Annual report pursuant to Section 13 and 15(d)

Derivative Instruments (Note)

v3.6.0.2
Derivative Instruments (Note)
 12 Months Ended
Dec. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
DERIVATIVE INSTRUMENTS
HSNi uses derivatives in the management of its interest rate risk with respect to its variable rate debt. HSNi's strategy is to eliminate the cash flow risk on a portion of its variable rate debt caused by changes in the benchmark interest rate (LIBOR). Derivative instruments are not entered into for speculative purposes.

HSNi uses interest rate swap contracts to eliminate the cash flow risk on a portion of its variable rate debt. HSNi pays at a fixed rate and receives payments at a variable rate based on one-month LIBOR. The swaps effectively fix the floating LIBOR-based interest of our outstanding LIBOR-based debt. The interest rate swaps were designated and qualified as cash flow hedges; therefore, the effective portions of the changes in fair value are recorded in accumulated other comprehensive income (loss). Any ineffective portions of the changes in fair value of the interest rate swaps will be immediately recognized in earnings in the consolidated statements of operations.

The interest rate swaps effectively convert $187.5 million of our variable rate term loan to a fixed rate of 0.8525% through April 2017, and then increases to $250.0 million in April 2017 with a maturity date in January 2020 with a fixed rate of 1.05% (in both cases the swapped fixed rate is exclusive of the credit spread under the Credit Agreement). Based on HSNi's leverage ratio as of December 31, 2016, the all-in fixed rate was 2.3525%. The changes in fair value of the interest rate swap (inclusive of reclassifications to net income) were income of $2.3 million and a loss of $0.2 million, net of tax, for the years ended December 2016 and 2015, and were included in other comprehensive income (loss).

The fair value of the interest rate swaps at December 31, 2016 was $3.6 million and was recorded in "Other non-current assets." The fair value of the interest rate swap liability as of December 31, 2015 was $0.2 million and was recorded in "Other long-term liabilities" in the consolidated balance sheets. As of December 31, 2016, HSNi estimates that less than $0.1 million of unrealized losses included in accumulated other comprehensive income (loss) related to these swaps will be realized and reported in earnings within the next twelve months. See Note 9 for discussion of the fair value measurements concerning these interest rate swaps.