Home Shopping Network 2011 Annual Report Download - page 43

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and credit card companies, 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 monthly 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, 2011 and 2010 was $175.6 million and $162.5 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 are deemed uncollectible.
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 costs, including certain warehouse costs. Inventories include approximately
$5.3 million and $4.5 million of these allocable general and administrative overhead costs at December 31, 2011
and 2010, respectively, and approximately $20.9 million, $17.6 million and $19.0 million of such costs were
included in the accompanying consolidated statements of operations for the years ended December 31, 2011,
2010 and 2009, 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 and broadcast equipment and capitalized software .......................... 3to6Years
Buildings, leasehold improvements and land improvements ........................... 3to40Years
Furniture and other equipment ................................................... 3to10Years
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
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