Nordstrom 2009 Annual Report Download - page 50

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Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
New Store Opening Costs
Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and temporary occupancy costs,
are charged to expense as incurred. These costs are included in both buying and occupancy costs and selling, general and administrative expenses
according to their nature as disclosed above.
Gift Cards
We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the
likelihood of redemption, based on historical experience, is deemed to be remote. Based on an analysis of our program since its inception in 1999,
we determined that balances remaining on cards issued beyond five years are unlikely to be redeemed and therefore may be recognized as income.
Breakage income was $8, $7 and $6 in 2009, 2008 and 2007. To date, our breakage rate is approximately 3.2% of the amount initially issued as gift cards.
Gift card breakage income is included in selling, general and administrative expenses in our consolidated statement of earnings. We had outstanding gift
card liabilities of $174 and $175 at the end of 2009 and 2008, which are included in other current liabilities.
Income Taxes
We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on
differences between the financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the
enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of
realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some
portion of the tax benefit will not be realized.
We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by
considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained,
we recognize a benefit at the largest amount which we believe is cumulatively greater than 50% likely to be realized.
Interest and penalties related to income tax matters are classified as a component of income tax expense.
Comprehensive Net Earnings
Comprehensive net earnings include net earnings and other comprehensive earnings and losses. Other comprehensive loss of $9 in 2009 and other
comprehensive earnings of $12 in 2008 consisted of adjustments, net of tax, related to our postretirement benefit obligations. In 2007, other
comprehensive loss of $13 consisted primarily of a foreign currency translation adjustment and a fair value adjustment to our investment in asset-
backed securities, partially offset by postretirement plan adjustments.
The accumulated other comprehensive losses of $19 and $10 at the end of 2009 and 2008 consist entirely of unrecognized losses on postretirement
benefit obligations. During 2009 and 2008, we did not own any material foreign subsidiaries, and therefore, we did not recognize any foreign
currency translation in accumulated other comprehensive loss.
Cash Equivalents
Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost,
which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily
basis. Accounts payable at the end of 2009 and 2008 included $74 and $66 of checks not yet presented for payment drawn in excess of our bank
deposit balances.
Accounts Receivable
We record credit card accounts receivable on our consolidated balance sheets at the outstanding balance, net of an allowance for doubtful accounts.
We estimate the allowance for doubtful accounts based on our best estimate of the losses inherent in our receivables as of the balance sheet date.
We evaluate the collectability of our accounts receivable based on several factors, including historical trends of aging of accounts, write-off
experience and expectations of future performance, including trends in unemployment rates. We recognize finance charges on delinquent accounts
until the account is written off. Delinquent accounts, including fees, are written off when they are determined to be uncollectible, usually after the
passage of 151 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or
other circumstances that make further collection unlikely.
Our Nordstrom private label cards can be used only in Nordstrom stores, while the Nordstrom VISA cards allow our customers the option of using the
cards for purchases of Nordstrom merchandise and services, as well as for purchases outside of Nordstrom. Cash flows from the use of both the
private label cards and Nordstrom VISA credit cards for sales originating at our stores are treated as an operating activity in the consolidated
statements of cash flows as they relate to sales at Nordstrom. Cash flows arising from the use of Nordstrom VISA cards outside of our stores are
treated as an investing activity within the consolidated statements of cash flows, as they represent loans made to our customers for purchases at
third parties.