Annual report pursuant to Section 13 and 15(d)

Fair Value

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Fair Value
 12 Months Ended
Dec. 31, 2011
Fair Value [Abstract]  
Fair Value

NOTE 7—FAIR VALUE

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. 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 the Company's financial assets and liabilities which are carried at cost (in thousands):

 

     December 31, 2011  
     Carrying
Value		      Fair Value      Fair Value Measurement Category  
         Level 1      Level 2      Level 3  

Senior Notes

    $ 240,000       $ 264,000       $ 264,000       $      —         $ —     

Term Loan

      —           —           —           —                —     

 

     December 31, 2010  
     Carrying
Value		      Fair Value      Fair Value Measurement Category  
         Level 1      Level 2      Level 3  

Senior Notes

    $ 240,000       $ 273,900       $ 273,900       $      —         $ —     

Term Loan

      69,841         69,841         —           —           69,841   

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 based upon discounted future cash flows (level 3 criteria).

HSNi measures certain assets, such as property and equipment and intangible assets, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. During the year ended December 31, 2011, HSNi recognized fair value adjustments of $2.2 million for indefinite-lived intangible assets and $0.8 million for long-lived assets. There were no fair value adjustments recognized through earnings for the year ended December 31, 2010.

The fair value of the intangible assets, consisting principally of trademarks and trade names, was assessed using the relief from royalty method (level 3 criteria). Key inputs used in this calculation included revenue growth, discount, royalty and terminal growth rates. The fair value adjustment of $2.2 million is included in operating expenses in the line item "General and administrative" in the accompanying consolidated statements of operations. See Note 3 for a discussion of this impairment charge.

The fair value of the property and equipment of one of the Cornerstone brands, consisting principally of leasehold improvements, was assessed during the year ended December 31, 2011. The fair value was determined using discounted future cash flows (level 3 criteria). Key inputs used in this calculation included revenue growth, operating expenses and a discount rate that HSNi believed a buyer would assume when determining a purchase price for the assets. The fair value adjustment of $0.8 million is included in operating expenses in the line item "General and administrative" in the accompanying consolidated statements of operations. See Note 4 for a discussion of this impairment charge.