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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) | |||
R | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the fiscal year ended January 28, 2006 | |||
OR | |||
£ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from to |
(Exact name of Registrant as specified in its charter)
Washington | 91-0515058 | |
(State or other jurisdiction of incorporation or organization) | (IRS employer Identification No.) | |
1617 Sixth Avenue, Seattle, Washington | 98101 | |
(Address of principal executive offices) | (Zip code) |
Title of each class Common Stock, without par value | Name of each exchange on which registered New York Stock Exchange |
YESR NO£
YES£ NOR
Nordstrom, Inc. and subsidiaries 1
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EXHIBIT 32.1 |
Nordstrom, Inc. and subsidiaries 3
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Nordstrom incorporated in the state of Washington in 1946 as the successor to a retail shoe business that started in 1901. We are one of the nation’s leading fashion specialty retailers, with 156 U.S. stores located in 27 states. The west coast and east coast are the areas in which we have the largest presence. Nordstrom is comprised of four segments: Retail Stores, Credit, Direct, and Other.
Our fiscal year ends on the Saturday closest to January 31st. References to 2005, 2004 and 2003 relate to the 52 week fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004. References to 2006 relate to the 53 weeks ending February 3, 2007.
On May 24, 2005, our Board of Directors approved a two-for-one stock split of our outstanding common stock and a proportional increase in the number of common shares authorized from 500 million to 1 billion. Additional shares issued as a result of the stock split were distributed on June 30, 2005 to shareholders of record as of June 13, 2005. Reference to our shares and per share information have been adjusted to reflect this stock split.
We have approximately 150 registered trademarks or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack, Façonnable, Caslon, John W. Nordstrom, and Classiques Entier. Each of our trademarks is renewable indefinitely provided that it is still used in commerce at the time of the renewal.
We offer our customers a fair and liberal return policy at our Full-Line stores. Our Nordstrom Rack stores accept returns up to 30 days from the date of purchase. In general, our return policy is somewhat more generous than industry standards. We utilize historical return patterns to estimate our expected returns.
Due to our anniversary sale in July and the holidays in December, sales are higher for our Retail Stores in the second and fourth quarters of the fiscal year than in the first and third quarters.
We plan our merchandise purchases and receipts to coincide with the selling patterns that we expect. For instance, we purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through early January). Also, our merchandise purchases and receipts increase prior to our Anniversary Sale, which extends over the last two weeks of July. We pay for our merchandise purchases under the terms established with our vendors, which is usually within 30 days of the date that the merchandise was shipped to us.
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All segments of our business are highly competitive. Each of our stores competes with other national, regional and local retail establishments that may carry similar lines of merchandise, including department stores, specialty stores, boutiques, mail order and Internet businesses. Our specific competitors vary from market to market. We believe the principal methods of competing in our industry include customer service, store environment, quality of product, fashion, depth of selection and location.
During 2005, we regularly employed on a full or part-time basis an average of 51,400 employees. Due to the seasonal nature of our business, employment increased to approximately 55,400 employees in July 2005 and 56,000 in December 2005.
Certain statements in this Annual Report on Form 10-K contain “forward-looking” statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including anticipated results, store openings and trends in our operations. Actual future results and trends may differ materially from historical results or current expectations depending upon various factors including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A under the heading “Risk Factors:” the impact of economic and competitive market forces, terrorist activity or war may impact our customers and the retail industry, our ability to predict fashion trends, consumer apparel buying patterns, trends in personal bankruptcies and bad debt write-offs, changes in interest rates, employee relations, our ability to continue and control our expansion, remodel and investment plans, changes in government or regulatory requirements, our ability to control costs, weather conditions and hazards of nature.
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All material we file with the SEC is publicly available at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our Internet Web site address is www.nordstrom.com. We make available free of charge on or through our Internet Web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a Webcast of quarterly earnings conference calls and other financial events over our Internet Web site.
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as required by the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the SEC, we have adopted a Code of Business Conduct and Ethics (“Code of Ethics”) and Corporate Governance Guidelines. We have posted on our Web site our Code of Ethics, our Corporate Governance Guidelines, and our Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, Executive, and Finance committees. These items are also available in print to any shareholder upon request to:
P.O. Box 2737
Seattle, Washington 98111
(206) 303-3200
invrelations@nordstrom.com
Nordstrom, Inc. and subsidiaries 5
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Our sales and operating results depend in part on our ability to predict or respond to changes in fashion trends and consumer preferences in a timely manner. Any sustained failure to identify and respond to emerging trends in lifestyle and consumer preferences could have a material adverse affect on our business. Consumer spending at our stores may be affected by many factors outside of our control, including consumer confidence, weather and other hazards of nature that affects consumer traffic, and general economic conditions.
We strive to ensure the merchandise we offer remains fresh and compelling to our customers. If we are not successful at predicting our sales trends and adjusting our purchases, we may have excess inventory, which would result in additional markdowns and reduce our operating performance.
The recent retail industry consolidation changes the environment for many of our vendors and customers. In the future, our competition may partner more effectively with vendors to serve the market’s needs. If we do not effectively respond to changes in our environment, we may see a loss of market share to competitors, declining same-store sales, and declining profitability due to higher markdowns.
As of March 2006, our plans for the next three years include opening 13 new stores and relocating or remodeling 18 existing stores. In the past, our expected opening dates have sometimes been delayed because of development plan delays. Our future growth could be negatively impacted by delays to our store opening, relocating or remodeling plans. In addition, our future net sales at new, relocated or remodeled stores may not meet our projections, which could reduce our operating performance. Performance in our new stores could also be impacted based on our ability to hire employees who are able to deliver the level of service customers have come to expect when shopping at our stores.
The protection of our customer, employee, and company data is critical to us. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements across our business units. In addition, our customers have a high expectation that we will adequately protect their personal information. A significant breach of customer, employee, or company data could damage our reputation and result in lost sales, fines, or lawsuits.
The training and development of our future leaders is critical to our long-term growth. If we do not effectively implement our strategic and business planning processes to train and develop future leaders, our long-term growth may suffer. In addition, if unexpected leadership turnover occurs without established succession plans, our business may suffer.
A number of our long-standing Directors who were instrumental in leading our Company have retired or will soon retire from our Board. These Board members with extensive experience will no longer be actively involved in our business and development of our long-term strategy. We are welcoming a number of new members to our Board, and we expect to benefit from their vast business experience.
In 2005, we started to make changes in our Direct business that better align our online shopping environment and catalog with the customer experience in our Full-Line stores. These changes include: aligning our Direct merchandise offering with our Full-Line stores to create a seamless experience for our customers between our stores, catalogs and Web site; integrating our Full-Line stores and Direct merchandise organization; recommending that our Full-Line store salespeople utilize our Direct inventory to fulfill customer requests when merchandise is not available at the store; reducing the number and frequency of our Direct catalog mailings; and transitioning our Direct inventory system onto our Full-Line store platform, all while dealing with changes in the Internet market in general. If we made decisions that prove to not be embraced by our customers, our sales could decline. In addition, the cost of integrating these businesses may be greater than expected, which would impact our future operating performance.
We have a well-recognized brand that is synonymous with the highest level of customer service. Any significant damage to our brand or reputation may negatively impact same-store sales, lower employee morale and productivity, and diminish customer trust, resulting in a reduction in shareholder value.
Our goal is to invest capital to maximize our overall returns. This includes spending on inventory, capital projects and expenses, managing debt levels, managing accounts receivable through our credit business, and using our assets efficiently to return value to our shareholders. To a large degree, capital efficiency reflects how well we manage the other key risks to our Company. The actions taken to address other specific risks may affect how well we manage the more general risk of capital efficiency. Our recent operating results have raised expectations about our performance. If we do not properly allocate our capital to maximize returns, we may fail to continue to produce similar financial results and we may experience a reduction in shareholder value.
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Our policies and procedures are designed to comply with human resource laws such as wage and hour, meal and rest period, and commissions. Federal and state wage and hour laws are complex, and the related enforcement is increasingly aggressive, particularly in the state of California. Failure to comply with these laws could result in damage to our reputation, class action lawsuits, and dissatisfied employees.
State and federal employment and discrimination laws and the related case law continue to evolve, making ongoing compliance in this area a challenge. Failure to comply with these laws may result in damage to our reputation, legal and settlement costs, disruption of our business, and loss of customers and employees, which would result in a loss of net sales and increased employment costs, low employee morale and attendant harm to our business and results of operations.
We make investments in information technology to sustain our competitive position. We spend on average approximately $150 million each year on information technology operations and system development, and this spending is key to our growth strategy. We must monitor and choose the right investments and implement them at the right pace. Targeting the wrong opportunities, failing to make the best investment, or making an investment commitment significantly above or below the requirements of the business opportunity may result in the loss of our competitive position. In addition, an inadequate investment in maintaining our current systems may result in a loss of system functionality and increased future costs to bring our systems up to date.
Our policies and procedures are designed to comply with all applicable laws and regulations, including those imposed by the SEC, NYSE, the banking industry, and foreign countries. With recent high profile business failures on accounting-related issues, additional legal and regulatory requirements such as the Sarbanes-Oxley Act have increased the complexity of the regulatory environment. In addition, foreign laws may conflict with domestic laws. Failure to comply with the various regulations may result in damage to our reputation, civil and criminal liability, fines and penalties, increased cost of regulatory compliance, and restatements of financial statements.
We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington state law could interfere with or restrict takeover bids or other change in control events affecting us. For example, one statutory provision prohibits us, except under specified circumstances, from engaging in any significant business transaction with any shareholder who owns 10% or more of our common stock (which shareholder, under the statute, would be considered an “acquiring person”) for a period of five years following the time that such shareholder became an acquiring person.
% of total store | ||||||||
Number of Stores | square footage | |||||||
Owned stores | 32 | 25.5 | % | |||||
Leased stores | 108 | 30.8 | % | |||||
Owned on leased land | 44 | 42.2 | % | |||||
Partly owned and partly leased | 3 | 1.5 | % | |||||
Total | 187 | 100.0 | % | |||||
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Year | ||||||||||
Square | Store | |||||||||
Location | Store Name | Footage | Opened | |||||||
Full-Line Stores | ||||||||||
ALASKA | ||||||||||
Anchorage | Anchorage | 97,000 | 1975 | |||||||
ARIZONA | ||||||||||
Chandler | Chandler Fashion Center | 149,000 | 2001 | |||||||
Scottsdale | Scottsdale Fashion Square | 235,000 | 1998 | |||||||
CALIFORNIA | ||||||||||
Arcadia | Santa Anita | 151,000 | 1994 | |||||||
Brea | Brea Mall | 195,000 | 1979 | |||||||
Canoga Park | Topanga | 154,000 | (a) | 1984 | ||||||
Cerritos | Los Cerritos Center | 122,000 | 1981 | |||||||
Corte Madera | The Village at Corte Madera | 116,000 | 1985 | |||||||
Costa Mesa | South Coast Plaza | 235,000 | 1978 | |||||||
Escondido | North County | 156,000 | 1986 | |||||||
Glendale | Glendale Galleria | 147,000 | 1983 | |||||||
Irvine | Irvine Spectrum Center | 130,000 | 2005 | |||||||
Los Angeles | The Grove | 120,000 | 2002 | |||||||
Los Angeles | Westside Pavilion | 150,000 | 1985 | |||||||
Mission Viejo | The Shops at Mission Viejo | 172,000 | 1999 | |||||||
Montclair | Montclair Plaza | 134,000 | 1986 | |||||||
Palo Alto | Stanford Shopping Center | 187,000 | 1984 | |||||||
Pleasanton | Stoneridge Mall | 173,000 | 1990 | |||||||
Redondo Beach | South Bay Galleria | 161,000 | 1985 | |||||||
Riverside | The Galleria at Tyler in | 164,000 | 1991 | |||||||
Riverside | ||||||||||
Roseville | Galleria at Roseville | 149,000 | 2000 | |||||||
Sacramento | Arden Fair | 190,000 | 1989 | |||||||
San Diego | Fashion Valley | 220,000 | 1981 | |||||||
San Diego | Horton Plaza | 151,000 | 1985 | |||||||
San Diego | University Towne Centre | 130,000 | 1984 | |||||||
San Francisco | San Francisco Centre | 350,000 | 1988 | |||||||
San Francisco | Stonestown Galleria | 174,000 | 1988 | |||||||
San Jose | Valley Fair | 232,000 | 1987 | |||||||
San Mateo | Hillsdale Shopping Center | 149,000 | 1982 | |||||||
Santa Ana | MainPlace/Santa Ana | 169,000 | 1987 | |||||||
Santa Barbara | Paseo Nuevo in Santa Barbara | 186,000 | 1990 | |||||||
Walnut Creek | Broadway Plaza | 193,000 | 1984 | |||||||
COLORADO | ||||||||||
Broomfield | FlatIron Crossing | 172,000 | 2000 | |||||||
Littleton | Park Meadows | 245,000 | 1996 | |||||||
CONNECTICUT | ||||||||||
Farmington | Westfarms | 189,000 | 1997 | |||||||
FLORIDA | ||||||||||
Boca Raton | Town Center at Boca Raton | 193,000 | 2000 | |||||||
Coral Gables | Village of Merrick Park | 212,000 | 2002 | |||||||
Miami | Dadeland Mall | 150,000 | 2004 | |||||||
Orlando | The Florida Mall | 174,000 | 2002 | |||||||
Tampa | International Plaza | 172,000 | 2001 | |||||||
Wellington | The Mall at Wellington Green | 127,000 | 2003 | |||||||
GEORGIA | ||||||||||
Atlanta | Perimeter Mall | 243,000 | 1998 | |||||||
Atlanta | Phipps Plaza | 140,000 | 2005 | |||||||
Buford | Mall of Georgia | 172,000 | 2000 | |||||||
Year | ||||||||||
Square | Store | |||||||||
Location | Store Name | Footage | Opened | |||||||
ILLINOIS | ||||||||||
Chicago | Michigan Avenue | 274,000 | 2000 | |||||||
Oak Brook | Oakbrook Center | 249,000 | 1991 | |||||||
Schaumburg | Woodfield Shopping Center | 215,000 | 1995 | |||||||
Skokie | Old Orchard Center | 209,000 | 1994 | |||||||
INDIANA | ||||||||||
Indianapolis | Circle Centre | 216,000 | 1995 | |||||||
KANSAS | ||||||||||
Overland Park | Oak Park Mall | 219,000 | 1998 | |||||||
MARYLAND | ||||||||||
Annapolis | Annapolis Mall | 162,000 | 1994 | |||||||
Bethesda | Montgomery Mall | 225,000 | 1991 | |||||||
Columbia | The Mall in Columbia | 173,000 | 1999 | |||||||
Towson | Towson Town Center | 205,000 | 1992 | |||||||
MICHIGAN | ||||||||||
Troy | Somerset Collection | 258,000 | 1996 | |||||||
MINNESOTA | ||||||||||
Bloomington | Mall of America | 240,000 | 1992 | |||||||
MISSOURI | ||||||||||
Des Peres | West County | 193,000 | 2002 | |||||||
NEVADA | ||||||||||
Las Vegas | Fashion Show | 207,000 | 2002 | |||||||
NEW JERSEY | ||||||||||
Edison | Menlo Park | 204,000 | 1991 | |||||||
Freehold | Freehold Raceway Mall | 174,000 | 1992 | |||||||
Paramus | Garden State Plaza | 282,000 | 1990 | |||||||
Short Hills | The Mall at Short Hills | 188,000 | 1995 | |||||||
NEW YORK | ||||||||||
Garden City | Roosevelt Field | 241,000 | 1997 | |||||||
White Plains | The Westchester | 219,000 | 1995 | |||||||
NORTH CAROLINA | ||||||||||
Charlotte | SouthPark | 151,000 | 2004 | |||||||
Durham | The Streets at Southpoint | 149,000 | 2002 | |||||||
OHIO | ||||||||||
Beachwood | Beachwood Place | 231,000 | 1997 | |||||||
Columbus | Easton Town Center | 174,000 | 2001 | |||||||
OREGON | ||||||||||
Portland | Clackamas Town Center | 121,000 | 1981 | |||||||
Portland | Downtown Portland | 174,000 | 1966 | |||||||
Portland | Lloyd Center | 150,000 | 1963 | |||||||
Salem | Salem Center | 71,000 | 1980 | |||||||
Tigard | Washington Square | 189,000 | 1974 | |||||||
PENNSYLVANIA | ||||||||||
King of Prussia | The Plaza at King of Prussia | 238,000 | 1996 | |||||||
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Year | ||||||||||
Square | Store | |||||||||
Location | Store Name | Footage | Opened | |||||||
Full-Line Stores (Cont.) | ||||||||||
RHODE ISLAND | ||||||||||
Providence | Providence Place | 206,000 | 1999 | |||||||
TEXAS | ||||||||||
Austin | Barton Creek Square | 150,000 | 2003 | |||||||
Dallas | Galleria Dallas | 249,000 | 1996 | |||||||
Dallas | NorthPark Center | 212,000 | 2005 | |||||||
Frisco | Stonebriar Centre | 149,000 | 2000 | |||||||
Houston | The Galleria | 226,000 | 2003 | |||||||
Hurst | NorthEast Mall | 149,000 | 2001 | |||||||
San Antonio | The Shops at La Cantera | 149,000 | 2005 | |||||||
UTAH | ||||||||||
Murray | Fashion Place | 110,000 | 1981 | |||||||
Orem | University Mall | 122,000 | 2002 | |||||||
Salt Lake City | Crossroads Plaza | 140,000 | 1980 | |||||||
VIRGINIA | ||||||||||
Arlington | The Fashion Centre at | 241,000 | 1989 | |||||||
Pentagon City | ||||||||||
Dulles | Dulles Town Center | 148,000 | 2002 | |||||||
McLean | Tysons Corner Center | 211,000 | 1988 | |||||||
Norfolk | MacArthur Center | 166,000 | 1999 | |||||||
Richmond | Short Pump Town Center | 128,000 | 2003 | |||||||
WASHINGTON | ||||||||||
Bellevue | Bellevue Square | 285,000 | 1967 | |||||||
Lynnwood | Alderwood | 151,000 | 1979 | |||||||
Seattle | Downtown Seattle | 383,000 | 1963 | |||||||
Seattle | Northgate | 122,000 | 1965 | |||||||
Spokane | Spokane | 137,000 | 1974 | |||||||
Tacoma | Tacoma Mall | 134,000 | 1966 | |||||||
Tukwila | Southcenter | 170,000 | 1968 | |||||||
Vancouver | Vancouver | 71,000 | 1977 | |||||||
Other | ||||||||||
Honolulu, HI | Ward Centre Shoes | 16,000 | 1997 | |||||||
Façonnable | U.S. (5 boutiques) | 58,000 | ||||||||
Façonnable | International (32 boutiques) | 95,000 | ||||||||
Year | ||||||||||
Square | Store | |||||||||
Location | Store Name | Footage | Opened | |||||||
Nordstrom Rack Group | ||||||||||
Chandler, AZ | Chandler Festival Rack | 37,000 | 2000 | |||||||
Phoenix, AZ | Last Chance | 48,000 | 1992 | |||||||
Scottsdale, AZ | Scottsdale Promenade Rack | 38,000 | 2000 | |||||||
Brea, CA | Brea Union Plaza Rack | 45,000 | 1999 | |||||||
Chino, CA | Chino Spectrum Towne Center Rack | 38,000 | 1987 | |||||||
Colma, CA | Colma Rack | 31,000 | 1987 | |||||||
Costa Mesa, CA | Metro Pointe at South Coast Rack | 50,000 | 1983 | |||||||
Fresno, CA | Villaggio Retail Center Rack | 32,000 | 2002 | |||||||
Glendale, CA | Glendale Fashion Center Rack | 36,000 | 2000 | |||||||
Long Beach, CA | Long Beach CityPlace Rack | 33,000 | 2002 | |||||||
Los Angeles, CA | The Promenade at Howard Hughes | 41,000 | 2001 | |||||||
Center Rack | ||||||||||
Ontario, CA | Ontario Mills Mall Rack | 40,000 | 2002 | |||||||
Oxnard, CA | Esplanade Shopping Center Rack | 38,000 | 2001 | |||||||
Roseville, CA | Creekside Town Center Rack | 36,000 | 2001 | |||||||
Sacramento, CA | Howe `Bout Arden Center Rack | 54,000 | 1999 | |||||||
San Diego, CA | Mission Valley Rack | 57,000 | 1985 | |||||||
San Francisco, CA | 555 Ninth Street Retail Center Rack | 43,000 | 2001 | |||||||
San Jose, CA | Westgate Mall Rack | 48,000 | 1998 | |||||||
San Leandro, CA | San Leandro Rack | 44,000 | 1990 | |||||||
Woodland Hills, CA | Topanga Rack | 64,000 | 1984 | |||||||
Broomfield, CO | Flatiron Marketplace Rack | 36,000 | 2001 | |||||||
Littleton, CO | Meadows Marketplace Rack | 34,000 | 1998 | |||||||
Miami, FL | Last Chance | 26,000 | 2005 | |||||||
Sunrise, FL | The Oasis at Sawgrass Mills Rack | 27,000 | 2003 | |||||||
Buford, GA | Mall of Georgia Crossing Rack | 44,000 | 2000 | |||||||
Honolulu, HI | Victoria Ward Centers Rack | 34,000 | 2000 | |||||||
Chicago, IL | The Shops at State and | 41,000 | 2003 | |||||||
Washington Rack | ||||||||||
Northbrook, IL | Northbrook Rack | 40,000 | 1996 | |||||||
Oak Brook, IL | The Shops at Oak Brook Place Rack | 42,000 | 2000 | |||||||
Schaumburg, IL | Woodfield Rack | 45,000 | 1994 | |||||||
Gaithersburg, MD | Gaithersburg Rack | 49,000 | 1999 | |||||||
Towson, MD | Towson Rack | 31,000 | 1992 | |||||||
Grand Rapids, MI | Centerpointe Mall Rack | 40,000 | 2001 | |||||||
Troy, MI | Troy Marketplace Rack | 40,000 | 2000 | |||||||
Bloomington, MN | Mall of America Rack | 41,000 | 1998 | |||||||
Las Vegas, NV | Silverado Ranch Plaza Rack | 33,000 | 2001 | |||||||
Westbury, NY | The Mall at the Source Rack | 48,000 | 1997 | |||||||
Beaverton, OR | Tanasbourne Town Center Rack | 53,000 | 1998 | |||||||
Clackamas, OR | Clackamas Promenade Rack | 28,000 | 1983 | |||||||
Portland, OR | Downtown Portland Rack | 32,000 | 1986 | |||||||
King of Prussia, PA | The Overlook at King of | 45,000 | 2002 | |||||||
Prussia Rack | ||||||||||
Hurst, TX | The Shops at North East Mall Rack | 40,000 | 2000 | |||||||
Plano, TX | Preston Shepard Place Rack | 39,000 | 2000 | |||||||
Salt Lake City, UT | Sugarhouse Rack | 31,000 | 1991 | |||||||
Dulles, VA | Dulles Town Crossing Rack | 41,000 | 2001 | |||||||
Woodbridge, VA | Potomac Mills Rack | 46,000 | 1990 | |||||||
Auburn, WA | SuperMall of the Great | 48,000 | 1995 | |||||||
Northwest Rack | ||||||||||
Bellevue, WA | Factoria Mall Rack | 46,000 | 1997 | |||||||
Lynnwood, WA | Golde Creek Plaza Rack | 38,000 | 1985 | |||||||
Seattle, WA | Downtown Seattle Rack | 42,000 | 1987 | |||||||
Spokane, WA | NorthTown Mall Rack | 28,000 | 2000 | |||||||
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We were 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 were consolidated in Marin County Superior Court. In May 2000, 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” or “Department Store” cosmetics and fragrances 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.
We are involved in routine claims, proceedings, and litigation arising from the normal course of our business. We do not believe any such claim, proceeding or litigation, either alone or in aggregate, will have a material impact on our results of operations, financial position, or liquidity.
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Common Stock Price | ||||||||||||||||||||||||
2005 | 2004 | Dividends per Share | ||||||||||||||||||||||
High | Low | High | Low | 2005 | 2004 | |||||||||||||||||||
1st Quarter | $28.14 | $23.91 | $20.63 | $17.57 | $0.065 | $0.055 | ||||||||||||||||||
2nd Quarter | $37.46 | $25.22 | $23.15 | $17.43 | $0.085 | $0.055 | ||||||||||||||||||
3rd Quarter | $37.96 | $30.41 | $22.12 | $18.03 | $0.085 | $0.065 | ||||||||||||||||||
4th Quarter | $42.74 | $33.58 | $24.49 | $21.34 | $0.085 | $0.065 | ||||||||||||||||||
Full Year | $42.74 | $23.91 | $24.49 | $17.43 | $0.32 | $0.24 | ||||||||||||||||||
(Dollars in millions except per share amounts)
Average | Total Number of Shares | |||||||||||||||
Total Number of | Price Paid | (or Units) Purchased as | Maximum Number (or Approximate Dollar | |||||||||||||
Shares (or Units) | Per Share | Part of Publicly Announced | Value) of Shares (or Units) that May Yet Be | |||||||||||||
Period | Purchased | (or Unit) | Plans or Programs | Purchased Under the Plans or Programs (1) | ||||||||||||
Nov. 2005 (10/30/05 to 11/26/05) | 100,000 | $37.79 | 100,000 | $249.9 | ||||||||||||
Dec. 2005 (11/27/05 to 12/31/05) | 925,000 | $36.97 | 925,000 | $215.7 | ||||||||||||
Jan. 2006 (1/1/06 to 1/28/06) | 75,000 | $37.40 | 75,000 | $212.9 | ||||||||||||
Total | 1,100,000 | $37.07 | 1,100,000 | |||||||||||||
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(Dollars in thousands except sales per square foot and per share amounts)
Fiscal Year | 2005 | 2004 | 2003 | 20024 | 2001 | 20006 | ||||||||||||||||||
Operations | ||||||||||||||||||||||||
Net sales | $7,722,860 | $7,131,388 | $6,448,678 | $5,944,656 | $5,607,687 | $5,511,908 | ||||||||||||||||||
Same-store sales percentage increase (decrease)1 | 6.0% | 8.5% | 4.1% | 1.4% | (2.9%) | 0.3% | ||||||||||||||||||
Gross profit | 2,834,837 | 2,572,000 | 2,233,132 | 1,974,634 | 1,844,133 | 1,854,220 | ||||||||||||||||||
Gross profit rate2 | 36.7% | 36.1% | 34.6% | 33.2% | 32.9% | 33.6% | ||||||||||||||||||
Selling, general, and administrative expenses | (2,100,666) | (2,020,233) | (1,899,129) | (1,783,210) | (1,698,497) | (1,722,247) | ||||||||||||||||||
Selling, general, and administrative rate3 | 27.2% | 28.3% | 29.4% | 30.0% | 30.3% | 31.2% | ||||||||||||||||||
Operating income | 734,171 | 551,767 | 334,003 | 191,424 | 145,636 | 131,973 | ||||||||||||||||||
Interest expense, net | (45,300) | (77,428) | (90,952) | (81,921) | (75,038) | (62,698) | ||||||||||||||||||
Other income including finance charges, net | 196,354 | 172,942 | 155,090 | 139,289 | 133,890 | 130,600 | ||||||||||||||||||
Earnings before income tax expense | 885,225 | 647,281 | 398,141 | 195,624 | 5 | 204,488 | 167,018 | |||||||||||||||||
Earnings before income tax expense as a percentage of net sales | 11.5% | 9.1% | 6.2% | 3.3% | 5 | 3.6% | 3.0% | |||||||||||||||||
Net earnings | 551,339 | 393,450 | 242,841 | 90,224 | 124,688 | 101,918 | ||||||||||||||||||
Net earnings as a percentage of net sales | 7.1% | 5.5% | 3.8% | 1.5% | 2.2% | 1.8% | ||||||||||||||||||
Diluted earnings per share | $1.98 | $1.38 | $0.88 | $0.33 | $0.46 | $0.39 | ||||||||||||||||||
Dividends per share | $0.32 | $0.24 | $0.205 | $0.19 | $0.18 | $0.175 | ||||||||||||||||||
Return on average shareholders’ equity | 28.4% | 23.0% | 16.2% | 6.7% | 9.8% | 8.4% | ||||||||||||||||||
Sales per square foot | $369 | $347 | $325 | $317 | $319 | $341 | ||||||||||||||||||
Financial Position (at year end) | ||||||||||||||||||||||||
Customer accounts receivable, net | $566,815 | $580,397 | $594,900 | $606,861 | $621,491 | $649,504 | ||||||||||||||||||
Investment in asset backed securities | 561,136 | 422,416 | 272,294 | 124,543 | 58,539 | 50,183 | ||||||||||||||||||
Merchandise inventories | 955,978 | 917,182 | 901,623 | 953,112 | 888,172 | 945,687 | ||||||||||||||||||
Current assets | 2,874,157 | 2,572,444 | 2,524,843 | 2,125,356 | 2,095,317 | 1,812,982 | ||||||||||||||||||
Current liabilities | 1,623,312 | 1,341,152 | 1,122,559 | 925,978 | 986,587 | 950,568 | ||||||||||||||||||
Land, buildings and equipment, net | 1,773,871 | 1,780,366 | 1,807,778 | 1,849,961 | 1,761,082 | 1,599,938 | ||||||||||||||||||
Long-term debt, including current portion | 934,394 | 1,030,107 | 1,234,243 | 1,350,595 | 1,424,242 | 1,112,296 | ||||||||||||||||||
Shareholders’ equity | 2,092,681 | 1,788,994 | 1,634,009 | 1,372,864 | 1,316,245 | 1,233,445 | ||||||||||||||||||
Debt-to-capital ratio | 30.9% | 36.5% | 43.0% | 49.6% | 52.0% | 49.2% | ||||||||||||||||||
Book value per share | 7.76 | 6.59 | 5.90 | 5.07 | 4.89 | 4.61 | ||||||||||||||||||
Total assets | 4,921,349 | 4,605,390 | 4,569,233 | 4,185,269 | 4,084,356 | 3,608,503 | ||||||||||||||||||
Store Information (at year end) | ||||||||||||||||||||||||
Full-Line stores | 98 | 94 | 92 | 88 | 80 | 77 | ||||||||||||||||||
Rack and other stores | 57 | 56 | 56 | 55 | 52 | 43 | ||||||||||||||||||
International Façonnable boutiques | 32 | 31 | 31 | 23 | 24 | 20 | ||||||||||||||||||
Total square footage | 20,070,000 | 19,397,000 | 19,138,000 | 18,428,000 | 17,048,000 | 16,056,000 | ||||||||||||||||||
1 | Same-stores include stores that have been open at least one full year at the beginning of the year. |
2 | Gross profit rate is calculated as the gross profit as a percentage of net sales. |
3 | Selling, general, and administrative rate is calculated as the selling, general, and administrative expenses as a percentage of net sales. |
4 | 2002 — The items below amounted to a net $90,638 charge ($71,041, net of tax, or $0.26 per diluted share): |
• | Selling, general and administrative expenses included an impairment charge of $15,570 related to the write-down of an information technology investment in a supply chain software application in our private label business. | |
• | We purchased the outstanding shares of Nordstrom.com, Inc. series C preferred stock for $70,000. The minority interest purchase and reintegration costs resulted in a one-time charge of $53,168. No tax benefit was recognized as there was no possibility of a future tax benefit. | |
• | When we adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” our initial impairment test of the Façonnable Business Unit resulted in an impairment charge to acquired tradename of $16,133 and to goodwill of $5,767. The impairment charge is reflected as a cumulative effect of accounting change ($13,359, net of tax). |
5 | In 2002, earnings before income tax expense and earnings before income tax expense as a percentage of net sales do not include the cumulative effect of an accounting change of $13,359, net of tax of $8,541. |
6 | 2000 — The items below amounted to a net $56,084 charge ($34,211, net of tax, or $0.13 per diluted share): |
• | Selling, general and administrative expenses included a charge of $13,000 for certain severance and other costs related to a change in management. | |
• | We recorded an impairment charge of $10,227, consisting of $9,627 recorded in selling, general and administrative expenses and $600 in interest expense, related to several software projects under development that were either impaired or obsolete. | |
• | We held common shares in Streamline, Inc., an Internet grocery and consumer goods delivery company. Streamline ceased its operations effective November 2000, and we wrote off our entire investment of $32,857 in Streamline. |
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Fiscal Year | 19994 | 1998 | 1997 | 1996 | 1995 | |||||||||||||||
Operations | ||||||||||||||||||||
Net sales | $5,144,754 | $5,049,182 | $4,864,604 | $4,457,931 | $4,113,717 | |||||||||||||||
Same-store sales percentage increase (decrease)1 | (1.1%) | (2.7%) | 4.0% | 0.6% | (0.7%) | |||||||||||||||
Gross profit | 1,781,929 | 1,704,237 | 1,568,791 | 1,378,472 | 1,310,931 | |||||||||||||||
Gross profit rate2 | 34.6% | 33.8% | 32.2% | 30.9% | 31.9% | |||||||||||||||
Selling, general, and administrative expenses | (1,516,259) | (1,429,837) | (1,338,235) | (1,232,860) | (1,136,069) | |||||||||||||||
Selling, general, and administrative rate3 | 29.5% | 28.3% | 27.5% | 27.7% | 27.6% | |||||||||||||||
Operating income | 265,670 | 274,400 | 230,556 | 145,612 | 174,862 | |||||||||||||||
Interest expense, net | (50,396) | (47,091) | (34,250) | (39,400) | (39,295) | |||||||||||||||
Other income including finance charges, net | 116,783 | 110,414 | 110,907 | 135,331 | 134,179 | |||||||||||||||
Earnings before income tax expense | 332,057 | 337,723 | 307,213 | 241,543 | 269,746 | |||||||||||||||
Earnings before income tax expense as a percentage of net sales | 6.5% | 6.7% | 6.3% | 5.4% | 6.6% | |||||||||||||||
Net earnings | 202,557 | 206,723 | 186,213 | 146,316 | 163,556 | |||||||||||||||
Net earnings as a percentage of net sales | 3.9% | 4.1% | 3.8% | 3.3% | 4.0% | |||||||||||||||
Diluted earnings per share | $0.73 | $0.70 | $0.60 | $0.45 | $0.50 | |||||||||||||||
Dividends per share | $0.16 | $0.15 | $0.1325 | $0.125 | $0.125 | |||||||||||||||
Return on average shareholders’ equity | 16.3% | 15.0% | 12.8% | 10.2% | 11.9% | |||||||||||||||
Sales per square foot | $349 | $362 | $384 | $377 | $382 | |||||||||||||||
Financial Position (at year end) | ||||||||||||||||||||
Customer accounts receivable, net | $557,190 | $560,564 | $621,704 | $661,332 | $874,103 | |||||||||||||||
Investment in asset backed securities | 38,830 | 7,097 | 20,158 | 31,791 | — | |||||||||||||||
Merchandise inventories | 797,845 | 750,269 | 826,045 | 719,919 | 626,303 | |||||||||||||||
Current assets | 1,564,648 | 1,668,689 | 1,613,492 | 1,549,819 | 1,612,776 | |||||||||||||||
Current liabilities | 866,509 | 794,490 | 979,031 | 795,321 | 833,443 | |||||||||||||||
Land, buildings and equipment, net | 1,429,492 | 1,378,006 | 1,252,513 | 1,152,454 | 1,103,298 | |||||||||||||||
Long-term debt, including current portion | 804,982 | 868,234 | 420,865 | 380,632 | 439,943 | |||||||||||||||
Shareholders’ equity | 1,185,614 | 1,300,545 | 1,458,950 | 1,457,084 | 1,408,053 | |||||||||||||||
Debt-to-capital ratio | 42.5% | 42.1% | 31.9% | 27.2% | 32.3% | |||||||||||||||
Book value per share | 4.48 | 4.58 | 4.78 | 4.57 | 4.34 | |||||||||||||||
Total assets | 3,062,081 | 3,103,689 | 2,890,664 | 2,726,495 | 2,732,619 | |||||||||||||||
Store Information (at year end) | ||||||||||||||||||||
Full-Line stores | 71 | 67 | 65 | 62 | 58 | |||||||||||||||
Rack and other stores | 33 | 30 | 27 | 21 | 20 | |||||||||||||||
International Façonnable boutiques | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Total square footage | 14,487,000 | 13,593,000 | 12,614,000 | 11,754,000 | 10,713,000 | |||||||||||||||
• | Selling, general and administrative expenses included a charge of $10,000 primarily associated with the restructuring of our information technology services area. The charge consisted of $4,053 in the disposition of several software projects under development, $2,685 in employee severance and $1,206 in other miscellaneous costs. Additionally, we recorded $2,056 related to settlement costs for two lawsuits. |
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Our long-term goal is to deliver industry-leading performance, and we continue to focus on driving top-line growth, gaining operational efficiencies and developing leaders for future growth. This mindset has served us well over the last few years as we have generated same-store sales growth and improved our gross profit and selling, general, and administrative rates. Our 2006 initiatives maintain the same focus but also recognize the developments in our business and the marketplace.
Our top priority is to gain market share through existing stores and channels, as well as from new Full-Line stores. Our success in accomplishing this goal starts and ends with the experience each customer has in our stores. We believe the essence of this experience is desirable products coupled with personalized service. Our ongoing focus revolves around these two key elements of our business as we believe they are an integral part of long-term success. For 2006, we have identified three specific areas of focus to drive top-line growth: re-energizing women’s apparel, multi-channel integration and enhancing our designer business.
and accessories.
As we ‘drive top-line growth,’ we seek to expand our gross profit and reduce our selling, general and administrative rates by minimizing the increases to our buying, occupancy, general and administrative costs. This approach has been successful over the past three years, as we have controlled these costs while we supported our same-store sales growth. We are committed to keeping our technology investments current and relevant to our business needs. This includes investing in ongoing maintenance and system enhancements as well as replacing older applications as the opportunities present themselves. This is an ongoing part of our overall technology investment strategy. We anticipate additional rate improvement from our buying and corporate organization as we enhance our processes and expand the use of our systems to support our future sales growth.
At Nordstrom, we are committed to developing the best talent in retail. The training and development of our future leaders is critical to our long-term growth. To that end, we have identified potential successors for all major leadership roles. We have also piloted with 35 executives a leadership development program designed to increase specifically identified leadership skills. This program includes identifying each leader’s development needs and includes personal coaching as well as interactive group learning. This program will be rolled out to approximately 90 leaders by the end of 2006 with plans to train more individuals over the next few years.
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In 2005, our same-store sales increased 6.0% on top of our 8.5% increase in 2004. These increases are our two highest annual same-store sales growth results in the past 10 years. Some other retailers who combine an offering of compelling merchandise and customer service have also experienced positive sales growth. Our merchandise and selling costs increased in-line with our same-store sales, but our other costs, including buying and occupancy costs and non-selling labor, remained relatively consistent with last year. As a result of our same-store sales growth and expense performance, we experienced a significant increase in our operating income. Our earnings before income tax expense as a percentage of net sales was 11.5% in 2005, the first year that it exceeded 10.0% since we first issued stock to the public in 1971. In addition, our diluted earnings per share increased 43.5% to $1.98.
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Net sales | $7,722.9 | $7,131.4 | $6,448.7 | |||||||||
Net sales increase | 8.3% | 10.6% | 8.5% | |||||||||
Same-store sales increase | 6.0% | 8.5% | 4.1% | |||||||||
Percentage of net sales by merchandise category: | ||||||||||||
Women’s apparel | 35% | 36% | 36% | |||||||||
Shoes | 21% | 20% | 20% | |||||||||
Cosmetics and women’s accessories | 20% | 20% | 19% | |||||||||
Men’s apparel | 18% | 18% | 17% | |||||||||
Children’s apparel | 3% | 3% | 4% | |||||||||
Other | 3% | 3% | 4% | |||||||||
In our Full-Line stores, our accessories, cosmetics and men’s apparel merchandise categories experienced the largest same-store sales increases. Our shoe divisions had same-store sales increases. Our women’s apparel merchandise category had mixed same-store sales performance; women’s intimate, junior and contemporary apparel were the leaders in the women’s category, while women’s special sizes, better and bridge apparel had same-store sales decreases in 2005.
Our net sales increased as our customers responded positively to our merchandise offerings. Both our Full-Line and Rack stores had overall and same-store sales increases. All of our geographic regions and major merchandise categories also reported overall and same-store sales increases. The strongest performing areas were accessories, women’s shoes and women’s better apparel, followed by women’s designer and men’s apparel.
In March 2006, we opened one Full-Line store; later in 2006, we plan to open one Rack store and relocate one existing Full-Line store, increasing retail square footage by approximately 1%. We expect 2006 same-store sales to increase 1% to 3%.
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Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Gross profit | $2,834.8 | $2,572.0 | $2,233.1 | |||||||||
Gross profit rate | 36.7% | 36.1% | 34.6% | |||||||||
Average inventory per square foot | $51.25 | $52.46 | $54.81 | |||||||||
Inventory turnover | 4.84 | 4.51 | 4.10 | |||||||||
While we showed growth in our same-store sales, we held buying and occupancy costs relatively consistent with last year. In addition, our merchandise costs increased in-line with our sales increases. As a result, we drove a gross profit rate improvement of 60 basis points.
In 2004, the improvement in our gross profit rate was primarily a result of meeting our customers’ desire for fresh, compelling merchandise, which increased the sales of regular priced merchandise. In addition, gross profit benefited from our ongoing improvement in managing inventory and by holding buying costs and the fixed portion of occupancy expenses flat.
In 2006, if we achieve our planned same-store sales growth, we expect a net 10 to 20 basis point improvement in our gross profit rate from continued sales leverage on buying and occupancy costs. This includes an estimated 15 basis point decrease to our 2006 gross profit rate when we adopt SFAS No. 123(R), “Share-Based Payment.”
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Selling, general and administrative expenses | $2,100.7 | $2,020.2 | $1,899.1 | |||||||||
Selling, general and administrative rate | 27.2% | 28.3% | 29.4% | |||||||||
The primary component of our selling, general and administrative expenses that varies with our same-store sales is our selling costs. Most of our other expenses do not fluctuate with changes in our same-store sales. In 2005, as our same-store sales increased 6.0%, we held our general and administrative expenses essentially in-line with 2004, which resulted in a 110 basis point decrease in our selling, general and administrative rate. This is our second year in a row that the combination of our net sales increases and control of our general and administrative costs has given us an improvement in the selling, general and administrative rate of over 100 basis points.
We continued to use our infrastructure to support increased sales. In 2004, our selling, general and administrative rate improved 110 basis points. We were able to control and leverage our fixed general and administrative expenses, especially non-selling labor. While selling expense increased in 2004, primarily from higher costs linked to increased sales, we experienced a slight rate improvement in selling expense as a percentage of net sales.
In 2006, our selling, general and administrative rate is expected to improve overall by 10 to 20 basis points, primarily from continued sales leverage on general and administrative expenses. This includes an estimated 20 basis point increase to our 2006 selling, general and administrative rate when we adopt SFAS No. 123(R), “Share-Based Payment.”
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Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Interest expense, net | $45.3 | $77.4 | $91.0 | |||||||||
Interest expense, net decreased $32.1 million in 2005 compared to 2004. The decrease is primarily due to debt prepayment costs of $20.9 million incurred in 2004 in connection with a $198.2 million debt buyback. We did not incur similar costs in 2005.
We prepaid debt of $198.2 million in 2004 and $105.7 million in 2003. We incurred debt prepayment costs of $20.9 million in 2004 and $14.3 million in 2003. The decrease in our interest expense, net in 2004 was due to the reduction in our 2004 average outstanding debt, partially offset by the increase in the prepayment costs.
We expect a reduction in interest expense, net of approximately $8 to $10 million due to higher interest income. This forecasted interest expense can vary based upon the rate of our share repurchases, which affects our cash on hand and the related interest income, and the variable portion of our long-term debt. Although the majority of our debt has fixed interest rates, we currently hold an interest rate swap agreement on our $250.0 million 5.625% senior notes due in January 2009, where we receive a fixed rate of 5.625% and pay a variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals (7.09% at January 28, 2006).
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Other income including finance charges, net | $196.4 | $172.9 | $155.1 | |||||||||
Other income including finance charges, net as a percentage of net sales | 2.5% | 2.4% | 2.4% | |||||||||
Other income including finance charges, net increased $23.4 million, due to earnings growth in the Nordstrom fsb co-branded VISA credit card program and our gift card breakage income of $8.0 million. The principal balances of receivables in the VISA credit card, which are held by a separate trust in which we hold a certificated interest, increased 20.6% during 2005. The receivables growth increase, which is mostly funded by our operating cash flows, produces an increase in the trust’s earnings. Our income from the program increased primarily because of this growth in the co-branded receivables program.
Our overall other income including finance charges, net increased $17.9 million, primarily from our co-branded VISA credit card program growth. Since 2002, we marketed this credit card to our in-store customers and the inactive Nordstrom private label credit card holders. These marketing efforts showed success in 2004, as the co-branded VISA credit card holders used the cards more extensively in 2004, resulting in a 45.7% volume increase.
In 2006, other income including finance charges, net is expected to increase approximately $25 to $30 million as we continue to see growth in our VISA credit card program and corresponding income.
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Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Income tax expense | $333.9 | $253.8 | $155.3 | |||||||||
Effective tax rate | 37.7% | 39.2% | 39.0% | |||||||||
Our expected effective tax rate, considering the federal tax rate of 35.0% and the net effect of state income taxes, is 38.5%. In 2005, our actual effective tax rate was below this rate because our 2004 tax expense, which was finalized in the third quarter of 2005, was less than we expected; we reduced our reserve when the audits of our 2000 and 2001 federal tax returns were completed; and, we utilized a larger than previously estimated amount of our capital loss carryforward.
Our effective tax rate in 2004 increased from the 2003 rate because we recorded a valuation allowance for a portion of a capital loss carryforward which we deemed to be unrealizable.
In 2006, we expect our effective tax rate to be 38.5%.
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Net earnings | $551.3 | $393.5 | $242.8 | |||||||||
Net earnings as a percentage of net sales | 7.1% | 5.5% | 3.8% | |||||||||
Diluted earnings per share | $1.98 | $1.38 | $0.88 | |||||||||
In 2005, net earnings increased 40.1% and diluted earnings per share increased 43.5% as a result of our same-store sales growth and sales leverage on buying and occupancy and general and administrative expenses. In 2004, we incurred prepayment costs and wrote off deferred debt costs totaling $20.9 million, or $0.05 per diluted share, upon prepayment of $198.2 million of long-term debt. We did not incur similar costs in 2005.
In 2004, earnings per share increased to $1.38 from $0.88 in 2003. This increase was driven by a strong increase in overall and same-store sales, improvements in gross profit through better inventory management, and sales leverage on buying and occupancy and selling, general and administrative expenses.
We expect our diluted earnings per share to be in the range of $2.15 to $2.23 in 2006, which includes an estimated annual expense of $0.06 per diluted share from the adoption of SFAS No. 123(R), “Share-Based Payment” in the first quarter of 2006.
Net earnings for the fourth quarter of 2005 were $190.4 million compared with $140.0 million in 2004. Total sales for the quarter increased 9.3% to $2.3 billion and same-store sales increased by 5.8%. Our cosmetics, accessories and men’s apparel merchandise categories experienced the largest same-store sales increases. Our shoe divisions had same-store sales increases. Our women’s apparel merchandise categories had mixed same-store sales performance. Women’s intimate and contemporary apparel were the leaders in the women’s category, while women’s special sizes, bridge and better apparel had same-store sales decreases in 2005.
Overall, cash increased by $102.0 million to $462.7 million as of January 28, 2006 due primarily to the increase in our net earnings in 2005. We utilized our cash flow from operations for capital expenditures, to repay debt and to return capital to our shareholders through dividends and repurchases of our common stock.
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Net cash flow from operating activities increased from $606.3 million to $776.2 million, an increase of $169.9 million primarily due to the growth in our net earnings. We continue to see growth in our co-branded VISA credit card program, and as a result we have increased the capital we allocate to fund this program. Under our co-branded VISA program, we earn interchange and finance charge income and we offer card holders merchandise certificates, which can be redeemed in our stores, similar to a gift certificate. Our operating cash flows have been sufficient over the past three years to support the annual growth of this program, and we expect additional growth in 2006 also will be funded from our operations.
In 2004, net cash flow from operating activities increased to $606.3 million, a $7.1 million increase. Higher net earnings was offset by our merchandise purchase and payment flow changes in 2004 as compared to 2003 and the timing of income tax payments. Toward the end of 2003 and into 2004, we achieved a more even flow of merchandise purchases in relation to our sales trends. Our 2004 inventory turns have improved over the prior year; the payables leverage we achieved in 2004 is consistent with our merchandise purchase plan. Income tax payments have increased in 2004 as a result of our earnings growth.
In 2006, cash flows provided by operating activities are expected to increase slightly as a result of increased net earnings.
In the past three years, we have had two principal types of investing activities: capital expenditures and short-term investments.
The changes in the level of our capital expenditures from year to year partially correlate to the number of stores opened in each year:
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Capital expenditures (in millions) | $271.7 | $246.9 | $258.3 | |||||||||
Stores opened: | ||||||||||||
Full-Line | 4 | 2 | 4 | |||||||||
Rack | — | — | 2 | |||||||||
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We reduced our holdings of our short-term investments in 2004 when we repurchased $198.2 million of long-term debt. In 2005, our short-term investment balances have been more consistent. We evaluate a number of short-term investment options, with a variety of yields and liquidity restrictions. Consistent with our investment policy, we invest our excess cash in high quality short-term investments. Some of these investments are classified as cash equivalents while others are classified as short-term investments; changes in the investment mix, while not significant to our overall short-term investing activities, can impact our net cash flows from investing activities.
Over the past three years, our net operating cash flows have exceeded our net investing activities, and we used this excess cash flow to repay long-term debt, pay dividends, and to repurchase our common stock in 2004 and 2005. Over this three-year period, the price of our common stock has increased, which spurred stock option exercises that also increased our net cash. We have not utilized our short-term borrowing facilities during the past three years.
The following table outlines our debt retirement activity (in millions):
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Principal repaid or retired: | ||||||||||||
Senior notes, 8.95%, due 2005 | — | $196.8 | $103.2 | |||||||||
Notes payable, 6.7%, due 2005 | $96.0 | $1.5 | $2.5 | |||||||||
Total | $96.0 | $198.3 | $105.7 | |||||||||
Total cash payment | $96.0 | $220.1 | $120.8 | |||||||||
In August 2004, our Board of Directors authorized $300.0 million of share repurchases, replacing a previous share repurchase authorization. By the end of 2004, we purchased 13.8 million shares in the open market for the entire authorized amount of $300.0 million at an average price of $21.71 per share.
Our recent favorable operating results increased our shareholders’ equity and allowed us to reduce our long-term debt, which contributed to a decrease in our debt-to-capital ratio from 43.0% at the end of 2003 to 30.9% at the end of 2005. We believe that a debt-to-capital ratio in the range of 25% to 40% results in favorable debt ratings and provides appropriate flexibility and a reasonable cost of capital.
We transfer our Nordstrom co-branded VISA credit card receivables to a third-party trust that issued $200 million of VISA receivable backed securities to third parties in 2002; those securities mature in April 2007. The outstanding balance of the co-branded VISA credit card receivables exceeds the receivable backed securities balance. As a result, we hold securities that represent our beneficial interests in the trust, recorded as investment in asset backed securities in our consolidated balance sheets. We do not record the $200.0 million of VISA receivable backed securities or the co-branded Nordstrom VISA credit card receivables transferred to the trust on our consolidated balance sheets.
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To manage our interest rate risk, we entered into an interest rate swap agreement in 2003, which had a $250.0 million notional amount expiring in January 2009. Under the agreement, we receive a fixed rate of 5.63% and pay a variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals (7.09% at January 28, 2006). The interest rate swap agreement had a fair value of $(11.1) million and $(7.8) million at the end of 2005 and 2004.
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows. We expect to fund these commitments primarily with operating cash flows generated in the normal course of business and credit available to us under existing and potential future facilities.
Less than | More than | |||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Long-term debt | $1,136.1 | $305.8 | $461.5 | $11.0 | $357.8 | |||||||||||||||
Capital lease obligations | 15.5 | 2.0 | 3.9 | 2.6 | 7.0 | |||||||||||||||
Operating leases | 680.6 | 73.4 | 143.8 | 131.4 | 332.0 | |||||||||||||||
Purchase obligations | 1,469.9 | 996.6 | 379.0 | 71.2 | 23.1 | |||||||||||||||
Other long-term liabilities | 196.9 | 30.0 | 39.9 | 19.2 | 107.8 | |||||||||||||||
Total | $3,499.0 | $1,407.8 | $1,028.1 | $235.4 | $827.7 | |||||||||||||||
The following table summarizes our amount of commitment expiration per period (in millions):
Total | ||||||||||||||||||||
Amounts | Less than | More than | ||||||||||||||||||
Committed | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Other commercial commitments | ||||||||||||||||||||
$500.0 unsecured line of credit, none outstanding | — | — | — | — | — | |||||||||||||||
$150.0 variable funding note, none outstanding | — | — | — | — | — | |||||||||||||||
Standby letters of credit | $11.2 | $11.2 | — | — | — | |||||||||||||||
Import letters of credit | $19.5 | $19.5 | — | — | — | |||||||||||||||
Total | $30.7 | $30.7 | — | — | — | |||||||||||||||
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The following table shows our credit ratings at the date of this report:
Standard | ||||
Credit Ratings | Moody’s | and Poor’s | ||
Senior unsecured debt | Baa1 | A- | ||
Commercial paper | P-2 | A-2 | ||
Outlook | Stable | Positive watch | ||
In 2005, we paid dividends of $0.32 per share, the ninth consecutive year that our annual dividends increased. We paid dividends of $0.24 and $0.205 in 2004 and 2003. In determining the amount of dividends to pay, we analyze our dividend payout ratio and our dividend yield and balance the dividend payment with our operating performance and capital resources. We target a dividend payout ratio of approximately 18% to 20% of net income, although the ratio has been slightly lower the last two years as a result of the significant increase in our net earnings. For the dividend yield, which is calculated as our dividends per share divided by our stock price, we target a 1% long-term yield. While we plan to increase dividends over time, we will balance future increases with our operating performance and available capital resources.
We maintain a level of liquidity to allow us to cover our seasonal cash needs and to minimize our need for short-term borrowings. We believe that our operating cash flows, existing cash and available credit facilities are sufficient to finance our cash requirements for the next 12 months. In October 2006, we plan to repay our $300.0 million 4.82% Private Label Securitization with proceeds from a combination of our existing borrowing capacity and additional borrowing capacity that we expect to put in place before October 2006.
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The following discussion highlights the policies we feel are critical.
Our co-branded Nordstrom VISA credit card receivables are transferred to a third-party trust on a daily basis. The balance of the receivables transferred to the trust fluctuates as new receivables are generated and old receivables are retired (through payments received, charge-offs, or credits from merchandise returns). The trust issues securities that are backed by the receivables. Certain of these securities or “beneficial interests” are sold to third-party investors and those remaining securities are issued to us.
Our inventory is stated at the lower of cost or market using the retail inventory method (first-in, first-out basis). Under the retail method, the valuation of inventories and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. To determine if the retail value of our inventory should be marked down, we considered current and anticipated demand, customer preferences, age of the merchandise and fashion trends. As our inventory retail value is adjusted regularly to reflect market conditions, our inventory is valued at the lower of cost or market.
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We recognize revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and Internet sales include shipping revenue and are recorded upon estimated delivery to the customer. As part of the normal sales cycle, we receive customer merchandise returns. To recognize the financial impact of sales returns, we estimate the amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical return patterns, which have remained consistent year over year, to estimate our expected returns.
We receive allowances from merchandise vendors for purchase price adjustments, cooperative advertising programs, cosmetic selling expenses and vendor sponsored contests. Purchase price adjustments are recorded as a reduction of cost of sales after an agreement with the vendor is executed and the related merchandise has been sold. Allowances for cooperative advertising programs and vendor sponsored contests are recorded in cost of sales and selling, general and administrative expenses as a reduction to the related cost when incurred. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction to the related cost when incurred. Any allowances in excess of actual costs incurred that are recorded in selling, general and administrative expenses are recorded as a reduction to cost of sales.
We retain a portion of the risk for certain losses related to health and welfare, workers’ compensation and general liability claims. Liabilities associated with these losses include estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost based on internal analysis of historical data and independent actuarial estimates. We experienced an increase in our California workers’ compensation costs in 2002 and 2003 and declining costs in 2005. Our total workers’ compensation costs over the last three years have been $12,804, $29,263, and $33,782 in 2005, 2004, and 2003.
Our allowance for doubtful accounts represents our best estimate of the losses inherent in our private label credit card receivable as of the balance sheet date. We evaluate the collectibility of our accounts receivable based on several factors, including historical trends of aging of accounts, write-off experience and expectations of future performance. We recognize finance charges on delinquent accounts until the account is written off. Delinquent accounts are written off when they are determined to be uncollectible, usually after the passage of 151 days without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or other circumstances that make further collection unlikely. Our write-off experience and aging trends have improved each of the last three years.
We review our goodwill and acquired tradename annually for impairment in the first quarter or when circumstances indicate the carrying value of these assets may not be recoverable. The goodwill and acquired tradename associated with our Façonnable business are our largest impairment risk. In 2005, we engaged an independent valuation specialist to estimate the reporting unit’s fair value.
We lease the land or the land and building at many of our Full-Line stores, and we lease the building at many of our Rack stores. Additionally, we lease office facilities, warehouses and equipment. We recognize lease expense on a straight-line basis over the minimum lease term. In 2004, we corrected our lease accounting policy to recognize lease expense, net of property incentives, from the time that we control the leased property. We recorded a charge of $7.8 million ($4.7 million net of tax) in the fourth quarter of 2004 to correct this accounting policy. The impact of this change was immaterial to prior periods. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. For leases that contain rent holiday periods and scheduled rent increases, we record the difference between the rent expense and the rental amount payable under the leases in liabilities. Some leases require additional payments based on sales and are recorded in rent expense when the contingent rent is probable.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends ARB No. 43, Chapter 4, “Inventory Pricing” to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material should be recognized as current period charges. In addition, this statement requires that fixed overhead production be allocated to the costs of conversion based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and should be applied prospectively. We do not believe the adoption of SFAS No. 151 will have a material impact on our financial statements.
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We are exposed to market risk from changes in interest rates. In seeking to minimize risk, we manage exposure through our regular operating and financing activities. We do not use financial instruments for trading or other speculative purposes and are not party to any leveraged financial instruments.
Total at | Fair value at | |||||||||||||||||||||||||||||||
January 28, | January 28, | |||||||||||||||||||||||||||||||
Dollars in thousands | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | 2006 | 2006 | ||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||
Fixed | $306,618 | $6,709 | $256,858 | $6,958 | $5,419 | $362,882 | $945,444 | $963,092 | ||||||||||||||||||||||||
Avg. int. rate | 4.9% | 8.1% | 5.7% | 7.8% | 8.9% | 7.2% | 6.0% | |||||||||||||||||||||||||
Interest rate swap | ||||||||||||||||||||||||||||||||
Fixed to variable | — | — | $250,000 | — | — | — | $250,000 | $(11,050) | ||||||||||||||||||||||||
Avg. pay rate | — | — | 7.09% | — | — | — | 7.09% | |||||||||||||||||||||||||
Avg. receive rate | — | — | 5.63% | — | — | — | 5.63% | |||||||||||||||||||||||||
The majority of our revenue, expense and capital expenditures are transacted in U.S. dollars. However, we periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency prices. The fair value of our outstanding forward contracts at January 28, 2006 was not material.
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We are responsible for the preparation, integrity and fair presentation of our financial statements and the other information that appears in this annual report on Form 10-K. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include estimates based on our best judgment.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities and Exchange Act of 1934 rules. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 28, 2006.
been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Michael G. Koppel
Executive Vice President and Chief Financial Officer
Blake W. Nordstrom
President
Nordstrom, Inc. and subsidiaries 25
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Seattle, Washington
March 21, 2006
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Seattle, Washington
March 21, 2006
Nordstrom, Inc. and subsidiaries 27
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Consolidated Statements of Earnings
Amounts in thousands except per share amounts
Fiscal year | 2005 | 2004 | 2003 | |||||||||
Net sales | $7,722,860 | $7,131,388 | $6,448,678 | |||||||||
Cost of sales and related buying and occupancy costs | (4,888,023) | (4,559,388) | (4,215,546) | |||||||||
Gross profit | 2,834,837 | 2,572,000 | 2,233,132 | |||||||||
Selling, general and administrative expenses | (2,100,666) | (2,020,233) | (1,899,129) | |||||||||
Operating income | 734,171 | 551,767 | 334,003 | |||||||||
Interest expense, net | (45,300) | (77,428) | (90,952) | |||||||||
Other income including finance charges, net | 196,354 | 172,942 | 155,090 | |||||||||
Earnings before income tax expense | 885,225 | 647,281 | 398,141 | |||||||||
Income tax expense | (333,886) | (253,831) | (155,300) | |||||||||
Net earnings | $551,339 | $393,450 | $242,841 | |||||||||
Basic earnings per share | $2.03 | $1.41 | $0.89 | |||||||||
Diluted earnings per share | $1.98 | $1.38 | $0.88 | |||||||||
Basic shares | 271,958 | 278,993 | 272,658 | |||||||||
Diluted shares | 277,776 | 284,533 | 275,478 | |||||||||
Cash dividends paid per share of common stock outstanding | $0.32 | $0.24 | $0.205 | |||||||||
Fiscal year | 2005 | 2004 | 2003 | |||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales and related buying and occupancy costs | (63.3 | ) | (63.9 | ) | (65.4 | ) | ||||||
Gross profit | 36.7 | 36.1 | 34.6 | |||||||||
Selling, general and administrative expenses | (27.2 | ) | (28.3 | ) | (29.4 | ) | ||||||
Operating income | 9.5 | 7.7 | 5.2 | |||||||||
Interest expense, net | (0.6 | ) | (1.1 | ) | (1.4 | ) | ||||||
Other income including finance charges, net | 2.5 | 2.4 | 2.4 | |||||||||
Earnings before income tax expense | 11.5 | 9.1 | 6.2 | |||||||||
Income tax expense (as a % of earnings before income tax expense) | (37.7 | ) | (39.2 | ) | (39.0 | ) | ||||||
Net earnings | 7.1 | 5.5 | % | 3.8 | % | |||||||
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Amounts in thousands
January 28, 2006 | January 29, 2005 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $462,656 | $360,623 | ||||||
Short-term investments | 54,000 | 41,825 | ||||||
Accounts receivable, net | 639,558 | 645,663 | ||||||
Investment in asset backed securities | 561,136 | 422,416 | ||||||
Merchandise inventories | 955,978 | 917,182 | ||||||
Current deferred tax assets | 145,470 | 131,547 | ||||||
Prepaid expenses and other | 55,359 | 53,188 | ||||||
Total current assets | 2,874,157 | 2,572,444 | ||||||
Land, buildings and equipment, net | 1,773,871 | 1,780,366 | ||||||
Goodwill | 51,714 | 51,714 | ||||||
Acquired tradename | 84,000 | 84,000 | ||||||
Other assets | 137,607 | 116,866 | ||||||
Total assets | $4,921,349 | $4,605,390 | ||||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $540,019 | $482,394 | ||||||
Accrued salaries, wages and related benefits | 285,982 | 287,904 | ||||||
Other current liabilities | 409,076 | 354,201 | ||||||
Income taxes payable | 81,617 | 115,556 | ||||||
Current portion of long-term debt | 306,618 | 101,097 | ||||||
Total current liabilities | 1,623,312 | 1,341,152 | ||||||
Long-term debt, net | 627,776 | 929,010 | ||||||
Deferred property incentives, net | 364,382 | 367,087 | ||||||
Other liabilities | 213,198 | 179,147 | ||||||
Shareholders’ equity: | ||||||||
Common stock, no par value: 1,000,000 shares authorized; 269,549 and 271,331 shares issued and outstanding | 685,934 | 552,655 | ||||||
Unearned stock compensation | (327 | ) | (299 | ) | ||||
Retained earnings | 1,404,366 | 1,227,303 | ||||||
Accumulated other comprehensive earnings | 2,708 | 9,335 | ||||||
Total shareholders’ equity | 2,092,681 | 1,788,994 | ||||||
Total liabilities and shareholders’ equity | $4,921,349 | $4,605,390 | ||||||
Nordstrom, Inc. and subsidiaries 29
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Amounts in thousands except per share amounts
Accumulated | ||||||||||||||||||||||||
Unearned | Other | |||||||||||||||||||||||
Common Stock | Stock | Retained | Comprehensive | |||||||||||||||||||||
Shares | Amount | Compensation | Earnings | Earnings | Total | |||||||||||||||||||
Balance at January 31, 2003 | 270,888 | $358,069 | $(2,010 | ) | $1,014,105 | $2,700 | $1,372,864 | |||||||||||||||||
Net earnings | — | — | — | 242,841 | — | 242,841 | ||||||||||||||||||
Other comprehensive earnings: | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | 7,379 | 7,379 | ||||||||||||||||||
Unrecognized loss on SERP, net of tax of $3,304 | — | — | — | — | (5,168 | ) | (5,168 | ) | ||||||||||||||||
Fair value adjustment to investment in asset backed securities, net of tax of $(2,530) | — | — | — | — | 3,957 | 3,957 | ||||||||||||||||||
Comprehensive net earnings | — | — | — | — | — | 249,009 | ||||||||||||||||||
Cash dividends paid ($0.205 per share) | — | — | — | (55,853 | ) | — | (55,853 | ) | ||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||
Stock option plans | 4,519 | 57,981 | — | — | — | 57,981 | ||||||||||||||||||
Employee stock purchase plan | 1,295 | 9,677 | — | — | — | 9,677 | ||||||||||||||||||
Stock-based compensation | 51 | (1,082 | ) | 1,413 | — | — | 331 | |||||||||||||||||
Balance at January 31, 2004 | 276,753 | 424,645 | (597 | ) | 1,201,093 | 8,868 | 1,634,009 | |||||||||||||||||
Net earnings | — | — | — | 393,450 | — | 393,450 | ||||||||||||||||||
Other comprehensive earnings: | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | 493 | 493 | ||||||||||||||||||
Unrecognized loss on SERP, net of tax of $76 | — | — | — | — | (119 | ) | (119 | ) | ||||||||||||||||
Fair value adjustment to investment in asset backed securities, net of tax of $(59) | — | — | — | — | 93 | 93 | ||||||||||||||||||
Comprehensive net earnings | — | — | — | — | — | 393,917 | ||||||||||||||||||
Cash dividends paid ($0.24 per share) | — | — | — | (67,240 | ) | — | (67,240 | ) | ||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||
Stock option plans | 7,238 | 111,315 | — | — | — | 111,315 | ||||||||||||||||||
Employee stock purchase plan | 977 | 14,081 | — | — | — | 14,081 | ||||||||||||||||||
Stock-based compensation | 178 | 2,614 | 298 | — | — | 2,912 | ||||||||||||||||||
Repurchase of common stock | (13,815 | ) | — | — | (300,000 | ) | — | (300,000 | ) | |||||||||||||||
Balance at January 29, 2005 | 271,331 | 552,655 | (299 | ) | 1,227,303 | 9,335 | 1,788,994 | |||||||||||||||||
Net earnings | — | — | — | 551,339 | — | 551,339 | ||||||||||||||||||
Other comprehensive earnings: | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (1,815 | ) | (1,815 | ) | ||||||||||||||||
Unrecognized loss on SERP, net of tax of $4,950 | — | — | — | — | (7,742 | ) | (7,742 | ) | ||||||||||||||||
Fair value adjustment to investment in asset backed securities, net of tax of $(1,875) | — | — | — | — | 2,930 | 2,930 | ||||||||||||||||||
Comprehensive net earnings | — | — | — | — | — | 544,712 | ||||||||||||||||||
Cash dividends paid ($0.32 per share) | — | — | — | (87,196 | ) | — | (87,196 | ) | ||||||||||||||||
Issuance of common stock for: | ||||||||||||||||||||||||
Stock option plans | 5,820 | 112,948 | — | — | — | 112,948 | ||||||||||||||||||
Employee stock purchase plan | 757 | 16,767 | — | — | — | 16,767 | ||||||||||||||||||
Stock-based compensation | 136 | 3,564 | (28 | ) | — | — | 3,536 | |||||||||||||||||
Repurchase of common stock | (8,495 | ) | — | — | (287,080 | ) | — | (287,080 | ) | |||||||||||||||
Balance at January 28, 2006 | 269,549 | $685,934 | $(327 | ) | $1,404,366 | $2,708 | $2,092,681 | |||||||||||||||||
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Amounts in thousands
Fiscal year | 2005 | 2004 | 2003 | |||||||||
Operating Activities | ||||||||||||
Net earnings | $551,339 | $393,450 | $242,841 | |||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization of buildings and equipment | 276,328 | 264,769 | 250,683 | |||||||||
Amortization of deferred property incentives and other, net | (33,350 | ) | (31,378 | ) | (27,712 | ) | ||||||
Stock-based compensation expense | 13,285 | 8,051 | 17,894 | |||||||||
Deferred income taxes, net | (11,238 | ) | (8,040 | ) | (1 | ) | ||||||
Tax benefit of stock option exercises and employee stock purchases | 41,092 | 25,442 | 10,199 | |||||||||
Provision for bad debt | 20,918 | 24,639 | 27,975 | |||||||||
Change in operating assets and liabilities: | ||||||||||||
Accounts receivable | (15,140 | ) | (2,950 | ) | (30,677 | ) | ||||||
Investment in asset backed securities | (135,790 | ) | (149,970 | ) | (141,264 | ) | ||||||
Merchandise inventories | (20,804 | ) | (11,771 | ) | 28,213 | |||||||
Prepaid expenses | (1,035 | ) | (3,163 | ) | 86 | |||||||
Other assets | (3,473 | ) | (8,143 | ) | (10,109 | ) | ||||||
Accounts payable | 31,721 | 23,930 | 75,736 | |||||||||
Accrued salaries, wages and related benefits | (11,284 | ) | 15,055 | 42,885 | ||||||||
Other current liabilities | 38,755 | 58,471 | 38,970 | |||||||||
Income taxes payable | (33,877 | ) | (18,999 | ) | 21,319 | |||||||
Property incentives | 49,480 | 19,837 | 46,007 | |||||||||
Other liabilities | 19,305 | 7,116 | 6,237 | |||||||||
Net cash provided by operating activities | 776,232 | 606,346 | 599,282 | |||||||||
Investing Activities | ||||||||||||
Capital expenditures | (271,659 | ) | (246,851 | ) | (258,314 | ) | ||||||
Proceeds from sale of assets | 107 | 5,473 | — | |||||||||
Purchases of short-term investments | (542,925 | ) | (3,232,250 | ) | (2,144,909 | ) | ||||||
Sales of short-term investments | 530,750 | 3,366,425 | 2,090,175 | |||||||||
Other, net | (8,366 | ) | (2,830 | ) | 3,451 | |||||||
Net cash used in investing activities | (292,093 | ) | (110,033 | ) | (309,597 | ) | ||||||
Financing Activities | ||||||||||||
Principal payments on long-term debt | (101,047 | ) | (205,252 | ) | (111,436 | ) | ||||||
Increase (decrease) in cash book overdrafts | 4,946 | (2,680 | ) | 33,832 | ||||||||
Proceeds from exercise of stock options | 73,023 | 87,061 | 48,598 | |||||||||
Proceeds from employee stock purchase plan | 15,600 | 12,892 | 8,861 | |||||||||
Cash dividends paid | (87,196 | ) | (67,240 | ) | (55,853 | ) | ||||||
Repurchase of common stock | (287,080 | ) | (300,000 | ) | — | |||||||
Other, net | (352 | ) | (752 | ) | 2,341 | |||||||
Net cash used in financing activities | (382,106 | ) | (475,971 | ) | (73,657 | ) | ||||||
Net increase in cash and cash equivalents | 102,033 | 20,342 | 216,028 | |||||||||
Cash and cash equivalents at beginning of year | 360,623 | 340,281 | 124,253 | |||||||||
Cash and cash equivalents at end of year | $462,656 | $360,623 | $340,281 | |||||||||
Nordstrom, Inc. and subsidiaries 31
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
We are one of the nation’s leading fashion specialty retailers, with 156 U.S. stores located in 27 states. Founded in 1901 as a shoe store in Seattle, today we operate 99 Full-Line Nordstrom stores, 49 discount Nordstrom Rack stores, five U.S.-based Façonnable boutiques, one free-standing shoe store, and two clearance stores. We also operate 32 international Façonnable boutiques in France, Portugal and Belgium. We also serve our customers on the Web at www.nordstrom.com and through our catalogs.
Our fiscal year ends on the Saturday closest to January 31st. References to 2005, 2004 and 2003 relate to the 52 week fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004. References to 2006 relate to the 53 weeks ending February 3, 2007.
On May 24, 2005, our Board of Directors approved a two-for-one stock split of our outstanding common stock and a proportional increase in the number of common shares authorized from 500,000 to 1,000,000. Additional shares issued as a result of the stock split were distributed on June 30, 2005 to shareholders of record as of June 13, 2005. The shares and per share information included herein have been adjusted to reflect this stock split.
The consolidated financial statements include the balances of Nordstrom, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
We make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
We record revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and Internet sales include shipping revenue and are recorded upon estimated delivery to the customer. We recognize revenue associated with our gift cards upon redemption of the gift card. As part of the normal sales cycle, we receive customer merchandise returns. To recognize the financial impact of sales returns, we estimate the amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical return patterns to estimate our expected returns. Our sales return reserves were $51,172 and $49,745 at the end of 2005 and 2004.
Buying costs consist primarily of salaries and costs incurred by our merchandise and product development groups. Occupancy costs include rent, depreciation, property taxes and operating costs of our retail and distribution facilities.
Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment. Shipping and handling costs of $79,689, $75,421, and $67,583 in 2005, 2004, and 2003 were included in selling, general and administrative expenses.
Production costs for newspaper, radio and other media are expensed the first time the advertisement is run. Total advertising expenses, net of vendor allowances, were $122,294, $123,974 and $117,411 in 2005, 2004, and 2003.
This consists primarily of income from finance charges and late fees generated by our Nordstrom private label cards and earnings from our investment in asset backed securities and securitization gains, which are both generated from the co-branded Nordstrom VISA credit card program. Gift card breakage income is a new component of other income including finance charges, net in 2005. Unclaimed property legislation changed in 2004 to allow us to retain unused balances on gift cards. We analyzed the experience of our program since it was introduced in 1999, and we determined that balances remaining on cards issued five years ago are unlikely to be redeemed. The breakage income recognized in 2005 includes $2,636 and $5,410 for cards issued in 1999 and 2000; in both cases, the breakage income is 3.4% of the amount issued as gift cards in those years.
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
We apply APB No. 25, “Accounting for Stock Issued to Employees,” in measuring compensation costs under our stock-based compensation programs. Stock options are issued at the fair market value of the stock at the date of grant. Accordingly, we recognized no compensation expense for the issuance of our stock options.
Fiscal year | 2005 | 2004 | 2003 | |||||||||
Net earnings, as reported | $551,339 | $393,450 | $242,841 | |||||||||
Add: stock-based compensation expense included in reported net earnings, net of tax | 8,277 | 4,894 | 9,898 | |||||||||
Deduct: stock-based compensation expense determined under fair value, net of tax | (25,681 | ) | (25,001 | ) | (30,154 | ) | ||||||
Pro forma net earnings | $533,935 | $373,343 | $222,585 | |||||||||
Earnings per share: | ||||||||||||
Basic-as reported | $2.03 | $1.41 | $0.89 | |||||||||
Diluted-as reported | $1.98 | $1.38 | $0.88 | |||||||||
Basic-pro forma | $1.96 | $1.34 | $0.82 | |||||||||
Diluted-pro forma | $1.92 | $1.31 | $0.81 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Risk-free interest rate | 3.9% | 3.0% | 2.9% | |||||||||
Volatility | 44.3% | 65.4% | 70.6% | |||||||||
Dividend yield | 1.7% | 1.5% | 1.5% | |||||||||
Expected life in years | 5.0 | 6.0 | 5.0 | |||||||||
Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase. As of the end of 2005 and 2004, we had restricted cash of $6,728 and $6,886 included in other long term assets. The restricted cash is held in a trust for use by our Supplemental Executive Retirement Plan and Deferred Compensation Plans.
Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at the end of 2005 and 2004 included $91,671 and $86,725 of checks not yet presented for payment drawn in excess of our bank deposit balances.
Short-term investments consist of auction rate securities classified as available-for-sale. Auction rate securities are high-quality variable rate bonds whose interest rate is periodically reset, typically every 7, 28, or 35 days. However, the underlying security can have a duration from 15 to 30 years. Our auction rate securities are stated at cost, which approximates fair value, and therefore there were no unrealized gains or losses related to these securities included in accumulated other comprehensive earnings. The cost of securities sold was based on the specific identification method.
We offer Nordstrom private label cards and co-branded Nordstrom VISA credit cards to our customers. Substantially all of the receivables related to both credit cards are securitized. Under our credit card securitizations, the receivables are transferred to third-party trusts on a daily basis. The balance of the receivables transferred to the trusts fluctuates as new receivables are generated and old receivables are retired (through payments received, charge-offs, or credits from merchandise returns). The trusts issue securities that are backed by the receivables. Certain of these securities or “beneficial interests” are sold to third-party investors and the remaining securities are issued to us.
Nordstrom, Inc. and subsidiaries 33
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
We transfer these receivables to a third-party trust (“Private Label Trust”) that issues two Nordstrom private label receivable backed securitizations, which are described below in Note 10: Long-term Debt.
In order to enhance our cost-effective capital sources, we have in place a securitized asset structure. This allows us to reduce our investment in the co-branded Nordstrom VISA credit card receivables, so we can deploy our capital resources to greater-value opportunities.
Accounts receivable consist primarily of our Nordstrom private label receivables that serve as collateral for our Private Label Securitization. We record the face value of the principal, plus any earned finance charges, late fees, or cash advance fees.
Merchandise inventories are valued at the lower of cost or market, using the retail method (first-in, first-out basis).
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
Depreciation is computed using the straight-line method. Estimated useful lives by major asset category are as follows:
Asset | Life (in years) | |
Buildings and improvements | 5-40 | |
Store fixtures and equipment | 3-15 | |
Leasehold improvements | Shorter of life of lease | |
Software | 3-7 | |
We review our goodwill and acquired tradename annually for impairment in the first quarter or when circumstances indicate the carrying value of these assets may not be recoverable. The goodwill and acquired tradename associated with our Façonnable business are our largest impairment risk. In 2005, we engaged an independent valuation specialist to estimate the reporting unit’s fair value.
We recognize lease expense on a straight-line basis over the minimum lease term. In 2004, we corrected our lease accounting policy to recognize lease expense, net of landlord reimbursements, from the time that we control the leased property. In the past, we recorded net rent expense once lease payments or retail operations started. We recorded a charge of $7,753 ($4,729 net of tax) in the fourth quarter of 2004 to correct this accounting policy. The impact of this change was immaterial to prior periods.
The assets and liabilities of our foreign subsidiaries have been translated to U.S. dollars using the exchange rates effective on the balance sheet date, while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustments are recorded in accumulated other comprehensive earnings.
We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We establish valuation allowances for tax benefits when we believe it is not likely that the related expense will be deductible for tax purposes.
Included in other current liabilities were gift card liabilities of $154,683 and $133,532 at the end of 2005 and 2004.
Nordstrom, Inc. and subsidiaries 35
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
Customers who reach a cumulative purchase threshold when using our Nordstrom private label cards or our co-branded Nordstrom VISA credit cards receive merchandise certificates. These merchandise certificates can be redeemed in our stores similar to gift certificates. We estimate the net cost of the merchandise certificates that will be earned and redeemed and record this cost as the merchandise certificates are earned. The cost of the loyalty program is not significant in relation to the corresponding sales, so the program expense is recorded in cost of sales rather than as a reduction of net sales.
We receive allowances from merchandise vendors for purchase price adjustments, cooperative advertising programs, cosmetic selling expenses, and vendor sponsored contests. Purchase price adjustments are recorded as a reduction of cost of sales at the point they have been earned and the related merchandise has been sold. Allowances for cooperative advertising programs and vendor sponsored contests are recorded in cost of sales and selling, general and administrative expenses as a reduction to the related cost when incurred. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction to the related cost when incurred. Any allowances in excess of actual costs incurred that are recorded in selling, general and administrative expenses are recorded as a reduction to cost of sales. The following table shows vendor allowances earned during the year:
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Purchase price adjustments | $58,103 | $47,707 | $49,312 | |||||||||
Cosmetic selling expenses | 107,166 | 96,936 | 88,518 | |||||||||
Cooperative advertising | 57,575 | 57,786 | 44,939 | |||||||||
Vendor sponsored contests | 3,668 | 3,975 | 4,180 | |||||||||
Total vendor allowances | $226,512 | $206,404 | $186,949 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Cost of sales | $118,104 | $106,902 | $55,161 | |||||||||
Selling, general and administrative expenses | 108,408 | 99,502 | 131,788 | |||||||||
Total vendor allowances | $226,512 | $206,404 | $186,949 | |||||||||
The carrying amounts of cash equivalents and short term-investments approximate fair value. See Note 10 for the fair values of our long-term debt and interest rate swap agreements.
We periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency prices. These forward contracts do not qualify for derivative hedge accounting. At the end of 2005 and 2004, the notional amounts of our foreign currency forward contracts at the contract rates were $6,127 and $2,644. We also use derivative financial instruments to manage our interest rate risks. See Note 10 for a further description of our interest rate swaps.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends ARB No. 43, Chapter 4, “Inventory Pricing” to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material should be recognized as current period charges. In addition, this statement requires that fixed overhead production be allocated to the costs of conversion based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and should be applied prospectively. We do not believe the adoption of SFAS No. 151 will have a material impact on our financial statements.
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January 28, 2006 | January 29, 2005 | |||||||
Change in benefit obligation: | ||||||||
Accumulated benefit obligation at beginning of year | $63,950 | $59,613 | ||||||
Participant service cost | 1,763 | 1,489 | ||||||
Interest cost | 4,747 | 3,965 | ||||||
Amortization of net loss | 2,615 | 1,543 | ||||||
Amortization of prior service cost | 962 | 962 | ||||||
Change in additional minimum liability | 12,623 | (766 | ) | |||||
Distributions | (2,850 | ) | (2,856 | ) | ||||
Accumulated benefit obligation at end of year | $83,810 | $63,950 | ||||||
January 28, 2006 | January 29, 2005 | |||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | — | — | ||||||
Employer contribution | $2,850 | $2,856 | ||||||
Distributions | (2,850 | ) | (2,856 | ) | ||||
Fair value of plan assets at end of year | — | — | ||||||
Projected benefit obligation | 91,036 | 69,598 | ||||||
Underfunded status | (91,036 | ) | (69,598 | ) | ||||
Unrecognized prior service cost | 5,198 | 5,266 | ||||||
Unrecognized loss | 39,258 | 24,989 | ||||||
Accrued pension cost | (46,580 | ) | (39,343 | ) | ||||
Additional minimum liability | (37,230 | ) | (24,607 | ) | ||||
Total SERP liability | $(83,810 | ) | $(63,950 | ) | ||||
Amounts recognized in the balance sheets: | ||||||||
Accrued pension cost | $46,580 | $39,343 | ||||||
Intangible asset included in other assets | 5,198 | 5,266 | ||||||
Deferred tax asset | 12,492 | 7,543 | ||||||
Accumulated other comprehensive loss, net of tax | 19,540 | 11,798 | ||||||
Net amount recognized | $83,810 | $63,950 | ||||||
Fiscal year | 2005 | 2004 | 2003 | |||||||||
Participant service cost | $1,763 | $1,489 | $819 | |||||||||
Interest cost | 4,747 | 3,965 | 3,420 | |||||||||
Amortization of net loss | 2,615 | 1,543 | 751 | |||||||||
Amortization of prior service cost | 962 | 962 | 693 | |||||||||
Total expense | $10,087 | $7,959 | $5,683 | |||||||||
Assumption percentages: | ||||||||||||
Discount rate | 6.00% | 6.25% | 6.25% | |||||||||
Rate of compensation increase | 4.00% | 4.00% | 4.00% | |||||||||
Measurement date | 10/31/05 | 10/31/04 | 10/31/03 | |||||||||
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Amounts in thousands except per share amounts
Fiscal year | ||||
2006 | $4,365 | |||
2007 | 4,361 | |||
2008 | 4,367 | |||
2009 | 4,428 | |||
2010 | 4,597 | |||
2011-2015 | 28,455 | |||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Interest expense on long-term debt | $63,378 | $88,518 | $100,518 | |||||||||
Less: | ||||||||||||
Interest income | (13,273 | ) | (7,929 | ) | (5,981 | ) | ||||||
Capitalized interest | (4,805 | ) | (3,161 | ) | (3,585 | ) | ||||||
Interest expense, net | $45,300 | $77,428 | $90,952 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Current income taxes: | ||||||||||||
Federal | $311,996 | $282,430 | $118,559 | |||||||||
State and local | 38,100 | 45,091 | 15,516 | |||||||||
Total current income tax expense | 350,096 | 327,521 | 134,075 | |||||||||
Deferred income taxes: | ||||||||||||
Current | (7,208 | ) | (15,259 | ) | (7,904 | ) | ||||||
Non-current | (9,002 | ) | (58,431 | ) | 29,129 | |||||||
Total deferred income tax (benefit) expense | (16,210 | ) | (73,690 | ) | 21,225 | |||||||
Total income tax expense | $333,886 | $253,831 | $155,300 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local income taxes, net of federal income taxes | 3.2 | 3.5 | 3.1 | |||||||||
Change in valuation allowance | (0.1 | ) | 0.3 | — | ||||||||
Other, net | (0.4 | ) | 0.4 | 0.9 | ||||||||
Effective tax rate | 37.7 | % | 39.2 | % | 39.0 | % | ||||||
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Amounts in thousands except per share amounts
January 28, 2006 | January 29, 2005 | |||||||
Accrued expenses | $53,629 | $56,135 | ||||||
Compensation and benefits accruals | 70,454 | 57,947 | ||||||
Bad debts | 5,528 | 6,309 | ||||||
Gift cards and gift certificates | 13,041 | 12,743 | ||||||
Merchandise certificates | 5,524 | 3,461 | ||||||
Merchandise inventories | 23,206 | 20,933 | ||||||
Securitization | 7,892 | 834 | ||||||
Capital loss carryforwards | — | 6,286 | ||||||
Other | 1,581 | 820 | ||||||
Total deferred tax assets | 180,855 | 165,468 | ||||||
Land, buildings and equipment basis and depreciation differences | (16,892 | ) | (13,294 | ) | ||||
Other | (8,720 | ) | (11,317 | ) | ||||
Total deferred tax liabilities | (25,612 | ) | (24,611 | ) | ||||
Valuation allowance | — | (1,800 | ) | |||||
Net deferred tax assets | $155,243 | $139,057 | ||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Net earnings | $551,339 | $393,450 | $242,841 | |||||||||
Basic shares | 271,958 | 278,993 | 272,658 | |||||||||
Dilutive effect of stock options and performance share units | 5,818 | 5,540 | 2,820 | |||||||||
Diluted shares | 277,776 | 284,533 | 275,478 | |||||||||
Basic earnings per share | $2.03 | $1.41 | $0.89 | |||||||||
Diluted earnings per share | $1.98 | $1.38 | $0.88 | |||||||||
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
January 28, 2006 | January 29, 2005 | |||||||
Trade receivables: | ||||||||
Unrestricted | $32,070 | $31,400 | ||||||
Restricted | 552,671 | 568,062 | ||||||
Allowance for doubtful accounts | (17,926 | ) | (19,065 | ) | ||||
Trade receivables, net | 566,815 | 580,397 | ||||||
Other | 72,743 | 65,266 | ||||||
Accounts receivable, net | $639,558 | $645,663 | ||||||
January 28, 2006 | January 29, 2005 | |||||||
Total face value of co-branded | ||||||||
Nordstrom VISA credit card principal receivables | $738,947 | $612,549 | ||||||
Securities issued by the VISA Trust: | ||||||||
Off-balance sheet (sold to third parties): | ||||||||
2002 Class A & B Notes at par value | $200,000 | $200,000 | ||||||
Amounts recorded on balance sheet: | ||||||||
Investment in asset backed securities at fair value | 561,136 | 422,416 | ||||||
January 28, 2006 | January 29, 2005 | |||||||
Assumptions used to estimate the fair value of the investment in asset backed securities: | ||||||||
Weighted average remaining life (in months) | 7.6 | 8.1 | ||||||
Average annual credit losses | 4.7% | 6.9% | ||||||
Average gross yield | 17.1% | 15.8% | ||||||
Weighted average coupon on issued securities | 5.2% | 3.8% | ||||||
Average monthly payment rates | 8.2% | 7.5% | ||||||
Discount rate on investment in asset backed securities | 5.9% to 11.1% | 4.5% to 9.0% | ||||||
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Amounts in thousands except per share amounts
+10% | +20% | -10% | -20% | |||||||||||||
Gross yield | $7,045 | $14,090 | $(7,045 | ) | $(14,090 | ) | ||||||||||
Interest expense on issued classes | (614 | ) | (1,229 | ) | 614 | 1,229 | ||||||||||
Card holders’ payment rate | (376 | ) | (944 | ) | 55 | (416 | ) | |||||||||
Charge offs | (2,111 | ) | (4,196 | ) | 2,138 | 4,303 | ||||||||||
Discount rate | (2,213 | ) | (4,405 | ) | 2,233 | 4,488 | ||||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Principal collections reinvested in new receivables | $2,597,499 | $2,019,162 | $1,332,790 | |||||||||
Gains on sales of receivables | 19,902 | 8,876 | 4,920 | |||||||||
Income earned on beneficial interests | 54,396 | 46,645 | 31,926 | |||||||||
Cash flows from beneficial interests: | ||||||||||||
Investment in asset backed securities | 129,879 | 76,381 | 58,222 | |||||||||
Servicing fees | 13,309 | 10,698 | 7,631 | |||||||||
Fiscal Year | 2006 | 2005 | 2004 | |||||||||
Original projection | 3.46% | 4.04% | 5.15% | |||||||||
Actual | N/A | 3.76% | 4.25% | |||||||||
January 28, 2006 | January 29, 2005 | |||||||
Land and land improvements | $67,020 | $64,037 | ||||||
Buildings and building improvements | 796,686 | 818,733 | ||||||
Leasehold improvements | 1,190,041 | 1,066,383 | ||||||
Store fixtures and equipment | 1,919,200 | 1,817,294 | ||||||
Software | 265,951 | 233,223 | ||||||
Construction in progress | 84,532 | 91,303 | ||||||
4,323,430 | 4,090,973 | |||||||
Less accumulated depreciation and amortization | (2,549,559 | ) | (2,310,607 | ) | ||||
Land, buildings and equipment, net | $1,773,871 | $1,780,366 | ||||||
Nordstrom, Inc. and subsidiaries 41
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Amounts in thousands except per share amounts
January 28, 2006 | January 29, 2005 | |||||||
Private Label Securitization, 4.82%, due 2006 | $300,000 | $300,000 | ||||||
Senior debentures, 6.95%, due 2028 | 300,000 | 300,000 | ||||||
Senior notes, 5.625%, due 2009 | 250,000 | 250,000 | ||||||
Notes payable, 6.7%, due 2005 | — | 96,027 | ||||||
Mortgage payable, 7.68%, due 2020 | 72,633 | 75,406 | ||||||
Other | 22,811 | 16,495 | ||||||
Fair market value of interest rate swap | (11,050 | ) | (7,821 | ) | ||||
Total long-term debt | 934,394 | 1,030,107 | ||||||
Less current portion | (306,618 | ) | (101,097 | ) | ||||
Total due beyond one year | $627,776 | $929,010 | ||||||
Fiscal Year | ||||
2006 | $305,797 | |||
2007 | 5,752 | |||
2008 | 255,739 | |||
2009 | 6,270 | |||
2010 | 4,743 | |||
Thereafter | 357,806 | |||
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
Fiscal Year | Capital Leases | Operating Leases | ||||||
2006 | $1,946 | $73,389 | ||||||
2007 | 1,946 | 73,296 | ||||||
2008 | 1,946 | 70,525 | ||||||
2009 | 1,376 | 67,892 | ||||||
2010 | 1,270 | 63,524 | ||||||
Thereafter | 6,990 | 332,016 | ||||||
Total minimum lease payments | 15,474 | $680,642 | ||||||
Less amount representing interest | (6,137 | ) | ||||||
Present value of net minimum lease payments | $9,337 | |||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Minimum rent: | ||||||||||||
Store locations | $62,036 | $79,285 | $61,451 | |||||||||
Offices, warehouses and equipment | 15,493 | 21,104 | 23,158 | |||||||||
Percentage rent: | ||||||||||||
Store locations | 10,607 | 9,214 | 7,920 | |||||||||
Property incentives: | (46,645 | ) | (46,737 | ) | (37,380 | ) | ||||||
Total rent expense | $41,491 | $62,866 | $55,149 | |||||||||
In 2004, our shareholders approved the 2004 Equity Incentive Plan. We currently grant stock options, performance share units and common shares under this plan.
As of January 28, 2006, we have options outstanding under three stock option plans, (collectively, the “Nordstrom, Inc. Plans”) with 16,189 shares reserved for future stock grants. Options vest over periods ranging from four to eight years, and expire ten years after the date of grant. Stock option activity for the Nordstrom, Inc. Plans was as follows:
Fiscal Year | 2005 | 2004 | 2003 | |||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding, beginning of year | 18,320 | $13 | 23,368 | $12 | 23,773 | $12 | ||||||||||||||||||
Granted | 2,564 | 26 | 2,830 | 20 | 5,429 | 9 | ||||||||||||||||||
Exercised | (5,822 | ) | 13 | (7,239 | ) | 12 | (4,520 | ) | 11 | |||||||||||||||
Cancelled | (718 | ) | 16 | (639 | ) | 13 | (1,311 | ) | 12 | |||||||||||||||
Expired | — | — | — | — | (3 | ) | 7 | |||||||||||||||||
Outstanding, end of year | 14,344 | $15 | 18,320 | $13 | 23,368 | $12 | ||||||||||||||||||
Options exercisable at end of year | 6,128 | $12 | 7,877 | $13 | 10,714 | $13 | ||||||||||||||||||
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Amounts in thousands except per share amounts
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of | Weighted-Average Remaining | Weighted-Average | Weighted-Average | |||||||||||||||||
Exercise Prices | Shares | Contractual Life (Years) | Exercise Price | Shares | Exercise Price | |||||||||||||||
$8.03-$8.99 | 3,912 | 7 | $9 | 1,728 | $9 | |||||||||||||||
$9.00-$12.99 | 3,899 | 5 | 12 | 2,895 | 11 | |||||||||||||||
$13.00-$19.99 | 4,143 | 6 | 18 | 1,505 | 18 | |||||||||||||||
$20.00-$26.01 | 2,390 | 9 | 26 | — | — | |||||||||||||||
14,344 | 6 | $15 | 6,128 | $12 | ||||||||||||||||
We grant performance share units to align the performance of our senior management with our shareholder returns. These units vest at the end of a three year period. Employees do not pay any monetary consideration and may elect to exchange each unit earned for one share of stock or the cash equivalent. The number of units earned is determined by the performance of our stock price and dividend payments relative to a pre-defined group of retail peers over the three-year period and can be adjusted from 0% to 125% of the number of units granted; as of the end of 2005, the unvested performance share units have been adjusted to 125% of the units granted. We granted 79,126, and 228 units in 2005, 2004 and 2003, and cancelled 19, 6 and 34 units in 2005, 2004 and 2003. At the end of 2005 and 2004, our liabilities included $16,927 and $15,278 for the unvested grants. We record compensation expense over the performance period at the fair value of the stock at the end of each reporting period based on the vesting percentages on those dates. Total stock-based compensation expense for 2005, 2004, and 2003 was $11,672, $7,816 and $15,970.
The Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to nonemployee directors. These awards may be deferred or issued in the form of restricted or unrestricted stock, nonqualified stock options or stock appreciation rights. We issued 9, 10, and 32 shares of common stock for a total expense of $270, $202, and $318 for 2005, 2004 and 2003. An additional 15, 7, and 21 shares were deferred for a total expense of $413, $140, and $183 in 2005, 2004, and 2003. At January 28, 2006, we had 774 remaining shares available for issuance.
We offer an Employee Stock Purchase Plan as a benefit to our employees. Employees may make payroll deductions of up to ten percent of their base compensation. At the end of each six-month offering period, the participants purchase shares of our common stock at a discount. Prior to April 1, 2005, participants could purchase shares of our common stock at 85% of the lower of the stock’s fair market value at the beginning or the end of the offering period. Effective April 1, 2005, participants may purchase our common stock at 90% of the fair market value on the last day of each six-month offer period.
January 28, 2006 | January 29, 2005 | January 31, 2004 | ||||||||||
Foreign currency translation | $14,461 | $16,276 | $15,783 | |||||||||
Unrecognized loss on SERP | (19,540 | ) | (11,798 | ) | (11,679 | ) | ||||||
Fair value adjustment to asset backed securities | 7,787 | 4,857 | 4,764 | |||||||||
Total accumulated other comprehensive earnings | $2,708 | $9,335 | $8,868 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Cash paid during the year for: | ||||||||||||
Interest (net of capitalized interest) | $57,187 | $88,876 | $96,824 | |||||||||
Income taxes | 343,891 | 253,576 | 121,271 | |||||||||
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Notes to Consolidated Financial Statements
Amounts in thousands except per share amounts
• | TheRetail Stores segment derives its revenues from sales of high-quality apparel, shoes, cosmetics and accessories. It includes our Full-Line and Rack stores. | |
• | TheCredit segment earns finance charges and securitization gains and losses through operation of the Nordstrom private label and co-branded VISA credit cards. Intersegment revenues consist of interchange fees charged to our other segments. | |
• | TheDirect segment generates revenues from sales of high-quality apparel, shoes, cosmetics and accessories via catalogs and the Nordstrom.com Web site. | |
• | TheOther segment includes our Façonnable stores, our product development group, which coordinates the design and production of private label merchandise sold in our retail stores, and our distribution network. This segment also includes our corporate center operations. |
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Women’s apparel | $2,709,563 | $2,577,489 | $2,348,670 | |||||||||
Shoes | 1,590,877 | 1,454,415 | 1,302,257 | |||||||||
Cosmetics and women’s accessories | 1,567,725 | 1,403,359 | 1,235,445 | |||||||||
Men’s apparel | 1,388,713 | 1,250,546 | 1,071,135 | |||||||||
Children’s apparel | 266,225 | 246,079 | 235,667 | |||||||||
Other | 199,757 | 199,500 | 255,504 | |||||||||
Total | $7,722,860 | $7,131,388 | $6,448,678 | |||||||||
Fiscal Year | 2005 | 2004 | 2003 | |||||||||
Women’s apparel | 35% | 36% | 36% | |||||||||
Shoes | 21% | 20% | 20% | |||||||||
Cosmetics and women’s accessories | 20% | 20% | 19% | |||||||||
Men’s apparel | 18% | 18% | 17% | |||||||||
Children’s apparel | 3% | 3% | 4% | |||||||||
Other | 3% | 3% | 4% | |||||||||
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Notes to Consolidated Financial Statements
Retail | ||||||||||||||||||||||||
Fiscal Year 2005 | Stores | Credit | Direct | Other | Eliminations | Total | ||||||||||||||||||
Net sales (a) | $7,234,173 | — | $401,386 | $87,301 | — | $7,722,860 | ||||||||||||||||||
Intersegment revenues | — | $38,947 | — | — | $(38,947 | ) | — | |||||||||||||||||
Interest expense, net (b) | — | (26,216 | ) | — | (19,084 | ) | — | (45,300 | ) | |||||||||||||||
Other income including finance charges, net | (10,588 | ) | 224,677 | 29 | (17,764 | ) | — | 196,354 | ||||||||||||||||
Depreciation and amortization | 223,258 | 1,209 | 2,693 | 49,168 | — | 276,328 | ||||||||||||||||||
Earnings before income tax expense | 1,007,193 | 49,677 | 69,473 | (241,118 | ) | — | 885,225 | |||||||||||||||||
Goodwill | 8,462 | — | 15,716 | 27,536 | — | 51,714 | ||||||||||||||||||
Acquired tradename | — | — | — | 84,000 | — | 84,000 | ||||||||||||||||||
Assets (c) | 2,285,259 | 1,164,472 | 85,082 | 1,386,536 | — | 4,921,349 | ||||||||||||||||||
Capital expenditures | 232,198 | 925 | 2,850 | 35,686 | — | 271,659 | ||||||||||||||||||
Retail | ||||||||||||||||||||||||
Fiscal Year 2004 | Stores | Credit | Direct | Other | Eliminations | Total | ||||||||||||||||||
Net sales (a) | $6,665,823 | — | $411,719 | $53,846 | — | $7,131,388 | ||||||||||||||||||
Intersegment revenues | — | $36,645 | — | — | $(36,645 | ) | — | |||||||||||||||||
Interest expense, net (b) | — | (23,522 | ) | 148 | (54,054 | ) | — | (77,428 | ) | |||||||||||||||
Other income including finance charges, net | (10,717 | ) | 202,359 | (208 | ) | (18,492 | ) | — | 172,942 | |||||||||||||||
Depreciation and amortization | 209,321 | 1,107 | 4,395 | 49,946 | — | 264,769 | ||||||||||||||||||
Earnings before income tax expense | 838,100 | 39,503 | 52,517 | (282,839 | ) | — | 647,281 | |||||||||||||||||
Goodwill | 8,462 | — | 15,716 | 27,536 | — | 51,714 | ||||||||||||||||||
Acquired tradename | — | — | — | 84,000 | — | 84,000 | ||||||||||||||||||
Assets (c) | 2,258,762 | 1,030,941 | 103,961 | 1,211,726 | — | 4,605,390 | ||||||||||||||||||
Capital expenditures | 207,599 | 605 | 6,196 | 32,451 | — | 246,851 | ||||||||||||||||||
Retail | ||||||||||||||||||||||||
Fiscal Year 2003 | Stores | Credit | Direct | Other | Eliminations | Total | ||||||||||||||||||
Net sales (a) | $6,069,378 | — | $314,542 | $64,758 | — | $6,448,678 | ||||||||||||||||||
Intersegment revenues | — | $34,276 | — | — | $(34,276 | ) | — | |||||||||||||||||
Interest expense, net (b) | — | (22,122 | ) | 105 | (68,935 | ) | — | (90,952 | ) | |||||||||||||||
Other income including finance charges, net | (12,375 | ) | 176,551 | (602 | ) | (8,484 | ) | — | 155,090 | |||||||||||||||
Depreciation and amortization | 199,322 | 2,838 | 5,052 | 43,471 | — | 250,683 | ||||||||||||||||||
Earnings before income tax expense | 577,531 | 17,473 | 19,572 | (216,435 | ) | — | 398,141 | |||||||||||||||||
Goodwill | 8,462 | — | 15,716 | 27,536 | — | 51,714 | ||||||||||||||||||
Acquired tradename | — | — | — | 84,000 | — | 84,000 | ||||||||||||||||||
Assets (c) | 2,118,779 | 878,541 | 93,070 | 1,478,843 | — | 4,569,233 | ||||||||||||||||||
Capital expenditures | 216,039 | 1,104 | 4,729 | 36,442 | — | 258,314 | ||||||||||||||||||
(a) | Net sales in Other include foreign sales of $93,851, $94,994, and $92,524 for 2005, 2004, and 2003. | |
(b) | Interest income of $12,374, $5,574 and $3,009 for 2005, 2004 and 2003 is recorded in our Other segment as an offset to interest expense, net. | |
(c) | Assets in Other include foreign assets of $204,865, $207,095, and $234,459 at the end of 2005, 2004, and 2003. It also includes unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment, and deferred tax assets. |
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Notes to Consolidated Financial Statements
• | Workers’ Compensation — We have a deductible per claim of $1,000 or less and no policy limits. Our workers’ compensation reserve was $55,226 and $64,446 at the end of 2005 and 2004 and our expense was $12,804, $29,263, and $33,782 in 2005, 2004, and 2003. | |
• | General Liability — We have a deductible per claim of $1,000 or less and a policy limit up to $150,000. Our general liability insurance reserve was $10,954 and $9,872 at the end of 2005 and 2004. | |
• | Health and Welfare — We are self insured for our health and welfare coverage and do not have stop-loss coverage. Participants contribute to the cost of their coverage and are subject to certain plan limits and deductibles. Our health and welfare reserve was $12,100 and $10,545 at the end of 2005 and 2004. |
Fiscal Year 2005 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total | |||||||||||||||
Net sales | $1,654,474 | $2,106,438 | $1,666,130 | $2,295,818 | $7,722,860 | |||||||||||||||
Same-store sales percentage change | 6.2% | 6.2% | 5.9% | 5.8% | 6.0% | |||||||||||||||
Gross profit | 608,309 | 758,923 | 607,678 | 859,927 | 2,834,837 | |||||||||||||||
Earnings before income taxes | 172,980 | 241,793 | 163,012 | 307,440 | 885,225 | |||||||||||||||
Net earnings | 104,538 | 148,918 | 107,453 | 190,430 | 551,339 | |||||||||||||||
Net earnings as a percentage of net sales | 6.3% | 7.1% | 6.4% | 8.3% | 7.1% | |||||||||||||||
Basic earnings per share | $0.38 | $0.54 | $0.40 | $0.71 | $2.03 | |||||||||||||||
Diluted earnings per share | $0.38 | $0.53 | $0.39 | $0.69 | $1.98 | |||||||||||||||
Fiscal Year 2004 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Total | |||||||||||||||
Net sales | $1,535,490 | $1,953,480 | $1,542,075 | $2,100,343 | $7,131,388 | |||||||||||||||
Same-store sales percentage change | 13.2% | 6.8% | 8.1% | 7.2% | 8.5% | |||||||||||||||
Gross profit | 562,558 | 682,588 | 557,167 | 769,687 | 2,572,000 | |||||||||||||||
Earnings before income taxes | 112,627 | 175,266 | 122,913 | 236,475 | 647,281 | |||||||||||||||
Net earnings | 68,727 | 106,915 | 77,828 | 139,980 | 393,450 | |||||||||||||||
Net earnings as a percentage of net sales | 4.5% | 5.5% | 5.0% | 6.7% | 5.5% | |||||||||||||||
Basic earnings per share | $0.25 | $0.38 | $0.28 | $0.51 | $1.41 | |||||||||||||||
Diluted earnings per share | $0.24 | $0.37 | $0.27 | $0.50 | $1.38 | |||||||||||||||
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Election of Directors
Board Committees
Director Nominating Process
Website Access to Corporate Governance Documents
Section 16(a) Beneficial Ownership Reporting Compliance
Compensation Committee Report
Stock Price Performance
Compensation of Directors
Equity Compensation Plans
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Certain Relationships and Related Transactions
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Nordstrom, Inc. and subsidiaries 49
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NORDSTROM, INC. | ||||
(Registrant) | ||||
/s/ Michael G. Koppel | ||||
Michael G. Koppel | ||||
Executive Vice President and Chief Financial Officer | ||||
(Principal Financial Officer) |
Principal Financial Officer: | Principal Executive Officer: | |||||
/s/ | Michael G. Koppel | /s/ | Blake W. Nordstrom | |||
Michael G. Koppel | Blake W. Nordstrom | |||||
Executive Vice President and Chief Financial Officer | President and Director | |||||
Principal Accounting Officer: | ||||||
/s/ | Peter F. Collins | |||||
Peter F. Collins | ||||||
Divisional Vice President and Corporate Controller | ||||||
Directors: | ||||||
/s/ | Phyllis J. Campbell | /s/ | Enrique Hernandez, Jr. | |||
Phyllis J. Campbell | Enrique Hernandez, Jr. | |||||
Director | Director | |||||
/s/ | Jeanne P. Jackson | /s/ | Robert G. Miller | |||
Jeanne P. Jackson | Robert G. Miller | |||||
Director | Director | |||||
/s/ | Bruce A. Nordstrom | /s/ | John N. Nordstrom | |||
Bruce A. Nordstrom | John N. Nordstrom | |||||
Chairman of the Board of Directors | Director | |||||
and Director | ||||||
/s/ | Alfred E. Osborne, Jr., Ph.D. | /s/ | Philip G. Satre | |||
Alfred E. Osborne, Jr., Ph.D. | Philip G. Satre | |||||
Director | Director | |||||
/s/ | Alison A. Winter | |||||
Alison A. Winter | ||||||
Director |
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Seattle, Washington
March 21, 2006
Nordstrom, Inc. and subsidiaries 51
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Column A | Column B | Column C | Column D | Column E | ||||||||||||
Additions | ||||||||||||||||
Balance at beginning | Charged to costs | Balance at end | ||||||||||||||
Description | of period | and expenses | Deductions | of period | ||||||||||||
Deducted from related balance sheet account | ||||||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year ended: | ||||||||||||||||
January 28, 2006 | $19,065 | $20,918 | $22,057 (A) | $17,926 | ||||||||||||
January 29, 2005 | $20,320 | $24,639 | $25,894 (A) | $19,065 | ||||||||||||
January 31, 2004 | $22,385 | $27,975 | $30,040 (A) | $20,320 | ||||||||||||
Reserves | ||||||||||||||||
Allowance for sales return, net: | ||||||||||||||||
Year ended: | ||||||||||||||||
January 28, 2006 | $49,745 | $805,288 | $803,861 (B) | $51,172 | ||||||||||||
January 29, 2005 | $39,841 | $725,982 | $716,078 (B) | $49,745 | ||||||||||||
January 31, 2004 | $33,284 | $620,124 | $613,567 (B) | $39,841 | ||||||||||||
(A) | Deductions consist of write-offs of uncollectible accounts, net of recoveries. | |
(B) | Deductions consist of actual returns net of related costs and commissions. |
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Nordstrom, Inc. and subsidiaries 53
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Exhibit | Method of Filing | |||
3.1 | Articles of Incorporation as amended and restated on May 24, 2005 | Incorporated by reference from the Registrant’s Form 8-K filed on May 31, 2005, Exhibit 3.1 | ||
3.2 | Bylaws, as amended and restated on February 21, 2006 | Filed herewith electronically | ||
4.1 | Indenture between Registrant and Norwest Bank Colorado, N.A., as trustee, dated March 11, 1998 | Incorporated by reference from Registration No. 333-47035, Exhibit 4.1 | ||
4.2 | Senior indenture between Registrant and Norwest Bank Colorado, N.A., as trustee, dated January 13, 1999 | Incorporated by reference from Registration No. 333-69281, Exhibit 4.3 | ||
4.3 | Form of Subordinated Indenture between Registrant and Norwest Bank Colorado, N.A., as trustee, dated January 13, 1999 | Incorporated by reference from Registration No. 333-69281, Exhibit 4.4 | ||
10.1 | Merchant Agreement dated August 30, 1991 between Registrant and Nordstrom National Credit Bank | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1991, Exhibit 10.1 | ||
10.2 | Nordstrom Supplemental Executive Retirement Plan (2003 Restatement) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2003, Exhibit 10.1 | ||
10.3 | Investment Agreement dated October 8, 1984 between the Registrant and Nordstrom Credit, Inc. | Incorporated by reference from the Nordstrom Credit, Inc. Form 10, Exhibit 10.1 | ||
10.4 | 1997 Nordstrom Stock Option Plan, amended and restated on February 16, 2000 | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 2, 2003, Exhibit 10.1 | ||
10.5 | Nordstrom 401(K) Plan & Profit Sharing, as amended and restated on January 1, 2004 | Incorporated by reference from the Registrant’s Annual Report on Form 11-K for the year ended December 31, 2003, Exhibit 99.2 | ||
10.6 | Amendment 2005-1 to the Nordstrom 401(K) Plan & Profit Sharing dated January 1, 2004 | Filed herewith electronically | ||
10.7 | Amendment 2005-2 to the Nordstrom 401(K) Plan & Profit Sharing dated January 1, 2004 | Filed herewith electronically | ||
10.8 | Commercial Paper Dealer Agreement dated October 2, 1997 between Registrant and Bancamerica Securities, Inc. | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.1 | ||
10.9 | Commercial Paper Agreement dated October 2, 1997 between Registrant and Credit Suisse First Boston Corporation | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.2 | ||
10.10 | Issuing and Paying Agency Agreement dated October 2, 1997 between Registrant and First Trust of New York, N.A. | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.3 | ||
10.11 | Share Purchase and Contribution Agreement dated as of September 27, 2000 by and among Nordstrom, Inc., Nordstrom European Capital Group, and the Selling Shareholders of Façonnable, S.A.S. | Incorporated by reference from the Registrant’s Form S-3, Registration No. 333-50028 filed on November 15, 2000, Exhibit 2.1 | ||
10.12 | Amendment to the Share Purchase and Contribution Agreement dated as of September 27, 2000 by and among Nordstrom, Inc., Nordstrom European Capital Group, and the Selling Shareholders of Façonnable, S.A.S., dated October 20, 2000 | Incorporated by reference from the Registrant’s Form S-3, Registration No. 333-50028 filed on November 15, 2000, Exhibit 2.2 | ||
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Exhibit | Method of Filing | |||
10.13 | Receivables Purchase Agreement dated October 1, 2001 between Nordstrom Credit, Inc. and Nordstrom Private Label Receivables, LLC | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.21 | ||
10.14 | Transfer and Servicing Agreement dated October 1, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Wells Fargo Bank Minnesota, N.A., and Nordstrom Private Label Credit Card Master Note Trust | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.22 | ||
10.15 | Master Indenture dated October 1, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.23 | ||
10.16 | Series 2001-1 Indenture Supplement dated October 1, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.24 | ||
10.17 | Series 2001-2 Indenture Supplement dated December 4, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.25 | ||
10.18 | Amended and Restated Trust Agreement dated October 1, 2001 between Nordstrom Private Label Receivables, LLC, and Wilmington Trust Company, as trustee | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.26 | ||
10.19 | Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and Bank One, NA, as agent | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.25 | ||
10.20 | First Amendment to the Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and Bank One, NA, as agent, dated December 2, 2002 | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.26 | ||
10.21 | Second Amendment to the Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and Bank One, NA, as agent, dated December 2, 2003 | Incorporated by reference from Nordstrom Credit, Inc.’s Annual Report on Form 10-K for the year ended January 31, 2004, Exhibit 10.25 | ||
10.22 | Third Amendment to the Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and Bank One, NA, as agent, dated February 29, 2004 | Incorporated by reference from Nordstrom Credit, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2004, Exhibit 10.3 | ||
10.23 | Fourth Amendment to the Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and Bank One, NA, as agent, dated May 28, 2004 | Incorporated by reference from Nordstrom Credit, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 1, 2004, Exhibit 10.4 | ||
10.24 | Fifth Amendment to the Note Purchase Agreement dated December 4, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and JP Morgan Chase Bank NA (successor-by-merger to Bank One, NA (Main Office Chicago)) as agent, dated December 16, 2004 | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005, Exhibit 10.25 | ||
10.25 | Receivables Purchase Agreement dated April 1, 2002 between Nordstrom fsb and Nordstrom Credit Card Receivables LLC | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.39 | ||
10.26 | Administration Agreement dated April 1, 2002 between Nordstrom Credit Card Master Note Trust and Nordstrom fsb | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.40 | ||
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Exhibit | Method of Filing | |||
10.27 | Amended and Restated Trust Agreement dated April 1, 2002 between Nordstrom Credit Card Receivables LLC and Wilmington Trust Company | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.41 | ||
10.28 | Master Indenture dated April 1, 2002 between Nordstrom Credit Card Master Note Trust and Wells Fargo Bank Minnesota, National Association | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.42 | ||
10.29 | Series 2002-1 Indenture Supplement dated April 1, 2002 between Nordstrom Credit Card Master Note Trust and Wells Fargo Bank Minnesota, National Association | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.43 | ||
10.30 | Transfer and Servicing Agreement dated April 1, 2002 between Nordstrom Credit Card Receivables, LLC, Nordstrom fsb, Wells Fargo Bank Minnesota, National Association and Nordstrom Credit Card Master Note Trust | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 31, 2003, Exhibit 10.44 | ||
10.31 | Principal Balance Increase Request dated December 28, 2004 between Nordstrom Credit Card Receivables, LLC, Nordstrom fsb, Wells Fargo Bank and Nordstrom Credit, Inc. | Incorporated by reference from Nordstrom Credit, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005, Exhibit 10.1 | ||
10.32 | Principal Balance Increase Request dated March 28, 2005 between Nordstrom Credit Card Receivables, LLC, Nordstrom fsb, Wells Fargo Bank and Nordstrom Credit, Inc. | Incorporated by reference from Nordstrom Credit, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005, Exhibit 10.2 | ||
10.33 | Principal Balance Increase Confirmation dated March 31, 2005 between Nordstrom Credit, Inc. and Wells Fargo Bank | Incorporated by reference from Nordstrom Credit, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005, Exhibit 10.3 | ||
10.34 | Performance Undertaking dated September 28, 2001 between Registrant and Bank One, N.A. | Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.37 | ||
10.35 | Performance Undertaking dated December 4, 2001 between Registrant and Bank One, N.A. | Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.38 | ||
10.36 | Promissory Note dated April 18, 2002 between 1700 Seventh, L.P. and New York Life Insurance Company | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2002, Exhibit 10.2 | ||
10.37 | Promissory Note dated April 18, 2002 between 1700 Seventh, L.P. and Life Investors Insurance Company of America | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2002, Exhibit 10.3 | ||
10.38 | Guaranty Agreement dated April 18, 2002 between Registrant, New York Life Insurance Company and Life Investors Insurance Company of America | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2002, Exhibit 10.4 | ||
10.39 | The 2002 Nonemployee Director Stock Incentive Plan | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002, Exhibit 10.1 | ||
10.40 | Nordstrom Executive Deferred Compensation Plan (2003 Restatement) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 2, 2003, Exhibit 10.2 | ||
10.41 | Nordstrom Directors Deferred Compensation Plan (2002 Restatement) | Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2004, Exhibit 10.55 | ||
10.42 | Nordstrom, Inc. Leadership Separation Plan (Restated Effective March 1, 2005) | Incorporated by reference from Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005, Exhibit 10.43 | ||
10.43 | Nordstrom, Inc. Executive Management Group Bonus Plan | Incorporated by reference from Registrant’s definitive proxy statement filed with the Commission on April 15, 2004 | ||
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Exhibit | Method of Filing | |||
10.44 | 2004 Equity Incentive Plan | Incorporated by reference from Registrant’s definitive proxy statement filed with the Commission on April 15, 2004 | ||
10.45 | Commitment of Nordstrom, Inc. to Nordstrom fsb dated June 17, 2004 | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.4 | ||
10.46 | Nordstrom fsb Segregated Earmarked Deposit Agreement And Security Agreement by and between Nordstrom fsb and Nordstrom, Inc. dated July 1, 2004 | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.5 | ||
10.47 | Revolving Credit Facility dated May 14, 2004 between Registrant and a group of commercial banks | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.1 | ||
10.48 | Revolving Credit Facility Agreement dated November 4, 2005, between Registrant and each of the initial lenders named therein as Lenders, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Syndication Agents, U.S. Bank, National Association, as Documentation Agent and Bank of America, N.A. as administrative agent | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2005, Exhibit 10.1 | ||
10.49 | Employment Letter with Mr. Paul Favaro, effective February 1, 2005 | Incorporated by reference from the Registrant’s Form 8-K filed on January 12, 2005, Exhibit 99.1 | ||
10.50 | Form of Notice of Stock Option Grant and Stock Option Agreement under the Nordstrom, Inc. 2004 Equity Incentive Plan | Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 10.1 | ||
10.51 | Form of 2005 Performance Share Unit Notice and Performance Share Unit Award Agreement | Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 10.2 | ||
10.52 | Press release dated February 24, 2005 announcing that its Board of Directors authorized a $500 million share repurchase program | Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 99.1 | ||
10.53 | Summary of Lead Director Compensation | Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 99.2 | ||
10.54 | Director Compensation Summary | Incorporated by reference from the Registrant’s Form 8-K filed on August 29, 2005, Exhibit 99.1 | ||
21.1 | Subsidiaries of the Registrant | Filed herewith electronically | ||
23.1 | Consent of Independent Registered Public Accounting Firm and Report on Schedule | Filed as page 51 of this report | ||
31.1 | Certification of President required by Section 302(a) of the Sarbanes-Oxley Act of 2002 | Filed herewith electronically | ||
31.2 | Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002 | Filed herewith electronically | ||
32.1 | Certification of President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith electronically | ||
Nordstrom, Inc. and subsidiaries 57