Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Securitization of Accounts Receivable
Prior to May 2007, our private label card receivables were held in a trust, which could issue third-party debt that was secured by the private label
receivables. The private label program was treated as ‘on-balance sheet,’ with the receivables, net of bad debt allowance, and debt recorded on our
consolidated balance sheet; the finance charge income recorded in credit card revenues; and the bad debt expense recorded in credit segment
selling, general and administrative expenses.
The Nordstrom VISA credit card receivables were held in a separate trust (the VISA Trust), which could issue third-party debt that was secured by the
Nordstrom VISA credit card receivables. The Nordstrom VISA credit card program was treated as ‘off-balance sheet’ prior to May 2007. We recorded
the fair value of our interest in the VISA Trust on our consolidated balance sheet, gains on the sale of receivables to the VISA Trust and our share of
the VISA Trust’s finance income in earnings on investment in asset-backed securities, net.
On May 1, 2007, we converted the Nordstrom private label cards and Nordstrom VISA credit card programs into one securitization program, which is
accounted for as a secured borrowing (on-balance sheet). When we combined the securitization programs, our investment in asset-backed
securities, which was accounted for as available-for-sale securities, was eliminated and we reacquired all of the Nordstrom VISA credit card
receivables previously held off-balance sheet. Nordstrom VISA credit card receivables are now recorded at the outstanding balance, net of an
allowance for doubtful accounts, on our consolidated balance sheet.
The following table summarizes certain income, expenses and cash flows received from and paid to the VISA Trust prior to the May 2007 transaction:
Period
Principal collections reinvested in new receivables
Gains on sales of receivables
Income earned on beneficial interests
Cash flows (used in) provided by beneficial interests:
Investment in asset-backed securities
Servicing fees
3 months ended
May 1, 2007
$819
3
21
(457)
2
Net credit losses were $9 in 2007.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, using the retail method (weighted average cost).
Land, Buildings and Equipment
Land is recorded at historical cost, while buildings and equipment are recorded at cost less accumulated depreciation. Capitalized software includes
the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related
to the software project.
We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in
progress to prepare the asset for its intended use, and actual interest costs are being incurred.
Depreciation is computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows:
Asset
Buildings and improvements
Store fixtures and equipment
Leasehold improvements
Capitalized software
Life (in years)
5–40
3–15
Shorter of initial lease term or asset life
3–7
Leasehold improvements made at the inception of the lease are amortized over the shorter of the asset life or the initial lease term. Leasehold
improvements made during the lease term are amortized over the shorter of the asset life or the remaining lease term. Lease terms include the
fixed, non-cancelable term of a lease, plus any renewal periods determined to be reasonably assured.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired, and is not subject to amortization.
Nordstrom, Inc. and subsidiaries
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