Nordstrom 2006 Annual Report Download - page 51

Nordstrom, Inc. and subsidiaries 33
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for women, men and children. We offer
a wide selection of brand name and private label merchandise. We offer our products through multiple retail channels, including 98 Full-Line
‘Nordstrom’ stores, 50 discount ‘Nordstrom Rack’ stores, four ‘Façonnable’ boutiques, our catalogs and through our online store at
www.nordstrom.com. Our stores are located throughout the United States, and we also have 36 Façonnable boutiques located in France, Portugal,
and Belgium. In addition, we offer our customers a variety of payment products and services, including our loyalty program.
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 and losses.
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 2006 related to the 53 week fiscal year ended February 3, 2007.
Fiscal year 2006 includes an extra week (the 53rd week) as a result of our 4-5-4 retail reporting calendar. References to 2005 and 2004 relate to
the 52 week fiscal years ended January 28, 2006 and January 29, 2005. References to 2007 relate to the 52 weeks ending February 2, 2008.
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 online
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 $54,546 and $51,172 at the end of 2006 and 2005.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and costs incurred by our merchandise and product development groups. Occupancy costs include
rent, depreciation, property taxes and facility operating costs of our retail and distribution operations.
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 $78,176, $79,689, and $75,421 in 2006, 2005, and 2004 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 $109,373, $122,294, and $123,974 in 2006, 2005, and 2004.
Other Income Including Finance Charges, Net
This consists primarily of finance charges and late fees generated by our Nordstrom private label cards and earnings from our investment in asset
backed securities and securitization gains and losses, which are both generated from the co-branded Nordstrom VISA credit card program.
Gift card breakage is another component of other income including finance charges, net. Based on an analysis of our program since its inception in
1999, we determined that balances remaining on cards issued five years ago are unlikely to be redeemed and therefore may be recognized as income.
Breakage income in 2006 was $5,333. This breakage income is approximately 3.5% of the amount initially issued as gift cards. As 2005 was the first
year that we recognized gift card breakage, it includes $2,636 and $5,410 for cards issued in 1999 and 2000, for a total of $8,046.