Home Shopping Network 2013 Annual Report Download - page 43

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the capitalized software costs was $15.1 million, $12.7 million and $13.1 million for the years ended December 31, 2013, 2012
and 2011, respectively, and is included in "Depreciation and amortization" expense in the consolidated statements of operations.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill acquired in business combinations is assigned to the reporting units that are expected to benefit from the
combination as of the acquisition date. Goodwill and indefinite-lived intangible assets, primarily trade names and trademarks,
are assessed annually for impairment as of October 1 or upon the occurrence of certain events or substantive changes in
circumstances. See Note 3 for a further discussion on goodwill and indefinite-lived intangible assets.
Long-Lived Assets and Intangible Assets with Definite Lives
Long-lived assets, including property and equipment and intangible assets with definite lives, are tested for recoverability
whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. If the carrying amount is deemed to not be recoverable, an impairment loss is recorded as the
amount by which the carrying amount of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible
assets is generally recorded on a straight-line or accelerated basis over their estimated lives.
Cable and Satellite Distribution Fees
Cable and satellite distribution fees relate to fees paid in connection with annual or multi-year cable and satellite contracts
for carriage of HSN’s programming. Fees that are paid upfront for annual contracts are included in "Prepaid expenses and other
current assets" in the accompanying consolidated balance sheets and are amortized on a straight-line basis over the terms of the
respective contracts. Unpaid fees are accrued and included in the line item “Accrued expenses and other current liabilities” in
the accompanying consolidated balance sheets. Cable and satellite distribution fees and amortization are included in “Selling
and marketing" expense in the accompanying consolidated statements of operations.
Advertising
Advertising costs include catalog production and distribution costs. Advertising costs are expensed in the period incurred,
except for Cornerstone’s direct costs of producing and distributing its catalogs, which are capitalized. These capitalized costs
are amortized over the expected future revenue stream, which is generally three months from the date catalogs are mailed. Such
capitalized costs totaled $18.8 million and $19.1 million as of December 31, 2013 and 2012, respectively, and are included in
“Prepaid expenses and other current assets” in the accompanying consolidated balance sheets. Of these amounts, $13.0 million
and $10.2 million as of December 31, 2013 and 2012, respectively, related to catalogs that had not yet been mailed. Advertising
expense was $268.0 million, $245.0 million, and $215.5 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
Income Taxes
HSNi accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on
deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. HSNi records
interest and penalties on potential tax contingencies as a component of income tax expense and records interest net of any
applicable related income tax benefit.
HSNi recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position
will be sustained on its technical merits. The second step is to measure the tax benefit as the largest amount which is more than
50% likely of being realized upon ultimate settlement.
Stock-Based Compensation
HSNi recognizes compensation expense for stock-based awards, reduced for estimated forfeitures, on a straight-line basis
over the requisite service period of the award, which is generally the vesting term of the outstanding stock awards. Tax benefits
resulting from tax deductions in excess of the stock-based compensation expense recognized in the consolidated statements of
cash flows are reported as a component of financing cash flows. HSNi issues new shares to satisfy equity vestings and
exercises. See Note 11 for a further description of our stock compensation plans.