| Leases | NOTE 2: LEASES During the first quarter of fiscal 2019, we adopted the Lease Standard using the transition method provided in ASU 2018-11. As a result, reporting periods beginning in the first quarter of 2019 are presented under the Lease Standard while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840 — Leases . Adoption of the Lease Standard did not have a material impact on our Condensed Consolidated Statement of Earnings, Condensed Consolidated Statement of Comprehensive Earnings, Condensed Consolidated Statement of Cash Flows or Condensed Consolidated Statement of Shareholders’ Equity. The impact of adopting the Lease Standard resulted in the following on February 3, 2019: • Increase in total assets and total liabilities of $1,849 primarily due to recognizing ROU assets and operating lease liabilities for most leases previously classified as operating leases. • Reclassification of deferred property incentives, net of $ 568 to ROU assets on the Condensed Consolidated Balance Sheet. • Reclassification of deferred property incentives, net of $ 339 from ROU assets to other current liabilities and other liabilities on the Condensed Consolidated Balance Sheet for property incentives that exceed the associated ROU asset. Property incentives that exceed the associated ROU asset are primarily due to leases with low fixed lease costs that may also have variable lease costs that are excluded from the ROU asset. • Increase in beginning accumulated deficit of $ 25 primarily due to the net impact of removing a building and associated financial obligation from land, property and equipment and long-term debt, net on the Condensed Consolidated Balance Sheet related to a failed sale-leaseback transaction. Upon adoption of the Lease Standard, we record leases, which consist primarily of operating leases, on the Condensed Consolidated Balance Sheet as operating lease ROU assets, current portion of operating lease liabilities and non-current operating lease liabilities. Operating lease liabilities are initially recognized based on the net present value of the fixed portion of our lease and common area maintenance payments from lease commencement through the lease term. To calculate the net present value, we apply an incremental borrowing rate. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that we would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use quoted interest rates obtained from financial institutions as an input to derive our incremental borrowing rate as the discount rate for the lease. We recognize ROU assets based on operating lease liabilities reduced by property incentives. ROU assets are tested for impairment in the same manner as long-lived assets. We elected the following practical expedients permitted under the Lease Standard: • Upon adoption, we did not reassess our prior conclusions about lease identification, lease classification or initial direct costs, and we did not use hindsight for leases existing at adoption date. • We do not record leases with an initial term of 12 months or less on the balance sheet but continue to expense them on a straight-line basis over the lease term. • We combine lease and non-lease components. We lease the land, buildings, or land and buildings for many of our stores, office facilities and Supply Chain Network facilities. We also lease equipment and have service contracts including transportation agreements and warehouse agreements where we control identified assets such as vehicles, warehouse space and equipment and therefore represent embedded leases under the Lease Standard. The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom FLS, 10 to 15 years for Nordstrom Rack stores and 5 to 20 years for office facilities and Supply Chain Network facilities. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period up to 15 years for Nordstrom FLS and 10 years for Nordstrom Rack stores. At the commencement of a lease, we generally include only the initial lease term as we have determined that options to extend are not reasonably certain to occur. The exercise of lease renewal options is generally at our sole discretion. At the renewal of an expiring lease, we reassess our options in the agreement and include all reasonably certain extensions in the measurement of our lease term. Most of our leases also provide for payment of operating expenses, such as common area maintenance charges, real estate taxes and other executory costs, the fixed portion of which is included in Operating Lease Cost. We recognize Operating Lease Cost on a straight-line basis over the lease term. Variable lease cost includes payments for variable common area maintenance charges and additional payments based on a percentage of sales, which are recognized when probable. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The following table summarizes the components of lease cost for 2019: Quarter Ended May 4, 2019 Operating Lease Cost Store locations (net of developer reimbursement amortization of $19) $55 Other 1 15 Variable lease cost 2 12 Sublease income (2 ) Total lease cost $80 1 Other includes Supply Chain Network facilities, office facilities and equipment. 2 Variable lease cost includes short-term lease cost, which was immaterial for quarter ended May 4, 2019. The following table summarizes future lease payments as of May 4, 2019: Fiscal year Operating Leases 2019 (excluding the three months ended May 4, 2019) $249 2020 353 2021 335 2022 310 2023 283 2024 238 Thereafter 1,040 Total lease payments 2,808 Less: amount representing interest (620 ) Present value of net lease payments 1 $2,188 1 Total lease payments exclude $ 5 of lease payments for an operating lease that was signed but has not yet commenced. The following table includes supplemental information: Quarter Ended May 4, 2019 Cash paid related to operating lease liabilities $86 Operating lease liabilities arising from obtaining ROU assets 2,248 Cash received from developer reimbursements 26 Weighted-average remaining lease term 10 years Weighted-average discount rate 4.7 % Previous Lease Standard Disclosures Before fiscal year 2019, we recognized minimum rent expense, net of developer reimbursements, on a straight-line basis over the minimum lease term from the time we controlled the leased property. For scheduled rent escalation clauses during the lease terms, we recorded minimum rent expense on a straight-line basis over the terms of the leases, with the adjustments accrued as current and non-current deferred rent and included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheet. Contingent rental payments, typically based on a percentage of sales, were recognized in rent expense when payment of the contingent rent was probable. The following table summarizes rent expense for the first quarter of 2018 , before adoption of the Lease Standard: Quarter Ended May 5, 2018 Minimum rent: Store locations $70 Other 1 11 Percentage rent 2 Property incentives (21 ) Total rent expense $62 1 Other includes Supply Chain Network facilities, office facilities and equipment. The rent expense above does not include common area maintenance charges, real estate taxes and other executory costs, which were $ 37 for the first quarter of 2018 . The following table summarizes future minimum lease payments as of February 2, 2019, before adoption of the Lease Standard: Fiscal year Operating Leases 2019 $322 2020 313 2021 294 2022 271 2023 249 Thereafter 1,160 Total minimum lease payments $2,609 |
