Home Shopping Network 2015 Annual Report Download - page 32

30
Goodwill and intangible asset impairment charges are non-cash expenses.
Other Significant Items represent transactions that may vary significantly from period to period and have a
disproportionate effect in a given period, thereby affecting the comparability of results.
Reconciliation of Adjusted EBITDA
See Note 6 of Notes to Consolidated Financial Statements for the reconciliation between Adjusted EBITDA and net
income for the years ended December 31, 2015, 2014 and 2013.
Critical Accounting Policies and Estimates
The following disclosure is provided to supplement the descriptions of HSNi's accounting policies contained in Note 2 of
Notes to Consolidated Financial Statements in regard to significant areas of judgment. HSNi's management is required to make
certain estimates and assumptions during the preparation of its consolidated financial statements in accordance with GAAP.
These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net income during
any period. Actual results could differ from those estimates. Because of the size of the financial statement elements to which
they relate, some of HSNi's accounting policies and estimates have a more significant impact on its consolidated financial
statements than others. The following is a discussion of some of HSNi's more significant accounting policies and estimates.
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
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 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.