Home Shopping Network 2013 Annual Report Download - page 33

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31
Stock-Based Compensation
We measure compensation cost for stock-based awards at fair value and recognize compensation over the service period
for awards expected to vest. We consider many factors when estimating expected forfeitures, including types of awards,
employee class and historical experience. HSNi grants performance-based equity awards whose value is based on the extent to
which certain pre-established performance goals are achieved during a three-year period. Each reporting period prior to the
vesting of these awards, management must apply significant judgment when estimating the expected future achievement of the
designated performance metrics. The estimation of stock awards that will ultimately vest and the estimation of the value of the
performance-based awards require judgment, and to the extent actual results or updated estimates differ from our current
estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The fair value of
restricted stock units is determined based on the number of shares granted and the closing price of our common stock at the
grant date. The fair value of stock options, stock appreciation rights and options granted under our employee stock purchase
plan are estimated on the grant date using the Black-Scholes option pricing model. This model incorporates various
assumptions, including expected volatility and expected term. Expected stock price volatilities are estimated based on HSNi's
historical experience and the historical and implied volatilities of comparable publicly-traded companies. The expected term of
awards granted is based on analyses of historical employee termination rates and option exercise patterns, giving consideration
to expectations of future employee behavior. Actual results and future estimates may differ substantially from our current
estimates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2013 and 2012, HSNi’s outstanding long-term debt was $240.6 million and $250.0 million,
respectively, all of which pays interest at a variable rate, generally tied to LIBOR. Changes in interest rates on our variable rate
debt could affect our earnings. We are managing our future interest rate exposure through a forward-starting interest rate swap
with a notional amount of $187.5 million and a fixed rate of 0.8525% that takes effect January 2014. A hypothetical 100 basis
point increase in interest rates on the portion of our variable rate debt that is not effectively hedged by the fixed-rate interest
rate swap would increase our annual interest expense by approximately $0.6 million in 2014.