e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended February 3, 2007 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number 001-15059
NORDSTROM, INC.
(Exact name of Registrant as specified in its charter)
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Washington
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91-0515058 |
(State or other jurisdiction of
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(IRS employer |
incorporation or organization)
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Identification No.) |
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1617 Sixth Avenue, Seattle, Washington
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98101 |
(Address of principal executive offices)
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(Zip code) |
Registrants telephone number, including area code: 206-628-2111
Securities registered pursuant to Section 12(b) of the Act: None
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Title of each class
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Name of each exchange on which registered |
Common stock, without par value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES þ
NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES o
NO þ
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 þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES o NO þ
As of July 28, 2006 the aggregate market value of the Registrants voting and non-voting stock held
by non-affiliates of the Registrant was approximately $6.8 billion using the closing sales price on
that day of $33.84. On March 2, 2007, 257,535 shares of common
stock were outstanding (in thousands).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2007 Annual Meeting of Shareholders scheduled to be held on
May 22, 2007 are incorporated into Part III
Nordstrom, Inc. and subsidiaries 1
[This page intentionally left blank.]
2
TABLE OF CONTENTS
Nordstrom, Inc. and subsidiaries 3
PART I
Item 1. Business.
DESCRIPTION OF BUSINESS
Nordstrom incorporated in the state of Washington in 1946 as the successor to a retail shoe
business that started in 1901. We are one of the nations leading fashion specialty retailers, with
155 U.S. stores located in 27 states. The west coast and east coast are the areas in which we have
the largest presence. Nordstrom is comprised of four segments: Retail Stores, Credit, Direct, and
Other.
Retail Stores derives its revenues from sales of high-quality apparel, shoes, cosmetics and
accessories. It includes our 98 Full-Line Nordstrom stores, 50 discount Nordstrom Rack stores, two clearance stores that operate under the name Last
Chance, and one free-standing shoe store. The Nordstrom Rack stores serve as outlets for clearance
merchandise from our Full-Line stores and purchase merchandise directly from manufacturers.
In 2006, we opened one Full-Line store (Palm Beach Gardens, Florida), relocated one Full-Line Store
(Canoga Park, California) and opened one Rack store (San Marcos, California). In 2007, we are
scheduled to open three Full-Line stores (Natick, Massachusetts; Novi, Michigan; Denver, Colorado)
and one Rack store (Tukwila, Washington). In 2008, we are scheduled to open eight Full-Line stores
and relocate one Full-Line store.
Through
our wholly owned federal savings bank, Nordstrom fsb, we offer a private label card, two
co-branded Nordstrom VISA credit cards and a debit card for Nordstrom
purchases. The credit and debit cards feature a shopping-based loyalty
program designed to increase customer visits and spending in our Retail Stores and Direct segments.
Our Credit segment generates earnings through finance charges and securitization-related gains on
these cards.
Direct generates revenues from sales of high-quality apparel, shoes, cosmetics and accessories by
serving our customers on the Web at www.nordstrom.com and through our catalogs. Most of the Direct
segments sales are shipped via third-party carriers from our
fulfillment center in Cedar Rapids, Iowa.
Our Other segment includes our four U.S. based Façonnable boutiques and the 36 Façonnable
boutiques located in France, Portugal and Belgium. Façonnable is a wholesaler and retailer of high
quality mens, womens and boys apparel and accessories with distribution to over 45 countries.
Façonnable has licensee and franchisee agreements with others who operate wholesale distribution
and/or boutique locations in Spain, Turkey, Greece, the Middle East, Taiwan, Canada and Latin
America. The Other segment also includes our product development team, called Nordstrom Product
Group, which designs and coordinates the production of private label merchandise sold in our retail
stores. In addition, this segment includes our corporate center operations.
For more information about our business and our reportable segments, see Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operation on page 14 and Note 15 of the Notes to Consolidated Financial Statements
in Item 8 on page 48.
FISCAL YEAR END
Our fiscal year ends on the Saturday closest to January 31st.
References to 2006 relate to the 53-week fiscal year ended February 3, 2007. References to 2005 and
2004 relate to the 52-week fiscal
years ended January 28, 2006 and January 29, 2005. References to 2007 relate to the
52 weeks ending February 2, 2008.
TRADEMARKS
We have approximately 169 registered trademarks or trademark applications. Our most notable
trademarks include Nordstrom, Nordstrom Rack, Façonnable, Caslon, John W. Nordstrom, and Classiques
Entier. Each of our trademarks is renewable indefinitely provided that it is still used in commerce
at the time of the renewal.
RETURN POLICY
We offer our customers a fair and liberal return policy at our Full-Line stores and Nordstrom
Direct (online and catalog). Our Nordstrom Rack stores accept returns up to 30 days from the date
of purchase. In general, our return policy is somewhat more generous than industry standards.
We utilize historical return patterns to estimate our expected returns.
SEASONALITY
Due to our anniversary sale in July and the holidays in December, sales are higher for our Retail
Stores in the second and fourth quarters of the fiscal year than in the first and third quarters.
INVENTORY
We plan our merchandise purchases and receipts to coincide with the selling patterns that we
expect. For instance, we purchase and receive a larger amount of merchandise in the fall as we
prepare for the holiday shopping season (from late November through early January). Also, our
merchandise purchases and receipts increase prior to our Anniversary Sale, which extends over the
last two weeks of July. We pay for our merchandise purchases under the terms established with our
vendors, which is usually within 30 days of the date that the merchandise was shipped to us.
In order to offer merchandise that our customers want, we purchase merchandise from a wide variety
of high-quality suppliers. In 2006, our ten largest suppliers accounted for approximately 21% of our merchandise purchases. We also
have arrangements with agents and contract manufacturers to produce our private label merchandise.
We do not have long-term purchase commitments or arrangements with any of our
4
merchandise suppliers. Our suppliers include domestic and foreign businesses. We expect our
suppliers to meet our Nordstrom Partnership: Standards and Business Practice Guidelines, which
address our standards for matters such as law, labor, health and safety, and environment.
COMPETITIVE CONDITIONS
All segments of our business are highly competitive. Each of our stores competes with other
national, regional and local retail establishments that may carry similar lines of merchandise,
including department stores, specialty stores, boutiques, mail order and Internet businesses. Our
specific competitors vary from market to market. We believe the principal methods of competing in
our industry include customer service, fashion, quality of product, depth of selection, store
environment and location.
EMPLOYEES
During 2006, we regularly employed on a full or part-time basis an average of 52,900 employees. Due
to the seasonal nature of our business, employment increased to approximately 56,500 employees in
July 2006 and 57,400 in December 2006.
CAUTIONARY STATEMENT
Certain statements in this Annual Report on Form 10-K contain forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties, including anticipated results, store openings and trends in our operations. Actual
future results
and trends may differ materially from historical results or current expectations depending upon
various factors including those discussed below and elsewhere in this Annual Report on Form 10-K,
particularly in Item 1A under the heading Risk Factors, the impact of economic and competitive
market forces, terrorist activity or war may impact our customers and the retail industry, our
ability to predict fashion trends, consumer apparel buying patterns, trends in personal
bankruptcies and bad debt write-offs, changes in interest rates, employee relations, our ability to
continue and control our expansion, remodel and investment plans, changes in government or
regulatory requirements, our ability to control costs, weather conditions and hazards of nature.
These and other factors could affect our financial results and cause actual results to differ
materially from those contained in any forward-looking statements we may make. 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. We undertake no obligation to update or revise any
forward-looking statements to reflect subsequent events, new information or future circumstances.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the
Securities and Exchange Commission (SEC).
All material we file with the SEC is publicly available at the SECs Public Reference Room at 450
Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet Web
site at www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
WEB SITE ACCESS
Our Internet Web site address is www.nordstrom.com. We make available free of charge on or through
our Internet Web site our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in
beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file the report with or furnish it to the SEC. Interested parties may also access a
Webcast of quarterly earnings conference calls and other financial events over our Internet Web
site.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as
required by the listing standards of the New
York Stock Exchange (NYSE) and the rules of the SEC, we have adopted Codes of Business Conduct
and Ethics for our employees, officers and directors (Codes of Ethics) and Corporate Governance
Guidelines. We have posted on our Web site our Codes of Ethics, our Corporate Governance
Guidelines, and our Committee Charters for the Audit, Compensation, Corporate Governance and
Nominating, Executive, and Finance committees. These items are also available in print to any
person without charge upon request to:
Nordstrom, Inc. Investor Relations
P.O. Box 2737
Seattle, Washington 98111
(206) 303-3200
invrelations@nordstrom.com
Item 1A. Risk Factors.
Our business faces many risks. We believe the risks described below outline the items of most
concern to us. However, these risks may not be
the only ones we face. Additional risks and uncertainties, not presently known to us or that we
currently deem immaterial, may also impair our
business operations.
Nordstrom, Inc. and subsidiaries 5
ABILITY TO RESPOND TO THE BUSINESS ENVIRONMENT AND FASHION TRENDS
Our sales and operating results depend in part on our ability to predict or respond to changes in
fashion trends and consumer preferences in a timely manner. Any sustained failure to identify and
respond to emerging trends in lifestyle and consumer preferences could have a material adverse
affect on our business. Consumer spending at our stores may be affected by many factors outside of
our control, including consumer confidence, weather and other hazards of nature that affects
consumer traffic, and general economic conditions.
INVENTORY MANAGEMENT
We strive to ensure the merchandise we offer remains fresh and compelling to our customers. If we
are not successful at predicting our sales trends and adjusting our purchases, we may have excess
inventory, which would result in additional markdowns and reduce our operating performance.
IMPACT OF COMPETITIVE MARKET FORCES
The retail industry environment continues to change for many of our vendors and customers. In the
future, our competition may partner more effectively with vendors to serve the markets needs. If
we do not effectively respond to changes in our environment, we may see
a loss of market share to competitors, declining same-store sales, and declining profitability due
to higher markdowns.
STORE GROWTH STRATEGY
As of February 2007, our plans for the next five years include
opening 26 new or relocated stores
and remodeling 69 existing stores. Our future net sales at new, relocated or remodeled stores may
not meet our projections, which could reduce our operating performance. Performance in our new
stores could also be impacted based on our ability to hire employees who are able to deliver the
level of service customers have come to expect when shopping at our stores. In the past, our
expected opening dates have sometimes been delayed because of developer plan delays. Our future
growth could be negatively impacted by delays to our store opening, relocating or remodeling plans.
INFORMATION SECURITY AND PRIVACY
The protection of our customer, employee, and company data is critical to us. The regulatory
environment surrounding information security and privacy is increasingly demanding, with the
frequent imposition of new and constantly changing requirements across our business units. In
addition, our customers have a high expectation that we will adequately protect their personal
information. A significant breach of customer, employee, or company data could damage our
reputation and result in lost sales, fines, and lawsuits.
LEADERSHIP DEVELOPMENT AND SUCCESSION PLANNING
The training and development of our future leaders is critical to our long-term growth. If we do
not effectively implement our strategic and business planning processes to train and develop future
leaders, our long-term growth may suffer. In addition, if unexpected leadership turnover occurs
without established succession plans, our business may suffer.
MULTI-CHANNEL STRATEGY EXECUTION
In 2005, we started to make changes in our Direct business that better align our online shopping
environment and catalog with the customer experience in our Full-Line stores. These changes
include: aligning our Direct merchandise offering with our Full-Line stores to create a seamless
experience for our customers between our stores, catalogs and Web site, linking the Full-Line
stores and Direct merchandise organization; reducing the number and frequency of our Direct catalog
mailings; and transitioning our Direct inventory system onto our Full-Line store platform, all
while dealing with changes in the Internet market in general. Based on our online sales trends and
customer feedback in 2006, we believe that our strategy shift will improve our future operating
performance. We also found that the technology changes will be more challenging than we initially
anticipated. Executing this strategy may cost more and take longer than expected, which could
impact our future operating performance.
BRAND AND REPUTATION
We have a well-recognized brand that is synonymous with the highest level of customer service and
quality merchandise. Any significant damage to
our brand or reputation may negatively impact same-store sales, lower employee morale and
productivity, and diminish customer trust, resulting in a reduction in shareholder value.
CAPITAL EFFICIENCY AND PROPER ALLOCATION
Our goal is to invest capital to maximize our overall long-term returns. This includes spending on
inventory, capital projects and expenses, managing debt levels, managing accounts receivable
through our credit business, and returning value to our shareholders through dividends and share
repurchases. To a large degree, capital efficiency reflects how well we manage the other key risks
to our Company. The actions taken to address other specific risks may affect how well we manage the
more general risk of capital efficiency. Our recent operating results have raised expectations
about our performance. If we do not properly allocate our capital to maximize returns, we may fail
to continue to produce similar financial results and we may experience a reduction in shareholder
value.
HUMAN RESOURCE REGULATIONS
Our policies and procedures are designed to comply with human resource laws such as wage and hour,
meal and rest period, and commissions. Federal and state wage and hour laws are complex, and the
related enforcement is increasingly aggressive, particularly in the state of California. Failure to
comply with these laws could result in damage to our reputation, class action lawsuits, and
dissatisfied employees.
6
EMPLOYMENT AND DISCRIMINATION LAWS
State and federal employment and discrimination laws and the related case law continue to evolve,
making ongoing compliance in this area a challenge. Failure to comply with these laws may result in
damage to our reputation, legal and settlement costs, disruption of our business, and loss of
customers and employees, which would result in a loss of net sales and increased employment costs,
low employee morale and attendant harm to our business and results of operations.
TECHNOLOGY STRATEGY
We make investments in information technology to sustain our competitive position. We expect to
spend approximately $170 million each year
on information technology operations and system development, which is key to our growth strategy.
We must monitor and choose
the right investments and implement them at the right pace. Targeting the wrong opportunities,
failing to make the best investment, or making
an investment commitment significantly above or below the requirements of the business opportunity
may result in the loss of our competitive position. In addition, an inadequate investment in
maintaining our current systems may result in a loss of system functionality and increased future
costs to bring our systems up to date.
We may implement too much technology, or change too fast, which could result in failure to adopt
the new technology if the business is not ready or capable of accepting it. Excessive technological
change affects the effectiveness of adoption, and could adversely affect the realization of
benefits from the technology. However, not implementing enough technology could compromise our
competitive position.
REGULATORY COMPLIANCE
Our policies and procedures are designed to comply with all
applicable laws and regulations, including those imposed by the SEC,
NYSE, the banking industry, and foreign countries. Additional legal
and regulatory requirements such as the Sarbanes-Oxley Act have increased the complexity
of the regulatory environment. In addition, foreign laws may conflict
with domestic laws. Failure to comply with the various regulations
may result in damage to our reputation, civil and criminal liability,
fines and penalties, increased cost of regulatory compliance, and
restatements of financial statements.
ANTI-TAKEOVER PROVISIONS
We are incorporated in the state of Washington and subject to Washington state law. Some provisions
of Washington state law could interfere with
or restrict takeover bids or other change in control events affecting us. For example, one
statutory provision prohibits us, except under specified circumstances, from engaging in any
significant business transaction with any shareholder who owns 10% or more of our common stock
(which shareholder, under the statute, would be considered an acquiring person) for a period of
five years following the time that such shareholder
became an acquiring person.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The following table summarizes the number of retail stores owned or leased by us, and the
percentage of total store square footage represented by each listed category at February 3, 2007:
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% of total store |
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Number of Stores |
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square footage |
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Owned stores |
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32 |
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25.3% |
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Owned on leased land |
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45 |
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43.1% |
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Leased stores |
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111 |
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30.1% |
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Partly owned and partly leased |
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3 |
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1.5% |
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Total |
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191 |
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100.0% |
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We also own six merchandise distribution centers located in Portland, Oregon; Dubuque, Iowa;
Ontario, California; Newark, California; Upper Marlboro, Maryland; and Gainesville, Florida, which
are utilized by the Retail Stores segment. The Direct segment utilizes one fulfillment center in
Cedar Rapids, Iowa, which is owned on leased land. Our administrative offices in Seattle,
Washington are a combination of leased and owned space. For one of our corporate office buildings
in Seattle, we own a 49% interest in a limited partnership which constructed the office building in
which we are the primary tenant. During 2002, the limited partnership refinanced its construction
loan obligation with a mortgage secured by the property. This mortgage is included in our long-term
debt and is amortized as we make rental payments to the limited partnership over the life of the
mortgage. We also lease an office building in the Denver, Colorado metropolitan area that serves as
an office of Nordstrom fsb and Nordstrom Credit, Inc.
Nordstrom, Inc. and subsidiaries 7
The following table lists our retail store facilities as of February 3, 2007:
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Year |
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Year |
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Square |
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Store |
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Square |
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Store |
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Location |
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Store Name |
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Footage |
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Opened |
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Location |
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Store Name |
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Footage |
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Opened |
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Full-Line Stores |
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ALASKA |
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ILLINOIS |
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Anchorage |
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Anchorage |
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97,000 |
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1975 |
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Chicago |
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Michigan Avenue |
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274,000 |
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2000 |
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Oak Brook |
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Oakbrook Center |
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249,000 |
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1991 |
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ARIZONA |
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Schaumburg |
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Woodfield Shopping Center |
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215,000 |
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1995 |
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Chandler |
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Chandler Fashion Center |
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149,000 |
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2001 |
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Skokie |
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Old Orchard Center |
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209,000 |
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1994 |
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Scottsdale |
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Scottsdale Fashion Square |
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235,000 |
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1998 |
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INDIANA |
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CALIFORNIA |
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Indianapolis |
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Circle Centre |
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216,000 |
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1995 |
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Arcadia |
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Santa Anita |
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151,000 |
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1994 |
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Brea |
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Brea Mall |
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195,000 |
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1979 |
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KANSAS |
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Canoga Park |
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Topanga |
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213,000 |
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1984 |
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Overland Park |
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Oak Park Mall |
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219,000 |
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1998 |
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Cerritos |
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Los Cerritos Center |
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122,000 |
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1981 |
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Corte Madera |
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The Village at Corte Madera |
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116,000 |
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1985 |
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MARYLAND |
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Costa Mesa |
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South Coast Plaza |
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235,000 |
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1978 |
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Annapolis |
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Annapolis Mall |
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162,000 |
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1994 |
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Escondido |
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North County |
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156,000 |
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1986 |
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Bethesda |
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Montgomery Mall |
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225,000 |
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1991 |
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Glendale |
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Glendale Galleria |
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147,000 |
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1983 |
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Columbia |
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The Mall in Columbia |
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173,000 |
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1999 |
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Irvine |
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Irvine Spectrum Center |
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130,000 |
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2005 |
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Towson |
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Towson Town Center |
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205,000 |
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1992 |
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Los Angeles |
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The Grove |
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120,000 |
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2002 |
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Los Angeles |
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Westside Pavilion |
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150,000 |
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1985 |
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MICHIGAN |
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Mission Viejo |
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The Shops at Mission Viejo |
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172,000 |
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1999 |
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Troy |
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Somerset Collection |
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258,000 |
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1996 |
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Montclair |
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Montclair Plaza |
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134,000 |
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1986 |
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Palo Alto |
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Stanford Shopping Center |
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187,000 |
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1984 |
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MINNESOTA |
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Pleasanton |
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Stoneridge Mall |
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173,000 |
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1990 |
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Bloomington |
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Mall of America |
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240,000 |
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1992 |
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Redondo Beach |
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South Bay Galleria |
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161,000 |
|
|
|
1985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Riverside |
|
The Galleria at Tyler in Riverside |
|
|
164,000 |
|
|
|
1991 |
|
|
MISSOURI |
|
|
|
|
|
|
|
|
|
|
Roseville |
|
Galleria at Roseville |
|
|
149,000 |
|
|
|
2000 |
|
|
Des Peres |
|
West County |
|
|
193,000 |
|
|
|
2002 |
|
Sacramento |
|
Arden Fair |
|
|
190,000 |
|
|
|
1989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
San Diego |
|
Fashion Valley |
|
|
220,000 |
|
|
|
1981 |
|
|
NEVADA |
|
|
|
|
|
|
|
|
|
|
San Diego |
|
Horton Plaza |
|
|
151,000 |
|
|
|
1985 |
|
|
Las Vegas |
|
Fashion Show |
|
|
207,000 |
|
|
|
2002 |
|
San Diego |
|
University Towne Center |
|
|
130,000 |
|
|
|
1984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
San Francisco Centre |
|
|
350,000 |
|
|
|
1988 |
|
|
NEW JERSEY |
|
|
|
|
|
|
|
|
|
|
San Francisco |
|
Stonestown Galleria |
|
|
174,000 |
|
|
|
1988 |
|
|
Edison |
|
Menlo Park |
|
|
204,000 |
|
|
|
1991 |
|
San Jose |
|
Valley Fair |
|
|
232,000 |
|
|
|
1987 |
|
|
Freehold |
|
Freehold Raceway Mall |
|
|
174,000 |
|
|
|
1992 |
|
San Mateo |
|
Hillsdale Shopping Center |
|
|
149,000 |
|
|
|
1982 |
|
|
Paramus |
|
Garden State Plaza |
|
|
282,000 |
|
|
|
1990 |
|
Santa Ana |
|
MainPlace/Santa Ana |
|
|
169,000 |
|
|
|
1987 |
|
|
Short Hills |
|
The Mall at Short Hills |
|
|
188,000 |
|
|
|
1995 |
|
Santa Barbara |
|
Paseo Nuevo in Santa Barbara |
|
|
186,000 |
|
|
|
1990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Walnut Creek |
|
Broadway Plaza |
|
|
193,000 |
|
|
|
1984 |
|
|
NEW YORK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden City |
|
Roosevelt Field |
|
|
241,000 |
|
|
|
1997 |
|
COLORADO |
|
|
|
|
|
|
|
|
|
|
|
White Plains |
|
The Westchester |
|
|
219,000 |
|
|
|
1995 |
|
Broomfield |
|
FlatIron Crossing |
|
|
172,000 |
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Littleton |
|
Park Meadows |
|
|
245,000 |
|
|
|
1996 |
|
|
NORTH CAROLINA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlotte |
|
SouthPark |
|
|
151,000 |
|
|
|
2004 |
|
CONNECTICUT |
|
|
|
|
|
|
|
|
|
|
|
Durham |
|
The Streets at Southpoint |
|
|
149,000 |
|
|
|
2002 |
|
Farmington |
|
Westfarms |
|
|
189,000 |
|
|
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OHIO |
|
|
|
|
|
|
|
|
|
|
FLORIDA |
|
|
|
|
|
|
|
|
|
|
|
Beachwood |
|
Beachwood Place |
|
|
231,000 |
|
|
|
1997 |
|
Boca Raton |
|
Town Center at Boca Raton |
|
|
193,000 |
|
|
|
2000 |
|
|
Columbus |
|
Easton Town Center |
|
|
174,000 |
|
|
|
2001 |
|
Coral Gables |
|
Village of Merrick Park |
|
|
212,000 |
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Miami |
|
Dadeland Mall |
|
|
150,000 |
|
|
|
2004 |
|
|
OREGON |
|
|
|
|
|
|
|
|
|
|
Orlando |
|
The Florida Mall |
|
|
174,000 |
|
|
|
2002 |
|
|
Portland |
|
Clackamas Town Center |
|
|
121,000 |
|
|
|
1981 |
|
Palm Beach Gardens |
|
The Gardens |
|
|
150,000 |
|
|
|
2006 |
|
|
Portland |
|
Downtown Portland |
|
|
174,000 |
|
|
|
1966 |
|
Tampa |
|
International Plaza |
|
|
172,000 |
|
|
|
2001 |
|
|
Portland |
|
Lloyd Center |
|
|
150,000 |
|
|
|
1963 |
|
Wellington |
|
The Mall at Wellington Green |
|
|
127,000 |
|
|
|
2003 |
|
|
Salem |
|
Salem Center |
|
|
71,000 |
|
|
|
1980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tigard |
|
Washington Square |
|
|
189,000 |
|
|
|
1974 |
|
GEORGIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta |
|
Perimeter Mall |
|
|
243,000 |
|
|
|
1998 |
|
|
PENNSYLVANIA |
|
|
|
|
|
|
|
|
|
|
Atlanta |
|
Phipps Plaza |
|
|
140,000 |
|
|
|
2005 |
|
|
King of Prussia |
|
The Plaza at King of Prussia |
|
|
238,000 |
|
|
|
1996 |
|
Buford |
|
Mall of Georgia |
|
|
172,000 |
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
Square |
|
|
Store |
|
|
|
|
|
|
Square |
|
|
Store |
|
Location |
|
Store Name |
|
Footage |
|
|
Opened |
|
|
Location |
|
Store Name |
|
Footage |
|
|
Opened |
|
|
|
|
Full-Line Stores (Cont.) |
|
|
|
|
|
|
|
|
|
Nordstrom Rack Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RHODE ISLAND |
|
|
|
|
|
|
|
|
|
|
|
Chandler, AZ |
|
Chandler Festival Rack |
|
|
37,000 |
|
|
|
2000 |
|
Providence |
|
Providence Place |
|
|
206,000 |
|
|
|
1999 |
|
|
Phoenix, AZ |
|
Last Chance |
|
|
48,000 |
|
|
|
1992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Scottsdale, AZ |
|
Scottsdale Promenade Rack |
|
|
38,000 |
|
|
|
2000 |
|
TEXAS |
|
|
|
|
|
|
|
|
|
|
|
Brea, CA |
|
Brea Union Plaza Rack |
|
|
45,000 |
|
|
|
1999 |
|
Austin |
|
Barton Creek Square |
|
|
150,000 |
|
|
|
2003 |
|
|
Chino, CA |
|
Chino Spectrum Towne Center Rack |
|
|
38,000 |
|
|
|
1987 |
|
Dallas |
|
Galleria Dallas |
|
|
249,000 |
|
|
|
1996 |
|
|
Colma, CA |
|
Colma Rack |
|
|
31,000 |
|
|
|
1987 |
|
Dallas |
|
NorthPark Center |
|
|
212,000 |
|
|
|
2005 |
|
|
Costa Mesa, CA |
|
Metro Pointe at South Coast Rack |
|
|
50,000 |
|
|
|
1983 |
|
Frisco |
|
Stonebriar Centre |
|
|
149,000 |
|
|
|
2000 |
|
|
Fresno, CA |
|
Villaggio Retail Center Rack |
|
|
32,000 |
|
|
|
2002 |
|
Houston |
|
Houston Galleria |
|
|
226,000 |
|
|
|
2003 |
|
|
Glendale, CA |
|
Glendale Fashion Center Rack |
|
|
36,000 |
|
|
|
2000 |
|
Hurst |
|
NorthEast Mall |
|
|
149,000 |
|
|
|
2001 |
|
|
Long Beach, CA |
|
Long Beach CityPlace Rack |
|
|
33,000 |
|
|
|
2002 |
|
San Antonio |
|
The Shops at La Cantera |
|
|
149,000 |
|
|
|
2005 |
|
|
Los Angeles, CA |
|
The Promenade at Howard Hughes |
|
|
41,000 |
|
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center Rack |
|
|
|
|
|
|
|
|
UTAH |
|
|
|
|
|
|
|
|
|
|
|
Ontario, CA |
|
Ontario Mills Mall Rack |
|
|
40,000 |
|
|
|
2002 |
|
Murray |
|
Fashion Place |
|
|
110,000 |
|
|
|
1981 |
|
|
Oxnard, CA |
|
Esplanade Shopping Center Rack |
|
|
38,000 |
|
|
|
2001 |
|
Orem |
|
University Mall |
|
|
122,000 |
|
|
|
2002 |
|
|
Roseville, CA |
|
Creekside Town Center Rack |
|
|
36,000 |
|
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sacramento, CA |
|
Howe `Bout Arden Center Rack |
|
|
54,000 |
|
|
|
1999 |
|
VIRGINIA |
|
|
|
|
|
|
|
|
|
|
|
San Diego, CA |
|
Mission Valley Rack |
|
|
57,000 |
|
|
|
1985 |
|
Arlington |
|
The Fashion Centre at |
|
|
241,000 |
|
|
|
1989 |
|
|
San Francisco, CA |
|
555 Ninth Street Retail Center |
|
|
43,000 |
|
|
|
2001 |
|
|
|
Pentagon City |
|
|
|
|
|
|
|
|
|
|
|
Rack |
|
|
|
|
|
|
|
|
Dulles |
|
Dulles Town Center |
|
|
148,000 |
|
|
|
2002 |
|
|
San Jose, CA |
|
Westgate Mall Rack |
|
|
48,000 |
|
|
|
1998 |
|
McLean |
|
Tysons Corner Center |
|
|
211,000 |
|
|
|
1988 |
|
|
San Leandro, CA |
|
San Leandro Rack |
|
|
44,000 |
|
|
|
1990 |
|
Norfolk |
|
MacArthur Center |
|
|
166,000 |
|
|
|
1999 |
|
|
San Marcos, CA |
|
Grand Plaza Rack |
|
|
35,000 |
|
|
|
2006 |
|
Richmond |
|
Short Pump Town Center |
|
|
128,000 |
|
|
|
2003 |
|
|
Woodland Hills, CA |
|
Topanga Rack |
|
|
64,000 |
|
|
|
1984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Broomfield, CO |
|
Flatiron Marketplace Rack |
|
|
36,000 |
|
|
|
2001 |
|
WASHINGTON |
|
|
|
|
|
|
|
|
|
|
|
Littleton, CO |
|
Meadows Marketplace Rack |
|
|
34,000 |
|
|
|
1998 |
|
Bellevue |
|
Bellevue Square |
|
|
285,000 |
|
|
|
1967 |
|
|
Miami, FL |
|
Last Chance |
|
|
26,000 |
|
|
|
2005 |
|
Lynnwood |
|
Alderwood |
|
|
151,000 |
|
|
|
1979 |
|
|
Sunrise, FL |
|
The Oasis at Sawgrass Mills Rack |
|
|
27,000 |
|
|
|
2003 |
|
Seattle |
|
Downtown Seattle |
|
|
383,000 |
|
|
|
1963 |
|
|
Buford, GA |
|
Mall of Georgia Crossing Rack |
|
|
44,000 |
|
|
|
2000 |
|
Seattle |
|
Northgate |
|
|
122,000 |
|
|
|
1965 |
|
|
Honolulu, HI |
|
Ward Centers Rack |
|
|
34,000 |
|
|
|
2000 |
|
Spokane |
|
Spokane |
|
|
137,000 |
|
|
|
1974 |
|
|
Chicago, IL |
|
The Shops at State and |
|
|
41,000 |
|
|
|
2003 |
|
Tacoma |
|
Tacoma Mall |
|
|
134,000 |
|
|
|
1966 |
|
|
|
|
Washington Rack |
|
|
|
|
|
|
|
|
Tukwila |
|
Southcenter |
|
|
170,000 |
|
|
|
1968 |
|
|
Northbrook, IL |
|
Northbrook Rack |
|
|
40,000 |
|
|
|
1996 |
|
Vancouver |
|
Vancouver |
|
|
71,000 |
|
|
|
1977 |
|
|
Oak Brook, IL |
|
The Shops at Oak Brook Place Rack |
|
|
42,000 |
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Schaumburg, IL |
|
Woodfield Rack |
|
|
45,000 |
|
|
|
1994 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
Gaithersburg, MD |
|
Gaithersburg Rack |
|
|
49,000 |
|
|
|
1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Towson, MD |
|
Towson Rack |
|
|
31,000 |
|
|
|
1992 |
|
Honolulu, HI |
|
Ward Centers Shoes |
|
|
16,000 |
|
|
|
1997 |
|
|
Grand Rapids, MI |
|
Centerpointe Mall Rack |
|
|
40,000 |
|
|
|
2001 |
|
Façonnable |
|
U.S. (4 boutiques) |
|
|
53,000 |
|
|
|
|
|
|
Troy, MI |
|
Troy Marketplace Rack |
|
|
40,000 |
|
|
|
2000 |
|
Façonnable |
|
International (36 boutiques) |
|
|
96,000 |
|
|
|
|
|
|
Bloomington, MN |
|
Mall of America Rack |
|
|
41,000 |
|
|
|
1998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, NV |
|
Silverado Ranch Plaza Rack |
|
|
33,000 |
|
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Westbury, NY |
|
The Mall at the Source Rack |
|
|
48,000 |
|
|
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beaverton, OR |
|
Tanasbourne Town Center Rack |
|
|
53,000 |
|
|
|
1998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Clackamas, OR |
|
Clackamas Promenade Rack |
|
|
28,000 |
|
|
|
1983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Portland, OR |
|
Downtown Portland Rack |
|
|
32,000 |
|
|
|
1986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
King of Prussia, PA |
|
The Overlook at King of |
|
|
45,000 |
|
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prussia Rack |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hurst, TX |
|
The Shops at North East Mall Rack |
|
|
40,000 |
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plano, TX |
|
Preston Shepard Place Rack |
|
|
39,000 |
|
|
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salt Lake City, UT |
|
Sugarhouse Rack |
|
|
31,000 |
|
|
|
1991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sterling, VA |
|
Dulles Town Crossing Rack |
|
|
41,000 |
|
|
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Woodbridge, VA |
|
Potomac Mills Rack |
|
|
46,000 |
|
|
|
1990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn, WA |
|
SuperMall of the Great |
|
|
48,000 |
|
|
|
1995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest Rack |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellevue, WA |
|
Factoria Mall Rack |
|
|
46,000 |
|
|
|
1997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynnwood, WA |
|
Golde Creek Plaza Rack |
|
|
38,000 |
|
|
|
1985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Seattle, WA |
|
Downtown Seattle Rack |
|
|
42,000 |
|
|
|
1987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Spokane, WA |
|
NorthTown Mall Rack |
|
|
28,000 |
|
|
|
2000 |
|
|
|
|
We plan to open three Full-Line stores and one Rack store in 2007 and eight Full-Line stores in
2008.
Nordstrom, Inc. and subsidiaries 9
Item 3. Legal Proceedings.
Cosmetics
We were 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 were consolidated in Marin County Superior
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 alleged that the retail price of the prestige or Department Store cosmetics and
fragrances 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 sought 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 four years prior to the filing of
the original complaints.
While we believe that the plaintiffs claims are without merit, we entered into a settlement
agreement with the plaintiffs and the other defendants on July 13, 2003 in order to avoid the cost
and distraction of protracted litigation. In furtherance of the settlement agreement, the case was
re-filed in the United States District Court for the Northern District of California on behalf of a
class of all persons who currently reside in the United States and who purchased Department Store
cosmetics and fragrances from the defendants during the period May 29, 1994 through July 16, 2003.
The Court gave preliminary approval to the settlement, and a summary notice of class certification
and the terms of the settlement was disseminated to class members. On March 30, 2005, the Court
entered a final judgment approving the settlement and dismissing the plaintiffs claims and the
claims of all class members with prejudice, in their entirety. On April 29, 2005, two class members
who had objected to the settlement filed notices of appeal from the Courts final judgment to the
United States Court of Appeals for the Ninth Circuit. One of the objectors has since dropped her
appeal, but the other filed her appeal brief on March 20, 2006. Plaintiffs and defendants briefs
were filed on May 25, 2006. The remaining objector filed her reply brief on June 14, 2006. The
Ninth Circuit heard oral arguments on the appeal on March 14, 2007. It is uncertain how long the
Ninth Circuit will take to issue its decision or when the appeal will be resolved. If the District
Courts final judgment approving the settlement is affirmed on appeal, or the appeal is dismissed,
the defendants will provide class members with certain free products with an estimated retail value
of $175 million and pay the plaintiffs attorneys fees, awarded by the Court, of $24 million. We
do not believe the outcome of this matter will have a material adverse effect on our financial
condition, results of operations or cash flows.
Other
We are involved in routine claims, proceedings, and litigation arising from the normal course of
our business. We do not believe any such claim, proceeding or litigation, either alone or in
aggregate will have a material impact on our financial condition, results of operations, or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
MARKET, SHAREHOLDER, AND DIVIDEND INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol
JWN. The approximate number of holders of common stock as
of March 14, 2007 was 151,926, based upon the number of registered and
beneficial shareholders, as well as the number of employee shareholders in the Nordstrom 401(k)
Plan and Profit Sharing.
The high and low sales prices of our common stock and dividends declared for each quarter of 2006
and 2005 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Price |
|
|
|
|
2006 |
|
2005 |
|
Dividends per Share |
|
|
High |
|
Low |
|
High |
|
Low |
|
2006 |
|
2005 |
|
1st Quarter |
|
$42.90 |
|
$37.51 |
|
$28.14 |
|
$23.91 |
|
$0.105 |
|
$0.065 |
2nd Quarter |
|
$39.50 |
|
$31.77 |
|
$37.46 |
|
$25.22 |
|
$0.105 |
|
$0.085 |
3rd Quarter |
|
$49.52 |
|
$32.97 |
|
$37.96 |
|
$30.41 |
|
$0.105 |
|
$0.085 |
4th Quarter |
|
$57.10 |
|
$45.37 |
|
$42.74 |
|
$33.58 |
|
$0.105 |
|
$0.085 |
Full Year |
|
$57.10 |
|
$31.77 |
|
$42.74 |
|
$23.91 |
|
$0.42 |
|
$0.32 |
|
10
REPURCHASES
(Dollars in millions except per share amounts)
A summary of our fourth quarter share repurchases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Total Number of Shares |
|
|
|
|
|
|
Total Number of |
|
|
Price Paid |
|
|
(or Units) Purchased as |
|
|
Maximum Number (or Approximate Dollar |
|
|
|
Shares (or Units) |
|
|
Per Share |
|
|
Part of Publicly Announced |
|
|
Value) of Shares (or Units) that May Yet Be |
|
Period |
|
Purchased |
|
|
(or Unit) |
|
|
Plans or Programs |
|
|
Purchased Under the Plans or Programs2 |
|
|
Nov. 2006 (10/29/06 to 11/25/06) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$617.4 |
|
Dec. 2006 (11/26/06 to 12/30/06) |
|
|
530,400 |
1 |
|
|
$49.09 |
|
|
|
529,800 |
|
|
|
$591.4 |
|
Jan. 2007 (12/31/06 to 2/3/07) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$591.4 |
|
|
Total |
|
|
530,400 |
|
|
|
$49.09 |
|
|
|
529,800 |
|
|
|
|
|
|
1
Included in this balance are 600 shares that were not redeemed as part of a
publicly announced repurchase plan or program. These shares were tendered by an employee to
Nordstrom for tax withholding purposes.
2 In May 2006, our Board of Directors authorized a $1,000.0 share repurchase
program. The prior $500.0 repurchase program, which was started in February 2005, was completed
during the first quarter of 2006. During 2006, we purchased 5,422,362 shares of our common stock
for an aggregate purchase price of $212.9 (an average price per share of $39.27) under the prior
repurchase program. We purchased 11,122,977 shares of our common stock for an aggregate purchase
price of $408.6 (an average price per share of $36.74) under the current repurchase program. As of
February 3, 2007 the unused authorization was $591.4. The actual amount and timing of future share
repurchases will be subject to market conditions and applicable SEC rules.
STOCK PRICE PERFORMANCE
The following graph compares, for each of the last five fiscal years, ending February 3, 2007, the
cumulative total return of Nordstrom, Inc. common stock, Standard & Poors 500 Index and Standard &
Poors Retail Index. The Retail Index is comprised of 38 retail companies, including the Company,
representing a sector of the Standard & Poors 500 Index. The cumulative total return of Nordstrom,
Inc. common stock assumes $100 invested on January 31, 2002 in Nordstrom, Inc. common stock and
assumes reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Fiscal Year: |
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
Standard & Poors 500 Index |
|
|
100 |
|
|
|
76 |
|
|
|
100 |
|
|
|
104 |
|
|
|
114 |
|
|
|
128 |
|
Standard & Poors Retail Index |
|
|
100 |
|
|
|
71 |
|
|
|
105 |
|
|
|
119 |
|
|
|
129 |
|
|
|
147 |
|
Nordstrom, Inc. common stock |
|
|
100 |
|
|
|
73 |
|
|
|
161 |
|
|
|
197 |
|
|
|
354 |
|
|
|
479 |
|
|
Nordstrom, Inc. and subsidiaries 11
Item 6. Selected Financial Data.
(Dollars in thousands except sales per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial
Statements and should be read in conjunction with Item 1A Risk Factors, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operation, and the Consolidated
Financial Statements and the related notes included in Item 8 of this Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
4 |
|
2001 |
|
|
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
$8,560,698 |
|
|
|
$7,722,860 |
|
|
|
$7,131,388 |
|
|
|
$6,448,678 |
|
|
|
$5,944,656 |
|
|
|
$5,607,687 |
|
Same-store sales percentage increase (decrease)1 |
|
|
7.5% |
|
|
|
6.0% |
|
|
|
8.5% |
|
|
|
4.1% |
|
|
|
1.4% |
|
|
|
(2.9% |
) |
Gross profit |
|
|
3,206,749 |
|
|
|
2,834,837 |
|
|
|
2,572,000 |
|
|
|
2,233,132 |
|
|
|
1,974,634 |
|
|
|
1,844,133 |
|
Gross profit rate2 |
|
|
37.5% |
|
|
|
36.7% |
|
|
|
36.1% |
|
|
|
34.6% |
|
|
|
33.2% |
|
|
|
32.9% |
|
Selling, general, and administrative expenses |
|
|
(2,296,863 |
) |
|
|
(2,100,666 |
) |
|
|
(2,020,233 |
) |
|
|
(1,899,129 |
) |
|
|
(1,783,210 |
) |
|
|
(1,698,497 |
) |
Selling, general, and administrative rate3 |
|
|
26.8% |
|
|
|
27.2% |
|
|
|
28.3% |
|
|
|
29.4% |
|
|
|
30.0% |
|
|
|
30.3% |
|
Operating income |
|
|
909,886 |
|
|
|
734,171 |
|
|
|
551,767 |
|
|
|
334,003 |
|
|
|
191,424 |
|
|
|
145,636 |
|
Interest expense, net |
|
|
(42,758 |
) |
|
|
(45,300 |
) |
|
|
(77,428 |
) |
|
|
(90,952 |
) |
|
|
(81,921 |
) |
|
|
(75,038 |
) |
Other income including finance charges, net |
|
|
238,525 |
|
|
|
196,354 |
|
|
|
172,942 |
|
|
|
155,090 |
|
|
|
139,289 |
|
|
|
133,890 |
|
Earnings before income tax expense |
|
|
1,105,653 |
|
|
|
885,225 |
|
|
|
647,281 |
|
|
|
398,141 |
|
|
|
195,624 |
5 |
|
|
204,488 |
|
Earnings before income tax expense as a percentage
of net sales |
|
|
12.9% |
|
|
|
11.5% |
|
|
|
9.1% |
|
|
|
6.2% |
|
|
|
3.3% |
5 |
|
|
3.6% |
|
Net earnings |
|
|
677,999 |
|
|
|
551,339 |
|
|
|
393,450 |
|
|
|
242,841 |
|
|
|
90,224 |
|
|
|
124,688 |
|
Net earnings as a percentage of net sales |
|
|
7.9% |
|
|
|
7.1% |
|
|
|
5.5% |
|
|
|
3.8% |
|
|
|
1.5% |
|
|
|
2.2% |
|
Earnings per diluted share |
|
|
$2.55 |
|
|
|
$1.98 |
|
|
|
$1.38 |
|
|
|
$0.88 |
|
|
|
$0.33 |
|
|
|
$0.46 |
|
Dividends per share |
|
|
$0.42 |
|
|
|
$0.32 |
|
|
|
$0.24 |
|
|
|
$0.205 |
|
|
|
$0.19 |
|
|
|
$0.18 |
|
Return on average shareholders equity |
|
|
31.8% |
|
|
|
28.4% |
|
|
|
23.0% |
|
|
|
16.2% |
|
|
|
6.7% |
|
|
|
9.8% |
|
Sales per square foot |
|
|
$393 |
|
|
|
$369 |
|
|
|
$347 |
|
|
|
$325 |
|
|
|
$317 |
|
|
|
$319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position (at year end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer accounts receivable, net |
|
|
$608,599 |
|
|
|
$566,815 |
|
|
|
$580,397 |
|
|
|
$594,900 |
|
|
|
$606,861 |
|
|
|
$621,491 |
|
Investment in asset backed securities |
|
|
428,175 |
|
|
|
561,136 |
|
|
|
422,416 |
|
|
|
272,294 |
|
|
|
124,543 |
|
|
|
58,539 |
|
Merchandise inventories |
|
|
997,289 |
|
|
|
955,978 |
|
|
|
917,182 |
|
|
|
901,623 |
|
|
|
953,112 |
|
|
|
888,172 |
|
Current assets |
|
|
2,742,193 |
|
|
|
2,874,157 |
|
|
|
2,572,444 |
|
|
|
2,524,843 |
|
|
|
2,125,356 |
|
|
|
2,095,317 |
|
Current liabilities |
|
|
1,433,143 |
|
|
|
1,623,312 |
|
|
|
1,341,152 |
|
|
|
1,122,559 |
|
|
|
925,978 |
|
|
|
986,587 |
|
Land, buildings and equipment, net |
|
|
1,757,215 |
|
|
|
1,773,871 |
|
|
|
1,780,366 |
|
|
|
1,807,778 |
|
|
|
1,849,961 |
|
|
|
1,761,082 |
|
Long-term debt, including current portion |
|
|
630,452 |
|
|
|
934,394 |
|
|
|
1,030,107 |
|
|
|
1,234,243 |
|
|
|
1,350,595 |
|
|
|
1,424,242 |
|
Shareholders equity |
|
|
2,168,521 |
|
|
|
2,092,681 |
|
|
|
1,788,994 |
|
|
|
1,634,009 |
|
|
|
1,372,864 |
|
|
|
1,316,245 |
|
Debt-to-capital ratio |
|
|
22.5% |
|
|
|
30.9% |
|
|
|
36.5% |
|
|
|
43.0% |
|
|
|
49.6% |
|
|
|
52.0% |
|
Book value per share |
|
|
8.43 |
|
|
|
7.76 |
|
|
|
6.59 |
|
|
|
5.90 |
|
|
|
5.07 |
|
|
|
4.89 |
|
Total assets |
|
|
4,821,578 |
|
|
|
4,921,349 |
|
|
|
4,605,390 |
|
|
|
4,569,233 |
|
|
|
4,185,269 |
|
|
|
4,084,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Information (at year end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-Line stores |
|
|
98 |
|
|
|
98 |
|
|
|
94 |
|
|
|
92 |
|
|
|
88 |
|
|
|
80 |
|
Rack and other stores |
|
|
57 |
|
|
|
57 |
|
|
|
56 |
|
|
|
56 |
|
|
|
55 |
|
|
|
52 |
|
International Façonnable boutiques |
|
|
36 |
|
|
|
32 |
|
|
|
31 |
|
|
|
31 |
|
|
|
23 |
|
|
|
24 |
|
Total square footage |
|
|
20,170,000 |
|
|
|
20,070,000 |
|
|
|
19,397,000 |
|
|
|
19,138,000 |
|
|
|
18,428,000 |
|
|
|
17,048,000 |
|
|
1 Same-stores include stores that have been open at least one full year at the
beginning of the year. Fiscal year 2006 includes an extra week (the 53rd week) as a
result of our 4-5-4 retail reporting calendar. The 53rd week is not included in
same-store sales calculations.
2 Gross profit rate is calculated as the gross profit as a percentage of net sales.
3 Selling, general, and administrative rate is calculated as the selling, general, and
administrative expenses as a percentage of net sales.
4 2002 - The items below amounted to a net $90,638 charge ($71,041, net of tax, or $0.26 per diluted share):
|
|
Selling, general and administrative expenses included an impairment
charge of $15,570 related to the write-down of an information
technology investment in a supply chain software application in our
private label business. |
|
|
We purchased the outstanding shares of Nordstrom.com, Inc. series C
preferred stock for $70,000. The minority interest purchase and
reintegration costs resulted in a one-time charge of $53,168. No
tax benefit was recognized as there was no possibility of a future
tax benefit. |
|
|
When we adopted SFAS No. 142, Goodwill and Other Intangible Assets,
our initial impairment test of the Façonnable Business Unit
resulted in an impairment charge to acquired tradename of $16,133
and to goodwill of $5,767. The impairment charge is reflected as a
cumulative effect of accounting change ($13,359, net of tax). |
5 In 2002, earnings before income tax expense and earnings before income tax expense as a
percentage of net sales do not include the cumulative effect of an accounting change of
$13,359, net of tax of $8,541.
12
(Dollars in thousands except sales per square foot and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
20004 |
|
|
19995 |
|
|
1998 |
|
|
1997 |
|
|
1996 |
|
|
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
$5,511,908 |
|
|
|
$5,144,754 |
|
|
|
$5,049,182 |
|
|
|
$4,864,604 |
|
|
|
$4,457,931 |
|
Same-store sales percentage increase (decrease)1 |
|
|
0.3% |
|
|
|
(1.1% |
) |
|
|
(2.7% |
) |
|
|
4.0% |
|
|
|
0.6% |
|
Gross profit |
|
|
1,854,220 |
|
|
|
1,781,929 |
|
|
|
1,704,237 |
|
|
|
1,568,791 |
|
|
|
1,378,472 |
|
Gross profit rate2 |
|
|
33.6% |
|
|
|
34.6% |
|
|
|
33.8% |
|
|
|
32.2% |
|
|
|
30.9% |
|
Selling, general, and administrative expenses |
|
|
(1,722,247 |
) |
|
|
(1,516,259 |
) |
|
|
(1,429,837 |
) |
|
|
(1,338,235 |
) |
|
|
(1,232,860 |
) |
Selling, general, and administrative rate3 |
|
|
31.2% |
|
|
|
29.5% |
|
|
|
28.3% |
|
|
|
27.5% |
|
|
|
27.7% |
|
Operating income |
|
|
131,973 |
|
|
|
265,670 |
|
|
|
274,400 |
|
|
|
230,556 |
|
|
|
145,612 |
|
Interest expense, net |
|
|
(62,698 |
) |
|
|
(50,396 |
) |
|
|
(47,091 |
) |
|
|
(34,250 |
) |
|
|
(39,400 |
) |
Other income including finance charges, net |
|
|
130,600 |
|
|
|
116,783 |
|
|
|
110,414 |
|
|
|
110,907 |
|
|
|
135,331 |
|
Earnings before income tax expense |
|
|
167,018 |
|
|
|
332,057 |
|
|
|
337,723 |
|
|
|
307,213 |
|
|
|
241,543 |
|
Earnings before income tax expense as a percentage of
net sales |
|
|
3.0% |
|
|
|
6.5% |
|
|
|
6.7% |
|
|
|
6.3% |
|
|
|
5.4% |
|
Net earnings |
|
|
101,918 |
|
|
|
202,557 |
|
|
|
206,723 |
|
|
|
186,213 |
|
|
|
146,316 |
|
Net earnings as a percentage of net sales |
|
|
1.8% |
|
|
|
3.9% |
|
|
|
4.1% |
|
|
|
3.8% |
|
|
|
3.3% |
|
Earnings per diluted share |
|
|
$0.39 |
|
|
|
$0.73 |
|
|
|
$0.70 |
|
|
|
$0.60 |
|
|
|
$0.45 |
|
Dividends per share |
|
|
$0.175 |
|
|
|
$0.16 |
|
|
|
$0.15 |
|
|
|
$0.1325 |
|
|
|
$0.125 |
|
Return on average shareholders equity |
|
|
8.4% |
|
|
|
16.3% |
|
|
|
15.0% |
|
|
|
12.8% |
|
|
|
10.2% |
|
Sales per square foot |
|
|
$341 |
|
|
|
$349 |
|
|
|
$362 |
|
|
|
$384 |
|
|
|
$377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position (at year end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer accounts receivable, net |
|
|
$649,504 |
|
|
|
$557,190 |
|
|
|
$560,564 |
|
|
|
$621,704 |
|
|
|
$661,332 |
|
Investment in asset backed securities |
|
|
50,183 |
|
|
|
38,830 |
|
|
|
7,097 |
|
|
|
20,158 |
|
|
|
31,791 |
|
Merchandise inventories |
|
|
945,687 |
|
|
|
797,845 |
|
|
|
750,269 |
|
|
|
826,045 |
|
|
|
719,919 |
|
Current assets |
|
|
1,812,982 |
|
|
|
1,564,648 |
|
|
|
1,668,689 |
|
|
|
1,613,492 |
|
|
|
1,549,819 |
|
Current liabilities |
|
|
950,568 |
|
|
|
866,509 |
|
|
|
794,490 |
|
|
|
979,031 |
|
|
|
795,321 |
|
Land, buildings and equipment, net |
|
|
1,599,938 |
|
|
|
1,429,492 |
|
|
|
1,378,006 |
|
|
|
1,252,513 |
|
|
|
1,152,454 |
|
Long-term debt, including current portion |
|
|
1,112,296 |
|
|
|
804,982 |
|
|
|
868,234 |
|
|
|
420,865 |
|
|
|
380,632 |
|
Shareholders equity |
|
|
1,233,445 |
|
|
|
1,185,614 |
|
|
|
1,300,545 |
|
|
|
1,458,950 |
|
|
|
1,457,084 |
|
Debt-to-capital ratio |
|
|
49.2% |
|
|
|
42.5% |
|
|
|
42.1% |
|
|
|
31.9% |
|
|
|
27.2% |
|
Book value per share |
|
|
4.61 |
|
|
|
4.48 |
|
|
|
4.58 |
|
|
|
4.78 |
|
|
|
4.57 |
|
Total assets |
|
|
3,608,503 |
|
|
|
3,062,081 |
|
|
|
3,103,689 |
|
|
|
2,890,664 |
|
|
|
2,726,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Information (at year end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full-Line stores |
|
|
77 |
|
|
|
71 |
|
|
|
67 |
|
|
|
65 |
|
|
|
62 |
|
Rack and other stores |
|
|
43 |
|
|
|
33 |
|
|
|
30 |
|
|
|
27 |
|
|
|
21 |
|
International Façonnable boutiques |
|
|
20 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Total square footage |
|
|
16,056,000 |
|
|
|
14,487,000 |
|
|
|
13,593,000 |
|
|
|
12,614,000 |
|
|
|
11,754,000 |
|
|
1 Same-stores include stores that have been open at least one full year at the
beginning of the year.
2 Gross profit rate is calculated as the gross profit as a percentage of net sales.
3 Selling, general, and administrative rate is calculated as the selling, general, and
administrative expenses as a percentage of net sales.
4
2000 - The items below amounted to a net $56,084 charge ($34,211, net of tax, or $0.13 per diluted share):
|
|
Selling, general and administrative expenses included a charge of $13,000 for certain severance and other costs related to a change in management. |
|
|
We recorded an impairment charge of $10,227, consisting of $9,627 recorded in selling, general and administrative expenses and $600 in interest
expense, related to several software projects under development that were either impaired or obsolete. |
|
|
We held common shares in Streamline, Inc., an Internet grocery and consumer goods delivery company. Streamline ceased its operations effective
November 2000, and we wrote off our entire investment of $32,857 in Streamline. |
5 1999 - The item below amounted to a net $10,000 charge ($6,111, net of tax, or $0.02
per diluted share):
|
|
Selling, general and administrative expenses included a charge of $10,000 primarily associated
with the restructuring of our information technology services area. The charge consisted of $4,053
in the disposition of several software projects under development, $2,685 in employee severance and
$1,206 in other miscellaneous costs. Additionally, we recorded $2,056 related to settlement costs
for two lawsuits. |
Nordstrom, Inc. and subsidiaries 13
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and
accessories for women, men and children. We offer
a wide selection of brand name and private label merchandise. We offer our products through
multiple retail channels including our Full-Line Nordstrom stores, our discount Nordstrom Rack
stores, our Façonnable boutiques, our catalogs and on the Internet at www.nordstrom.com.
Our stores are located throughout the United States and we have 36 Façonnable boutiques located in
France, Portugal, and Belgium. In addition,
we offer our customers a variety of payment products and services including our loyalty program.
STRATEGIC INITIATIVES
We believe we are well positioned to grow the value of our business by executing our strategy
through the following key initiatives: enhancing our merchandise offering within our existing
product categories, improving the shopping experience for our customers across all channels, and
continuing to increase our presence where our customers shop.
Merchandise Strategies
Weve found that theres a great deal of opportunity to grow our sales in existing stores simply by
earning a greater share of our customers business across multiple product categories. Our new
systems and merchandising disciplines have helped us begin to take advantage of opportunities for
increased sales by enhancing our ability to keep inventories fresh and turn them more rapidly.
Customers are responding favorably to newness across all merchandise categories, leading to
meaningful gains in areas such as mens apparel, accessories, womens and kids shoes and cosmetics
throughout 2006. A consistently strong performer in 2006 was our designer category, including
apparel, shoes and accessories merchandise. We are continuing to expand our offering of designer
merchandise.
Multi-Channel Shopping Experience
Our future success continues to depend upon our ability to provide our customers with a superior
and fully integrated shopping experience. As a multi-channel retailer, we are uniquely positioned
to respond to evolving customer needs and expectations. The necessary resources have been committed
and critical projects are underway in this effort. We are installing a new inventory system, and we
are expanding both our fulfillment and call centers in Cedar Rapids, Iowa.
Our online store is essential to creating relationships with many of our most active and loyal
customers. Many customers who start shopping with us online migrate to our stores. By giving
customers a more similar shopping experience in-store and online, were making progress to become
more relevant to todays shoppers.
Increase Our Presence
Given the industry consolidation impacting many of our competitors, we see potential to gain market
share and grow our business by increasing our presence where our customers live. Fortunately, we
are in an advantageous position to reach new customers through building stores and enhancing our
current ones. Weve recently launched a $2.8 billion capital plan, with 80% of the dollars
allocated to customer-facing investments, primarily new stores, remodels and relocations.
We will continue with a disciplined approach to real estate acquisitions, adding new stores when
and where they pass our criteria. Our current strategy calls for a 4% to 5% increase in square
footage growth through 2011 with 26 new or relocated stores announced through 2011.
OVERVIEW
For the first time in our history, our earnings before income tax expense exceeded $1 billion in
2006. This result was driven primarily by
the combination of continued sales growth, gross profit rate expansion and leverage of selling,
general and administrative expenses.
Key highlights include:
|
|
|
We achieved positive same-store sales growth for the fifth year in a row.
Same-store sales increased 7.5% on top of our 6.0% increase in 2005 and our 8.5% increase
in 2004. |
|
|
|
|
Our gross profit rate increased 75 basis points primarily due to merchandise
margin expansion. |
|
|
|
|
With the sales growth mentioned above, we leveraged our overhead costs,
resulting in a 37 basis point improvement in our selling, general and administrative
expense rate. |
|
|
|
|
Full year earnings per diluted share increased 28.8% over last year to $2.55. |
Like many other retailers, Nordstrom follows the retail 4-5-4 reporting calendar, which included an
extra week in fiscal 2006 (the 53rd week).
The 53rd week is not included in same-store sales calculations.
14
RESULTS OF OPERATIONS
Net Sales (Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Net sales |
|
|
$8,560.7 |
|
|
|
$7,722.9 |
|
|
|
$7,131.4 |
|
Net sales increase |
|
|
10.8% |
|
|
|
8.3% |
|
|
|
10.6% |
|
Same-store sales increase |
|
|
7.5% |
|
|
|
6.0% |
|
|
|
8.5% |
|
Percentage of net sales
by merchandise category: |
|
|
|
|
|
|
|
|
|
|
|
|
Womens apparel |
|
|
35% |
|
|
|
35% |
|
|
|
36% |
|
Shoes |
|
|
20% |
|
|
|
21% |
|
|
|
20% |
|
Mens apparel |
|
|
18% |
|
|
|
18% |
|
|
|
18% |
|
Cosmetics |
|
|
11% |
|
|
|
11% |
|
|
|
11% |
|
Womens accessories |
|
|
10% |
|
|
|
9% |
|
|
|
9% |
|
Childrens apparel |
|
|
3% |
|
|
|
3% |
|
|
|
3% |
|
Other |
|
|
3% |
|
|
|
3% |
|
|
|
3% |
|
|
2006 VS 2005 NET SALES
All of our Full-Line store regions and most of our Full-Line store merchandise categories had
same-store sales increases. Our Full-Line stores had a 5.9% same-store sales increase, ahead of
last years result of 5.4%. Some other retailers who combine an offering of high-end merchandise
and customer service continued to experience positive sales growth in 2006. Our largest same-store
sales increases came from our accessories, cosmetics and mens apparel merchandise categories.
Womens apparel experienced same-store sales decreases in the first half of the year, but had
same-store sales increases in the second half, resulting in a low single digit increase for the
full year. The designer category, which benefited from additional investment because it is an
important component of our merchandise strategy, had a double-digit same-store sales increase.
Our Rack same-store sales increased 10.9% in 2006, on top of last years 14.8% increase. Rack
purchases the majority of its merchandise from third-parties and serves as a clearance channel for our Full-Line stores. The sales growth came
from all regions and merchandise categories.
Our online store sales drove Nordstrom Directs 2006 total net sales increase of 23.0%. Our online
sales benefited from the overall Internet marketplace expansion, driven by the continued adoption
of higher-speed Internet connections which allow for convenient and efficient shopping, as well as utilization of the Internet as a tool for research and information before making a
purchase decision. Catalog sales experienced an overall decline because we reduced our catalog
mailings beginning in the middle of 2005.
Total net sales increased 10.8% as a result of our same-store sales increases as well as from the
five Full-Line stores and one Rack store opened since February 2005. We also relocated one
Full-Line store and expanded one Rack store, which contributed to our
increase in total net sales.
In the 53rd week, we had sales of $117.7. Sales for the 53rd week represented
1.5% of the total percentage increase versus the prior year.
2005 VS 2004 NET SALES
In our Full-Line stores, our accessories, cosmetics and mens apparel merchandise categories
experienced the largest same-store sales increases.
Our shoes division had same-store sales increases. Our womens apparel merchandise category had
mixed same-store sales performance; womens intimate, junior and contemporary apparel were the
leaders in the womens category, while womens special sizes, better and bridge apparel had
same-store sales decreases in 2005.
Our Rack same-store sales increased 14.8% in 2005, on top of an increase of 13.2% in 2004. Our
sales increase was driven by the Racks merchandise mix, especially our ability to offer customers
branded merchandise.
Nordstrom Directs 2005 sales, including shipping revenue, increased by 1.1%. Online store sales
had a double-digit increase. In February 2005, we reduced our shipping fees, which drove additional
online sales but reduced our overall shipping revenue. As part of the multi-channel strategy (see
page 6), we reduced our Direct catalog mailings significantly beginning in July 2005 and we shifted
the merchandise offering to be more aligned with the Full-Line stores. The decrease in the number
of Direct catalog mailings, along with a continuing shift of catalog customers to our online store,
resulted in a drop in catalog sales in 2005.
Total net sales also increased as a result of our same-store sales increases as well as from the
six Full-Line stores opened since February 2004.
2007 FORECAST OF SAME-STORE SALES
In 2007, we plan to open three Full-Line stores and one Rack store, increasing retail square
footage by approximately 2.4%. We are assuming low single digit same-store sales growth in our
Full-Line and Rack stores, with a higher growth rate for Nordstrom Direct. In total, we expect 2007
same-store sales to increase 3% to 4%.
Nordstrom, Inc. and subsidiaries 15
Gross Profit (Dollars in Millions Except Per Square Foot Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Gross profit |
|
|
$3,206.7 |
|
|
|
$2,834.8 |
|
|
|
$2,572.0 |
|
Gross profit rate |
|
|
37.5% |
|
|
|
36.7% |
|
|
|
36.1% |
|
Average inventory per square foot |
|
|
$52.37 |
|
|
|
$51.25 |
|
|
|
$52.46 |
|
Inventory turnover rate* |
|
|
5.06 |
|
|
|
4.84 |
|
|
|
4.51 |
|
|
* Inventory turnover rate calculated as 5-quarter average inventory divided by annual cost of
sales.
2006 VS 2005 GROSS PROFIT
Our gross profit rate improved 75 basis points, driven primarily by expansion of our merchandise
margin rate. All major merchandise categories contributed to this rate expansion, in part due to an
increase of regular price merchandise sales. Our womens apparel category experienced significant
rate expansion in the second half of the year due to strategy changes that brought a sharper focus
to our merchandise offering.
For the first time, this year our buying and occupancy costs included expenses related to stock
options awarded primarily to our merchant and product development groups. These costs were $11.9
and impacted our gross profit rate by 14 basis points. Despite this
additional expense, we leveraged our buying and occupancy costs on sales growth.
Sales growth and continued inventory discipline resulted in improvement in our inventory turnover
rate, which increased 4.5%.
2005 VS 2004 GROSS PROFIT
While we showed growth in our same-store sales in 2005, we held buying and occupancy costs
relatively consistent with 2004. In addition,
our merchandise costs increased in-line with our sales increases. As a result, we drove a gross
profit rate improvement of 60 basis points.
Our inventory turnover rate improved 7.3% in 2005, indicating that our merchandise planning and
execution have continued to improve.
2007 FORECAST OF GROSS PROFIT
In 2007, if we achieve our planned same-store sales growth, we expect a net 30 to 40 basis point
improvement in our gross profit rate from continued sales leverage on buying and occupancy costs
along with improved merchandise margin.
Selling, General and Administrative Expenses (Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Selling, general and administrative expenses |
|
|
$2,296.9 |
|
|
|
$2,100.7 |
|
|
|
$2,020.2 |
|
Selling, general and administrative rate |
|
|
26.8% |
|
|
|
27.2% |
|
|
|
28.3% |
|
|
2006 VS 2005 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
We expect our selling, general and administrative rate to decrease when sales increase as we gain
leverage on our fixed overhead costs. This rate decreased in 2006, but the decrease was less than
the 2005 improvement. In 2005, our selling, general, and administrative rate was reduced by 24
basis points for favorable developments in our workers compensation reserve. In 2006, our selling,
general and administrative rate was unfavorably impacted by 20 basis points for new stock option
expenses from the adoption of Statement No. 123(R),
Share-Based Payment (SFAS 123(R)).
2005 VS 2004 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The primary component of our selling, general and administrative expenses that varies with our
same-store sales is our selling costs. Most of our other expenses do not fluctuate with changes in
our same-store sales. In 2005, as our same-store sales increased 6.0%, our general and
administrative expenses were essentially in-line with 2004 and we benefited from a favorable
adjustment to our workers compensation reserve. These factors combined to give us a 110 basis
point decrease in our selling, general and administrative rate.
2007 FORECAST OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In 2007, our selling, general and administrative rate is expected to increase by 5 to 15 basis
points due to the impact of an upcoming securitization transaction (see Off-Balance Sheet Financing
on page 21) and incremental new store pre-opening costs (see Investing Activities on page 20).
These two factors, which are expected to increase our selling, general and administrative expenses
by $37 to $47, or 45 to 55 basis points, will offset the expected 35 to 45 basis points of rate
improvement from additional sales leverage on fixed overhead costs.
16
Interest Expense, Net (Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Interest expense, net |
|
|
$42.8 |
|
|
|
$45.3 |
|
|
|
$77.4 |
|
|
2006 VS 2005 INTEREST EXPENSE, NET
Interest expense, net decreased $2.5 in 2006 compared to 2005. The decrease is primarily due to
increased interest income from higher average cash investment balances.
2005 VS 2004 INTEREST EXPENSE, NET
Interest expense, net decreased $32.1 in 2005 compared to 2004. The decrease is primarily due to
debt prepayment costs of $20.9 incurred in 2004 in connection with a $198.2 debt buyback. We did
not incur similar costs in 2005.
2007 FORECAST OF INTEREST EXPENSE, NET
We expect interest expense, net to be flat in 2007 due to the upcoming securitization transaction
(see Off-Balance Sheet Financing on page 21).
Other Income Including Finance Charges, Net (Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Other income including finance charges, net |
|
|
$238.5 |
|
|
|
$196.4 |
|
|
|
$172.9 |
|
Other income including finance charges,
net as a
percentage of net sales |
|
|
2.8% |
|
|
|
2.5% |
|
|
|
2.4% |
|
|
2006 VS 2005 OTHER INCOME INCLUDING FINANCE CHARGES, NET
Other income including finance charges, net increased $42.2, primarily due to growth in the
co-branded VISA credit card program. The principal balances of receivables in the VISA credit card,
which are held by a separate trust in which we hold a certificated interest, increased 22.9% during
2006.
The receivables growth increase produces an increase in the trusts earnings and our income.
In addition, income from finance charges on our private label card has increased due to program
growth.
In July 2006, we received $5.6 of proceeds from the VISA Check/Master Money Antitrust Litigation.
These proceeds were recorded as a gain in the second quarter of 2006 in other income including
finance charges, net.
2005 VS 2004 OTHER INCOME INCLUDING FINANCE CHARGES, NET
Other income including finance charges, net increased $23.4, due to earnings growth in the
Nordstrom fsb co-branded VISA credit card program and our gift card breakage income of $8.0. The
principal balances of receivables in the VISA credit card, which are held by a separate trust in
which we hold a certificated interest, increased 20.6% during 2005.
Gift card breakage income was a new component of income in 2005. Unclaimed property legislation
changed in 2004 to allow us to retain unused balances on gift cards. We analyzed the experience of
our program since it was introduced in 1999, and we determined that balances remaining on cards
issued five years ago are unlikely to be redeemed. The breakage income recognized in 2005 includes
$2.6 and $5.4 for cards issued in 1999 and 2000. Breakage income is approximately 3.5% of the
amount of initially issued gift cards.
2007 FORECAST OF OTHER INCOME INCLUDING FINANCE CHARGES, NET
In 2007, other income including finance charges, net is expected to increase approximately $25.0 to
$35.0. The co-branded VISA receivables will be recorded on the balance sheet initially at fair
value with no allowance for credit losses. Normal write-offs for uncollectible VISA receivables,
estimated at $19 along with other costs net at $4, will be recorded in other income including
finance charges, net over the eight month period following the transaction.
Nordstrom, Inc. and subsidiaries 17
Income Tax Expense (Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Income tax expense |
|
|
$427.7 |
|
|
|
$333.9 |
|
|
|
$253.8 |
|
Effective tax rate |
|
|
38.7% |
|
|
|
37.7% |
|
|
|
39.2% |
|
|
2006 VS 2005 INCOME TAX EXPENSE
Our expected effective tax rate, considering the federal tax rate of 35.0% and the net effect of
state income taxes, is 38.5%. Our actual effective tax rate was slightly higher than our expected
rate because our estimates of the taxes due for prior years increased based on recent developments.
2005 VS 2004 INCOME TAX EXPENSE
In 2005, our actual effective tax rate was below our expected 38.5% because our 2004 tax expense,
which was finalized in the third quarter of 2005, was less than we planned; we reduced our reserve
when the audits of our 2000 and 2001 federal tax returns were completed; and, we utilized a larger
than previously estimated amount of our capital loss carryforward.
2007 FORECAST OF INCOME TAX EXPENSE
In 2007, we expect our effective tax rate to be 38.5%.
Net Earnings and Earnings per Diluted Share (Dollars in Millions Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Net earnings |
|
|
$678.0 |
|
|
|
$551.3 |
|
|
|
$393.5 |
|
Net earnings as a percentage of net sales |
|
|
7.9% |
|
|
|
7.1% |
|
|
|
5.5% |
|
Earnings per diluted share |
|
|
$2.55 |
|
|
|
$1.98 |
|
|
|
$1.38 |
|
|
2006 VS 2005 NET EARNINGS AND EARNINGS PER DILUTED SHARE
Our 7.5% same-store sales increase combined with gross profit rate improvement and sales leverage
on selling, general and administrative expenses drove net earnings of $678.0 and earnings per
diluted share of $2.55. During the year, we repurchased 16.5 million shares of our common stock,
favorably impacting earnings per diluted share by $0.10. The 53rd week contributed $0.02
to earnings per diluted share.
2005 VS 2004 NET EARNINGS AND EARNINGS PER DILUTED SHARE
In 2005, net earnings increased 40.1% and earnings per diluted share increased 43.5% as a result of
our same-store sales growth and sales leverage on buying and occupancy and general and
administrative expenses. In 2004, we incurred prepayment costs and wrote off deferred debt costs
totaling $20.9, or $0.05 per diluted share, upon prepayment of $198.2 of long-term debt. We did not
incur similar costs in 2005.
2007 FORECAST OF EARNINGS PER DILUTED SHARE
We expect our earnings per diluted share to be in the range of $2.78 to $2.84 in 2007. The
securitization transaction is expected to impact earnings per diluted share by $0.05 and the
incremental pre-opening costs for new stores are expected to impact earnings per diluted share by
$0.03.
Fourth Quarter Results (Dollars in Millions)
Net earnings for the fourth quarter of 2006 were $232.3 compared with $190.4 in 2005. Total sales
for the quarter increased 14.6% to $2,630.9 and same-store sales increased by 8.3%. Sales in the
53rd week of $117.7 represented 5.1% of the total percentage increase versus the prior
year. Strong regular price sales across all major merchandise categories throughout the quarter and
a successful holiday season resulted in same-store sales growth above our overall sales plan. Our
designer apparel, accessories, mens apparel, and cosmetics merchandise categories experienced the
largest same-store sales increases. As it did in the third quarter, our womens apparel category
had a mid-single digit increase.
Our gross profit rate increased to 38.3% from 37.5% last year. Merchandise margin improved versus
the prior year, driven mainly by lower markdowns and higher sell-through of inventory, especially
in womens apparel.
Our selling, general and administrative rate improved 20 basis points from 26.2% to 26.0%. Overall,
expenses during the fourth quarter trended in line with the improved performance in sales and gross
profit compared to last year. Performance-based incentive compensation costs driven by goals for
total year results and share price appreciation accelerated above plan, as fiscal 2006 sales, gross
profit, and earnings before income tax expense results exceeded our plan.
18
Return on Invested Capital (ROIC) (Non-GAAP financial measure) (Dollars in Millions)
In the past two years, we have incorporated Return on Invested Capital (ROIC) into our key
financial metrics, and since 2005 have used it as an executive incentive measure. Overall
performance as measured by ROIC correlates directly to shareholders return over the long-term. For
the 12 fiscal months ended February 3, 2007, we improved our ROIC to 20.9% compared to 16.9% for
the 12 months ended January 28, 2006. Our ROIC improved primarily from increased earnings before
interest and taxes. See our GAAP ROIC reconciliation below. The closest GAAP measure is return on
assets, which improved to 14.0% from 11.5% for the last 12 months ended February 3, 2007 compared
to the 12 months ended January 28, 2006.
We define ROIC as follows:
|
|
|
ROIC =
|
|
Net Operating Profit after Taxes (NOPAT) |
|
|
|
|
|
Average Invested Capital |
|
|
|
Numerator = NOPAT
|
|
Denominator = Average Invested Capital |
Net earnings
|
|
Average total assets |
+ Income tax expense
|
|
- average non-interest-bearing current liabilities |
+ Interest expense, net
|
|
- average deferred property incentives |
|
|
|
= EBIT
|
|
+ average estimated asset base of capitalized operating leases |
|
|
|
+ Rent expense
|
|
= Average invested capital |
|
|
|
- Estimated depreciation on capitalized
operating leases |
|
|
|
|
|
= Net operating profit |
|
|
- Estimated income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 fiscal months ended |
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Net earnings |
|
|
$678.0 |
|
|
|
$551.3 |
|
Add: income tax expense |
|
|
427.7 |
|
|
|
333.9 |
|
Add: interest expense, net |
|
|
42.7 |
|
|
|
45.3 |
|
|
Earnings before interest and income tax expense |
|
|
1,148.4 |
|
|
|
930.5 |
|
|
|
|
|
|
|
|
|
|
Add: rent expense |
|
|
47.6 |
|
|
|
41.5 |
|
Less: estimated depreciation on capitalized
operating leases1 |
|
|
(25.4 |
) |
|
|
(22.1 |
) |
|
Net operating profit |
|
|
1,170.6 |
|
|
|
949.9 |
|
|
|
|
|
|
|
|
|
|
Estimated income tax expense |
|
|
(452.4 |
) |
|
|
(358.7 |
) |
|
Net operating profit after taxes |
|
|
$718.2 |
|
|
|
$591.2 |
|
|
|
|
|
|
|
|
|
|
Average total assets2 |
|
|
$4,854.1 |
|
|
|
$4,800.7 |
|
Less: average non-interest-bearing current liabilities3 |
|
|
(1,424.0 |
) |
|
|
(1,320.6 |
) |
Less: average deferred property incentives2 |
|
|
(357.9 |
) |
|
|
(364.5 |
) |
Add: average estimated asset base of capitalized
operating leases4 |
|
|
361.6 |
|
|
|
384.7 |
|
|
Average invested capital |
|
|
$3,433.8 |
|
|
|
$3,500.3 |
|
|
|
|
|
|
|
|
|
|
|
Return on assets |
|
|
14.0% |
|
|
|
11.5% |
|
ROIC |
|
|
20.9% |
|
|
|
16.9% |
|
|
1 Depreciation based upon estimated asset base of capitalized operating leases as
described in Note 4 below.
2 Based upon the trailing 12-month average.
3 Based upon the trailing 12-month average for accounts payable, accrued
salaries, wages and related benefits, other current liabilities and income taxes payable.
4 Based upon the trailing 12-month average of the monthly asset base which is
calculated as the trailing 12 months rent expense multiplied by 8.
Nordstrom, Inc. and subsidiaries 19
LIQUIDITY AND CAPITAL RESOURCES (Dollars in Millions)
Overall, cash decreased by $60.1 to $402.6 as of February 3, 2007. Over the course of the year, we
sold $350.0 of our interest in the co-branded VISA receivables primarily to retire $300.0 of debt,
and we repurchased $621.5 worth of stock. Our strong cash flow and low debt levels place us in a
position of flexibility to support our value growth plan.
Operating Activities (Dollars in Millions)
2006 VS 2005 OPERATING ACTIVITIES
Net cash flow from operating activities increased from $776.2 to $1,142.4, an increase of $366.2
primarily because we reduced our investment in asset backed securities by $350.0 to fund the
repayment of $300.0 of private label securitization debt. Also, we were successful in expanding our
private label charge card and co-branded Nordstrom VISA credit card programs, which increased our
investment in these programs but provided increased earnings.
2005 VS 2004 OPERATING ACTIVITIES
Net cash flow from operating activities increased from $606.3 to $776.2, an increase of $169.9
primarily due to the growth in our net earnings. Our co-branded VISA credit card program continued
to grow in 2005 as we increased the capital we allocate to fund this program. Under our co-branded
VISA program, we earn interchange and finance charge income and we offer card holders merchandise
certificates, which can be redeemed in our stores, similar to a gift certificate.
In the course of negotiating for store locations, some developers offer up-front cash payments to
defray our capital expenditures in exchange for our commitment to operate a store in their
development. In 2005, we received incentives totaling $49.5, which is an increase of $29.6 over
2004. Property incentive receipts vary year to year, depending on the number of our store openings
and remodels and the arrangements we negotiate with developers.
2007 FORECAST FOR OPERATING ACTIVITIES
In 2007, we will move the co-branded VISA receivables onto our balance sheet as part of the
securitization transition (see Off-Balance Sheet Financing on page 21). We expect operating cash
flows to decrease due to this change and receivable growth. Increased net earnings are expected to
partially offset this decrease.
Investing Activities (Dollars in Millions)
In the past three years, we have had two principal types of investing activities: capital
expenditures and short-term investments.
CAPITAL EXPENDITURES
Our annual capital expenditures ranged from $246.9 to $271.7 between 2004 and 2006. The largest
components of these expenditures were for new or relocated stores and store remodels.
In 2006 we opened one Full-Line store at The Gardens Mall in Palm Beach Gardens, Florida, we
relocated our Topanga store in Canoga Park, California and we opened one Rack store at Grand Plaza
in San Marcos, California. Together these openings increased our gross square footage approximately
1.2%. Our total square footage as of February 3, 2007 was 20.2 million. In 2006, 35% of our capital
expenditures were for new or relocated stores, 32% were for major remodels and 7% were for minor
remodels. In addition, 13% of our capital expenditures were for information technology and 13% were
for other projects.
Our capital expenditures over the last three years totaled $782.9. These capital expenditures were
offset by property incentives of $100.0. With these capital expenditures, we added stores, enhanced
existing facilities and improved our information systems. More than 1.0 million square feet of
retail store space have been added during this period, representing an increase of 5.4% since
January 31, 2004.
We expect that our capital expenditures will be approximately $2,800.0 over the next five years,
with $520.0 to $540.0 planned for 2007. We plan to use 52% of this investment to build new stores,
27% on remodels, 9% on information technology and 12% for minor remodels and other projects.
Compared to the previous five years, capital expenditures will increase 138%, with increased
spending allocated to new stores. Our current strategy calls for a 4% to 5% annual increase in
square footage growth, with 26 new or relocated stores announced through 2011; over half of these
stores will be in our Northeast and Midwest regions. The estimated capital project spending does
not include potential investments in new stores resulting from the current industry consolidation.
We believe we have the capacity to address additional capital investments should opportunities
arise.
In the second half of 2007, we expect to open three new Full-Line stores and one Rack store, and in
the first quarter of 2008, we expect to open four new Full-Line stores. We typically incur the
majority of our pre-opening costs in the six months prior to opening. In 2007, new store
pre-opening costs, which will be recorded in selling, general and administrative expenses, are
expected to impact our earnings per diluted share by $0.03.
As of February 3, 2007, we were contractually committed to spend $32.2 for constructing new stores,
remodeling existing stores, and other capital projects.
SHORT-TERM INVESTMENTS
In 2006, we sold our short-term investments and primarily used the proceeds for common stock
repurchases.
20
Financing Activities (Dollars in Millions)
Over the past three years, our net operating cash inflows have exceeded our net investing cash
outflows, and we used this excess cash flow to repay long-term debt, pay dividends, and to
repurchase our common stock. Over this three-year period, the price of our common stock has
increased, which spurred stock option exercises that also increased our net cash.
DEBT RETIREMENT
The following table outlines our debt retirement activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Principal repaid or retired: |
|
|
|
|
|
|
|
|
|
|
|
|
Private Label Securitization, 4.82%, due 2006 |
|
|
$300.0 |
|
|
|
|
|
|
|
|
|
Senior notes, 8.95%, due 2005 |
|
|
|
|
|
|
|
|
|
|
$196.8 |
|
Notes payable, 6.7%, due 2005 |
|
|
|
|
|
|
$96.0 |
|
|
|
$1.5 |
|
|
Total |
|
|
$300.0 |
|
|
|
$96.0 |
|
|
|
$198.3 |
|
|
|
Total cash payment |
|
|
$300.0 |
|
|
|
$96.0 |
|
|
|
$220.1 |
|
|
We retired
the $300.0, 4.82% Private Label Securitization debt when it matured in October 2006.
We repaid the remaining $96.0 of our 6.7% medium-term notes when they matured in 2005. The cash
payments in 2004 that exceeded the principal retired represent early prepayment premiums.
SHARE REPURCHASE
In August 2004, our Board of Directors authorized $300.0 of share repurchases, replacing a previous
share repurchase authorization. By the end of 2004, we purchased 13.8 million shares in the open
market for the entire authorized amount of $300.0 at an average price of $21.71 per share.
In February 2005, our Board of Directors authorized an additional $500.0 of share repurchases.
Overall for 2005, we purchased 8.5 million shares for $287.1 at an average price of $33.80 per
share. We utilized the remaining authorization of $212.9 in February and March of 2006, purchasing
5.4 million shares at an average price of $39.27 per share.
Our Board of Directors authorized an additional $1,000.0 of share repurchases in May 2006. During
the remainder of the year we repurchased 11.1 million shares for $408.6 at an average price of
$36.74. As of February 3, 2007 the unused authorization was $591.4. The actual amount and timing of
future share repurchases will be subject to market conditions and applicable SEC rules.
Debt-to-Capital Ratio
Our recent favorable operating results increased our shareholders equity and allowed us to reduce
our long-term debt, which contributed to a decrease in our debt-to-capital ratio from 36.5% at the
end of 2004 to 22.5% at the end of 2006. In the third quarter of 2006, we repaid $300.0 of
long-term debt by selling a portion of our interest in the co-branded Nordstrom VISA receivable
trust. This arrangement put us below our target debt-to-capital range of 25% to 40%. In the first
quarter of 2007, we will be increasing our debt and asset levels as a result of a new co-branded
Nordstrom VISA securitization transaction. Both the co-branded Nordstrom VISA receivables and the
debt backed by those receivables will be recorded on our balance sheet. In anticipation of this new
securitization structure, we are adjusting our target debt-to-capital ratio range to 30% to 45%
going forward.
Off-Balance Sheet Financing (Dollars in Millions)
Through our wholly owned federal savings bank, Nordstrom fsb, we offer a private label charge card
and two co-branded Nordstrom VISA credit cards. The private label charge card receivables are held
in a trust, which may issue third-party debt that is securitized by the private label receivables;
the private label program is treated as on-balance sheet, with the receivables, net of bad debt
allowance, and debt, if any, recorded on our balance sheet, the finance charge income recorded in
other income including finance charges, net, and the bad debt expense recorded in selling, general
and administrative expenses.
The co-branded Nordstrom VISA credit card receivables are held in a separate trust (the VISA
Trust), which may issue third-party debt that is securitized by the co-branded Nordstrom VISA
credit card receivables. The co-branded Nordstrom VISA credit card program is treated as
off-balance sheet. We record the fair value of our interest in the VISA Trust on our balance
sheet, gains on the sale of receivables to the VISA Trust and our share of the VISA Trusts finance
income in other income including finance charges, net. As of February 3, 2007, the VISA Trust had
co-branded Nordstrom VISA credit card receivables with a total face amount of $908.0 and had
outstanding two series of notes held by third-parties: $200.0 of 2002 Class A&B notes that mature
in April 2007, and $350.0 of 2004-2 variable funding notes that may be renewed in August 2007. In
fiscal 2006, the co-branded Nordstrom VISA credit card receivables had an average gross yield of
16.8% and average annual credit losses of 2.8%. The weighted average interest rate on the
third-party notes was 5.3%.
Following the repayment of the VISA Trusts $200.0 notes in April 2007, we plan to merge the
private label charge card and co-branded VISA programs into one securitization program. The
advantage of a combined program is that it will provide us with greater borrowing flexibility as we
will be able to borrow funds based on the outstanding balance of the combined receivables, it will lower
our administrative costs, and will give us one method of accounting for these similar programs
on-balance sheet.
When we combine these programs, we plan to also increase our borrowing against these combined
receivables to a range of $800.0 to $900.0.
Nordstrom, Inc. and subsidiaries 21
In the first quarter, the VISA Trust requires that cash receipts be used to establish a pre-funding
account to repay the 2002 A&B Notes; this pre-funding balance reduces the overall yield in the VISA Trust, which is expected to reduce
our earnings by $7.0.
After we combine the securitization programs in April 2007, our investment in the VISA Trust will
be reclassified from available-for-sale securities to receivables, at fair value with no allowance
for credit losses. Based on past payment patterns, these receivables will be repaid within eight
months. During that time, we expect to record incremental bad debt write-offs and certain finance
charge income as an adjustment to the fair value of the receivables acquired, reducing the yield of
these receivables; these costs are expected to be $16.0 and will be recorded over the eight month
repayment period. Following the recognition of the $7.0 yield reduction in the first quarter and
the $16.0 of other adjustments through the remainder of 2007, the private label charge card
receivables and the co-branded VISA credit card receivables will be recorded at historical cost,
net of bad debt allowances, on our balance sheet.
As card holders continue to use their co-branded VISA credit cards, new receivables will be
recorded. Those new receivables will be recorded at historical cost; as those receivables age, we
will establish an allowance for bad debts based on historical write-off experience. We expect to
record $25.0 to $35.0 of bad debt provision in selling, general and administrative expenses from
these new receivables. The classification of this expense is different because these receivables
are on-balance sheet, in the past, the write-off experience was considered in our investment
yield and reflected in other income including finance charges, net. We do not expect the co-branded
VISA credit card receivable write-off experience to be impacted by the transition in the accounting
treatment, only the classification of this expense will change.
As noted above, all debt issued by the combined trust will be recorded on our balance sheet, so the
related interest expense will be recorded in interest expense, net. Currently, the interest expense
of the debt issued by the VISA Trust reduces our overall yield from our investment and is
recognized in other income including finance charges, net.
With the bad debt and interest expense impacts shifting out of other income including finance
charges, net, we expect our other income line item on our earnings statement to increase by $45.0
to $55.0.
We expect our earnings before income tax expense to be reduced by $23.0, or $0.05 per diluted
share, for the transition from fair value to historical cost. The other earnings statement
classification changes associated with the accounting treatment for the combined securitization
program are not expected to impact our earnings before income tax expense. In the future, our ROIC
rate will be reduced because we will recognize additional invested capital from the securitization
program transition.
Interest Rate Swaps (Dollars in Millions)
To manage our interest rate risk, we entered into an interest rate swap agreement in 2003, which
had a $250.0 notional amount expiring in January 2009. Under the agreement, we receive a fixed rate
of 5.63% and pay a variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals
(7.70% at February 3, 2007). The interest rate swap agreement had a fair value of $(8.9) and
$(11.1) at the end of 2006 and 2005.
Contractual Obligations (Dollars in Millions)
The following table summarizes our contractual obligations and the expected effect on our liquidity
and cash flows as of February 3, 2007. We expect to fund these commitments primarily with operating
cash flows generated in the normal course of business and credit available to us under existing and
potential future facilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
Long-term debt |
|
|
$630.9 |
|
|
|
$5.9 |
|
|
|
$262.3 |
|
|
|
$9.9 |
|
|
|
$352.8 |
|
Capital lease obligations |
|
|
13.5 |
|
|
|
1.9 |
|
|
|
3.3 |
|
|
|
2.4 |
|
|
|
5.9 |
|
Other long-term liabilities |
|
|
222.3 |
|
|
|
30.8 |
|
|
|
40.3 |
|
|
|
20.2 |
|
|
|
131.0 |
|
Operating leases |
|
|
650.2 |
|
|
|
78.0 |
|
|
|
148.1 |
|
|
|
130.5 |
|
|
|
293.6 |
|
Purchase obligations |
|
|
1,070.0 |
|
|
|
1,056.1 |
|
|
|
12.7 |
|
|
|
1.0 |
|
|
|
0.2 |
|
|
Total |
|
|
$2,586.9 |
|
|
|
$1,172.7 |
|
|
|
$466.7 |
|
|
|
$164.0 |
|
|
|
$783.5 |
|
|
In addition to the required debt repayments disclosed above, we estimate total interest
payments of approximately $512.6 as of February 3, 2007, payable over the remaining life of the
debts.
Other long-term liabilities consist of workers compensation and general liability insurance
reserves and postretirement benefits. The repayment amounts presented above were determined based
on historical payment trends. Other long-term liabilities not requiring cash payments, such as
deferred property incentives, were excluded from the table above.
Purchase obligations primarily consist of purchase orders for unreceived goods or services and
capital expenditure commitments.
This table also excludes the short-term liabilities, other than the current portion of long-term
debt, disclosed on our 2006 balance sheet, as the amounts recorded for these items will be paid in
the next year.
Long-term debt excludes debt issued by the VISA Trust, including $200.0 off-balance sheet
receivable backed securities due in April 2007 and $350.0 variable funding note that can be renewed
in August 2007.
22
Credit Capacity and Commitments (Dollars in Millions)
The following table summarizes our amount of commitment expiration per period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts |
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Committed |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
Other commercial commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$600.0 variable funding note |
|
|
$350.0 |
|
|
|
$350.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$500.0 unsecured line of credit,
none outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Import letters of credit |
|
|
9.8 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$359.8 |
|
|
|
$359.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June and October 2006, we amended our existing variable funding facility backed by
Nordstrom private label card and VISA credit card receivables to increase the capacity of this
facility to $600.0. Borrowings under the facility will incur interest based upon the actual cost of
commercial paper plus specified fees ranging from 0.075% to 0.15%. As of February 3, 2007, the
facilitys interest rate was 5.42%. We pay a commitment fee ranging from 0.125% to 0.15% for the
note based on the amount of the commitment. Fee rates decrease if more than $50,000 is outstanding
on the facility. The facility can be cancelled or not renewed if our debt ratings fall below
Standard and Poors BB+ rating or Moodys Ba1 rating.
In November 2005, we replaced our existing $350.0 unsecured line of credit with a $500.0 unsecured
line of credit, which is available as liquidity support for our commercial paper program. Under the
terms of the agreement, we pay a variable rate of interest and a commitment fee based on our debt
rating. Based upon our current debt rating, we pay a variable rate of interest of LIBOR plus a
margin of 0.225% (5.62% at February 3, 2007) on the outstanding balance and an annual commitment
fee of 0.075% on the total capacity. The variable rate of interest increases to LIBOR plus a margin
of 0.325% if more than $250.0 is outstanding on the facility. The line of credit expires in
November 2010, and contains restrictive covenants, which include maintaining a leverage ratio. We
did not make any borrowings under this unsecured line of credit during the last three fiscal
years.
We also have universal shelf registrations on file with the Securities and Exchange Commission that
permit us to offer an additional $450.0 of securities to the public. These registration statements allow us to issue various types of
securities, including debt, common stock, warrants to purchase common stock, warrants to purchase
debt securities and warrants to purchase or sell foreign currency.
Debt Ratings
The following table shows our credit ratings at the date of this report:
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|
|
|
|
|
|
Standard |
|
Credit Ratings |
|
Moodys |
|
|
and Poors |
|
|
Senior unsecured debt |
|
Baa1 |
|
|
|
A |
|
Commercial paper |
|
P-2 |
|
|
|
A-1 |
|
Outlook |
|
Positive |
|
|
|
Stable |
|
|
These ratings could change depending on our performance and other factors. Our outstanding
debt is not subject to termination or interest rate adjustments based on changes in our credit
ratings.
Dividends
In February 2007 we declared a quarterly dividend of $0.135 per share, increased from $0.105 per
share in the prior year.
In 2006, we paid dividends of $0.42 per share, the tenth consecutive year that our annual dividends
increased. We paid dividends of $0.32 and $0.24 in 2005 and 2004. In determining the amount of
dividends to pay, we analyze our dividend payout ratio, dividend yield and balance the dividend
payment with our operating performance and capital resources. We target a dividend payout ratio of
approximately 18% to 20% of net income, although the ratio has been slightly lower the last two
years as a result of the significant increase in our net earnings. For the dividend yield, which is
calculated as our dividends per share divided by our stock price, we target a 1% long-term yield.
While we plan to increase dividends over time, we will balance future increases with our operating
performance and available capital resources.
Liquidity
We maintain a level of liquidity to allow us to cover our seasonal cash needs and to minimize our
need for short-term borrowings. We believe that our operating cash flows, existing cash and
available credit facilities are sufficient to finance our cash requirements for the next 12 months.
Over the long term, we manage our cash and capital structure to maximize shareholder return,
strengthen our financial position and maintain flexibility for future strategic initiatives. We
continuously assess our debt and leverage levels, capital expenditure requirements, principal debt
payments, dividend payouts, potential share repurchases and future investments or acquisitions. We
believe our operating cash flows, existing
cash and available credit facilities, as well as any potential future borrowing facilities, will be
sufficient to fund these scheduled future payments
and potential long term initiatives.
Nordstrom, Inc. and subsidiaries 23
In 2000, the company acquired Façonnable, S.A.S., a collection of high-quality mens, womens and
boys apparel and accessories. In February 2007, we announced that we are exploring strategic
options that would benefit both Nordstrom and Façonnable, including a possible sale of the brand.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires that we make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of
contingent assets and liabilities. We base our estimates on historical experience and on other
assumptions that we believe to be reasonable under the circumstances. Actual results may differ
from these estimates. The following discussion highlights the policies we feel are critical.
Off-Balance Sheet Financing
Our co-branded Nordstrom VISA credit card receivables are transferred to a third-party trust on a
daily basis. The balance of the receivables transferred to the trust fluctuates as new receivables
are generated and old receivables are retired (through payments received, charge-offs,
or credits from merchandise returns). The trust issues securities that are backed by the
receivables. Certain of these securities or beneficial interests are sold to third-party
investors and those remaining securities are issued to us.
We recognize gains or losses on the sale of the co-branded Nordstrom VISA receivables to the trust
based on the difference between the face value of the receivables sold and the estimated fair value
of the assets created in the securitization process. The fair value of the assets is calculated as
the present value of their expected cash flows. The discount rate used to calculate fair value
represents the volatility and risk of the assets. Assumptions and judgments are made to estimate
the fair value of our investment in asset backed securities. We have no other off-balance sheet
transactions.
Inventory
Our merchandise inventories are primarily stated at the lower of cost or market using the retail
inventory method (first-in, first-out basis). Under the retail method, the valuation of inventories
and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the
retail value of ending inventory. To determine if the retail value of our inventory should be
marked down, we consider current and anticipated demand, customer preferences, age of the
merchandise and fashion trends. As our inventory retail value is adjusted regularly to reflect
market conditions, our inventory is valued at the lower of cost or market.
We also reserve for obsolescence based on historical trends and specific identification. Shrinkage
is estimated as a percentage of net sales for the period from the most recent semi-annual inventory
count based on historical shrinkage results.
Revenue Recognition
We recognize revenues net of estimated returns and we exclude sales taxes. Our retail stores record
revenue at the point of sale. Our catalog and online sales include shipping revenue and are
recorded upon estimated delivery to the customer. As part of the normal sales cycle, we receive
customer merchandise returns. To recognize the financial impact of sales returns, we estimate the
amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize
historical return patterns to estimate our expected returns.
Vendor Allowances
We receive allowances from merchandise vendors for purchase price adjustments, cooperative
advertising programs, cosmetic selling expenses and vendor sponsored contests. Purchase price
adjustments are recorded as a reduction of cost of sales after an agreement with the vendor is
executed and the related merchandise has been sold. Allowances for cooperative advertising programs
and vendor sponsored contests are recorded in cost of sales and selling, general and administrative
expenses as a reduction to the related cost when incurred. Allowances for cosmetic selling expenses
are recorded in selling, general and administrative expenses as a reduction to the related cost
when incurred. Any allowances in excess of actual costs are recorded as a reduction to cost of
sales.
Self Insurance
We retain a portion of the risk for certain losses related to health and welfare, workers
compensation and general liability claims. Liabilities associated with these losses include
estimates of both losses reported and losses incurred but not yet reported. We estimate our
ultimate cost based on internal analysis of historical data and independent actuarial estimates.
Favorable trends in California caused a decrease in our workers compensation costs in 2005.
Allowance for Doubtful Accounts
Our allowance for doubtful accounts represents our best estimate of the losses inherent in our
private label credit card receivable as of the balance sheet date. We evaluate the collectibility
of our accounts receivable based on several factors, including historical trends of aging of
accounts,
write-off experience and expectations of future performance. We recognize finance charges on
delinquent accounts until the account is written off. Delinquent accounts are written off when they
are determined to be uncollectible, usually after the passage of 151 days without receiving a full
scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy or
other circumstances that make further collection unlikely.
Intangible Asset Impairment Testing
We review our goodwill and acquired tradename annually for impairment in the first quarter or when
circumstances indicate the carrying value
of these assets may not be recoverable. The goodwill and acquired tradename associated with our
Façonnable business are our largest impairment risk. The fair
value of our intangible assets has exceeded their carrying value in
each of the most recent three years.
24
Leases
We lease the land or the land and building at many of our Full-Line stores, and we lease the
building at many of our Rack stores. Additionally, we lease office facilities, warehouses and
equipment. We recognize lease expense on a straight-line basis over the minimum lease term. In
2004, we corrected our lease accounting policy to recognize lease expense, net of property
incentives, from the time that we control the leased property. We recorded a charge of $7.8 ($4.7
net of tax) in the fourth quarter of 2004 to correct this accounting policy. The impact of this
change was immaterial to prior periods. Many of our leases include options that allow us to extend
the lease term beyond the initial commitment period, subject to terms agreed to at lease inception.
For leases that contain rent holiday periods and scheduled rent increases, we record the difference
between the rent expense and the rental amount payable under the leases in liabilities. Some leases
require additional payments based on sales and are recorded in rent expense when the contingent
rent is probable.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48), which requires that the tax effects of a
position be recognized only if it is more likely than not to be sustained on audit, based on the
technical merits of the position. FIN 48 also provides guidance on derecognition of income tax
assets and liabilities, classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting for income taxes in
interim periods, and income tax disclosures. The provisions of FIN 48 are effective for us as of
the beginning of our 2007 fiscal year. We will adopt FIN 48 in the first quarter of 2007, as
required. We continue to evaluate the impact of adoption, but expect that it will not be material.
In
September 2006, the FASB issued Statement No. 157, Fair
Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15,
2007. We are assessing the potential impact on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
INTEREST RATE 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.
Interest rate exposure is managed 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 was low, and that the
carrying amount approximated fair value.
The table below presents information about our financial instruments that are sensitive to changes
in interest rates, which consist of debt obligations and interest rate swaps for the year ended
February 3, 2007. For debt obligations, the table presents principal amounts, at book value, by
maturity date, and related weighted average interest rates. For interest rate swaps, the table
presents notional amounts and weighted average interest rates by expected (contractual) maturity
dates. Notional amounts are the predetermined dollar principal on which the exchanged interest
payments are based.
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|
|
|
|
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|
|
|
|
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|
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|
|
|
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|
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|
|
Total at |
|
|
Fair value at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, |
|
|
February 3, |
|
Dollars in thousands |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Thereafter |
|
|
2007 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
$6,800 |
|
|
|
$257,030 |
|
|
|
$7,043 |
|
|
|
$5,427 |
|
|
|
$5,764 |
|
|
|
$357,244 |
|
|
|
$639,308 |
|
|
|
$667,191 |
|
Avg. int. rate |
|
8.0% |
|
|
5.7% |
|
|
7.7% |
|
|
8.9% |
|
|
8.7% |
|
|
7.1% |
|
|
6.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
Interest rate swap |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Fixed to variable |
|
|
|
|
|
|
$250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$250,000 |
|
|
|
$(8,858 |
) |
Avg. pay rate |
|
|
|
|
|
7.70% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.70% |
|
|
|
|
|
Avg. receive rate |
|
|
|
|
|
5.63% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.63% |
|
|
|
|
|
|
FOREIGN CURRENCY EXCHANGE RISK
The majority of our revenue, expense and capital expenditures are transacted in U.S. dollars.
However, we periodically enter into foreign currency purchase orders denominated in Euros for
apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign
currency prices. We do not believe the fair value of our outstanding forward contracts at February
3, 2007 to be material.
In addition, the functional currency of Façonnable, S.A.S. of Nice, France is the Euro. Assets and
liabilities of Façonnable 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 an average exchange rate during the period. Foreign currency gains
and losses from the translation of Façonnables balance sheet and income statement are included
in other comprehensive earnings. Foreign currency gains or losses from certain intercompany loans
are recorded in other income including
finance charges, net.
Nordstrom, Inc. and subsidiaries 25
Item 8. Financial Statements and Supplementary Data.
MANAGEMENT RESPONSIBILITY FOR FINANCIAL INFORMATION
We are responsible for the preparation, integrity and fair presentation of our financial statements
and the other information that appears in this annual report on Form 10-K. The financial statements
have been prepared in accordance with accounting principles generally accepted in the United States
and include estimates based on our best judgment.
We maintain a comprehensive system of internal controls and procedures designed to provide
reasonable assurance, at an appropriate cost-benefit relationship, that our financial information
is accurate and reliable, our assets are safeguarded and our transactions are executed in
accordance with established procedures.
Deloitte and Touche LLP, an independent registered public accounting firm, is retained to audit
Nordstroms consolidated financial statements and managements assessment of the effectiveness of
the Companys internal control over financial reporting. Its accompanying reports are based on
audits conducted in accordance with the standards of the Public Company Accounting Oversight Board
(United States).
The Audit Committee, which is comprised of five independent directors, meets regularly with our
management, our internal auditors and the independent registered public accounting firm to ensure
that each is properly fulfilling its responsibilities. The Committee oversees our systems of
internal control, accounting practices, financial reporting and audits to ensure their quality,
integrity and objectivity are sufficient to protect shareholders investments.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in the Securities and Exchange Act of 1934 rules.
Management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework and criteria established in Internal Control Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
this evaluation, management concluded that the Companys internal control over financial reporting
was effective as of February 3, 2007.
Managements assessment of the effectiveness of our internal control over financial reporting as of
February 3, 2007 has been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
/s/ Michael G. Koppel
Michael G. Koppel
Executive Vice President and Chief Financial Officer
/s/ Blake W. Nordstrom
Blake W. Nordstrom
President
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders of Nordstrom, Inc.
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Nordstrom, Inc. and subsidiaries (the Company)
maintained effective internal control over financial reporting as of February 3, 2007, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of February 3, 2007, is fairly stated, in all material respects, based on
the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of February 3,
2007, based on the criteria established in Internal
ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the fiscal year ended February 3, 2007 of the Company and our report dated March 22, 2007,
expressed an unqualified opinion on those financial statements and financial statement schedule and
included an explanatory paragraph regarding the change in accounting for stock-based compensation
upon adoption of Statement of Financial Accounting Standards
No. 123(R), ShareBased Payment.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 22, 2007
Nordstrom, Inc. and subsidiaries 27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of Nordstrom, Inc.
We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries
(the Company) as of February 3, 2007 and January 28, 2006, and the related consolidated
statements of earnings, shareholders equity, and cash flows for each of the three fiscal years in
the period ended February 3, 2007. Our audits also included the financial statement schedule listed
in the Index at Item 15(a)2. These financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 February 3, 2007 and January 28,
2006, and the results of their operations and their cash flows for each of the three fiscal years
in the period ended February 3, 2007, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of
accounting for stock-based compensation upon adoption of Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of February 3, 2007, based on the criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 22, 2007 expressed an unqualified opinion on managements assessment of the effectiveness of
the Companys internal control over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 22, 2007
28
Nordstrom, Inc.
Consolidated Statements of Earnings
Amounts in thousands except per share amounts and percentages
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Net sales |
|
|
$8,560,698 |
|
|
|
$7,722,860 |
|
|
|
$7,131,388 |
|
Cost of sales and related buying and occupancy costs |
|
|
(5,353,949 |
) |
|
|
(4,888,023 |
) |
|
|
(4,559,388 |
) |
|
Gross profit |
|
|
3,206,749 |
|
|
|
2,834,837 |
|
|
|
2,572,000 |
|
Selling, general and administrative expenses |
|
|
(2,296,863 |
) |
|
|
(2,100,666 |
) |
|
|
(2,020,233 |
) |
|
Operating income |
|
|
909,886 |
|
|
|
734,171 |
|
|
|
551,767 |
|
Interest expense, net |
|
|
(42,758 |
) |
|
|
(45,300 |
) |
|
|
(77,428 |
) |
Other income including finance charges, net |
|
|
238,525 |
|
|
|
196,354 |
|
|
|
172,942 |
|
|
Earnings before income tax expense |
|
|
1,105,653 |
|
|
|
885,225 |
|
|
|
647,281 |
|
Income tax expense |
|
|
(427,654 |
) |
|
|
(333,886 |
) |
|
|
(253,831 |
) |
|
Net earnings |
|
|
$677,999 |
|
|
|
$551,339 |
|
|
|
$393,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic share |
|
|
$2.60 |
|
|
|
$2.03 |
|
|
|
$1.41 |
|
Earnings per diluted share |
|
|
$2.55 |
|
|
|
$1.98 |
|
|
|
$1.38 |
|
|
Basic shares |
|
|
260,689 |
|
|
|
271,958 |
|
|
|
278,993 |
|
Diluted shares |
|
|
265,712 |
|
|
|
277,776 |
|
|
|
284,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share of common stock outstanding |
|
|
$0.42 |
|
|
|
$0.32 |
|
|
|
$0.24 |
|
|
Consolidated Statements of Earnings (% of Net sales)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Net sales |
|
|
100.0% |
|
|
|
100.0% |
|
|
|
100.0% |
|
Cost of sales and related buying and occupancy costs |
|
|
(62.5 |
) |
|
|
(63.3 |
) |
|
|
(63.9 |
) |
|
Gross profit |
|
|
37.5 |
|
|
|
36.7 |
|
|
|
36.1 |
|
Selling, general and administrative expenses |
|
|
(26.8 |
) |
|
|
(27.2 |
) |
|
|
(28.3 |
) |
|
Operating income |
|
|
10.6 |
|
|
|
9.5 |
|
|
|
7.7 |
|
Interest expense, net |
|
|
(0.5 |
) |
|
|
(0.6 |
) |
|
|
(1.1 |
) |
Other income including finance charges, net |
|
|
2.8 |
|
|
|
2.5 |
|
|
|
2.4 |
|
|
Earnings before income tax expense |
|
|
12.9 |
|
|
|
11.5 |
|
|
|
9.1 |
|
Income tax expense (as a % of earnings before
income tax expense) |
|
|
(38.7 |
) |
|
|
(37.7 |
) |
|
|
(39.2 |
) |
|
Net earnings |
|
|
7.9% |
|
|
|
7.1% |
|
|
|
5.5% |
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial
statements.
Nordstrom, Inc. and subsidiaries 29
Nordstrom, Inc.
Consolidated Balance Sheets
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
$402,559 |
|
|
|
$462,656 |
|
Short-term investments |
|
|
|
|
|
|
54,000 |
|
Accounts receivable, net |
|
|
684,376 |
|
|
|
639,558 |
|
Investment in asset backed securities |
|
|
428,175 |
|
|
|
561,136 |
|
Merchandise inventories |
|
|
997,289 |
|
|
|
955,978 |
|
Current deferred tax assets, net |
|
|
169,320 |
|
|
|
145,470 |
|
Prepaid expenses and other |
|
|
60,474 |
|
|
|
55,359 |
|
|
Total current assets |
|
|
2,742,193 |
|
|
|
2,874,157 |
|
Land, buildings and equipment, net |
|
|
1,757,215 |
|
|
|
1,773,871 |
|
Goodwill |
|
|
51,714 |
|
|
|
51,714 |
|
Acquired tradename |
|
|
84,000 |
|
|
|
84,000 |
|
Other assets |
|
|
186,456 |
|
|
|
137,607 |
|
|
Total assets |
|
|
$4,821,578 |
|
|
|
$4,921,349 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
$576,796 |
|
|
|
$540,019 |
|
Accrued salaries, wages and related benefits |
|
|
339,965 |
|
|
|
285,982 |
|
Other current liabilities |
|
|
433,487 |
|
|
|
409,076 |
|
Income taxes payable |
|
|
76,095 |
|
|
|
81,617 |
|
Current portion of long-term debt |
|
|
6,800 |
|
|
|
306,618 |
|
|
Total current liabilities |
|
|
1,433,143 |
|
|
|
1,623,312 |
|
Long-term debt, net |
|
|
623,652 |
|
|
|
627,776 |
|
Deferred property incentives, net |
|
|
356,062 |
|
|
|
364,382 |
|
Other liabilities |
|
|
240,200 |
|
|
|
213,198 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, no par value: 1,000,000 shares
authorized; 257,313 and 269,549 shares issued
and outstanding |
|
|
826,421 |
|
|
|
685,934 |
|
Unearned stock compensation |
|
|
|
|
|
|
(327 |
) |
Retained earnings |
|
|
1,350,680 |
|
|
|
1,404,366 |
|
Accumulated other comprehensive (loss) earnings |
|
|
(8,580 |
) |
|
|
2,708 |
|
|
Total shareholders equity |
|
|
2,168,521 |
|
|
|
2,092,681 |
|
|
Total liabilities and shareholders equity |
|
|
$4,821,578 |
|
|
|
$4,921,349 |
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial
statements.
30
Nordstrom, Inc.
Consolidated Statements of Shareholders Equity
Amounts in thousands except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
|
Stock |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Compensation |
|
|
Earnings |
|
|
Earnings (Loss) |
|
|
Total |
|
|
Balance at January 31, 2004 |
|
|
276,753 |
|
|
|
$424,645 |
|
|
|
$(597 |
) |
|
|
$1,201,093 |
|
|
|
$8,868 |
|
|
|
$1,634,009 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,450 |
|
|
|
|
|
|
|
393,450 |
|
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
493 |
|
|
|
493 |
|
Unrecognized loss on SERP, net of tax of $76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119 |
) |
|
|
(119 |
) |
Fair value adjustment to investment in
asset backed securities, net of tax of $(59) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
93 |
|
|
|
Comprehensive net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,917 |
|
Cash dividends paid
($0.24 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,240 |
) |
|
|
|
|
|
|
(67,240 |
) |
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option plans |
|
|
7,238 |
|
|
|
111,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,315 |
|
Employee stock purchase plan |
|
|
977 |
|
|
|
14,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,081 |
|
Other |
|
|
178 |
|
|
|
2,614 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
2,912 |
|
Repurchase of common stock |
|
|
(13,815 |
) |
|
|
|
|
|
|
|
|
|
|
(300,000 |
) |
|
|
|
|
|
|
(300,000 |
) |
|
Balance at January 29, 2005 |
|
|
271,331 |
|
|
|
552,655 |
|
|
|
(299 |
) |
|
|
1,227,303 |
|
|
|
9,335 |
|
|
|
1,788,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
551,339 |
|
|
|
|
|
|
|
551,339 |
|
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,815 |
) |
|
|
(1,815 |
) |
Unrecognized loss on SERP, net of tax of $4,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,742 |
) |
|
|
(7,742 |
) |
Fair value adjustment to investment in asset
backed securities, net of tax of $(1,875) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,930 |
|
|
|
2,930 |
|
|
|
Comprehensive net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544,712 |
|
Cash dividends paid ($0.32 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,196 |
) |
|
|
|
|
|
|
(87,196 |
) |
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option plans |
|
|
5,820 |
|
|
|
112,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,948 |
|
Employee stock purchase plan |
|
|
757 |
|
|
|
16,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,767 |
|
Other |
|
|
136 |
|
|
|
3,564 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
3,536 |
|
Repurchase of common stock |
|
|
(8,495 |
) |
|
|
|
|
|
|
|
|
|
|
(287,080 |
) |
|
|
|
|
|
|
(287,080 |
) |
|
Balance at January 28, 2006 |
|
|
269,549 |
|
|
|
685,934 |
|
|
|
(327 |
) |
|
|
1,404,366 |
|
|
|
2,708 |
|
|
|
2,092,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677,999 |
|
|
|
|
|
|
|
677,999 |
|
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309 |
|
|
|
1,309 |
|
Unrecognized gain on SERP, net of tax
of $(1,938), prior to adoption of SFAS 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,032 |
|
|
|
3,032 |
|
Fair value adjustment to investment in
asset backed securities, net of tax of $2,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,805 |
) |
|
|
(2,805 |
) |
|
|
Comprehensive net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
679,535 |
|
Adjustment to initially apply SFAS 158, net of
tax of $8,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,824 |
) |
|
|
(12,824 |
) |
Cash dividends paid ($0.42 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110,158 |
) |
|
|
|
|
|
|
(110,158 |
) |
Issuance of common stock for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option plans |
|
|
3,838 |
|
|
|
94,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,099 |
|
Employee stock purchase plan |
|
|
446 |
|
|
|
16,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,652 |
|
Other |
|
|
27 |
|
|
|
721 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
1,048 |
|
Stock-based compensation |
|
|
|
|
|
|
29,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,015 |
|
Repurchase of common stock |
|
|
(16,547 |
) |
|
|
|
|
|
|
|
|
|
|
(621,527 |
) |
|
|
|
|
|
|
(621,527 |
) |
|
Balance at February 3, 2007 |
|
|
257,313 |
|
|
|
$826,421 |
|
|
|
|
|
|
|
$1,350,680 |
|
|
|
$(8,580 |
) |
|
|
$2,168,521 |
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial
statements.
Nordstrom, Inc. and subsidiaries 31
Nordstrom, Inc.
Consolidated Statements of Cash Flows
Amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
$677,999 |
|
|
|
$551,339 |
|
|
|
$393,450 |
|
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of buildings and
equipment |
|
|
284,520 |
|
|
|
276,328 |
|
|
|
264,769 |
|
Amortization of deferred property incentives and
other, net |
|
|
(36,293 |
) |
|
|
(33,350 |
) |
|
|
(31,378 |
) |
Stock-based compensation expense |
|
|
37,362 |
|
|
|
13,285 |
|
|
|
8,051 |
|
Deferred income taxes, net |
|
|
(58,274 |
) |
|
|
(11,238 |
) |
|
|
(8,040 |
) |
Tax benefit from stock-based payments |
|
|
43,552 |
|
|
|
41,092 |
|
|
|
25,442 |
|
Excess tax benefit from stock-based payments |
|
|
(38,293 |
) |
|
|
|
|
|
|
|
|
Provision for bad debt expense |
|
|
17,064 |
|
|
|
20,918 |
|
|
|
24,639 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(61,301 |
) |
|
|
(15,140 |
) |
|
|
(2,950 |
) |
Investment in asset backed securities |
|
|
127,984 |
|
|
|
(135,790 |
) |
|
|
(149,970 |
) |
Merchandise inventories |
|
|
(38,649 |
) |
|
|
(20,804 |
) |
|
|
(11,771 |
) |
Prepaid expenses |
|
|
(4,723 |
) |
|
|
(1,035 |
) |
|
|
(3,163 |
) |
Other assets |
|
|
(7,661 |
) |
|
|
(3,473 |
) |
|
|
(8,143 |
) |
Accounts payable |
|
|
84,291 |
|
|
|
31,721 |
|
|
|
23,930 |
|
Accrued salaries, wages and related benefits |
|
|
48,719 |
|
|
|
(11,284 |
) |
|
|
15,055 |
|
Other current liabilities |
|
|
23,533 |
|
|
|
38,755 |
|
|
|
58,471 |
|
Income taxes payable |
|
|
(5,522 |
) |
|
|
(33,877 |
) |
|
|
(18,999 |
) |
Deferred property incentives |
|
|
30,723 |
|
|
|
49,480 |
|
|
|
19,837 |
|
Other liabilities |
|
|
17,334 |
|
|
|
19,305 |
|
|
|
7,116 |
|
|
Net cash provided by operating activities |
|
|
1,142,365 |
|
|
|
776,232 |
|
|
|
606,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(264,437 |
) |
|
|
(271,659 |
) |
|
|
(246,851 |
) |
Proceeds from sale of assets |
|
|
224 |
|
|
|
107 |
|
|
|
5,473 |
|
Purchases of short-term investments |
|
|
(109,550 |
) |
|
|
(542,925 |
) |
|
|
(3,232,250 |
) |
Sales of short-term investments |
|
|
163,550 |
|
|
|
530,750 |
|
|
|
3,366,425 |
|
Other, net |
|
|
(8,067 |
) |
|
|
(8,366 |
) |
|
|
(2,830 |
) |
|
Net cash used in investing activities |
|
|
(218,280 |
) |
|
|
(292,093 |
) |
|
|
(110,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(307,559 |
) |
|
|
(101,047 |
) |
|
|
(205,252 |
) |
(Decrease) increase in cash book overdrafts |
|
|
(50,853 |
) |
|
|
4,946 |
|
|
|
(2,680 |
) |
Proceeds from exercise of stock options |
|
|
50,900 |
|
|
|
73,023 |
|
|
|
87,061 |
|
Proceeds from employee stock purchase plan |
|
|
16,300 |
|
|
|
15,600 |
|
|
|
12,892 |
|
Excess tax benefit from stock-based payments |
|
|
38,293 |
|
|
|
|
|
|
|
|
|
Cash dividends paid |
|
|
(110,158 |
) |
|
|
(87,196 |
) |
|
|
(67,240 |
) |
Repurchase of common stock |
|
|
(621,527 |
) |
|
|
(287,080 |
) |
|
|
(300,000 |
) |
Other, net |
|
|
422 |
|
|
|
(352 |
) |
|
|
(752 |
) |
|
Net cash used in financing activities |
|
|
(984,182 |
) |
|
|
(382,106 |
) |
|
|
(475,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(60,097 |
) |
|
|
102,033 |
|
|
|
20,342 |
|
Cash and cash equivalents at beginning of year |
|
|
462,656 |
|
|
|
360,623 |
|
|
|
340,281 |
|
|
Cash and cash equivalents at end of year |
|
|
$402,559 |
|
|
|
$462,656 |
|
|
|
$360,623 |
|
|
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial
statements.
32
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and
accessories for women, men and children. We offer
a wide selection of brand name and private label merchandise. We offer our products through
multiple retail channels, including 98 Full-Line Nordstrom stores, 50 discount Nordstrom Rack
stores, four Façonnable boutiques, our catalogs and through our online store at
www.nordstrom.com. Our stores are located throughout the United States, and we also have 36
Façonnable boutiques located in France, Portugal, and Belgium. In addition, we offer our customers
a variety of payment products and services, including our loyalty program.
Our credit operations offer a Nordstrom private label card, two co-branded Nordstrom VISA credit
cards and a debit card for Nordstrom purchases, which generate earnings through finance charges and
securitization-related gains and losses.
Our operations also include a product development group, which coordinates the design and
production of private label merchandise sold in our retail stores.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31st. References to 2006 related to the 53
week fiscal year ended February 3, 2007.
Fiscal year 2006 includes an extra week (the 53rd week) as a result of our 4-5-4 retail
reporting calendar. References to 2005 and 2004 relate to
the 52 week fiscal years ended January 28, 2006 and January 29, 2005. References to 2007 relate to
the 52 weeks ending February 2, 2008.
Principles of Consolidation
The consolidated financial statements include the balances of
Nordstrom, Inc. and its wholly owned
subsidiaries. All significant intercompany transactions and balances are eliminated in
consolidation.
Use of Estimates
We make estimates and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
We record revenues net of estimated returns and we exclude sales taxes. Our retail stores record
revenue at the point of sale. Our catalog and online sales include shipping revenue and are
recorded upon estimated delivery to the customer. We recognize revenue associated with our gift
cards upon redemption of the gift card. As part of the normal sales cycle, we receive customer
merchandise returns. To recognize the financial impact of sales returns, we estimate the amount of
goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical
return patterns to estimate our expected returns. Our sales return reserves were $54,546 and
$51,172 at the end of 2006 and 2005.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and costs incurred by our merchandise and product
development groups. Occupancy costs include rent, depreciation, property taxes and facility
operating costs of our retail and distribution operations.
Shipping and Handling Costs
Our shipping and handling costs include payments to third-party shippers and costs to hold, move
and prepare merchandise for shipment.
Shipping and handling costs of $78,176, $79,689, and $75,421 in 2006, 2005, and 2004 were included
in selling, general and administrative expenses.
Advertising
Production costs for newspaper, radio and other media are expensed the first time the advertisement
is run. Total advertising expenses, net of vendor allowances, were $109,373, $122,294, and $123,974 in 2006, 2005, and 2004.
Other Income Including Finance Charges, Net
This consists primarily of finance charges and late fees generated by our Nordstrom private label
cards and earnings from our investment in asset backed securities and securitization gains and
losses, which are both generated from the co-branded Nordstrom VISA credit card program.
Gift card breakage is another component of other income including finance charges, net. Based on an
analysis of our program since its inception in 1999, we determined that balances remaining on cards
issued five years ago are unlikely to be redeemed and therefore may be recognized as income.
Breakage income in 2006 was $5,333. This breakage income is approximately 3.5% of the amount
initially issued as gift cards. As 2005 was the first year that we recognized gift card breakage,
it includes $2,636 and $5,410 for cards issued in 1999 and 2000, for a total of $8,046.
Nordstrom, Inc. and subsidiaries 33
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
Stock-Based Compensation
At the start of 2006, we adopted Statement of Financial Accounting Standard No. 123(R), Share-Based
Payment (SFAS 123(R)), which requires us to measure the cost of employee and director services
received in exchange for an award of equity instruments based on the grant-date fair value of the
award. The costs are recognized over the period during which an employee is required to provide
services in exchange for the award.
Prior to the adoption of SFAS 123(R), we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), to measure compensation costs for our
stock-based compensation programs. Under APB 25, we recorded no compensation expense for stock
options granted to employees and directors because the options strike price was equal to the
closing market price of our common stock on the grant date. Also, through 2005 we recorded no
compensation expense in connection with our Employee Stock Purchase Plan (ESPP). Through 2005, we
presented the effect on net earnings and earnings per share of the fair value provisions of SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123) in the Notes to Condensed
Consolidated Financial Statements.
We recognize stock-based compensation expense on a straight-line basis over the requisite service
period. The following table summarizes our stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Stock options |
|
|
$26,991 |
|
|
|
|
|
|
|
|
|
Employee stock purchase plan |
|
|
1,876 |
|
|
|
|
|
|
|
|
|
Performance share units |
|
|
7,036 |
|
|
|
$11,672 |
|
|
|
$7,816 |
|
Other |
|
|
1,459 |
|
|
|
1,613 |
|
|
|
235 |
|
|
Total
stock-based compensation expense before
income tax benefit |
|
|
37,362 |
|
|
|
13,285 |
|
|
|
8,051 |
|
Income tax benefit |
|
|
(13,662 |
) |
|
|
(5,008 |
) |
|
|
(3,157 |
) |
|
Total stock-based compensation expense, net of
income tax benefit |
|
|
$23,700 |
|
|
|
$8,277 |
|
|
|
$4,894 |
|
|
The stock-based compensation expense before income tax benefit was recorded in our condensed
consolidated statements of earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Cost of sales and related buying and occupancy costs |
|
|
$11,870 |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
25,492 |
|
|
|
$13,285 |
|
|
|
$8,051 |
|
|
Total stock-based compensation expense before income
tax benefit |
|
|
$37,362 |
|
|
|
$13,285 |
|
|
|
$8,051 |
|
|
We adopted SFAS 123(R) using the modified prospective method. Under this transition method,
2006 stock-based compensation expense considers
all outstanding options that have not reached their earliest vesting date. In addition, we
recognized stock-based compensation expense for our ESPP,
as our 10% purchase discount exceeds the amount allowed under SFAS 123(R) for non-compensatory
treatment. As provided for under the modified prospective method, we have not restated our results
for prior periods. Following the adoption of SFAS 123(R), we recorded incremental stock-based
compensation expense of $28,867 ($18,475 net of tax), or $0.07 per basic and diluted share for the
year ended February 3, 2007.
Prior to the adoption of SFAS 123(R), we classified all tax benefits resulting from the exercise of
stock options and ESPP as operating cash inflows. SFAS 123(R) requires the benefits of tax deductions in excess of the compensation cost recognized
for those awards to be classified as financing cash inflows rather than operating cash inflows, on
a prospective basis. This amount is shown as Excess tax benefit from stock-based payments in the
2006 consolidated statement of cash flows and was $38,293.
The following table illustrates the effect on net earnings and earnings per share if we had applied
the fair value recognition provisions of SFAS 123 in 2005 and 2004:
|
|
|
|
|
|
|
|
|
Fiscal year |
|
2005 |
|
|
2004 |
|
|
Net earnings, as reported |
|
|
$551,339 |
|
|
|
$393,450 |
|
Add: stock-based compensation expense
included in reported net earnings, net of tax |
|
|
8,277 |
|
|
|
4,894 |
|
Deduct: stock-based compensation expense
determined under fair value, net of tax |
|
|
(25,681 |
) |
|
|
(25,001 |
) |
|
Pro forma net earnings |
|
|
$533,935 |
|
|
|
$373,343 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basicas reported |
|
|
$2.03 |
|
|
|
$1.41 |
|
Dilutedas reported |
|
|
$1.98 |
|
|
|
$1.38 |
|
|
|
|
|
|
|
|
|
|
Basicpro forma |
|
|
$1.96 |
|
|
|
$1.34 |
|
Dilutedpro forma |
|
|
$1.92 |
|
|
|
$1.31 |
|
|
34
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
In 2004 and 2005, we used the Black-Scholes option valuation model to estimate the fair value of
the stock options under SFAS 123. When we adopted SFAS 123(R), we elected to use the Binomial
Lattice option valuation model. We believe that this model provides a better estimate of fair value
than the Black-Scholes option valuation model, as it can accommodate variability in assumptions for
expected volatility, dividends and risk-free interest rates. We used the following assumptions to
estimate the fair value for stock options at grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Risk-free interest rate |
|
|
4.9% - 5.1% |
|
|
|
3.9% |
|
|
|
3.0% |
|
Volatility |
|
|
37.0% |
|
|
|
44.3% |
|
|
|
65.4% |
|
Dividend yield |
|
|
1.0% |
|
|
|
1.7% |
|
|
|
1.5% |
|
Expected life in years |
|
|
5.4 |
|
|
|
5.0 |
|
|
|
6.0 |
|
|
The weighted average fair value per option at the grant date was $16, $10 and $11 in 2006,
2005 and 2004. The following describes the significant assumptions used to estimate the fair value
of options granted:
|
|
|
Risk-free interest rate: For 2006, the rate represents the yield on U.S.
Treasury zero-coupon securities that mature over the 10-year life of the stock options. For
2005, the rate was the yield on the U.S. Treasury zero-coupon securities which matured near
the end of the expected life of the stock options. |
|
|
|
|
Expected volatility: For 2006, the expected volatility was based on a
combination of the historical volatility of our common stock and the implied volatility of
exchange traded options for our common stock. In 2005, the expected volatility was
estimated using the historical volatility of our common stock. |
|
|
|
|
Expected dividend yield: For 2006, the yield was our forecasted dividend yield
for the next ten years. In 2005, the expected dividend yield was based on our historical
dividend yield. |
|
|
|
|
Expected life in years: The expected life represents the estimated period of
time until option exercise. In 2006, the expected term of options granted was derived from
the output of the Binomial Lattice option valuation model based on our historical exercise
behavior and taking into consideration the contractual term of the option and our
employees expected exercise and post-vesting employment termination behavior. In 2005, the
expected life was determined based on our historical exercise behavior. |
Cash Equivalents
Cash equivalents are short-term investments with a maturity of three months or less from the date
of purchase. As of the end of 2006 and 2005,
we had restricted cash of $7,798 and $6,728 included in other long term assets. The restricted cash
is held in a trust for use by our Supplemental Executive Retirement Plan and Deferred Compensation
Plans.
Cash Management
Our cash management system provides for the reimbursement of all major bank disbursement accounts
on a daily basis. Accounts payable at the end of 2006 and 2005 included $40,818 and $91,671 of
checks not yet presented for payment drawn in excess of our bank deposit balances.
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
|
|
$55,367 |
|
|
|
$57,187 |
|
|
|
$88,876 |
|
Income taxes |
|
|
448,668 |
|
|
|
343,891 |
|
|
|
253,576 |
|
|
Short-term Investments
Short-term investments consist of auction rate securities classified as available-for-sale. Auction
rate securities are high-quality variable rate bonds whose interest rate is periodically reset,
typically every 7, 28, or 35 days. However, the underlying security can have a duration from 15 to
30 years. Our auction rate securities are stated at cost, which approximates fair value, and
therefore there were no unrealized gains or losses related to these securities included in
accumulated other comprehensive earnings. The cost of securities sold was based on the specific
identification method.
Securitization of Accounts Receivable
We offer Nordstrom private label cards and co-branded Nordstrom VISA credit cards to our customers.
Substantially all of the receivables related
to both credit cards are securitized. Under our credit card securitizations, the receivables are
transferred to third-party trusts on a daily basis. The balance of the receivables transferred to
the trusts fluctuates as new receivables are generated and old receivables are retired (through
payments received, charge-offs, or credits for merchandise returns). The trusts issue securities
that are backed by the receivables. Certain of these securities or beneficial interests are sold
to third-party investors and the remaining securities are issued to us.
Nordstrom, Inc. and subsidiaries 35
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
Under the terms of the trust agreements, we may be required to fund certain amounts upon the
occurrence of specific events. Both of our credit card securitization agreements set a maximum
percentage of receivables that can be associated with various receivable categories, such as
employee or foreign receivables. At the end of 2006 and 2005, these maximums were exceeded by
$1,509 and $1,211. It is possible that we may be required to repurchase these receivables. We do
not believe any additional funding would be required.
The private label securitizations are accounted for as a secured borrowing (on-balance sheet) while
the VISA securitization qualifies for sale treatment (off-balance sheet).
NORDSTROM PRIVATE LABEL RECEIVABLES (ON-BALANCE SHEET)
We transfer these receivables to a third-party trust (Private Label Trust) that issues two
Nordstrom private label receivable backed securitizations, which are described in Note 7: Long-term
Debt.
Total receivables of the securitized private label portfolio at the end of 2006 and 2005 were
$582,281 and $549,962, and receivables more than 30 days past due were $15,756 and $11,265. Net charged-off receivables for 2006, 2005,
and 2004 were $17,183, $22,845, and $25,370.
CO-BRANDED NORDSTROM VISA RECEIVABLES (OFF-BALANCE SHEET)
In order to enhance our cost-effective capital sources, we have in place a securitized asset
structure. This allows us to reduce our investment
in the co-branded Nordstrom VISA credit card receivables, so we can deploy our capital resources to
greater-value opportunities.
We transfer our co-branded Nordstrom VISA credit card receivables to a third-party trust (VISA
Trust) that issues VISA receivable backed securities. In May 2002, the VISA Trust issued $200,000 of certificated Class A and Class B notes to
third-party investors (2002 Class A & B Notes) and a certificated, subordinate Class C note to
us. In 2006, the VISA Trust issued $350,000 of certificated variable funding notes to third-party
investors. The receivables transferred to the VISA Trust exceed the face value of the issued notes.
This excess creates a certificated, non-subordinated asset called the Transferors Interest, which
was conveyed to us. In addition, we hold a non-certificated Interest Only Strip, which results when
the estimated value of projected cash inflows related to the notes exceeds the projected cash
outflows.
We do not record the $550,000 in debt related to the VISA securitization or the receivables
transferred to the VISA Trust on our consolidated financial statements. However, we do hold the
2002 Class C note, the Transferors Interest and the Interest Only Strip. These assets are included
in the consolidated balance sheets as investment in asset backed securities and accounted for as
investments in available-for-sale debt securities. As such, we record the investment in asset
backed securities at its estimated fair value in our consolidated balance sheets.
We recognize gains or losses on the sale of the co-branded Nordstrom VISA receivables to the VISA
Trust based on the difference between the face value of the receivables sold and the estimated fair
value of the assets created in the securitization process. The receivables sold to the VISA Trust
are then allocated between the various interests in the VISA Trust based on those interests
relative fair market values. The fair values of the assets are calculated as the present value of
their expected future cash flows. The unrealized gains and losses, as well as any adjustments to
fair value of the investment in asset backed securities, are recorded as a component of accumulated
other comprehensive earnings.
In addition, we record interest income related to the investment in asset backed securities based
upon their carrying value and their discount rate.
The gain on sales of receivables and the interest income earned on the beneficial interests are
included in other income including finance charges, net in our consolidated statements of earnings.
Accounts Receivable
Accounts receivable consist primarily of our Nordstrom private label receivables that back an
unused variable funding note that is discussed in
Note 7: Long-term Debt. We record the face value of the principal, plus any earned finance
charges, late fees, or cash advance fees.
We report accounts receivable net of an allowance for doubtful accounts. Our allowance for doubtful
accounts represents our best estimate of the losses inherent in our customer accounts receivable
based on several factors, including historical trends of aging of accounts, write-off experience
and expectations of future performance.
We recognize finance charges on delinquent accounts until the account is written off or when an
account is placed into a debt management program. Payments received on delinquent accounts are
recorded in the same manner as current accounts. Our approach for resuming accrual of interest on
these accounts is made on an account by account basis. Delinquent accounts are written off when
they are determined to be uncollectible, usually after the passage of 151 days without receiving a
full scheduled monthly payment. Accounts are written off sooner in the event of customer bankruptcy
or other circumstances making further collection unlikely.
The Nordstrom private label card operating expenses, including bad debt costs, are included in
selling, general, and administrative expenses. Finance charges and late fees generated by the
private label cards are classified as part of other income including finance charges, net. Revenue
amounts were $104,415, $97,036 and $102,406 in 2006, 2005, and 2004.
36
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, using the retail method
(first-in, first-out basis).
Land, Buildings and Equipment
Depreciation is computed using the straight-line method. Estimated useful lives by major asset
category are as follows:
|
|
|
|
|
Asset |
|
Life (in years) |
|
|
Buildings and improvements |
|
|
5-40 |
|
Store fixtures and equipment |
|
|
3-15 |
|
Leasehold improvements |
|
|
Shorter of life of lease or asset life |
|
Software |
|
|
3-7 |
|
|
Intangible Asset Impairment Testing
We review our goodwill and acquired tradename annually for impairment in the first quarter or when
circumstances indicate the carrying value
of these assets may not be recoverable. The goodwill and acquired tradename associated with our
Façonnable business are our largest
impairment risks. The fair
value of our intangible assets has exceeded their carrying value in
each of the most recent three years.
Leases
We recognize lease expense on a straight-line basis over the minimum lease term. In 2004, we
corrected our lease accounting policy to recognize lease expense, net of landlord reimbursements,
from the time that we control the leased property. In the past, we recorded net rent expense once
lease payments or retail operations started. We recorded a charge of $7,753 ($4,729 net of tax) in
the fourth quarter of 2004 to correct this accounting policy. The impact of this change was
immaterial to prior periods.
We lease the land or the land and building at many of our Full-Line stores, and we lease the
building at many of our Rack stores. Additionally, we lease office facilities, warehouses and
equipment. Most of these leases are classified as operating leases and they expire at various dates
through 2080. We have no significant individual or master lease agreements.
Our fixed, noncancelable lease terms generally are 20 to 30 years for Full-Line stores and 10 to 15
years for Rack stores. Many of our leases include options that allow us to extend the lease term
beyond the initial commitment period, subject to terms agreed to at lease inception.
For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent
expense on a straight-line basis and record the difference between the rent expense and the rent
payable as a liability.
Most of our leases also provide for payment of operating expenses, such as common area charges,
real estate taxes and other executory costs. Some leases require additional payments based on sales
and are recorded in rent expense when the contingent rent is probable.
Leasehold improvements made at the inception of the lease are amortized over the shorter of the
asset life or the initial lease term as described above. Leasehold improvements made during the
lease term are also amortized over the shorter of the asset life or the remaining lease term.
We receive incentives to construct stores in certain developments. These incentives are recorded as
a deferred credit and recognized as a reduction to rent expense on a straight-line basis over the
lease term as described above. At the end of 2006 and 2005, this deferred credit balance was
$392,386 and $399,485. Also, we may receive incentives based on a stores net sales; we recognize
these incentives in the year that they are earned as a reduction to rent expense.
Foreign Currency Translation
The assets and liabilities of our foreign subsidiaries have been translated to U.S. dollars using
the exchange rates effective on the balance sheet date, while income and expense accounts are
translated at the average rates in effect during the year. The resulting translation adjustments
are recorded in accumulated other comprehensive earnings.
Income Taxes
We use the asset and liability method of accounting for income taxes. Using this method, deferred
tax assets and liabilities are recorded based on differences between financial reporting and tax
basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the
enacted tax rates and laws that are expected to be in effect when the differences are expected to
reverse. We establish valuation allowances for tax benefits when we believe it is not likely that
the related expense will be deductible for tax purposes.
Other Current Liabilities
Included in other current liabilities were gift card liabilities of $171,631 and $154,683 at the
end of 2006 and 2005.
Nordstrom, Inc. and subsidiaries 37
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
Loyalty Program
Customers who reach a cumulative purchase threshold when using our Nordstrom private label cards or
our co-branded Nordstrom VISA credit cards receive merchandise certificates. These merchandise
certificates can be redeemed in our stores similar to gift certificates. We estimate the net cost
of the merchandise certificates that will be earned and redeemed and record this cost as the
merchandise certificates are earned. The cost of the loyalty program is not significant in relation
to the corresponding sales, so the program expense is recorded in cost of sales rather than as a
reduction of net sales.
Vendor Allowances
We receive allowances from merchandise vendors for purchase price adjustments, cooperative
advertising programs, cosmetic selling expenses,
and vendor sponsored contests. Purchase price adjustments are recorded as a reduction of cost of
sales at the point they have been earned and the related merchandise has been sold. Allowances for
cooperative advertising and promotion programs and vendor sponsored contests are recorded in cost
of sales and selling, general and administrative expenses as a reduction to the related cost when
incurred. Allowances for cosmetic selling expenses are recorded in selling, general and
administrative expenses as a reduction to the related cost when incurred. Any allowances in excess
of actual costs incurred that are recorded in selling, general and administrative expenses are
recorded as a reduction to cost of sales. The following table shows vendor allowances earned during
the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Purchase price adjustments |
|
|
$70,365 |
|
|
|
$58,103 |
|
|
|
$47,707 |
|
Cosmetic selling expenses |
|
|
120,560 |
|
|
|
107,166 |
|
|
|
96,936 |
|
Cooperative advertising and promotion |
|
|
66,984 |
|
|
|
57,575 |
|
|
|
57,786 |
|
Vendor sponsored contests |
|
|
3,018 |
|
|
|
3,668 |
|
|
|
3,975 |
|
|
Total vendor allowances |
|
|
$260,927 |
|
|
|
$226,512 |
|
|
|
$206,404 |
|
|
Allowances were recorded in our consolidated statement of earnings as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Cost of sales |
|
|
$137,563 |
|
|
|
$118,104 |
|
|
|
$106,902 |
|
Selling, general and administrative expenses |
|
|
123,364 |
|
|
|
108,408 |
|
|
|
99,502 |
|
|
Total vendor allowances |
|
|
$260,927 |
|
|
|
$226,512 |
|
|
|
$206,404 |
|
|
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and short term-investments approximate fair value. See
Note 7: Long-term Debt for the fair values of our long-term debt and interest rate swap
agreements.
Derivatives Policy
We periodically enter into foreign currency purchase orders denominated in Euros for apparel,
accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency
prices. These forward contracts do not qualify for derivative hedge accounting. At the end of 2006
and 2005, the notional amounts of our foreign currency forward contracts at the contract rates were
$10,220 and $6,127. We also use derivative financial instruments to manage our interest rate risks.
See Note 7 for a further description of our interest rate swaps.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), which requires that the tax effects of a position be recognized only if it is more
likely than not to be sustained on audit, based on the technical merits of the position. FIN 48
also provides guidance on derecognition of income tax assets and liabilities, classification of
current and deferred income tax assets and liabilities, accounting for interest and penalties
associated with tax positions, accounting for income taxes in interim periods, and income tax
disclosures. The provisions of FIN 48 are effective for us as of the beginning of our 2007 fiscal
year. We will adopt FIN 48 in the first quarter of 2007, as required. We continue to evaluate the
impact of adoption, but expect that it will not be material.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15,
2007. We are assessing the potential financial statement impact of SFAS 157.
In
February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items
at fair value. SFAS 159 will be effective at the beginning of fiscal
2008. We are presently evaluating the impact of the adoption of SFAS
159 on our results of operations and financial position.
38
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 2: ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Trade receivables: |
|
|
|
|
|
|
|
|
Unrestricted |
|
|
$43,793 |
|
|
|
$32,070 |
|
Restricted |
|
|
582,281 |
|
|
|
552,671 |
|
Allowance for doubtful accounts |
|
|
(17,475 |
) |
|
|
(17,926 |
) |
|
Trade receivables, net |
|
|
608,599 |
|
|
|
566,815 |
|
Other |
|
|
75,777 |
|
|
|
72,743 |
|
|
Accounts receivable, net |
|
|
$684,376 |
|
|
|
$639,558 |
|
|
The restricted trade receivables relate to our Nordstrom private label card and back an unused
variable funding note that is discussed in Note 7: Long-term Debt. The unrestricted trade
receivables consist primarily of our Façonnable wholesale receivables and accrued private label
card finance charges not yet allocated to customer accounts.
Other accounts receivable consist primarily of credit card receivables due from third-party
financial institutions and vendor rebates, which are believed to be fully realizable as they are
collected soon after they are earned.
NOTE 3: INVESTMENT IN ASSET BACKED SECURITIES CO-BRANDED NORDSTROM VISA CREDIT CARD RECEIVABLES
The following table presents the co-branded Nordstrom VISA credit card balances and the estimated
fair values of our investment in asset
backed securities.
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Total face value of co-branded Nordstrom VISA credit card
principal receivables |
|
|
$907,983 |
|
|
|
$738,947 |
|
|
Securities issued by the VISA Trust: |
|
|
|
|
|
|
|
|
Off-balance sheet (sold to third parties): |
|
|
|
|
|
|
|
|
2002 Class A & B Notes |
|
|
$200,000 |
|
|
|
$200,000 |
|
2004-2 Variable funding notes |
|
|
350,000 |
|
|
|
|
|
|
|
|
|
$550,000 |
|
|
|
$200,000 |
|
Amounts recorded on balance sheet: |
|
|
|
|
|
|
|
|
Investment in asset backed securities at fair value |
|
|
$428,175 |
|
|
|
$561,136 |
|
|
The following table presents the key assumptions we use to value the investment in asset
backed securities:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Assumptions used to estimate the fair value of the
investment in asset backed securities: |
|
|
|
|
|
|
|
|
Weighted average remaining life (in months) |
|
|
7.5 |
|
|
|
7.6 |
|
Average annual credit losses |
|
|
5.7% |
|
|
|
4.7% |
|
Average gross yield |
|
|
16.8% |
|
|
|
17.1% |
|
Weighted average coupon on issued securities |
|
|
5.3% |
|
|
|
5.2% |
|
Average monthly payment rates |
|
|
8.0 |
|
|
|
8.2% |
|
Discount rate on investment in asset backed securities |
|
7.3% to 11.5% |
|
|
5.9% to 11.1% |
|
|
The discount rate on asset backed securities represents the volatility and risk of the asset.
Our discount rates consider both the current interest rate environment and credit spreads.
The following table illustrates the sensitivity of fair market value estimates of the investment in
asset backed securities given independent changes in assumptions as of February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+10% |
|
|
+20% |
|
|
-10% |
|
|
-20% |
|
|
Gross yield |
|
|
$8,558 |
|
|
|
$17,139 |
|
|
|
$(8,534 |
) |
|
|
$(17,045 |
) |
Interest expense on issued classes |
|
|
(1,748 |
) |
|
|
(3,496 |
) |
|
|
1,748 |
|
|
|
3,496 |
|
Card holders payment rate |
|
|
(239 |
) |
|
|
(689 |
) |
|
|
(130 |
) |
|
|
(894 |
) |
Charge offs |
|
|
(2,970 |
) |
|
|
(5,904 |
) |
|
|
3,007 |
|
|
|
6,051 |
|
Discount rate |
|
|
(1,850 |
) |
|
|
(3,681 |
) |
|
|
1,868 |
|
|
|
3,756 |
|
|
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
These sensitivities are hypothetical and should be used with caution. The effect of an adverse
change in a particular assumption on the fair
value of the investment in asset backed securities is calculated without changing any other
assumption. Actual changes in one factor may
result in changes in another, which might alter the reported sensitivities.
The following table summarizes certain income, expenses and cash flows received from and paid to
the VISA Trust:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Principal collections reinvested in new
receivables |
|
|
$3,094,208 |
|
|
|
$2,597,499 |
|
|
|
$2,019,162 |
|
Gains on sales of receivables |
|
|
19,732 |
|
|
|
19,902 |
|
|
|
8,876 |
|
Income earned on beneficial interests |
|
|
75,065 |
|
|
|
54,396 |
|
|
|
46,645 |
|
Cash flows from beneficial interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in asset backed securities |
|
|
494,212 |
|
|
|
129,879 |
|
|
|
76,381 |
|
Servicing fees |
|
|
16,189 |
|
|
|
13,309 |
|
|
|
10,698 |
|
|
Net credit losses were $22,476, $25,386, and $23,169 for 2006, 2005, and 2004, and receivables
past due for more than 30 days were $15,560 and $10,059 at the end of 2006 and 2005.
The following table illustrates default projections using net credit losses as a percentage of
average outstanding receivables in comparison to actual performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Original projection |
|
|
2.83% |
|
|
|
3.46% |
|
|
|
4.04% |
|
Actual |
|
|
N/A |
|
|
|
2.76% |
|
|
|
3.76% |
|
|
Our continued involvement in the securitization of co-branded Nordstrom VISA credit card
receivables includes recording gains/losses on sales, recognizing income on investment in asset
backed securities, holding subordinated, non-subordinated and residual interests in the trust, and
servicing the portfolio.
NOTE 4:
LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Land and land improvements |
|
|
$65,137 |
|
|
|
$67,020 |
|
Buildings and building improvements |
|
|
812,074 |
|
|
|
796,686 |
|
Leasehold improvements |
|
|
1,269,176 |
|
|
|
1,190,041 |
|
Store fixtures and equipment |
|
|
1,984,041 |
|
|
|
1,919,200 |
|
Software |
|
|
285,341 |
|
|
|
265,951 |
|
Construction in progress |
|
|
131,561 |
|
|
|
84,532 |
|
|
|
|
|
4,547,330 |
|
|
|
4,323,430 |
|
Less accumulated depreciation and amortization |
|
|
(2,790,115 |
) |
|
|
(2,549,559 |
) |
|
Land,
buildings and equipment, net |
|
|
$1,757,215 |
|
|
|
$1,773,871 |
|
|
The total cost of buildings and equipment held under capital lease obligations was $20,035 at
the end of 2006 and 2005, with related accumulated amortization of $16,595 and $16,089. The
amortization of capitalized leased buildings and equipment of $506, $830, and $1,238 in 2006, 2005,
and 2004 was recorded in depreciation expense.
NOTE 5: EMPLOYEE BENEFITS
We provide a 401(k) and profit sharing plan for our employees. Our Board of Directors establishes
our profit sharing contribution each year. The 401(k) component is funded by voluntary employee
contributions and our matching contributions up to a fixed percentage of employee contributions.
Our expense related to the profit sharing component and matching
contributions to the
401(k) component totaled $73,261, $67,088, and $54,186 in 2006, 2005, and 2004.
40
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 6: INCOME TAXES
Income tax expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Current income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
$423,143 |
|
|
|
$311,996 |
|
|
|
$282,430 |
|
State and local |
|
|
62,785 |
|
|
|
38,100 |
|
|
|
45,091 |
|
|
Total current income tax expense |
|
|
485,928 |
|
|
|
350,096 |
|
|
|
327,521 |
|
|
Deferred income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(10,477 |
) |
|
|
(7,208 |
) |
|
|
(15,259 |
) |
Non-current |
|
|
(47,797 |
) |
|
|
(9,002 |
) |
|
|
(58,431 |
) |
|
Total deferred income tax benefit |
|
|
(58,274 |
) |
|
|
(16,210 |
) |
|
|
(73,690 |
) |
|
Total income tax expense |
|
|
$427,654 |
|
|
|
$333,886 |
|
|
|
$253,831 |
|
|
A reconciliation of the statutory Federal income tax rate to the effective tax rate on
earnings before income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Statutory rate |
|
|
35.0% |
|
|
|
35.0% |
|
|
|
35.0% |
|
State and local income taxes, net of federal
income taxes |
|
|
3.2 |
|
|
|
3.2 |
|
|
|
3.5 |
|
Change in valuation allowance |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.3 |
|
Other, net |
|
|
0.5 |
|
|
|
(0.4 |
) |
|
|
0.4 |
|
|
Effective tax rate |
|
|
38.7% |
|
|
|
37.7% |
|
|
|
39.2% |
|
|
Deferred income taxes reflect the net tax effect of temporary differences between amounts
recorded for financial reporting purposes and amounts used for tax purposes. The major components
of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Compensation and benefits accruals |
|
|
$85,638 |
|
|
|
$70,454 |
|
Accrued expenses |
|
|
52,630 |
|
|
|
53,629 |
|
Merchandise inventories |
|
|
24,964 |
|
|
|
23,206 |
|
Securitization |
|
|
23,767 |
|
|
|
7,892 |
|
Land, buildings and equipment basis and
depreciation differences |
|
|
14,613 |
|
|
|
|
|
Gift cards and gift certificates |
|
|
13,668 |
|
|
|
13,041 |
|
Merchandise certificates |
|
|
8,615 |
|
|
|
5,524 |
|
Bad debts |
|
|
6,477 |
|
|
|
5,528 |
|
Other |
|
|
|
|
|
|
1,581 |
|
|
Total deferred tax assets |
|
|
230,372 |
|
|
|
180,855 |
|
Land, buildings and equipment basis and
depreciation differences |
|
|
|
|
|
|
(16,892 |
) |
Other |
|
|
(8,423 |
) |
|
|
(8,720 |
) |
|
Total deferred tax liabilities |
|
|
(8,423 |
) |
|
|
(25,612 |
) |
|
Net deferred tax assets |
|
|
$221,949 |
|
|
|
$155,243 |
|
|
NOTE 7: LONG-TERM DEBT
A summary of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
Senior debentures, 6.95%, due March 2028 |
|
|
$300,000 |
|
|
|
$300,000 |
|
Senior notes, 5.625%, due January 2009 |
|
|
250,000 |
|
|
|
250,000 |
|
Private
Label Securitization, 4.82%, due October 2006 |
|
|
|
|
|
|
300,000 |
|
Mortgage payable, 7.68%, due April 2020 |
|
|
69,710 |
|
|
|
72,633 |
|
Other |
|
|
19,600 |
|
|
|
22,811 |
|
Fair market value of interest rate swap |
|
|
(8,858 |
) |
|
|
(11,050 |
) |
|
Total longterm debt |
|
|
630,452 |
|
|
|
934,394 |
|
Less current portion |
|
|
(6,800 |
) |
|
|
(306,618 |
) |
|
Total due beyond one year |
|
|
$623,652 |
|
|
|
$627,776 |
|
|
Nordstrom, Inc. and subsidiaries 41
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
We retired the $300,000 Private Label Securitization debt when it matured in October 2006.
Our mortgage payable is secured by an office building which had a net book value of $76,643 at the
end of 2006.
To manage our interest rate risk, we have an interest rate swap outstanding recorded in other
liabilities. Our swap has a $250,000 notional amount, expires in January 2009 and is designated as
a fully effective fair value hedge. Under the agreement, we receive a fixed rate of 5.63% and pay a
variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals (7.70% at February 3,
2007).
The fair value of long-term debt, including current maturities, using quoted market prices of the
same or similar issues, was $667,191 and $963,092 at the end of 2006 and 2005.
Required principal payments on long-term debt, excluding capital lease obligations and the fair
market value of the interest rate swap, are as follows:
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
2007 |
|
|
$5,843 |
|
2008 |
|
|
255,911 |
|
2009 |
|
|
6,355 |
|
2010 |
|
|
4,751 |
|
2011 |
|
|
5,167 |
|
Thereafter |
|
|
352,766 |
|
|
In November 2005, we replaced our existing $350,000 unsecured line of credit with a $500,000
unsecured line of credit, which is available as liquidity support for our commercial paper program.
Under the terms of the agreement, we pay a variable rate of interest and a commitment
fee based on our debt rating. Based upon our current debt rating, we pay a variable rate of
interest of LIBOR plus a margin of 0.225% (5.62%
at February 3, 2007) on the outstanding balance and an annual commitment fee of 0.075% on the total
capacity. The variable rate of interest increases to LIBOR plus a margin of 0.325% if more than
$250,000 is outstanding on the facility. The line of credit expires in November 2010,
and contains restrictive covenants, which include maintaining a leverage ratio. We did not make any
borrowings under this unsecured line of credit during 2006 or 2005.
In 2006, we renewed our existing variable funding facility backed by Nordstrom private label card
and VISA credit card receivables and increased the capacity of this facility from $150,000 to
$600,000. The annual renewal of this note requires both our approval and our issuing banks
approval and interest is paid based on the actual cost of commercial paper plus specified fees
ranging from 0.075% to 0.15%. As of February 3, 2007, the facilitys interest rate was 5.42%. We
also pay a commitment fee ranging from 0.125% to 0.15% for the note based on the amount of the
commitment. Fee rates decrease if more than $50,000 is outstanding on the facility. The facility
can be cancelled and renewal can be denied if our debt ratings fall below Standard and Poors BB+
rating or Moodys Ba1 rating. Our current rating by Standard and Poors is A, five grades above
BB+, and by Moodys is Baa1, three grades above Ba1.
In July 2006, the VISA Trust used this variable funding facility to issue $300,000 of Notes; in
September 2006, the VISA Trust used this facility to issue an additional $50,000 of Notes. As the
VISA Trust is a statutory business trust and the VISA credit card receivables transferred to it are
accounted for as a sale under SFAS 140, the obligations of the VISA Trust are not recorded in our
financial statements. The VISA Trust sent the proceeds from this note issuance to us in return for
a reduction in our interest in the VISA Trust equal to a $350,000 decrease in our share of the
principal balance of VISA credit card receivables in 2006.
The components of interest expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
Interest expense on long-term debt |
|
|
$62,409 |
|
|
|
$63,378 |
|
|
|
$88,518 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(14,654 |
) |
|
|
(13,273 |
) |
|
|
(7,929 |
) |
Capitalized interest |
|
|
(4,997 |
) |
|
|
(4,805 |
) |
|
|
(3,161 |
) |
|
Interest expense, net |
|
|
$42,758 |
|
|
|
$45,300 |
|
|
|
$77,428 |
|
|
42
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 8: LEASES
Future minimum lease payments as of February 3, 2007 are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Capital Leases |
|
|
Operating Leases |
|
2007 |
|
|
$1,946 |
|
|
|
$78,016 |
|
2008 |
|
|
1,946 |
|
|
|
75,383 |
|
2009 |
|
|
1,376 |
|
|
|
72,757 |
|
2010 |
|
|
1,270 |
|
|
|
68,589 |
|
2011 |
|
|
1,120 |
|
|
|
61,887 |
|
Thereafter |
|
|
5,869 |
|
|
|
293,627 |
|
|
Total minimum lease payments |
|
|
13,527 |
|
|
|
$650,259 |
|
Less amount representing interest |
|
|
(5,011 |
) |
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments |
|
|
$8,516 |
|
|
|
|
|
|
|
|
|
|
Rent expense for 2006, 2005, and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Minimum rent: |
|
|
|
|
|
|
|
|
|
|
|
|
Store locations |
|
|
$66,768 |
|
|
|
$62,036 |
|
|
|
$79,285 |
|
Offices, warehouses and equipment |
|
|
14,554 |
|
|
|
15,493 |
|
|
|
21,104 |
|
Percentage rent: |
|
|
|
|
|
|
|
|
|
|
|
|
Store locations |
|
|
12,202 |
|
|
|
10,607 |
|
|
|
9,214 |
|
Property incentives: |
|
|
(45,910 |
) |
|
|
(46,645 |
) |
|
|
(46,737 |
) |
|
Total rent expense |
|
|
$47,614 |
|
|
|
$41,491 |
|
|
|
$62,866 |
|
|
The rent expense above does not include common area maintenance costs of $16,391, $16,105, and
$17,527 in 2006, 2005, and 2004.
NOTE 9: SELF INSURANCE
We retain a portion of the risk for certain losses related to health and welfare, workers
compensation and general liability claims. Liabilities associated with these losses include
estimates of both losses reported and losses incurred but not yet reported. We estimate our
ultimate cost based on analysis of historical data and independent actuarial estimates.
|
|
|
Workers Compensation We have a deductible per claim of $1,000 or
less and no policy limits. Our workers compensation reserve was
$56,250 and $55,226 at the end of 2006 and 2005 and our expense was
$21,470, $12,804, and $29,263 in 2006, 2005, and 2004. |
|
|
|
|
General Liability We have a deductible per claim of $1,000 or less
and a policy limit up to $150,000. Our general liability insurance
reserve was $9,994 and $10,954 at the end of 2006 and 2005. |
|
|
|
|
Health and Welfare We are self insured for our health and welfare
coverage and we do not use stop-loss coverage. Participants contribute
to the cost of their coverage and are subject to certain plan limits
and deductibles. Our health and welfare reserve was $15,016 and
$12,100 at the end of 2006 and 2005. |
NOTE 10: POST-RETIREMENT BENEFITS
We have an unfunded Supplemental Executive Retirement Plan (SERP), which provides retirement
benefits to certain officers and select employees. This plan is non-qualified and does not have a
minimum funding requirement.
We adopted Statement No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (SFAS 158), effective February 3, 2007. The impact of the adoption of SFAS 158 is reflected within our consolidated
financial statements as of February 3, 2007. SFAS 158 requires the recognition of a plans
overfunded or underfunded status as an asset or liability in the
balance sheet and the recognition of changes in that funded status in the year in which the changes
occur through comprehensive income. The incremental effect of applying SFAS 158 is disclosed as
part of this footnote.
Nordstrom, Inc. and subsidiaries 43
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
The following table reflects the effects of the adoption of SFAS 158 on our consolidated balance
sheet as of February 3, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Application |
|
|
|
|
|
After Application |
|
|
of Statement 158 |
|
Adjustments |
|
of Statement 158 |
|
Other assets |
|
|
$184,449 |
|
|
|
$2,007 |
|
|
|
$186,456 |
|
Total assets |
|
|
4,819,571 |
|
|
|
2,007 |
|
|
|
4,821,578 |
|
Other liabilities |
|
|
228,564 |
|
|
|
11,636 |
|
|
|
240,200 |
|
Accumulated other comprehensive earnings (loss), net |
|
|
1,049 |
|
|
|
(9,629 |
) |
|
|
(8,580 |
) |
Total shareholders equity |
|
|
2,178,150 |
|
|
|
(9,629 |
) |
|
|
2,168,521 |
|
Total liabilities and shareholders equity |
|
|
$4,819,571 |
|
|
|
$2,007 |
|
|
|
$4,821,578 |
|
|
Amounts not yet reflected in net periodic benefit cost and included in accumulated other
comprehensive earnings (pre-tax) as of February 3, 2007, included prior service cost of $(4,149)
and accumulated loss of $(38,699). The amount included in accumulated other comprehensive income at
January 28, 2006 was $32,032.
The change in benefit obligation and plan assets for 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation at end of prior year |
|
|
$91,036 |
|
|
|
$69,598 |
|
Change in assumption |
|
|
|
|
|
|
11,559 |
|
|
Benefit obligation at beginning of year |
|
|
91,036 |
|
|
|
81,157 |
|
Participant service cost |
|
|
2,270 |
|
|
|
1,763 |
|
Interest cost |
|
|
5,331 |
|
|
|
4,748 |
|
Amendments |
|
|
|
|
|
|
893 |
|
Benefits paid |
|
|
(3,295 |
) |
|
|
(2,850 |
) |
Actuarial loss |
|
|
2,394 |
|
|
|
5,325 |
|
|
Benefit obligation at end of year |
|
|
$97,736 |
|
|
|
$91,036 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
|
|
|
|
|
|
Employer contribution |
|
|
$3,295 |
|
|
|
$2,850 |
|
Distributions |
|
|
(3,295 |
) |
|
|
(2,850 |
) |
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
Underfunded status |
|
$ |
(97,736 |
) |
|
$ |
(91,036 |
) |
|
Unrecognized prior service cost |
|
|
|
|
|
|
5,198 |
|
Unrecognized net loss |
|
|
|
|
|
|
39,258 |
|
Additional minimum liability |
|
|
|
|
|
|
(37,230 |
) |
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
|
|
|
|
$ |
(83,810 |
) |
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation was $86,100 at February 3, 2007 and $83,810 at January 28,
2006.
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
| January 28, 2006 |
|
Current liabilities |
|
|
$4,425 |
|
|
|
$2,982 |
|
Noncurrent liabilities |
|
|
93,311 |
|
|
|
43,598 |
|
Intangible asset included in other assets |
|
|
|
|
|
|
5,198 |
|
Deferred tax asset |
|
|
|
|
|
|
12,492 |
|
Accumulated other comprehensive loss, net of tax |
|
|
|
|
|
|
19,540 |
|
|
Net amount recognized |
|
$ |
97,736 |
|
|
$ |
83,810 |
|
|
44
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
The components of SERP expense and a summary of significant assumptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
| |
2005 |
| |
2004 |
|
Participant service cost |
|
|
$2,270 |
|
|
|
$1,763 |
|
|
|
$1,489 |
|
Interest cost |
|
|
5,331 |
|
|
|
4,747 |
|
|
|
3,965 |
|
Amortization of net loss |
|
|
2,953 |
|
|
|
2,615 |
|
|
|
1,543 |
|
Amortization of prior service cost |
|
|
1,049 |
|
|
|
962 |
|
|
|
962 |
|
|
Total expense |
|
|
$11,603 |
|
|
|
$10,087 |
|
|
|
$7,959 |
|
|
Assumption percentages: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.00% |
|
|
|
6.00% |
|
|
|
6.25% |
|
Rate of compensation increase |
|
|
4.00% |
|
|
|
4.00% |
|
|
|
4.00% |
|
Measurement date |
|
|
10/31/06 |
|
|
|
10/31/05 |
|
|
|
10/31/04 |
|
|
We used a discount rate for 2006 that was determined by constructing a hypothetical bond
portfolio based on bonds available on October 31, 2006 rated AA or better by either Moodys or Standard & Poors. This assumption was built to match the
expected benefit payments under the SERP.
In 2005, we updated the post-retirement mortality table to better anticipate future experience and
granted additional years of service for purposes of enhancing the SERP benefit for certain
mid-career new hires. In addition, we updated our assumptions relating to bonus payments.
As of October 31, 2006, the expected future benefit payments based upon the assumptions described
above and including benefits attributable to future employee service for the following periods are as follows:
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
2007 |
|
|
$4,425 |
|
2008 |
|
|
4,434 |
|
2009 |
|
|
4,474 |
|
2010 |
|
|
4,734 |
|
2011 |
|
|
4,879 |
|
2012-2016 |
|
|
32,494 |
|
|
In 2007, we expect $4,135 of costs currently in accumulated other comprehensive earnings to be
recognized as components of net periodic benefit cost. This cost includes $1,049 for prior service
cost and $3,086 for accumulated loss. We expect to make contributions to the plan of $4,425.
NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES
We are involved in routine claims, proceedings, and litigation arising in the normal course of our
business. We do not believe any such claim, proceeding or litigation, either alone or in aggregate,
will have a material impact on our results of operations, financial position, or liquidity.
We are routinely audited for tax compliance by the federal, state, local and foreign jurisdictions
in which we operate. The audits generally cover several years and issues raised in an audit can
impact other years that are available to be audited. While it is often difficult to predict whether
we will prevail, we believe that our tax reserves reflect the probable outcome of known tax
contingencies. We periodically reassess the amount of such reserves in light of changing facts and
circumstances and adjust reserve balances as necessary. We have accrued $17,600 for anticipated tax
and interest to be paid for our exposure items. Our income tax returns for 2002 through 2005 are
currently under examination by the IRS.
Our estimated total purchase obligations, capital expenditure contractual commitments and inventory
purchase orders were $1,070,023 as of February 3, 2007.
In connection with the purchase of foreign merchandise, we have outstanding import letters of
credit totaling $9,846 as of February 3, 2007.
Nordstrom, Inc. and subsidiaries 45
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 12: SHAREHOLDERS EQUITY AND STOCK COMPENSATION PLANS
Share Repurchase Program
In August 2004, our Board of Directors authorized $300,000 of share repurchases, replacing a
previous share repurchase authorization. By the end of 2004, we purchased 13,815 shares in the open
market for the entire authorized amount of $300,000 at an average price of $21.71 per share.
In February 2005, our Board of Directors authorized an additional $500,000 of share repurchases. In
2005, we purchased 8,494 shares for $287,080 at an average price of $33.80 per share. We utilized
the remainder of this authorization of $212,920 in the first quarter of 2006, purchasing 5,422
shares at an average price of $39.27 per share.
In May 2006, our Board of Directors authorized additional share repurchases of $1,000,000. In 2006,
we repurchased 11,123 shares under this authorization for $408,607 at an average price of $36.74.
As of February 3, 2007, the unused authorization was $591,394. The actual amount and timing of
future share repurchases will be subject to market conditions and applicable SEC rules.
Dividends
In 2006, we paid dividends of $0.42 per share, the tenth consecutive year that our annual dividends
increased. We paid dividends of $0.32 and $0.24 in 2005 and 2004.
Stock Option Plans
In 2004, our shareholders approved the 2004 Equity Incentive Plan. We currently grant stock
options, performance share units and common shares under this plan.
STOCK OPTIONS
As of February 3, 2007, we have options outstanding under three stock option plans (collectively,
the Nordstrom, Inc. Plans). Options vest over periods ranging from four to eight years, and
expire ten years after the date of grant. A summary of stock option activity under the Nordstrom,
Inc. Plans is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
Shares |
|
| Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
|
Shares |
|
|
Exercise Price |
|
Outstanding, beginning of year |
|
|
14,344 |
|
|
|
$15 |
|
|
|
18,320 |
|
|
|
$13 |
|
|
|
23,368 |
|
|
|
$12 |
|
Granted |
|
|
1,941 |
|
|
|
40 |
|
|
|
2,564 |
|
|
|
26 |
|
|
|
2,830 |
|
|
|
20 |
|
Exercised |
|
|
(3,838 |
) |
|
|
13 |
|
|
|
(5,822 |
) |
|
|
13 |
|
|
|
(7,239 |
) |
|
|
12 |
|
Cancelled |
|
|
(591 |
) |
|
|
25 |
|
|
|
(718 |
) |
|
|
16 |
|
|
|
(639 |
) |
|
|
13 |
|
|
Outstanding, end of year |
|
|
11,856 |
|
|
|
$19 |
|
|
|
14,344 |
|
|
|
$15 |
|
|
|
18,320 |
|
|
|
$13 |
|
|
Options exercisable at end of year |
|
|
5,990 |
|
|
|
$13 |
|
|
|
6,128 |
|
|
|
$12 |
|
|
|
7,877 |
|
|
|
$13 |
|
|
In 2006, 2005 and 2004, stock option awards to employees were approved by the Compensation
Committee of our Board of Directors and their exercise price was set at the closing price of our
common stock on the Committee meeting date. The stock option awards provide recipients with the
opportunity for financial rewards when our stock price increases. The awards are determined based
upon a percentage of the recipients base salary and the fair value of the stock options, which was
estimated using an option pricing model. The fair value per stock option was $16 in 2006 (using a
Binomial Lattice option valuation model), $10 in 2005 and $11 in 2004 (using the Black-Scholes
option valuation model). For the year ended February 3, 2007, we awarded stock options to 1,236
employees compared to 1,207 employees in the same period in 2005.
The total intrinsic value of options exercised during the years ended February 3, 2007 and January
28, 2006 was $111,011 and $102,371. The total fair value of stock options vested during fiscal
years 2006, 2005 and 2004 was $30,087, $26,541 and $24,333. As of February 3, 2007, the total
unrecognized stock-based compensation expense related to nonvested stock options was $40,007, which
is expected to be recognized over a weighted average period of 29 months. The aggregate intrinsic
value of options outstanding as of February 3, 2007 was $441,321.
As of February 3, 2007, 11,432 options were vested or expected to vest with a total intrinsic value
of $441,321. The weighted average exercise price of options vested or expected to vest was $19.46
as of February 3, 2007. The weighted average exercise life of options vested or expected to vest
was six years.
46
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
The following table summarizes information about stock options outstanding for the Nordstrom, Inc.
Plans as of February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
| |
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
Remaining Contractual |
|
|
Weighted-Average |
|
|
|
|
|
|
Remaining Contractual |
|
|
Weighted-Average |
Range of Exercise Prices |
|
Shares |
|
|
Life (Years) |
|
|
Exercise Price |
|
|
Shares |
|
|
Life (Years) |
|
|
Exercise Price |
|
|
|
$8.03 - $9.00 |
|
|
2,722 |
|
|
|
6 |
|
|
|
$9 |
|
|
|
1,717 |
|
|
|
6 |
|
|
|
$9 |
|
$9.01 - $13.00 |
|
|
2,353 |
|
|
|
4 |
|
|
|
12 |
|
|
|
2,316 |
|
|
|
4 |
|
|
|
12 |
|
$13.01 - $20.00 |
|
|
3,009 |
|
|
|
5 |
|
|
|
19 |
|
|
|
1,576 |
|
|
|
4 |
|
|
|
18 |
|
$20.01 - $40.27 |
|
|
3,772 |
|
|
|
9 |
|
|
|
33 |
|
|
|
381 |
|
|
|
8 |
|
|
|
26 |
|
|
|
|
|
|
|
11,856 |
|
|
|
6 |
|
|
|
$19 |
|
|
|
5,990 |
|
|
|
5 |
|
|
|
$13 |
|
|
|
|
PERFORMANCE SHARE UNITS
We grant performance share units to align certain elements of our senior management compensation
with our shareholder returns. Performance share units vest after a three-year performance period
only when our total shareholder return (growth in stock price and reinvestment of dividends) is
positive and outperforms companies in a defined peer group of direct competitors determined by the
Compensation Committee of our Board of Directors. The percentage of units that vest depends on our
relative position at the end of the performance period and can range from 0% to 125% of the number
of units granted. As participants may elect to exchange each unit earned for one share of stock or
the cash equivalent, these units are classified as a liability award.
At the end of each period, we record the performance share unit liability based on the vesting
factors described above. As of February 3, 2007 and January 28, 2006, our liabilities included
$12,653 and $16,927 for the units. For the years ended February 3, 2007, January 28, 2006 and
January 29, 2005, stock-based compensation expense was $7,036, $11,672 and $7,816. As of February
3, 2007, the remaining unrecognized
stock-based compensation expense related to nonvested performance share units was $4,279, which is
expected to be recognized over a weighted average period of 19 months. At January 29, 2006, 412,648
units were unvested. During the year ended February 3, 2007, 68,092 units were granted, 216,865
units vested and 8,408 units cancelled, resulting in an ending balance of 255,467 unvested units as
of February 3, 2007.
The following table summarizes the information for performance share units that vested during the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Number of performance share units vested |
|
|
216,865 |
|
|
|
336,892 |
|
|
|
455,762 |
|
Total fair value of performance share units vested |
|
|
$11,310 |
|
|
|
$10,159 |
|
|
|
$27,488 |
|
Total amount of performance share units settled for cash |
|
|
$5,982 |
|
|
|
$1,836 |
|
|
|
$4,977 |
|
|
Nonemployee Director Stock Incentive Plan
The Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to our
nonemployee directors. These awards may be deferred or issued in the form of restricted or
unrestricted stock, nonqualified stock options or stock appreciation rights. We issued 4,795 shares
of unrestricted stock for a total expense of $169 in 2006. An additional 14,872 shares were
deferred for a total expense of $519. As of February 3, 2007, we had 754,536 remaining shares
available for issuance.
Employee Stock Purchase Plan
We offer an Employee Stock Purchase Plan (ESPP) as a benefit to our employees. Employees may make
payroll deductions of up to ten percent of their base and bonus compensation. At the end of each
six-month offering period, participants may purchase shares of our common stock at 90% of the fair
market value on the last day of each offer period. Beginning in 2006, we recorded compensation
expense over the purchase period at the fair value of the ESPP at the end of each reporting period.
We issued 446 shares under the ESPP during the year ended February 3, 2007. As of February 3, 2007
and January 28, 2006, we had current liabilities of $5,855 and $5,497 for future purchase of shares
under the ESPP.
Nordstrom, Inc. and subsidiaries 47
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 13: ACCUMULATED OTHER COMPREHENSIVE EARNINGS
The following table shows the components of accumulated other comprehensive earnings, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
|
January 28, 2006 |
|
|
January 29, 2005 |
|
Foreign currency translation |
|
|
$15,770 |
|
|
|
$14,461 |
|
|
|
$16,276 |
|
Fair value adjustment to asset
backed securities |
|
|
4,982 |
|
|
|
7,787 |
|
|
|
4,857 |
|
Unrecognized loss on SERP,
prior to adoption of SFAS 158 |
|
|
(16,508 |
) |
|
|
(19,540 |
) |
|
|
(11,798 |
) |
Adjustment to initially apply
SFAS 158 |
|
|
(12,824 |
) |
|
|
|
|
|
|
|
|
|
Total accumulated other
comprehensive earnings |
|
|
$(8,580 |
) |
|
|
$2,708 |
|
|
|
$9,335 |
|
|
Included in our adjustment to initially apply SFAS 158 is our SERP, discussed in Note 10, and
our employee retiree medical plan. Adoption of SFAS 158 had a $(3,195) (net of tax of $2,042)
impact to accumulated other comprehensive earnings for the retiree medical plan.
NOTE 14: EARNINGS PER SHARE
Earnings per basic share is computed using the weighted average number of common shares outstanding
during the year. Earnings per diluted share uses the weighted average number of common shares
outstanding during the year plus dilutive common stock equivalents, primarily stock options and
performance share units.
Options and other equity instruments totaling 1,883 shares in 2006 and 144 shares in 2005 were
excluded from earnings per diluted share because their impact was anti-dilutive. There were no
anti-dilutive options or other equity instruments in 2004.
Since the beginning of 2004, 16,899 shares have been issued upon the exercise of stock options; we
repurchased 38,857 shares in 2006, 2005, and 2004.
The computation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net earnings |
|
$ |
677,999 |
|
|
$ |
551,339 |
|
|
$ |
393,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
260,689 |
|
|
|
271,958 |
|
|
|
278,993 |
|
Dilutive effect of stock
options and performance
share units |
|
|
5,023 |
|
|
|
5,818 |
|
|
|
5,540 |
|
|
Diluted shares |
|
|
265,712 |
|
|
|
277,776 |
|
|
|
284,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per basic share |
|
|
$2.60 |
|
|
|
$2.03 |
|
|
|
$1.41 |
|
Earnings per diluted share |
|
|
$2.55 |
|
|
|
$1.98 |
|
|
|
$1.38 |
|
|
NOTE 15: SEGMENT REPORTING
We offer three channels through which our customers can shop: Full-Line and Rack retail stores and
Nordstrom Direct (online and catalog). Our goal is to create an integrated, consistent merchandise
offering for our customers regardless of which channel they choose. These three channels meet the
aggregation criteria set forth in Statement No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131) with the exception of distribution method. Nordstrom Direct
sells merchandise via our online store and the catalog as opposed to in a retail store. As such, we
aggregate our Full-Line and Rack stores into the Retail Stores segment and report Direct as a separate segment.
The Credit segment earns finance charges and securitization gains and losses through operation of
the Nordstrom private label and co-branded VISA credit cards. Intersegment revenues consist of
interchange fees charged to our other segments.
The Other segment includes our Façonnable stores, our product development group, which coordinates
the design and production of private label merchandise sold in our retail stores, and our
distribution network. This segment also includes our corporate center operations.
Beginning in September 2005, we changed our internal method for recognizing returns of Direct sales
at Retail Stores. Previously, these returns were recognized in the Direct segment and now they are
recognized in the Retail Stores segment. We have adjusted our previously disclosed segment
information for 2005 and 2004 to present those years consistent with the 2006 method.
48
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
The following table summarizes the net sales by merchandise category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Womens apparel |
|
$ |
2,963,134 |
|
|
$ |
2,709,563 |
|
|
$ |
2,577,489 |
|
Shoes |
|
|
1,731,278 |
|
|
|
1,590,877 |
|
|
|
1,454,415 |
|
Mens apparel |
|
|
1,561,175 |
|
|
|
1,388,713 |
|
|
|
1,250,546 |
|
Cosmetics |
|
|
941,541 |
|
|
|
847,391 |
|
|
|
767,132 |
|
Womens accessories |
|
|
847,334 |
|
|
|
720,334 |
|
|
|
636,227 |
|
Childrens apparel |
|
|
286,153 |
|
|
|
266,225 |
|
|
|
246,079 |
|
Other |
|
|
230,083 |
|
|
|
199,757 |
|
|
|
199,500 |
|
|
Total |
|
$ |
8,560,698 |
|
|
$ |
7,722,860 |
|
|
$ |
7,131,388 |
|
|
The following table presents our sales by merchandise category as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Womens apparel |
|
|
35 |
% |
|
|
35 |
% |
|
|
36 |
% |
Shoes |
|
|
20 |
% |
|
|
21 |
% |
|
|
20 |
% |
Mens apparel |
|
|
18 |
% |
|
|
18 |
% |
|
|
18 |
% |
Cosmetics |
|
|
11 |
% |
|
|
11 |
% |
|
|
11 |
% |
Womens accessories |
|
|
10 |
% |
|
|
9 |
% |
|
|
9 |
% |
Childrens apparel |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
Other |
|
|
3 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
In general, we use the same measurements to compute earnings before income tax expense for
reportable segments as we do for the consolidated company. However, redemptions of our merchandise
rewards certificates are included in net sales for our Retail Stores segment. The sales amount in
our Other segment includes an entry to eliminate these transactions from our consolidated net
sales. There is no impact to earnings before income tax expense for this adjustment. In addition,
our sales return reserve for our Retail Stores segment is recorded in the Other segment. Other than
described above, the accounting policies of the operating segments are the same as those described
in the summary of significant accounting policies in Note 1.
Nordstrom, Inc. and subsidiaries 49
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
The following tables set forth the information for our reportable segments and a reconciliation to
the consolidated totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2006 |
|
|
Stores |
|
|
Credit |
|
|
Direct |
|
|
Other |
|
| |
Eliminations |
|
|
Total |
|
Net sales (a) |
|
|
$7,900,152 |
|
|
|
|
|
|
|
$555,504 |
|
|
|
$105,042 |
|
|
|
|
|
|
|
$8,560,698 |
|
Net sales increase |
|
|
10.0% |
|
|
|
N/A |
|
|
|
23.0% |
|
|
|
20.3% |
|
|
|
N/A |
|
|
|
10.8% |
|
Intersegment revenues |
|
|
|
|
|
|
$43,431 |
|
|
|
|
|
|
|
|
|
|
|
$(43,431 |
) |
|
|
|
|
Interest
expense, net (b) |
|
|
|
|
|
|
(26,770 |
) |
|
|
|
|
|
|
(15,988 |
) |
|
|
|
|
|
|
(42,758 |
) |
Other income
(expense) including
finance charges, net |
|
|
(11,412 |
) |
|
|
257,065 |
|
|
|
(798 |
) |
|
|
(6,330 |
) |
|
|
|
|
|
|
238,525 |
|
Depreciation and amortization |
|
|
236,565 |
|
|
|
848 |
|
|
|
3,432 |
|
|
|
43,675 |
|
|
|
|
|
|
|
284,520 |
|
Earnings before income tax expense |
|
|
1,185,401 |
|
|
|
60,396 |
|
|
|
140,348 |
|
|
|
(280,492 |
) |
|
|
|
|
|
|
1,105,653 |
|
Earnings before income tax expense
as a percentage of net sales |
|
|
15.0% |
|
|
|
N/A |
|
|
|
25.3% |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
12.9% |
|
Goodwill |
|
|
8,462 |
|
|
|
|
|
|
|
15,716 |
|
|
|
27,536 |
|
|
|
|
|
|
|
51,714 |
|
Acquired tradename |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,000 |
|
|
|
|
|
|
|
84,000 |
|
Assets (c) |
|
|
2,305,617 |
|
|
|
1,063,151 |
|
|
|
105,361 |
|
|
|
1,347,449 |
|
|
|
|
|
|
|
4,821,578 |
|
Capital expenditures |
|
|
224,434 |
|
|
|
772 |
|
|
|
3,243 |
|
|
|
35,988 |
|
|
|
|
|
|
|
264,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2005 |
|
Stores |
|
|
Credit |
|
|
Direct |
|
|
Other |
|
| |
Eliminations |
|
|
Total |
|
Net sales (a) |
|
|
$7,183,918 |
|
|
|
|
|
|
|
$451,641 |
|
|
|
$87,301 |
|
|
|
|
|
|
|
$7,722,860 |
|
Net sales increase |
|
|
8.3% |
|
|
|
N/A |
|
|
|
1.1% |
|
|
|
62.1% |
|
|
|
N/A |
|
|
|
8.3% |
|
Intersegment revenues |
|
|
|
|
|
|
$38,947 |
|
|
|
|
|
|
|
|
|
|
|
$(38,947 |
) |
|
|
|
|
Interest
expense, net (b) |
|
|
|
|
|
|
(26,216 |
) |
|
|
|
|
|
|
(19,084 |
) |
|
|
|
|
|
|
(45,300 |
) |
Other income
(expense) including
finance charges, net |
|
|
(10,588 |
) |
|
|
224,677 |
|
|
|
29 |
|
|
|
(17,764 |
) |
|
|
|
|
|
|
196,354 |
|
Depreciation and amortization |
|
|
223,258 |
|
|
|
1,209 |
|
|
|
2,693 |
|
|
|
49,168 |
|
|
|
|
|
|
|
276,328 |
|
Earnings before income tax
expense |
|
|
982,065 |
|
|
|
49,677 |
|
|
|
94,601 |
|
|
|
(241,118 |
) |
|
|
|
|
|
|
885,225 |
|
Earnings before income tax
expense
as a percentage of net sales |
|
|
13.7% |
|
|
|
N/A |
|
|
|
20.9% |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
11.5% |
|
Goodwill |
|
|
8,462 |
|
|
|
|
|
|
|
15,716 |
|
|
|
27,536 |
|
|
|
|
|
|
|
51,714 |
|
Acquired tradename |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,000 |
|
|
|
|
|
|
|
84,000 |
|
Assets (c) |
|
|
2,285,259 |
|
|
|
1,164,472 |
|
|
|
85,082 |
|
|
|
1,386,536 |
|
|
|
|
|
|
|
4,921,349 |
|
Capital expenditures |
|
|
232,198 |
|
|
|
925 |
|
|
|
2,850 |
|
|
|
35,686 |
|
|
|
|
|
|
|
271,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2004 |
|
Stores |
|
|
Credit |
|
|
Direct |
|
|
Other |
|
| |
Eliminations |
|
|
Total |
|
Net sales (a) |
|
|
$6,630,764 |
|
|
|
|
|
|
|
$446,778 |
|
|
|
$53,846 |
|
|
|
|
|
|
|
$7,131,388 |
|
Net sales increase (decrease) |
|
|
9.7% |
|
|
|
N/A |
|
|
|
31.9% |
|
|
|
(16.9% |
) |
|
|
N/A |
|
|
|
10.6% |
|
Intersegment revenues |
|
|
|
|
|
|
$36,645 |
|
|
|
|
|
|
|
|
|
|
|
$(36,645 |
) |
|
|
|
|
Interest
expense, net (b) |
|
|
|
|
|
|
(23,522 |
) |
|
|
148 |
|
|
|
(54,054 |
) |
|
|
|
|
|
|
(77,428 |
) |
Other income
(expense) including
finance charges, net |
|
|
(10,717 |
) |
|
|
202,359 |
|
|
|
(208 |
) |
|
|
(18,492 |
) |
|
|
|
|
|
|
172,942 |
|
Depreciation and amortization |
|
|
209,321 |
|
|
|
1,107 |
|
|
|
4,395 |
|
|
|
49,946 |
|
|
|
|
|
|
|
264,769 |
|
Earnings before income tax
expense |
|
|
820,571 |
|
|
|
39,503 |
|
|
|
70,046 |
|
|
|
(282,839 |
) |
|
|
|
|
|
|
647,281 |
|
Earnings before income tax
expense
as a percentage of net sales |
|
|
12.4% |
|
|
|
N/A |
|
|
|
15.7% |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
9.1% |
|
Goodwill |
|
|
8,462 |
|
|
|
|
|
|
|
15,716 |
|
|
|
27,536 |
|
|
|
|
|
|
|
51,714 |
|
Acquired tradename |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,000 |
|
|
|
|
|
|
|
84,000 |
|
Assets (c) |
|
|
2,258,762 |
|
|
|
1,030,941 |
|
|
|
103,961 |
|
|
|
1,211,726 |
|
|
|
|
|
|
|
4,605,390 |
|
Capital expenditures |
|
|
207,599 |
|
|
|
605 |
|
|
|
6,196 |
|
|
|
32,451 |
|
|
|
|
|
|
|
246,851 |
|
|
|
|
|
(a) |
|
Net sales in Other include foreign sales of $104,101, $93,851, and $94,994 for 2006, 2005, and 2004. |
|
(b) |
|
Interest income of $13,309, $12,374, and $5,574 for 2006, 2005, and 2004 is recorded in our Other segment as an offset to interest expense, net. |
|
(c) |
|
Assets in Other include foreign assets of $211,802, $204,865, and $207,095 at the end of
2006, 2005, and 2004. It also includes unallocated assets in corporate headquarters,
consisting primarily of cash, land, buildings and equipment, and deferred tax assets. |
50
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 16: SELECTED QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2006 |
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
Total |
|
Net sales |
|
|
$1,787,223 |
|
|
|
$2,270,468 |
|
|
|
$1,872,103 |
|
|
|
$2,630,904 |
|
|
|
$8,560,698 |
|
Same-store sales
percentage change |
|
|
5.4% |
|
|
|
5.7% |
|
|
|
10.7% |
|
|
|
8.3% |
|
|
|
7.5% |
|
Gross profit |
|
|
664,220 |
|
|
|
823,835 |
|
|
|
711,980 |
|
|
|
1,006,714 |
|
|
|
3,206,749 |
|
Earnings before income tax
expense |
|
|
213,087 |
|
|
|
292,351 |
|
|
|
221,170 |
|
|
|
379,045 |
|
|
|
1,105,653 |
|
Net earnings |
|
|
131,231 |
|
|
|
178,754 |
|
|
|
135,673 |
|
|
|
232,341 |
|
|
|
677,999 |
|
Net earnings as a
percentage of
net sales |
|
|
7.3% |
|
|
|
7.9% |
|
|
|
7.2% |
|
|
|
8.8% |
|
|
|
7.9% |
|
Earnings per basic share |
|
|
$0.49 |
|
|
|
$0.68 |
|
|
|
$0.53 |
|
|
|
$0.90 |
|
|
|
$2.60 |
|
Earnings per diluted share |
|
|
$0.48 |
|
|
|
$0.67 |
|
|
|
$0.52 |
|
|
|
$0.89 |
|
|
|
$2.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2005 |
|
1st Quarter |
|
|
2nd Quarter |
|
|
3rd Quarter |
|
|
4th Quarter |
|
|
Total |
|
Net sales |
|
|
$1,654,474 |
|
|
|
$2,106,438 |
|
|
|
$1,666,130 |
|
|
|
$2,295,818 |
|
|
|
$7,722,860 |
|
Same-store sales
percentage change |
|
|
6.2% |
|
|
|
6.2% |
|
|
|
5.9% |
|
|
|
5.8% |
|
|
|
6.0% |
|
Gross profit |
|
|
608,309 |
|
|
|
758,923 |
|
|
|
607,678 |
|
|
|
859,927 |
|
|
|
2,834,837 |
|
Earnings before income tax
expense |
|
|
172,980 |
|
|
|
241,793 |
|
|
|
163,012 |
|
|
|
307,440 |
|
|
|
885,225 |
|
Net earnings |
|
|
104,538 |
|
|
|
148,918 |
|
|
|
107,453 |
|
|
|
190,430 |
|
|
|
551,339 |
|
Net earnings as a
percentage of
net sales |
|
|
6.3% |
|
|
|
7.1% |
|
|
|
6.4% |
|
|
|
8.3% |
|
|
|
7.1% |
|
Earnings per basic share |
|
|
$0.38 |
|
|
|
$0.54 |
|
|
|
$0.40 |
|
|
|
$0.71 |
|
|
|
$2.03 |
|
Earnings per diluted share |
|
|
$0.38 |
|
|
|
$0.53 |
|
|
|
$0.39 |
|
|
|
$0.69 |
|
|
|
$1.98 |
|
|
Nordstrom, Inc. and subsidiaries 51
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
As of the end of the period covered by this Annual Report on Form 10-K, we performed an
evaluation under the supervision and with the participation of management, including our President
and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules
13a-15(e) or 15d-15(e) under the Securities and Exchange Act of 1934 (the Exchange Act)). Based
upon that evaluation, our President and our Chief Financial Officer concluded that, as of the end
of the period covered by this Annual Report, our disclosure controls and procedures are effective
in the timely recording, processing, summarizing and reporting of material financial and
non-financial information.
There have been no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
The following information required under this item is filed as part of this report:
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant.
The information required under this item is included in the following sections of our Proxy
Statement for our 2007 Annual Meeting of Shareholders, which sections are incorporated by reference
herein and will be filed within 120 days after the end of our fiscal year:
Executive Officers
Election of Directors
Board Committees
Director Nominating Process
Web site Access to Corporate Governance Documents
Section 16(a) Beneficial Ownership Reporting Compliance
Corporate Governance
The certifications of our President and Chief Financial Officer required pursuant to Sections 302
and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits to this Annual Report on Form
10-K and were included as exhibits to each of our quarterly reports on Form 10-Q. Our President
certified to the New York Stock Exchange (NYSE) on June 1, 2006 pursuant to Section 303A.12(a) of
the NYSEs listing standards, that he was not aware of any violation by the Company of the NYSEs
corporate governance listing standards as of that date.
Item 11. Executive Compensation.
The information required under this item is included in the following sections of our Proxy
Statement for our 2007 Annual Meeting of Shareholders, which sections are incorporated by reference
herein and will be filed within 120 days after the end of our fiscal year:
Compensation of Executive Officers
Compensation Committee Report
Director Compensation
Compensation Committee Interlocks and Insider Participation
52
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters.
The information required under this item is included in the following section of our Proxy
Statement for our 2007 Annual Meeting of Shareholders, which sections are incorporated by reference
herein and will be filed within 120 days after the end of our fiscal year:
Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plans
Item 13. Certain Relationships and Related Transactions.
The information required under this item is included in the following sections of our Proxy
Statement for our 2007 Annual Meeting of Shareholders, which sections are incorporated by reference
herein and will be filed within 120 days after the end of our fiscal year:
Election of Directors
Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services.
The information required under this item is included in the following section of our Proxy
Statement for our 2007 Annual Meeting of Shareholders, which section is incorporated by reference
herein and will be filed within 120 days after the end of our fiscal year:
Ratification of the Appointment of Independent Registered Public Accounting Firm
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following information required under this item is filed as part of this report:
(a)1. FINANCIAL STATEMENTS
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Page |
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26 |
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26 |
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27 |
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28 |
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29 |
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30 |
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31 |
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32 |
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(a)2. FINANCIAL STATEMENT SCHEDULE
(a)3. EXHIBITS
Exhibits are incorporated herein by reference or are filed with this report as set forth in the
Index to Exhibits on pages 58 through 62 hereof.
All other schedules and exhibits are omitted because they are not applicable, not required, or
because the information required has been given as part of this report.
Nordstrom, Inc. and subsidiaries 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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|
NORDSTROM, INC.
(Registrant) |
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/s/ Michael G. Koppel |
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Michael G. Koppel
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
Date: March 23, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the date
indicated.
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Principal Financial Officer: |
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Principal Executive Officer: |
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/s/
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|
Michael G. Koppel
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/s/
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Blake W. Nordstrom |
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|
Michael G. Koppel
|
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|
Blake W. Nordstrom |
Executive Vice President and Chief Financial Officer
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President |
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Principal Accounting Officer: |
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/s/
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Peter F. Collins |
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Peter F. Collins |
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|
Divisional Vice President and Corporate Controller |
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Directors: |
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/s/
|
|
Phyllis J. Campbell
|
|
/s/
|
|
Enrique Hernandez, Jr. |
|
|
|
|
|
Phyllis J. Campbell
|
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|
|
Enrique Hernandez, Jr. |
|
|
Director
|
|
Non-executive Chairman of the Board of Directors |
|
|
|
|
|
|
|
/s/
|
|
Jeanne P. Jackson
|
|
/s/
|
|
Robert G. Miller |
|
|
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|
|
Jeanne P. Jackson
|
|
|
|
Robert G. Miller |
|
|
Director
|
|
|
|
Director |
|
|
|
|
|
|
|
/s/
|
|
Blake W. Nordstrom
|
|
/s/
|
|
Erik B. Nordstrom |
|
|
|
|
|
Blake W. Nordstrom
|
|
|
|
Erik B. Nordstrom |
|
|
Director
|
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|
|
Director |
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|
|
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|
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/s/
|
|
Peter E. Nordstrom
|
|
/s/
|
|
Philip G. Satre |
|
|
|
|
|
Peter E. Nordstrom
|
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|
|
Philip G. Satre |
|
|
Director
|
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|
|
Director |
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|
|
|
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/s/
|
|
Alison A. Winter |
|
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|
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|
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|
|
Alison A. Winter |
|
|
|
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|
|
Director |
|
|
|
|
Date: March 23, 2007
54
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nordstrom, Inc.
We consent to the incorporation by reference in Registration Statement Nos. 033-18321, 333-63403,
333-40064, 333-40066,
333-79791, 333-101110, and 333-118756 on Form S-8 and Nos. 333-59840 and 333-69281 on Form S-3 of
our reports dated March 22, 2007, relating to the consolidated financial statements and financial statement schedule of
Nordstrom, Inc. (which report expressed an unqualified opinion and included an explanatory
paragraph regarding the change in accounting for stock-based compensation upon adoption of
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment), and managements
report on the effectiveness of internal control over financial reporting, appearing in this Annual
Report on Form 10-K of Nordstrom, Inc. for the fiscal year ended February 3, 2007.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 22, 2007
Nordstrom, Inc. and subsidiaries 55
NORDSTROM, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
|
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|
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|
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|
|
|
|
|
|
Column A |
|
Column B |
|
Column C |
|
Column D |
|
Column E |
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
Balance at beginning |
|
Charged to costs |
|
|
|
|
|
Balance at end |
Description |
|
of period |
|
and expenses |
|
Deductions |
|
of period |
|
Deducted from related balance sheet account |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
$ |
17,926 |
|
|
|
$17,197 |
|
|
$ |
17,648 |
(A) |
|
$ |
17,475 |
|
January 28, 2006 |
|
$ |
19,065 |
|
|
|
$20,918 |
|
|
$ |
22,057 |
(A) |
|
$ |
17,926 |
|
January 29, 2005 |
|
$ |
20,320 |
|
|
|
$24,639 |
|
|
$ |
25,894 |
(A) |
|
$ |
19,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales return, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007 |
|
$ |
51,172 |
|
|
|
$893,651 |
|
|
$ |
890,277 |
(B) |
|
$ |
54,546 |
|
January 28, 2006 |
|
$ |
49,745 |
|
|
|
$805,288 |
|
|
$ |
803,861 |
(B) |
|
$ |
51,172 |
|
January 29, 2005 |
|
$ |
39,841 |
|
|
|
$725,982 |
|
|
$ |
716,078 |
(B) |
|
$ |
49,745 |
|
|
|
|
|
(A) |
|
Deductions consist of write-offs of uncollectible accounts, net of recoveries.
|
|
(B) |
|
Deductions consist of actual returns offset by the value of the merchandise returned and the sales commission reversed. |
56
[This page intentionally left blank.]
Nordstrom,
Inc. and subsidiaries 57
Nordstrom, Inc. and Subsidiaries
Exhibit Index
|
|
|
|
|
|
|
Exhibit |
|
Method of Filing |
|
3.1
|
|
Articles of Incorporation as amended and restated on May
24, 2005
|
|
Incorporated by reference from the
Registrants Form 8-K filed on May 31,
2005, Exhibit 3.1 |
|
|
|
|
|
3.2
|
|
Bylaws, as amended and restated on February 21, 2007
|
|
Incorporated by reference from the
Registrants Form 8-K filed on February
23, 2007, Exhibit 3.2 |
|
|
|
|
|
4.1
|
|
Indenture between Registrant and Norwest Bank Colorado,
N.A., as trustee, dated March 11, 1998
|
|
Incorporated by reference from
Registration No. 333-47035, Exhibit 4.1 |
|
|
|
|
|
4.2
|
|
Senior indenture between Registrant and Norwest Bank
Colorado, N.A., as trustee, dated January 13, 1999
|
|
Incorporated by reference from
Registration No. 333-69281, Exhibit 4.3 |
|
|
|
|
|
4.3
|
|
Form of Subordinated Indenture between Registrant and
Norwest Bank Colorado, N.A., as trustee, dated January
13, 1999
|
|
Incorporated by reference from
Registration No. 333-69281, Exhibit 4.4 |
|
|
|
|
|
10.1
|
|
Merchant Agreement dated August 30, 1991 between
Registrant and Nordstrom National Credit Bank
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended July 31,
1991,
Exhibit 10.1 |
|
|
|
|
|
10.2
|
|
Nordstrom Supplemental Executive
Retirement Plan (2003 Restatement)
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended November 1,
2003, Exhibit 10.1 |
|
|
|
|
|
10.3
|
|
Investment Agreement dated October 8, 1984 between the
Registrant and Nordstrom Credit, Inc.
|
|
Incorporated by reference from the
Nordstrom Credit, Inc. Form 10, Exhibit
10.1 |
|
|
|
|
|
10.4
|
|
1997 Nordstrom Stock Option Plan, amended and restated on
February 16, 2000
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended August 2,
2003, Exhibit 10.1 |
|
|
|
|
|
10.5
|
|
Nordstrom 401(K) Plan & Profit Sharing, as amended and
restated on
January 1, 2004
|
|
Incorporated by reference from the
Registrants Annual Report on Form 11-K
for the year ended December 31, 2003,
Exhibit 99.2 |
|
|
|
|
|
10.6
|
|
Amendment 2005-1 to the Nordstrom 401(k) Plan & Profit
Sharing dated January 1, 2004
|
|
Incorporated by reference from the
Registrants Annual Report on Form 10-K
for the year ended January 28, 2006,
Exhibit 10.6 |
|
|
|
|
|
10.7
|
|
Amendment 2005-2 to the Nordstrom 401(k) Plan & Profit
Sharing dated January 1, 2004
|
|
Incorporated by reference from the
Registrants Annual Report on Form 10-K
for the year ended January 28, 2006,
Exhibit 10.7 |
|
|
|
|
|
10.8
|
|
Commercial Paper Dealer Agreement dated October 2, 1997
between Registrant and Bancamerica Securities, Inc.
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended October 31,
1997, Exhibit 10.1 |
|
|
|
|
|
10.9
|
|
Commercial Paper Agreement dated October 2, 1997 between
Registrant and Credit Suisse First Boston Corporation
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended October 31,
1997, Exhibit 10.2 |
|
|
|
|
|
10.10
|
|
Issuing and Paying Agency Agreement dated October 2,
1997 between Registrant and First Trust of New York,
N.A.
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended October 31,
1997, Exhibit 10.3 |
|
|
|
|
|
10.11
|
|
Share Purchase and Contribution Agreement dated as of
September 27, 2000 by and among Nordstrom, Inc.,
Nordstrom European Capital Group, and the Selling
Shareholders of Façonnable, S.A.S.
|
|
Incorporated by reference from the
Registrants Form S-3, Registration No.
333-50028 filed on November 15, 2000,
Exhibit 2.1 |
|
|
|
|
|
|
58
|
|
|
|
|
|
|
Exhibit |
|
Method of Filing |
|
10.12
|
|
Amendment to the Share
Purchase and Contribution
Agreement dated as of
September 27, 2000 by and
among Nordstrom, Inc.,
Nordstrom European Capital
Group, and the Selling
Shareholders of
Façonnable, S.A.S., dated
October 20, 2000
|
|
Incorporated by reference from the
Registrants Form S-3, Registration No.
333-50028 filed on November 15, 2000,
Exhibit 2.2 |
|
|
|
|
|
10.13
|
|
Receivables Purchase
Agreement dated October 1,
2001 between Nordstrom
Credit, Inc. and Nordstrom
Private Label Receivables,
LLC
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.21 |
|
|
|
|
|
10.14
|
|
Transfer and Servicing
Agreement dated October 1,
2001 between Nordstrom
Private Label Receivables,
LLC, Nordstrom fsb, Wells
Fargo Bank Minnesota,
N.A., and Nordstrom
Private Label Credit Card
Master Note Trust
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.22 |
|
|
|
|
|
10.15
|
|
Master Indenture dated
October 1, 2001 between
Nordstrom Private Label
Credit Card Master Note
Trust and Wells Fargo Bank
Minnesota, N.A.,
as trustee
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.23 |
|
|
|
|
|
10.16
|
|
Series 2001-1 Indenture
Supplement dated October
1, 2001 between Nordstrom
Private Label Credit Card
Master Note Trust and
Wells Fargo Bank
Minnesota, N.A., as
trustee
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.24 |
|
|
|
|
|
10.17
|
|
Series 2001-2 Indenture
Supplement dated December
4, 2001 between Nordstrom
Private Label Credit Card
Master Note Trust and
Wells Fargo Bank
Minnesota, N.A., as
trustee
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.25 |
|
|
|
|
|
10.18
|
|
Amended and Restated Trust
Agreement dated October 1,
2001 between Nordstrom
Private Label Receivables,
LLC, and Wilmington Trust
Company,
as trustee
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2002, Exhibit 10.26 |
|
|
|
|
|
10.19
|
|
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and Bank One,
NA, as agent
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2003, Exhibit 10.25 |
|
|
|
|
|
10.20
|
|
First Amendment to the
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and Bank One,
NA, as agent, dated
December 2, 2002
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2003, Exhibit 10.26 |
|
|
|
|
|
10.21
|
|
Second Amendment to the
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and Bank One,
NA, as agent, dated
December 2, 2003
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Annual Report
on Form 10-K for the year ended January
31, 2004, Exhibit 10.25 |
|
|
|
|
|
10.22
|
|
Third Amendment to the
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and Bank One,
NA, as agent, dated
February 29, 2004
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Quarterly
Report on Form 10-Q for the quarter
ended May 1, 2004, Exhibit 10.3 |
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10.23
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Fourth Amendment to the
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and Bank One,
NA, as agent, dated
May 28, 2004
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|
Incorporated by reference from
Nordstrom Credit, Inc.s Quarterly
Report on Form 10-Q for the quarter
ended May 1, 2004, Exhibit 10.4 |
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10.24
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Fifth Amendment to the
Note Purchase Agreement
dated December 4, 2001
between Nordstrom Private
Label Receivables, LLC,
Nordstrom fsb, Falcon
Asset Securitization
Corporation, and JP Morgan
Chase Bank NA
(successor-by-merger to
Bank One, NA (Main Office
Chicago)) as agent, dated
December 16, 2004
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|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 29, 2005,
Exhibit 10.25 |
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10.25
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Receivables Purchase
Agreement dated April 1,
2002 between Nordstrom fsb
and Nordstrom Credit Card
Receivables LLC
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|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.39 |
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Nordstrom, Inc. and subsidiaries 59
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Exhibit |
|
Method of Filing |
|
10.26
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|
Administration Agreement dated April 1, 2002 between
Nordstrom Credit Card Master Note Trust and Nordstrom fsb
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|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.40 |
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|
10.27
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|
Amended and Restated Trust Agreement dated April 1, 2002
between Nordstrom Credit Card Receivables LLC and
Wilmington Trust Company
|
|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.41 |
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10.28
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Master Indenture dated April 1, 2002 between Nordstrom
Credit Card Master Note Trust and Wells Fargo Bank
Minnesota, National Association
|
|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.42 |
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10.29
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|
Series 2002-1 Indenture Supplement dated April 1, 2002
between Nordstrom Credit Card Master Note Trust and Wells
Fargo Bank Minnesota,
National Association
|
|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.43 |
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10.30
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|
Transfer and Servicing Agreement dated April 1, 2002
between Nordstrom Credit Card Receivables, LLC, Nordstrom
fsb, Wells Fargo Bank Minnesota, National Association and
Nordstrom Credit Card Master Note Trust
|
|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 31, 2003,
Exhibit 10.44 |
|
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10.31
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|
Principal Balance Increase Request dated December 28, 2004
between Nordstrom Credit Card Receivables, LLC, Nordstrom
fsb, Wells Fargo Bank
and Nordstrom Credit, Inc.
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Quarterly
Report on Form 10-Q for the quarter
ended April 30, 2005, Exhibit 10.1 |
|
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|
10.32
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|
Principal Balance Increase Request dated March 28, 2005
between Nordstrom Credit Card Receivables, LLC, Nordstrom
fsb, Wells Fargo Bank and Nordstrom Credit, Inc.
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Quarterly
Report on Form 10-Q for the quarter
ended April 30, 2005, Exhibit 10.2 |
|
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10.33
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|
Principal Balance Increase Confirmation dated March 31,
2005 between Nordstrom Credit, Inc. and Wells Fargo Bank
|
|
Incorporated by reference from
Nordstrom Credit, Inc.s Quarterly
Report on Form 10-Q for the quarter
ended April 30, 2005, Exhibit 10.3 |
|
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10.34
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Performance Undertaking dated September 28, 2001 between
Registrant and Bank One, N.A.
|
|
Incorporated by reference from the
Registrants Annual Report on Form 10-K
for the year ended January 31, 2002,
Exhibit 10.37 |
|
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|
10.35
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|
Performance Undertaking dated December 4, 2001 between
Registrant and Bank One, N.A.
|
|
Incorporated by reference from the
Registrants Annual Report on Form 10-K
for the year ended January 31, 2002,
Exhibit 10.38 |
|
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10.36
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|
Promissory Note dated April 18, 2002 between 1700 Seventh,
L.P. and New York Life Insurance Company
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended April 30,
2002, Exhibit 10.2 |
|
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|
10.37
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|
Promissory Note dated April 18, 2002 between 1700 Seventh,
L.P. and Life Investors Insurance Company of America
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended April 30,
2002, Exhibit 10.3 |
|
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10.38
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|
Guaranty Agreement dated April 18, 2002 between Registrant,
New York Life Insurance Company and Life Investors
Insurance Company of America
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended April 30,
2002, Exhibit 10.4 |
|
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|
10.39
|
|
The 2002 Nonemployee Director Stock Incentive Plan
|
|
Incorporated by reference from the
Registrants Quarterly
Report on Form 10-Q for the quarter
ended July 31, 2002,
Exhibit 10.1 |
|
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10.40
|
|
Nordstrom Executive Deferred Compensation Plan (2003
Restatement)
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended August 2,
2003, Exhibit 10.2 |
|
|
|
|
|
10.41
|
|
Nordstrom Directors Deferred Compensation Plan (2002
Restatement)
|
|
Incorporated by reference from the
Registrants Annual Report on Form 10-K
for the year ended January 31, 2004,
Exhibit 10.55 |
|
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|
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|
10.42
|
|
Nordstrom, Inc. Leadership Separation Plan (Restated
Effective March 1, 2005)
|
|
Incorporated by reference from
Registrants Annual Report on Form 10-K
for the year ended January 29, 2005,
Exhibit 10.43 |
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60
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|
|
Exhibit |
|
Method of Filing |
|
10.43
|
|
Nordstrom, Inc. Executive Management Group Bonus Plan
|
|
Incorporated by reference from
Registrants definitive proxy
statement filed with the Commission on
April 15, 2004 |
|
|
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|
10.44
|
|
2004 Equity Incentive Plan
|
|
Incorporated by reference from
Registrants definitive proxy statement
filed with the Commission on April 15,
2004 |
|
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|
10.45
|
|
Commitment of Nordstrom, Inc. to Nordstrom fsb dated June
17, 2004
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended July 31,
2004, Exhibit 10.4 |
|
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|
10.46
|
|
Nordstrom fsb Segregated Earmarked Deposit Agreement And
Security Agreement by and between Nordstrom fsb and
Nordstrom, Inc. dated
July 1, 2004
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended July 31,
2004, Exhibit 10.5 |
|
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|
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|
10.47
|
|
Revolving Credit Facility dated May 14, 2004 between
Registrant and
a group of commercial banks
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended July 31,
2004, Exhibit 10.1 |
|
|
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|
|
10.48
|
|
Revolving Credit Facility Agreement dated November 4, 2005,
between Registrant and each of the initial lenders named
therein as Lenders, JPMorgan Chase Bank, N.A. and Wells
Fargo Bank, N.A., as Syndication
Agents, U.S. Bank, National Association, as Documentation
Agent and
Bank of America, N.A. as administrative agent
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form
10-Q for the quarter ended October 29,
2005, Exhibit 10.1 |
|
|
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|
|
10.49
|
|
Employment Letter with Mr. Paul Favaro, effective February
1, 2005
|
|
Incorporated by reference from the
Registrants Form 8-K filed on January
12, 2005, Exhibit 99.1 |
|
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10.50
|
|
Form of Notice of Stock Option Grant and Stock Option
Agreement
under the Nordstrom, Inc. 2004 Equity Incentive Plan
|
|
Incorporated by reference from the
Registrants Form 8-K filed on February
26, 2007, Exhibit 10.1 |
|
|
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|
10.51
|
|
Form of Performance Share Unit Notice and Performance Share
Unit Award Agreement under the Nordstrom, Inc. 2004 Equity
Incentive Plan
|
|
Incorporated by reference from the
Registrants Form 8-K filed on February
26, 2007, Exhibit 10.2 |
|
|
|
|
|
10.52
|
|
Press release dated February 24, 2005 announcing that its
Board of
Directors authorized a $500 million share repurchase program
|
|
Incorporated by reference from the
Registrants Form 8-K filed on March 1,
2005, Exhibit 99.1 |
|
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|
|
|
10.53
|
|
Summary of Lead Director Compensation
|
|
Incorporated by reference from the
Registrants Form 8-K filed on March 1,
2005, Exhibit 99.2 |
|
|
|
|
|
10.54
|
|
Director Compensation Summary
|
|
Filed herewith electronically |
|
|
|
|
|
10.55
|
|
Nordstrom, Inc. Employee Stock
Purchase Plan (2006 Restatement)
|
|
Incorporated by reference from the
Registrants definitive proxy statement on Schedule 14A filed with the Commission on
April 13, 2006, Exhibit 10.4 |
|
|
|
|
|
10.56
|
|
Trust Agreement dated October
16, 2001 between Nordstrom Private Label Receivables LLC and Wilmington Trust Company, as trustee
|
|
Incorporated by reference from the Registrants Quarterly
Report on Form 10-Q for the quarter ended 7/29/2006, Exhibit 10.1
|
|
|
|
|
|
10.57
|
|
Administration Agreement dated
October 1, 2001 between Nordstrom Private
Label Credit Card Master Note Trust and Nordstrom fsb
|
|
Incorporated by reference from the Registrants Quarterly
Report on Form 10-Q for the quarter ended 7/29/2006, Exhibit 10.2
|
|
|
|
|
|
10.58
|
|
Trust Agreement dated March 25, 2002 between Nordstrom Credit Card
Receivables LLC and Wilmington Trust Company, as trustee
|
|
Incorporated by reference from the
Registrants Quarterly Report on Form 10-Q for the quarter ended 7/29/2006, Exhibit 10.3
|
|
|
|
|
|
10.59
|
|
Note Purchase Agreement dated
December 4, 2001 between Nordstrom
Private Label Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization
Corporation, and Bank One NA (incorporated by reference from Nordstrom
Credit, Inc.s Annual Report on Form 10-K for the year ended January
31, 2002, Exhibit 10.25), as amended February 25, 2005, February 24, 2006, June 26, 2006,
and October 10, 2006
|
|
Incorporated by reference from the Registrants Quarterly
Report on Form 10-Q for the quarter ended 10/28/2006, Exhibit 10.1
|
|
|
|
|
|
10.60
|
|
Note Purchase Agreement dated
December 16, 2004 between Nordstrom
Credit Card Receivables, LLC, Nordstrom fsb, Falcon Asset Securitization
Corporation, and JPMorgan Chase Bank NA, as amended October 10, 2006
|
|
Incorporated by reference from the Registrants Quarterly
Report on Form 10-Q for the quarter ended 10/28/2006, Exhibit 10.2
|
Nordstrom,
Inc. and subsidiaries 61
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|
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|
|
Exhibit |
|
Method of Filing |
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|
|
21.1
|
|
Subsidiaries of the Registrant
|
|
Filed herewith electronically |
|
|
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
Filed as page 55 of this report |
|
|
|
|
|
31.1
|
|
Certification of President required by Section 302(a) of
the Sarbanes-
Oxley Act of 2002
|
|
Filed herewith electronically |
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer required by
Section 302(a) of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith electronically |
|
|
|
|
|
32.1
|
|
Certification of President and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
|
|
Furnished herewith electronically |
|
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Nordstrom,
Inc. and subsidiaries 62