Nordstrom 2005 Annual Report Download - page 40

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Nordstrom, Inc.
Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
We are one of the nation’s leading fashion specialty retailers, with 156 U.S. stores located in 27 states. Founded in 1901 as a shoe store in Seattle,
today we operate 99 Full-Line Nordstrom stores, 49 discount Nordstrom Rack stores, five U.S.-based Façonnable boutiques, one free-standing shoe
store, and two clearance stores. We also operate 32 international Façonnable boutiques in France, Portugal and Belgium. We also serve our
customers on the Web at www.nordstrom.com and through our catalogs.
Our credit operations offer a Nordstrom private label card, two co-branded Nordstrom VISA credit cards and a debit card for Nordstrom purchases,
which generate earnings through finance charges and securitization-related gains.
Our operations also include a product development group, which coordinates the design and production of private label merchandise sold in our
retail stores.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31st. References to 2005, 2004 and 2003 relate to the 52 week fiscal years ended
January 28, 2006, January 29, 2005 and January 31, 2004. References to 2006 relate to the 53 weeks ending February 3, 2007.
Two-for-one Stock Split
On May 24, 2005, our Board of Directors approved a two-for-one stock split of our outstanding common stock and a proportional increase in the
number of common shares authorized from 500,000 to 1,000,000. Additional shares issued as a result of the stock split were distributed on June 30,
2005 to shareholders of record as of June 13, 2005. The shares and per share information included herein have been adjusted to reflect this
stock split.
Principles of Consolidation
The consolidated financial statements include the balances of Nordstrom, Inc. and its wholly-owned subsidiaries. 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.
Revenue Recognition
We record revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and
Internet sales include shipping revenue and are recorded upon estimated delivery to the customer. We recognize revenue associated with our gift
cards upon redemption of the gift card. As part of the normal sales cycle, we receive customer merchandise returns. To recognize the financial
impact of sales returns, we estimate the amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical
return patterns to estimate our expected returns. Our sales return reserves were $51,172 and $49,745 at the end of 2005 and 2004.
Buying and Occupancy Costs
Buying costs consist primarily of salaries and costs incurred by our merchandise and product development groups. 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 hold, move and prepare merchandise for shipment.
Shipping and handling costs of $79,689, $75,421, and $67,583 in 2005, 2004, and 2003 were included in selling, general and administrative expenses.
Advertising
Production costs for newspaper, radio and other media are expensed the first time the advertisement is run. Total advertising expenses,
net of vendor allowances, were $122,294, $123,974 and $117,411 in 2005, 2004, and 2003.
Other Income Including Finance Charges, Net
This consists primarily of income from finance charges and late fees generated by our Nordstrom private label cards and earnings from our investment
in asset backed securities and securitization gains, which are both generated from the co-branded Nordstrom VISA credit card program. Gift card
breakage income is a new component of other income including finance charges, net in 2005. Unclaimed property legislation changed in 2004 to allow
us to retain unused balances on gift cards. We analyzed the experience of our program since it was introduced in 1999, and we determined that balances
remaining on cards issued five years ago are unlikely to be redeemed. The breakage income recognized in 2005 includes $2,636 and $5,410 for cards
issued in 1999 and 2000; in both cases, the breakage income is 3.4% of the amount issued as gift cards in those years.