<page>
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 July 31, 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 August 31, 2001: 134,074,402 shares of
common stock.
1 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
<table>
<caption>
Page
Number
PART I. FINANCIAL INFORMATION
<s> <c>
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings
Three and Six months ended
July 31, 2001 and 2000 3
Consolidated Balance Sheets
July 31, 2001 and 2000 and
January 31, 2001 4
Consolidated Statements of
Shareholders' Equity
Six months ended July 31,
2001 and 2000 5
Consolidated Statements of Cash Flows
Six months ended July 31, 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 16
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
</table>
2 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
<table>
<caption>
Three Months Six Months
Ended July 31, Ended July 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
Net sales $1,545,759 $1,457,035 $2,763,799 $2,610,412
Cost of sales and related
buying and occupancy (1,040,908) (954,313) (1,839,338) (1,699,968)
---------- ---------- ---------- ----------
Gross profit 504,851 502,722 924,461 910,444
Selling, general and
administrative expenses (457,441) (436,418) (854,147) (808,317)
---------- ---------- ---------- ----------
Operating income 47,410 66,304 70,314 102,127
Interest expense, net (19,279) (14,296) (38,783) (27,592)
Write-down of investment - (10,540) - (10,540)
Service charge income
and other, net 35,368 33,033 72,523 64,195
---------- ---------- ---------- ----------
Earnings before income taxes 63,499 74,501 104,054 128,190
Income tax expense (24,800) (29,100) (40,600) (50,000)
---------- ---------- ---------- ----------
Net earnings $ 38,699 $ 45,401 $ 63,454 $ 78,190
========== ========== ========== ==========
Basic earnings per share $ .29 $ .35 $ .47 $ .60
========== ========== ========== ==========
Diluted earnings per share $ .29 $ .35 $ .47 $ .60
========== ========== ========== ==========
Cash dividends paid per share
of common stock outstanding $ .09 $ .09 $ .18 $ .17
========== ========== ========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</table>
3 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<table>
<caption>
July 31, January 31, July 31,
2001 2001 2000
---------- ---------- ----------
<s> <c> <c> <c>
ASSETS
Current Assets:
Cash and cash equivalents $ 36,829 $ 25,259 $ 22,693
Short-term investment - - 9,373
Accounts receivable (net of allowance
for doubtful accounts of $20,858,
$16,531 and $15,364) 749,957 721,953 651,525
Merchandise inventories 1,002,633 945,687 944,815
Prepaid income taxes and other 122,225 120,083 109,262
---------- ---------- ----------
Total current assets 1,911,644 1,812,982 1,737,668
Land, buildings and equipment (net of
accumulated depreciation of $1,619,418,
$1,554,081 and $1,457,698) 1,654,852 1,599,938 1,528,147
Available-for-sale investment - - 12,944
Goodwill(net of accumulated amortization
of $1,237 and $429) 39,061 39,495 -
Trademarks and other intangible assets (net
of accumulated amortization of $2,351
and $822) 102,449 103,978 -
Other assets 84,145 52,110 37,616
---------- ---------- ----------
TOTAL ASSETS $3,792,151 $3,608,503 $3,316,375
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 38,202 $ 83,060 $ 213,020
Accounts payable 601,407 466,476 559,780
Accrued salaries, wages
and related benefits 228,034 234,833 185,728
Income taxes and other accruals 168,322 153,613 158,462
Current portion of long-term debt 90,061 12,586 591
---------- ---------- ----------
Total current liabilities 1,126,026 950,568 1,117,581
Long-term debt 1,041,459 1,099,710 772,567
Deferred lease credits 299,014 275,252 216,749
Other liabilities 55,236 53,405 55,547
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
134,031,133, 133,797,757 and
129,145,901 shares issued
and outstanding 334,513 330,394 251,336
Unearned stock compensation (3,345) (3,740) (7,662)
Retained earnings 938,130 900,090 910,257
Accumulated other comprehensive
earnings 1,118 2,824 -
---------- ---------- ----------
Total shareholders' equity 1,270,416 1,229,568 1,153,931
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,792,151 $3,608,503 $3,316,375
========== ========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</table>
4 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
(unaudited)
<table>
<caption>
Accumulated Other
Common Stock Unearned Retained Comprehensive
Shares Amount Compensation Earnings Earnings Total
--------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Balance at
February 1, 2001 133,797,757 $330,394 $(3,740) $900,090 $2,824 $1,229,568
Net earnings - - - 63,454 - 63,454
Other comprehensive earnings:
Foreign currency translation
Adjustment - - - - (1,706) (1,706)
------
Comprehensive net earnings - - - - - 61,748
Cash dividends
($.18 per share) - - - (24,102) - (24,102)
Issuance of common stock for:
Stock option plans 14,890 276 - - - 276
Employee stock purchase
Plan 279,477 3,534 - - - 3,534
Stock-based compensation 15,009 309 395 - - 704
Purchase and retirement of
common stock (76,000) - - (1,312) - (1,312)
--------------------------------------------------------------------
Balance at
July 31, 2001 134,031,133 $334,513 $(3,345) $938,130 $1,118 $1,270,416
====================================================================
Balance at
February 1, 2000 132,279,988 $247,559 $(8,593) $929,616 $17,032 $1,185,614
Net earnings - - - 78,190 - 78,190
Other comprehensive earnings:
Unrealized loss on
investment during period,
net of tax - - - - (23,461) (23,461)
Reclassification of
realized loss - - - - 6,429 6,429
------
Comprehensive net earnings - - - - - 61,158
Cash dividends
($.17 per share) - - - (22,287) - (22,287)
Issuance of common stock for:
Stock option plans 155,256 3,594 - - - 3,594
Stock-based compensation 7,057 183 931 - - 1,114
Purchase and retirement of
common stock (3,296,400) - - (75,262) - (75,262)
--------------------------------------------------------------------
Balance at
July 31, 2000 129,145,901 $251,336 $(7,662) $910,257 $ - $1,153,931
====================================================================
<fn>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</table>
5 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<table>
<caption>
Six Months
Ended July 31,
-----------------------
2001 2000
-------- --------
<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $63,454 $78,190
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 102,178 96,493
Amortization of goodwill 808 -
Amortization of trademark and other intangible assets 1,529 -
Amortization of deferred lease credits and other, net (3,511) (5,197)
Stock-based compensation expense 3,126 4,878
Write-down of investment - 10,540
Change in:
Accounts receivable, net (28,744) (34,536)
Merchandise inventories (57,837) (146,970)
Prepaid income taxes and other (1,554) (7,631)
Accounts payable 135,794 169,092
Accrued salaries, wages and related benefits (9,054) (29,344)
Income taxes and other accruals 14,842 16,657
Other liabilities 2,698 1,119
-------- --------
Net cash provided by operating activities 223,729 153,291
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (193,026) (180,386)
Additions to deferred lease credits 59,057 26,557
Other, net (5,992) (5,312)
-------- --------
Net cash used for investing activities (139,961) (159,141)
-------- --------
FINANCING ACTIVITIES:
(Payments) proceeds from notes payable (44,858) 142,086
Proceeds from long-term borrowings - 11,177
Principal payments on long-term debt (5,736) (57,807)
Proceeds from issuance of common stock 3,810 3,594
Cash dividends paid (24,102) (22,287)
Purchase and retirement of common stock (1,312) (75,262)
-------- --------
Net cash (used in) provided by financing activities (72,198) 1,501
-------- --------
Net increase (decrease) in cash and cash equivalents 11,570 (4,349)
Cash and cash equivalents at beginning of period 25,259 27,042
-------- --------
Cash and cash equivalents at end of period $36,829 $22,693
======== ========
<fn>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</table>
6 of 18
<page>
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 July 31, 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 July 31, 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
- --------------------------------
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 ended July 31, 2001, did not
have a material impact on the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations" ("SFAS
No. 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, and establishes
specific criteria for the recognition of goodwill separate from other
intangible assets. Adoption of the accounting provisions of SFAS No. 141 is
not expected to have a material impact. Under SFAS No. 142, goodwill and
intangible assets having indefinite lives will no longer be amortized but will
be subject to annual impairment tests. Other intangible assets will continue
to be amortized over their estimated useful lives. These statements will be
effective for the Company on February 1, 2002. The Company is currently
evaluating the impact of SFAS No. 142 on its consolidated financial position
and results of operations.
7 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
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:
<table>
<caption>
Six Months
Ended July 31,
--------------
2000
----------
<s> <c>
Net sales $2,642,544
Net earnings $ 77,941
Basic earnings per share $ 0.58
Diluted earnings per share $ 0.57
</table>
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.
A summary of the Faconnable acquisition is as follows:
<table>
<caption>
<s> <c>
Fair value of identifiable assets acquired $ 48,677
Intangible assets recorded 145,098
Liabilities assumed (24,021)
==========
Total purchase price $ 169,754
==========
</table>
8 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
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, restricted stock and performance share
units).
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 9,289,833 and 5,710,292, respectively for the
three months ended July 31, 2001 and 2000 and 9,299,833 and 5,710,292,
respectively for the six months ended July 21, 2001 and 2000.
<table>
<caption>
Three Months Six Months
Ended July 31, Ended July 31,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Net earnings $38,699 $45,401 $63,454 $78,190
Basic shares 134,008,385 129,669,930 133,933,442 130,409,067
Basic earnings per share $0.29 $0.35 $0.47 $0.60
Dilutive effect of
stock options and
restricted stock 413,825 430,217 233,664 451,566
Diluted shares 134,422,210 130,100,147 134,167,106 130,860,633
Diluted earnings per share $0.29 $0.35 $0.47 $0.60
</table>
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
<page>
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 $82,187,
and $29,949 which includes noncash amounts of $67,225 and $14,762 as of July
31, 2001 and 2000. The corresponding finance obligation of $78,401 and
$25,939 as of July 31, 2001 and 2000 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 began in August 2001 upon
completion of construction. 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 (4.63% and
7.67% at July 31, 2001 and 2000).
Under EITF Issue No. 97-10, the Company capitalizes certain property, plant
and equipment during the construction period of commercial buildings which is
subsequently derecognized and leased back. During the six-months ended July
31, 2001, the noncash activity related to the derecognition of new stores that
qualified as sale and leaseback were $60,645.
Note 6 - Segment Reporting
The following tables set forth information for the Company's reportable
segments and a reconciliation to the consolidated totals:
<table>
<caption>
Three months ended Retail Credit Catalog/ Corporate
July 31, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Revenues from external
customers $1,483,443 - $62,316 - - $1,545,759
Service charge income - $33,527 - - - 33,527
Intersegment revenues 4,186 8,297 - - $ (12,483) -
Net earnings (loss) 70,463 2,480 (2,939) $(31,305) - 38,699
Three months ended Retail Credit Catalog/ Corporate
July 31, 2000 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $1,382,950 - $74,085 - - $1,457,035
Service charge income - $31,642 - - - 31,642
Intersegment revenues 7,654 7,419 - - $(15,073) -
Net earnings (loss) 85,230 3,923 (6,897) $(36,855) - 45,401
Six months ended Retail Credit Catalog/ Corporate
July 31, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $2,631,780 - $132,019 - - $2,763,799
Service charge income - $ 69,700 - - - 69,700
Intersegment revenues 7,682 13,863 - - $(21,545) -
Net earnings (loss) 124,672 8,026 (7,186) $(62,058) - 63,454
Assets 2,611,684 743,676 68,004 368,787 - 3,792,151
</table>
10 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 6 - Segment Reporting (Cont.)
<table>
<caption>
Six months ended Retail Credit Catalog/ Corporate
July 31, 2000 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Revenues from external
customers $2,467,889 - $142,523 - - $2,610,412
Service charge income - $62,594 - - - 62,594
Intersegment revenues 13,974 12,651 - - $(26,625) -
Net earnings (loss) 141,949 7,440 (11,738) $(59,461) - 78,190
Assets 2,282,045 648,648 92,905 292,777 - 3,316,375
</table>
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 and specialty retailers in nine separate but virtually identical class
action lawsuits filed in various Superior Courts of the State of California in
May, June and July 1998 that have now been consolidated in Marin County state
court. Plaintiffs' consolidated complaint alleged that the Company and other
retailers agreed to charge identical prices for cosmetics and fragrances, not
to discount such prices, and to urge manufacturers to refuse to sell to
retailers who sell cosmetics and fragrances at discount prices, resulting in
artificially-inflated retail prices paid by the class in violation of
California state law. Defendants, including the Company, answered the
consolidated complaint denying the allegations. The Company and the other
retail defendants have produced documents and responded to plaintiffs' other
discovery requests, including providing witnesses for depositions.
Last year, plaintiffs filed an amended complaint naming a number of
manufacturers of cosmetics and fragrances and two other retailers as
additional defendants. Plaintiffs' amended complaint alleges that the retail
price of the "prestige" cosmetics sold in department and specialty stores was
collusively controlled by the retailer and manufacturer defendants in
violation of the Cartwright Act and the California Unfair Competition Act by
various means, including restricting the sale of prestige cosmetics to
department stores only; agreeing that all department and specialty stores will
sell such cosmetics at the manufacturer's suggested retail price ("MSRP");
controlling the advertising of cosmetics and Gift-With-Purchase programs; and
the manufacturer defendants guaranteeing the retailer defendants a gross
margin equal to 40% of MSRP and buying back any unsold cosmetics to prevent
discounting from MSRP.
11 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities (cont.)
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.
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; the plaintiff has filed a notice of appeal.
Bar Code
- --------
The Company is named as one of 135 retailer defendants in a lawsuit filed in
the United States District Court for the District of Arizona. Plaintiff
claims that the Company and the other defendants have infringed certain
patents held by it related to methods of scanning production markings (bar
codes) placed on work pieces or merchandise. The complaint seeks from each
defendant an award of damages for past infringement, to be trebled because of
alleged willful and deliberate infringement. In February 2001, the Company was
dismissed without prejudice pursuant to an agreement and stipulation intended
to resolve a potential judicial conflict of interest. The agreement confirms
that if the potential conflict is for any reason resolved, plaintiff can amend
its complaint to add the Company as a defendant.
Saipan
- ------
The Company has reached a settlement, which is of an immaterial amount, in its
previously described lawsuits relating to its sourcing of clothing products
from independent garment manufacturers in Saipan (Commonwealth of Northern
Marina Islands). The settlement is subject to court approval. The hearing for
preliminary approval of the settlement is currently scheduled for February 28,
2002.
12 of 18
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities (cont.)
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.
Results of Operations:
- ----------------------
During the second quarter of 2001, sales increased 6.1% compared to the
corresponding quarter in 2000. For the six-month period, sales increased 5.9%
compared to the corresponding period in 2000. The increase for the quarter
and the six-month period was primarily due to the opening of six full-line
stores and 11 new Nordstrom Rack stores since May 1, 2000. Additionally,
Anniversary Sale results increased 5.6% on a comparable store basis compared
to the corresponding period in 2000. Comparable store sales (sales in stores
open at least one full fiscal year at the beginning of the fiscal year)
increased 0.6% for the quarter but decreased 1.3% for the six-month period.
The impact of calendar adjustments over the quarter was negligible.
13 of 18
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Gross profit (net sales less cost of sales and related buying and occupancy
expenses) as a percentage of net sales decreased to 32.7% in the second
quarter of 2001, as compared to 34.5% in the same period in 2000. For the
six-month period, gross profit as a percentage of net sales decreased to
33.4%, as compared to 34.9% in the same period in 2000. The decrease for the
quarter and the six-month period was due to higher markdowns and new store
occupancy expenses as a percentage of sales.
For the second quarter of 2001, selling, general and administrative expenses
as a percentage of net sales decreased to 29.6%, compared to 30.0% for the
second quarter of 2000. For the six-month period, selling, general and
administrative expenses as a percentage of net sales decreased to 30.9%,
compared to 31.0% for the corresponding period in 2000. The decrease for the
quarter and the six-month period was due to lower sales promotion and selling
expenses as a percentage of sales, partially offset by the integration of the
Faconnable European operations and new store operating expenses.
Interest expense, net increased 34.9% to $19,279 compared to the corresponding
quarter in 2000. For the six-month period, interest expense, net increased
40.6% to $38,783. The increase for the quarter and the six-month period was
due to higher average borrowings to finance capital expenditures, the purchase
of Faconnable and the repurchase of shares.
A pre-tax loss of $10.5 million was recognized for the quarter ended July 31,
2000 to write down the value of an investment in Streamline. The Company's
initial investment of $32.8 million had a market value of $22.3 million as of
July 31, 2000. Streamline ceased its operations effective November 2000, at
which time the Company wrote off the remainder of its investment.
Service charge income and other, net of $35,368 increased 7.1% compared to the
corresponding quarter in 2000. For the six-month period, service charge
income and other, net increased 13.0% to $72,523. 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 July 31, 2001 decreased 14.8% to $38,699
from $45,401 in the same period in 2000. Net earnings for the six months
ended July 31, 2001 decreased 18.8% to $63,454 from $78,190 in the same period
in 2000. The decrease for the quarter and the six-month period was primarily
due to lower gross profit and higher net interest expense.
Diluted earnings per share were $0.29 for the second quarter ended July 31,
2001, compared to diluted earnings per share of $0.35 in the second quarter
last year. For the six months ended July 31, 2001, diluted earnings per share
were $0.47, a decrease of 21.7% from the $0.60 achieved in the same period in
2000. The decrease in the diluted earnings per share for the quarter and the
six-month period was due primarily to lower gross profit, higher net interest
expense, and an increase in the number of shares outstanding.
Liquidity and Capital Resources:
- --------------------------------
The Company finances its working capital needs, capital expenditures, and
share repurchase activity with cash provided by operations and borrowings.
14 of 18
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
The Company's cash and cash equivalents increased $11.6 million during the
six-month period ended July 31, 2001, as cash provided by operating activities
was more than the cash used for investing and financing activities. Net cash
provided by operating activities increased $70.4 million compared to the six-
month period ended July 31, 2000, primarily due to merchandise inventories and
accrued salaries, partially offset by accounts payable.
For the six-month period ended July 31, 2001, net cash used in investing
activities decreased approximately $19.2 million compared to the six-month
period ended July 31, 2000, primarily due to an increase in deferred lease
credits, partially offset by an increase in capital expenditures to fund new
stores and remodels. During the second quarter of fiscal 2001, the Company
did not open any new stores. For the year to date, the Company has opened a
total of one new full-line and two new Nordstrom Rack stores. Additionally,
in August 2001, the Company opened a Nordstrom Rack store in Roseville,
California. Throughout the remainder of the year ending January 31, 2002,
Nordstrom expects to open full-line stores in Columbus, Ohio; Tampa, Florida;
and Chandler, Arizona; and five Nordstrom Rack stores. For the entire 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 July 31, 2001, compared to 14,858,000 as of July 31, 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 six-month period ended July 31, 2001, cash provided by financing
activities decreased approximately $73.7 million compared to the six-month
period ended July 31, 2000, primarily due to reduced borrowings, partially
offset by a reduction in share repurchases.
During the six months ended July 31, 2001, the Company repurchased 76,000
shares of its common stock for approximately $1.3 million under the stock
repurchase program. At July 31, 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.
15 of 18
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Recent Accounting Pronouncements
- --------------------------------
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 ended July 31, 2001, did not
have a material impact on the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations" ("SFAS
No. 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, and establishes
specific criteria for the recognition of goodwill separate from other
intangible assets. Adoption of the accounting provisions of SFAS No. 141 is
not expected to have a material impact. Under SFAS No. 142, goodwill and
intangible assets having indefinite lives will no longer be amortized but will
be subject to annual impairment tests. Other intangible assets will continue
to be amortized over their estimated useful lives. These statements will be
effective for the Company on February 1, 2002. The Company is currently
evaluating the impact of SFAS No. 142 on its consolidated financial position
and results of operations.
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.
In addition, the functional currency of Faconnable, of Nice, France, is the
French Franc. 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 July 31, 2001, the Company had outstanding borrowings of approximately
$38.2 million under short-term notes payable, which bear interest from 4.10%
to 4.15%, and matured from August 1, 2001 to August 14, 2001.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
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
16 of 18
<page>
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company held its Annual Shareholders Meeting on May 15, 2001, at which
time the shareholders voted on the following proposals:
(1) Election of nine directors for a one-year term each.
Name of Candidate For Withheld
---------------------- ----------- -----------
D. Wayne Gittinger 110,874,403 6,223,478
Enrique Hernandez, Jr. 112,659,422 4,438,459
John A. McMillan 112,667,947 4,429,934
Bruce A. Nordstrom 112,185,938 4,911,943
John N. Nordstrom 112,119,761 4,978,120
Alfred E. Osborne, Jr. 104,965,059 12,132,822
William D. Ruckelshaus 104,984,481 12,113,400
Bruce G. Willison 105,019,095 12,078,786
Alison A. Winter 112,762,881 4,335,000
There were no abstentions and no broker non-votes.
(2) Ratification of the appointment of Deloitte and Touche LLP as auditors
The vote was 115,422,734 for, 1,113,683 against, and there were 561,464
abstentions. There were no broker non-votes.
(3) Shareholder proposal regarding performance-based executive compensation
The vote was 9,709,816 for, 89,578,702 against, and there were 1,155,759
abstentions and 16,653,604 broker non-votes.
(4) Shareholder proposal regarding vendor standards compliance mechanisms
The vote was 6,061,648 for, 91,253,552 against, and there were 3,129,080
abstentions and 16,653,601 broker non-votes.
(5) Shareholder proposal regarding global human rights standards
The vote was 5,478,051 for, 91,009,849 against, and there were 3,956,378
abstensions and 16,653,603 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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.
17 of 18
<page>
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: September 7, 2001
-----------------
18 of 18