Home Shopping Network 2015 Annual Report Download - page 44

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Accounts Receivable
Accounts receivable are principally comprised of amounts due from customers and credit card companies, net of an
allowance for doubtful accounts. HSNi accepts most credit and select debit cards. HSN provides extended payment terms to its
qualified customers 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 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):
December 31,
2015 2014
Flexpay and other customer-related. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,197 $ 271,613
Credit card companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,248 17,865
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,130 28,307
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 306,575 $ 317,785
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 $6.9 million and $6.0 million of these
allocable general and administrative overhead costs at December 31, 2015 and 2014, respectively, and approximately $25.2
million, $24.0 million, and $23.9 million of such costs were included in the accompanying consolidated statements of
operations for the years ended December 31, 2015, 2014 and 2013, 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 the consolidated statement of 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 6 Years
Buildings, leasehold improvements and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 40 Years
Furniture and other equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 25 Years
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 amortized on a
straight-line basis over the estimated useful life of the software, not to exceed five years. Capitalized software costs, net of
accumulated amortization, totaled $32.8 million and $37.9 million at December 31, 2015 and 2014, respectively, and are
included in “Property and equipment, net” in the accompanying consolidated balance sheets. Amortization expense related to
the capitalized software costs was $18.9 million, $18.3 million and $15.1 million for the years ended December 31, 2015, 2014
and 2013, respectively, and is included in "Depreciation and amortization" expense in the accompanying consolidated
statements of operations.