Home Shopping Network 2008 Annual Report Download - page 46

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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the exception of accounting for income taxes. For purposes of these financial statements, income taxes have been
principally computed for HSNi on an as if stand-alone, separate tax return basis. Our income tax payable, as well as
deferred tax assets and liabilities, represent the estimated impact of filing a consolidated income tax return with IAC
through the spin-off, and filing a stand-alone consolidated income tax return thereafter. Intercompany transactions
and accounts have been eliminated.
In the opinion of HSNi’s management, the assumptions underlying these consolidated statements are
reasonable. However, this financial information does not necessarily reflect what the historical financial position,
results of operations and cash flows of HSNi would have been had HSNi been a stand-alone company during the
periods presented.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue primarily consists of merchandise sales and is reduced by incentive discounts and sales returns to
arrive at net sales. In accordance with Staff Accounting Bulletin 104, revenue is recorded when delivery to the
customer has occurred. Delivery is considered to have occurred when the customer takes title and assumes the risks
and rewards of ownership, which is generally on the date of shipment. HSNi's sales policy allows customers to
return merchandise for a full refund or exchange, subject in some cases to restocking fees and exceptions for certain
merchandise. Allowances for returned merchandise and other adjustments (including reimbursed shipping and
handling costs) are provided based upon past experience. HSNi believes that actual returns of product sales have not
materially varied from estimates in any of the periods presented. HSNi's estimated return rates were 18.4%, 18.4%
and 17.7% in 2008, 2007 and 2006, respectively. Sales taxes collected are not included in revenue.
Shipping and Handling Fees and Costs
Shipping and handling fees billed to customers are recorded as revenue. The costs associated with shipping
goods to customers are recorded as cost of sales.
Cash and Cash Equivalents
Cash and cash equivalents include cash and money market instruments with an original maturity of three
months or less when purchased and are stated at cost.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.
HSN provides extended payment terms to its customers known as Flexpay. Flexpay is offered on certain products
sold by HSN. Revenue is recorded when delivery to the customer has occurred, at which time HSN collects the first
payment, sales tax and all shipping and handling fees. Subsequent collections are due from customers in 30-day
increments, payable automatically upon authorization of the customer’s method of payment. HSN accepts most
credit, and select debit cards. HSN offers Flexpay programs ranging from two to six interest-free payments. Flexpay
receivables consist of outstanding balances owed by customers, less a reserve for uncollectible balances. The
balance of Flexpay receivables, net of allowance, at December 31, 2008 and 2007 was $130.3 million and
$148.3 million, respectively.
Accounts receivable outstanding longer than the contractual payment terms are considered past due. HSNi
determines its allowance by considering a number of factors, including the length of time accounts receivable are
past due, HSNi's previous loss history and the condition of the general economy. HSNi writes off accounts
receivable when they become uncollectible.