Leases

12 Months Ended

Feb. 01, 2020

NOTE 2: LEASES

During the first quarter of 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 Consolidated Statement of Earnings, Consolidated Statement of Comprehensive Earnings, Consolidated Statement of Cash Flows or 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 Consolidated Balance Sheet.

•

Reclassification of deferred property incentives, net of $339 from ROU assets to other current liabilities and other liabilities on the 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 Consolidated Balance Sheet related to a failed sale-leaseback transaction.

The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom FLS, approximately 10 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. 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 require we pay certain 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, which is primarily included in occupancy costs, 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:



Fiscal year	2019
Operating Lease Cost		$278
Variable lease cost¹	105
Sublease income	(9		)
Total lease cost, net		$374

¹ Variable lease cost includes short-term lease cost, which was immaterial for the year ended February 1, 2020.

The following table summarizes future lease payments as of February 1, 2020:



Fiscal year	Operating Leases
2020		$333
2021	353
2022	327
2023	300
2024	252
Thereafter	1,136
Total lease payments	2,701

Less: amount representing interest	(582		)
Present value of net lease payments¹		$2,119

¹ Total lease payments exclude $12 of lease payments for operating leases that were signed but have not yet commenced.

The following table includes supplemental information:



Fiscal year	2019
Cash paid related to operating lease liabilities		$360
Operating lease interest	101
Operating lease liabilities arising upon adoption of the Lease Standard	2,224
Operating lease liabilities arising from the commencement of lease agreements	150
Cash received from developer reimbursements	79
Amortization of developer reimbursements	75

	February 1, 2020
Weighted-average remaining lease term	10 years
Weighted-average discount rate	4.7		%

Previous Lease Standard Disclosures

The following table summarizes rent expense before adoption of the Lease Standard:



Fiscal year	2018			2017
Minimum rent		$321			$318
Percentage rent	9			11
Property incentives	(79		)	(79		)
Total rent expense		$251			$250

The rent expense above does not include common area maintenance charges, real estate taxes and other executory costs, which were $138 in 2018 and $121 in 2017.

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