Nordstrom 2015 Annual Report Download - page 43

Vendor Allowances
We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs
and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction
of the related costs 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 marked down or sold. Allowances for cooperative advertising programs and other expenses
are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Any allowances in excess of
actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of cost of sales. Vendor
allowances earned are as follows:
Fiscal year 2015 2014 2013
Cosmetic expenses $161 $140 $137
Purchase price adjustments 178 164 143
Cooperative advertising 109 102 103
Other 77 6
Total vendor allowances $455 $413 $389
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.
These costs do not include in-bound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling
costs of $428, $348 and $267 in 2015, 2014 and 2013 were included in selling, general and administrative expenses.
Stock-Based Compensation
We grant stock-based awards under our 2010 Equity Incentive Plan (‚2010 Planƒ), 2002 Nonemployee Director Stock Incentive Plan (‚2002
Planƒ) and Trunk Club Value Creation Plan (‚VCPƒ), and employees may purchase our stock at a discount under our Employee Stock
Purchase Plan (‚ESPPƒ). We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated
grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is
accelerated based upon achievement of age and years of service. The total compensation expense is reduced by estimated forfeitures
expected to occur over the vesting period of the awards.
We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. Stock-based compensation expense
related to the VCP is based on the grant date fair value of the payout scenario we believe is probable using the Black-Scholes valuation
model and is recognized on an accelerated basis due to performance criteria and graded vesting features of the plan. The fair value of
restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant.
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 is recognized
as income. Breakage income was $11, $8 and $9 in 2015, 2014 and 2013. To date, our breakage rate is approximately 3% of the amount
initially issued as gift cards. Gift card breakage income is included in selling, general and administrative expenses. We had outstanding gift
card liabilities of $327 and $286 at the end of 2015 and 2014, 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 and for operating loss and tax credit carryforwards.
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.
Table of Contents
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and per unit amounts
Nordstrom, Inc. and subsidiaries 43