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Returns Reserves
Net sales from HSNi primarily consist of merchandise sales and are reduced by incentive discounts and sales returns.
HSNi's sales policy allows customers to return virtually all 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 levels of product returns may vary from these estimates. HSNi's
estimated return rates were 15.9%, 16.3% and 17.0% in 2015, 2014 and 2013, respectively.
Allowance for Doubtful Accounts
HSNi makes judgments as to its ability to collect outstanding receivables and provide allowances when it has determined
that all or a portion of the receivable will not be collected. HSNi determines its allowance by considering a number of factors,
including the length of time accounts receivable are past due, its previous loss history and the condition of the general
economy. HSNi writes off accounts receivable when they are determined to be uncollectible.
Income Taxes
Estimates of deferred income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown
in Note 12 of Notes to Consolidated Financial Statements, and reflect management's assessment of actual future taxes to be
paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of
realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax
apportionment, as well as actual operating results of HSNi that vary significantly from anticipated results. Valuation allowances
are related to items for which it is more likely than not that the tax benefit will not be realized. In assessing the adequacy of a
recorded valuation allowance, we consider all positive and negative information and a variety of factors including the
scheduled reversal of deferred tax liabilities, historical and projected future taxable income and feasible tax planning strategies.
HSNi recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position
for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be
sustained on its technical merits. The second step is to measure the tax benefit as the largest amount which is more than 50%
likely of being realized upon ultimate settlement. This measurement step is inherently difficult and requires subjective
estimations of such amounts to determine the probability of various possible outcomes. HSNi considers many factors when
evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not
accurately anticipate actual outcomes.
Inventory Valuation
Inventories are valued at the lower of cost or market, cost being determined based upon the first-in, first-out method.
Market is determined on the basis of net realizable value, giving consideration to obsolescence and other factors. Net realizable
value is estimated by HSNi based upon historical sales data, the age of inventory, the quantity of goods on hand and the ability
to return merchandise to vendors. The actual net realizable value may vary from estimates due to changes in customer tastes or
viewing habits, or judgmental decisions made by merchandising personnel when ordering new products.
Stock-Based Compensation
We measure compensation cost for stock-based awards at fair value and recognize compensation over the service period
for awards expected to vest. We consider many factors when estimating expected forfeitures, including types of awards,
employee class and historical experience. HSNi grants performance-based equity awards whose value is based on the extent to
which certain pre-established performance goals are achieved during a three-year period. Each reporting period prior to the
vesting of these awards, management must apply significant judgment when estimating the expected future achievement of the
designated performance metrics. The estimation of stock awards that will ultimately vest and the estimation of the value of the
performance-based awards require judgment, and to the extent actual results or updated estimates differ from our current
estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The fair value of
restricted stock units is determined based on the number of shares granted and the closing price of our common stock at the
grant date. The fair value of stock options, stock appreciation rights and options granted under our employee stock purchase
plan are estimated on the grant date using the Black-Scholes option pricing model. This model incorporates various
assumptions, including expected volatility and expected term. Expected stock price volatilities are estimated based on HSNi's
historical experience and the historical and implied volatilities of comparable publicly-traded companies. The expected term of
awards granted is based on analyses of historical employee termination rates and option exercise patterns, giving consideration
to expectations of future employee behavior. HSNi also grants equity awards with market conditions. The fair value for these
awards is determined by applying a Monte Carlo simulation pricing model. Actual results and future estimates may differ
substantially from our current estimates.