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Table of Contents
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. 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 on the date of shipment. HSNi's sales policy allows customers to return merchandise for a full refund or
exchange, subject to pre-established time restrictions. Allowances for returned merchandise and other adjustments (including reimbursed
shipping and handling costs) are provided based upon past experience. Actual returns of product sales have not materially varied from estimates
in any of the periods presented. HSNi's estimated return rates were 17.8% , 18.5% , and 17.9%
in 2012, 2011, and 2010, 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 principally comprised of amounts due from customers and credit card companies, net of an allowance for doubtful
accounts. HSN provides extended payment terms to its customers on certain products known as Flexpay. 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 accounts receivable, net of allowances, is as follows (in thousands):
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 $6.2 million and $5.4 million
of these allocable general and administrative overhead costs at
December 31, 2012 and 2011, respectively, and approximately $24.3 million , $20.9 million , and $17.6 million of such costs were included in
the accompanying consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010, respectively. Market is
determined on the basis of net realizable value, giving consideration to obsolescence and other factors.
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December 31,
2012 2011
Flexpay and other customer-related
$
203,041
$
180,393
Credit card companies
29,393
25,518
Other
17,456
16,672
Accounts receivable, net
$
249,890
$
222,583