Home Shopping Network 2008 Annual Report Download - page 47

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Inventories
Inventories, which primarily consist of finished goods, are valued at the lower of cost or market, with the
cost being determined based upon the first-in, first-out method. Cost includes inbound freight and duties and, in the
case of HSN, certain allocable general and administrative costs, including certain warehouse costs. Inventories
include approximately $5.4 million and $4.9 million of these allocable general and administrative overhead costs at
December 31, 2008 and 2007, respectively, and approximately $19.7 million, $17.8 million and $19.8 million of
such costs were included in "General and administrative expense" in the accompanying consolidated statements of
operations for the years ended December 31, 2008, 2007 and 2006, respectively. Market is determined on the basis
of net realizable value, giving consideration to obsolescence and other factors.
Property and Equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance
and any gains or losses on dispositions are included in operations.
Depreciation is recorded on a straight-line basis to allocate the cost of depreciable assets to operations over
the shorter of the estimated service life or lease period
Asset Category Depreciation Period
Computer equipment and capitalized software 3 to 6 Years
Buildings and leasehold improvements 3 to 39 Years
Furniture and other equipment 3 to 10 Years
In accordance with American Institute of Certified Public Accountants' Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," HSNi capitalizes certain
qualified costs incurred in connection with the development of internal use software. Capitalization of internal use
software costs begins when the preliminary project stage is completed, management with the relevant authority
authorizes and commits to the funding of the software project, and it is probable that the project will be completed
and the software will be used to perform the function intended. Capitalized internal use software is depreciated on a
straight-line basis over the estimated useful life of the software, not to exceed three years. Capitalized software
costs, net of accumulated amortization, totaled $23.6 million and $19.5 million at December 31, 2008 and 2007,
respectively, and are included in "Property and equipment, net" in the accompanying consolidated balance sheets.
Amortization expense related to the capitalized software costs was $14.0 million, $12.9 million and $16.2 million
for the years ended December 31, 2008, 2007 and 2006, respectively.
Goodwill and Indefinite-Lived Intangible Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), goodwill acquired in business combinations is assigned to the reporting units
that are expected to benefit from the combination as of the acquisition date. Goodwill and indefinite-lived
intangible assets, primarily trade names and trademarks, are tested annually for impairment as of October 1 or earlier
upon the occurrence of certain events or substantive changes in circumstances. See Note 3 for a further discussion
on goodwill and indefinite-lived intangible assets.
Long-Lived Assets and Intangible Assets with Definite Lives
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"), long-lived assets, including property and equipment and intangible assets with definite lives, are
tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount is deemed to
not be recoverable, an impairment loss is recorded as the amount by which the carrying amount of the long-lived
asset exceeds its fair value. Amortization of definite lived intangible assets is recorded on a straight-line basis over
their estimated lives.