Nordstrom 2005 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    "In simple terms, fashion is what sells. With compelling merchandise and an unyielding commitment to customer service, we can be the retailer customers trust." - ERIK NORDSTROM, PRESIDENT OF STORES

  • Page 3
    ... 2001 2002 2003 2004 2005 Earnings before Income Tax Expense (as a Percentage of Net Sales)1 Inventory Turn (cost of sales and related buying and occupancy divided by average inventory) Cash Flow from Operations (in millions) 1 See Note 5 on page 12 regarding the 2002 change in accounting

  • Page 4
    ... continuing to improve our pre-tax margin, SG&A and same-store sales. Our long-term strategy is to drive profitable growth by earning more business from the customers we currently have, serving more customers, and increasing our presence where our customers shop. There are a number of reasons why we...

  • Page 5
    ...we opened four new Full-Line stores: Phipps Plaza in Atlanta, Georgia; The Shops at La Cantera in San Antonio, Texas; Irvine Spectrum Center in Irvine, California; and NorthPark Center in Dallas, Texas. In March of 2006, we opened a 144,000-square-foot store at The Gardens Mall in Palm Beach Gardens...

  • Page 6
    ... a positive environment for our employees, one that allows them to deliver great service and achieve their own goals. Finally, we wish to extend a deep and heartfelt thanks to Bruce and John Nordstrom, both of whom are retiring from the Board of Directors this year after 40 years of service. As...

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    ... Commission file number 001-15059 NORDSTROM, INC. (Exact name of Registrant as specified in its charter) Washington (State or other jurisdiction of incorporation or organization) 1617 Sixth Avenue, Seattle, Washington (Address of principal executive offices) 91-0515058 (IRS employer Identification...

  • Page 10
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  • Page 11
    .... Properties. Legal Proceedings. Submission of Matters to a Vote of Security Holders. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Selected Financial Data. Management's Discussion and Analysis of Financial Condition and Results of...

  • Page 12
    ... 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 segment's sales are shipped via third-party carriers from our fulfillment center in Cedar Rapids, Iowa. Our Other...

  • Page 13
    ... 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 report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership of securities...

  • Page 14
    ... development of our long-term strategy. We are welcoming a number of new members to our Board, and we expect to benefit from their vast business experience. MULTI-CHANNEL STRATEGY EXECUTION In 2005, we started to make changes in our Direct business that better align our online shopping environment...

  • Page 15
    ... 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 spend on average approximately $150 million each year on information technology operations and system development...

  • Page 16
    ... MICHIGAN Troy MINNESOTA Bloomington MISSOURI Des Peres NEVADA Las Vegas NEW JERSEY Edison Freehold Paramus Short Hills NEW YORK Garden City White Plains NORTH CAROLINA Charlotte Durham OHIO Beachwood Columbus OREGON Portland Portland Portland Salem Tigard PENNSYLVANIA King of Prussia Oak Park Mall...

  • Page 17
    ... WASHINGTON Bellevue Lynnwood Seattle Seattle Spokane Tacoma Tukwila Vancouver Other Honolulu, HI Façonnable Façonnable Ward Centre Shoes U.S. (5 boutiques) International (32 boutiques) Square Footage Year Store Opened Store Name Location Nordstrom Rack Group Chandler, AZ Phoenix, AZ Scottsdale...

  • Page 18
    ... 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. Our share of the cost of the settlement will not have a material adverse effect on our financial condition, results of...

  • Page 19
    ... per share information have been adjusted to reflect this stock split. The high and low sales prices of our common stock and dividends declared for each quarter of 2005 and 2004 are presented in the table below: Common Stock Price 2005 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year High...

  • Page 20
    ...year end) Customer accounts receivable, net Investment in asset backed securities Merchandise inventories Current assets Current liabilities Land, buildings and equipment, net Long-term debt, including current portion Shareholders' equity Debt-to-capital ratio Book value per share Total assets Store...

  • Page 21
    ...year end) Customer accounts receivable, net Investment in asset backed securities Merchandise inventories Current assets Current liabilities Land, buildings and equipment, net Long-term debt, including current portion Shareholders' equity Debt-to-capital ratio Book value per share Total assets Store...

  • Page 22
    ... of our overall technology investment strategy. We anticipate additional rate improvement from our buying and corporate organization as we enhance our processes and expand the use of our systems to support our future sales growth. Leadership Development and Succession Planning At Nordstrom, we are...

  • Page 23
    ... accessories, women's shoes and women's better apparel, followed by women's designer and men's apparel. Total net sales also benefited from the six Full-Line stores and two Rack stores opened since February 2003, increasing our retail square footage 5% during the last two years. Sales at Nordstrom...

  • Page 24
    ... in-line with our sales increases. As a result, we drove a gross profit rate improvement of 60 basis points. We continue our efforts to improve inventory management while providing fresh and compelling merchandise to our customers. We utilized existing and new technology to gain greater visibility...

  • Page 25
    ... in-store customers and the inactive Nordstrom private label credit card holders. These marketing efforts showed success in 2004, as the co-branded VISA credit card holders used the cards more extensively in 2004, resulting in a 45.7% volume increase. 2006 FORECAST OF OTHER INCOME INCLUDING FINANCE...

  • Page 26
    ... women's special sizes, bridge and better apparel had same-store sales decreases in 2005. Our gross profit rate increased to 37.5% from 36.6% last year. Our women's apparel category experienced a reduction in gross profit rate, but this was offset by improvement in the men's apparel and accessories...

  • Page 27
    ... 2 In 2005, we opened four Full-Line stores: at Phipps Plaza in Atlanta, Georgia; at The Shops at La Cantera in San Antonio, Texas; at the Irvine Spectrum Center in Irvine, California; and at the NorthPark Center in Dallas, Texas. Gross square footage for the year increased approximately 3.5%, from...

  • Page 28
    ... borrowing capacity that we expect to put in place before October 2006. In the first quarter of 2007, we intend to establish a new securitization program that includes the private label and co-branded Visa cards. SHARE REPURCHASE In August 2004, our Board of Directors authorized $300.0 million of...

  • Page 29
    ... Ba1 rating. We did not make any borrowings under our unsecured line of credit or our variable funding note backed by Nordstrom private label card receivables during the three years ended January 28, 2006. We also have universal shelf registrations on file with the Securities and Exchange Commission...

  • Page 30
    ... 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...

  • Page 31
    ... 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...

  • Page 32
    ...are sensitive to changes in interest rates, which consist of debt obligations and interest rate swaps for the year ended January 28, 2006. For debt obligations, the table presents principal amounts, at book value, by maturity date, and related weighted average interest rates. For interest rate swaps...

  • Page 33
    ...to audit Nordstrom's consolidated financial statements and management's assessment of the effectiveness of the Company's 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...

  • Page 34
    ... internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide...

  • Page 35
    ...each of the three years in the period ended January 28, 2006, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the...

  • Page 36
    ... except per share amounts Fiscal year Net sales Cost of sales and related buying and occupancy costs Gross profit Selling, general and administrative expenses Operating income Interest expense, net Other income including finance charges, net Earnings before income tax expense Income tax expense Net...

  • Page 37
    ... payable Accrued salaries, wages and related benefits Other current liabilities Income taxes payable Current portion of long-term debt Total current liabilities Long-term debt, net Deferred property incentives, net Other liabilities Shareholders' equity: Common stock, no par value: 1,000,000 shares...

  • Page 38
    ..., net of tax of $3,304 Fair value adjustment to investment in asset backed securities, net of tax of $(2,530) Comprehensive net earnings Cash dividends paid ($0.205 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Stock-based compensation Balance at January 31...

  • Page 39
    ... Accounts payable Accrued salaries, wages and related benefits Other current liabilities Income taxes payable Property incentives Other liabilities Net cash provided by operating activities Investing Activities Capital expenditures Proceeds from sale of assets Purchases of short-term investments...

  • Page 40
    ... OF SIGNIFICANT ACCOUNTING POLICIES The Company We are one of the nation's leading fashion specialty retailers, with 156 U.S. stores located in 27 states. Founded in 1901 as a shoe store in Seattle, today we operate 99 Full-Line Nordstrom stores, 49 discount Nordstrom Rack stores, five U.S.-based...

  • Page 41
    .... 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...

  • Page 42
    ... Amounts in thousands except per share amounts 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...

  • Page 43
    ... 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...

  • Page 44
    ...per share 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...

  • Page 45
    ... in the consolidated balance sheets: January 28, 2006 Change in plan assets: Fair value of plan assets at beginning of year Employer contribution Distributions Fair value of plan assets at end of year Projected benefit obligation Underfunded status Unrecognized prior service cost Unrecognized loss...

  • Page 46
    ...career new hires. In addition, we updated our assumptions relating to bonus payments. The expected future benefit payments based upon the same assumptions as of October 31, 2005 and including benefits attributable for future employee service for the following periods are as follows: Fiscal year 2006...

  • Page 47
    ... in a benefit in our tax provision of $800. NOTE 6: EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share uses the weighted average number of common shares outstanding during the year plus...

  • Page 48
    ... 28, 2006 Assumptions used to estimate the fair value of the investment in asset backed securities: Weighted average remaining life (in months) Average annual credit losses Average gross yield Weighted average coupon on issued securities Average monthly payment rates Discount rate on investment in...

  • Page 49
    ...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 9: LAND, BUILDINGS AND EQUIPMENT Land, buildings...

  • Page 50
    ... deferred issuance costs related to these debt retirements, we recorded a pre-tax charge for debt retirements in interest expense, net of $20,862. Our mortgage payable is secured by an office building which had a net book value of $78,943 at the end of 2005. To manage our interest rate risk, we have...

  • Page 51
    ...70,525 67,892 63,524 332,016 $680,642 Rent expense for 2005, 2004 and 2003 was as follows: Fiscal Year Minimum rent: Store locations Offices, warehouses and equipment Percentage rent: Store locations Property incentives: Total rent expense 2005 $62,036 15,493 10,607 (46,645) $41,491 2004 $79,285 21...

  • Page 52
    ... The following table summarizes information about stock options outstanding for the Nordstrom, Inc. Plans as of January 28, 2006: Options Outstanding Weighted-Average Remaining Contractual Life (Years) 7 5 6 9 6 Options Exercisable Weighted-Average Shares Exercise Price 1,728 $9 2,895 11 1,505...

  • Page 53
    ...çonnable 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. This segment information for 2004 and 2003 has been adjusted...

  • Page 54
    ...offset to interest expense, net. (c) Assets in Other include foreign assets of $204,865, $207,095, and $234,459 at the end of 2005, 2004, and 2003. It also includes unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment, and deferred tax assets. 46

  • Page 55
    ... letters of credit totaling $11,184 as of January 28, 2006. NOTE 18: SELECTED QUARTERLY DATA (UNAUDITED) Fiscal Year 2005 Net sales Same-store sales percentage change Gross profit Earnings before income taxes Net earnings Net earnings as a percentage of net sales Basic earnings per share Diluted...

  • Page 56
    ... 120 days after the end of our fiscal year: Compensation of Executive Officers Compensation Committee Report Stock Price Performance Compensation of Directors Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required under this...

  • Page 57
    ... 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 2006 Annual Meeting of Shareholders...

  • Page 58
    ... Executive Officer: Blake W. Nordstrom Blake W. Nordstrom President and Director /s/ Michael G. Koppel /s/ Michael G. Koppel Executive Vice President and Chief Financial Officer Principal Accounting Officer: /s/ Peter F. Collins Peter F. Collins Divisional Vice President and Corporate Controller...

  • Page 59
    ... 21, 2006, relating to the consolidated financial statements and financial statement schedule of Nordstrom, Inc., and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Nordstrom, Inc. for the year ended January 28...

  • Page 60
    ...at beginning of period Description Deducted from related balance sheet account Allowance for doubtful accounts: Year ended: January 28, 2006 January 29, 2005 January 31, 2004 Reserves Allowance for sales return, net: Year ended: January 28, 2006 January 29, 2005 January 31, 2004 Column C Additions...

  • Page 61
    [This page intentionally left blank.] Nordstrom, Inc. and subsidiaries 53

  • Page 62
    ... Registrant's Annual Report on Form 11-K for the year ended December 31, 2003, Exhibit 99.2 Filed herewith electronically Filed herewith electronically 10.2 10.3 Investment Agreement dated October 8, 1984 between the Registrant and Nordstrom Credit, Inc. 1997 Nordstrom Stock Option Plan, amended...

  • Page 63
    ... and Servicing Agreement dated October 1, 2001 between Nordstrom Incorporated by reference from Nordstrom Credit, Inc.'s Private Label Receivables, LLC, Nordstrom fsb, Wells Fargo Bank Minnesota, Annual Report on Form 10-K for the year ended January 31, N.A., and Nordstrom Private Label Credit Card...

  • Page 64
    ... April 18, 2002 between Registrant, New York Life Insurance Company and Life Investors Insurance Company of America 10.39 The 2002 Nonemployee Director Stock Incentive Plan Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 2002, Exhibit 10...

  • Page 65
    ... quarter ended October 29, 2005, Exhibit 10.1 10.46 Nordstrom fsb Segregated Earmarked Deposit Agreement And Security Agreement by and between Nordstrom fsb and Nordstrom, Inc. dated July 1, 2004 10.47 Revolving Credit Facility dated May 14, 2004 between Registrant and a group of commercial banks...

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    ...President of Merchandising James R. O'Neal, 47 Executive Vice President and President, Nordstrom Product Group R. Michael Richardson, 49 Vice President and Chief Information Officer Loretta Soffe, 39 Executive Vice President, General Merchandise Manager, Women's Apparel Division Delena M. Sunday, 45...

  • Page 69
    .... Seattle, Washington John N. Nordstrom, 69 Retired Co-Chairman of the Board of Directors Nordstrom, Inc. Seattle, Washington Alfred E. Osborne, Jr., Ph.D., 61 Senior Associate Dean UCLA Anderson Graduate School of Management Los Angeles, California Philip G. Satre, 56 Private Equity Investor Reno...

  • Page 70
    ... Time 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 28, 2006 will be provided to shareholders upon request to: Nordstrom, Inc. Investor Relations...

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