Nordstrom 2013 Annual Report Download - page 44

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Goodwill, Intangible Assets and Long-Lived Assets
Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired, and is not subject to amortization. As
of February 1, 2014, we had HauteLook goodwill of $121 and Nordstrom.com and Jeffrey goodwill of $53. We review our goodwill annually
for impairment, or when circumstances indicate its carrying value may not be recoverable. We review our HauteLook goodwill as of the first
day of the fourth quarter and review our Nordstrom.com and Jeffrey goodwill on the first day of the first quarter. We perform this evaluation at
the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-step fair value
test. The first step compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value
of future cash flows (income approach), comparable public companies and acquisitions (market approach), or a combination of both. If fair
value is lower than the carrying value, then a second step is performed to quantify the amount of the impairment. To assess the fair value of
our HauteLook goodwill, we utilize both an income approach and a market approach. To determine the fair value of goodwill related to
Nordstrom.com and Jeffrey, we utilize a market approach.
When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable
intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their
related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. Upon indication that the carrying
values of long-lived assets will not be recoverable, we recognize an impairment loss. We estimate the fair value of the assets using the
expected present value of future cash flows of the assets. Land, buildings and equipment are grouped at the lowest level at which there are
identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level, while our
intangible assets associated with HauteLook are identified at the HauteLook reporting unit level. We did not record any material impairment
losses for long-lived tangible or amortizable intangible assets in 2013, 2012 or 2011.
Self-Insurance
We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and general liability claims.
Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We
estimate our ultimate cost based on an actuarially based analysis of claims experience, regulatory changes and other relevant factors.
Derivatives
During 2011, we held interest rate swap agreements (collectively, the “swap”), which were intended to hedge our exposure to changes in the
fair value of our fixed-rate senior notes due in 2018 from interest rate risk. The swap was designated as a fully effective fair value hedge. In
the fourth quarter of 2011, we sold our swap and received proceeds of $72, which was recorded on the sale date as an accumulated
adjustment to our long-term debt and will be amortized as a reduction of interest expense over the remaining life of the debt. The cash flows
from the sale of our swap are treated as a financing activity within our Consolidated Statements of Cash Flows. See Note 8: Debt and Credit
Facilities for additional information related to our swap.
Foreign Currency
We have announced plans to open six full-line stores in Canada beginning in 2014. The functional currency of our Canadian operations is the
Canadian dollar. We translate assets and liabilities into U.S. dollars using the exchange rate in effect at the balance sheet date, while we
translate revenues and expenses using a weighted-average exchange rate for the period. We record these translation adjustments as a
component of accumulated other comprehensive loss on the Consolidated Balance Sheets. In addition, our U.S. operations incurred certain
expenditures denominated in Canadian dollars, and our Canadian operations incurred certain expenditures denominated in U.S. dollars. This
activity results in transaction gains and losses that arise from exchange rate fluctuations and are recorded as gains or losses in the
Consolidated Statements of Earnings. As of February 1, 2014, activities associated with the future store openings have not had a material
impact on our consolidated financial statements.
Reclassification
Prior to 2013, we presented bad debt expense associated with finance charges and fees as a part of selling, general and administrative
expenses. Beginning in the first quarter of 2013, we reclassified these amounts and now present them as a reduction of credit card revenue.
Historical results were also reclassified to match the current period presentation. These reclassifications did not impact net earnings, earnings
per share, financial position or cash flows.
See Note 16: Segment Reporting for additional changes in the way we view and measure our business and segment performance. None of
these changes impacted our consolidated financial statements.
Table of Contents
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts