment of $2.2 million is included in
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