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NOTE 3—INTANGIBLE ASSETS AND GOODWILL
HSNi assesses the impairment of goodwill and indefinite-lived identifiable intangible assets, principally trademarks and trade names, at
least annually during the fourth quarter and whenever events or circumstances indicate that the carrying value may not be fully recoverable. 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. If HSNi determines 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 testing 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 (as discussed below) must be completed.
If necessary, HSNi performs a quantitative assessment of the fair values 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 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 any 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 discounted cash flow analysis with consideration of 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. HSNi utilizes a relief from royalty
method to assess the 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;
changes in the related discount, royalty and terminal growth 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. 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.
Intangible Assets
Intangible assets with indefinite lives relate principally to trade names and trademarks. Definite-lived intangible assets consist primarily of
customer relationships which are amortized on an accelerated basis over their useful lives. 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.
In the second quarter of 2012, $9.7 million of indefinite-lived intangible assets (excluding goodwill) and $3.8 million of definite-lived
intangible assets were recorded in connection with the acquisition of substantially all of the assets and liabilities of Chasing Fireflies, LLC. The
total balance of HSNi's intangible assets, net, is as follows (in thousands):
In the fourth quarter of 2012, HSNi elected to perform qualitative and quantitative assessments (as applicable) of its indefinite-lived
intangible assets and concluded there were no impairments. In the fourth quarter of 2011, HSNi performed a quantitative assessment to test for
impairment of its intangible assets. HSNi employed and considered the input of specialists to aid in determining appropriate royalty rates to be
used in the fair value calculations using the relief of royalty rate. The outcome of the annual impairment testing indicated the existence of
impairment associated with the trademarks and trade names of The Territory Ahead, a brand within the Cornerstone portfolio that was
subsequently sold during 2012. An impairment charge of $2.2 million was recorded in the fourth quarter of 2011 and is included in the line item
“Loss on discontinued operations, net of tax" in the accompanying consolidated statements of operations.
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December 31,
2012 2011
Intangible assets with indefinite lives
$
264,849
$
258,048
Intangible assets with definite lives, net
2,027
—
Total intangible assets, net
$
266,876
$
258,048