Nordstrom 2007 Annual Report Download - page 48

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Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a shoe store in Seattle, today Nordstrom is a fashion specialty retailer that offers customers a well-edited selection of designer,
luxury and high-quality fashion brands focused on clothing, shoes and accessories for men, women and children. This breadth of merchandise allows
the company to serve both the growing affluent customer segment as well as those who appreciate quality products and experiences. We offer a
wide selection of brand name and private label merchandise. We offer our products through multiple retail channels, including 101 ‘Nordstrom’ full-
line stores, 50 discount ‘Nordstrom Rack’ stores, our catalogs and through our online store at www.nordstrom.com. Our stores are located
throughout the United States.
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 late fees. We offer our customers a variety of payment products and services, including our
loyalty program.
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 2007 relate to the 52-week fiscal year ended February 2, 2008.
References to 2006 and 2005 relate to the 53-week fiscal year ended February 3, 2007 and the 52-week fiscal year ended January 28, 2006,
respectively. Fiscal year 2006 includes an extra week (the 53rd week) as a result of our 4-5-4 retail reporting calendar. References to 2008
relate to the 52 weeks ending January 31, 2009.
Principles of Consolidation
The consolidated financial statements include the balances of Nordstrom, Inc. and its 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 receipt by 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 $56 and $55 at the end of 2007 and 2006.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandise and product development groups. Occupancy costs
include rent, depreciation, property taxes and facility operating costs of our retail, corporate center 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 $87, $78 and $80 in 2007, 2006 and 2005 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 $101, $109 and $122 in 2007, 2006 and 2005.
Finance Charges and Other, Net
On May 1, 2007, we converted our Nordstrom private label card and co-branded Nordstrom VISA credit card programs into one securitization program.
Prior to the transaction, finance charges and other, net consisted 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 were both generated from the co-branded
Nordstrom VISA credit card program. After the transaction, finance charges and other, net consists primarily of finance charges and late fees generated
by our combined Nordstrom private label card and co-branded Nordstrom VISA credit card programs.