Nordstrom 2009 Annual Report Download

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NORDSTROM, INC. A N N UA L R E P O RT 2009

Table of contents

  • Page 1
    NORDSTROM, INC. ANNUAL REPORT 2009

  • Page 2
    ... TAXES (AS A PERCENTAGE OF TOTAL REVENUES) INVENTORY TURN (COST OF SALES AND RELATED BUYING AND OCCUPANCY DIVIDED BY AVERAGE INVENTORY) CASH FLOW FROM OPERATIONS †2007 cash ï¬,ow from operations was $312. Cash ï¬,ow from operations was impacted in 2007 by the securitization accounting change...

  • Page 3
    ... same-store sales decline of 4.2% for the year. • Higher gross profit driven by more regular price selling. • Free cash flow of $579 million. • Inventory turn of 5.4, a historically high rate for our business. Our performance last year exceeded our expectations and put us in a better position...

  • Page 4
    ... financial position. While it is premature to say things have turned around, we feel encouraged by some key factors: • Building sales momentum in 2009, including consecutive same-store sales increases each of the last four months of the year. • Fresh, compelling merchandise that customers are...

  • Page 5
    Photo by Vivian Hsu, Team Photoge nic NW

  • Page 6
    ...past year proved the axiom that where there are challenges, there are opportunities. In spite of a difficult sales environment, the company developed and employed a more efficient and profitable business model, made strategic investments, increased market share and, most important, found new ways...

  • Page 7
    Insert Indesign file here ("Financials 2009")

  • Page 8
    [This page intentionally left blank.]

  • Page 9
    ... sales price on that day of $26.44. On March 12, 2010, 218,020,643 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2010 Annual Meeting of Shareholders scheduled to be held on May 18, 2010 are incorporated into Part III. Nordstrom...

  • Page 10
    [This page intentionally left blank.] 2

  • Page 11
    ..., Executive Officers and Corporate Governance. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Certain Relationships and Related Transactions, and Director Independence. Principal Accounting Fees and Services. 4 6 9 9 13...

  • Page 12
    ... used in commerce at the time of the renewal. RETURN POLICY We offer our customers a fair and liberal return policy at our full-line stores and online at Nordstrom Direct. Our Nordstrom Rack stores accept returns up to 30 days from the date of purchase with the original price tag and sales receipt...

  • Page 13
    ... with the SEC. WEB SITE ACCESS Our Web site address is www.nordstrom.com. We make available free of charge on or through our Web site our annual and quarterly reports on Form 10-K and 10-Q (including related filings in XBRL format), current reports on Form 8-K, statements of changes in beneficial...

  • Page 14
    ... Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the "Credit CARD Act") included new rules and restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. These provisions are likely to affect our credit business practices...

  • Page 15
    ... to our long-term success. We utilize capital to finance our operations and working capital, make capital expenditures, manage our debt levels and return value to our shareholders through dividends and share repurchases. As a result of the financial crisis, global credit and equity markets have...

  • Page 16
    ... and our position as a retailer of high-quality fashion merchandise. Some of our vendors have experienced serious cash flow problems due to the credit market crisis and economic deterioration. To address these problems, our vendors could attempt to increase their prices, alter payment terms or seek...

  • Page 17
    ... Rack stores (Paramus, New Jersey; Dallas, Texas; Sandy, Utah; Orland Park, Illinois; East Palo Alto, California; Southlake, Texas; Maple Grove, Minnesota; Los Angeles, California; Pasadena, California; San Jose, California; Austin, Texas; Orlando, Florida; and Cincinnati, Ohio). To date in 2010...

  • Page 18
    ... store facilities as of January 30, 2010: Square Footage Year Store Opened Square Footage Year Store Opened Location Full-Line Stores ALASKA Anchorage ARIZONA Chandler Scottsdale CALIFORNIA Arcadia Brea Canoga Park Cerritos Corte Madera Costa Mesa Escondido Glendale Irvine Los Angeles Los Angeles...

  • Page 19
    ..., CA Long Beach, CA 1 Square Footage Year Store Opened Location Store Name Nordstrom Rack Group (continued) Square Footage Year Store Opened Downtown Portland Lloyd Center Salem Center Washington Square 174,000 150,000 71,000 189,000 19661 19631 1980 19741 Los Angeles, CA Los Angeles, CA...

  • Page 20
    [This page intentionally left blank.] 12

  • Page 21
    ... time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us of state and/or federal wage and hour ... impact on our financial condition, results of operations or cash flows. Item 4. Reserved. Nordstrom, Inc. and subsidiaries 13

  • Page 22
    ..., as well as the number of employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 218,020,643 shares of common stock outstanding. The high and low sales prices of our common stock and dividends declared for each quarter of 2009 and 2008 are presented in...

  • Page 23
    ... of total revenues Return on average shareholders' equity Sales per square foot5 Retail SG&A expense per square foot5 Per Share Information Earnings per diluted share Dividends per share Book value per share Store Information (at year end) Full-line stores Rack and other stores6 International Fa...

  • Page 24
    ...Web site (which we refer to as "multi-channel"), our off-price 'Nordstrom Rack' stores, and our 'Jeffrey' boutiques. Our stores are located throughout the United States. In addition, we offer our customers a loyalty program associated with a variety of payment products and services, including credit...

  • Page 25
    ... store average in 2009, although we saw improvements in both regions during the latter part of the year. Direct's net sales increased 14.5% for the year, with results driven by the accessories, women's apparel and women's shoes categories. Accessories benefited from the sales of handbags and fashion...

  • Page 26
    .... Our new "Buy Online, Pick Up in Store" service was launched in 2008 and proved to be a convenient and valued service for our customers. The accessories, women's apparel and kids' merchandise categories led the growth in our Direct sales in 2008. Rack same-store sales increased 3.1% for the year in...

  • Page 27
    ... with the planned increase in sales, as well as approximately $50 to $60 of additional selling, general and administrative expenses from new stores to be opened during 2010. Gain on Sale of Façonnable During the third quarter of 2007, we completed the sale of the Façonnable business in exchange...

  • Page 28
    ... The Nordstrom credit card products are designed to strengthen customer relationships and grow retail sales by providing valuable services, loyalty benefits and payment products. We believe that owning our credit card business allows us to fully integrate our rewards program with our retail stores...

  • Page 29
    ... 2010, final rules implementing portions of the Credit CARD Act were issued, including new restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. These rules are requiring us to make changes to our credit card business practices and systems...

  • Page 30
    ..., respectively. We anticipate our effective tax rate to be approximately 39.0% in 2010. Net Earnings and Earnings per Diluted Share Fiscal year Net earnings Net earnings as a percentage of total revenues Earnings per diluted share 2009 $441 5.1% $2.01 2008 $401 4.7% $1.83 2007 $715 7.9% $2.88 In...

  • Page 31
    ... company history. We also ended the quarter with inventory per square foot down 4.1% from the fourth quarter of 2008. SELLING, GENERAL & ADMINISTRATIVE EXPENSES Selling, general and administrative dollars for our Retail Business increased $56 compared to last year's fourth quarter. The increase...

  • Page 32
    ... upon our effective tax rate multiplied by the net operating profit for the fiscal years ended January 30, 2010 and January 31, 2009. 3 Based upon the trailing 12-month average. 4 Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other...

  • Page 33
    ... year ended January 30, 2010, cash and cash equivalents increased by $723 to $795, primarily due to cash provided by operations of $1,251, partially offset by $360 of capital expenditures; and $182 of purchases, net of payments, made by our customers for third-party merchandise and services using...

  • Page 34
    ... by our stock price, we plan to target a 1.0% to 1.5% long-term yield. We will balance any potential future dividend changes with our operating performance and available capital resources. In February 2010, we declared a first quarter dividend of $0.16 per share, which is consistent with 2009. SHARE...

  • Page 35
    ... as: Free Cash Flow = Net Cash Provided By Operating Activities - Capital Expenditures - Change in Credit Card Receivables Originated at Third Parties - Cash Dividends Paid + Increase in Cash Book Overdrafts Free cash flow is one of our key liquidity measures, and we believe that our cash levels are...

  • Page 36
    ... debt securities. Our next debt maturity is a $350 securitized note due in April 2010. Beginning in the first quarter of 2010, we will make monthly cash deposits into a restricted account until the note is due in accordance with the debt agreement. We will continue to monitor the credit markets and...

  • Page 37
    ... goal is to manage debt levels to maintain an investment grade credit rating as well as operate with an efficient capital structure for our size, growth plans and industry. Investment grade credit ratings are important to maintaining access to a variety of short-term and long-term sources of funding...

  • Page 38
    ..., 2010. Revenue Recognition We record sales net of estimated returns and we exclude sales taxes. We recognize revenue from sales at our retail stores at the point of sale. Revenue from our online and catalog sales includes shipping revenue and is recognized upon estimated receipt by the customer. We...

  • Page 39
    ...-annual inventory count based on historical shrinkage results. Therefore, our obsolescence reserve and shrinkage percentage contain uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling...

  • Page 40
    ...-based rates. Changing interest rates can therefore affect our credit card revenues and interest expense. The annualized effect of a one-percentage-point change in interest rates would not materially affect our net earnings, cash flows, or the fair value of our fixed-rate debt. We manage our net...

  • Page 41
    ... this evaluation, management concluded that the Company's internal control over financial reporting was effective as of January 30, 2010. Deloitte & Touche LLP, an independent registered public accounting firm, is retained to audit Nordstrom's consolidated financial statements and the effectiveness...

  • Page 42
    ...accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 30, 2010 of the Company and our report dated March 19, 2010, expressed an unqualified opinion on...

  • Page 43
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of January 30, 2010 and January 31, 2009, and ...

  • Page 44
    Nordstrom, Inc. Consolidated Statements of Earnings In millions except per share amounts Fiscal year Net sales Credit card revenues Total revenues Cost of sales and related buying and occupancy costs Selling, general and administrative expenses: Retail stores, direct and other segments Credit ...

  • Page 45
    ... Accounts payable Accrued salaries, wages and related benefits Other current liabilities Current portion of long-term debt Total current liabilities Long-term debt, net Deferred property incentives, net Other liabilities Commitments and contingencies Shareholders' equity: Common stock, no par value...

  • Page 46
    ...of ($5) Fair value adjustment to investment in asset-backed securities, net of tax of $3 Comprehensive net earnings Cash dividends paid ($0.54 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Other Stock-based compensation Repurchase of common stock Balance at...

  • Page 47
    ... Principal payments on long-term borrowings Increase in cash book overdrafts Cash dividends paid Repurchase of common stock Proceeds from exercise of stock options Proceeds from employee stock purchase plan Excess tax benefit from stock-based payments Other, net Net cash provided by (used in...

  • Page 48
    ... Statements Dollar and share amounts in millions except per share, per option and unit amounts NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Founded in 1901 as a shoe store in Seattle, today Nordstrom is a fashion specialty retailer that offers customers...

  • Page 49
    ... annual levels of spending. We record the cost of the loyalty program benefits for Nordstrom Notes and alterations in cost of sales given that we provide customers with products or services for these rewards. Other costs of the loyalty program, which primarily include shipping and fashion events...

  • Page 50
    ...term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at the end of 2009...

  • Page 51
    ... in asset-backed securities, which was accounted for as available-for-sale securities, was eliminated and we reacquired all of the Nordstrom VISA credit card receivables previously held off-balance sheet. Nordstrom VISA credit card receivables are now recorded at the outstanding balance, net of an...

  • Page 52
    ...balance sheet, with an offsetting adjustment to the carrying value of our long-term debt. See Note 7: Debt and Credit Facilities for additional information related to our swap. We periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use...

  • Page 53
    ...2010 and January 31, 2009, these maximums were not exceeded. The unrestricted trade receivables consist primarily of the remaining portion of our Nordstrom private label card receivables and our Nordstrom VISA credit card receivables and accrued finance charges not yet allocated to customer accounts...

  • Page 54
    ...end of 2009 and 2008 there were 35 and 33 officers and select employees eligible for SERP benefits. This plan is non-qualified and does not have a minimum funding requirement. Benefit Obligations and Funded Status January 30, 2010 Change in benefit obligation: Benefit obligation at beginning of year...

  • Page 55
    ...158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Benefit Plans), during 2008, we recognized a one-time adjustment of ($3) to retained earnings in shareholders' equity as a result of changing our benefit obligation measurement date from October 31 to our fiscal year-end...

  • Page 56
    ... Under the swap we receive a fixed rate of 6.25% and pay a variable rate based on one month LIBOR plus a margin of 2.9% (3.1% at January 30, 2010). Required principal payments on long-term debt, excluding capital lease obligations, are as follows: Fiscal year 2010 2011 2012 2013 2014 Thereafter $355...

  • Page 57
    ... with a short-term credit capacity of $100. This facility is backed by the remaining 10% interest in the Nordstrom VISA credit card receivables and is available, if needed, to provide liquidity support to Nordstrom fsb. At the end of 2009 and 2008, Nordstrom fsb had no outstanding borrowings under...

  • Page 58
    ... Present value of net minimum lease payments Capital Leases $2 2 2 2 2 7 17 (5) $12 Operating Leases $98 101 89 82 78 406 $854 Rent expense for 2009, 2008 and 2007 was as follows: Fiscal year Minimum rent: Store locations Offices, warehouses and equipment Percentage rent - store locations Property...

  • Page 59
    ... merchandise, we have outstanding import letters of credit totaling $5 as of January 30, 2010. We are subject from time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us of state and/or federal wage and hour laws. Some of...

  • Page 60
    ... tax benefit from stock-based payments" in the consolidated statements of cash flows. Stock Options We used the following assumptions to estimate the fair value for stock options at grant date: Fiscal year Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon securities that...

  • Page 61
    ... pro-rated based on the amount of time passed in the vesting period. The price used to issue stock or cash for the performance share units upon vesting is the closing market price of our common stock on the vest date. Following is a summary of performance share unit activity: Fiscal year Outstanding...

  • Page 62
    ...differences Gift cards and gift certificates Loyalty reward certificates Allowance for doubtful accounts Federal benefit of state taxes Other Total deferred tax assets Total deferred tax liabilities Net deferred tax assets January 30, 2010 $123 67 24 13 18 12 74 11 11 353 - $353 January 31, 2009 $99...

  • Page 63
    ... are expected to be completed in 2010 and 2011. We also currently have an open audit in France for the years 2001 through 2004, related to our Façonnable business which we sold in 2007. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $3 by January 29...

  • Page 64
    ...two Nordstrom VISA credit cards and a debit card for Nordstrom purchases. Our card products also include a loyalty program that provides benefits to our cardholders based on their level of spending. The Other segment includes our product development group, which coordinates the design and production...

  • Page 65
    ...set forth information for our reportable segments: Fiscal year 2009 Net sales1 Net sales (decrease) increase Credit card revenue Earnings (loss) before interest and income taxes Interest expense, net2 Earnings (loss) before income taxes Earnings (loss) before income taxes as a % of net sales Capital...

  • Page 66
    Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and unit amounts NOTE 15: SELECTED QUARTERLY DATA (UNAUDITED) Fiscal year 2009 Net sales Same-store sales percentage change Credit card revenues Gross profit1 Selling, general...

  • Page 67
    [This page intentionally left blank.] Nordstrom, Inc. and subsidiaries 59

  • Page 68
    ...for our 2010 Annual Meeting of Shareholders, which sections are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Executive Officers Election of Directors Board Committees Director Nominating Process Web site Access to Corporate Governance Documents...

  • Page 69
    ... year: Security Ownership of Certain Beneficial Owners and Management Equity Compensation Plans Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required under this item is included in the following sections of our Proxy Statement for our 2010...

  • Page 70
    ... of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Principal Financial Officer: /s/ Principal Executive Officer: Blake W. Nordstrom Blake W. Nordstrom President /s/ Michael...

  • Page 71
    ... financial statement schedule of Nordstrom, Inc. and subsidiaries and the effectiveness of Nordstrom, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Nordstrom, Inc. for the year ended January 30, 2010. /s/ Deloitte & Touche LLP Seattle, Washington...

  • Page 72
    ... Deducted from related consolidated balance sheet account Allowance for doubtful accounts: Year ended: January 30, 2010 January 31, 2009 February 2, 2008 Reserves Allowance for sales return, net: Year ended: January 30, 2010 January 31, 2009 February 2, 2008 Column C Additions Charged to costs and...

  • Page 73
    ..., by and between Nordstrom Credit Card Master Note Trust II and J.P. Morgan Securities Inc. and Greenwich Capital Markets, Inc., as representative of the initial purchasers Series 2007-2 Note purchase agreement, dated as of April 25, 2007, by and between Nordstrom Credit Card Master Note Trust II...

  • Page 74
    ... Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.5 10.9 10.10 Guaranty Agreement dated April 18, 2002 between Registrant, New York Life Insurance Company and Life Investors Insurance Company of America 10.11 The 2002 Nonemployee Director Stock Incentive Plan 10.12* Nordstrom...

  • Page 75
    ..., National Association, as Documentation Agent and Bank of America, N.A. as administrative agent 10.19 Press release dated November 19, 2007 announcing that its Board of Directors authorized a $1.0 billion share repurchase program 10.20 Director Compensation Summary Method of Filing Incorporated by...

  • Page 76
    ... Credit Bank, dated Report on Form 10-K for the year ended February 2, 2008, Exhibit 10.37 May 1, 2007 10.35* Forms of Notice of 1999 Stock Option Grant and Stock Option Agreements under Incorporated by reference from the Registrant's Annual the Nordstrom, Inc. 1997 Equity Incentive Plan Report...

  • Page 77
    ... for the quarter ended May 2, 2009, Exhibit 10.6 Incorporated by reference from the Registrant's Form S-8 filed on September 9, 2009, Exhibit 10.4 10.49* Nordstrom 401(k) Plan & Profit Sharing, amended and restated on August 27, 2008 10.50* Nordstrom, Inc. Employee Stock Purchase Plan, amended and...

  • Page 78
    ... Wachovia Bank N.A. and Nordstrom Inc., dated as of December 22, 2009 Significant subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certification of President required by Section 302(a) of the SarbanesOxley Act of 2002 Certification of Chief Financial Officer...

  • Page 79
    Insert Indesign file here ("Shareholder Information") Nordstrom, Inc. and subsidiaries 71

  • Page 80
    ... Vice President and Chief Administrative Officer Scott A. Meden, 47 Executive Vice President, General Merchandise Manager, Shoe Division Margaret Myers, 63 Executive Vice President, General Merchandise Manager, Accessories and Women's Specialized Divisions Blake W. Nordstrom, 49 President Erik...

  • Page 81
    ...-Con Security Systems, Inc. Pasadena, California Robert G. Miller, 65 Chief Executive Officer, Albertsons LLC Boise, Idaho Blake W. Nordstrom, 49 President Nordstrom, Inc. Seattle, Washington Erik B. Nordstrom, 46 Executive Vice President and President of Stores Nordstrom, Inc. Seattle, Washington...

  • Page 82
    ...Daylight Time Nordstrom Downtown Seattle Store John W. Nordstrom Room, fifth floor 1617 Sixth Avenue Seattle, Washington 98101-1707 Form 10-K The Company's annual report on Form 10-K for the year ended January 30, 2010 will be provided to shareholders upon request to: Nordstrom Investor Relations PO...

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