UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 001-15059
Nordstrom, Inc.
______________________________________________________
(Exact name of Registrant as specified in its charter)
Washington 91-0515058
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1617 Sixth Avenue, Seattle, Washington 98101
____________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 628-2111
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
_____ _____
Common stock outstanding as of May 31, 2001: 134,013,239 shares of
common stock.
1 of 18
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings
Three months ended April 30, 2001
and 2000 3
Consolidated Balance Sheets
April 30, 2001 and 2000 and
January 31, 2001 4
Consolidated Statements of
Shareholders' Equity
Three months ended April 30,
2001 and 2000 5
Consolidated Statements of Cash Flows
Three months ended April 30, 2001
and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
2 of 18
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
Three Months
Ended April 30,
----------------------
2001 2000
---------- ----------
Net sales $1,218,040 $1,153,377
Cost of sales and related
buying and occupancy (798,430) (745,655)
---------- ----------
Gross profit 419,610 407,722
Selling, general and
administrative expenses (396,706) (371,899)
---------- ----------
Operating income 22,904 35,823
Interest expense, net (19,504) (13,296)
Service charge income
and other, net 37,155 31,162
---------- ----------
Earnings before income taxes 40,555 53,689
Income tax expense (15,800) (20,900)
---------- ----------
Net earnings $ 24,755 $ 32,789
========== ==========
Basic earnings per share $ .18 $ .25
========== ==========
Diluted earnings per share $ .18 $ .25
========== ==========
Cash dividends paid per share
of common stock outstanding $ .09 $ .08
========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
3 of 18
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
April 30, January 31, April 30,
2001 2001 2000
---------- ---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 18,092 $ 25,259 $ 24,461
Short-term investment - - 11,567
Accounts receivable, net 689,233 721,953 587,341
Merchandise inventories 1,052,274 945,687 922,727
Prepaid income taxes and other 134,930 120,083 110,141
---------- ---------- ----------
Total current assets 1,894,529 1,812,982 1,656,237
Land, buildings and equipment, net 1,617,244 1,599,938 1,447,938
Available-for-sale investment - - 15,973
Goodwill 39,465 39,495 -
Trademarks and other
intangible assets 103,213 103,978 -
Other assets 54,485 52,110 37,377
---------- ---------- ----------
TOTAL ASSETS $3,708,936 $3,608,503 $3,157,525
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 141,293 $ 83,060 $ 219,260
Accounts payable 538,012 466,476 449,970
Accrued salaries, wages
and related benefits 191,764 234,833 150,445
Income taxes and other accruals 127,483 153,613 130,918
Current portion of long-term debt 89,336 12,586 16,191
---------- ---------- ----------
Total current liabilities 1,087,888 950,568 966,784
Long-term debt 1,032,890 1,099,710 757,886
Deferred lease credits 289,611 275,252 215,547
Other liabilities 53,462 53,405 57,965
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
134,013,395, 133,797,757 and
130,907,175 shares issued
and outstanding 334,176 330,394 250,668
Unearned stock compensation (3,543) (3,740) (8,128)
Retained earnings 911,491 900,090 920,046
Accumulated other comprehensive
earnings (loss) 2,961 2,824 (3,243)
---------- ---------- ----------
Total shareholders' equity 1,245,085 1,229,568 1,159,343
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,708,936 $3,608,503 $3,157,525
========== ========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
4 of 18
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
(unaudited)
Accumulated Other
Common Stock Unearned Retained Comprehensive
Shares Amount Compensation Earnings Income Total
-------- ----------- ----------------- ------- ------------------ --------
Balance at
February 1, 2001 133,797,757 $330,394 $(3,740) $900,090 $2,824 $1,229,568
Net earnings - - - 24,755 - 24,755
Other comprehensive earnings:
Foreign currency translation
adjustment - - - - 137 137
------
Comprehensive net earnings - - - - - 24,892
Cash dividends
($.09 per share) - - - (12,042) - (12,042)
Issuance of common stock for:
Stock option plans 2,000 28 - - - 28
Employee stock purchase
plan 279,477 3,534 - - - 3,534
Stock-based compensation 10,161 220 197 - - 417
Purchase and retirement of
common stock (76,000) - - (1,312) - (1,312)
----------- --------- ---------- ------------ ------------ -------------
Balance at
April 30, 2001 134,013,395 $334,176 $(3,543) $911,491 $2,961 $1,245,085
=========== ========== ========== ============ ============ =============
Balance at
February 1, 2000 132,279,988 $247,559 $(8,593) $929,616 $17,032 $1,185,614
Net earnings - - - 32,789 - 32,789
Unrealized loss on
investment during period,
net of tax - - - - (20,275) (20,275)
------
Comprehensive net earnings - - - - - 12,514
Cash dividends
($.08 per share) - - - (10,568) - (10,568)
Issuance of common stock for:
Stock option plans 128,487 3,109 - - - 3,109
Stock-based compensation - - 465 - - 465
Purchase and retirement of
common stock (1,501,300) - - (31,791) - (31,791)
----------- ---------- ---------- ------------ ------------ -------------
Balance at
April 30, 2000 130,907,175 $250,668 $(8,128) $920,046 $(3,243) $1,159,343
=========== ========== ========== =========== ============ ==============
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
5 of 18
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months
Ended April 30,
---------------------
2001 2000
-------- --------
OPERATING ACTIVITIES:
Net earnings $24,755 $32,789
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization 50,937 47,625
Amortization of goodwill 404 -
Amortization of trademark and other intangible assets 765 -
Amortization of deferred lease credits and other, net (348) (2,162)
Stock-based compensation expense 1,628 2,347
Change in:
Accounts receivable, net 32,011 29,648
Merchandise inventories (107,218) (124,882)
Prepaid income taxes and other 305 (7,452)
Accounts payable 73,722 59,282
Accrued salaries, wages and related benefits (44,143) (62,745)
Income taxes and other accruals (26,090) (7,660)
Other liabilities 374 502
-------- --------
Net cash provided by (used for) operating activities 7,102 (32,708)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (73,041) (66,071)
Additions to deferred lease credits 17,951 22,904
Other, net (4,964) (4,855)
-------- --------
Net cash used for investing activities (60,054) (48,022)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 58,233 148,326
Proceeds from long-term borrowings - 11,176
Principal payments on long-term debt (2,656) (42,103)
Proceeds from issuance of common stock 3,562 3,109
Cash dividends paid (12,042) (10,568)
Purchase and retirement of common stock (1,312) (31,791)
-------- --------
Net cash provided by financing activities 45,785 78,149
-------- --------
Net decrease in cash and cash equivalents (7,167) (2,581)
Cash and cash equivalents at beginning of period 25,259 27,042
-------- --------
Cash and cash equivalents at end of period $18,092 $24,461
======== ========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
6 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the
"Company") as of April 30, 2001 and 2000, and the related consolidated
statements of earnings, cash flows and shareholders' equity for the periods
then ended, have been prepared from the accounts without audit.
The consolidated financial information applicable to interim periods
is not necessarily indicative of the results for the fiscal year.
The financial information should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Nordstrom, Inc. Annual
Report on Form 10-K for the fiscal year ended January 31, 2001.
In the opinion of management, the consolidated financial information
includes all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position of
Nordstrom, Inc. and subsidiaries as of April 30, 2001 and 2000, and the
results of their operations and cash flows for the periods then ended,
in accordance with accounting principles generally accepted in the United
States of America applied on a consistent basis.
The consolidated financial statements include the operating results of
Faconnable, S.A. ("Faconnable") from the date of acquisition (Note 2).
Certain reclassifications of prior year balances have been made for consistent
presentation with the current year.
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
For Derivative Instruments and Hedging Activities," as amended by SFAS No.
137 and No. 138, requires the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. Adoption of this standard in the fiscal year
beginning February 1, 2001, did not have a material impact on the
Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"), a replacement of SFAS No. 125 with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain additional disclosures, but otherwise retains
most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers
after March 31, 2001. Adoption of the accounting provisions of this standard
did not have a material impact on the Company's consolidated financial
statements.
7 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Summary of Significant Accounting Policies (cont.)
The Emerging Issues Task Force has reached a consensus on Issue No. 99-20,
"Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets," which provides guidance
on how a transferor that retains an interest in securitized financial assets,
or an enterprise that purchases a beneficial interest in securitized financial
assets, should account for related interest income and impairment. Adoption of
this accounting issue for the quarter ending July 31, 2001, is not expected to
have a material impact on the Company's consolidated financial statements.
Note 2 - Acquisition
On October 24, 2000, the Company acquired 100% of Faconnable, of Nice, France,
a designer, wholesaler and retailer of high quality men's and women's apparel
and accessories. The Company paid $87,685 in cash and issued 5,074,000 shares
of common stock of the Company, for a total consideration, including expenses,
of $169,754. The acquisition is being accounted for under the purchase method
of accounting, and, accordingly, Faconnable's results of operations have been
included in the Company's results of operations since October 24, 2000. The
purchase price has been allocated to Faconnable's assets and liabilities based
on their estimated fair values as of the date of acquisition. Goodwill and
other identifiable intangible assets related to this acquisition are being
amortized over their estimated useful lives on a straight-line basis over 10
years to 35 years.
The purchase also provides for contingent payments to the principals that may
be paid in fiscal 2006 based on the performance of the subsidiary and the
continued active involvement of the principals in Faconnable. The contingent
payments will be recorded as compensation expense if and when it becomes
probable that the performance targets will be met.
The following unaudited pro forma information presents the results of the
Company's operations assuming the Faconnable acquisition occurred at the
beginning of the period presented:
Three Months
Ended April 30,
---------------
2000
----------
Net sales $1,169,883
Net earnings $ 32,712
Basic and diluted earnings per share $ 0.24
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of the beginning of the period presented, nor is it
necessarily indicative of future operating results.
8 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 2 - Acquisition (cont.)
A summary of the Faconnable acquisition is as follows:
Fair value of identifiable assets acquired $ 48,677
Intangible assets recorded 145,098
Liabilities assumed (24,021)
==========
Total purchase price $ 169,754
==========
Note 3 - Earnings Per Share
In accordance with SFAS No. 128, "Earnings per Share," basic earnings per
share is computed on the basis of the weighted average number of common
shares outstanding during the year.
Diluted earnings per share is computed on the basis of the weighted average
number of common shares outstanding during the year plus dilutive common
stock equivalents (primarily stock options and restricted stock).
Options with an exercise price greater than the average market price for
the periods indicated were not included in the computation of diluted
earnings per share. These options totaled 9,600,203 and 5,005,671,
respectively as of April 30, 2001 and 2000.
Three Months
Ended April 30,
------------------------
2001 2000
----------- -----------
Net earnings $24,755 $32,789
Basic shares 133,855,973 131,164,628
Basic earnings per share $0.18 $0.25
Dilutive effect of
stock options and
restricted stock 65,625 462,564
Diluted shares 133,921,598 131,627,192
Diluted earnings per share $0.18 $0.25
Note 4 - Investment
In September 1998, the Company made an investment in Streamline.com, Inc.
("Streamline"), an Internet grocery and consumer goods delivery
company. Streamline ceased its operations effective November 22, 2000,
due to failure to obtain additional capital to fund its operations.
During 2000, the Company wrote off its entire investment in Streamline,
for a total pre-tax loss on the investment of $32,857.
9 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Debt
The Company owns a 49% interest in a limited partnership that is constructing
a new corporate office building in which the Company will be the primary
occupant. In accordance with Emerging Issues Task Force Issue No. 97-10 "The
Effect of Lessee Involvement in Asset Construction," ("EITF Issue No. 97-10")
the Company is considered to be the owner of the property. Construction in
progress includes capitalized costs related to this building of $70,165, which
includes noncash amounts of $55,174 as of April 30, 2001. The corresponding
finance obligation of $66,351 as of April 30, 2001 is included in other
long-term debt. This finance obligation will be amortized as rental payments
are made by the Company to the limited partnership over the life of permanent
financing, expected to be 20-25 years. The amortization will begin once
construction is complete, estimated to be July 2001. The Company is a guarantor
of a $93,000 credit facility of the limited partnership. The credit facility
provides for interest at either the LIBOR rate plus 0.75%, or the greater of
the Federal Funds rate plus 0.5% and the prime rate, and matures in August 2002
(5.42% at April 30, 2001).
Under EITF Issue No. 97-10, the Company capitalizes certain property, plant
and equipment during the construction period of commercial buildings.
Effectively, a sale and leaseback of the asset occurs when construction of
the asset is complete and the lease term begins. During the first quarter
of 2001, the noncash activity related to the derecognition of a new store that
qualified as a sale and leaseback was $17,614.
Note 6 - Segment Reporting
The following tables set forth information for the Company's reportable
segments and a reconciliation to the consolidated totals:
Three months ended Retail Credit Catalog/ Corporate
April 30, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $1,148,337 - $69,703 - - $1,218,040
Service charge income - $36,173 - - - 36,173
Intersegment revenues 3,496 5,566 - - $ (9,062) -
Net earnings 54,209 5,546 (4,247) $(30,753) - 24,755
Three months ended Retail Credit Catalog/ Corporate
April 30, 2000 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $1,084,939 - $68,438 - - $1,153,377
Service charge income - $30,952 - - - 30,952
Intersegment revenues 6,320 5,232 - - $(11,552) -
Net earnings 56,719 3,517 (4,841) $(22,606) - 32,789
10 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities
The Company has been named in various lawsuits and intends to vigorously defend
itself in those cases. The Company is not in a position at this time to
quantify the amount or range of any possible losses related to those claims.
While no assurance can be given as to the ultimate outcome of these lawsuits,
based on preliminary investigations, management currently believes that
resolving these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
Cosmetics
- ---------
The Company was originally named as a defendant along with other department
store specialty retailers in nine separate but virtually identical class
action lawsuits filed in various Superior Courts of the State of California
in May, June and July 1998 that have now been consolidated in Marin County
state court. Plaintiffs' consolidated complaint alleged that the Company
and other retailers agreed to charge identical prices for cosmetics and
fragrances, not to discount such prices, and to urge manufacturers to
refuse to sell to retailers who sell cosmetics and fragrances at discount
prices, resulting in artificially-inflated retail prices paid by the class
in violation of California state law. Defendants, including the Company,
answered the consolidated complaint denying the allegations. The Company
and the other retail defendants have produced documents and responded to
plaintiffs' other discovery requests, including providing witnesses for
depositions.
Last year, plaintiffs filed an amended complaint naming a number of
manufacturers of cosmetics and fragrances and two other retailers as
additional defendants. Plaintiffs' amended complaint alleges that the
retail price of the "prestige" cosmetics sold in department and
specialty stores was collusively controlled by the retailer and
manufacturer defendants in violation of the Cartwright Act and the
California Unfair Competition Act by various means, including
restricting the sale of prestige cosmetics to department stores only;
agreeing that all department and specialty stores will sell such
cosmetics at the manufacturer's suggested retail price ("MSRP");
controlling the advertising of cosmetics and Gift-With-Purchase
programs; and the manufacturer defendants guaranteeing the retailer
defendants a gross margin equal to 40% of MSRP and buying back any
unsold cosmetics to prevent discounting from MSRP.
Plaintiffs seek treble damages and restitution in an unspecified amount,
attorneys' fees and prejudgment interest, on behalf of a class of all
California residents who purchased cosmetics and fragrances for personal
use from any of the defendants during the period four years prior to the
filing of the amended complaint. Defendants, including the Company, have
answered the amended complaint denying the allegations. Plaintiffs have
submitted requests for production of documents to the manufacturer
defendants, who are in the process of responding to these and plaintiffs'
other discovery requests. Plaintiffs have not yet moved for class certification.
11 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities (cont.)
Credit Fees
- -----------
The Company's subsidiary, Nordstrom fsb, has been named a defendant in a
purported class action in the Federal District Court for the Eastern
District of Pennsylvania. The case purports to be brought under the
National Bank Act and the Arizona Consumer Loan Act of 1997. Plaintiff,
a resident of Pennsylvania and a user of Nordstrom's credit through
Nordstrom fsb, claims to represent all customers of Nordstrom who have
been extended credit by Nordstrom fsb under revolving credit accounts
for consumer purchases at Nordstrom stores. Plaintiff claims that
Nordstrom fsb has been paid principal, interest and late fees in
violation of said statutes on account of which plaintiff seeks recovery
or forfeiture thereof. Counsel to Nordstrom fsb has advised the Company
that in their opinion, plaintiff's claim is meritless. Nordstrom fsb
moved to dismiss the complaint which motion was granted by court order
on May 15, 2001.
Bar Code
- --------
The Company is named as one of 135 retailer defendants in a lawsuit filed in
the United States District Court for the District of Arizona. Plaintiff
claims that the Company and the other defendants have infringed certain
patents held by it related to methods of scanning production markings (bar
codes) placed on work pieces or merchandise. The complaint seeks from each
defendant an award of damages for past infringement, to be trebled because of
alleged willful and deliberate infringement. In February 2001, the Company
was dismissed without prejudice pursuant to an agreement and stipulation
intended to resolve a potential judicial conflict of interest. The agreement
confirms that if the potential conflict is for any reason resolved, plaintiff
can amend its complaint to add the Company as a defendant.
Smart Card Technology
- ---------------------
The Company is one of 21 defendants in a lawsuit filed in the United States
District Court for the District of Georgia. DataScape, Inc., the plaintiff,
claims that the Company and the other defendants have infringed certain
patents held by it relating to smart card technology and the protocols
applicable to purchases through the website of Nordstrom.com. The Complaint
seeks from each defendant (and from American Express in a related case)
an award of damages for past infringement to be trebled because of alleged
willful and deliberate infringement, and an injunction to prevent future
infringement. The Company believes it does not utilize the complained of
smart card technology, and it intends to vigorously defend itself and to
seek a dismissal of the complaint as to it, with terms. The parties have
stipulated that responsive pleadings need not be filed until June 25, 2001.
12 of 18
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities (cont.)
Saipan
- ------
The Company has reached a settlement, which is of an immaterial amount, in
its previously described lawsuits relating to its sourcing of clothing products
from independent garment manufacturers in Saipan (Commonwealth of Northern
Marina Islands). The settlement is subject to court approval. No hearing has
been set to date.
Other
- -----
The Company is also subject to other ordinary routine litigation incidental to
its business and with respect to which no material liability is expected.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "management's discussion and analysis of financial condition and
results of operations" includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. This act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward-looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results.
Statements made in this filing that are not historical facts are forward
looking information that involve risks and uncertainties. Forward-looking
statements typically are identified by the use of such terms as "may," "will,"
"expect," "believe," "anticipate," "estimate," "plan" and similar words,
although some forward-looking statements are expressed differently.
You should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors, which
include, but are not limited to, the following: the Company's ability to
predict fashion trends and consumer apparel buying patterns, the Company's
ability to maintain and control proper inventory levels, the Company's
ability to control costs and expenses, trends in personal bankruptcies
and bad debt write-offs, employee relations, adverse weather conditions
and other hazards of nature such as earthquakes and floods, the Company's
ability to continue its expansion plans, and the impact of ongoing competitive
market factors. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report.
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nordstrom, Inc. Annual Report on Form
10-K for the fiscal year ended January 31, 2001.
13 of 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Results of Operations:
- ----------------------
During the first quarter of 2001, sales increased 5.6% compared to the
corresponding quarter in 2000, primarily due to the opening of seven full-line
stores and 12 new Nordstrom Rack stores since February 1, 2000. Comparable
store sales (sales in stores open at least one full fiscal year at the
beginning of the fiscal year) decreased 3.7%. The impact of calendar
adjustments over the quarter was negligible.
Gross profit (net sales less cost of sales and related buying and occupancy
expenses) as a percentage of net sales decreased to 34.4% in the first quarter
of 2001, as compared to 35.4% in the same period in 2000. The decrease was
primarily due to higher markdowns and increased buying expenses related to
Nordstrom Product Group operations.
For the first quarter of 2001, selling, general and administrative expenses
as a percentage of net sales increased to 32.5%, compared to 32.3% for the
first quarter of 2000. The increase was due to expenses related to new stores,
the integration of Faconnable European operations and additional employee
benefit costs, partially offset by lower sales promotion expenses.
Interest expense, net increased 46.7% to $19,504 compared to the corresponding
quarter in 2000. The increase for the quarter was due to higher average
borrowings to finance capital expenditures, the purchase of Faconnable and
the repurchase of shares.
Service charge income and other, net of $37,155 increased 19.2% compared to
the corresponding quarter in 2000. The increase for the quarter was due to
higher service charge income associated with increases in credit sales and
the number of credit accounts.
Net earnings for the quarter ended April 30, 2001 decreased 24.5% to $24,755
million from $32,789 in the same period in 2000, primarily due to lower gross
profit and higher selling, general and administrative expenses. Diluted
earnings per share were $0.18 cents for the first quarter ended April 30,
2001, compared to diluted earnings per share of $0.25 cents in the first
quarter last year.
Liquidity and Capital Resources:
- --------------------------------
The Company finances its working capital needs, capital expenditures, and share
repurchase activity with cash provided by operations and borrowings.
The Company's cash and cash equivalents decreased $7.2 million during the
quarter ended April 30, 2001, as cash used for investing activities was more
than the cash provided by operating and financing activities. Net cash provided
by operating activities increased $39.8 million compared to the quarter ended
April 30, 2000, due to an increase in accounts payable, accrued salaries and
merchandise inventories, partially offset by income taxes and other accruals.
The increase in accounts payable is due to a change in
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
the Company's policy to pay its vendors based on receipt of goods rather
than the invoice date.
For the quarter ended April 30, 2001, net cash used in investing activities
increased approximately $12.0 million compared to the quarter ended April
30, 2000, primarily due to an increase in capital expenditures to fund new
stores and remodels. During the first quarter of fiscal 2001, the Company
opened one full-line store in Hurst, Texas, closed a store in Yakima,
Washington, and relocated a store in San Jose, California. The Company
also opened two Nordstrom Rack stores during the quarter, in Los Angeles,
California and Broomfield, Colorado. Throughout the remainder of the year
ending January 31, 2002, Nordstrom expects to open three full-line stores
in Columbus, Ohio; Tampa, Florida; and Chandler, Arizona; and six Nordstrom
Rack stores. For the year ending January 31, 2002, gross square footage is
expected to increase approximately six percent. Total square footage of the
Company's stores was 16,307,000 as of April 30, 2001, compared to 14,703,000
as of April 30, 2000.
Although the Company has made commitments for stores opening in 2002 and
beyond, it is possible that in one or more instances store site negotiations
may be terminated and the store may not be built or delays may occur.
Furthermore, environmental and land use regulations and the difficulties
encountered by shopping center developers in securing financing could make
future development of stores more difficult, time-consuming and expensive.
For the quarter ended April 30, 2001, cash provided by financing activities
decreased approximately $32.4 million compared to the quarter ended April 30,
2000, primarily due to reduced borrowings.
During the three months ended April 30, 2001, the Company repurchased 76,000
shares of its common stock for approximately $1.3 million under the stock
purchase program. At April 30, 2001, the Company had remaining share
repurchase authorization of approximately $82.4 million.
Seasonality
- ------------
The Company's business, like that of other retailers, is subject to seasonal
fluctuations. Due to the Company's anniversary sale in July and holidays in
December, sales are higher in the second and fourth quarters of the fiscal
year than in the first and third quarters. Accordingly, results for any
quarter are not necessarily indicative of the results that may be achieved
for a full fiscal year.
Recent Accounting Pronouncements
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Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
For Derivative Instruments and Hedging Activities," as amended by SFAS No.
137 and No. 138, requires the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Adoption of this standard in the fiscal year
beginning February 1, 2001, did not have a material impact on the
Company's consolidated financial statements.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"), a replacement of SFAS No. 125 with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain additional disclosures, but otherwise retains
most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers
after March 31, 2001. Adoption of this standard did not have a material impact
on the Company's consolidated financial statements.
The Emerging Issues Task Force has reached a consensus on EITF Issue No. 99-20,
"Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets," which provides guidance
on how a transferor that retains an interest in securitized financial assets,
or an enterprise that purchases a beneficial interest in securitized financial
assets, should account for related interest income and impairment. Adoption of
this accounting issue for the quarter ending July 31, 2001, is not expected to
have a material impact on the Company's consolidated financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the normal
course of business, primarily as a result of its short-term borrowing and
investment activities which generally bear interest at variable rates.
Because the short-term borrowings and investments have maturities of three
months or less, the Company believes that the risk of material loss is low,
and that the carrying amount approximates fair value.
The majority of the Company's revenue, expense and capital expenditures are
transacted in United States dollars. However, the Company periodically enters
into foreign currency purchase orders for apparel and shoes denoted in Italian
Lira. The Company uses forward contracts to hedge against fluctuations in
foreign currency prices. The amounts of these contracts are immaterial. The use
of derivatives is limited to only those financial instruments that have been
authorized by the Company's Chief Financial Officer and approved by the
Finance Committee.
In addition, the functional currency of Faconnable, of Nice, France, is the
Euro. Assets and liabilities of Faconnable are translated into U.S. dollars
at the exchange rate prevailing at the end of the period. Income and expenses
are translated into U.S. dollars at the exchange rate prevailing on the
respective dates of the transactions. The effects of changes in foreign
exchange rates are included in other comprehensive earnings.
At April 30, 2001, the Company had outstanding borrowings of approximately
$141 million under short-term notes payable, which bear interest from 4.85%
to 5.50%, and mature from May 1, 2001 to May 25, 2001.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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The information required under this item is included in the following section
of Part I, Item 1 of this report:
Note 7 in Notes to Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORDSTROM, INC.
(Registrant)
/s/ Michael G. Koppel
----------------------------------------------------
Michael G. Koppel
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: June 12, 2001
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