UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-6074
Nordstrom, Inc.
______________________________________________________
(Exact name of Registrant as specified in its charter)
Washington 91-0515058
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1617 Sixth Avenue, Suite 500, Seattle, Washington 98101
________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 628-2111
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
_____ _____
Common stock outstanding as of November 30, 1998: 142,069,092 shares of
common stock.
1 of 12
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings
Three and nine months ended
October 31, 1998 and 1997 3
Consolidated Balance Sheets
October 31, 1998 and 1997 and
January 31, 1998 4
Consolidated Statements of Cash Flows
Nine months ended October 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
2 of 12
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
Three Months Nine Months
Ended October 31, Ended October 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net sales $1,094,349 $1,089,784 $3,581,848 $3,396,876
Costs and expenses:
Cost of sales and related
buying and occupancy 717,100 724,081 2,386,643 2,294,946
Selling, general and
administrative 328,235 326,193 1,017,008 950,843
Interest, net 12,715 7,659 34,001 23,572
Service charge income
and other, net (26,876) (27,794) (84,878) (82,165)
---------- ---------- ---------- ----------
Total costs and expenses 1,031,174 1,030,139 3,352,774 3,187,196
---------- ---------- ---------- ----------
Earnings before income taxes 63,175 59,645 229,074 209,680
Income taxes 24,500 23,500 88,900 82,600
---------- ---------- ---------- ----------
Net earnings $ 38,675 $ 36,145 $ 140,174 $ 127,080
========== ========== ========== ==========
Basic earnings per share $ .27 $ .23 $ .95 $ .82
========== ========== ========== ==========
Diluted earnings per share $ .27 $ .23 $ .95 $ .82
========== ========== ========== ==========
Cash dividends paid per share
of common stock outstanding $ .08 $ .07 $ .22 $ .195
========== ========== ========== ==========
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
3 of 12
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
October 31, January 31, October 31,
1998 1998 1997
(unaudited) (unaudited)
----------- ---------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 20,269 $ 24,794 $ 19,239
Accounts receivable, net 570,920 664,448 648,802
Merchandise inventories 1,048,386 826,045 1,134,212
Prepaid income taxes and other 88,317 79,710 76,538
---------- ---------- ----------
Total current assets 1,727,892 1,594,997 1,878,791
Land, buildings and
equipment, net 1,352,345 1,252,513 1,229,354
Other assets 65,243 17,653 18,163
---------- ---------- ----------
TOTAL ASSETS $3,145,480 $2,865,163 $3,126,308
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 344,483 $ 263,767 $ 241,348
Accounts payable 495,875 321,311 555,042
Accrued salaries, wages
and taxes 207,353 205,273 199,158
Accrued expenses 37,872 37,884 34,003
Accrued income taxes 372 13,242 10,992
Current portion
of long-term debt 59,113 101,129 151,343
---------- ---------- ----------
Total current liabilities 1,145,068 942,606 1,191,886
Long-term debt 560,285 319,736 320,701
Deferred lease credits 132,194 77,091 79,013
Other liabilities 59,864 50,672 50,679
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
141,968,889, 152,518,104 and
154,628,398 shares issued
and outstanding 217,625 201,050 200,241
Unearned compensation (4,953) --- ---
Retained earnings 1,035,397 1,274,008 1,283,788
---------- ---------- ----------
Total shareholders' equity 1,248,069 1,475,058 1,484,029
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,145,480 $2,865,163 $3,126,308
========== ========== ==========
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
4 of 12
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months
Ended October 31,
------------------
1998 1997
-------- --------
OPERATING ACTIVITIES:
Net earnings $140,174 $127,080
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 129,729 115,797
Amortization of deferred lease credits
and other, net (1,496) (1,569)
Change in:
Accounts receivable, net 93,528 65,787
Merchandise inventories (222,341) (414,293)
Prepaid income taxes and other (8,607) (6,931)
Accounts payable 174,564 244,612
Accrued salaries, wages and taxes 2,080 9,461
Accrued expenses (12) (7,140)
Income tax liabilities (10,074) (4,093)
Other liabilities 6,396 2,060
-------- --------
Net cash provided by operating activities 303,941 130,771
-------- --------
INVESTING ACTIVITIES:
Additions to land, buildings
and equipment, net (230,150) (192,697)
Additions to deferred lease credits 57,238 1,210
Investments in unconsolidated affiliates (32,857) ---
Other, net (12,550) (373)
-------- --------
Net cash used in investing activities (218,319) (191,860)
-------- --------
FINANCING ACTIVITIES:
Borrowings under notes payable, net 80,716 77,578
Proceeds from issuance of common stock 11,579 16,843
Proceeds from issuance of long-term debt, net 297,146 91,647
Principal payments on long-term debt (100,804) (938)
Cash dividends paid (32,707) (30,344)
Purchase and retirement of common stock (346,077) (102,742)
-------- --------
Net cash (used in) provided by
financing activities (90,147) 52,044
-------- --------
Net decrease in cash and cash equivalents (4,525) (9,045)
Cash and cash equivalents at
beginning of period 24,794 28,284
-------- --------
Cash and cash equivalents at end of period $ 20,269 $ 19,239
======== ========
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
5 of 12
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Basis of Presentation
The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the
"Company") as of October 31, 1998 and 1997, and the related consolidated
statements of earnings and cash flows for the periods then ended, have been
prepared from the accounts without audit.
The consolidated financial information is applicable to interim periods
and is not necessarily indicative of the results to be expected for the
year ending January 31, 1999.
The financial information should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Nordstrom 1997 Annual
Report to Shareholders.
In the opinion of management, the consolidated financial information
includes all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position of
Nordstrom, Inc. and subsidiaries as of October 31, 1998 and 1997, and the
results of their operations and cash flows for the periods then ended,
in accordance with generally accepted accounting principles applied on a
consistent basis.
Certain reclassifications of prior year balances have been made for
presentation consistent with the current year.
Note 2 - Earnings Per Share
The following table sets forth the weighted-average number of shares used
in the computation of earnings per share:
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Basic shares 144,489,687 154,502,586 147,712,059 155,223,630
Dilutive effect of stock
options and restricted
stock 463,509 621,694 569,379 313,856
----------- ----------- ----------- -----------
Diluted shares 144,953,196 155,124,280 148,281,438 155,537,486
Antidilutive options 685,327 0 397,663 284,462
Antidilutive options consist of stock options outstanding at October 31, 1998
and 1997, that had an exercise price greater than the average market price
during the period.
6 of 12
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - New Accounting Rules
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which requires that
certain software costs be capitalized and amortized over the period of use.
The Company adopted SOP 98-1 during the first quarter of 1998. The effect of
this change in accounting was an increase in earnings after taxes of $2.1
million ($.01 per share) for the third quarter, and an increase in earnings
after taxes of $6.8 million ($.04 per share) for the nine-month period.
As of February 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
establishes standards for the reporting and display of comprehensive income
and its components. Adoption of this standard had no material effect on the
Company's consolidated financial position, results of operations or cash
flows.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes reporting and disclosure standards for an enterprise's operating
segments, and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which revises employers' disclosures about pension
and other postretirement benefit plans. Both statements are effective for the
Company's fiscal year ending January 31, 1999. Adoption of these standards
will not impact the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the form and
content of its disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. The
Company plans to adopt SFAS No. 133 on February 1, 2000, as required.
Adoption of this standard is not expected to have a material impact on the
Company's consolidated financial statements.
Note 4 - Other Assets
During the quarter ended October 31, 1998, the Company purchased non-voting
preferred stock in two companies which provide services to consumers utilizing
internet technology. The investments, aggregating approximately $33 million,
are accounted for at cost.
7 of 12
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Credit Card and Financing Subsidiaries
The summarized unaudited combined results of operations of Nordstrom
Credit, Inc. and Nordstrom National Credit Bank are as follows:
Three Months Nine Months
Ended October 31, Ended October 31,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Total revenue $30,698 $30,841 $94,202 $93,262
Earnings before income taxes 10,518 12,487 36,239 32,160
Net earnings 6,947 7,853 23,289 20,256
Note 6 - Shareholders' Equity
The following table sets forth common stock share activity for the quarter and
the nine-month period:
Three Months Nine Months
Ended October 31, Ended October 31,
----------------------- ----------------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
Issued 289,925 290,344 648,385 808,444
Purchased and Retired (5,625,000) - (11,197,600) (5,450,000)
On May 19, 1998, the Company's Board of Directors approved a two-for-one stock
split effective June 30, 1998. All share and per share amounts have been
adjusted to give retroactive effect to the stock split.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management
Discussion and Analysis section of the Nordstrom 1997 Annual Report to
Shareholders.
Results of Operations:
- ----------------------
During the third quarter of 1998, sales increased .4% compared to the
same quarter in 1997. For the nine-month period, sales increased 5.4%
compared to the same period in 1997. New unit sales accounted for all of the
sales increase for both the quarter and nine-month period, as comparable store
sales declined 4.2% for the quarter and 1.4% for the nine-month period.
Comparable store sales results are attributable to the Company's emphasis on
controlling inventory growth. For the quarter, global economic uncertainty
and weather conditions in certain parts of the nation are also believed to
have impacted comparable store sales results.
8 of 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Cost of sales and related buying and occupancy costs decreased as a percentage
of sales for the quarter and the nine-month period as compared to the
corresponding periods in 1997. For the quarter and the nine-month period, the
cost of sales decrease is due primarily to higher merchandise marginsresulting
from favorable pricing strategies and an increased focus on managing
inventory levels. For the quarter and nine-month period, buying costs
decreased as a percentage of sales due to efficiencies gained through
restructuring of certain buying responsibilities. Occupancy costs increased
as a percentage of sales for the quarter and nine-month period due primarily
to depreciation related to new and remodeled stores.
Selling, general and administrative expenses increased as a percentage of
sales during the quarter and nine-month period as compared to the
corresponding periods in 1997 due to several factors. Expenses increased in
part due to higher sales promotion costs for the Company's direct sales
catalog division and spending on Year 2000 and other information system
operational costs.
Interest expense increased for the quarter and the nine-month period compared
to the corresponding periods in 1997, reflecting higher levels of debt
outstanding as a result of the Company's share repurchase activity.
Liquidity and Capital Resources:
- --------------------------------
The Company's working capital at October 31, 1998 decreased compared to
October 31, 1997 due primarily to decreases in accounts receivable and
inventories. The increase in deferred lease credits since January 31,1998 is
primarily due to amounts received for new stores opening in 1998 and
1999.
During the quarter ended October 31, 1998, the Company purchased non-voting
preferred stock in two companies which provide services to consumers utilizing
internet technology. The investments, aggregating approximately $33 million,
are accounted for at cost.
During the first quarter of 1998, the Company issued $300 million of 6.95%
Senior Debentures due 2028. Proceeds were used principally to repay short-
term debt and repurchase the Company's common stock.
In November 1998, the Board of Directors authorized the repurchase of up to
$250 million of the Company's common stock. In addition, at October 31, 1998,
$71 million of repurchase authority remains pursuant to a February 1998
authorization to repurchase a total of $400 million of the Company's common
stock.
During the quarter, the Company opened a full-line Nordstrom store at the
Fashion Square Mall in Scottsdale, Arizona, and Racks at Westgate Mall in San
Jose, California, and Zelman Meadows Marketplace in Littleton, Colorado. The
Company also relocated its downtown Seattle, Washington, flagship store and
completed a store expansion in San Diego, California. Construction is
progressing as planned on new stores scheduled to open in 1999.
9 of 12
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
The Company is taking steps to avoid negative consequences of Year 2000
software non-compliance and presently believes that any such non-compliance
will not have a material effect on the Company's business, results of
operations, or financial condition. However, if unforeseen difficulties arise
or the modification, conversion and replacement activities that the Company
has undertaken are not completed in a timely manner, the Company's operations
may be negatively affected by Year 2000 non-compliance, either from its own
computer systems or from interactions with outside vendors and other third
parties with which it does business.
The Company is currently evaluating, replacing or upgrading its computer
systems in an effort to make them Year 2000 compliant, and expects to have
remediation efforts completed for its critical computer systems by the end of
the first quarter in 1999. Testing is being conducted based on criticality
and is scheduled to be completed in June 1999. Non-IT systems, such as
microchips embedded in systems such as elevators, are also being evaluated,
replaced or upgraded, as needed. Although the Company's assessment of its
Year 2000 issues has been completed, reassessments are conducted on an ongoing
basis to provide reasonable assurance that all critical risks have been
identified and will be mitigated.
The total cost of this effort is presently estimated to be $24 million, of
which approximately $12 million has been incurred through October 31, 1998.
While the Company believes all necessary work will be completed in a timely
fashion, there can be no guarantee that all systems will be compliant by the
year 2000, that the estimated cost of remediation will not increase or that
the systems of other companies and government agencies on which the Company
relies will be compliant.
Since 1996, the Company has been communicating with outside vendors to
determine their state of readiness with regard to the Year 2000 issue. Based
on its assessment to date, the Company has no indication that any third party
is likely to experience Year 2000 non-compliance of a nature which would have
a material impact on the Company. However, the risk remains that outside
vendors or other third parties may not have accurately determined their state
of readiness, in which case such parties' lack of Year 2000 compliance may
have a material adverse effect on the Company's results of operations. The
Company will continue to monitor the Year 2000 compliance of third parties
with which it does business.
The Company believes the most likely worst-case scenarios that it might
confront with respect to the Year 2000 issues have to do with the possible
failure of third party systems over which the Company has no control, such as,
but not limited to, power and telephone service. The Company has in place a
business continuity plan that addresses recovery from various kinds of
disasters, including recovery from significant interruption in conveyance of
data within the Company's network information systems. The Company is
using this plan to assist in development of more specific Year 2000
contingency plans, which it expects to complete during the first half of 1999.
10 of 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Fatemah Azizian v. Macy's California, Inc.; Federated Department Stores;
Bullocks, Inc.; Nordstrom, Inc.; May Department Stores Co.; Nieman-Marcus,
Inc.; Saks & Co.; Gottschalks, Inc.; Bloomingdales, Inc.; and Does 1 through
200, inclusive Superior Court of the State of California, County of Marin,
Case No. 174049 (filed May 29, 1998); Regina Callan v. Macy's California,
Inc.; Federated Department Stores Co.; Nieman-Marcus, Inc.; Saks & Co.;
Gottschalks, Inc.; Bloomingdales, Inc.; and Does 1 through 200, inclusive
Superior Court of the State of California, City and County of San Francisco,
Case No. 995468 (filed June 1, 1998); Lee R. Bright v. Macy's California,
Inc.; Federated Department Stores; Bullocks, Inc.; Nordstrom, Inc.; May
Department Stores Co.; Nieman-Marcus, Inc.; Saks & Co.; Gottschalks, Inc.;
Bloomingdales, Inc.; and Does 1 through 200, inclusive Superior Court of the
State of California, City and County of San Francisco, Case No. 995556 (filed
June 4, 1998); Sandra Radliff v. Macy's California, Inc.; Federated
Department Stores; Bullocks, Inc.; Nordstrom, Inc.; May Department Stores Co.;
Nieman-Marcus, Inc.; Saks & Co.; Gottschalks, Inc.; Bloomingdales, Inc.; and
Does 1 through 200, inclusive Superior Court of the State of California,
County of Alameda, Case No. 798925-2 (filed June 2, 1998); Elizabeth Fey v.
Macy's California, Inc.; Federated Department Stores; Bullocks, Inc.;
Nordstrom, Inc.; May Department Stores Co.; Nieman-Marcus, Inc.; Saks & Co.;
Gottschalks, Inc.; Bloomingdales, Inc.; and Does 1 through 200, inclusive
Superior Court of the State of California, County of San Mateo, Case No.
405060 (filed June 2, 1998); Judith Pogran v. Macy's California, Inc.;
Federated Department Stores; Bullocks, Inc.; Nordstrom, Inc.; May Department
Stores Co.; Nieman-Marcus, Inc.; Saks & Co.; Gottschalks, Inc.; Bloomingdales,
Inc.; and Does 1 through 200, inclusive Superior Court of the State of
California, County of Alameda, Case No. 798936-8 (filed June 2, 1998); Soroya
Farrah v. Macy's California, Inc.; Federated Department Stores; Bullocks,
Inc.; Nordstrom, Inc.; May Department Stores Co.; Nieman-Marcus, Inc.; Saks &
Co.; Gottschalks, Inc.; Bloomingdales, Inc.; and Does 1 through 200, inclusive
Superior Court of the State of California, City and County of San Francisco,
Case No. 995512 (filed June 2, 1998); Diane Johnson v. Macy's California,
Inc.; Federated Department Stores; Bullocks, Inc.; Nordstrom, Inc.; May
Department Stores Co.; Nieman-Marcus, Inc.; Saks & Co.; Gottschalks,
Inc.; Bloomingdales, Inc.; and Does 1 through 200, inclusive Superior Court of
the State of California, County of Alameda, Case No. 799525-9 (filed June 1,
1998); and Kazuko Y. Morgan v. Macy's California, Inc.; Federated Department
Stores; Bullocks, Inc.; Nordstrom, Inc.; May Department Stores Co.; Nieman-
Marcus, Inc.; Saks & Co.; Gottschalks, Inc.; Bloomingdales, Inc.; and Does 1
through 200, inclusive Superior Court of the State of California, County of
Alameda, Case No. C 800174-2 (filed July 2, 1998).
The nine actions listed are substantially identical lawsuits seeking class
certification that were filed on behalf of customers of cosmetics for personal
use and not for resale who are resident in the State of California, alleging
that the Company and other department stores collusively controlled the sales
price of cosmetics by charging identical prices, agreeing not to discount
cosmetics and petitioning cosmetic manufacturers to stop selling to stores
that discount cosmetics. In these actions, plaintiffs seek damages (trebled)
according to proof at trial, attorneys' fees and pre-judgment interest on
their price-fixing claims and restitution on their unfair competition claims.
Defendants Federated (and affiliates), Nordstrom, May, Nieman-Marcus, Saks and
Gottschalks entered into a Joint Defense Agreement in August, 1998 which
provides for the sharing of defense materials. A Joint Petition for
Coordination was filed by all parties on or about August 13, 1998. Pending
resolution of the Petition, no further action has been taken.
11 of 12
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
(27.1) Financial Data Schedule is filed herein as an Exhibit.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORDSTROM, INC.
(Registrant)
/s/ Michael A. Stein
----------------------------------------------------
Michael A. Stein
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: December 14, 1998
- ------------------------
12 of 12
NORDSTROM, INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
27.1 Financial Data Schedule Filed herewith electronically
5
1,000
9-MOS
JAN-31-1999
OCT-31-1998
20,269
0
600,546
29,626
1,048,386
1,727,892
1,352,345
0
3,145,480
1,145,068
560,285
0
0
217,625
1,030,444
3,145,480
3,581,848
3,581,848
2,386,643
3,318,773
0
0
34,001
229,074
88,900
140,174
0
0
0
140,174
0.95
0.95
