EX-13.1 3 v71301ex13-1.txt EXHIBIT 13.1 1 EXHIBIT 13.1 Financial Highlights Dollars in thousands except per share amounts --------------------------------------------------------------------------------
Fiscal Year 2000 1999 % Change -------------------------------------------------------------------------------- Net sales $5,528,537 $5,149,266 7.4 Earnings before income taxes 167,018 332,057 (49.7) Net earnings 101,918 202,557 (49.7) Basic earnings per share 0.78 1.47 (46.9) Diluted earnings per share 0.78 1.46 (46.6) Dividends paid per share 0.35 0.32 9.4
Stock Prices
-------------------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------------------- Fiscal Year high low high low First Quarter 34.50 18.25 44.81 34.63 Second Quarter 30.00 16.56 39.38 30.38 Third Quarter 19.50 14.19 33.13 23.13 Fourth Quarter 21.00 14.88 28.00 21.31
Nordstrom, Inc. common stock is traded on the New York Stock Exchange NYSE Symbol-JWN. Graph - Net Sales The vertical bar graph compares net sales for the past ten years. Beginning with the oldest fiscal year on the left, net sales (dollars are in millions) were as follows: 1991-$3,175; 1992-$3,416; 1993-$3,591; 1994-$3,896; 1995-$4,114; 1996-$4,458; 1997-$4,865; 1998-$5,049; 1999-$5,149; 2000-$5,529; Graph - Comparable Store Sales The vertical bar graph compares comparable store sales for the past ten years. Beginning with the oldest fiscal year on the left, Comparable Store Sales were as follows: 1991-1.4%; 1992-1.4%; 1993-2.7%; 1994-4.4%; 1995-(0.7%); 1996-0.6%; 1997-4.0%; 1998-(2.7%); 1999-(1.1%); 2000-0.3%; Graph - Total Square Footage The vertical bar graph compares total square footage for the past ten years. Beginning with the oldest fiscal year on the left, total square footage (in thousands) were as follows: 1991-8,590; 1992-9,224; 1993-9,282; 1994-9,998; 1995-10,713; 1996-11,754; 1997-12,614; 1998-13,593; 1999-14,487; 2000-16,056; Graph - Diluted Earnings Per Share The vertical bar graph compares diluted earnings per share for the past ten years. Beginning with the oldest fiscal year on the left, diluted earnings per share were as follows: 1991-$0.82; 1992-$0.82; 1993-$0.86; 1994-$1.23; 1995-$1.00; 1996-$0.90; 1997-$1.20; 1998-$1.41; 1999-$1.46; 2000-$0.78; 2 Management's Discussion and Analysis The following discussion and analysis reviews the past three years and provides additional information on future expectations and trends. Some of the information in this annual report, including anticipated store openings and planned capital expenditures, are forward-looking statements, which are subject to risks and uncertainties. Actual future results and trends may differ materially depending upon a variety of factors, including, but not limited to, the Company's ability to predict fashion trends and consumer apparel buying patterns, the Company's ability to maintain and control proper inventory levels, the Company's ability to control costs and expenses, trends in personal bankruptcies and bad debt write-offs, employee relations, adverse weather conditions and other hazards of nature such as earthquakes and floods, the Company's ability to continue its expansion plans, and the impact of ongoing competitive market factors. This discussion and analysis should be read in conjunction with the basic consolidated financial statements and the Ten-Year Statistical Summary. Overview During 2000 (the fiscal year ended January 31, 2001), Nordstrom, Inc. and its subsidiaries (collectively, the "Company") achieved increases in net sales compared to the prior year, but also incurred higher costs in several expense categories. Other factors contributing to lower overall profitability were non-recurring charges related to the write-off of an investment in an Internet grocery and consumer goods delivery company (approximately $33 million pre-tax), the write-off of certain abandoned and impaired information technology projects (approximately $10 million pre-tax) and the incurrence of certain severance and other costs related to a change in management (approximately $13 million pre-tax). During 2000, the Company opened 6 full-line stores in Atlanta, Georgia; Frisco, Texas; Broomfield, Colorado; Roseville, California; Chicago, Illinois; and Boca Raton, Florida. The Company also opened 10 Nordstrom Rack stores in Atlanta, Georgia; Hurst, Texas; Plano, Texas; Glendale, California; Troy, Michigan; Honolulu, Hawaii; Spokane, Washington; Oak Brook, Illinois; Scottsdale, Arizona; and Chandler, Arizona. As a result of the acquisition of Faconnable, S.A. in October 2000, the Company also operates 20 Faconnable boutiques located primarily in Europe. Results of Operations Net Sales The Company achieved a 7.4% increase in sales in 2000 as compared to 1999 (the fiscal year ended January 31, 2000). Certain components of the percentage change in sales by year are as follows:
Fiscal Year 2000 1999 1998 -------------------------------------------------------------------------------- Sales in comparable stores 0.3 (1.1%) (2.7%) NORDSTROM.com 32.2% 9.2% 35.5% Total increase 7.4% 2.0% 3.8%
Comparable store sales (sales in stores open at least one full fiscal year at the beginning of the fiscal year) were essentially flat in 2000, with increases in shoes, cosmetics and accessories being offset primarily by decreases in women's apparel. The Company believes the decreases in women's apparel are primarily attributable to a change in the merchandise mix in the women's apparel areas, which did not result in sales increases as planned. In 1999, comparable store sales decreased primarily due to missed fashion product offering opportunities in the women's, kids' and juniors' apparel divisions. The decrease in comparable store sales in 1998 over 1997 was primarily attributable to the reduction of inventory levels, which resulted in lower, but more profitable, sales. The Company has continued to expand its store base over the past several years with store openings. New stores are generally not as productive as older, more established stores, because the customer base and traffic patterns of each new location are developed over time. 14 3 NORDSTROM.com continued to contribute to the Company's sales growth with revenues of $311 million, $235 million and $215 million in 2000, 1999 and 1998, respectively. The Company's average price point has varied slightly over the past three years, due primarily to changes in the merchandise mix. Inflation in overall merchandise costs and prices has not been significant during the past three years. Gross Profit Gross profit (net sales less cost of sales and related buying and occupancy expenses) as a percentage of net sales declined to 34.0% in 2000, as compared to 34.8% in 1999, and 33.8% in 1998. The decline in 2000 is attributable to lower than anticipated sales, which also resulted in increased markdowns in order to liquidate excess inventory. The 1999 improvement reflects changes in the Company's buying processes and vendor programs, which was partially offset by increased occupancy costs related to new stores and remodeling projects. Selling, General and Administrative Selling, general and administrative expenses as a percentage of net sales were 31.6% in 2000, 29.6% in 1999, and 28.3% in 1998. The increase in 2000, as a percentage of net sales, includes third quarter charges of approximately $10 million (pre-tax) related to the write-off of abandoned and impaired information technology projects, and approximately $13 million (pre-tax) of employee severance and other costs related to a change in management. In addition, increased costs in the areas of selling, credit, sales promotion, and information services accounted for the majority of the increase in the expense. The 1999 increase, as a percentage of net sales, was partially due to a charge of approximately $10 million (pre-tax) primarily associated with the restructuring of the Company's information technology services area in order to improve its efficiency and effectiveness. The Company also experienced substantially increased operating expenses of approximately $23 million, associated with the increased sales activity of NORDSTROM.com and NORDSTROMSHOES.com. These increases were partially offset by lower bad debt expense due to the improved credit quality of the Company's credit card receivables. Graph - Percentage of 2000 Sales by Merchandise Category The pie chart shows the percentage of 2000 sales by merchandise category. Clockwise; Women's Apparel, 35%; Women's Accessories, 21%; Shoes, 19%; Men's Apparel and Furnishings, 18%; Children's Apparel and Accessories, 4%; Other, 3%; 15 4 Interest Expense, Net Interest expense, net increased 24.4% in 2000 primarily due to higher average borrowings to finance capital expenditures, the purchase of Faconnable, S.A. and the repurchase of shares. In 1999, interest expense, net increased 7% as a result of higher average borrowings to finance share repurchases. The Company repurchased 3.9 million and 10.2 million shares at an aggregate cost of approximately $86 million and $303 million in 2000 and 1999, respectively. Service Charge Income and Other, Net Service charge income and other, net primarily represents income from the Company's credit card operations, offset by miscellaneous expenses. Service charge income and other, net increased in 2000 due to higher service charge and late fee income associated with increases in credit sales and the number of credit accounts, and higher accounts receivable securitization gains. Service charge income and other, net was flat in 1999. Write-Off of Investment The Company held common shares in Streamline.com, Inc., an Internet grocery and consumer goods delivery company, at a cost of approximately $33 million. Streamline ceased its operations effective November 2000. During the year, the Company wrote off the entire investment in Streamline. Net Earnings Net earnings for 2000 were lower than in 1999 due primarily to the write-off of the Streamline investment ($20 million after-tax, $.15 per share), non-recurring charges related to the write-down of abandoned and impaired information and technology projects ($6 million after-tax, $.05 per share), and employee severance and other costs ($8 million after- tax, $.06 per share). Net earnings, excluding non-recurring charges would have been $136 million and $209 million in 2000 and 1999, respectively. In addition, the Company experienced higher selling, general and administrative expenses, partially offset by higher service charge income. Net earnings for 1999 were slightly lower than 1998 as the Company's sales and gross margin improvements were offset by increases in selling, general and administrative expenses. Liquidity and Capital Resources The Company finances its working capital needs, capital expenditures, the purchase of Faconnable, and share repurchase activity with cash provided by operations and borrowings. For the fiscal year ended January 31, 2001, net cash provided by operating activities decreased approximately $198 million compared to the fiscal year ended January 31, 2000, primarily due to lower net earnings and an increase in accounts receivable and merchandise inventories, partially offset by an increase in accounts payable. The increase in accounts payable was primarily due to a change in the Company's policy to pay its vendors based on receipt of goods rather than the invoice date. For the fiscal year ended January 31, 2000, net cash provided by operating activities decreased approximately $223 million compared to the fiscal year ended January 31, 1999, primarily due to the non- recurring benefit of prior year reductions in inventories and customer receivable account balances. For the fiscal year ended January 31, 2001, net cash used for investing activities increased approximately $119 million compared to the fiscal year ended January 31, 2000, primarily due to an increase in capital expenditures to fund new stores and remodels. Additionally, approximately $84 million of cash, net of cash acquired, was used to purchase Faconnable, S.A. ("Faconnable"), of Nice, France, a designer, wholesaler and retailer of high quality men's and women's apparel and accessories. The purchase also provides for contingent payments to the principals that may be paid in fiscal 2006 based on the performance of the subsidiary and the continued active involvement of the principals in Faconnable. The contingent payments will be expensed when it becomes probable that the performance targets will 16 5 be met. Assuming Faconnable performed at 100% of the plan, the contingent payments would be approximately $20 million. For the fiscal year ended January 31, 2000, net cash used in investing activities decreased approximately $68 million compared to the fiscal year ended January 31, 1999, primarily due to an increase in funds provided by developers to defray part of the Company's costs of constructing new stores. The Company's capital expenditures aggregated approximately $652 million over the last three years, net of developer reimbursements, principally to add new stores and facilities and to improve existing stores and facilities. Over 3.4 million square feet of retail store space has been added during this time period, representing an increase of 27% since January 31, 1998. The Company plans to spend approximately $1.2 billion, net of developer reimbursements, on capital projects during the next three years, including new stores, the remodeling of existing stores, new systems and technology, and other items. At January 31, 2001, approximately $428 million has been contractually committed for the construction of new stores, buildings or the remodel of existing stores. Although the Company has made commitments for stores opening in 2001 and beyond, it is possible that some stores may not be opened as scheduled because of delays inherent in the development process, or because of the termination of store site negotiations. In addition to its cash flow from operations, the Company has $500 million available under its revolving credit facility. Management believes that the Company's current financial strength and credit position enable it to maintain its existing stores and to take advantage of attractive growth opportunities. The Company has senior unsecured debt ratings of Baa1 and A- and commercial paper ratings of P-2 and A-2 from Moody's and Standard and Poor's, respectively. The Company owns a 49% interest in a limited partnership which is constructing a new corporate office building in which the Company will be the primary occupant. In accordance with Emerging Issues Task Force Issue No. 97-10 "The Effect of Lessee Involvement in Asset Construction", the Company is considered to be the owner of the property. Construction in progress includes capitalized costs related to this building of $57 million as of January 31, 2001. The Company is a guarantor of a $93 million Graph - Square Footage by Market Area at January 31, 2001 The pie chart shows the percentage of total square feet in each region and also gives the number of square feet for that region. Clockwise; Southwest, 30.4%, 4,878,000; Northwest, 18.3%, 2,942,000; Central States, 15.6%, 2,506,000; East Coast, 25.1%, 4,036,000; Rack, 9.8%, 1,568,000; Other, 0.8%, 126,000 17 6 credit facility of the limited partnership of which $53 million is outstanding as of January 31, 2001 and included in other long-term debt. The holders of the minority interest of Nordstrom.com, LLC, through their ownership interests in its managing member Nordstrom.com, Inc., have the right to sell their shares of Nordstrom.com, Inc. to the Company for the greater of the fair value of the shares or $80 million in the event that certain events do not occur. This put right will terminate without any further action by either party if the Company provides at least $100 million in additional funding to Nordstrom.com, Inc. prior to July 1, 2002 or if Nordstrom.com, Inc. completes an initial public offering of its common stock prior to September 1, 2002. If, and when, redemption of these securities becomes probable, the Company would begin to accrete the difference between the fair value of the securities and its redemption amount over the period remaining prior to redemption. The Board of Directors has authorized an aggregate of $1.1 billion of share repurchases since May 1995. As of January 31, 2001, the Company had repurchased approximately 39 million shares of its common stock for approximately $1.0 billion pursuant to these authorizations, and had remaining share repurchase authority of approximately $100 million. Share repurchases have been financed, in part, through additional borrowings, resulting in a planned increase in the Company's debt to capital ratio. At January 31, 2001, the Company's debt to capital ratio was .49. In October 2000, the Company issued $300 million of 8.95% Senior Notes due in 2005. These proceeds were used to reduce short-term indebtedness, to fund the acquisition of Faconnable, and for general corporate purposes. A substantial portion of the Company's total debt of $1.2 billion at January 31, 2001 finances the Company's credit card portfolio, which aggregated $716 million at that date. In January 1999, the Company issued $250 million of 5.625% Senior Notes due in 2009, the proceeds of which were used to repay short-term debt and for general corporate purposes. Recent Accounting Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and 138, requires the Company to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Adoption of this standard in the fiscal year beginning February 1, 2001, did not have a material impact on the Company's consolidated financial statements. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", a replacement of SFAS No. 125 with the same title. It revises the standards for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures, but otherwise retains most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers after March 31, 2001, with certain disclosures required for periods ending on or after December 31, 2000. Adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements. The Company adopted Emerging Issues Task Force Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs" ("EITF No. 00-10") in the fourth quarter of fiscal 2000. EITF No. 00-10 addresses the income statement classification for shipping and handling fees and costs. Adoption of this issue did not have a material impact on the Company's consolidated financial statements for the fiscal year ended January 31, 2001. In May 2000, the Emerging Issues Task Force reached a consensus on Issue No. 00-14 "Accounting for Certain Sales Incentives" ("EITF No. 00-14"). This EITF addresses the recognition, measurement and income statement classification for certain sales incentives. The Company's adoption of this EITF during the fourth quarter of fiscal 2000 did not have a material impact on the Company's consolidated financial statements for the fiscal year ended January 31, 2001. 18 7 Consolidated Statements of Earnings
Dollars in thousands except per share amounts -------------------------------------------------------------------------------------------------------------------------------- Year ended January 31, 2001 % of sales 2000 % of sales 1999 % of sales -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 5,528,537 100.0 $ 5,149,266 100.0 $ 5,049,182 100.0 Costs and expenses: Cost of sales and related buying and occupancy (3,649,516) (66.0) (3,359,760) (65.2) (3,344,945) (66.2) Gross profit 1,879,021 34.0 1,789,506 34.8 1,704,237 33.8 Selling, general and administrative (1,747,048) (31.6) (1,523,836) (29.6) (1,429,837) (28.3) Operating income 131,973 2.4 265,670 5.2 274,400 5.5 Interest expense, net (62,698) (1.1) (50,396) (1.0) (47,091) (0.9) Write-down of investment (32,857) (0.6) -- -- -- -- Service charge income and other, net 130,600 2.3 116,783 2.2 110,414 2.1 -------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 167,018 3.0 332,057 6.4 337,723 6.7 Income taxes (65,100) (1.2) (129,500) (2.5) (131,000) (2.6) -------------------------------------------------------------------------------------------------------------------------------- Net Earnings $ 101,918 1.8 $ 202,557 3.9 $ 206,723 4.1 -------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $0.78 $1.47 $1.41 Diluted earnings per share $0.78 $1.46 $1.41 Cash dividends paid per share $0.35 $0.32 $0.30
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 19 8 Consolidated Balance Sheets
Dollars in thousands ---------------------------------------------------------------------------------- January 31, 2001 2000 ---------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 25,259 $ 27,042 Short-term investment -- 25,527 Accounts receivable, net 721,953 616,989 Merchandise inventories 945,687 797,845 Prepaid income taxes and other 120,083 97,245 ---------------------------------------------------------------------------------- Total current assets 1,812,982 1,564,648 Land, buildings and equipment, net 1,599,938 1,429,492 Available-for-sale investment -- 35,251 Goodwill 39,495 -- Trademarks and other intangible assets 103,978 -- Other assets 52,110 32,690 ---------------------------------------------------------------------------------- Total assets $ 3,608,503 $ 3,062,081 ---------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Notes payable $ 83,060 $ 70,934 Accounts payable 466,476 390,688 Accrued salaries, wages and related benefits 234,833 211,308 Income taxes and other accruals 153,613 135,388 Current portion of long-term debt 12,586 58,191 ---------------------------------------------------------------------------------- Total current liabilities 950,568 866,509 Long-term debt 1,099,710 746,791 Deferred lease credits 275,252 194,995 Other liabilities 53,405 68,172 Shareholders' equity: Common stock, no par; 250,000,000 shares authorized; 133,797,757 and 132,279,988 shares issued and outstanding 330,394 247,559 Unearned stock compensation (3,740) (8,593) Retained earnings 900,090 929,616 Accumulated other comprehensive earnings 2,824 17,032 ---------------------------------------------------------------------------------- Total shareholders' equity 1,229,568 1,185,614 ---------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 3,608,503 $ 3,062,081 ----------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20 9 Consolidated Statements of Shareholders' Equity
Dollars in thousands except per share amounts ----------------------------------------------------------------------------------------------------------------------------------- Accum. Other Common Stock Unearned Retained Comprehensive Shares Amount Compensation Earnings Earnings Total ----------------------------------------------------------------------------------------------------------------------------------- Balance at February 1, 1998 152,518,104 $ 201,050 -- $ 1,257,900 -- $ 1,458,950 Net earnings -- -- -- 206,723 -- 206,723 Cash dividends paid ($.30 per share) -- -- -- (44,059) -- (44,059) Issuance of common stock 599,593 14,971 -- -- -- 14,971 Stock compensation 194,070 14,740 $(4,703) -- -- 10,037 Purchase and retirement of common stock (11,197,600) -- -- (346,077) -- (346,077) ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 31, 1999 142,114,167 230,761 (4,703) 1,074,487 -- 1,300,545 Net earnings -- -- -- 202,557 -- 202,557 Unrealized gain on investment -- -- -- -- $ 17,032 17,032 Comprehensive net earnings -- -- -- -- -- 219,589 Cash dividends paid ($.32 per share) -- -- -- (44,463) -- (44,463) Issuance of common stock 341,947 9,577 -- -- -- 9,577 Stock compensation 40,274 7,221 (3,890) -- -- 3,331 Purchase and retirement of common stock (10,216,400) -- -- (302,965) -- (302,965) ----------------------------------------------------------------------------------------------------------------------------------- Balance at January 31, 2000 132,279,988 247,559 (8,593) 929,616 17,032 1,185,614 Net earnings 101,918 -- 101,918 Other comprehensive earnings: Unrealized loss on investment during period, net of tax -- -- -- -- (23,461) (23,461) Reclassification of realized loss, net of tax -- -- -- -- 6,429 6,429 Foreign currency translation adjustment -- -- -- -- 2,824 2,824 Comprehensive net earnings -- -- -- -- -- 87,710 Cash dividends paid ($.35 per share) -- -- -- (45,935) -- (45,935) Issuance of common stock for: Stock option plans 181,910 4,039 -- -- -- 4,039 Employee stock purchase plan 165,842 2,211 -- -- -- 2,211 Business acquisition 5,074,000 77,696 -- -- -- 77,696 Stock compensation, net (14,075) (1,111) 4,853 -- -- 3,742 Purchase and retirement of common stock (3,889,908) -- -- (85,509) -- (85,509) ----------------------------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 31, 2001 133,797,757 $ 330,394 $(3,740) $ 900,090 $ 2,824 $ 1,229,568 -----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 21 10 Consolidated Statements of Cash Flows
Dollars in thousands ----------------------------------------------------------------------------------------------------------- Year ended January 31, 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- Operating Activities Net earnings $ 101,918 $ 202,557 $ 206,723 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of buildings and equipment 203,048 193,718 180,655 Amortization of goodwill 429 -- -- Amortization of trademark and other intangible assets 822 -- -- Amortization of deferred lease credits and other, net (12,349) (6,387) (3,501) Stock-based compensation expense 7,594 3,331 10,037 Write-down of investment 32,857 -- -- Change in operating assets and liabilities, net of effects from acquisition of business Accounts receivable, net (102,945) (29,854) 77,313 Merchandise inventories (128,744) (47,576) 75,776 Prepaid income taxes and other (3,889) (11,777) 15,357 Accounts payable 67,561 51,053 18,324 Accrued salaries, wages and related benefits 16,736 14,942 17,156 Income tax liabilities and other accruals 3,879 965 (4,828) Other liabilities (7,184) 7,154 8,296 ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 179,733 378,126 601,308 ----------------------------------------------------------------------------------------------------------- Investing Activities Capital expenditures (321,454) (305,052) (306,737) Additions to deferred lease credits 92,361 114,910 74,264 Payment for acquisition, net of cash acquired (83,828) -- -- Investments in unconsolidated affiliates -- -- (32,857) Other, net (5,602) (9,332) (2,251) ----------------------------------------------------------------------------------------------------------- Net cash used in investing activities (318,523) (199,474) (267,581) ----------------------------------------------------------------------------------------------------------- Financing Activities Increase (decrease) in notes payable 12,126 (7,849) (184,984) Proceeds from issuance of long-term debt 308,266 -- 544,165 Principal payments on long-term debt (58,191) (63,341) (101,106) Capital contribution to subsidiary from minority shareholders -- 16,000 -- Proceeds from issuance of common stock 6,250 9,577 14,971 Cash dividends paid (45,935) (44,463) (44,059) Purchase and retirement of common stock (85,509) (302,965) (346,077) ----------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 137,007 (393,041) (117,090) ----------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (1,783) (214,389) 216,637 Cash and cash equivalents at beginning of year 27,042 241,431 24,794 ----------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 25,259 $ 27,042 $ 241,431 -----------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 22 11 Notes to Consolidated Financial Statements Dollars in thousands except per share amounts Note 1: Summary of Significant Accounting Policies The Company: Nordstrom, Inc. is a fashion specialty retailer offering a wide selection of high-quality apparel, shoes and accessories for women, men and children, through 120 stores located in the United States, including 77 large specialty stores, 38 clearance stores, 3 Faconnable boutiques and 2 free-standing shoe stores. As a result of the acquisition of Faconnable, S.A. ("Faconnable") in October 2000 (Note 2), the Company also operates 20 Faconnable boutiques located primarily in Europe. Approximately 32% of the company's retail square footage is located in the state of California. The Company purchases a significant percentage of its merchandise from foreign countries, principally in the Far East. An event causing a disruption in imports from the Far East could have a material adverse impact on the Company's operations. In connection with the purchase of foreign merchandise, the Company has outstanding letters of credit totaling $62,051 at January 31, 2001. On November 1, 1999, the Company established a subsidiary to operate its Internet commerce and catalog businesses, Nordstrom.com LLC. The Company contributed certain assets and liabilities associated with its Internet commerce and catalog businesses, and $10,000 in cash. Venture funds associated with Benchmark Capital and Madrona Investment Group collectively contributed $16,000 in cash to the new entity. At January 31, 2001, the Company owns approximately 81.4% of Nordstrom.com LLC, with Benchmark Capital and Madrona Investment Group collectively holding the remaining minority interest. The minority interest holders have the right to sell their shares of Nordstrom.com LLC, through their ownership interests in its managing member Nordstrom.com, Inc., to the Company for the greater of the fair value of the shares or $80,000 in the event that certain events do not occur. This put right will terminate without any further action by either party if the Company provides at least $100,000 in additional funding to Nordstrom.com, Inc. prior to July 1, 2002 or if Nordstrom.com, Inc. completes an initial public offering of its common stock prior to September 1, 2002. If, and when, redemption of these securities becomes probable, the Company would begin to accrete the difference between the fair value of the securities and its redemption amount over the period remaining prior to redemption. Basis of Presentation: The consolidated financial statements include the accounts of Nordstrom, Inc. and its subsidiaries, the most significant of which are Nordstrom Credit, Inc., Nordstrom fsb (formerly known as Nordstrom National Credit Bank) and Nordstrom.com LLC for the entire fiscal year. In addition, the consolidated financial statements include the operating results of Faconnable from the date of acquisition (Note 2). All significant intercompany transactions and balances are eliminated in consolidation. The presentation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Revenue Recognition: The Company adopted Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" in the fiscal year ended January 31, 2000. Revenues are recorded net of estimated returns and exclude sales tax. Revenue is recorded at the point of sale for retail stores. Catalog and e-commerce sales are recorded upon delivery to the customer and include shipping revenue. Buying and Occupancy Costs: Buying costs consist primarily of salaries and expenses incurred by the Company's merchandise managers, buyers and private label product development group. Occupancy costs include rent, depreciation, property taxes and operating costs related to the Company's retail and distribution facilities. 23 12 Shipping and Handling Costs: The Company's shipping and handling costs include payments to third-party shippers and costs incurred to store, move and prepare merchandise for shipment. The costs are included in selling, general and administrative expenses. Advertising: Costs for newspaper, television, radio and other media are generally expensed as incurred. Direct response advertising costs, consisting primarily of catalog book production and printing costs, are capitalized and amortized over the expected life of the catalog, not to exceed six months. Net capitalized direct response advertising costs were $5,697 and $3,938 at January 31, 2001 and 2000, and are included in prepaid income taxes and other on the consolidated balance sheets. Total advertising expenses were $190,991, $160,957 and $145,841 in 2000, 1999 and 1998. Store Preopening Costs: Store opening and preopening costs are charged to expense when incurred. Cash Equivalents: The Company considers all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. Cash Management: The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at January 31, 2000 includes $7,605 of checks not yet presented for payment drawn in excess of cash balances. Investments: Short-term and available-for-sale investments consist of available-for-sale equity securities which are recorded at market value based on quoted market prices using the specific identification method. Unrealized gains and losses from changes in market value are reflected in accumulated other comprehensive earnings, net of related deferred taxes. Realized gains and losses and declines in value of the investments judged to be other than temporary, are included in net earnings. Customer Accounts Receivable: In accordance with industry practices, installments maturing in more than one year or deferred payment accounts receivable are included in current assets. Merchandise Inventories: Merchandise inventories are stated at the lower of cost (first-in, first-out basis) or market, using the retail method. Land, Buildings and Equipment: For buildings and equipment acquired prior to February 1, 1999, depreciation is computed using a combination of accelerated and straight-line methods. The straight-line method was adopted for all property placed into service after February 1, 1999 in order to better reflect the utilization of the assets over time. The effect of this change on net earnings for 1999 was not material. Lives used for calculating depreciation and amortization rates for the principal asset classifications are as follows: buildings, 5 to 40 years; store fixtures and equipment, 3 to 15 years; leasehold improvements, life of lease or applicable shorter period; software, 3 to 7 years. Capitalization of Interest: The interest-carrying costs of capital assets under development or construction are capitalized based on the Company's weighted average borrowing rate. Intangible Assets: Goodwill, trademarks and other intangible assets are being amortized over their estimated useful lives on a straight-line basis ranging from 10 to 35 years. Accumulated amortization of goodwill was $429 and of trademarks and other intangible assets was $822 at January 31, 2001. Asset Impairment: The Company reviews its intangibles and other long-lived assets annually to determine potential impairment. The Company estimates the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment charge would be recognized. Deferred Lease Credits: Deferred lease credits are amortized 24 13 on a straight-line basis primarily over the life of the applicable lease. Fair Value of Financial Instruments: The carrying amount of cash equivalents and notes payable approximates fair value because of the short maturity of these instruments. The fair value of the Company's investment in marketable equity securities is based upon the quoted market price and was approximately $60,778 at January 31, 2000. The fair value of long-term debt (including current maturities), using quoted market prices of the same or similar issues with the same remaining term to maturity, is approximately $1,031,000 and $715,500 at January 31, 2001 and 2000. Derivatives Policy: The Company limits its use of derivative financial instruments to the management of foreign currency and interest rate risks. The effect of these activities is not material to the Company's financial condition or results of operations. The Company has no material off-balance sheet credit risk, and the fair value of derivative financial instruments at January 31, 2001 and 2000 is not material. Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138, requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Adoption of this standard, in the fiscal year beginning February 1, 2001, did not have a material impact on the Company's consolidated financial statements. Recent Accounting Pronouncements: In July 2000, the Company adopted Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" ("FIN No. 44"), which provides guidance for certain issues that arose in applying Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Adoption of this Interpretation did not have a material impact on the Company's consolidated financial statements for the fiscal year ended January 31, 2001. In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), a replacement of SFAS No. 125 with the same title. It revises the standards for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures, but otherwise retains most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers after March 31, 2001. Adoption of the accounting provisions of this standard will not have a material impact on the Company's consolidated financial statements. The Company has complied with all SFAS No. 140 disclosure requirements. Reclassifications: Certain reclassifications of prior year and quarterly balances have been made for consistent presentation with the current year. Note 2: Acquisition On October 24, 2000, the Company acquired 100% of Faconnable, S.A., of Nice, France, a designer, wholesaler and retailer of high quality men's and women's apparel and accessories. The Company paid $87,685 in cash and issued 5,074,000 shares of common stock of the Company for a total consideration, including expenses, of $169,380. The acquisition is being accounted for under the purchase method of accounting, and, accordingly, Faconnable's results of operations have been included in the Company's results of operations since October 24, 2000. The purchase price has been allocated to Faconnable's assets and liabilities based on their estimated fair values as of the date of acquisition. The purchase also provides for contingent payments that may be paid in fiscal 2006 based on the performance of the subsidiary and the continued active involvement of the principals in Faconnable, S.A. The contingent payments will be recorded as compensation expense when it becomes probable that the performance targets will be met. 25 14 The following unaudited pro forma information presents the results of the Company's operations assuming the Faconnable acquisition occurred at the beginning of each period presented:
Year ended January 31, 2001 2000 -------------------------------------------------------------------------------- Net sales $5,575,000 $5,205,000 Net earnings 101,000 199,000 Basic earnings per share 0.75 1.39 Diluted earnings per share $ 0.75 $ 1.39 --------------------------------------------------------------------------------
The pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the beginning of each period presented, nor is it necessarily indicative of future operating results. A summary of the Faconnable acquisition is as follows: ------------------------------------------------------------------------------- Fair value of assets acquired $ 48,677 Intangible assets recorded 144,724 Liabilities assumed (24,021) ------------------------------------------------------------------------------- Total consideration $ 169,380 -------------------------------------------------------------------------------
Note 3: Employee Benefits The Company provides a profit sharing plan for employees. The plan is fully funded by the Company and is non-contributory except for voluntary employee contributions made under Section 401(k) of the Internal Revenue Code. Under this provision of the plan, the Company provides matching contributions up to a stipulated percentage of employee contributions. Prior to 2000, the Company's contributions to the profit sharing portion of the plan vested over a seven-year period. Effective January 1, 2000, the Company's subsequent contributions to the plan vest immediately. The Company's contribution is established each year by the Board of Directors and totaled $31,330, $47,500 and $50,000 in 2000, 1999 and 1998. Note 4: Interest Expense, Net The components of interest expense, net are as follows:
Year ended January 31, 2001 2000 1999 ------------------------------------------------------------------------------- Short-term debt $ 12,682 $ 2,584 $ 10,707 Long-term debt 58,988 56,831 43,601 ------------------------------------------------------------------------------- Total interest expense 71,670 59,415 54,308 Less: Interest income (1,330) (3,521) (1,883) Capitalized interest (7,642) (5,498) (5,334) ------------------------------------------------------------------------------- Interest expense, net $ 62,698 $ 50,396 $ 47,091 -------------------------------------------------------------------------------
Note 5: Income Taxes Income taxes consist of the following:
Year ended January 31, 2001 2000 1999 ------------------------------------------------------------------------------- Current income taxes: Federal $ 79,778 $ 130,524 $ 113,270 State and local 11,591 21,835 19,672 ------------------------------------------------------------------------------- Total current income taxes 91,369 152,359 132,942 Deferred income taxes: Current (11,215) (18,367) (1,357) Non-current (15,054) (4,492) (585) ------------------------------------------------------------------------------- Total deferred income taxes (26,269) (22,859) (1,942) ------------------------------------------------------------------------------- Total income taxes $ 65,100 $ 129,500 $ 131,000 -------------------------------------------------------------------------------
A reconciliation of the statutory Federal income tax rate to the effective tax rate is as follows:
Year ended January 31, 2001 2000 1999 ------------------------------------------------------------------------------ Statutory rate 35.00% 35.00% 35.00% State and local income taxes, net of Federal income taxes 3.93 4.06 4.03 Other, net .05 (.06) (0.24) ------------------------------------------------------------------------------ Effective tax rate 38.98% 39.00% 38.79% ------------------------------------------------------------------------------
26 15 Deferred income tax assets and liabilities result from temporary differences in the timing of recognition of revenue and expenses for tax and financial reporting purposes. Significant deferred tax assets and liabilities, by nature of the temporary differences giving rise thereto, are as follows:
January 31, 2001 2000 ------------------------------------------------------------------------------- Accrued expenses $ 28,658 $ 29,276 Compensation and benefits accruals 43,803 35,651 Merchandise inventories 26,290 24,461 Realized loss on investment 12,751 -- Other 23,098 15,595 ------------------------------------------------------------------------------- Total deferred tax assets 134,600 104,983 ------------------------------------------------------------------------------- Land, buildings and equipment basis and depreciation differences (25,678) (22,982) Employee benefits (10,937) (11,008) Unrealized gain on investment -- (10,889) Other (3,748) (3,025) ------------------------------------------------------------------------------- Total deferred tax liabilities (40,363) (47,904) ------------------------------------------------------------------------------- Net deferred tax assets $ 94,237 $ 57,079 -------------------------------------------------------------------------------
As of January 31, 2001, the Company has $34,357 of capital loss carryforwards available to be utilized within five years to reduce future capital gain income. No valuation allowance has been provided because management believes it is more likely than not that the full benefit of the carryforwards will be realized. Note 6: Earnings Per Share In accordance with SFAS No. 128, "Earnings per Share," basic earnings per share is computed on the basis of the weighted average number of common shares outstanding during the year. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding during the year plus dilutive common stock equivalents (primarily stock options and restricted stock). Options with an exercise price greater than the average market price were not included in the computation of diluted earnings per share. These options totaled 7,409,387, 2,798,966 and 1,146,113 shares in 2000, 1999 and 1998.
Year ended January 31, 2001 2000 1999 -------------------------------------------------------------------------------- Net earnings $ 101,918 $ 202,557 $ 206,723 -------------------------------------------------------------------------------- Basic shares 131,012,412 137,814,589 146,241,091 -------------------------------------------------------------------------------- Basic earnings per share $ 0.78 $ 1.47 $ 1.41 -------------------------------------------------------------------------------- Dilutive effect of stock options and restricted stock 100,673 610,255 617,180 -------------------------------------------------------------------------------- Diluted shares 131,113,085 138,424,844 146,858,271 -------------------------------------------------------------------------------- Diluted earnings per share $ 0.78 $ 1.46 $ 1.41 --------------------------------------------------------------------------------
Note 7: Investment In September 1998, the Company purchased non-voting convertible preferred stock in Streamline.com, Inc., an Internet grocery and consumer goods delivery company, for total consideration of $22,857. In June 1999, Streamline completed an initial public offering of common stock. Upon completion of the offering, the Company's investment was converted to common stock, which has been categorized as available-for-sale. In January 2000, Streamline merged with Beacon Home Direct, Inc., a privately-held company, in which the Company had previously purchased preferred stock for total consideration of $10,000. Streamline ceased its operations effective November 22, 2000, due to failure to obtain additional capital to fund its operations. During 2000, the Company wrote off its entire 27 16 investment in Streamline, for a total pre-tax loss on the investment of $32,857. Note 8: Accounts Receivable The components of accounts receivable are as follows:
January 31, 2001 2000 ------------------------------------------------------------------------------- Customers $ 716,218 $ 611,858 Other 22,266 20,969 Allowance for doubtful accounts (16,531) (15,838) ------------------------------------------------------------------------------- Accounts receivable, net $ 721,953 $ 616,989 -------------------------------------------------------------------------------
Credit risk with respect to accounts receivable is concentrated in the geographic regions in which the Company operates stores. At January 31, 2001 and 2000, approximately 41% and 38% of the Company's receivables were obligations of customers residing in California. Concentration of the remaining receivables is considered to be limited due to their geographical dispersion. Bad debt expense totaled $20,368, $11,707 and $23,828 in 2000, 1999 and 1998. Other accounts receivable consists primarily of vendor debit balances and cosmetic rebates receivable. Nordstrom fsb, a wholly-owned subsidiary of the Company, issues both a proprietary and VISA credit card. On an on-going basis, the Company transfers substantially all of its VISA receivables to a master trust. The Company holds a Class B certificate, representing an undivided interest in the trust, which is subordinate to a Class A certificate held by a third party. The Company also owns the remaining undivided interests in the trust not represented by the Class A and Class B certificates (the "Retained Interest"). The Company's investment in the Class B certificate totals $11,000 and $9,900 at January 31, 2001 and 2000, and is included in customer accounts receivable. The Company recognizes gains or losses on its securitization of VISA receivables based on the historical carrying amount of the receivables sold, allocated based on their relative fair values. The fair values of the assets sold and Retained Interest were based on the present value of estimated future cash flows that the Company will receive over the estimated life of the securitization. The future cash flows represent an estimate of the excess of finance charges and fees over the interest paid to the holders of the Class A and B certificates, credit losses and servicing fees. The estimates of future cash flow are based on the current performance trends of the receivable portfolio, which assumes a weighted-average life of 5 months for the receivable balances, anticipated credit losses of 5.99% of new receivables, and a discount rate of 6.50%. Proceeds from collections reinvested in previous credit card securitizations totaled $485,422 in 2000. Gains on the sale of receivables to the trust totaled $5,356 in 2000. Additionally, Nordstrom fsb services the receivables in the trust, and recorded servicing fees of $8,564 in 2000. Interest income earned on the Class B certificate and other cash flows received from the Retained Interest totaled $10,060 in 2000, and is included in service charge income and other on the consolidated statements of earnings. The Company also recognizes gains and losses on the fair value of the Retained Interest. The fair value of the Retained Interest is $42,052 and $32,567 at January 31, 2001 and 2000, and is included in customer accounts receivable. Assumptions used to measure future cash flows are based on the current performance trends of the receivable portfolio and include a weighted-average life of the receivables of 5 months, anticipated credit losses of 5.99% of new receivables, and a discount rate of 6.50%. If interest rates were to increase by 10% or credit losses were to increase by 10%, the effect on the Retained Interest is a decrease in fair value of approximately $339 or $371, respectively. A 20% increase in interest rates or a 20% increase in default rates would impact the Retained Interest by decreasing the fair value by $678 or $743, respectively. The total principal balance of the VISA receivables is 28 17 $251,109 as of January 31, 2001. Credit losses and delinquencies of these receivables are $12,955 and $7,471 for the year ended January 31, 2001. The following table illustrates historical and future default projections using net credit losses as a percentage of average outstanding receivables in comparison to actual performance:
Year Ended January 31, 2001 2000 1999 ------------------------------------------------------------------------------- Original projection 5.99% 5.39% 6.94% Actual N/A% 5.46% 6.09% -------------------------------------------------------------------------------
Pursuant to the terms of operative documents of the trust, in certain events the Company may be required to fund certain amounts pursuant to a recourse obligation for credit losses. Based on current cash flow projections, the Company does not believe any additional funding will be required. Note 9: Land, Buildings and Equipment Land, buildings and equipment consist of the following (at cost):
JANUARY 31, 2001 2000 ------------------------------------------------------------------------------- Land and land improvements $ 60,871 $ 59,237 Buildings 760,029 650,414 Leasehold improvements 903,925 870,821 Capitalized software 38,642 20,150 Store fixtures and equipment 1,172,914 1,037,936 ------------------------------------------------------------------------------- 2,936,381 2,638,558 Less accumulated depreciation and amortization (1,554,081) (1,370,726) ------------------------------------------------------------------------------- 1,382,300 1,267,832 Construction in progress 217,638 161,660 ------------------------------------------------------------------------------- Land, buildings and equipment, net $ 1,599,938 $ 1,429,492 -------------------------------------------------------------------------------
At January 31, 2001, the net book value of property located in California is approximately $308,000. The Company carries earthquake insurance in California with a $50,000 deductible. At January 31, 2001, the Company has contractual commitments of approximately $428,000 for the construction of new stores or remodeling of existing stores. Note 10: Notes Payable A summary of notes payable is as follows:
Year Ended January 31, 2001 2000 1999 ----------------------------------------------------------------------------- Average daily short- term borrowings $192,392 $ 45,030 $195,596 Maximum amount outstanding 360,480 178,533 385,734 Weighted average interest rate: During the year 6.6% 5.8% 5.5% At year-end 6.4% 6.0% 5.2%
At January 31, 2001, the Company has an unsecured line of credit with a group of commercial banks totaling $500,000 which is available as liquidity support for the Company's commercial paper program, and expires in July 2002. The line of credit agreement contains restrictive covenants which, among other things, require the Company to maintain a certain minimum level of net worth and a coverage ratio (as defined) of no less than 2 to 1. The Company pays a commitment fee for the unused portion of the line based on the Company's debt rating. 29 18 Note 11: Long-Term Debt A summary of long-term debt is as follows:
January 31, 2001 2000 ------------------------------------------------------------------------------- Senior debentures, 6.95%, due 2028 $ 300,000 $ 300,000 Senior notes, 5.625%, due 2009 250,000 250,000 Senior notes, 8.950%, due 2005 300,000 -- Medium-term notes, payable by Nordstrom Credit, Inc., 7.25%-8.67%, due 2001-2002 87,750 145,350 Notes payable, of Nordstrom Credit, Inc., 6.7%, due 2005 100,000 100,000 Other 74,546 9,632 ------------------------------------------------------------------------------- Total long-term debt 1,112,296 804,982 Less current portion (12,586) (58,191) ------------------------------------------------------------------------------- Total due beyond one year $ 1,099,710 $ 746,791 -------------------------------------------------------------------------------
Aggregate principal payments on long-term debt are as follows: 2001-$12,586; 2002-$131,150; 2003-$1,157; 2004-$1,224; 2005-$400,208 and thereafter-$565,971. The Company owns a 49% interest in a limited partnership which is constructing a new corporate office building in which the Company will be the primary occupant. In accordance with Emerging Issues Task Force Issue No. 97-10 "The Effect of Lessee Involvement in Asset Construction", the Company is considered to be the owner of the property. Construction in progress includes capitalized costs related to this building of $57,270, which includes noncash amounts of $41,883, as of January 31, 2001. The corresponding finance obligation of $53,060 as of January 31, 2001 is included in other long-term debt. This finance obligation will be amortized as rental payments are made by the Company to the limited partnership over the life of permanent financing, expected to be 20-25 years. The amortization will begin once construction is complete, estimated to be July 2001. The Company is a guarantor of a $93,000 credit facility of the limited partnership. The credit facility provides for interest at either the LIBOR rate plus .75%, or the greater of the Federal Funds rate plus .5% and the prime rate, and matures in August 2002 (6.36% at January 31, 2001). Note 12: Leases The Company leases land, buildings and equipment under noncancelable lease agreements with expiration dates ranging from 2001 to 2080. Certain leases include renewal provisions at the Company's option. Most of the leases provide for additional rent payments based upon specific percentages of sales and require the Company to pay for certain common area maintenance and other costs. Future minimum lease payments as of January 31, 2001 are as follows: 2001-$59,434; 2002-$52,741; 2003-$51,305; 2004-$49,866; 2005-$47,396 and thereafter-$362,567. The following is a schedule of rent expense:
Year Ended January 31, 2001 2000 1999 -------------------------------------------------------------------------------- Minimum rent: Store locations $16,907 $18,794 $19,167 Offices, warehouses and equipment 21,070 19,926 19,208 Percentage rent: Store locations 9,241 7,441 8,603 -------------------------------------------------------------------------------- Total rent expense $47,218 $46,161 $46,978 --------------------------------------------------------------------------------
Note 13: Stock-Based Compensation Stock Option Plan The Company has a stock option plan (the "Plan") administered by the Compensation Committee of the Board of Directors (the "Committee") under which stock options, performance share units and restricted stock may be granted to key employees of the Company. Stock options are issued at the fair market value of the stock at the date of grant. Options vest over periods ranging from four to eight years, 30 19 and expire ten years after the date of grant. In addition to option grants, the Committee granted 355,072, 272,970 and 185,201 performance share units in 2000, 1999 and 1998, which will vest over three years if certain financial goals are attained. Employees may elect to receive common stock or cash upon vesting of these performance shares. The Committee also granted 30,069 and 180,000 shares of restricted stock in 1999 and 1998, with weighted average fair values of $32.09 and $27.75, respectively, which vest over five years. No monetary consideration is paid by employees who receive performance share units or restricted stock. At January 31, 2001, $2,741 was recorded in accrued salaries, wages and related benefits for these performance shares. In September 2000, the Company accelerated the vesting of 144,000 shares of restricted stock resulting in compensation expense of $3,039, and also cancelled 14,175 shares of restricted stock as a result of management changes. In May 2000, the Company's shareholders approved an 8,000,000 share increase in the number of shares of the Company's common stock authorized for issuance under its option plan. At January 31, 2001, 10,150,579 shares are reserved for future stock option grants pursuant to the Plan. The Company applies APB No. 25 and FIN No. 44 in measuring compensation costs under its stock-based compensation programs. Accordingly, no compensation cost has been recognized for stock options issued under the Plan. For performance share units, compensation expense is recorded over the performance period at the fair market value of the stock at the date when it is probable that such shares will be earned. For restricted stock, compensation expense is based on the market price on the date of grant and is recorded over the vesting period. Stock-based compensation expense for 2000, 1999 and 1998 was $7,594, $3,331 and $10,037, respectively. Stock option activity for the Plan was as follows:
Year Ended January 31, 2001 2000 1999 ---------------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 8,135,301 $ 28 5,893,632 $ 27 3,401,602 $ 21 Granted 2,470,169 21 2,926,368 31 3,252,217 31 Exercised (181,910) 20 (341,947) 23 (599,593) 18 Cancelled (1,550,218) 28 (342,752) 30 (160,594) 27 ---------------------------------------------------------------------------------------------------------------- Outstanding, end of year 8,873,342 $ 27 8,135,301 $ 28 5,893,632 $ 27 ---------------------------------------------------------------------------------------------------------------- Options exercisable at end of year 3,833,379 $ 26 3,145,393 $ 25 2,544,092 $ 23
The following table summarizes information about stock options outstanding for the Plan as of January 31, 2001:
Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Range of Contractual Exercise Exercise Exercise Prices Shares Life (Years) Price Shares Price ----------------------------------------------------------------------------------------------- $13 - $22 3,659,001 7 $20 1,446,456 $20 $23 - $32 2,855,785 7 27 1,590,360 28 $33 - $40 2,358,556 8 36 796,563 35 ----------------------------------------------------------------------------------------------- 8,873,342 7 $27 3,833,379 $26 -----------------------------------------------------------------------------------------------
31 20 Nordstrom.com Nordstrom.com has two stock option plans, the "1999 Plan" and the "2000 Plan". As of January 31, 2001 and 2000, under the 1999 and 2000 Plans, 1,767,565 and 2,590,000 options were outstanding at weighted-average exercise prices of $1.76 and $1.70 per share; of which 300,654 and 775,500 are exercisable at the weighted-average exercise price of $1.67 per share. Options were granted at exercise prices ranging from $1.67 to $1.92 per share. Pursuant to APB No. 25 and FIN No. 44, no compensation cost has been recognized related to the options under these Plans because the exercise price was equal to, or in excess of the fair value of Nordstrom.com stock on the date of grant as determined by the Board of Directors of Nordstrom.com. The options vest over a period of two and one-half to four years and must be exercised within ten years of the grant date. SFAS No. 123 If the Company had elected to follow the measurement provisions of SFAS No. 123 in accounting for its stock-based compensation programs, compensation expense would be recognized based on the fair value of the options or the shares at the date of grant. To estimate compensation expense which would be recognized under SFAS No. 123, the Company used the modified Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2000, 1999 and 1998, respectively: risk-free interest rates of 6.4%, 5.7% and 5.2%; expected volatility factors of .65, .61 and .46; expected dividend yield of 1% for all years; and expected lives of 5 years for all years. As for its ESPP, the Company used the following weighted-average assumptions for shares purchased by its employees in 2000: risk-free interest rate of 6.02%; expected volatility factor of .65; expected dividend yield of 1% and expected life of 0.5 years. The weighted-average fair value of options granted was $12, $17 and $14 for the years ended January 31, 2001, 2000 and 1999, respectively. For Nordstrom.com, the Company used the following weighted-average assumptions for options granted in 2000 and 1999, respectively: risk-free interest rates of 6.5% and 6.1%; expected volatility factors of .64 and .61; expected dividend yield of 0% for all years; and expected lives of 5 years for all years. The weighted-average fair value of options granted for Nordstrom.com was $1.04 and $.96 for the years ended January 31, 2001 and 2000, respectively. If SFAS No. 123 were used to account for the Company's stock-based compensation programs, the pro forma net earnings and earnings per share would be as follows:
Year Ended January 31, 2001 2000 1999 -------------------------------------------------------------------------------- Pro forma net earnings $ 89,433 $192,936 $201,499 Pro forma basic earnings per share $ 0.68 $ 1.40 $ 1.38 Pro forma diluted earnings per share $ 0.68 $ 1.39 $ 1.37
Employee Stock Purchase Plan In May 2000, the Company's shareholders approved the establishment of an Employee Stock Purchase Plan (the "ESPP") under which 3,500,000 shares of the Company's common stock are reserved for issuance to employees. The plan qualifies as a noncompensatory employee stock purchase plan under Section 423 of the Internal Revenue Code. Employees are eligible to participate through payroll deductions in amounts related to their base compensation. At the end of each offering period, shares are purchased by the participants at 85% of the lower of the fair market value at the beginning or the end of the offering period, usually six months. Under the ESPP, 165,842 shares were issued in 2000. As of January 31, 2001, payroll deductions totaling $2,602 were accrued for purchase of shares on March 31, 2001. 32 21 Note 14: Supplementary Cash Flow Information Supplementary cash flow information includes the following:
Year Ended January 31, 2001 2000 1999 -------------------------------------------------------------------------------- Cash paid during the year for: Interest (net of capitalized interest) $ 58,190 $ 54,195 $ 44,418 Income taxes 88,911 129,566 126,157
Note 15: Segment Reporting The Company has three reportable segments which have been identified based on differences in products and services offered and regulatory conditions: the Retail Stores, Credit Operations, and Catalog/Internet segments. The Retail Stores segment derives its sales from high-quality apparel, shoes and accessories for women, men and children, sold through retail store locations. It includes the Company's Product Development Group which coordinates the design and production of private label merchandise sold in the majority of the Company's retail stores. Credit Operations segment revenues consist primarily of finance charges earned through issuance of the Nordstrom proprietary and VISA credit cards. The Catalog/Internet segment generates revenues from direct mail catalogs and the Nordstrom.com and Nordstromshoes.com Web sites. The Company's senior management utilizes various measurements to assess segment performance and to allocate resources to segments. The measurements used to compute net earnings for reportable segments are consistent with those used to compute net earnings for the Company. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. Corporate and Other includes certain expenses and a portion of interest expense which are not allocated to the operating segments. Intersegment revenues primarily consist of fees for credit card services and are based on fees charged by third party cards. 33 22 The following tables set forth the information for the Company's reportable segments and a reconciliation to the consolidated totals:
Retail Credit Catalog/ Corporate Year ended January 31, 2001 Stores Operations Internet and Other Eliminations Total -------------------------------------------------------------------------------------------------------------------------- Net sales and revenues to external customers(b) $5,217,889 -- $ 310,648 -- -- $5,528,537 Service charge income -- $ 135,121 -- -- -- 135,121 Intersegment revenues 30,294 26,889 -- -- $ (57,183) -- Interest expense, net 795 29,267 (604) $ 33,240 -- 62,698 Depreciation and amortization 176,831 1,786 7,552 16,879 -- 203,048 Amortization of goodwill and other intangible assets 1,251 -- -- -- -- 1,251 Income tax expense (benefit) 165,150 13,140 -- (113,190) -- 65,100 Net earnings (loss) 258,416 20,557 (29,367) (147,688) -- 101,918 Assets(a)(b) 2,554,393 703,077 71,233 279,800 -- 3,608,503 Goodwill and other intangible assets 143,473 -- -- -- -- 143,473 Capital expenditures 286,941 3,095 5,187 26,231 -- 321,454
Retail Credit Catalog/ Corporate Year ended January 31, 2000 Stores Operations Internet and Other Eliminations Total -------------------------------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $4,914,293 -- $ 234,973 -- -- $5,149,266 Service charge income -- $ 125,727 -- -- -- 125,727 Intersegment revenues 20,285 25,963 -- -- $ (46,248) -- Interest expense, net 728 26,933 (167) $ 22,902 -- 50,396 Depreciation and amortization 170,765 1,424 6,313 15,216 -- 193,718 Income tax expense (benefit) 191,790 19,450 -- (81,740) -- 129,500 Net earnings (loss) 300,009 30,417 (35,685) (92,184) -- 202,557 Assets(a) 2,051,327 601,320 95,241 314,193 -- 3,062,081 Capital expenditures 263,352 2,792 5,206 33,702 -- 305,052
Retail Credit Catalog/ Corporate Year ended January 31, 1999 Stores Operations Internet and Other Eliminations Total -------------------------------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $4,834,049 -- $ 215,133 -- -- $5,049,182 Service charge income -- $ 123,201 -- -- -- 123,201 Intersegment revenues 23,748 26,736 -- -- $ (50,484) -- Interest expense, net -- 31,139 -- $ 16,488 (536) 47,091 Depreciation and amortization 166,099 806 4,613 9,137 -- 180,655 Income tax expense (benefit) 182,800 16,200 -- (68,000) -- 131,000 Net earnings (loss) 288,503 25,606 (17,681) (89,705) -- 206,723 Assets(a) 2,040,938 607,255 57,803 397,693 -- 3,103,689 Capital expenditures 273,906 2,191 4,121 26,519 -- 306,737
(a) Segment assets in Corporate and Other include unallocated assets in corporate headquarters, consisting primarily of land, buildings and equipment, and deferred tax assets. (b) Includes sales of foreign operations of $12,318 from October 24, 2000, the date of acquisition, and assets of $206,601 as of January 31, 2001. 34 23 Note 16: Contingent Liabilities The Company has been named in various lawsuits and intends to vigorously defend itself in those cases. The Company is not in a position at this time to quantify the amount or range of any possible losses related to those claims. While no assurance can be given as to the ultimate outcome of these lawsuits, based on preliminary investigations, management currently believes that resolving these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Cosmetics. The Company was originally named as a defendant along with other department store and specialty retailers in nine separate but virtually identical class action lawsuits filed in various Superior Courts of the State of California in May, June and July 1998 that have now been consolidated in Marin County state court. Plaintiffs' consolidated complaint alleged that the Company and other retailers agreed to charge identical prices for cosmetics and fragrances, not to discount such prices, and to urge manufacturers to refuse to sell to retailers who sell cosmetics and fragrances at discount prices, resulting in artificially-inflated retail prices paid by the class in violation of California state law. Defendants, including the Company, answered the consolidated complaint denying the allegations. The Company and the other retail defendants have produced documents and responded to plaintiffs' other discovery requests, including providing witnesses for depositions. Last year, plaintiffs filed an amended complaint naming a number of manufacturers of cosmetics and fragrances and two other retailers as additional defendants. Plaintiffs' amended complaint alleges that the retail price of the "prestige" cosmetics sold in department and specialty stores was collusively controlled by the retailer and manufacturer defendants in violation of the Cartwright Act and the California Unfair Competition Act by various means, including restricting the sale of prestige cosmetics to department stores only; agreeing that all department and specialty stores will sell such cosmetics at the manufacturer's suggested retail price ("MSRP"); controlling the advertising of cosmetics and Gift-With-Purchase programs; and the manufacturer defendants guaranteeing the retailer defendants a gross margin equal to 40% of MSRP and buying back any unsold cosmetics to prevent discounting from MSRP. Plaintiffs seek treble damages and restitution in an unspecified amount, attorneys' fees and prejudgment interest, on behalf of a class of all California residents who purchased cosmetics and fragrances for personal use from any of the defendants during the period four years prior to the filing of the amended complaint. Defendants, including the Company, have answered the amended complaint denying the allegations. Plaintiffs have submitted requests for production of documents to the manufacturer defendants, who are in the process of responding to these and plaintiffs' other discovery requests. Plaintiffs have not yet moved for class certification. Nine West. In early 1999, the Company was named as a defendant in a number of substantially identical lawsuits that were consolidated in Federal District Court in New York. In addition to Nine West, a leading manufacturer and retailer of men's, women's and children's non-athletic footwear and accessories, which was later acquired by Jones Apparel, other defendants included various department store and specialty retailers. Plaintiffs filed a consolidated complaint alleging that the retailer defendants agreed with Nine West and with each other on the minimum prices to be charged for Nine West shoes. Plaintiffs sought treble damages in an unspecified amount, attorneys' fees and prejudgment interest on behalf of a nationwide class of persons who purchased Nine West footwear from the defendants during the period January 1988 to February 1999. The Federal Trade Commission and the Attorneys General of the states of New York, Ohio, Texas and Florida then opened an investigation into the plaintiffs' allegations, and the Company and the other defendants submitted documents and information to those agencies. Last year, Nine 35 24 West/Jones Apparel, and the Federal Trade Commission and the states, separately reached tentative agreements on settlements and consent decrees under which all fifty states and certain possessions of the United States exercised their right under federal law and filed suit against Nine West, but not the Company, in Federal District Court in New York on behalf of a class of persons who purchased Nine West footwear during the period January 1, 1988 through July 31, 1999, alleging violations of federal and state antitrust and related laws. Pursuant to the settlement agreements, Nine West paid $34 million in damages to the states and submitted to certain injunctive relief. In December 2000, the Federal District Court in New York gave final approval to the settlement agreement between Nine West and the states, and the Federal Trade Commission approved its settlement and consent decree with Nine West. As a result, the court entered a final judgment dismissing the suit filed by the fifty states and certain possessions of the United States against Nine West. The period for appeal from the court's decision approving the settlement with the states has expired and that settlement and judgment have become final. Neither settlement admitted any violation of the law or liability by Nine West, the Company or any other defendant in the putative private class actions. Nor did the settlements require any payment by the Company. The plaintiffs who filed the putative private class actions against Nine West, the Company and other retailers agreed that the suit instituted by the states against Nine West took precedence over those actions, which were never certified as class actions, and that the final judgment dismissing the states' proceeding also conclusively and preclusively resolved all claims alleged in plaintiffs' consolidated complaint against the Company and the other defendants, which have likewise been dismissed. Credit Fees. The Company's subsidiary, Nordstrom fsb, has been named a defendant in a purported class action in the Federal District Court for the Eastern District of Pennsylvania. The case purports to be brought under the National Bank Act and the Arizona Consumer Loan Act of 1997. Plaintiff, a resident of Pennsylvania and a user of Nordstrom's credit through Nordstrom fsb, claims to represent all customers of Nordstrom who have been extended credit by Nordstrom fsb under revolving credit accounts for consumer purchases at Nordstrom stores. Plaintiff claims that Nordstrom fsb has been paid principal, interest and late fees in violation of said statutes on account of which plaintiff seeks recovery or forfeiture thereof. Nordstrom fsb has moved to dismiss the complaint and a hearing on that motion was held on February 21, 2001. The court has not yet ruled on that motion. Counsel to Nordstrom fsb has advised the Company that in their opinion, plaintiff's claim is meritless. Bar Code. The Company is named as one of 135 retailer defendants in a lawsuit filed in the United States District Court for the District of Arizona. Plaintiff claims that the Company and the other defendants have infringed certain patents held by it related to methods of scanning production markings (bar codes) placed on work pieces or merchandise. The complaint seeks from each defendant an award of damages for past infringement, to be trebled because of alleged willful and deliberate infringement. In February 2001, the Company was dismissed without prejudice pursuant to an agreement and stipulation intended to resolve a potential judicial conflict of interest. The agreement confirms that if the potential conflict is for any reason resolved, plaintiff can amend its complaint to add the Company as a defendant. Saipan. The Company has reached a settlement, which is of an immaterial amount, in its previously described lawsuits relating to its sourcing of clothing products from independent garment manufacturers in Saipan (Commonwealth of Northern Marina Islands). The settlement is subject to court approval. No hearing has been set to date. Other. The Company is also subject to other ordinary routine litigation incidental to its business and with respect to which no material liability is expected. 36 25 Note 17: Selected Quarterly Data (unaudited)
Year ended January 31, 2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total -------------------------------------------------------------------------------------------------------------------- Net sales $ 1,153,377 $ 1,457,035 $ 1,262,390 $ 1,655,735 $ 5,528,537 Gross profit 407,722 502,722 438,522 530,055 1,879,021 Write-down of investment -- (10,540) (20,655) (1,662) (32,857) Earnings before income taxes 53,689 74,501 (5,520) 44,348 167,018 Net earnings 32,789 45,401 (3,320) 27,048 101,918 Basic earnings per share .25 .35 (.03) .20 .78 Diluted earnings per share .25 .35 (.03) .20 .78 Dividends per share .08 .09 .09 .09 .35
Year ended January 31, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total -------------------------------------------------------------------------------------------------------------------- Net sales $ 1,043,981 $ 1,449,089 $ 1,116,219 $ 1,539,977 $ 5,149,266 Gross profit 355,785 505,741 398,375 529,605 1,789,506 Earnings before income taxes 51,688 116,189 55,033 109,147 332,057 Net earnings 31,538 70,839 33,633 66,547 202,557 Basic earnings per share .22 .51 .25 .50 1.47 Diluted earnings per share .22 .51 .25 .50 1.46 Dividends per share .08 .08 .08 .08 .32
37 26 Ten-Year Statistical Summary Dollars in thousands except square footage and per share amounts
Year ended January 31, 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------ Financial Position Customer accounts receivable, net $ 699,687 $ 596,020 $ 567,661 Merchandise inventories 945,687 797,845 750,269 Current assets 1,812,982 1,564,648 1,668,689 Current liabilities 950,568 866,509 794,490 Working capital 862,414 698,139 874,199 Working capital ratio 1.91 1.81 2.10 Land, buildings and equipment, net 1,599,938 1,429,492 1,378,006 Long-term debt, including current portion 1,112,296 804,982 868,234 Debt/capital ratio .4929 .4249 .4214 Shareholders' equity 1,229,568 1,185,614 1,300,545 Shares outstanding 133,797,757 132,279,988 142,114,167 Book value per share 9.19 8.96 9.15 Total assets 3,608,503 3,062,081 3,103,689 Operations Net sales 5,528,537 5,149,266 5,049,182 Gross profit 1,879,021 1,789,506 1,704,237 Selling, general and administrative expense (1,747,048) (1,523,836) (1,429,837) Operating income 131,973 265,670 274,400 Interest expense, net (62,698) (50,396) (47,091) Write-down of investment (32,857) -- -- Service charge income and other, net 130,600 116,783 110,414 Earnings before income taxes 167,018 332,057 337,723 Income taxes (65,100) (129,500) (131,000) Net earnings 101,918 202,557 206,723 Basic earnings per share .78 1.47 1.41 Diluted earnings per share .78 1.46 1.41 Dividends per share .35 .32 .30 Comparable store sales percentage increase (decrease) .3% (1.1%) (2.7%) Net earnings as a percent of net sales 1.84% 3.93% 4.09% Return on average shareholders' equity 8.44% 16.29% 14.98% Sales per square foot for Company-operated stores 342 350 362 Stores 140 104 97 Total square footage 16,056,000 14,487,000 13,593,000
38 27
1998 1997 1996 1995 1994 1993 1992 -------------- ----------------------------------------------------------------------------------------------------- $ 641,862 $ 693,123 $ 874,103 $ 655,715 $ 565,151 $ 584,379 $ 585,490 826,045 719,919 626,303 627,930 585,602 536,739 506,632 1,613,492 1,549,819 1,612,776 1,397,713 1,314,914 1,219,844 1,177,638 979,031 795,321 833,443 693,015 631,064 516,397 558,768 634,461 754,498 779,333 704,698 683,850 703,447 618,870 1.65 1.95 1.94 2.02 2.08 2.36 2.11 1,252,513 1,152,454 1,103,298 984,195 845,596 824,142 856,404 420,865 380,632 439,943 373,910 438,574 481,945 491,076 .3194 .2720 .3232 .2575 .2934 .3337 .4029 1,458,950 1,457,084 1,408,053 1,330,437 1,153,594 1,038,649 927,465 152,518,104 159,269,954 162,226,288 164,488,196 164,118,256 163,949,594 163,688,454 9.57 9.15 8.68 8.09 7.03 6.34 5.67 2,890,664 2,726,495 2,732,619 2,396,783 2,177,481 2,053,170 2,041,875 4,864,604 4,457,931 4,113,717 3,895,642 3,591,228 3,415,613 3,174,822 1,568,791 1,378,472 1,310,931 1,297,018 1,121,539 1,079,608 1,007,554 (1,338,235) (1,232,860) (1,136,069) (1,029,856) (940,708) (901,446) (831,005) 230,556 145,612 174,862 267,162 180,831 178,162 176,549 (34,250) (39,400) (39,295) (30,664) (37,646) (44,810) (49,106) -- -- -- -- -- -- -- 110,907 135,331 134,179 98,311 88,509 86,140 87,443 307,213 241,543 269,746 334,809 231,694 219,492 214,886 (121,000) (95,227) (106,190) (132,304) (90,804) (84,489) (80,527) 186,213 146,316 163,556 202,505 140,890 135,003 134,359 1.20 .90 1.00 1.23 .86 .82 .82 1.20 .90 1.00 1.23 .86 .82 .82 .265 .25 .25 .1925 .17 .16 .155 4.0% 0.6% (0.7%) 4.4% 2.7% 1.4% 1.4% 3.83% 3.28% 3.98% 5.20% 3.92% 3.95% 4.23% 12.77% 10.21% 11.94% 16.30% 12.85% 13.73% 15.41% 384 377 382 395 383 381 388 92 83 78 76 74 72 68 12,614,000 11,754,000 10,713,000 9,998,000 9,282,000 9,224,000 8,590,000
39 28 Management and Independent Auditors' Report Management Report The accompanying consolidated financial statements, including the notes thereto, and the other financial information presented in this Annual Report have been prepared by management. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based upon our best estimates and judgments. Management is responsible for the consolidated financial statements, as well as the other financial information in this Annual Report. The Company maintains an effective system of internal accounting control. We believe that this system provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded, in order to permit preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and to adequately safeguard, verify and maintain accountability for assets. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by Deloitte & Touche LLP, independent certified public accountants. The accompanying independent auditors' report expresses an independent professional opinion on the fairness of presentation of management's financial statements. The Audit Committee of the Board of Directors is composed of the outside directors, and is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management and the internal auditors, to review accounting, auditing, internal accounting controls and financial reporting matters. The independent auditors and the internal auditors also meet privately with the Audit Committee. Michael G. Koppel /s/ MICHAEL G. KOPPEL Vice President and Corporate Controller (Principal Accounting Officer) Independent Auditors' Report We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of January 31, 2001 and 2000, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended January 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and subsidiaries as of January 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Seattle, Washington March 21, 2001 40 29 Officers of the Corporation Jammie Baugh, 48 Executive Vice President, Human Resources Laurie M. Black, 42 Vice President, Corporate Merchandise Manager, Women's Activewear/Lingerie/Hosiery, Full-line Store Group Mark S. Brashear, 39 Executive Vice President, Southwest General Manager, Full-line Store Group Robert E. Campbell, 45 Vice President, Strategy and Planning, Treasurer N. Claire Chapman, 40 Corporate Secretary and Director of Legal Affairs Gail A. Cottle, 49 Executive Vice President and President, Nordstrom Product Group Dale Cameron (Crichton), 52 Executive Vice President, Corporate Merchandise Manager, Cosmetics, Full-line Store Group Joseph V. Demarte, 49 Vice President, Human Resources Linda Toschi Finn, 53 Executive Vice President, Marketing Bonnie M. Junell, 44 Vice President, Corporate Merchandise Manager, Point of View/Narrative, Full-line Store Group Kevin T. Knight, 45 Executive Vice President and President, Nordstrom Credit and Customer Relationship Marketing Michael G. Koppel, 44 Vice President, Corporate Controller and Acting Chief Financial Officer Llynn (Len) A. Kuntz, 40 Executive Vice President, Northwest General Manager, Full-line Store Group David P. Lindsey, 51 Vice President, Store Planning David L. Mackie, 52 Vice President, Real Estate 41 30 Officers of the Corporation Robert J. Middlemas, 44 Executive Vice President, Central States General Manager, Full-line Store Group Jack H. Minuk, 46 Vice President, Corporate Merchandise Manager, Women's Shoes, Full-line Store Group Blake W. Nordstrom, 40 President Bruce A. Nordstrom, 67 Chairman of the Board of Directors Erik B. Nordstrom, 37 Executive Vice President, Full-line Stores, Full-line Store Group Peter E. Nordstrom, 39 Executive Vice President and President, Full-line Store Group James R. O'Neal, 42 Executive Vice President, East Coast General Manager, Full-line Store Group Suzanne R. Patneaude, 54 Vice President, Corporate Merchandise Manager, Designer/Savvy, Full-line Store Group R. Michael Richardson, 44 Vice President, Chief Information Officer Karen Bowman Roesler, 45 Vice President, Marketing Nordstrom Credit Group (Karen) K. C. Shaffer, 47 Executive Vice President, General Merchandise Manager, Nordstrom Rack Group Joel T. Stinson, 51 Executive Vice President, Chief Administrative Officer Delena M. Sunday, 40 Executive Vice President, Diversity Affairs Susan A. Wilson Tabor, 55 Executive Vice President and President, Nordstrom Rack Group Michael A. Tam, 44 Executive Vice President, Director of Brands, Nordstrom Product Group Geevy S. K. Thomas, 36 Executive Vice President, General Merchandise Manager, Full-line Store Group 42 31 Directors and Committees Directors D. Wayne Gittinger, 68 Partner, Lane Powell Spears Lubersky LLP Seattle, Washington Enrique Hernandez, Jr., 45 President and CEO, Inter-Con Security Systems, Inc. Pasadena, California Ann McLaughlin Korologos, 59 Chairman, the Aspen Institute Aspen, Colorado John A. McMillan, 69 Retired Co-Chairman of the Board of Directors Seattle, Washington Bruce A. Nordstrom, 67 Chairman of the Board of Directors Seattle, Washington John N. Nordstrom, 64 Retired Co-Chairman of the Board of Directors Seattle, Washington Alfred E. Osborne, Jr., 56 Director of the Harold Price Center for Entrepreneurial Studies and Associate Professor of Business Economics, The Anderson School at UCLA Los Angeles, California William D. Ruckelshaus, 68 A Principal in Madrona Investment Group, L.L.C. Seattle, Washington Bruce G. Willison, 52 Dean, The Anderson School at UCLA Los Angeles, California Committees Executive John A. McMillan Bruce A. Nordstrom John N. Nordstrom Audit Enrique Hernandez, Jr. Ann McLaughlin Korologos, Chair Alfred E. Osborne, Jr. William D. Ruckelshaus Bruce G. Willison Compensation and Stock Option Enrique Hernandez, Jr. Ann McLaughlin Korologos Alfred E. Osborne, Jr. William D. Ruckelshaus, Chair Finance D. Wayne Gittinger Enrique Hernandez, Jr. John A. McMillan John N. Nordstrom Alfred E. Osborne, Jr., Chair Bruce G. Willison Corporate Governance and Nominating D. Wayne Gittinger, Chair Enrique Hernandez, Jr. Ann McLaughlin Korologos Alfred E. Osborne, Jr. William D. Ruckelshaus 43 32 Retail Store Facilities
Present total store Location Store Name area/sq. ft. ----------------------------------------------------------------------- Southwest Group Arizona Scottsdale Fashion Square 235,000 California Arcadia Santa Anita 151,000 Brea Brea Mall 195,000 Canoga Park Topanga Plaza 154,000 Cerritos Los Cerritos Center 122,000 Corte Madera The Village at Corte Madera 116,000 Costa Mesa South Coast Plaza 235,000 Escondido North County Fair 156,000 Glendale Glendale Galleria 147,000 Los Angeles Westside Pavilion 150,000 Mission Viejo The Shops at Mission Viejo 172,000 Montclair Montclair Plaza 134,000 Palo Alto Stanford Shopping Center 187,000 Pleasanton Stoneridge Mall 173,000 Redondo Beach The Galleria at South Bay 161,000 Riverside The Galleria at Tyler 164,000 Roseville Galleria at Roseville 149,000 Sacramento Arden Fair 190,000 San Diego Fashion Valley Center 220,000 San Diego Horton Plaza 151,000 San Diego University Towne Centre 130,000 San Francisco Stonestown Galleria 174,000 San Francisco San Francisco Shopping Centre 350,000 San Mateo Hillsdale Shopping Center 149,000 Santa Ana MainPlace/Santa Ana 169,000 Santa Barbara Paseo Nuevo 186,000 Santa Clara Valley Fair 165,000 Walnut Creek Broadway Plaza 193,000 East Coast Group Connecticut Farmington Westfarms 189,000 Florida Boca Raton Town Center at Boca Raton 193,000 Georgia Atlanta Perimeter Mall 243,000 Buford Mall of Georgia 172,000
44 33
Present total store Location Store Name area/sq. ft. ----------------------------------------------------------------------- East Coast Group (continued) Maryland Annapolis Annapolis Mall 162,000 Bethesda Montgomery Mall 225,000 Columbia The Mall in Columbia 173,000 Towson Towson Town Center 205,000 New Jersey Edison Menlo Park 266,000 Freehold Freehold Raceway Mall 174,000 Paramus Garden State Plaza 282,000 Short Hills The Mall at Short Hills 188,000 New York Garden City Roosevelt Field 241,000 White Plains The Westchester 219,000 Pennsylvania King of Prussia The Plaza at King of Prussia 238,000 Rhode Island Providence Providence Place 206,000 Virginia Arlington The Fashion Centre 241,000 at Pentagon City McLean Tysons Corner Center 253,000 Norfolk MacArthur Center 166,000 Central States Group Illinois Chicago Michigan Avenue 271,000 Oak Brook Oakbrook Center 249,000 Schaumburg Woodfield Shopping Center 215,000 Skokie Old Orchard Center 209,000 Indiana Indianapolis Circle Centre 216,000 Kansas Overland Park Oak Park Mall 219,000 Michigan Troy Somerset Collection 258,000 Minnesota Bloomington Mall of America 240,000 Ohio Beachwood Beachwood Place 231,000 Texas Dallas Dallas Galleria 249,000 Frisco Stonebriar Centre 149,000
45 34 Retail Store Facilities, cont.
Present total store Location Store Name area/sq. ft. ----------------------------------------------------------------------- Northwest Group Alaska Anchorage Anchorage 97,000 Colorado Broomfield FlatIron Crossing 172,000 Littleton Park Meadows 245,000 Oregon Portland Clackamas Town Center 121,000 Portland Downtown Portland 174,000 Portland Lloyd Center 150,000 Salem Salem Center 71,000 Tigard Washington Square 189,000 Utah Murray Fashion Place 110,000 Salt Lake City Crossroads Plaza 140,000 Washington Bellevue Bellevue Square 285,000 Lynnwood Alderwood Mall 127,000 Seattle Downtown Seattle (1) 383,000 Seattle Northgate 122,000 Spokane Spokane 137,000 Tacoma Tacoma Mall 134,000 Tukwila Southcenter Mall 170,000 Vancouver Vancouver Mall 71,000 Yakima Downtown Yakima 44,000 Other Honolulu, HI Women's Ala Moana Shoes 14,000 Honolulu, HI Men's Ala Moana Shoes 8,000 Faconnable U.S. (3 boutiques) 35,000 Faconnable International (20 boutiques) 69,000
(1) Excludes approximately 311,000 square feet of corporate and administrative offices. 46 35
Present total store Location Store Name area/sq. ft. ----------------------------------------------------------------------- Nordstrom Rack Group Chandler, AZ Chandler Festival Rack 37,000 Phoenix, AZ Last Chance 48,000 Scottsdale, AZ Scottsdale Promenade Rack 38,000 Brea, CA Brea Union Plaza Rack 45,000 Chino, CA Chino Rack 30,000 Colma, CA Colma Rack 31,000 Costa Mesa, CA Metro Pointe Rack 50,000 Glendale, CA Glendale Fashion Center Rack 36,000 Sacramento, CA Howe `Bout Arden Center Rack 54,000 San Diego, CA Mission Valley Rack 57,000 San Jose, CA Westgate Mall Rack 48,000 San Leandro, CA San Leandro Rack 44,000 Woodland Hills, CA Topanga Rack 64,000 Littleton, CO Meadows Marketplace Rack 34,000 Buford, GA Mall of Georgia Rack 44,000 Honolulu, HI Victoria Ward Center Rack 34,000 Northbrook, IL Northbrook Rack 40,000 Oak Brook, IL The Shops at Oakbrook Place Rack 42,000 Schaumburg, IL Woodfield Rack 45,000 Gaithersburg, MD Gaithersburg Rack 49,000 Silver Spring, MD City Place Rack 37,000 Towson, MD Towson Rack 31,000 Troy, MI Troy Marketplace Rack 40,000 Bloomington, MN Mall of America Rack 41,000 Hampstead, NY The Mall at the Source Rack 48,000 Beaverton, OR Tanasbourne Town Center Rack 53,000 Portland, OR Clackamas Promenade Rack 28,000 Portland, OR Downtown Portland Rack 19,000 Philadelphia, PA Franklin Mills Mall Rack 43,000 Plano, TX Preston Shepard Place Rack 39,000 Hurst, TX North East Mall Rack 40,000 Salt Lake City, UT Sugarhouse Rack 31,000 Woodbridge, VA Potomac Mills Rack 46,000 Auburn, WA Auburn SuperMall Rack 48,000 Bellevue, WA Factoria Rack 46,000 Lynnwood, WA Golde Creek Plaza Rack 38,000 Seattle, WA Downtown Seattle Rack 42,000 Spokane, WA NorthTown Mall Rack 28,000
47 36 SHAREHOLDER INFORMATION INDEPENDENT AUDITORS Deloitte & Touche LLP COUNSEL Lane Powell Spears Lubersky LLP TRANSFER AGENT AND REGISTRAR Mellon Investor Services LLC P.O. Box 3315 South Hackensack, New Jersey 07606 Telephone (800) 318-7045 TDD for Hearing Impaired (800) 231-5469 Foreign Shareholders (201) 329-8660 TDD Foreign Shareholders (201) 329-8354 GENERAL OFFICES 1617 Sixth Avenue Seattle, Washington 98101-1742 Telephone (206) 628-2111 ANNUAL MEETING May 15, 2001 at 11:00 a.m. Pacific Daylight Time Nordstrom Downtown Seattle Store John W. Nordstrom Room, fifth floor 1617 Sixth Avenue Seattle, Washington 98101-1742 FORM 10-K The Company's Annual Report on Form 10-K for the year ended January 31, 2001 will be provided to shareholders upon written request to: Nordstrom, Inc. Investor Relations P.O. Box 2737 Seattle, Washington, 98111 or by calling (206) 233-6301 SHAREHOLDER INFORMATION Please visit www.nordstrom.com to obtain shareholder information. In addition, the Company is always willing to discuss matters of concern to shareholders, including its vendor standards compliance mechanisms and progress in achieving compliance. 48