Nordstrom 2010 Annual Report Download

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NORDSTROM, INC.
ANNUAL REPORT 20 1 0

Table of contents

  • Page 1
    Nordstrom, INc. ANNUAL REPORT 2010

  • Page 2
    ...†2008 2009 2010 EARNINGS BEFORE INCOME 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 ($) Dollars in millions except per share and per square foot amounts †2007 cash flow from...

  • Page 3
    ... have done a great job of delivering new fashion that our customers want. Our team demonstrated thoughtful planning, sharp editing and disciplined execution throughout the year. Their hard work helped us continue to grow sales faster than inventory, maintain the balance of our offering and have the...

  • Page 4
    ...personalized service, breadth of offering and collaboration across departments. Most important, both are helping us improve the shopping experience in our stores while increasing sales. As good as 2010 was, we know we have more work to do. Going forward, we want to be more than just customer focused...

  • Page 5
    ... complement to our business. Customers are clearly responding to this online private sale model and we need to move faster and be more nimble in responding to the different ways they want to shop for fashion. HauteLook will help us do just that and offers new capabilities to help us better serve...

  • Page 6
    ... in technology, online, ecommerce and new stores, Nordstrom will be better able to improve service, increase market share and create shareholder value. Since its founding, Nordstrom leaders and employees have always held themselves to the highest ethical standards in every aspect of our business...

  • Page 7
    FINANCIALS 2010

  • Page 8
    [This page intentionally left blank.]

  • Page 9
    ... Registrant was approximately $6.2 billion using the closing sales price on that day of $34.00. On March 11, 2011, 218,078,190 shares of common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2011 Annual Meeting of Shareholders scheduled to be held...

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

  • Page 11
    ... With Accountants on Accounting and Financial Disclosure. Controls and Procedures. Other Information. Directors, Executive Officers and Corporate Governance. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Certain Relationships...

  • Page 12
    ... used in commerce at the time of the renewal. RETURN POLICY We offer our customers a liberal return policy at our Nordstrom full-line stores and online at www.nordstrom.com. 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
    ... financial events through our website. CORPORATE GOVERNANCE We have a long-standing commitment to upholding a high level of ethical standards. In addition, as required by the listing standards of the New York Stock Exchange ("NYSE") and the rules of the SEC, we have adopted Codes of Business Conduct...

  • Page 14
    ... businesses. If we are unable to remain competitive in the key areas of customer service, fashion newness, quality of products, the shopping experience across all channels, depth of selection, store environment and location, we may lose market share to our competitors and our sales and profitability...

  • Page 15
    ... our debt levels and return value to our shareholders through dividends and share repurchases. Our ability to obtain capital and the cost of the capital depend on company performance, financial market conditions and independent rating agencies' short- and long-term debt ratings, which are based...

  • Page 16
    ... liability, increased cost of regulatory compliance, restatements of our financial statements, disruption of our business and loss of customers. Any required changes to our employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and...

  • Page 17
    ... New York; Arlington, Virginia; Fairfax, Virginia; Durham, North Carolina; St. Louis, Missouri; Boca Raton, Florida; Chicago, Illinois; Tampa, Florida; Lakewood, California; Burbank, California; and Peoria, Arizona) and relocated one Nordstrom Rack store (Spokane Valley, Washington). To date in 2011...

  • Page 18
    ... Fashion Valley Horton Plaza University Towne Center San Francisco Centre Stonestown Galleria Valley Fair Hillsdale Shopping Center MainPlace Paseo Nuevo Santa Monica Place Thousand Oaks Broadway Plaza FlatIron Crossing Cherry Creek Shopping Center Park Meadows Westfarms Aventura Mall Town Center...

  • Page 19
    ... Short Pump Town Center Bellevue Square Alderwood Downtown Seattle Northgate Mall River Park Square Tacoma Mall Southcenter Vancouver Square Year Footage Store (000's) Opened Location Store Name Nordstrom Rack and Other Stores ARIZONA Chandler Peoria Phoenix Scottsdale CALIFORNIA Brea Burbank...

  • Page 20
    ...Grove MISSOURI St. Louis NEVADA Las Vegas NEW JERSEY Paramus NEW YORK New York New York Westbury White Plains Centerpointe Mall Rack Troy Marketplace Rack Mall of America Rack Arbor Lakes Rack Brentwood Square Rack Silverado Ranch Plaza Rack Bergen Town Center Rack Jeffrey Union Square Rack The Mall...

  • Page 21
    ... of these matters with certainty, we do not believe any currently identified claim, proceeding or litigation, either alone or in aggregate, will have a material impact on our results of operations, financial position or cash flows. Item 4. Removed and 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 218,078,190 shares of common stock outstanding. The high and low sales prices of our common stock and dividends declared for each quarter of 2010 and 2009 are presented in...

  • Page 23
    STOCK PRICE PERFORMANCE The following graph compares, for each of the last five fiscal years ending January 29, 2011, the cumulative total return of Nordstrom, Inc. common stock, Standard & Poor's Retail Index and Standard & Poor's 500 Index. The Retail Index is comprised of 31 retail companies, ...

  • Page 24
    ... of total revenues Return on average shareholders' equity Sales per square foot4 Retail SG&A expense per square foot4 Inventory turnover rate5 Per Share Information Earnings per diluted share Dividends declared per share Book value per share Store Information (at year end) Nordstrom full-line stores...

  • Page 25
    ...: our 'Nordstrom' branded full-line stores and website, 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 variety of payment products and services, including credit and debit cards with an...

  • Page 26
    ... of sales and related buying and occupancy costs Gross profit Other revenues Selling, general and administrative expenses Earnings before interest and income taxes Retail Business Net Sales Fiscal year Net sales by channel: Nordstrom full-line stores Direct Nordstrom Nordstrom Rack and other Total...

  • Page 27
    ..., with same-store sales up 2.5%. The shoes and women's apparel categories led the positive performance for the year. In 2009, both the average selling price of Nordstrom Rack merchandise and the number of sales transactions increased compared with 2008. Retail Business Gross Profit Fiscal year Gross...

  • Page 28
    ... the business and expand our capabilities in areas such as online marketing and social media. The increased Retail SG&A rate also reflects higher fulfillment costs as we shipped more items to our customers due to the shared inventory platform between our online and full-line stores. SELLING, GENERAL...

  • Page 29
    ... dollars in Nordstrom Notes®, which can be redeemed for goods or services in our stores or online. As customers increase their level of spending they receive additional benefits, including rewards such as complimentary shipping, early access to sale events and unique fashion and shopping events...

  • Page 30
    ...support and service our credit and debit card products and the related rewards programs. The increase in these expenses in 2010 was primarily driven by increased information technology expenses, higher collection agency fees from increased recovery efforts and expenses related to our Fashion Rewards...

  • Page 31
    ..., 2010. Recent Regulatory Changes In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "Credit CARD Act") was passed, resulting in new restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. These rules...

  • Page 32
    ... INCOME TAX EXPENSE - 2010 VS 2009 The increase in the effective tax rate for 2010 compared with 2009 was primarily due to the impact of a non-recurring benefit of approximately $12 from a deferred tax adjustment during the first quarter of 2009 related to the closure of our 2007 federal tax return...

  • Page 33
    ... Rack. Nordstrom same-store sales increased 7.2% for the quarter. Both the number of sales transactions and the average selling price of our merchandise increased for the quarter ended January 29, 2011 compared with the same period last year. Category highlights for the quarter were jewelry, dresses...

  • Page 34
    ... for the total company as a percentage of net sales. We plan to open three Nordstrom full-line stores and seventeen Nordstrom Rack stores and relocate two Nordstrom Rack stores during 2011. This will increase our retail square footage by approximately 4.3%. We expect our gross profit rate to remain...

  • Page 35
    ...effective tax rate multiplied by the net operating profit for the 12 fiscal months ended January 29, 2011 and January 30, 2010. 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 current...

  • Page 36
    ... the long term, we manage our cash and capital structure to maximize shareholder return, maintain our solid financial position and allow flexibility for strategic initiatives. We regularly assess our debt and leverage levels, capital expenditure requirements, debt service payments, dividend payouts...

  • Page 37
    ... stores and accumulate points for our Nordstrom Fashion Rewards® program. In 2010, net cash outflows from customers' third-party purchases using their Nordstrom VISA credit cards decreased to $66, compared with $182 in 2009, as a result of improved payment rates. Financing Activities Net cash used...

  • Page 38
    ... Net cash provided by operating activities Less: Capital expenditures Change in credit card receivables originated at third parties Cash dividends paid Add: Increase in cash book overdrafts Free Cash Flow Net cash used in investing activities Net cash (used in) provided by financing activities 2010...

  • Page 39
    ... ratings assigned to our long-term unsecured debt worsen, the applicable margin associated with our borrowings may increase, resulting in a slightly higher cost of capital under this facility. Debt Covenants The revolver requires that we maintain a fixed charge coverage ratio of at least two times...

  • Page 40
    ...Our current 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...

  • Page 41
    .... A 10% change in our allowance for credit losses would have affected net earnings by $9 for the fiscal year ended January 29, 2011. Revenue Recognition We recognize revenue from sales at our retail stores at the point of sale, net of an allowance for estimated sales returns. We estimate customer...

  • Page 42
    ... at the largest amount which we believe is cumulatively greater than 50% likely to be realized. Our unrecognized tax benefit was $43 as of both January 29, 2011 and January 30, 2010. Unrecognized tax benefits require significant management judgment regarding applicable statutes and their related...

  • Page 43
    ... information about our long-term debt obligations and interest rate swaps that are sensitive to changes in interest rates as of January 29, 2011. For debt obligations, including our capital leases, the table presents principal amounts, at book value, by maturity date, and related weighted average...

  • Page 44
    ...29, 2011. Deloitte & Touche LLP, an independent registered public accounting firm, is retained to audit Nordstrom's Consolidated Financial Statements and the effectiveness of the Company's internal control over financial reporting. Its accompanying reports are based on audits conducted in accordance...

  • Page 45
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington We have audited the internal control over financial reporting of Nordstrom, Inc. and subsidiaries (the "Company") as of January 29, 2011, based on criteria established...

  • Page 46
    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 29, 2011 and January 30, 2010, and ...

  • Page 47
    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 Credit Earnings before interest and income ...

  • Page 48
    ...: 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 49
    ... loss: Postretirement plan adjustments, net of tax of $7 Comprehensive net earnings Dividends ($0.76 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Other Stock-based compensation Repurchase of common stock Balance at January 29, 2011 Common Stock Shares...

  • Page 50
    ... 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 compensation Other, net Net cash (used in) provided by...

  • Page 51
    ... off-price 'Nordstrom Rack' stores, two 'Jeffrey' boutiques and one clearance store. Our stores are located throughout the United States. Through our Credit segment, we provide our customers with a variety of payment products and services, including a Nordstrom private label card, two Nordstrom VISA...

  • Page 52
    ...included in selling, general and administrative expenses. Loyalty Program Customers who use our Nordstrom private label credit or debit card or our Nordstrom VISA credit cards can participate in the Nordstrom Fashion Rewards® program through which customers accumulate points based on their level of...

  • Page 53
    ... stores and on our website, while our Nordstrom VISA cards allow our customers the option of using the cards for purchases of Nordstrom merchandise and services, as well as for purchases outside of Nordstrom. Cash flows from the use of both the private label and Nordstrom VISA credit cards for sales...

  • Page 54
    ...interest rate swap fair value is included in other assets or other liabilities on our consolidated balance sheet, with an offsetting adjustment to the carrying value of our long-term debt (included in other unsecured debt). See Note 7: Debt and Credit Facilities for additional information related to...

  • Page 55
    ... financial statements. NOTE 2: ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: January 29, 2011 Credit card receivables: Nordstrom VISA credit card receivables Nordstrom private label card receivables Total credit card receivables Allowance for credit losses Credit card...

  • Page 56
    Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and unit amounts Activity in the allowance for credit losses for the past three fiscal years is as follows: Fiscal year Allowance at beginning of year Bad debt provision ...

  • Page 57
    ... employment practices liability and commercial general liability, have a retention per claim of $1 or less and a policy limit up to $25 and $150, respectively. NOTE 5: 401(k) AND PROFIT SHARING We provide a 401(k) and profit sharing plan for our employees. Our Board of Directors establishes...

  • Page 58
    ...35 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 29, 2011 Change in benefit obligation: Benefit obligation at beginning of year Participant service cost Interest cost...

  • Page 59
    ...688 2,613 (356) $2,257 Total long-term debt Less: current portion Total due beyond one year The Series 2007-2 Class A & B Notes are secured by substantially all of the Nordstrom private label card receivables and a 90% interest in the Nordstrom VISA credit card receivables. Our mortgage payable is...

  • Page 60
    ... a margin of 2.9% (3.1% at January 29, 2011). See Note 1: Nature of Operations and Summary of Significant Accounting Policies for additional information related to our swap. Required principal payments on long-term debt, excluding capital lease obligations, are as follows: Fiscal year 2011 2012 2013...

  • Page 61
    ..., real estate taxes and other executory costs, and some leases require additional payments based on sales, referred to as "percentage rent." Future minimum lease payments as of January 29, 2011 are as follows: Fiscal year 2011 2012 2013 2014 2015 Thereafter Total minimum lease payments Less: amount...

  • Page 62
    ... number and timing of future share repurchases, if any, will be subject to market conditions and applicable Securities and Exchange Commission rules. Dividends We paid dividends of $0.76 per share in 2010 and $0.64 per share in each of 2009 and 2008. NOTE 11: STOCK COMPENSATION PLANS We currently...

  • Page 63
    ... tax benefit from stock-based compensation" 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...

  • Page 64
    ... a three-year period only when our total shareholder return (reflecting daily stock price appreciation and compounded reinvestment of dividends) is positive and outperforms companies in a defined group of competitors determined by the Compensation Committee of our Board of Directors. The percentage...

  • Page 65
    ... year processing (accelerated audits), which is expected to be completed in 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...

  • Page 66
    ... segment, we provide our customers with a variety of payment products and services, including a Nordstrom private label card, two Nordstrom VISA credit cards and a debit card for Nordstrom purchases. Our credit and debit card products also include a loyalty program that provides benefits to our...

  • Page 67
    ... has been adjusted to reflect our 2010 reportable segments. Fiscal year 2010 Net sales Net sales increase Credit card revenues Earnings (loss) before interest and income taxes Interest expense, net Earnings (loss) before income taxes Earnings (loss) before income taxes as a % of net sales Capital...

  • Page 68
    ... up in our Nordstrom full-line stores are included in Nordstrom full-line store sales. Prior to February 2010, merchandise purchased from our online store that was later returned to our Nordstrom full-line stores was reported as a deduction from Nordstrom full-line store sales. Beginning in February...

  • Page 69
    ... year 2010 Net sales Same-store sales percentage change Credit card revenues Gross profit1 Selling, general and administrative expenses: Retail Credit Earnings before income taxes Net earnings Net earnings as a percentage of total revenues Earnings per basic share Earnings per diluted share Dollar...

  • Page 70
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  • Page 71
    ...Registered Public Accounting Firm Page 36 37 Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required under this item is included in the following sections of our Proxy Statement for our 2011 Annual Meeting of Shareholders...

  • Page 72
    ... 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 2011 Annual Meeting of Shareholders, which sections...

  • Page 73
    ... duly authorized. NORDSTROM, INC. (Registrant) Michael G. Koppel Michael G. Koppel Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 18, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 74
    ...of our reports dated March 18, 2011, relating to the consolidated financial statements 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...

  • Page 75
    ..., N.A. First Amendment to the Note Purchase Agreement dated November 13, 2009, by and between Nordstrom Credit Card Receivables II LLC, Nordstrom fsb, Nordstrom Credit, Inc., Falcon Asset Securitization Company, LLC and J.P. Morgan Chase Bank, N.A., dated January 20, 2010 Form of 4.75% Note due May...

  • Page 76
    ... and Life Investors Insurance Company of America The 2002 Nonemployee Director Stock Incentive Plan Method of Filing Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1991, Exhibit 10.1 Incorporated by reference from the Nordstrom Credit...

  • Page 77
    ... Deferred Compensation Plan (2007) Nordstrom Directors Deferred Compensation Plan (2007) Nordstrom, Inc. 2004 Equity Incentive Plan (2007 Amendment) First Amendment to Merchant Agreement and Operating Procedures dated August 30, 1991 between Registrant and Nordstrom National Credit Bank, dated March...

  • Page 78
    ... for the quarter ended November 1, 2008, Exhibit 10.2 10.42 10.43* 10.44 Notice of Exercise of Accordion on Revolving Credit Facility Agreement dated May 13, 2008 Nordstrom 401(k) Plan & Profit Sharing, amended and restated on August 27, 2008 Nordstrom, Inc. Employee Stock Purchase Plan, amended...

  • Page 79
    ...-1 to the Nordstrom 401(k) Plan & Profit Sharing Nordstrom, Inc. Executive Management Bonus Plan Amendment 2008-2 to the Nordstrom Executive Deferred Compensation Plan Amendment 2009-1 to the Nordstrom Directors Deferred Compensation Plan 2010 Stock Option Award Agreement 2010 Performance Share Unit...

  • Page 80
    ... 401(k) Plan & Profit Sharing Press release dated August 19, 2010 announcing that its Board of Directors authorized a $500 million share repurchase program Revolving Credit Facility Agreement dated August 14, 2009, between Registrant and each of the initial lenders named therein as Lenders; Bank...

  • Page 81
    ... Accounting Firm Certification of President required by Section 302(a) of the SarbanesOxley Act of 2002 Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002 Method of Filing Filed herewith electronically Filed as page 66 of this report Filed herewith...

  • Page 82
    SHAREHOLDER INFormAtIoN

  • Page 83
    ..., General Merchandise Manager, Cosmetics Division Robert E. Campbell, 55 Treasurer and Vice President, Investor Relations James A. Howell, 45 Vice President, Finance Kevin T. Knight, 55 Executive Vice President, Chairman and Chief Executive Officer of Nordstrom fsb, President, Nordstrom Credit, Inc...

  • Page 84
    ...Nordstrom, Inc. Seattle, Washington Philip G. Satre, 61 Private Investor Reno, Nevada Felicia D. Thornton, 47 Chief Executive Officer - U.S. Knowledge Universe Portland, Oregon B. Kevin Turner, 45 Chief Operating Officer Microsoft Corporation Redmond, Washington Robert D. Walter, 65 Private Investor...

  • Page 85
    ... The Company's Annual Report on Form 10-K for the year ended January 29, 2011 will be provided to shareholders upon request to: Nordstrom Investor Relations PO Box 2737 Seattle, Washington 98111-2737 (206) 303-3200 [email protected] Shareholder Information Additional shareholder information...

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