Home Shopping Network 2015 Annual Report Download - page 47

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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.
The total balance of HSNi's intangible assets, net, is as follows (in thousands):
December 31,
2015 2014
Intangible assets with indefinite lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 255,148 $ 261,808
Intangible assets with definite lives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 154
Total intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 255,268 $ 261,962
During the third quarter of 2015, as a result of declines in operating performances at certain Cornerstone brands, HSNi
performed a quantitative assessment of certain intangible assets and concluded a fair value adjustment was necessary. An
impairment charge of $5.0 million was recorded related to its acquisition of Chasing Fireflies. During the fourth quarter of
2015, in connection with its annual assessment of impairment, HSNi performed qualitative and quantitative assessments of its
intangible assets and wrote off the remaining identified intangible assets of Chasing Fireflies. An impairment charge of $1.7
million was recorded in the fourth quarter of 2015. The impairment charges were recorded within the Cornerstone segment and
are included in "General and administrative" expense in the accompanying consolidated statements of operations.