Nordstrom 2001 Annual Report Download - page 32

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20200324 NORDSTROM
2001 Annual Report • VERSION
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Notes to Consolidated Financial Statements
30 NORDSTROM INC. AND SUBSIDIARIES
Nordstrom.com
Nordstrom.com has two stock option plans, the “1999 Plan” and the
“2000 Plan.” Vested options under the 1999 Plan are exercisable
only in the event of an initial public offering of Nordstrom.com.
As of January 31, 2002, the weighted average contractual life for
options outstanding was 8.2 years with exercise prices ranging
from $1.67 to $1.92 per share. No compensation cost has been
recognized related to the options under the 2000 plan because the
exercise price was equal to the fair value of Nordstrom.com stock
on the date of grant. The options vest over a period of two and one-
half to four years and must be exercised within ten years of the
grant date. Nordstrom.com LLC has also issued warrants to
purchase 2,176,250 common shares at an exercise price of $1.67
to its managing member, Nordstrom.com, Inc. The warrants expire
on January 31, 2012. As of January 31, 2002, warrants to purchase
135,000 common shares are exercisable.
Employee Stock Purchase Plan
In May 2000, the Company’s shareholders approved the
establishment of an Employee Stock Purchase Plan (the “ESPP”)
under which 3,500,000 shares of the Company’s common stock
are reserved for issuance to employees. The plan qualifies as a
noncompensatory employee stock purchase plan under Section
423 of the Internal Revenue Code. Employees are eligible to
participate through payroll deductions in amounts related to
their base compensation. At the end of each offering period,
shares are purchased by the participants at 85% of the lower
of the fair market value at the beginning or the end of the offering
period, usually six months. Under the ESPP, 541,677 and 165,842
shares were issued in 2001 and 2000. As of January 31, 2002,
payroll deductions totaling $2,641 were accrued for purchase of
shares on March 31, 2002.
SFAS No. 123
If the Company had elected to recognize compensation cost
based on the fair value of the options and shares at grant date
as prescribed by SFAS No. 123, “Accounting for Stock-Based
Compensation,” net earnings and earnings per share would have
been the pro forma amounts shown below:
Year ended January 31, 2002 2001 2000
Pro forma net earnings $107,436 $88,460 $192,916
Pro forma basic EPS $0.80 $0.68 $1.40
Pro forma diluted EPS $0.80 $0.67 $1.39
The Black-Scholes method was used to estimate the fair value of
the options at grant date based on the following factors:
Year ended January 31, 2002 2001 2000
Stock Options:
Risk-free interest rate 4.8% 6.4% 5.7%
Volatility 68.0% 65.0% 61.0%
Dividend yield 1.3% 1.0% 1.0%
Expected life in years 5.0 5.0 5.0
Weighted-average fair value
at grant date $10 $12 $17
ESPP:
Risk-free interest rate 4.3% 6.0% —
Volatility 68.0% 65.0% —
Dividend yield 1.3% 1.0% —
Expected life in years 0.5 0.5 —
Weighted-average fair value
at grant date $5 $6 —
For Nordstrom.com, the Company used the following weighted-
average assumptions:
Year ended January 31, 2002 2001 2000
Risk-free interest rate 4.5% 6.2% 6.0%
Volatility 127.0% 121.0% 81.0%
Dividend yield 0.0% 0.0% 0.0%
Expected life in years 4.0 4.0 4.0
Weighted-average fair value
at grant date $1.56 $1.39 $1.05
Note 15: Postretirement Benefits
The Company has a Supplemental Executive Retirement Plan
("SERP"), which provides retirement benefits to certain officers
and other select employees of the Company. The benefits are
unfunded and limited to a maximum of 60% of the monthly
average compensation less the actuarial equivalent of any
monthly benefits payable under the profit sharing plan.