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Table of Contents
NOTE 9—FAIR VALUE MEASUREMENTS
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. Fair value assumptions are made at a specific point in time and changes in underlying assumptions could significantly affect
these estimates. 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 HSNi's other financial assets and liabilities which are measured at fair
value on a recurring basis in the consolidated balance sheets (in thousands):
HSNi's interest rate swap was carried on the balance sheet at fair value as of December 31, 2012. The swap was entered into for the
purpose of hedging the variability of interest expense and interest payments on HSNi's long-term variable rate debt. Because this swap is not
actively traded, the fair value was based on a valuation model. Interest rate yield curves and credit spreads are the significant inputs included in
the valuation model. These inputs are observable in active markets (level 2 criteria). HSNi considers credit risk associated with its own standing
as well as the credit standing of any counterparties involved in the valuation of its financial instruments.
The following table summarizes the fair value of HSNi’s financial assets and liabilities which are carried at cost (in thousands):
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
estimated by discounting expected cash flows at the rates currently offered to HSNi for debt of the same remaining maturities, as advised by
HSNi's bankers (level 2 criteria).
48
December 31, 2012
Total Fair
Value and
Carrying
Value on
Balance Sheet
Fair Value Measurement Category
Level 1
Level 2
Level 3
Liabilities:
Interest rate swap
$
755
$
—
$
755
$
—
December 31, 2012
Carrying
Value
Fair Value
Fair Value Measurement Category
Level 1
Level 2
Level 3
Secured credit agreement expiring April 24, 2017:
Term Loan
$
250,000
$
250,000
$
—
$
250,000
$
—
December 31, 2011
Carrying
Value
Fair Value
Fair Value Measurement Category
Level 1
Level 2
Level 3
Secured credit agreement terminated April 24, 2012:
Term Loan
$
—
$
—
$
—
$
—
$
—
Senior Notes
$
240,000
$
264,000
$
264,000
$
—
$
—