Nordstrom 2008 Annual Report Download - page 42

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Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Loyalty Program
Customers who reach a cumulative purchase threshold when using our Nordstrom private label cards or our Nordstrom VISA credit cards receive
Nordstrom Notes®. These Nordstrom Notes can be redeemed for goods or services in our stores. We estimate the net cost of the Nordstrom Notes
that will be issued and redeemed and record this cost as rewards points are accumulated. In addition to this long-standing benefit, in 2007 we
launched an enhanced loyalty program, Fashion Rewards®. Under this program, Nordstrom customers receive higher levels of cumulative benefits
based on their annual spend. We record the cost of the loyalty program benefits for Nordstrom Notes and alterations in cost of sales given that we
provide customers with products or services for these rewards. Other costs of the loyalty program, which primarily include shipping and fashion
events, are recorded as selling, general and administrative expenses. These expenses are recorded based on estimates of benefits expected to be
accumulated and redeemed in relation to sales.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic selling expenses, purchase price adjustments, cooperative advertising programs and
vendor sponsored contests. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction to
the related cost when incurred. 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 and promotion programs and vendor sponsored contests are recorded in
cost of sales and related buying and occupancy costs and selling, general and administrative expenses as a reduction to the related cost when
incurred. Any allowances in excess of actual costs incurred that are recorded in selling, general and administrative expenses are recorded as a
reduction to cost of sales. The following table shows vendor allowances earned during the year:
Fiscal year 2008 2007 2006
Cosmetic selling expenses $112 $120 $121
Purchase price adjustments 96 86 70
Cooperative advertising and promotion 65 61 67
Vendor sponsored contests 3 2 3
Total vendor allowances $276 $269 $261
Allowances were recorded in our consolidated statements of earnings as follows:
Fiscal year 2008 2007 2006
Cost of sales and related buying and occupancy costs $157 $146 $138
Selling, general and administrative expenses 119 123 123
Total vendor allowances $276 $269 $261
Fair Value of Financial Instruments
The carrying amounts of cash equivalents approximate fair value. See Note 6: Debt and Credit Facilities for the fair value of our long-term debt.
Derivatives Policy
We periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to
hedge against fluctuations in foreign currency prices. These forward contracts do not qualify for derivative hedge accounting, therefore any
changes in the fair value of financial contracts are reflected in the statement of earnings. The notional amounts of our foreign currency forward
contracts at the contract rates were $3 and $10 at the end of 2008 and 2007.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007),
Business Combinations (“SFAS 141(R)”). Under
SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition-related items, including
expensing acquisition-related costs as incurred, valuing noncontrolling interests (minority interests) at fair value at the acquisition date, and
expensing restructuring costs associated with an acquired business. SFAS 141(R) also includes a substantial number of new disclosure requirements.
SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not
permitted. Generally, the effect of SFAS 141(R) will depend on the circumstances of any potential future acquisition.
Also in December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
— an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for a noncontrolling interest
(minority interest) in a subsidiary, provides guidance on the accounting for and reporting of the deconsolidation of a subsidiary, and increases
transparency through expanded disclosures. Specifically, SFAS 160 requires the recognition of a minority interest as equity in the consolidated financial
statements and separate from the parent company’s equity. It also requires consolidated net earnings in the consolidated statement of earnings to
include the amount of net earnings attributable to minority interest. This statement will be effective for Nordstrom as of the beginning of fiscal year
2009. Early adoption is not permitted. We do not believe the adoption of SFAS 160 will have a material impact on our consolidated financial statements.