Nordstrom 2011 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, per option and unit amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a shoe store in Seattle, Washington, today Nordstrom, Inc. is a leading fashion specialty retailer that offers customers a well-
edited selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories for men, women and children. This breadth
of merchandise allows us to serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer a wide
selection of brand name and private label merchandise through multiple retail channels, including 117 ‘Nordstrom’ branded full-line stores and online
store at www.nordstrom.com (collectively, “Nordstrom”), 104 off-price ‘Nordstrom Rack’ stores, our ‘HauteLook’ online private sale subsidiary, two
‘Jeffrey’ boutiques, one philanthropic ‘treasure&bond’ store and one ‘Last Chance’ clearance store. Our stores are located in 30 states throughout
the U.S.
Through our Credit segment, we provide our customers with a variety of payment products and services, including a Nordstrom private label
card, two Nordstrom VISA credit cards and a debit card for Nordstrom purchases. These products also allow our customers to participate in our
loyalty program.
Fiscal Year
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2011, 2010 and 2009 relate to the 52-week fiscal
years ended January 28, 2012, January 29, 2011 and January 30, 2010. References to 2012 relate to the 53-week fiscal year ending February 2, 2013.
Principles of Consolidation
The consolidated financial statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure
of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the
preparation of financial statements and actual results may differ from these estimates and assumptions. Our significant accounting judgments
and estimates include the allowance for credit losses, revenue recognition, inventory, goodwill and income taxes.
Net Sales
We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales
to customers shipped directly from our stores and our online and catalog sales includes shipping revenue, when applicable, and is recognized upon
estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of
sales accordingly. Activity in the allowance for sales returns, net, for the past three fiscal years is as follows:
Fiscal year 2011 2010 2009
Allowance at beginning of year $85 $76 $70
Additions 1,411 1,180 1,030
Returns, net1 (1,393) (1,171) (1,024)
Allowance at end of year $103 $85 $76
1Returns, net consist of actual returns offset by the value of the merchandise returned and the sales commission reversed.
Credit Card Revenues
Credit card revenues include finance charges, late fees and other revenue generated by our combined Nordstrom private label card and Nordstrom
VISA credit card programs, and interchange fees generated by the use of Nordstrom VISA cards at third-party merchants. These fees are assessed
according to the terms of the related cardholder agreements and recognized as revenue when earned.
Cost of Sales
Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight and certain costs of loyalty program benefits
related to our credit and debit cards.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs
include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and distribution operations.