<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 April 30, 2002
[ ] 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, 2002: 135,070,829 shares of
common stock.
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<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 months ended April 30, 2002
and 2001 3
Condensed Consolidated Balance Sheets
April 30, 2002 and 2001 and
January 31, 2002 4
Condensed Consolidated Statements of Cash Flows
Three months ended April 30, 2002
and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
</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
Ended April 30,
----------------------
2002 2001
---------- ----------
<s> <c> <c>
Net sales $1,245,761 $1,218,040
Cost of sales and related
buying and occupancy (824,297) (798,430)
---------- ----------
Gross profit 421,464 419,610
Selling, general and
administrative expenses (384,875) (396,706)
---------- ----------
Operating income 36,589 22,904
Interest expense, net (20,049) (19,504)
Minority interest purchase (42,047) -
Service charge income
and other, net 33,304 37,155
---------- ----------
Earnings before income taxes and cumulative
effect of accounting change 7,797 40,555
Income tax expense (19,010) (15,800)
---------- ----------
(Loss) earnings before cumulative effect of
accounting change (11,213) 24,755
Cumulative effect of accounting change (net of tax) (13,359) -
---------- ----------
Net (loss) earnings $ (24,572) $ 24,755
========== ==========
Basic (loss) earnings per share $ (.18) $ .18
========== ==========
Diluted (loss) earnings per share $ (.18) $ .18
========== ==========
Cash dividends paid per share
of common stock outstanding $ .09 $ .09
========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
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<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<table>
<caption>
April 30, January 31, April 30,
2002 2002 2001
---------- ---------- ----------
<s> <c> <c> <c>
ASSETS
Current Assets:
Cash and cash equivalents $ 211,443 $ 331,327 $ 18,092
Accounts receivable, net 667,483 698,475 689,233
Merchandise inventories 994,136 888,172 1,052,274
Prepaid expenses 33,385 34,375 28,601
Other current assets 108,707 102,249 90,723
---------- ---------- ----------
Total current assets 2,015,154 2,054,598 1,878,923
Land, buildings and equipment, net 1,791,676 1,761,082 1,617,244
Intangible assets, net 116,431 138,331 142,678
Other assets 101,169 94,768 70,091
---------- ---------- ----------
TOTAL ASSETS $4,024,430 $4,048,779 $3,708,936
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 679 $ 148 $ 141,293
Accounts payable 557,854 490,988 538,012
Accrued salaries, wages
and related benefits 186,041 236,373 191,764
Income taxes and other accruals 179,835 142,002 127,483
Current portion of long-term debt 3,996 78,227 89,336
---------- ---------- ----------
Total current liabilities 928,405 947,738 1,087,888
Long-term debt 1,346,939 1,351,044 1,032,890
Deferred lease credits 369,401 342,046 289,611
Other liabilities 97,623 93,463 53,462
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
134,997,563, 134,468,608 and
134,013,395 shares issued
and outstanding 349,593 341,316 334,176
Unearned stock compensation (2,513) (2,680) (3,543)
Retained earnings 938,520 975,203 911,491
Accumulated other comprehensive
earnings (loss) (3,538) 649 2,961
---------- ---------- ----------
Total shareholders' equity 1,282,062 1,314,488 1,245,085
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,024,430 $4,048,779 $3,708,936
========== ========== ==========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
4 of 16
<page>
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<table>
<caption>
Three Months
Ended April 30,
----------------------
2002 2001
-------- --------
<s> <c> <c>
OPERATING ACTIVITIES:
Net (loss) earnings $(24,572) $24,755
Adjustments to reconcile net (loss) earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization 55,290 50,937
Amortization of intangible assets - 1,169
Amortization of deferred lease credits and other, net (4,333) (348)
Stock-based compensation expense 1,131 1,628
Deferred income taxes, net (11,969) (852)
Impairment of intangibles 21,900 -
Change in:
Accounts receivable, net 31,790 32,011
Merchandise inventories (139,658) (110,712)
Prepaid expenses 1,786 1,940
Other assets (39) (409)
Accounts payable 109,569 58,044
Accrued salaries, wages and related benefits (51,246) (44,143)
Income taxes and other accruals 37,632 (26,090)
Other liabilities 3,310 374
-------- --------
Net cash provided by (used for) operating activities 30,591 (11,696)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (96,827) (54,243)
Additions to deferred lease credits 32,692 17,951
Other, net (1,413) (4,964)
-------- --------
Net cash used for investing activities (65,548) (41,256)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 531 58,233
Proceeds from long-term borrowings 431 391
Principal payments on long-term debt (81,874) (3,047)
Proceeds from issuance of common stock 8,096 3,562
Cash dividends paid (12,111) (12,042)
Purchase and retirement of common stock - (1,312)
-------- --------
Net cash provided by financing activities (84,927) 45,785
-------- --------
Net decrease in cash and cash equivalents (119,884) (7,167)
Cash and cash equivalents at beginning of period 331,327 25,259
-------- --------
Cash and cash equivalents at end of period $211,443 $18,092
======== ========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
</table>
5 of 16
<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 2001 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.
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 February 2002, we adopted the following three pronouncements:
SFAS No. 141 "Business Combinations" - 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 SFAS No. 141 did
not have a material impact on our financial statements.
SFAS No. 142 "Goodwill and Other Intangible Assets" - 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.
Adoption of SFAS No. 142 resulted in an impairment charge and a reduction in
amortization expense for the first quarter of 2002, which is detailed in Note
2 of the Notes to Condensed Consolidated Financial Statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
- - SFAS No. 144 retains the fundamental provisions of SFAS No. 121, but
establishes new criteria for asset classification and broadens the scope of
qualifying discontinued operations. The adoption of this statement did not
have a material impact on our financial statements.
Note 2 - Cumulative Effect of Accounting Change
Effective February 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which establishes new accounting and reporting
requirements for goodwill and other intangible assets. 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.
In connection with the adoption of SFAS No. 142, we reviewed the
classification and useful lives of our intangible assets. Our intangible
assets were determined to be either goodwill or indefinite lived tradename.
6 of 16
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 2 - Cumulative Effect of Accounting Change (Cont.)
As required by SFAS No. 142, we defined our reporting unit as the Faconnable
Business Unit, one level below our reportable Retail Stores segment. We then
tested our intangible assets for impairment by comparing the fair value of the
reporting unit with its carrying value. Fair value was determined using a
discounted cash flow methodology. These impairment tests are required to be
performed at adoption of SFAS No. 142 and at least annually thereafter. On an
ongoing basis we expect to perform our impairment test during our first
quarter or when other circumstances indicate we need to do so.
Based on our initial impairment test, we recognized an adjustment to goodwill
of $21,900 in the first quarter of 2002, while the tradename was determined
not to be impaired. The goodwill adjustment resulted from a reduction in
management's estimate of future growth for this reporting unit. The
impairment charge recognized this quarter is reflected as a cumulative effect
of accounting change.
The changes in the carrying amount of our intangible assets for the quarter
ended April 30, 2002, are as follows:
<table>
<caption>
Goodwill Tradename
---------- ----------
<s> <c> <c>
Balance as of February 1, 2002 $ 38,198 $ 100,133
Impairment losses (21,900) -
---------- ----------
Balance as of April 30, 2002 $ 16,298 $ 100,133
========== ==========
</table>
The following table shows the actual results of operations for the quarters
ended April 30, 2002 and 2001 as well as pro-forma results adjusted for the
exclusion of intangible amortization and the cumulative effect of the
accounting change.
<table>
<caption>
Three Months
Ended
April 30,
--------------------
2002 2001
--------- ---------
<s> <c> <c>
Reported net (loss) income $ (24,572) $ 24,755
Intangible amortization,
net of tax - 713
Cumulative effect of the
accounting change, net of tax 13,359 -
--------- ---------
Adjusted net (loss) income $ (11,213) $ 25,468
========= =========
Basic and diluted earnings per share
Reported net (loss) income $ (.18) $ .18
Intangible amortization,
net of tax - .01
Cumulative effect of the
accounting change, net of tax .10 -
--------- --------
Adjusted net (loss) income $ (.08) $ .19
========= ========
</table>
7 of 16
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - Earnings Per Share
<table>
<caption>
Three Months
Ended April 30,
------------------------
2002 2001
----------- -----------
<s> <c> <c>
Net (loss) earnings $(24,572) $24,755
Basic shares 134,702,331 133,855,973
Basic (loss) earnings per share $(0.18) $0.18
Dilutive effect of
stock options and
restricted stock - 65,625
Diluted shares 134,702,331 133,921,598
Diluted (loss) earnings per share $(0.18) $0.18
Antidilutive stock options 12,711,744 9,600,203
</table>
Note 4 - Accounts Receivable
The components of accounts receivable are as follows:
<table>
<caption>
April 30,
------------------------
2002 2001
----------- -----------
<s> <c> <c>
Unrestricted trade receivables $ 76,367 $685,503
Restricted trade receivables 592,908 -
Other 20,994 20,962
Allowance for doubtful accounts (22,786) (17,232)
----------- ----------
Accounts receivable, net $667,483 $689,233
=========== ==========
</table>
Restricted accounts back the $300 million of Class A notes and the $200
million variable funding note issued by us in November 2001.
Note 5 - Supplementary Cash Flow Information
We own a 49% interest in a limited partnership which constructed a new
corporate office building in which we are the primary occupant. During the
first quarter of 2002, the limited partnership refinanced its construction
loan obligation with an $85,000 mortgage secured by the property, of which
$82,011 was included on our balance sheet at April 30, 2002. The obligation
has a fixed interest rate of 7.68% and a term of 18 years. The $5,000
difference between the $90,000 outstanding under the original credit facility
and the new mortgage was funded by Nordstrom, Inc.
Our financial statements include capitalized costs related to this
building of $90,078, and $70,165, which includes noncash amounts of $75,835
and $55,174 as of April 30, 2002 and 2001. The corresponding finance
obligation of $87,011 and $66,351 as of April 30, 2002 and 2001 is included
in other long-term debt.
We capitalize certain property, plant and equipment during the construction
period of commercial buildings which are subsequently derecognized and leased
back. During the three months ended April 30, 2001, the noncash activity
related to the reclassification of new stores that qualified as sale and
leaseback were $17,614.
8 of 16
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 6 - Segment Reporting
The following tables set forth information for the our reportable segments and
a reconciliation to the consolidated totals:
<table>
<caption>
Three months ended Retail Credit Catalog/ Corporate
April 30, 2002 Stores Operations Internet and Other Eliminations Total
<s> <c> <c> <c> <c> <c> <c>
Revenues from external
customers $1,182,709 - $63,052 - - $1,245,761
Service charge income - $31,455 - - - 31,455
Intersegment revenues 3,818 9,906 - - $ (13,724) -
Interest expense, net 184 6,439 185 $13,241 - 20,049
Earnings before cumulative
effect of accounting change 56,934 1,578 (308) (69,417) - (11,213)
Net earnings (loss) 43,575 1,578 (308) (69,417) - (24,572)
Three months ended Retail Credit Catalog/ Corporate
April 30, 2001 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $1,148,337 - $69,703 - - $1,218,040
Service charge income - $36,624 - - - 36,624
Intersegment revenues 3,496 5,556 - - $(9,052) -
Interest expense, net 355 6,623 (48) $ 12,574 - 19,504
Net earnings (loss) 53,663 5,276 (4,247) (29,937) - 24,755
</table>
Note 7 - Nordstrom.com Put Agreement
On May 13, 2002, we entered into an agreement to purchase the outstanding
shares of Nordstrom.com, Inc. series C preferred stock for $70,000. The
excess of the purchase price over the fair market value of the preferred stock
and professional fees incurred resulted in a one-time charge of $42,047, which
was recognized during the quarter. A valuation allowance has been provided
for the full amount of the tax benefit of the transaction, as management
believes it is not likely that these benefits will be realized. The excess of
the fair market value over the book value of the series C preferred stock of
Nordstrom.com, Inc. will result in additional goodwill. Subsequent to this
transaction, we will own 97% of Nordstrom.com, Inc. Additional charges may be
incurred in 2002 related to the integration of the Nordstrom.com business into
Nordstrom, Inc.
Note 8 - Subsequent Events
On May 1, 2002, we replaced the $200 million variable funding note backed by
VISA credit card receivables ("Visa VFN") with 5-year term notes also backed
by the VISA credit card receivables. Class A and B notes with a combined face
value of $200 million were issued to third party investors. We used the
proceeds to retire the $200 million outstanding on the Visa VFN. Nordstrom
fsb retained a Transferor's Interest, subordinated Class C note, and an
Interest Only Strip. In accordance with SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilties," this debt and the related assets are not reflected in our
consolidated balance sheets.
9 of 16
<page>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 9 - Litigation
Cosmetics
- ---------
Nordstrom 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. In May 2000, plaintiffs filed an amended complaint naming a number of
manufacturers of cosmetics and fragrances and two other retailers as
additional defendants. Plaintiffs' amended complaint alleges that the retail
price of the "prestige" 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.
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 us, have answered the amended
complaint denying the allegations. The retail defendants have produced
documents and responded to plaintiffs' other discovery requests, including
providing witnesses for depositions. Plaintiffs have not yet moved for class
certification. Pursuant to an order of the court, plaintiffs and defendants
participated in mediation sessions in May and September 2001.
Washington Public Trust Advocates
- ---------------------------------
In early 2002, we were named as one of 30 defendants in Washington Public
Trust Advocates, ex rel., et al. v. City of Spokane, et al., filed in the
Spokane County Superior Court, State of Washington. Plaintiff is a not-for-
profit corporation bringing claims on behalf of the City of Spokane and the
Spokane Parking Public Development Authority. The claims relate to the River
Park Square Mall and Garage Project in Spokane, Washington (the "Project"),
which includes a Nordstrom store. The portion of the complaint applicable to
us seeks to recover from us the amount of a loan made by the Department of
Housing and Urban Development to the developer of the Project. Damages are
sought in the amount of $22.75 million, or a lesser amount to the extent that
the HUD loan proceeds were used for the construction of the store and not as
tenant improvements. Other portions of the complaint seek to invalidate bonds
issued to finance the public parking garage serving the Project, terminate the
lease of the parking garage by the City of Spokane, and rescind other
agreements between the City of Spokane and the developer of the Project, as
well as damages from the developer of the Project in unspecified amounts. The
Complaint also alleges breach of fiduciary duties by various defendants,
including Nordstrom, to the people of the City of Spokane regarding lack of
disclosures concerning the developer and the Project. Unspecified damages are
sought for this cause of action. We filed a motion to dismiss the lawsuit on
which the court has yet to rule.
Other
- -----
We are also subject to other ordinary routine litigation incidental to its
business and with respect to which no material liability is expected.
10 of 16
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Dollars in Thousands
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the 2001 Annual Report.
RESULTS OF OPERATIONS:
- ----------------------
Overview
- --------
Earnings for the quarter ended April 30, 2002 decreased to a net loss of
$24,572 from net income of $24,755 for the same period in 2001. The decrease
was attributable to two one-time charges related to the purchase of series C
preferred stock of Nordstrom.com, Inc. and the adoption of a new accounting
pronouncement. Excluding these one-time charges, earnings for the quarter
increased to $30,834 from $24,755 for the first quarter of last year. Diluted
earnings per share before one-time charges were $0.22 for the quarter compared
to $0.18 in the first quarter of last year. The increases in earnings and
diluted earnings per share were primarily due to lower selling, general and
administrative expenses.
Sales
- -----
For the quarter, changes in total company sales and comparable-store sales
were as follows:
<table>
<caption>
Calendar 4-5-4
% Change % Change
-------- --------
<s> <c> <c>
Total Company sales 2.3% 2.1%
Comparable-store sales (1.5) (2.1)
</table>
During the first quarter of 2002, sales increased 2.3% compared to the
corresponding quarter in 2001, primarily due to the opening of six full-line
stores and eight new Nordstrom Rack stores since May 1, 2001. Comparable store
sales (sales in stores open at least one full fiscal year at the beginning of
the fiscal year) decreased 1.5%. The decrease in comparable store sales
reflects the overall slowdown in the economy that began during the second half
of the last fiscal year. Although comparable store sales were negative
overall, they were positive for many of our merchandise divisions including
Women's Designer, Women's Contemporary, Women's Active Wear, Kid's Wear and
Cosmetics
Gross Profit
- ------------
Gross profit as a percentage of net sales decreased in the first quarter of
2002, as compared to the same period in 2001. The decrease was primarily due
to increased occupancy costs from store openings.
Selling, General and Administrative
- -----------------------------------
For the first quarter of 2002, selling, general and administrative expenses as
a percentage of net sales decreased when compared to the first quarter of
2001. The decrease was due to savings from the workforce reduction carried out
in the third quarter of last year. Additionally, we were successful at
controlling expenses including catalog expense and direct selling. These
expense savings were partially offset by higher IT expenses related to the
implementation of our perpetual inventory system.
11 of 16
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Interest Expense
- ----------------
Interest expense, net increased compared to the corresponding quarter in 2001.
The increase for the quarter was due to higher average long-term borrowings,
partially offset by a decrease in average short-term borrowings and long-term
interest rates.
Service Charge Income and Other
- -------------------------------
Service charge income and other, net decreased compared to the corresponding
quarter in 2001. The decrease for the quarter resulted from lower service
charge income due to declining interest rates, as well as lower receivable
balances.
Nordstrom.com Put Agreement
- ---------------------------
On May 13, 2002, we entered into an agreement to purchase the outstanding
shares of Nordstrom.com, Inc. series C preferred stock for $70,000. The
excess of the purchase price over the fair market value of the preferred stock
and professional fees incurred resulted in a one-time charge of $42,047, which
was recognized during the quarter. A valuation allowance has been provided
for the full amount of the tax benefits of the transaction, as management
believes it is not probable that the full benefits will be realized. The
excess of the fair market value over the book value of the series C preferred
stock of Nordstrom.com, Inc. will result in additional goodwill. Subsequent
to this transaction, we will own 97% of Nordstrom.com, Inc. Additional
charges may be incurred in 2002 related to the integration of the
Nordstrom.com business into Nordstrom, Inc.
Cumulative Effect of Accounting Change
- --------------------------------------
During the quarter, we completed the review required by SFAS No. 142 "Goodwill
and Other Intangible Assets." As a result of our review, we recorded a
cumulative effect of accounting change of $13,359 net of tax or $0.10 per
share on a diluted basis.
Seasonality
- ------------
Our business, like that of other retailers, is subject to seasonal
fluctuations. Our anniversary sale in July and the holidays in December
result in sales that are higher in the second and fourth quarters of the
fiscal year. Accordingly, results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Nordstrom finances its working capital needs and capital expenditures with
cash provided by operations and borrowings.
Cash Flow from Operations
- -------------------------
Net cash provided by operating activities for the quarter ended April 30, 2002
increased $42,287 compared to the same quarter last year. This increase was
primarily due to higher earnings from continuing operations and an increase in
accounts payable partially offset by an increase in merchandise inventories.
Also contributing to the increase was the timing of income tax and interest
payments made in the first quarter of 2001.
12 of 16
<page>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Capital Expenditures
- --------------------
For the quarter ended April 30, 2002, net cash used in investing activities
increased approximately $24,292 compared to the same period in 2001, primarily
due to capital expenditures for new stores. During the first quarter of
fiscal 2002, we opened three new full-line stores in Durham, North Carolina;
Los Angeles, California and Orem, Utah. We also opened two new Nordstrom Rack
stores in King of Prussia, Pennsylvania and Fresno, California. Throughout
the remainder of the year ending January 31, 2003, we expect to open five
full-line stores in Dulles, Virginia; St. Louis, Missouri; Coral Gables,
Florida; Orlando, Florida and Las Vegas, Nevada; open three Nordstrom Rack
stores; and close one Nordstrom Rack store. For the entire year, gross square
footage is expected to increase approximately 8 percent. Total square footage
of our stores was 17,479,000 as of April 30, 2002, compared to 16,305,000 as
of April 30, 2002.
Financing
- ---------
For the three-month period ended April 30, 2002, cash used by financing
activities was $84,927 primarily due to the scheduled retirement of $76,750 in
medium-term notes and the reduced need for borrowings as a result of the
$300,000 of Class A notes issued in November of 2001. For the three-month
period ended April 30, 2001, cash provided by financing activities was $45,785
due to an increase in short-term notes payable.
During the first quarter of 2002, we refinanced the construction loan
obligation for an $85,000 mortgage secured by the property, of which $82,011
was outstanding at April 30, 2002. The obligation has a fixed interest rate
of 7.68% and a term of 18 years.
CRITICAL ACCOUNTING POLICIES:
- -----------------------------
The preparation of our financial statements require that management make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates including those
related to doubtful accounts, inventory valuation, intangible assets, income
taxes, self-insurance liabilities, pensions, contingent liabilities and
litigation. We base our estimates on historical experience and on other
assumptions that management believes to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions.
Realization of Deferred Tax Assets
- ----------------------------------
As of April 30, 2002, we have $34,000 of capital loss carryforwards. The
utilization of this deferred tax asset is contingent upon the ability to
generate capital gains within the next four years. No valuation allowance has
been provided because management believes it is probable that the full benefit
of the carryforwards will be realized. In addition, we have a valuation
allowance for the full amount of tax benefit related to the Nordstrom.com put
agreement (see note 7), as management believes it is not likely that this tax
benefit will be realized.
RECENT ACCOUNTING PRONOUNCEMENTS:
- ---------------------------------
In February 2002, we adopted the following three pronouncements:
SFAS No. 141 "Business Combinations" - 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 SFAS No. 141 did
not have a material impact on our financial statements.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
SFAS No. 142 "Goodwill and Other Intangible Assets" - 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.
Adoption of SFAS No. 142 resulted in an impairment charge and a reduction in
amortization expense for the first quarter of 2002, which is detailed in Note
2 of the Notes to Condensed Consolidated Financial Statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
- - SFAS No. 144 retains the fundamental provisions of SFAS No. 121, but
establishes new criteria for asset classification and broadens the scope of
qualifying discontinued operations. The adoption of this statement did not
have a material impact on our financial statements.
FORWARD-LOOKING INFORMATION CAUTIONARY STATEMENT:
- -------------------------------------------------
This document may include forward-looking statements regarding our
performance, liquidity and adequacy of capital resources. These statements
are based on our 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 we believe there is a reasonable basis for the
forward-looking statements, you should not place undue reliance on those
statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. In seeking to
minimize risk, we manage exposure through our regular operating and financing
activities. We do not use financial instruments for trading or other
speculative purposes and are not party to any leveraged financial instruments.
We manage interest rate exposure through our mix of fixed and variable rate
borrowings. Short-term borrowing and investing activities generally bear
interest at variable rates, but because they have maturities of three months
or less, we believe that the risk of material loss is low.
In addition, we have outstanding at April 30, 2002, $300 million of 8.95%
fixed-rate debt converted to variable rate through the use of an interest rate
swap. The interest rate swap reduced interest payments on our highest fixed-
rate debt by taking advantage of the current low interest rates. A shift in
future interest rates could adversely affect the amount of interest paid
through this swap agreement.
The majority of our revenue, expense and capital expenditures are transacted
in United States dollars. However, we periodically enter into foreign currency
purchase orders for apparel and shoes denominated in Euros. We use 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 our Chief
Financial Officer and Treasurer.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONT.)
In addition, the functional currency of Faconnable, S.A. 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
currency exchange rates are included in other comprehensive earnings.
Certain other information required under this item is included in Note 5 in
the Notes to Condensed Consolidated Financial Statements.
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 9 in Notes to Condensed Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
(10.1) Stock Purchase Agreement dated May 13, 2002 between the
Registrant and the investors listed on Schedule A thereto is
hereby incorporated by reference from the Registrant's Form 8-K
filed on May 17, 2002
(10.2) Promissory Note dated April 18, 2002 between 1700 Seventh L.P.,
and New York Life Insurance Company is filed herein as an
exhibit.
(10.3) Promissory Note dated April 18, 2002 between 1700 Seventh L.P.,
and Life Investors Insurance Company of America is filed herein
as an exhibit.
(10.4) Guaranty Agreement dated April 18, 2002 between Registrant,
New York Life Insurance Company and Life Investors Insurance
Company of America, is filed herein as an exhibit.
(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 7, 2002
-------------
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NORDSTROM INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
10.1 Stock Purchase Agreement dated May Incorporated by reference
13, 2002 between the Registrant from the Registrant's Form
and the investors listed on 8-K filed on May 17, 2002
Schedule A thereto
10.2 Promissory Note dated April 18, Filed herewith electronically
2002 between 1700 Seventh, L.P.
and New York Life Insurance
Company
10.3 Promissory Note dated April 18, Filed herewith electronically
2002 between 1700 Seventh, L.P.
and Life Investors Insurance
Company of America
10.4 Guaranty Agreement dated April 18, Filed herewith electronically
2002 between Registrant, New York
Life Insurance Company and Life
Investors Insurance Company of
America