Home Shopping Network 2015 Annual Report Download - page 43

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41
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory
(Topic 330) ("ASU 2015-11"). The amendments, which apply to inventory that is measured using any method other than the
last-in, first-out (LIFO) or retail inventory method, require that entities measure inventory at the lower of cost or net realizable
value. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and
should be applied on a prospective basis. Early adoption is permitted. HSNi is currently assessing the timing of adoption of
ASU 2015-11 and the potential impact to its consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance
Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring
deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The updated standard is effective for HSNi
beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period.
HSNi adopted this standard retrospectively, and reclassified its current deferred tax assets to noncurrent deferred tax assets for
all periods presented. Upon adoption of ASU 2015-17, current deferred tax assets of $32.7 million in the December 31, 2014
consolidated balance sheet were reclassified as non-current and netted against non-current deferred tax liabilities. Adoption of
ASU 2015-17 had no impact on HSNi's consolidated statements of operations.
Fiscal Year
HSNi’s consolidated financial results are reported on a calendar year basis ending on December 31. HSN’s reporting
period is the same as HSNi. Cornerstone has a 4-4-5 week accounting cycle with the fiscal year ending on the Saturday on or
immediately preceding December 31. Cornerstone’s fiscal years 2015, 2014, and 2013 each included 52 weeks.
Reclassifications
Reclassifications were made to prior period amounts within the consolidated statements of cash flows to conform to the
current year's presentation. Reclassifications were also made to prior period amounts within the consolidated balance sheet due
to the adoption of ASU 2015-17, as previously discussed.
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 15.9%, 16.3%, and 17.0% in 2015, 2014, and 2013, respectively. Sales taxes collected are
not included in revenue.
HSN issues customer credits primarily for products returned outside of HSN’s normal return policy. Revenues from
these credits are recognized when (1) redeemed by the customer, or (2) it is determined that it is not probable the Company has
an obligation to escheat the value of the unredeemed credit to relevant jurisdictions and the likelihood of the credit being
redeemed by the customer is remote (“breakage”). During the year ended December 31, 2014, the Company recognized $5.0
million of revenue for customer credit breakage. This was the first period during which the Company recognized customer
credit breakage and, therefore, it included breakage income related to customer credits issued since inception of this program.
Customer credit breakage recognized for the year ended December 31, 2015 was $0.5 million. Customer credit breakage is
estimated based upon an analysis of actual historical redemption patterns and is included in "Net sales" in the accompanying
consolidated statements of operations.
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.