Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Note)

v2.4.0.8
Fair Value Measurements (Note)
 6 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
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. Fair value assumptions are made at a specific point in time and changes in underlying assumptions could significantly affect these estimates. 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 HSNi's other financial assets and liabilities which are measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):
 
 
June 30, 2013
 
 
 
Total Fair Value and Carrying Value on Balance Sheet
 
Fair Value Measurement Category
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Interest rate swap
 
 
$
1,839

 
$
—

 
$
1,839

 
$
—

 
 
December 31, 2012
 
 
 
Total Fair Value and Carrying Value on Balance Sheet
 
Fair Value Measurement Category
Level 1
 
Level 2
 
Level 3
Liabilities:
 
 
 
 
 
 
 
 
 
Interest rate swap
 
 
$
755

 
$
—

 
$
755

 
$
—


HSNi's interest rate swap was carried on the balance sheet at fair value as of June 30, 2013 and December 31, 2012. The swap was entered into in December 2012 for the purpose of hedging the variability of interest expense and interest payments on HSNi's long-term variable rate debt. Because this swap is not actively traded, the fair value was based on a valuation model. Interest rate yield curves and credit spreads are the significant inputs included in the valuation model. These inputs are observable in active markets (level 2 criteria). HSNi considers credit risk associated with its own standing as well as the credit standing of any counterparties involved in the valuation of its financial instruments.
The following table summarizes the fair value of HSNi’s financial assets and liabilities which are carried at cost (in thousands):

 
 
June 30, 2013
 
 
Carrying
Value
 
Fair Value
 
Fair Value Measurement Category
Level 1
 
Level 2
 
Level 3
Secured credit agreement expiring April 24, 2017:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$
246,875

 
$
246,875

 
$
—

 
$
246,875

 
$
—

 
 
December 31, 2012
 
 
Carrying
Value
 
Fair Value
 
Fair Value Measurement Category
Level 1
 
Level 2
 
Level 3
Secured credit agreement expiring April 24, 2017:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$
250,000

 
$
250,000

 
$
—

 
$
250,000

 
$
—

 
 
June 30, 2012
 
 
Carrying
Value
 
Fair Value
 
Fair Value Measurement Category
Level 1
 
Level 2
 
Level 3
Senior Notes
 
$
240,000

 
$
255,000

 
$
255,000

 
$
—

 
$
—


The fair values of the term loans were 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) and the fair value of the Senior Notes was based upon quoted market information (level 1 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 $5.9 million, or $3.7 million net of tax, was recorded to reduce the carrying value of the net assets to their estimated net realizable value. See Note 12 - Discontinued Operations for further discussion of this impairment charge.
HSNi measures certain assets, such as property and equipment and intangible assets, at fair value on a nonrecurring basis. These assets are recognized at fair value if they are deemed to be impaired. During the six months ended June 30, 2013 and 2012, 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.