Nordstrom 2002 Annual Report Download

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ANNUAL REPORT 2002
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Table of contents

  • Page 1
    ANNUAL REPORT 2002 [forward motion]

  • Page 2
    ... Notes to Consolidated Financial Statements Eleven-Year Statistical Summary 46 48 49 49 Retail Store Facilities Officers of the Corporation and Executive Team Board of Directors Shareholder Information View this entire report online. Please visit www.nordstrom.com to see this report and obtain the...

  • Page 3
    ... all counts when it comes to customer satisfaction. quality experience Our focus at Nordstrom is simple-take care of the customer and offer a wide selection of quality, distinctive merchandise at fair prices every day. It is this commitment that ultimately drives sales and results. Everything we do...

  • Page 4
    ... Nicole Rhotton, Mission Viejo, CA Personal Touch Personal shopping specialist Eun Kim, Michigan Ave., IL Café Bistro Jose "Pepe" Ruvalcaba, Mission Viejo, CA BP. Shoe Salesperson Concierge Cynthia Sanchez, Michigan Ave., IL Russell Felicitas, Downtown Seattle, WA 2 NORDSTROM INC. AND...

  • Page 5
    ... company's values and the very core of our culture." Bruce Nordstrom CHAIRMAN OF THE BOARD Men's Clothing Salesperson Million-dollar seller Larry Smiley, Michigan Ave., IL Alterations Deena Vu, Bellevue Sq., WA Regional Fit Specialist Lingerie and Prosthesis Debra Duden, Oak Brook, IL Cosmetics...

  • Page 6
    4 NORDSTROM INC. AND SUBSIDIARIES

  • Page 7
    ... by our commitment to provide the best possible price for every item sold in our stores. Customers want fresh, compelling merchandise and they recognize quality and value. When we focus on those things it's possible to send more customers home happy-with a shopping bag in hand. NORDSTROM INC. AND...

  • Page 8
    Th e c Ra k og tal a C no rd . om str m co nn ço a F ab le 6 NORDSTROM INC. AND SUBSIDIARIES

  • Page 9
    ... they want us to be. Because we are one of the few fashion specialty retailers that provide customers the convenience of shopping multiple channels: in our stores, at Nordstrom Racks, through our catalogs or online, we work hard to demonstrate this commitment every day. Whether it's a midnight...

  • Page 10
    ... we are serving them. But we know that the best service we can offer is to sell them something. As our results reflect, our customers are responding positively. In 2002 our sales results beat our industry peer group for 10 consecutive months. And eight months out of those 10 we achieved comparable...

  • Page 11
    NORDSTROM INC. AND SUBSIDIARIES 9

  • Page 12
    ... and shareholders Nordstrom is not a faceless company. It includes our salespeople, department managers, store managers, merchants, support personnel, and our board of directors-all working together to achieve sustained improvement in our results by providing better service to our customers. Ours...

  • Page 13
    We opened eight full-line stores in 2002, the most we've ever opened in a single year, in addition to four Nordstrom Racks and one Façonnable boutique. We also successfully implemented a company-wide perpetual inventory system. While we believe that no implementation is completely seamless when it ...

  • Page 14
    ...a fashion specialty retailer offering a wide selection of high-quality apparel, shoes and accessories for men, women and children. We believe that we offer our customers an exceptional shopping experience by providing superior service and distinctive merchandise with an emphasis on quality and value...

  • Page 15
    ...in Internet sales. Merchandise division sales were led by Women's Designer, Cosmetics and Accessories. Men's Apparel and Shoes experienced small sales declines. The Women's Designer division benefited from the addition of new vendors, close scrutiny of developing trends and a targeted marketing plan...

  • Page 16
    ... 02 Minority Interest Purchase and Reintegration Costs During 2002, we purchased the outstanding shares of Nordstrom.com, Inc. series C preferred stock for $70.0 million. The excess of the purchase price over the fair market value of the preferred stock and professional fees resulted in a one-time...

  • Page 17
    ..., general and administrative expenses as a percent of sales decreased in the quarter compared to the prior year primarily due to improved selling costs and reduced sales promotion offset by higher distribution costs and information systems expense. to remain fairly consistent with 2002. Inventory...

  • Page 18
    ... investors. We used the proceeds to retire the $200 million outstanding on the variable funding note. Based on SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" this debt and the related assets are not reflected in our consolidated balance...

  • Page 19
    ... million of Class A notes backed by Nordstrom private label receivables. These notes bear a fixed interest rate of 4.82% and have a maturity of five years. Both the debt and related assets are included in our consolidated balance sheets. A portion of the proceeds was used to pay-down approximately...

  • Page 20
    ... the point of sale. Catalog and Internet sales include shipping revenue and are recorded upon delivery to the customer. Our sales return liability is estimated based on historical return levels. Inventory Our inventory is stated at the lower of cost or market using the retail inventory method (first...

  • Page 21
    ... adopted SFAS No. 148 "Accounting for Stock-Based Compensation" in the fourth quarter of 2002. SFAS No. 148 amends SFAS No. 123 of the same name and provides alternative transition methods for a voluntary change to fair value based accounting for stock-based employee compensation. SFAS No. 148 also...

  • Page 22
    ... consumer demand, changing consumer credit markets, changing capital markets, changing interest rates and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving our growth...

  • Page 23
    ... auditing standards generally accepted in the United States of America and provides an objective, independent review of our internal controls and the fairness of our reported financial condition and results of operations. Deloitte & Touche LLP Seattle, Washington March 28, 2003 NORDSTROM INC. AND...

  • Page 24
    consolidated statements of earnings Dollars in thousands except per share amounts Year ended January 31, Net sales Cost of sales and related buying and occupancy Gross profit Selling, general and administrative Operating income Interest expense, net Write-down of investment Minority interest ...

  • Page 25
    ...; 135,444,041 and 134,468,608 shares issued and outstanding Unearned stock compensation Retained earnings Accumulated other comprehensive earnings Total shareholders' equity Total liabilities and shareholders' equity The accompanying Notes to Consolidated Financial Statements are an integral part of...

  • Page 26
    ... paid ($.36 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Stock compensation Purchase and retirement of common stock Balance at January 31, 2002 Net earnings Other comprehensive earnings: Foreign currency translation adjustment SERP adjustment, net of tax...

  • Page 27
    ... from acquisition of business: Accounts receivable, net Merchandise inventories Prepaid expenses Other assets Accounts payable Accrued salaries, wages and related benefits Income tax liabilities and other accruals Other liabilities Net cash provided by operating activities Investing Activities...

  • Page 28
    ... Accounting Policies The Company: We are a fashion specialty retailer offering high-quality apparel, shoes and accessories for women, men and children with 142 U.S. stores located in 27 states. We also operate 23 Façonnable boutiques located primarily in Europe. Additionally, we generate catalog...

  • Page 29
    ...in more than one year or deferred payment accounts receivable are included in current assets. 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...

  • Page 30
    .... We adopted SFAS No. 148 "Accounting for Stock-Based Compensation" in the fourth quarter of 2002. SFAS No. 148 amends SFAS No. 123 of the same name and provides alternative transition methods for a voluntary change to fair value based accounting for employee stock compensation. SFAS No. 148 also...

  • Page 31
    ... Year ended January 31, Reported net earnings Intangible amortization, net of tax Cumulative effect of accounting change, net of tax Adjusted net earnings 13,359 $103,583 - $127,512 - $102,681 - 2,824 763 2003 $90,224 2002 $124,688 2001 $101,918 Note 4: Employee Benefits We provide a profit sharing...

  • Page 32
    ... Distributions Benefit obligations at end of year Funded status of plan: Under funded status Unrecognized transitional obligation Unrecognized prior service cost Unrecognized loss Accrued pension cost Balance sheet amounts: Additional minimum liability Intangible asset $(16,327) 3,805 $(8,567) 6,720...

  • Page 33
    ... capital gain income in the next three years. No valuation allowance has been provided because we believe it is probable that the full benefit of these carryforwards will be realized. Our purchase of the outstanding shares of Nordstrom.com, Inc. series C preferred stock resulted in an expense of $40...

  • Page 34
    ... fair value and are included in accounts receivable. In accordance with SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," our consolidated balance sheets do not include this debt and the related receivables. These related VISA credit card...

  • Page 35
    ... table illustrates the sensitivity in the fair market value estimates of the retained interests given independent changes in assumptions as of January 31, 2003: +10% Gross Yield Interest Expense on Issued Classes Card Holders Payment Rate Charge Offs Discount Rate (76) (99) (531) (337) (152) (296...

  • Page 36
    ... amount outstanding Weighted average interest rate: During the year At year-end 2.0% - 4.6% - 6.6% 6.4% 15,000 177,100 360,480 $370 $81,647 $192,392 2003 2002 2001 Note 14: Notes Payable A summary of notes payable is as follows: Capitalized software includes external direct costs, internal direct...

  • Page 37
    ... related debt. We entered into a variable interest rate swap agreement effective in the fourth quarter of 2002. The swap had a $250 million notional amount and a six-year term. Under the agreement, we received a fixed rate of 5.63% and paid a variable rate based on LIBOR plus a margin of 1.31% set...

  • Page 38
    ... fair value of the stock Note 17: Stock-Based Compensation Stock Option Plan: We have a stock option plan (the "Nordstrom, Inc. Plan") under which stock options, performance share units and restricted stock may be granted to key employees. Options vest over periods ranging from four to eight years...

  • Page 39
    ... Stock option activity for the Nordstrom, Inc. Plan was as follows: Year ended January 31, 2003 WeightedAverage Exercise Price 2002 WeightedAverage Exercise Price 2001 WeightedAverage Exercise Price Shares Shares Shares Outstanding, beginning of year Granted Exercised Cancelled Outstanding...

  • Page 40
    ...compensated individuals were 8.3%, 7.9% 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, Stock Options: Risk-free interest rate Volatility Dividend yield Expected life in years Weighted-average fair value...

  • Page 41
    ...-free interest rate Volatility Dividend yield Expected life in years Weighted-average fair value at grant date $1.39 We have four segments: Retail Stores, Credit Operations, Catalog/Internet, and Corporate and Other. The Retail Stores segment derives its revenues from sales of highquality apparel...

  • Page 42
    ... effect of accounting change Net earnings (loss) Assets (a)(b) Capital expenditures Year ended January 31, 2002 Revenues from external customers (b) Service charge income Intersegment revenues Interest expense, net Depreciation and amortization Amortization of intangible assets Earnings before taxes...

  • Page 43
    ... in business strategy, we determined that this asset was impaired. This charge to the Retail Stores segment reduced this asset to its estimated market value. The charge was recorded in selling, general and administrative expense. During the year ended January 31, 2002, we streamlined our operations...

  • Page 44
    ... not-for-profit corporation bringing claims on behalf of the City of Spokane and the Spokane Parking Public Development Authority. The claims relate to the River Park Square Mall and Garage Project in Spokane, Washington (the "Project"), which includes a Nordstrom store. The portion of the complaint...

  • Page 45
    ... and diluted in the first quarter, and $0.77 and $0.76 for basic and diluted for the total year. Year ended January 31, 2002 Net sales Gross profit Earnings before income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share Common stock price High Low 21.17 15...

  • Page 46
    ... liabilities Working capital Working capital ratio Land, buildings and equipment, net Long-term debt, including current portion Debt/capital ratio Shareholders' equity Shares outstanding Book value per share Total assets Operations Net sales Gross profit Selling, general and administrative Operating...

  • Page 47
    ...,446) 178,162 (44,810) - - 86,140 219,492 (84,489) 135,003 - 135,003 .82 .82 .16 1.4% 3.95% 13.73% 381 72 9,224,000 NORDSTROM INC. AND SUBSIDIARIES 45

  • Page 48
    ... Florida Boca Raton Coral Gables Orlando Tampa Georgia Atlanta Buford Chandler Fashion Center Scottsdale Fashion Square Santa Anita Brea Mall Topanga Los Cerritos Center The Village at Corte Madera South Coast Plaza North County Glendale Galleria The Grove Westside Pavilion The Shops at Mission...

  • Page 49
    ... Phoenix, AZ Last Chance Scottsdale, AZ Scottsdale Promenade Rack Brea, CA Brea Union Plaza Rack Chino, CA Colma, CA Costa Mesa, CA Fresno, CA Glendale, CA Long Beach, CA Los Angeles, CA Ontario, CA Chino Spectrum Towne Center Rack Colma Rack Metro Pointe at South Coast Rack Villaggio Retail Center...

  • Page 50
    ...Manager, Cosmetics, Full-line Stores Jack H. Minuk, 48 Vice President, Corporate Merchandise Manager, Women's Shoes, Full-line Stores Joel T. Stinson, 53 Executive Vice President and Chief Administrative Officer MEMBER OF EXECUTIVE TEAM Robert E. Campbell, 47 Vice President, Strategy and Planning...

  • Page 51
    ... Nordstrom Downtown Seattle Store John W. Nordstrom Room, fifth floor 1617 Sixth Avenue Seattle, Washington 98101-1742 Form 10-K The Company's annual report on Form 10-K for the year ended January 31, 2003 will be provided to shareholders upon request to: Nordstrom, Inc. Investor Relations P. O. Box...

  • Page 52
    Front cover: Erik Rufer, Assistant Buyer, Men's Shoes, Washington and Alaska