Nordstrom 2003 Annual Report Download - page 32

NORDSTROM, INC. and SUBSIDIARIES
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notes to consolidated financial statements
Dollars in thousands except per share amounts
Note 1: Summary of Significant Accounting Policies
The Company: We are a fashion specialty retailer offering high-quality
apparel, shoes and accessories for women, men and children with 148 U.S.
stores located in 27 states.
We also operate 31 Façonnable boutiques located primarily in Europe.
Additionally, we generate catalog and Internet sales through Nordstrom
Direct (formerly known as Nordstrom.com) and service charge income through
Nordstrom Credit, Inc.
Change in Fiscal Year: On February 1, 2003, our fiscal year end changed
from January 31st to the Saturday closest to January 31st. Our new
fiscal year consists of four 13 week quarters, with an extra week added
onto the fourth quarter every five to six years. A one-day transition period
is included in our first quarter 2003 results. Fiscal years 2003, 2002 and
2001 ended on January 31, 2004, 2003 and 2002, respectively.
Basis of Presentation: The consolidated financial statements include
the balances of Nordstrom, Inc. and its subsidiaries for the entire fiscal
year. All significant intercompany transactions and balances are eliminated
in consolidation.
Use of Estimates: We make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications: Certain reclassifications of prior year balances have
been made for consistent presentation with the current year.
Revenue Recognition: We record revenues net of estimated returns and
exclude sales tax. Retail stores record revenue at the point of sale.
Catalog and Internet sales include shipping revenue and are recorded upon
delivery to the customer. Our sales return liability is estimated based on
historical return levels.
Buying and Occupancy Costs: Buying costs consist primarily of salaries
and expenses incurred by our merchandise managers, buyers and
private label product development group. Occupancy costs include
rent, depreciation, property taxes and operating costs of our retail and
distribution facilities.
Shipping and Handling Costs: Our shipping and handling costs include
payments to third-party shippers and costs to store, move and prepare
merchandise for shipment. Shipping and handling costs of $47,614,
$42,506 and $30,868 in 2003, 2002 and 2001 were included in selling,
general and administrative expenses.
Advertising:Costs for newspaper, television, radio and other media are
generally expensed as they occur. Direct response advertising costs,
such as catalog book production and printing costs, are expensed over the
life of the catalog, not to exceed six months. Total advertising expenses
were $154,466, $151,368 and $145,341 in 2003, 2002 and 2001.
Store Preopening Costs: Store opening and preopening costs are expensed
as they occur.
Stock Compensation: We apply APB No. 25, "Accounting for Stock Issued
to Employees," in measuring compensation costs under our stock-based
compensation programs, which are described more fully in Note 15.
The following table illustrates the effect on net income and earnings per
share if we had applied the fair value recognition provisions of SFAS No.
123, “Accounting for Stock-Based Compensation.”
Fiscal Year 2003 2002 2001
Net earnings, as reported $242,841 $90,224 $124,688
Add: stock-based compensation
expense included in reported
net income, net of tax 9,898 2,240 2,598
Deduct: stock-based compensation
expense determined under fair
value, net of tax (23,749) (21,914) (19,850)
Pro forma net earnings $228,990 $70,550 $107,436
Earnings per share:
Basic — as reported $1.78 $0.67 $0.93
Diluted — as reported $1.76 $0.66 $0.93
Basic — pro forma $1.68 $0.52 $0.80
Diluted — pro forma $1.67 $0.52 $0.80