EXHIBIT 13.1
PORTIONS OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS
FINANCIAL HIGHLIGHTS
Dollars in thousands except per share amounts
Fiscal Year 1995 Fiscal Year 1994 % Change
--------------------------------------------------
Net sales $4,113,517 $3,894,478 +5.6
Earnings before income taxes 272,312 335,558 -18.8
Net earnings 165,112 202,958 -18.6
Net earnings per share 2.02 2.47 -18.2
Cash dividends paid per share .500 .385 +29.9
STOCK TRADING
Fiscal Year 1995 Fiscal Year 1994
-----------------------------------------------
High Low High Low
First Quarter 45 1/4 36 1/4 44 1/2 34
Second Quarter 44 3/4 35 45 3/4 38 3/4
Third Quarter 43 36 5/8 49 3/4 37
Fourth Quarter 43 3/8 37 49 1/2 39 1/2
Nordstrom, Inc. common stock is traded over-the-counter and quoted daily in
leading financial publications. NASDAQ Symbol -- Nobe.
Graph - Net Sales
The vertical bar graph compares net sales for the past ten years. Beginning
with the most recent fiscal year on the left, net sales (dollars are in
millions) were as follows: 1995-$4,114; 1994-$3,894; 1993-$3,590; 1992-$3,422;
1991-$3,180; 1990-$2,894; 1989-$2,671; 1988-$2,328; 1987-$1,920; and 1986-
$1,630.
Graph - Net Earnings
The vertical bar graph compares net earnings for the past ten years. Beginning
with the most recent fiscal year on the left, net earnings (dollars in
millions) were as follows: 1995-$165.1; 1994-$203.0; 1993-$140.4; 1992-$136.6
1991-$135.8; 1990-$115.8; 1989-$114.9; 1988-$123.3; 1987-$92.7; and 1986-
$72.9.
Nordstrom, Inc. and Subsidiaries Page 3
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion and analysis gives a more detailed review of the past
three years, as well as additional information on future commitments and
trends. This discussion and analysis should be read in conjunction with the
basic consolidated financial statements and the Ten-Year Statistical Summary.
Sales
Sales have increased to record levels in each of the past three years. The
percentage change by year is as follows:
Fiscal Year 1995 1994 1993
- -------------------------------------------------------------------------------
Sales in comparable stores
(open at least fourteen months) (0.7%) 4.4% 2.7%
Sales in new stores 6.3% 4.1% 2.2%
----- ---- ----
Total percentage increase 5.6% 8.5% 4.9%
===== ==== ====
After steadily increasing rates of sales gains in comparable stores in 1994
and 1993, sales in comparable stores declined in 1995. This was due to
slowing consumer demand for apparel and sales decreases at several stores in
the Company's Chicago and New Jersey markets resulting from new store openings
in those markets.
Sales in new stores includes sales from the Company's own direct mail catalogs
as well as sales from stores open less than fifteen months. The direct mail
catalog division, which started in 1994, contributed a .8% increase in sales
for that year and a 1.8% increase for 1995. The Company has also continued to
expand its store base over the past several years with new store openings.
These new stores are generally not as productive as the Company's average
store because customer base and traffic patterns are developed over time.
As a result, sales growth from these new stores does not match the increase
in average square footage over the past several years.
There has been little, if any, inflation in overall merchandise prices during
the past several years. The change in the retail prices of apparel, shoes,
and accessories as measured by the Bureau of Labor Statistics on an overall
basis was 1% for 1993, -1% for 1994, and 1% for 1995. Management believes
that these statistics are the best available measure of the effect of
inflation on the Company's selling prices.
Graph - Percentage of 1995 Sales by Merchandise Category
The pie chart depicts each merchandise category and its percent of total
sales. Clockwise: Shoes - 20%; Men's Apparel and Furnishings - 17%;
Children's Apparel and Accessories - 4%; Other - 2%; Women's Apparel - 37%;
and Women's Accessories - 20%. The caption below the graph reads, "Sales by
major merchandise category have changed only slightly over the past several
years."
Page 12 Nordstrom, Inc. and Subsidiaries
MANAGEMENT AND DISCUSSION AND ANALYSIS
Costs and Expenses
As a result of increased sales, the total amount of costs and expenses has
increased in each year. As a percentage of sales, total costs and expenses
were 93.6% in 1993, 91.4% in 1994, and 93.4% in 1995. Unless otherwise
indicated, the changes discussed below are stated as a percentage of sales
as shown on page 16.
Cost of sales and related buying and occupancy costs fluctuate as a percentage
of sales primarily because of changes in the cost of sales component. With
the changes in merchandise styles and selections from season to season, cost
of sales, and therefore the merchandise gross margin, can fluctuate up and
down. In 1993, the merchandise gross margin decreased because of softness in
demand for women's apparel. During 1994, the merchandise margin improved
dramatically because of higher than anticipated sales increases and
implementation of part of the Company's new inventory management system.
Nearly all categories of merchandise had higher margins, but women's apparel
showed the greatest improvement following the low level in 1993. In 1995, the
merchandise gross margin decreased because of excess inventory levels as
sales did not meet expectations.
Buying costs increased each year as the Company spent more to develop its own
merchandise brands and to develop and implement a new inventory management
system. Occupancy costs increased in 1995 as a result of new store openings
and remodeling of older stores.
Selling, general and administrative expenses decreased in 1993 primarily
because of a reduction in bad debts. Bad debts continued to decline in 1994.
Medical plan benefits also decreased in 1994 as a result of changes to the
plan implemented by the Company. These decreases were offset by costs incurred
in the startup of the Company's direct mail catalog division and a higher
contribution to the Company's profit sharing plan. In 1995, selling, general
and administrative expenses increased for several reasons. Expenses in
comparable stores continued to increase while sales declined. In addition,
bad debts increased primarily as a result of the growth of the Company's Visa
credit card program, and the direct mail catalog division continued to incur
high operating costs.
In 1993, interest expense decreased because of lower short-term interest rates
and reductions in debt outstanding. During 1994, interest expense decreased as
more interest was capitalized on projects under construction. Interest expense
increased in 1995 because of higher borrowings to finance the Company's
customer accounts receivable balances.
Other income in 1993 was impacted by two separate events. The Company paid
substantially all the claims in settlement of a class-action lawsuit by the
end of 1993, and the resulting adjustment of a previously established reserve
amount increased other income in the fourth quarter of 1993 by $4.5 million
($.03 per share after income taxes). Also, in the fourth quarter of 1993,
other income was reduced by $5 million ($.04 per share after income taxes) for
expenses and property losses resulting from an earthquake in Southern
California. The Company does not carry earthquake insurance in California
because of its high cost.
In 1995, other income increased primarily due to an increase in service charge
income because of higher levels of customer accounts receivable outstanding
during the year.
Nordstrom, Inc. and Subsidiaries Page 13
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
During 1993, cash provided by operating activities exceeded cash used in
investing activities as shown on page 19. The Company used this excess cash
flow to reduce total debt outstanding. The Company incurred additional
indebtedness in both 1994 and 1995 as the Company increased its spending on
new store construction and its investment in customer accounts receivable.
The Company believes that operating working capital (net working capital less
short-term investments plus notes payable and the current portion of long-term
debt) is a more appropriate measure of the Company's on-going working capital
requirements than net working capital because it eliminates the effect of
changes in the levels of short-term investments and borrowings. These levels
can vary each year depending on financing activities. The Company's operating
working capital has fluctuated as shown below:
Fiscal Year 1995 1994 1993
- ---------------------------------------------------------------------------------
Operating working capital (in thousands) $1,068,923 $843,924 $745,040
Percentage change from prior year 26.7% 13.3% (2.7%)
Net sales/average operating
working capital 3.9 4.6 4.8
In 1993, operating working capital decreased because of reduced customer
accounts receivable. Credit sales on the Company's credit card decreased,
reflecting more cautious use of credit by consumers in general and increased
competition from third-party cards. In 1994, customer accounts receivable
increased because the Company commenced its own Visa credit card program.
The increase in customer accounts receivable along with higher merchandise
inventories caused operating working capital to increase. In 1995, the
Company increased its investment in customer accounts receivable through
continued promotion of its Visa card program and reducing the minimum payment
on its proprietary credit card. This also caused operating working capital
to increase. The Company does not expect customer accounts receivable to
continue growing at the same rate in 1996; however, with the growth in the
Company's Visa credit card program, the Company expects future operating
working capital requirements to increase over historical levels.
Graph - Investing and Operating Cash Flows
The vertical bar graph compares cash provided by operating activities and cash
used in investing activities for each year, for the past ten years. Dollars
are in millions.
Cash used Cash provided
in investing by operating
Year activities activities
- ---- ------------ -------------
1995 $254.0 $121.9
1994 $246.9 $231.8
1993 $132.7 $262.1
1992 $ 71.9 $235.6
1991 $147.2 $154.0
1990 $200.7 $148.1
1989 $168.7 $122.2
1988 $153.4 $ 46.0
1987 $128.3 $ 87.7
1986 $ 69.8 $115.0
Page 14 Nordstrom, Inc. and Subsidiaries
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources (continued)
The Company has spent $642 million during the last three years to add new
stores and facilities and to improve existing stores and facilities. Over
1.5 million square feet of selling space has been added during this time
period, representing an increase of 16%. Most of the new stores have been
constructed by the Company on land that it owns or leases under long-term
agreements, thus providing a strong basis for future operations.
The Company plans to spend over $750 million on capital projects during the
next three years, with over $100 million allocated to the refurbishment of
existing stores. Although the Company has made commitments for stores to be
opening in 1996 and beyond, it is possible that some stores may not be opened
as scheduled because of environmental and land use regulations and the
difficulties encountered by shopping center developers in securing financing.
Management believes that the Company's current financial strength provides
the resources necessary to maintain its existing stores and the flexibility
to take advantage of new store opportunities.
With the decrease in the Company's debt to capital ratio that occurred over
the previous five years, the Board of Directors approved a $100 million common
stock repurchase program in May of 1995. Through the end of 1995, the Company
spent $50 million to repurchase outstanding shares of its common stock.
Depending upon the price of the Company's shares and operating results,
management expects to complete this program in 1996.
The anticipated growth of the Company's operations will require some external
capital in the next three years. Most of these external capital requirements
will be funded with additional long- and short-term debt issued by the
Company's captive finance subsidiary. Management believes that the expansion
of the Company's operations over the next several years will not significantly
increase its debt to capital percentage.
Graph - Square Footage by Market Area at end of 1995
The pie chart shows the percent of total square feet in each region and also
gives the number of square feet for that region. Clockwise: Washington,
12.9%, 1,383,000; Other, 1.3%, 145,000; Midwest, 11.0%, 1,174,000; Oregon,
7.7%, 823,000; Utah, 3.3%, 357,000; Southern California, 25.1%, 2,687,000;
Northern California, 16.6%, 1,772,000; Capital, 11.6%, 1,243,000; and
Northeast, 10.5%, 1,129,000.
Nordstrom, Inc. and Subsidiaries Page 15
CONSOLIDATED STATEMENTS OF EARNINGS
Dollars in thousands except per share amounts
% of % of % of
Year ended January 31, 1996 sales 1995 sales 1994 sales
- -----------------------------------------------------------------------------------------
Net Sales $4,113,517 100.0 $3,894,478 100.0 $3,589,938 100.0
----------------------------------------------------------
Costs and Expenses:
Cost of sales and related
buying and occupancy 2,806,250 68.2 2,599,553 66.7 2,469,304 68.8
Selling, general and
administrative 1,120,790 27.2 1,023,347 26.3 940,579 26.2
Interest, net 39,295 1.0 30,664 .8 37,646 1.1
Service charge income
and other, net (125,130) (3.0) (94,644) (2.4) (88,509) (2.5)
----------------------------------------------------------
Total Costs and Expenses 3,841,205 93.4 3,558,920 91.4 3,359,020 93.6
----------------------------------------------------------
Earnings before income taxes 272,312 6.6 335,558 8.6 230,918 6.4
Income taxes 107,200 2.6 132,600 3.4 90,500 2.5
----------------------------------------------------------
Net Earnings $ 165,112 4.0 $ 202,958 5.2 $ 140,418 3.9
==========================================================
Net Earnings per share $2.02 $2.47 $1.71
==========================================================
Cash dividends paid per share $.50 $.385 $.34
==========================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Page 16 Nordstrom, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
January 31, 1996 1995
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 24,517 $ 32,497
Accounts receivable, net 893,927 675,891
Merchandise inventories 626,303 627,930
Prepaid income taxes and other 68,029 61,395
-----------------------------------
Total Current Assets 1,612,776 1,397,713
Property, buildings and equipment, net 1,103,298 984,195
Other assets 16,545 14,875
-----------------------------------
Total Assets $2,732,619 $2,396,783
===================================
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ 232,501 $ 87,388
Accounts payable 277,584 273,084
Accrued salaries, wages, and taxes 185,540 190,501
Accrued expenses 47,834 40,990
Accrued income taxes 14,644 22,524
Current portion of long-term debt 74,210 75,967
-----------------------------------
Total Current Liabilities 832,313 690,454
Long-term debt 365,733 297,943
Deferred lease credits and other
deferred items 111,601 64,586
Shareholders' Equity 1,422,972 1,343,800
-----------------------------------
Total Liabilities and Shareholders' Equity $2,732,619 $2,396,783
===================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Nordstrom, Inc. and Subsidiaries Page 17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Dollars in thousands except per share amounts
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------------
Common Stock
Authorized 250,000,000 shares; issued and
outstanding 81,113,144, 82,244,098 and
82,059,128 shares
Balance at beginning of year $ 163,334 $ 157,374 $ 155,439
Issuance of common stock 5,106 5,960 1,935
--------------------------------------
Balance at end of year 168,440 163,334 157,374
--------------------------------------
Retained Earnings
Balance at beginning of year 1,180,466 1,009,130 896,592
Net earnings 165,112 202,958 140,418
Cash dividends paid ($.50, $.385, and $.34
per share) (41,001) (31,622) (27,880)
Purchase and retirement of common stock (50,045) - -
---------------------------------------
Balance at end of year 1,254,532 1,180,466 1,009,130
---------------------------------------
Total Shareholders' Equity $1,422,972 $1,343,800 $1,166,504
======================================
<FN>
The accompany Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 18 Nordstrom, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Year ended January 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------
Operating Activities
Net earnings $165,112 $202,958 $140,418
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 134,347 110,789 103,466
Change in:
Accounts receivable, net (218,036) (89,450) 16,757
Merchandise inventories 1,627 (42,328) (48,863)
Prepaid income taxes and other (6,634) (9,746) (878)
Accounts payable 4,500 9,029 43,879
Accrued salaries, wages, and taxes (4,961) 33,554 (1,081)
Accrued expenses 6,844 4,996 4,853
Income tax liabilities (12,621) (4,518) 3,540
Deferred lease credits 51,756 16,558 2
----------------------------------------
Net cash provided by operating activities 121,934 231,842 262,093
----------------------------------------
Investing Activities
Additions to property, buildings and
equipment, net (252,876) (248,608) (124,403)
Other, net (1,103) 1,660 (8,306)
----------------------------------------
Net cash used in investing activities (253,979) (246,948) (132,709)
----------------------------------------
Financing Activities
Increase in notes payable 145,113 47,051 2,018
Proceeds from issuance of long-term debt, net 140,859 49,656 -
Principal payments on long-term debt (75,967) (114,664) (43,371)
Proceeds from issuance of common stock 5,106 5,960 1,935
Cash dividends paid (41,001) (31,622) (27,880)
Purchase and retirement of common stock (50,045) - -
----------------------------------------
Net cash provided by (used in) financing
activities 124,065 (43,619) (67,298)
----------------------------------------
Net (decrease) increase in cash
and cash equivalents (7,980) (58,725) 62,086
Cash and cash equivalents at beginning of year 32,497 91,222 29,136
----------------------------------------
Cash and cash equivalents at end of year $ 24,517 $ 32,497 $ 91,222
========================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Nordstrom, Inc. and Subsidiaries Page 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands except per share amounts
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company: Nordstrom, Inc. is a fashion specialty retailer offering a wide
selection of high quality apparel, shoes and accessories for women, men and
children, principally through 58 large specialty stores and 19 clearance
stores. All of the Company's stores are located in the United States, with
approximately 40% of its retail square footage located in the state of
California.
The Company purchases a significant percentage of its merchandise from foreign
countries, principally from the Far East. Any event causing a disruption in
imports from the Far East could have a material adverse impact on the Company's
operations.
In connection with the purchase of foreign merchandise, the Company has
outstanding letters of credit totaling $61,822 at January 31, 1996.
Basis of Presentation: The Consolidated Financial Statements include the
accounts of Nordstrom, Inc. and its subsidiaries. All significant intercompany
transactions and accounts are eliminated in consolidation.
The presentation of financial statements in conformity with Generally Accepted
Accounting Principles requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses in
the accompanying financial statements. Actual results could differ from those
estimates.
Merchandise Inventories: Merchandise inventories are stated at the lower of
cost (first-in, first-out basis) or market, using the retail method.
Property, Buildings and Equipment: Straight-line and accelerated methods are
applied in the calculation of depreciation and amortization.
Lives used for calculating depreciation and amortization rates for the
principal asset classifications are as follows: buildings, 10 to 40 years;
store fixtures and equipment, three to 15 years; leasehold improvements, life
of lease or applicable shorter period.
Store Preopening Costs: Store opening and preopening costs are charged to
expense when incurred.
Capitalization of Interest: The interest carrying costs of facilities being
constructed are capitalized during their construction period based on the
Company's weighted average borrowing rate.
Earnings per Share: Earnings per share are computed on the basis of the
weighted average number of common shares outstanding during the year. Average
shares outstanding were 81,919,625, 82,144,079, and 82,003,407 in 1995, 1994
and 1993.
Cash Equivalents: The Company considers all short-term investments with a
maturity at date of purchase of three months or less to be cash equivalents.
The carrying amount approximates fair value because of the short maturity of
these instruments.
Customer Accounts Receivable: In accordance with trade practices, installments
maturing in more than one year or deferred payment accounts receivable are
included in current assets.
Cash Management: The Company's cash management system provides for the
reimbursement of all major bank disbursement accounts on a daily basis.
Accounts payable at January 31, 1996 and 1995 include $16,760 and $29,223 of
checks drawn in excess of cash balances not yet presented for payment.
Deferred Lease Credits: Deferred lease credits are amortized on a
straight-line basis over the life of the applicable lease.
Derivatives: The Company limits its use of derivative financial instruments
to the management of well-defined foreign currency and interest rate risks.
The effect of these activities is not material to the Company's financial
condition or results of operations. The Company has no off-balance sheet
credit risk, and the fair value of derivative financial instruments at
January 31, 1996 and 1995 is not material.
Reclassifications: Certain reclassifications of prior year balances have been
made for consistent presentation.
NOTE 2: EMPLOYEE BENEFITS
The Company provides a profit sharing plan for employees. The plan is fully
funded by the Company and is non-contributory except for employee contributions
made under Section 401(k) of the Internal Revenue Code. Under this provision,
the Company provides matching contributions up to a stipulated percentage of
employee contributions. The Company contribution is established each year by
the Board of Directors and totaled $40,000, $44,000 and $35,500 in 1995, 1994,
and 1993.
Page 20 Nordstrom, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: INTEREST EXPENSE
The components of interest expense are as follows:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Nordstrom, Inc.
Short-term debt $ 69 $ 69 $ 46
Long-term debt 8,635 10,780 12,830
Nordstrom Credit, Inc.
Short-term debt 10,184 5,085 2,361
Long -term debt 27,788 23,161 25,543
-----------------------------------
Total interest incurred 46,676 39,095 40,780
Less: Interest income (2,204) (2,416) (1,624)
Capitalized interest (5,177) (6,015) (1,510)
-----------------------------------
Interest, net $39,295 $30,664 $37,646
===================================
NOTE 4: INCOME TAXES
Income taxes consist of the following:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Current income taxes:
Federal $ 94,855 $118,558 $77,231
State and local 19,649 23,986 16,149
------------------------------------
Total current income taxes 114,504 142,544 93,380
------------------------------------
Deferred income taxes:
Current (3,339) (10,113) (648)
Non-current (3,965) 169 (2,232)
------------------------------------
Total deferred income taxes (7,304) (9,944) (2,880)
------------------------------------
Total income taxes $107,200 $132,600 $90,500
====================================
A reconciliation of the statutory Federal income tax rate with the effective
tax rate is as follows:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Statutory rate 35.00% 35.00% 35.00%
State and local income taxes,
net of Federal income taxes 4.39 4.39 4.41
Other, net (0.03) 0.11 (0.21)
---------------------------------
Effective tax rate 39.36% 39.50% 39.20%
==================================
(Note 4 continued)
Deferred income taxes result from temporary differences in the timing of
recognition of revenue and expenses for tax and financial statement reporting
as follows:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Tax basis depreciation ($2,620) $ 521 $ 740
Accrued expenses (4,833) (4,416) (2,850)
Other 149 (6,049) (770)
-----------------------------------
Total deferred income taxes ($7,304) ($9,944) ($2,880)
===================================
These items comprise substantially all of the deferred tax asset and liability
balances.
NOTE 5: ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
January 31, 1996 1995
- ----------------------------------------------------------------------------
Customers $903,496 $678,673
Other 19,824 20,176
Allowance for doubtful accounts (29,393) (22,958)
----------------------
Accounts receivable, net $893,927 $675,891
======================
Credit risk with respect to accounts receivable is concentrated in the
geographic regions in which the Company operates stores. At January 31, 1996
and 1995, approximately 50% of the Company's receivables were concentrated in
California. Concentration of the remaining receivables is considered to be
limited due to their geographical dispersion.
Bad debt expense totaled $39,589, $20,219 and $25,713 in 1995, 1994, and 1993.
Nordstrom, Inc. and Subsidiaries Page 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consist of the following (at cost):
January 31, 1996 1995
- ----------------------------------------------------------------------------
Land and land improvements $ 42,814 $ 42,355
Buildings 448,596 423,342
Leasehold improvements 642,295 550,412
Store fixtures and equipment 672,887 565,605
------------------------
$1,806,592 $1,581,714
Less accumulated depreciation
and amortization (838,812) (746,712)
------------------------
967,780 835,002
Construction in progress 135,518 149,193
------------------------
Property, buildings and
equipment, net $1,103,298 $ 984,195
========================
At January 31, 1996 the Company has contractual commitments of approximately
$52,745 for construction of new stores.
At January 31, 1996, the net book value of property located in California is
approximately $320,265. The Company does not carry earthquake insurance in
California because of its high cost.
NOTE 7: NOTES PAYABLE
A summary of notes payable is as follows:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Average daily short-term borrowings $173,343 $106,092 $ 76,779
Maximum amount outstanding 303,072 209,605 117,023
Weighted average interest rate:
During the year 5.9% 4.9% 3.1%
At year-end 5.5% 6.0% 3.1%
At January 31, 1996, Nordstrom Credit, Inc. has an unsecured line of credit
with a group of commercial banks totaling $300,000 which is available as
liquidity support for short-term debt, and expires in June 2000. Nordstrom
Credit, Inc. pays commitment fees for the line in lieu of compensating
balance requirements.
The carrying amount of notes payable approximates fair value because of the
short maturity of these instruments.
NOTE 8: LONG-TERM DEBT
A summary of long-term debt is as follows:
January 31, 1996 1995
- ----------------------------------------------------------------------------
Senior notes, 8.875%, due 1998 $ 50,000 $100,000
Medium-term notes,
Nordstrom Credit, Inc.,
7.83%-9.6%, due 1996-2001 226,000 209,000
Notes payable,
Nordstrom Credit, Inc.,
6.7%, due 2005 100,000 -
Sinking fund debentures,
Nordstrom Credit, Inc.,
9.375%, due 2016, payable in
annual installments of $3,750
beginning in 1997 43,100 43,100
Other 20,843 21,810
----------------------
Total long-term debt 439,943 373,910
Less current portion (74,210) (75,967)
----------------------
Total due beyond one year $365,733 $297,943
======================
The senior note agreements contain restrictive covenants which, among other
things, restrict dividends to shareholders to a formula amount. At
January 31, 1996, approximately $722,580 of retained earnings is not
restricted.
Aggregate principal payments on long-term debt are as follows: 1996-$74,210;
1997-$55,053; 1998-$105,183; 1999-$5,076; and 2000-$47,023.
The fair value of long-term debt, estimated using quoted market prices of the
same or similar issues with the same remaining maturity, is approximately
$478,000 and $381,000 at January 31, 1996 and 1995.
In February 1996, the Company prepaid $43,100 of Nordstrom Credit, Inc. sinking
fund debentures at a premium of $1,965.
Page 22 Nordstrom, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: LEASES
The Company leases land, buildings and equipment under noncancelable lease
agreements with expiration dates ranging from 1996 to 2080. Certain of the
leases include renewal provisions at the Company's option. Most of the leases
provide for additional rentals based upon specific percentages of sales and
require the Company to pay for certain other costs.
Future minimum lease payments as of January 31, 1996 are as follows:
1996-$27,857; 1997-$26,997; 1998-$27,210; 1999-$26,713; 2000-$25,271; and
thereafter-$212,787.
The following is a schedule of rent expense:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Minimum rent:
Store locations $15,864 $16,022 $14,899
Office, warehouses and equipment 17,309 18,336 19,390
Contingent rent:
Store location percentage rent 13,741 14,078 13,964
Common area costs, taxes and other 9,831 9,032 8,692
-----------------------------------
Total rent expense $56,745 $57,468 $56,945
===================================
NOTE 10: STOCK OPTIONS
The Company provides a stock option plan for certain key employees. Options
are issued at market value on the date of grant and become exercisable over a
four-year period. The number of shares reserved for future stock option grants
is 489,750.
The Company currently follows the provisions of Accounting Principles Board
(APB) Opinion No. 25, under which no recognition of expense is required in
accounting for its stock options. In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, which allows the Company to elect to
continue to follow the recognition and measurement provisions of APB Opinion
No. 25, provided that it makes certain additional footnote disclosures. The
Company intends to make this election; therefore, adoption of Statement No. 123
in 1996 will require additional footnote disclosures, but will not result in
additional expense recognition.
(Note 10 continued)
A summary of stock option activity follows:
Range of prices
Shares per share
- -------------------------------------------------------------------------
Outstanding,
February 1, 1993 1,444,357 $ 7-43
Granted 450,950 28-36
Exercised (81,410) 7-33
Cancelled (81,433) 22-43
--------------------------------
Outstanding,
January 31, 1994 1,732,464 7-43
Granted 345,770 44-48
Exercised (182,662) 7-43
Cancelled (17,322) 22-44
--------------------------------
Outstanding,
January 31, 1995 1,878,250 13-48
Granted 419,080 39-42
Exercised (154,366) 13-36
Cancelled (41,625) 28-48
--------------------------------
Outstanding,
January 31, 1996 2,101,339 $22-48
================================
Exercisable,
January 31, 1996 1,139,638 $22-48
================================
NOTE 11: SUPPLEMENTARY CASH FLOW INFORMATION
Supplementary cash flow information includes the following:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Cash paid during the year for:
Interest (net of capitalized
interest) $ 42,248 $ 34,520 $41,122
Income taxes 121,212 146,590 86,485
Nordstrom, Inc. and Subsidiaries Page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: CREDIT CARD AND FINANCING SUBSIDIARIES
Nordstrom National Credit Bank (the Bank), a wholly owned subsidiary of the
Company, issues a credit card for use in Company stores, and in 1994 introduced
a VISA card. Nordstrom Credit, Inc., also a wholly owned subsidiary, finances
all receivables generated through the use of these credit cards. Servicing of
the receivables is performed by the Bank. At January 31, 1996 and 1995, net
VISA receivables total $204,736 and $85,211.
Condensed combined financial information of these subsidiaries is as follows:
Year ended January 31, 1996 1995 1994
- ----------------------------------------------------------------------------
Service charge income $122,973 $ 92,591 $91,026
Other income 14,799 12,525 5,086
------------------------------------
Total revenue $137,772 $105,116 $96,112
====================================
Net earnings $ 23,835 $ 23,019 $22,209
====================================
January 31, 1996 1995
- ----------------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 23,190 $ 24,286
Accounts receivable, net 873,893 655,427
Other assets 8,126 7,650
----------------------
Total assets $905,209 $687,363
======================
Liabilities and investment of Nordstrom, Inc.:
Notes payable:
Nordstrom, Inc. $ 86,000 $148,000
Other 232,501 87,388
Accounts payable and
accrued liabilities 14,988 21,091
Long-term debt 369,100 252,100
Investment of Nordstrom, Inc. 202,620 178,784
----------------------
Total liabilities and investment
of Nordstrom, Inc. $905,209 $687,363
======================
NOTE 13: SELECTED QUARTERLY DATA (UNAUDITED)
Year ended January 31, 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ------------------------------------------------------------------------------------------
Net sales $815,598 $1,149,239 $906,848 $1,241,832 $4,113,517
Gross profit 261,864 369,455 294,564 381,384 1,307,267
Earnings before income taxes 45,677 89,065 48,542 89,028 272,312
Net earnings 27,677 53,865 29,442 54,128 165,112
Earnings per share .34 .65 .36 .67 2.02
Dividends per share 0.125 0.125 0.125 0.125 0.50
Year ended January 31, 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
- ------------------------------------------------------------------------------------------
Net sales $762,062 $1,079,501 $861,968 $1,190,947 $3,894,478
Gross profit 251,927 355,841 292,656 394,501 1,294,925
Earnings before income taxes 52,773 104,223 63,079 115,483 335,558
Net earnings 31,973 63,023 38,079 69,883 202,958
Earnings per share .39 .77 .46 .85 2.47
Dividends per share .085 .10 .10 .10 .385
Page 24 Nordstrom, Inc. and Subsidiaries
MANAGEMENT AND INDEPENDENT AUDITORS' REPORTS
REPORT OF MANAGEMENT
The accompanying consolidated financial statements, including the notes
thereto, and the other financial information presented in this Annual Report
have been prepared by management. The financial statements have been prepared
in accordance with generally accepted accounting principles and include
amounts that are based upon our best estimates and judgments. Management is
responsible for the consolidated financial statements, as well as the other
financial information in this Annual Report.
The Company maintains an effective system of internal accounting control. We
believe that this system provides reasonable assurance that transactions are
executed in accordance with management authorization, and that they are
appropriately recorded, in order to permit preparation of financial statements
in conformity with generally accepted accounting principles and to adequately
safeguard, verify and maintain accountability of assets. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control should not exceed the benefits derived.
The consolidated financial statements and related notes have been audited by
Deloitte & Touche LLP, independent certified public accountants. The
accompanying auditors' report expresses an independent professional opinion on
the fairness of presentation of management's financial statements.
The Audit Committee of the Board of Directors is composed of the outside
directors, and is responsible for recommending the independent certified
public accounting firm to be retained for the coming year, subject to
shareholder approval. The Audit Committee meets periodically with the
independent auditors, as well as with management and internal auditors, to
review accounting, auditing, internal accounting controls and financial
reporting matters. The independent auditors and the internal auditors also
meet privately with the Audit Committee.
John A. Goesling
Executive Vice President and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Nordstrom,
Inc. and subsidiaries as of January 31, 1996 and 1995, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended January 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Nordstrom, Inc. and subsidiaries
as of January 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended January 31, 1996,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington; March 8, 1996
Nordstrom, Inc. and Subsidiaries Page 25
TEN YEAR STATISTICAL SUMMARY
Dollars in thousands except square footage and per share amounts
Year ended January 31, 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
Financial Position
Customer accounts
receivable, net $ 874,103 $ 655,715 $ 565,151 $ 584,379 $ 585,490 $ 558,573
Merchandise inventories 626,303 627,930 585,602 536,739 506,632 448,344
Current assets 1,612,776 1,397,713 1,314,914 1,219,844 1,177,638 1,090,379
Current liabilities 832,313 690,454 627,485 511,196 553,903 551,835
Working capital 780,463 707,259 687,429 708,648 623,735 538,544
Working capital ratio 1.94 2.02 2.10 2.39 2.13 1.98
Property, buildings and
equipment, net 1,103,298 984,195 845,596 824,142 856,404 806,191
Long-term debt 439,943 373,910 438,574 481,945 511,000 489,172
Debt/capital ratio 32.09 25.56 29.11 33.09 40.74 43.59
Shareholders' Equity 1,422,972 1,343,800 1,166,504 1,052,031 939,231 826,410
Shares outstanding 81,113,144 82,244,098 82,059,128 81,974,797 81,844,227 81,737,910
Book value per share 17.54 16.34 14.22 12.83 11.48 10.11
Total assets 2,732,619 2,396,783 2,177,481 2,053,170 2,041,875 1,902,589
Operations
Net sales 4,113,517 3,894,478 3,589,938 3,421,979 3,179,820 2,893,904
Costs and expenses:
Cost of sales and
related buying and
occupancy 2,806,250 2,599,553 2,469,304 2,339,107 2,169,437 2,000,250
Selling, general and
administrative 1,120,790 1,023,347 940,579 902,083 831,505 747,770
Interest, net 39,295 30,664 37,646 44,810 49,106 52,228
Service charge income
and other, net (125,130) (94,644) (88,509) (86,140) (87,443) (84,660)
Total costs and expenses 3,841,205 3,558,920 3,359,020 3,199,860 2,962,605 2,715,588
Earnings before income
taxes 272,312 335,558 230,918 222,119 217,215 178,316
Income taxes 107,200 132,600 90,500 85,500 81,400 62,500
Net earnings 165,112 202,958 140,418 136,619 135,815 115,816
Earnings per share 2.02 2.47 1.71 1.67 1.66 1.42
Dividends per share .50 .385 .34 .32 .31 .30
Net earnings as a percent
of net sales 4.01% 5.21% 3.91% 3.99% 4.27% 4.00%
Return on average
shareholders' equity 11.94% 16.17% 12.66% 13.72% 15.38% 14.85%
Sales per square foot
for Company-operated
stores 382 395 383 381 388 391
Stores and Facilities
Company-operated stores 78 76 74 72 68 63
Total square footage 10,713,000 9,998,000 9,282,000 9,224,000 8,590,000 7,655,000
Page 26 Nordstrom, Inc. and Subsidiaries
TEN YEAR STATISTICAL SUMMARY (CONTINUED)
Dollars in thousands except square footage and per share amounts
Year ended January 31, 1990 1989 1988 1987
- -------------------------------------------------------------------------
Financial Position
Customer accounts
receivable, net $ 519,656 $ 465,929 $ 391,387 $ 344,045
Merchandise inventories 419,976 403,795 312,696 257,334
Current assets 1,011,148 913,986 730,182 645,326
Current liabilities 489,888 448,165 394,699 324,697
Working capital 521,260 465,821 335,483 320,629
Working capital ratio 2.06 2.04 1.85 1.99
Property, buildings and
equipment, net 691,937 594,038 502,661 424,228
Long-term debt 468,412 389,216 260,343 271,054
Debt/capital ratio 43.78 43.12 39.57 41.57
Shareholders' Equity 733,250 639,941 533,209 451,196
Shares outstanding 81,584,710 81,465,027 81,371,106 80,981,722
Book value per share 8.99 7.86 6.55 5.57
Total assets 1,707,420 1,511,703 1,234,267 1,071,124
Operations
Net sales 2,671,114 2,327,946 1,920,231 1,629,918
Costs and expenses:
Cost of sales and
related buying and
occupancy 1,829,383 1,563,832 1,300,720 1,095,584
Selling, general and
administrative 669,159 582,973 477,488 408,664
Interest, net 49,121 39,977 32,952 34,910
Service charge income
and other, net (55,958) (57,268) (53,662) (49,479)
Total costs and expenses 2,491,705 2,129,514 1,757,498 1,489,679
Earnings before income
taxes 179,409 198,432 162,733 140,239
Income taxes 64,500 75,100 70,000 67,300
Net earnings 114,909 123,332 92,733 72,939
Earnings per share 1.41 1.51 1.13 .91
Dividends per share .28 .22 .18 .13
Net earnings as a percent
of net sales 4.30% 5.30% 4.83% 4.48%
Return on average
shareholders' equity 16.74% 21.03% 18.84% 19.06%
Sales per square foot
for Company-operated
stores 398 380 349 322
Stores and Facilities
Company-operated stores 59 58 56 53
Total square footage 6,898,000 6,374,000 5,527,000 5,098,000
Nordstrom, Inc. and Subsidiaries Page 27
RETAIL STORE FACILITIES
The following table sets forth certain information with respect to each of the
stores operated by the Company. The Company also operates leased shoe
departments in 12 department stores in Hawaii and Guam. In addition, the
Company operates seven distribution centers and leases other space for
administrative functions.
Present Present
Year opened total store Year opened total store
Location or acquired area/sq. ft. Location or acquired area/sq. ft.
- ------------------------------------------------ --------------------------------------------------
WASHINGTON GROUP NORTHERN CALIFORNIA GROUP
Downtown Seattle(1) 1963 245,000 Hillsdale Shopping Center 1982 149,000
Northgate Mall 1965 122,000 Broadway Plaza 1984 193,000
Tacoma Mall 1966 134,000 Stanford Shopping Center 1984 187,000
Bellevue Square 1967 285,000 The Village at Corte Madera 1985 116,000
Southcenter Mall 1968 170,000 Valley Fair 1987 165,000
Yakima 1972 44,000 280 Metro Center Rack 1987 31,000
Spokane 1974 121,000 Stonestown Galleria 1988 174,000
Alderwood Mall 1979 127,000 Downtown San Francisco 1988 350,000
Alderwood Rack 1985 25,000 Arden Fair 1989 190,000
Downtown Seattle Rack 1987 42,000 Stoneridge Mall 1990 173,000
Bellis Fair Rack 1990 20,000 Marina Square Rack 1990 44,000
SuperMall Rack 1995 48,000
UTAH GROUP
OREGON GROUP Crossroads Plaza 1980 140,000
Lloyd Center 1963 150,000 Fashion Place Mall 1981 110,000
Downtown Portland 1966 174,000 Ogden City Mall 1982 76,000
Washington Square 1974 189,000 Sugarhouse Center Rack 1991 31,000
Vancouver Mall 1977 71,000
Salem Centre 1980 71,000 CAPITAL GROUP
Clackamas Town Center 1981 121,000 Tysons Corner Center 1988 253,000
Clackamas Rack 1983 28,000 The Fashion Centre at
Downtown Portland Rack 1986 19,000 Pentagon City 1989 241,000
Potomac Mills Rack 1990 46,000
SOUTHERN CALIFORNIA GROUP Montgomery Mall 1991 225,000
South Coast Plaza 1978 235,000 City Place Rack 1992 37,000
Brea Mall 1979 195,000 Towson Town Center 1992 205,000
Los Cerritos Center 1981 122,000 Towson Rack 1992 31,000
Fashion Valley Mall 1981 156,000 Franklin Mills Factory
Glendale Galleria 1983 147,000 Direct 1993 43,000
Santa Ana Rack 1983 22,000 Annapolis Mall 1994 162,000
Topanga Plaza 1984 154,000
University Towne Centre 1984 130,000 NORTHEAST GROUP
Woodland Hills Rack 1984 48,000 Garden State Plaza 1990 272,000
The Galleria at South Bay 1985 161,000 Menlo Park Mall 1991 266,000
Westside Pavilion 1985 150,000 Freehold Raceway Mall 1992 174,000
Horton Plaza 1985 151,000 Faconnable 1993 10,000
Mission Valley Rack 1985 27,000 The Westchester 1995 219,000
Montclair Plaza 1986 133,000 The Mall at Short Hills 1995 188,000
North County Fair 1986 156,000
MainPlace Mall 1987 169,000 MIDWEST GROUP
Chino Town Square Rack 1987 30,000 Oakbrook Center 1991 249,000
Paseo Nuevo 1990 186,000 Mall of America 1992 240,000
The Galleria at Tyler 1991 164,000 Woodfield Rack 1994 45,000
Santa Anita 1994 151,000 Old Orchard 1994 209,000
Woodfield Shopping Center 1995 215,000
ALASKA GROUP Circle Centre Mall 1995 216,000
Anchorage 1975 97,000
CLEARANCE STORES
Arizona 48,000
<FN>
(1) Excludes approximately 23,000 square feet of
corporate and administrative offices.
Page 30 Nordstrom, Inc. and Subsidiaries
NORDSTROM, INC. AND SUBSIDIARIES
Appendix
Graph Page
- --------------------------------------------
Net Sales 3
Net Earnings 3
Percentage of 1995 Sales by Merchandise Category 12
Investing and Operating Cash Flows 14
Square Footage by Market Area at end of 1995 15