Nordstrom 2002 Annual Report Download - page 29

notes to consolidated
financial statements
NORDSTROM INC. AND SUBSIDIARIES 27
Customer Accounts Receivable: Based on industry practices,
installments maturing in more than one year or deferred payment
accounts receivable are included in current assets.
Merchandise Inventories: Merchandise inventories are valued at
the lower of cost or market, using the retail method (first-in,
first-out basis).
Land, Buildings and Equipment: Depreciation is computed using a
combination of accelerated and straight-line methods. Estimated
useful lives by major asset category are as follows:
Asset Life (in years)
Buildings 5-40
Store fixtures and equipment 3-15
Leasehold improvements Shorter of life of lease or asset life
Software 3-7
Asset Impairment: We review our intangibles and other long-lived
assets annually for impairment or when circumstances indicate
the carrying value of these assets may not be recoverable.
Deferred Lease Credits: We receive developer reimbursements
as incentives to construct stores in certain developments. We
capitalize the property, plant and equipment for these stores
during the construction period. At the end of the construction
period, developer reimbursements in excess of construction costs
are recorded as deferred lease credits and amortized as a reduction
to rent expense, on a straight-line basis over the life of the
applicable lease or operating covenant. Construction costs in
excess of developer reimbursements are recorded as prepaid rent
and amortized as rent expense on a straight-line basis over the
life of the applicable lease or operating covenant.
Foreign Currency Translation: The assets and liabilities of our foreign
subsidiary have been translated to U.S. dollars using the exchange
rates effective on the balance sheet date, while income and expense
accounts are translated at the average rates in effect during the year.
Resulting translation adjustments are recorded as other
comprehensive earnings.
Income Taxes: We use the asset and liability method of accounting
for income taxes. Using this method, deferred tax assets and
liabilities are recorded based on differences between financial
reporting and tax basis of assets and liabilities. The deferred tax
assets and liabilities are calculated using the enacted tax rates
and laws that will be in effect when the differences are expected
to reverse.
Loyalty Programs: We have customer loyalty programs in which
customers receive points for qualifying purchases. Upon the
accumulation of a certain number of points, customers receive
a merchandise certificate. We accrue the cost of anticipated
merchandise certificate redemptions upon issuance of the
certificate to the customer. The related expense is recorded
in selling, general and administrative expense.
Vendor Allowances: We receive allowances from merchandise
vendors for purchase price adjustments, cooperative advertising
programs and cosmetic selling expenses. Purchase price
adjustments are recorded as a reduction of cost of sales at the
point they have been earned and the related merchandise has been
sold. Allowances for cooperative advertising programs and cosmetic
selling expenses are recorded as a reduction of selling, general
and administrative expense when the advertising or selling expense
is incurred.
Fair Value of Financial Instruments: The carrying amounts of cash
equivalents and notes payable approximate fair value. The fair value
of long-term debt, including current maturities, using quoted market
prices of the same or similar issues, was approximately $1,443,000
and $1,378,000 at January 31, 2003 and 2002.
Derivatives Policy: We limit our use of derivative financial
instruments to the management of foreign currency and interest rate
risks. The effect of these activities is not material to our financial
condition or results of operations. We have no material off-balance
sheet credit risk, and the fair value of derivative financial
instruments at January 31, 2003 and 2002 was not material.
Recent Accounting Pronouncements: In February 2002, we adopted
the following three pronouncements:
SFAS No. 141 “Business Combinations” - SFAS No. 141 requires
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and establishes specific
criteria for the recognition of goodwill separate from other intangible
assets. Adoption of SFAS No. 141 did not have a material impact
on our financial statements.