Home Shopping Network 2012 Annual Report Download - page 33

Table of Contents
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. 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 occurred, determining the future cash flows from the assets and applying the appropriate
discount rate when measuring the fair value. The determination of cash flows is based upon assumptions that may not occur.
Impairment of Goodwill and Indefinite-Lived Intangible Assets
HSNi assesses the impairment of goodwill and identifiable indefinite-lived intangible assets, principally trademarks and trade names, at
least annually during the fourth quarter and whenever events or changes in circumstances indicate that the carrying value of an asset may be
impaired. In performing this review, HSNi has the option of performing a qualitative assessment to determine whether it is more likely than not
that the fair values of the reporting unit and/or indefinite-lived intangible assets are less than the carrying values. In performing the qualitative
assessment, HSNi considers various factors including (but not limited to): macroeconomic, industry and market conditions; cost factors affecting
the business; the overall financial performance of the business; any relevant changes in management, strategies or customers; and any sustained
decreases in its stock price. If HSNi determines based on this assessment that it is not more likely that the fair value is less than its carrying
value, then the goodwill and/or the indefinite-lived intangible assets are deemed to be not impaired and no further testings is required until the
next annual test date (or sooner if conditions or events before that date raise concerns of potential impairment in the business). If HSNi
determines that it is more likely than not that the fair value is less than its carrying value, then the quantitative goodwill and/or indefinite-lived
intangible asset impairment tests must be completed.
If necessary, HSNi performs a quantitative assessment of the fair values of its goodwill and intangible assets. In performing this review,
HSNi is required to make an assessment of the fair value of its 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. HSNi determines the
fair value of its reporting units by using a discounted cash flow analysis with consideration of an equity analysis based on the trading value of its
common stock. HSNi utilizes the relief from royalty method to assess fair values of its trademarks and trade names.
In assessing fair value, HSNi considers, among other indicators, differences between estimated and actual cash flows and revenue streams
and changes in the related discount, royalty and terminal growth rates. Determining these rates requires the exercise of significant judgments.
These factors used in the determination of fair value are sensitive to, among other things, changes in the retail consumer market and the general
economy.
Returns Reserves
Net sales from HSNi primarily consist of merchandise sales and are reduced by incentive discounts and sales returns. HSNi's sales policy
allows customers to return virtually all merchandise for a full refund or exchange, subject to pre-established time restrictions. Allowances for
returned merchandise and other adjustments (including reimbursed shipping and handling costs) are provided based upon past experience. Actual
levels of product returns may vary from these estimates. HSNi's estimated return rates were 17.8%, 18.5% and 17.9% in 2012, 2011 and 2010,
respectively.
Allowance for Doubtful Accounts
HSNi makes judgments as to its ability to collect outstanding receivables and provide allowances when it has determined that all or a
portion of the receivable will not be collected. HSNi determines its allowance by considering a number of factors, including the length of time
accounts receivable are past due, its previous loss history and the condition of the general economy. HSNi writes off accounts receivable when
they become uncollectible.
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