Nordstrom 2004 Annual Report Download - page 24

notes to consolidated financial statements
Performance Share Units: Performance share units are earned over
a three-year period. The number of performance share units earned
is determined by the performance of our stock price and dividend
payments relative to a pre-defined group of retail peers over the three-
year period. Employees do not pay any monetary consideration upon
vesting and may elect to receive common stock or cash. The following
table outlines the performance share unit activity:
Fiscal Year 2004 2003 2002
Granted 62 114 191
Vested ———
Cancelled —— (23)
Outstanding, end of year 62 114 168
At the end of 2004 and 2003, our liabilities included $15,278 and
$18,657 for the unvested grants.
Nonemployee Director Stock Incentive Plan
The Nonemployee Director Stock Incentive Plan authorizes the grant of
stock awards to nonemployee directors. These awards may be deferred
or issued in the form of restricted or unrestricted stock, nonqualified
stock options or stock appreciation rights, although we have only issued
stock under the plan. We issued 5, 16 and 19 shares of common stock
for a total expense of $202, $318 and $405 for 2004, 2003 and 2002.
An additional 3 and 11 shares were deferred for a total expense of
$140 and $183 in 2004 and 2003. At January 29, 2005, we had 399
remaining shares available for issuance.
Employee Stock Purchase Plan
We offer an Employee Stock Purchase Plan as a benefit to our
employees. Employees may make payroll deductions of up to ten
percent of their base compensation. At the end of each six-month
offering period, the participants purchase shares of our common stock
at 85% of the lower of the stock’s fair market value at the beginning
or the end of the offering period. We issued 489, 647, and 596 shares
under this plan in 2004, 2003, and 2002. As of January 29, 2005
and January 31, 2004, we had payroll deductions totaling $5,097
and $3,728 for the purchase of shares in the future. We have 1,060
shares available for issuance at January 29, 2005.
Nordstrom.com
In connection with the purchase of the minority interest in
Nordstrom.com (see Note 18), we purchased 3,608 options and 470
warrants for a total cash payment of $11,802 in the third quarter of
2002. At the end of 2004 and 2003, there are no outstanding options
or warrants for Nordstrom.com.
Stock Based Compensation Expense
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
cost for stock options issued under the Nordstrom, Inc. Plans.
For performance share units, we record compensation expense over
the performance period at the fair value of the stock at the end of
each reporting period based on the vesting percentages on those dates.
Stock-based compensation expense for 2004, 2003, and 2002 was
$8,051, $17,894, and $1,130.
SFAS No. 123
The table in Note 1, under Stock Compensation, illustrates the effect
on net earnings and earnings per share if we had applied the fair
value recognition provisions of SFAS No. 123, “Accounting for Stock-
Based Compensation.”
notes to consolidated financial statements
The Black-Scholes method was used to estimate the fair value of the
options at grant date under SFAS 123 based on the following factors:
Fiscal Year 2004 2003 2002
Stock Options:
Risk-free interest rate 3.0% 2.9% 4.3%
Volatility 65.4% 70.6% 69.5%
Dividend yield 1.5% 1.5% 1.5%
Expected life in years 6.0 5.0 5.0
Weighted-average fair value
at grant date $21 $10 $14
Note 14: Accumulated Other Comprehensive Earnings
The following table shows the components of accumulated other
comprehensive earnings:
Jan. 29, Jan. 31, Jan. 31,
2005 2004 2003
Foreign currency translation $16,276 $15,783 $8,404
SERP adjustment (11,798) (11,679) (6,511)
Securitization fair value adjustment 4,857 4,764 807
Total accumulated other
comprehensive earnings $9,335 $8,868 $2,700
Note 15: Supplementary Cash Flow Information
In 2002, the VISA Trust issued $200,000 of certificated Class A and
Class B notes. The proceeds from this securitization were used to
retire the $200,000 outstanding on a previous off-balance sheet
VISA securitization.
Supplementary cash flow information includes the following:
Fiscal Year 2004 2003 2002
Cash paid during the year for:
Interest (net of
capitalized interest) $88,876 $96,824 $84,898
Income taxes 253,576 121,271 48,386
Note 16: Segment Reporting
We have four segments: Retail Stores, Credit Operations,
Catalog/Internet, and Corporate and Other.
The Retail Stores segment derives its revenues from sales of high-
quality apparel, shoes, cosmetics and accessories. It includes
our Full-Line, Rack and Façonnable stores as well as our product
development group, which coordinates the design and production
of private label merchandise sold in our retail stores.
The Credit Operations segment revenues consist primarily of finance
charges earned through operation of the Nordstrom private label and
co-branded VISA credit cards.
The Catalog/Internet segment generates revenues from high-quality
apparel, shoes, cosmetics and accessories via direct mail catalogs and
the Nordstrom.com website.
We use the same measurements to compute net earnings for reportable
segments as we do for the consolidated company. The accounting
policies of the operating segments are the same as those described
in the summary of significant accounting policies in Note 1.
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