Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2012
FAIR VALUE MEASUREMENTS

NOTE 9—FAIR VALUE MEASUREMENTS

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, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The following table summarizes the fair value of HSNi’s other financial assets and liabilities which are carried at cost (in thousands):

 

                                                                                    
     September 30, 2012  
     Carrying             Fair Value Measurement Category  
     Value      Fair Value      Level 1      Level 2      Level 3  

Secured credit agreement expiring April 24, 2017:

               

Term Loan

    $ 250,000       $ 250,000       $         —         $ 250,000       $ —     

 

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

Secured credit agreement terminated April 24, 2012:

               

Term loan

    $ —         $ —         $ —         $         —         $ —     

Senior Notes

      240,000         264,000         264,000         —           —     

 

                                                                                    
     September 30, 2011  
     Carrying             Fair Value Measurement Category  
     Value      Fair Value      Level 1      Level 2      Level 3  

Secured credit agreement terminated April 24, 2012:

               

Term loan

    $ 69,841       $ 69,609       $ —         $   69,609       $ —     

Senior Notes

      240,000         264,000         264,000         —           —     

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 estimated by discounting expected cash flows at the rates currently offered to HSNi for debt of the same remaining maturities, as advised by HSNi’s bankers (level 2 criteria).

As of June 30, 2012, the assets and liabilities of The Territory Ahead were considered a disposal group held for sale. During the three months ended June 30, 2012, an impairment charge of $6.3 million ($3.9 million net of tax) was recorded to reduce the carrying value of the net assets to their estimated net realizable value. See Note 10 – Discontinued Operations for further discussion of this impairment charge.

HSNi measures certain assets, such as intangible assets and property and equipment, at fair value on a non-recurring basis. These assets are recognized at fair value if they are deemed to be impaired. During the nine months ended September 30, 2012 and 2011, there were no assets, other than The Territory Ahead disposal group, that were required to be recorded at fair value as no impairment indicators were present.