<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 October 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 November 30, 2001: 134,407,930 shares of
common stock.
1 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
<table>
<caption>
Page
Number
PART I. FINANCIAL INFORMATION
<s> <c>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Three and Nine months ended
October 31, 2001 and 2000 3
Condensed Consolidated Balance Sheets
October 31, 2001 and 2000 and
January 31, 2001 4
Condensed Consolidated Statements of Cash Flows
Nine months ended October 31, 2001
and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
</table>
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<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
<table>
<caption>
Three Months Nine Months
Ended October 31, Ended October 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
Net sales $1,239,241 $1,262,390 $4,003,040 $3,872,802
Cost of sales and related
buying and occupancy (836,961) (823,868) (2,676,299) (2,523,836)
---------- ---------- ---------- ----------
Gross profit 402,280 438,522 1,326,741 1,348,966
Selling, general and
administrative expenses (399,568) (444,390) (1,253,715) (1,252,707)
---------- ---------- ---------- ----------
Operating income/(loss) 2,712 (5,868) 73,026 96,259
Interest expense, net (17,934) (15,995) (56,717) (43,587)
Write-down of investment - (20,655) - (31,195)
Service charge income
and other, net 32,317 36,998 104,840 101,193
---------- ---------- ---------- ----------
Earnings/(loss) before
income taxes 17,095 (5,520) 121,149 122,670
Income tax (expense)/benefit (6,600) 2,200 (47,200) (47,800)
---------- ---------- ---------- ----------
Net earnings/(loss) $ 10,495 $ (3,320) $ 73,949 $ 74,870
========== ========== ========== ==========
Basic earnings per share $ .08 $ (.03) $ .55 $ .58
========== ========== ========== ==========
Diluted earnings per share $ .08 $ (.03) $ .55 $ .58
========== ========== ========== ==========
Cash dividends paid per share
of common stock outstanding $ .09 $ .09 $ .27 $ .26
========== ========== ========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
3 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<table>
<caption>
October 31, January 31, October 31,
2001 2001 2000
---------- ---------- ----------
<s> <c> <c> <c>
ASSETS
Current Assets:
Cash and cash equivalents $ 20,365 $ 25,259 $ 15,750
Short-term investment - - 1,662
Accounts receivable (net of allowance
for doubtful accounts of $20,692,
$16,531 and $15,239) 699,450 721,953 638,936
Merchandise inventories 1,161,178 945,687 1,186,391
Prepaid expenses 38,477 28,760 38,244
Other current assets 102,408 91,323 77,010
---------- ---------- ----------
Total current assets 2,021,878 1,812,982 1,957,993
Land, buildings and equipment (net of
accumulated depreciation of $1,648,745,
$1,554,081 and $1,506,360) 1,732,659 1,599,938 1,597,302
Intangible assets (net of accumulated
amortization of $4,746, $1,251 and $102) 139,466 143,473 158,042
Other assets 81,148 52,110 53,249
---------- ---------- ----------
TOTAL ASSETS $3,975,151 $3,608,503 $3,766,586
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 167,663 $ 83,060 $ 110,612
Accounts payable 637,694 466,476 624,011
Accrued salaries, wages
and related benefits 223,549 234,833 195,209
Income taxes and other accruals 155,632 153,613 154,044
Current portion of long-term debt 78,966 12,586 11,591
---------- ---------- ----------
Total current liabilities 1,263,504 950,568 1,095,467
Long-term debt 1,045,441 1,099,710 1,070,020
Deferred lease credits 330,747 275,252 328,934
Other liabilities 61,669 53,405 56,388
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
134,338,694, 133,797,757 and
133,999,405 shares issued
and outstanding 338,589 330,394 330,990
Unearned stock compensation (3,148) (3,740) (3,937)
Retained earnings 936,560 900,090 888,724
Accumulated other comprehensive
earnings 1,789 2,824 -
---------- ---------- ----------
Total shareholders' equity 1,273,790 1,229,568 1,215,777
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,975,151 $3,608,503 $3,766,586
========== ========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
4 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<table>
<caption>
Nine Months
Ended October 31,
-----------------------
2001 2000
-------- --------
<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $73,949 $74,870
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 155,679 149,195
Amortization of intangible assets 3,495 102
Amortization of deferred lease credits and other, net (4,974) (8,902)
Stock-based compensation expense 2,237 8,690
Write-down of investment - 31,195
Change in:
Accounts receivable, net 21,951 (12,367)
Merchandise inventories (215,976) (377,042)
Prepaid expenses (5,780) (14,206)
Other current assets (3,368) (254)
Accounts payable 141,594 212,984
Accrued salaries, wages and related benefits (12,520) (20,496)
Income taxes and other accruals 2,133 5,090
Other liabilities 1,808 (10,255)
-------- --------
Net cash provided by operating activities 160,228 38,604
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (290,472) (283,644)
Additions to deferred lease credits 95,749 142,370
Payment for acquisition, net of cash acquired - (83,377)
Other, net (7,506) (5,614)
-------- --------
Net cash used for investing activities (202,229) (230,265)
-------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable 84,603 39,678
Proceeds from long-term borrowings - 308,266
Principal payments on long-term debt (17,902) (57,911)
Proceeds from issuance of common stock 7,885 6,098
Cash dividends paid (36,168) (33,877)
Purchase and retirement of common stock (1,311) (81,885)
-------- --------
Net cash provided by financing activities 37,107 180,369
-------- --------
Net decrease in cash and cash equivalents (4,894) (11,292)
Cash and cash equivalents at beginning of period 25,259 27,042
-------- --------
Cash and cash equivalents at end of period $20,365 $15,750
======== ========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
5 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
- ---------------------
The accompanying condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements contained in
the 2000 Nordstrom, Inc. Annual Report. The same accounting policies are
followed in preparing quarterly financial data as are followed in preparing
annual data. In the opinion of management, all adjustments necessary for a
fair presentation of the results of operations, financial position and cash
flows have been included and are of a normal, recurring nature.
The condensed consolidated financial statements include the operating results
of Faconnable, S.A. ("Faconnable") from the date of acquisition (Note 2).
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Due to the seasonal nature of the retail industry, quarterly results are not
necessarily indicative of the results for the fiscal year.
Recent Accounting Pronouncements
- --------------------------------
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. The Company is currently
evaluating the impact of SFAS No. 142 on its earnings and financial position.
These statements will be effective for the Company on February 1, 2002.
In August 2001, the FASB released SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which will be effective for the Company on
February 1, 2002. The adoption of this statement is not expected to have a
material impact on the Company's financial statements.
Note 2 - Acquisition
On October 24, 2000, the Company acquired 100% of Faconnable as discussed in
the Company's 2000 Annual Report. As part of the acquisition, the Company
recorded gross intangibles of $158,144. In the fourth quarter of 2000, the
Company adjusted the purchase price allocation, reducing goodwill by $13,420
to arrive at a gross intangible amount of $144,724 as of January 31, 2001. In
2001, the Company adjusted the purchase price allocation again, reducing
goodwill by a net $512 to arrive at a gross intangible amount of $144,212 as
of October 31, 2001.
6 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - Earnings Per Share
<table>
<caption>
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
<s> <c> <c> <c> <c>
Net earnings (loss) $10,495 $(3,320) $73,949 $74,870
Basic shares 134,149,137 129,315,092 134,006,130 130,041,747
Basic earnings (loss)
per share $0.08 $(.03) $0.55 $0.58
Dilutive effect of
stock options and
restricted stock 59,827 - 163,781 144,612
Diluted shares 134,208,964 129,315,092 134,169,911 130,186,359
Diluted earnings (loss)
per share $0.08 $(.03) $0.55 $0.58
Antidilutive stock
options 10,486,554 8,913,270 8,888,040 5,754,360
</table>
Note 4 - Supplementary Cash Flow Information
The Company owns a 49% interest in a limited partnership which constructed
a new corporate office building in which the Company is the primary occupant.
The Company's financial statements include capitalized costs related to this
building of $87,116, and $39,491, which includes noncash amounts of $72,058
and $24,402 as of October 31, 2001 and 2000. The corresponding finance
obligation of $83,213 and $35,578 as of October 31, 2001 and 2000 is included
in other long-term debt.
The Company capitalizes certain property, plant and equipment during the
construction period of commercial buildings, which is subsequently
derecognized and leased back. During the nine-months ended October 31, 2001,
the noncash activity related to the reclassification of new stores that
qualified as sale and leaseback was $60,645.
Note 5 - 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
October 31, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Revenues from external
customers $1,172,332 - $66,909 - - $1,239,241
Service charge income - $30,677 - - - 30,677
Intersegment revenues 7,462 5,728 - - $(13,190) -
Interest expense, net 87 5,478 68 $12,301 - 17,934
Net earnings (loss) 40,113 2,538 (1,132) (31,024) - 10,495
Three months ended Retail Credit Catalog/ Corporate
October 31, 2000 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $1,181,807 - $80,583 - - $1,262,390
Service charge income - $34,071 - - - 34,071
Intersegment revenues 11,940 5,950 - - $(17,890) -
Interest expense, net 195 7,475 (85) $8,410 - 15,995
Net earnings (loss) 54,636 5,459 (12,971) (50,444) - (3,320)
</table>
7 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Segment Reporting (Cont.)
<table>
<caption>
Nine months ended Retail Credit Catalog/ Corporate
October 31, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Revenues from external
customers $3,804,112 - $198,928 - - $4,003,040
Service charge income - $100,377 - - - 100,377
Intersegment revenues 15,144 19,591 - - $(34,735) -
Interest expense, net 795 18,103 (30) $37,849 - 56,717
Net earnings (loss) 164,785 10,564 (8,318) (93,082) - 73,949
Assets 2,812,324 683,332 83,265 396,229 - 3,975,151
Nine months ended Retail Credit Catalog/ Corporate
October 31, 2000 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $3,649,696 - $223,106 - - $3,872,802
Service charge income - $96,665 - - - 96,665
Intersegment revenues 25,914 18,601 - - $(44,515) -
Interest expense, net 523 20,660 (490) $22,894 - 43,587
Net earnings (loss) 196,585 12,899 (24,709) (109,905) - 74,870
Assets 2,797,775 637,780 85,240 245,791 - 3,766,586
</table>
Note 6 - Restructurings, Impairments and Other One-Time Charges
The following table provides a summary of restructuring, impairments and other
charges:
<table>
<caption>
2001 2000 1999
-------- -------- --------
<s> <c> <c> <c>
Employee severance $1,791 - $2,685
Other expenses - - 1,206
-------- -------- --------
Restructuring subtotal 1,791 - 3,891
Management severance - $13,000 -
Asset impairment - 10,227 4,053
Litigation settlement costs - - 2,056
-------- -------- --------
Total charges $1,791 $23,227 $10,000
======== ======== ========
</table>
In the third quarter of 2001, the Company streamlined its operations through a
reduction in workforce of approximately 2,600 jobs. As a result, the Company
recorded a charge of $1,791 in selling, general and administrative expenses
relating to severance for approximately 195 employees. Personnel affected
were primarily located in the corporate center and in full-line stores.
In the third quarter of 2000, the Company recorded an impairment charge of
$10,227, consisting of $9,627 recorded in selling, general and administrative
expenses and $600 in interest expense. Due to changes in business strategy,
the Company determined that several in-process software projects were either
impaired or obsolete. The charges consisted of $6,542 primarily related to the
disposition of transportation management software. Additionally, merchandise
software was written down $3,685 to its estimated fair value. During the same
quarter, the Company also accrued $13,000 for certain severance costs related
to a change in management, which was paid in the following quarter.
In the third quarter of 1999, the Company recorded a charge of $10,000 in
selling, general and administrative expenses primarily associated with the
restructuring of the Company's information technology services area. The
charge consisted of $4,053 related to the disposition of several in-process
software projects, $2,685 in employee severance and $1,206 in other
miscellaneous costs. Additionally, the Company recorded $2,056 related to the
settlement of two lawsuits. The restructuring included the termination of 50
employees in the information technology department.
8 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 6 - Restructurings, Impairments and Other One-Time Charges (Cont.)
The following table presents the activity and balances of the reserves
established in connection with the restructuring charges.
<table>
<caption>
2001 2000 1999
-------- -------- --------
<s> <c> <c> <c>
Beginning balance $178 $1,452 -
Additions 1,791 - $3,891
Payments (1,067) (1,220) (2,122)
Adjustments 7 (54) (317)
-------- -------- --------
Ending balance $909 $178 $1,452
======== ======== ========
</table>
Note 7 - Interest Rate Swap Agreement
During the third quarter of 2001, the Company entered into a variable interest
rate swap agreement. The swap has a $300,000 notional amount and a four-year
term. Under the agreement, the Company receives a fixed rate of 8.95% and
pays a variable rate based on LIBOR plus a margin of 4.44% (6.85% at October
31, 2001). The swap agreement qualifies as a fair value hedge and is recorded
at fair market value in other assets.
Note 8 - Subsequent Events
Subsequent to the third quarter of 2001, the Company issued $300 million of
Class A notes backed by Nordstrom Private Label Receivables ("PL Term"). The
PL Term bears a fixed interest rate of 4.82% and has an expected maturity of
five years. In addition, the Company issued a variable funding note backed by
Nordstrom Private Label Receivables ("PL VFN") with a $200 million capacity.
Interest on the PL VFN varies based on 30-day commercial paper rated at A1/P1.
At this time, there have been no borrowings on the PL VFN. Proceeds will be
used for general corporate purposes, capital expansion and to pay down short-
term debt.
On November 20, 2001, the Company entered into a $300 million unsecured line
of credit agreement with a group of commercial banks, which expires in
November 2004. The new line of credit amends and replaces the existing $500
million line of credit, which was to expire in July 2002. At this time, there
have been no borrowings.
Note 9 - Litigation
Cosmetics
- ---------
The Company remains a party to the cosmetics lawsuit, as previously described
in the Company's 2000 Annual Report.
9 of 14
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 9 - Litigation (Cont.)
Spokane
- -------
The Company has received a copy of an October 29, 2001 letter sent by
Washington Public Trust Advocates, a Washington non-profit corporation
("WPTA") to the city council and mayor of the City of Spokane and the attorney
general of the State of Washington requesting that the city and the state
consider bringing an action against multiple defendants, including the
Company. The claims arise from the development of River Park Square in
Spokane, Washington with tax exempt bond financing. One of the allegations is
that the tenant allowances to the Company from the developer constituted an
inappropriate subsidy. The WPTA letter and the draft complaint imply that, in
the event the City of Spokane and/or the State of Washington fails or refuses
to take action on the basis of WPTA's claims, WPTA will undertake the
litigation as a "taxpayer derivative action." The amount of the claims
asserted by WPTA against the Company appear to be in the range of $22.8
million (the alleged amount of tenant allowances to the Company), although one
of the allegations is for a RICO violation and treble damages under that
statute. No lawsuit has yet been filed.
Other
- -----
The Company is involved in routine litigation arising in the normal course of
business. Management believes that the outcome of such litigation will not
have a material impact on the Company's financial position, results of
operations or liquidity.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion may include forward-looking statements regarding the
Company's performance, liquidity and adequacy of capital resources. These
statements are based on the Company's current assumptions and expectations and
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Forward-looking statements are
qualified by the risks and challenges posed by increased competition, shifting
consumer demand, changing consumer credit markets, changing capital markets
and general economic conditions, hiring and retaining effective team members,
sourcing merchandise from domestic and international vendors, investing in new
business strategies, achieving our growth objectives, and other risks and
uncertainties, including the uncertain economic and political environment
arising from the terrorist acts of September 11th and subsequent terrorist
activities. As a result, while the Company believes there is a reasonable
basis for the forward-looking statements, you should not place undue reliance
on those statements.
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:
- ----------------------
Year-over-year changes in revenues and comparable-store sales were as follows:
<table>
<caption>
QTD % Change YTD % Change
-------- --------
<s> <c> <c>
Company sales (1.8)% 3.4%
Comparable-store sales (5.7) (2.7)
-------- --------
</table>
10 of 14
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
During the third quarter of 2001, sales decreased 1.8% compared to the
corresponding quarter in 2000. The decrease for the quarter is due primarily
to weak customer demand. Sales were temporarily impacted in the days
immediately following the events of September 11th but were offset by a
previously unscheduled sale event. The increase in sales for the
nine-month period was primarily due to the opening of 9 full-line stores and
12 new Nordstrom Rack stores since August 1, 2000. Comparable store sales
decreased 5.7% for the quarter and 2.7% for the nine-month period.
Gross profit as a percentage of net sales decreased for the three month and
nine month periods ended October 31, 2001, as compared to the same periods in
2000. The decrease in gross profits was due to higher markdowns and new store
occupancy expenses.
For the three months and nine months ending October 31, 2001, selling, general
and administrative expenses as a percentage of net sales decreased when
compared to the same periods in 2000. The decrease this year was primarily
due to nonrecurring charges in the third quarter of 2000 of $13 million in
severance expenses resulting from a change in management, and a charge of
approximately $10 million for the write-off of certain information technology
investments. Additionally, the Company has been successful at controlling
expenses such as sales promotion, direct selling and information technology
during the current year.
Interest expense, net increased for both the quarter and the nine-month period
when compared to the same periods in 2000. The increase for the quarter and
the nine-month period was due to higher average long-term borrowings. This
was partially offset by a decrease in short-term interest rates and average
short-term borrowings.
Service charge income and other, net decreased 12.7% compared to the
corresponding quarter in 2000. The decrease for the quarter resulted from
lower service charge income due to declining interest rates. For the nine-
month period, service charge income and other, net increased 3.6%. The
increase for the nine-month period resulted primarily from an increase in
service charge income due to a larger portfolio.
Net earnings for the quarter ended October 31, 2001 increased to $10,495 from
a net loss of $3,320 in the same period in 2000. Diluted earnings per share
were $0.08 for the third quarter ended October 31, 2001, compared to diluted
loss per share of $0.03 in the third quarter last year. The increases in
earnings and diluted earnings per share for the quarter were due primarily to
nonrecurring charges in 2000 related to changes in management, the write-off
of certain information technology investments, and the write-down of the
Streamline investment. Net earnings for the nine months ended October 31,
2001 decreased 1.2% from the same period in 2000. For the nine months ended
October 31, 2001, diluted earnings per share were $0.55, compared to diluted
earnings per share of $0.58 achieved in the same period in 2000.
Liquidity and Capital Resources:
- --------------------------------
The Company finances its working capital needs, capital expenditures, and
share repurchase activity with cash provided by operations and borrowings.
Net cash provided by operating activities during the nine-month period ended
October 31, 2001 increased $121.6 million compared to the prior comparable
period, primarily due to merchandise inventories and accounts receivable,
partially offset by accounts payable.
11 of 14
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
For the nine-month period ended October 31, 2001, net cash used in investing
activities decreased approximately $28.0 million compared to the nine-month
period ended October 31, 2000, primarily due to payments in 2000 relating to
the acquisition of Faconnable, partially offset by a decrease in additions to
deferred lease credits. During the third quarter of fiscal 2001, the Company
opened three new full-line stores in Columbus, Ohio; Tampa, Florida and
Chandler, Arizona. The Company also opened five new Nordstrom Rack stores in
Roseville, CA; Las Vegas, Nevada; San Francisco, CA; Grand Rapids, Michigan
and Oxnard, California. For the year to date, the Company has opened a total
of four new full-line and seven new Nordstrom Rack stores. Additionally, in
November 2001, the Company opened a Nordstrom Rack store located in Dulles,
Virginia. No other stores are scheduled to open in 2001. Total square footage
of the Company's stores was 16,998,000 as of October 31, 2001, compared to
15,847,000 as of October 31, 2000.
For the nine-month period ended October 31, 2001, cash provided by financing
activities decreased approximately $143.3 million compared to the nine-month
period ended October 31, 2000, primarily due to the proceeds from the $300
million Senior Notes issued by the Company in 2000, partially offset by a
reduction in share repurchases and increased payments on short-term and long-
term debt.
During the nine months ended October 31, 2001, the Company repurchased 76,000
shares of its common stock for approximately $1.3 million under the stock
repurchase program. At October 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.
Recent Accounting Pronouncements
- --------------------------------
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. The Company is currently
evaluating the impact of SFAS No. 142 on its earnings and financial position.
These statements will be effective for the Company on February 1, 2002.
In August 2001, the FASB released SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which will be effective for the Company on
February 1, 2002. The adoption of this statement is not expected to have a
material impact on the Company's 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.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONT.)
The Company entered into a variable interest rate swap agreement in the third
quarter of this year. The swap has a $300 million notional amount and a four-
year term. Under the agreement, the Company receives a fixed rate of 8.95%
and pays a variable rate based on LIBOR plus a margin of 4.44% (6.85% at
October 31, 2001).
In addition, the functional currency of Faconnable, of Nice, France, is the
European 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 October 31, 2001, the Company had outstanding borrowings of approximately
$166.4 million under short-term notes payable, which bear interest from 3.00%
to 3.05%, and matured from November 1, 2001 to November 5, 2001.
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 9 in Notes to Condensed Consolidated Financial Statements
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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: December 10, 2001
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