Nordstrom 2004 Annual Report Download - page 18

consolidated statements of cash flows
Amounts in thousands
Fiscal year 2004 2003 2002
Operating Activities
Net earnings $393,450 $242,841 $90,224
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization of buildings and equipment 264,769 250,683 233,931
Amortization of deferred property incentives and other, net (31,378) (27,712) (22,179)
Stock-based compensation expense 8,051 17,894 1,130
Deferred income taxes, net (8,040) (1) (11,030)
Tax benefit of stock option exercises and employee stock purchases 25,442 10,199 1,358
Cumulative effect of accounting change, net of tax —— 13,359
Impairment of IT investment —— 15,570
Minority interest purchase expense —— 40,389
Provision for bad debt expense 24,639 27,975 29,080
Change in operating assets and liabilities:
Accounts receivable, net (2,950) (30,677) (24,227)
Investment in asset backed securities (149,970) (141,264) (67,561)
Merchandise inventories (11,771) 28,213 (117,379)
Prepaid expenses (3,163) 86 521
Other assets (8,143) (10,109) 3,378
Accounts payable 23,930 75,736 6,103
Accrued salaries, wages and related benefits 15,055 42,885 18,629
Other current liabilities 58,471 38,970 24,740
Income taxes payable (18,999) 21,319 54,993
Property incentives 19,837 46,007 85,258
Other liabilities 7,116 6,237 14,227
Net cash from operating activities 606,346 599,282 390,514
Investing Activities
Capital expenditures (246,851) (258,314) (328,166)
Proceeds from sale of assets 5,473 — 32,415
Minority interest purchase —— (70,000)
Sales of short-term investments 3,366,425 2,090,175 937,521
Purchases of short-term investments (3,232,250) (2,144,909) (1,058,787)
Other, net (2,830) 3,451 (2,133)
Net cash used in investing activities (110,033) (309,597) (489,150)
Financing Activities
Principal payments on long-term debt (205,252) (111,436) (88,981)
(Decrease) increase in cash book overdrafts (2,680) 33,832 (11,908)
Proceeds from exercise of stock options 87,061 48,598 6,601
Proceeds from employee stock purchase plan 12,892 8,861 8,062
Cash dividends paid (67,240) (55,853) (51,322)
Repurchase of common stock (300,000) ——
Other, net (752) 2,341 6,596
Net cash used in financing activities (475,971) (73,657) (130,952)
Net increase (decrease) in cash and cash equivalents 20,342 216,028 (229,588)
Cash and cash equivalents at beginning of year 340,281 124,253 353,841
Cash and cash equivalents at end of year $360,623 $340,281 $124,253
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
notes to consolidated financial statements
Amounts in thousands except per share amounts
Note 1: Nature of Operations and Summary of Significant
Accounting Policies
The Company: We are one of the nation's leading fashion specialty
retailers, with 151 US stores located in 27 states. Founded in 1901
as a shoe store in Seattle, today we operate 95 Full-Line Nordstrom
stores, 49 discount Nordstrom Racks, five Façonnable boutiques, one
free-standing shoe store, and one clearance store. We also operate
31 international Façonnable boutiques in Europe. Additionally, we
serve our customers through Nordstrom Direct (on the web at
www.nordstrom.com and through our direct mail catalogs).
Our Credit Operations offer a Nordstrom private label card and a
co-branded Nordstrom VISA credit card, which generate earnings
through finance charges and securitization-related gains.
Our operations also include a product development group, which
coordinates the design and production of private label merchandise
sold in our retail stores.
Change in Fiscal Year: On February 1, 2003, our fiscal year end
changed from January 31st to the Saturday closest to January 31st.
Our new fiscal year consists of four, 13 week quarters, with an extra
week added onto the fourth quarter every five to six years. A one-day
transition period is included in our first quarter 2003 results. All
references to 2004 and 2003 relate to the fifty-two weeks ending
January 29, 2005 and January 31, 2004, respectively. References
to 2002 relate to the year ending January 31, 2003.
Principles of Consolidation: The consolidated financial statements
include the balances of Nordstrom, Inc. and its wholly-owned
subsidiaries and investees controlled by the company for the entire
fiscal year. 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.
Reclassifications: Certain prior year financial statement amounts
have been reclassified to conform with our current year presentation.
Revenue Recognition: We record revenues net of estimated returns
and excluding sales taxes. Our retail stores record revenue at the point
of sale. Our catalog and Internet sales include shipping revenue and
are recorded upon delivery to the customer. Our sales returns are based
upon historical return rates. Our sales return reserves were $49,745
and $39,841 at the end of 2004 and 2003.
Buying and Occupancy Costs: Buying costs consist primarily of
salaries and costs incurred by our merchandise and private label
product development groups. Occupancy costs include rent,
depreciation, property taxes and operating costs of our retail and
distribution facilities.
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 $75,421
$67,583 and $54,961 in 2004, 2003, and 2002 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. Our direct response
catalog advertising production costs are expensed over the estimated
revenue stream, not to exceed six months. Total advertising expenses,
net of vendor allowances, were $123,974, $117,411, and $112,618 in
2004, 2003, and 2002.
Store Preopening Costs: Store preopening and opening costs are
expensed as they occur.
Other Income Including Finance Charges, Net: This consists primarily
of income from finance charges and late fees generated by our
Nordstrom private label cards and earnings from our investment in
asset backed securities and securitization gains, which are both
generated from the co-branded Nordstrom VISA credit card program.
Stock Compensation: We apply APB No. 25, “Accounting for Stock
Issued to Employees,” in measuring compensation costs under our
stock-based compensation programs. Stock options are issued at
the fair market value of the stock at the date of grant. Accordingly,
we recognized no compensation expense for the issuance of our
stock options.
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