SEC Filing | Nordstrom

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 April 30, 2000 [ ] 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 001-15059 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, 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 May 26, 2000: 130,224,559 shares of common stock. 1 of 13

NORDSTROM, INC. AND SUBSIDIARIES -------------------------------- INDEX ----- Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Statements of Earnings Three months ended April 30, 2000 and 1999 3 Consolidated Balance Sheets April 30, 2000 and 1999 and January 31, 2000 4 Consolidated Statements of Shareholders' Equity Three months ended April 30, 2000 and 1999 5 Consolidated Statements of Cash Flows Three months ended April 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 12 2 of 13

NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts) (unaudited) Three Months Ended April 30, ---------------------- 2000 1999 ---------- ---------- Net sales $1,146,336 $1,039,105 Cost of sales and related buying and occupancy (745,655) (688,196) ---------- ---------- Gross profit 400,681 350,909 Selling, general and administrative expenses (364,858) (315,417) ---------- ---------- Operating income 35,823 35,492 Interest expense, net (13,296) (12,009) Service charge income and other, net 31,162 28,205 ---------- ---------- Earnings before income taxes 53,689 51,688 Income taxes (20,900) (20,150) ---------- ---------- Net earnings $ 32,789 $ 31,538 ========== ========== Basic earnings per share $ .25 $ .22 ========== ========== Diluted earnings per share $ .25 $ .22 ========== ========== Cash dividends paid per share of common stock outstanding $ .08 $ .08 ========== ========== These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. 3 of 13

NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited) April 30, January 31, April 30, 2000 2000 1999 ---------- ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 24,461 $ 27,042 $ 71,932 Short-term investment 11,567 25,527 - Accounts receivable, net 587,341 616,989 536,252 Merchandise inventories 922,727 797,845 864,832 Prepaid income taxes and other 110,141 97,245 94,550 ---------- ---------- ---------- Total current assets 1,656,237 1,564,648 1,567,566 Land, buildings and equipment, net 1,447,938 1,429,492 1,398,258 Available-for-sale investment 15,973 35,251 - Other assets 37,377 32,690 61,049 ---------- ---------- ---------- TOTAL ASSETS $3,157,525 $3,062,081 $3,026,873 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 219,260 $ 70,934 $ - Accounts payable 449,970 390,688 391,532 Accrued salaries, wages and related benefits 150,445 211,308 134,013 Income taxes and other accruals 130,918 135,388 118,916 Current portion of long-term debt 16,191 58,191 105,341 ---------- ---------- ---------- Total current liabilities 966,784 866,509 749,802 Long-term debt 757,886 746,791 762,821 Deferred lease credits 215,547 194,995 169,854 Other liabilities 57,965 68,172 58,081 Shareholders' Equity: Common stock, no par: 250,000,000 shares authorized; 130,907,175, 132,279,988 and 140,925,098 shares issued and outstanding 250,668 247,559 241,832 Unearned stock compensation (8,128) (8,593) (8,977) Retained earnings 920,046 929,616 1,053,460 Accumulated other comprehensive (loss)income (3,243) 17,032 - ---------- ---------- ---------- Total shareholders' equity 1,159,343 1,185,614 1,286,315 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,157,525 $3,062,081 $3,026,873 ========== ========== ========== These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. 4 of 13

NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (dollars in thousands) (unaudited) Accumulated Other Common Stock Unearned Retained Comprehensive Shares Amount Compensation Earnings Income Total ------------------------------------------------------------------------ Balance at February 1, 2000 132,279,988 $247,559 $(8,593) $929,616 $17,032 $1,185,614 Net earnings - - - 32,789 - 32,789 Unrealized loss on investment, net of tax - - - - (20,275) (20,275) ------- Comprehensive net earnings 12,514 Cash dividends ($.08 per share) - - - (10,568) - (10,568) Issuance of common stock 128,487 3,109 - - - 3,109 Stock compensation - - 465 - - 465 Purchase and retirement of common stock (1,501,300) - - (31,791) - (31,791) ----------------------------------------------------------------------- Balance at April 30, 2000 130,907,175 $250,668 $(8,128) $ 920,046 $(3,243) $1,159,343 ======================================================================= Balance at February 1, 1999 142,114,167 $230,761 $(4,703) $1,074,487 - $1,300,545 Net earnings - - - 31,538 - 31,538 Cash dividends ($.08 per share) - - - (11,355) - (11,355) Issuance of common stock 168,431 5,077 - - - 5,077 Stock compensation - 5,994 (4,274) - - 1,720 Purchase and retirement of common stock (1,357,500) - - (41,210) - (41,210) ----------------------------------------------------------------------- Balance at April 30, 1999 140,925,098 $241,832 $(8,977) $1,053,460 - $1,286,315 ======================================================================= These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. 5 of 13

NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended April 30, --------------------- 2000 1999 -------- -------- OPERATING ACTIVITIES: Net earnings $ 32,789 $ 31,538 Adjustments to reconcile net earnings to net cash (used for) provided by operating activities: Depreciation and amortization 47,625 46,295 Amortization of deferred lease credits and other, net (2,162) (1,304) Stock-based compensation expense 465 1,720 Change in: Accounts receivable, net 29,648 50,883 Merchandise inventories (124,882) (114,563) Prepaid income taxes and other (7,452) (4,696) Accounts payable 59,282 51,897 Accrued salaries, wages and related benefits (60,863) (62,353) Income tax liabilities and other accruals (7,660) 2,156 Other liabilities 502 1,903 -------- -------- Net cash (used for) provided by operating activities (32,708) 3,476 -------- -------- INVESTING ACTIVITIES: Capital expenditures (66,071) (66,547) Additions to deferred lease credits 22,904 24,201 Other, net (4,855) (4,264) -------- -------- Net cash used for investing activities (48,022) (46,610) -------- -------- FINANCING ACTIVITIES: Increase (decrease) in notes payable 148,326 (78,783) Proceeds from long-term borrowings 11,176 - Principal payments on long-term debt (42,103) (94) Proceeds from issuance of common stock 3,109 5,077 Cash dividends paid (10,568) (11,355) Purchase and retirement of common stock (31,791) (41,210) -------- -------- Net cash provided by (used for) financing activities 78,149 (126,365) -------- -------- Net decrease in cash and cash equivalents (2,581) (169,499) Cash and cash equivalents at beginning of period 27,042 241,431 -------- -------- Cash and cash equivalents at end of period $ 24,461 $ 71,932 ======== ======== These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. 6 of 13

NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 1 - Summary of Significant Accounting Policies Basis of Presentation - --------------------- The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of April 30, 2000 and 1999, and the related consolidated statements of earnings, cash flows and shareholders' equity for the periods then ended, have been prepared from the accounts without audit. The consolidated financial information applicable to interim periods is not necessarily indicative of the results for the fiscal year. The financial information should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 2000. 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 April 30, 2000 and 1999, 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 consistent presentation with the current year. Recent Accounting Pronouncements - -------------------------------- Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137, requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Adoption of this standard, on February 1, 2001, is not expected to have a material impact on the Company's financial statements. Note 2 - Earnings Per Share Three Months Ended April 30, -------------------------- 2000 1999 ----------- ----------- Basic shares 131,164,628 141,844,713 Dilutive effect of stock options and restricted stock 462,564 1,131,501 ----------- ----------- Diluted shares 131,627,192 142,976,214 =========== =========== Antidilutive options 5,005,671 0 =========== =========== 7 of 13

NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 3 - Investment In September 1998, the Company purchased non-voting convertible preferred stock in a private company. In June 1999, the investee completed an initial public offering of common stock. Upon completion of the offering, the Company's investment was converted to common stock, which has been categorized as available-for-sale. In January 2000, the investee merged with a private company in which the Company had previously purchased preferred stock. The Company's available-for-sale investment has been adjusted to reflect the consummation of the merger. A portion of the investment is reported as short-term because the Company intends to sell it during fiscal 2000. Accumulated other comprehensive loss includes the decrease in the fair market value of the investment based on its quoted market value at April 30, 2000, net of applicable tax benefits of $13 million. Note 4 - Segment Reporting The following tables set forth information for the Company's reportable segments and a reconciliation to the consolidated totals: Three months ended Retail Credit Catalog/ Corporate April 30, 2000 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $1,084,939 - $ 61,397 - - $1,146,336 Service charge income - $ 30,952 - - 30,952 Intersegment revenues 6,320 5,232 - $(11,552) - Net earnings 56,719 3,517 (4,841) $ (22,606) - 32,789 Three months ended Retail Credit Catalog/ Corporate April 30, 1999 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $ 997,901 - $ 41,204 - - $1,039,105 Service charge income - $ 28,378 - - - 28,378 Intersegment revenues 3,856 4,977 - - $(8,833) - Net earnings 53,358 7,674 (7,032) $ (22,462) - 31,538 Note 5 - Contingent Liabilities Because the cosmetics and Nine West lawsuits, described in the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 2000, are still in their preliminary stages, the Company is not in a position at this time to quantify the amount or range of any possible losses related to those claims. The Company intends to vigorously defend itself in those cases. While no assurance can be given as to the ultimate outcomes of these lawsuits, based on preliminary investigations, management currently believes that resolving these matters will not have a material adverse effect on the Company's financial position. The Company is also subject to other ordinary routine litigation incidental to its business and with respect to which no material liability is expected. 8 of 13

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements made in this filing that are not historical facts are forward looking information that involve risks and uncertainties. Forward-looking statements typically are identified by the use of such terms as "may," "will," "expect," "believe," "anticipate," "estimate," "plan" and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, which include, but are not limited to, the following: the Company's ability to predict fashion trends, consumer apparel buying patterns, the Company's ability to control costs and expenses, the Company's ability to overcome technological problems, trends in personal bankruptcies and bad debt write-offs, employee relations, adverse weather conditions and other hazards of nature such as earthquakes and floods, the Company's ability to continue its store, brand and line expansion plans, and the impact of competitive market forces. The following discussion should be read in conjunction with the Management's Discussion and Analysis section of the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 2000. Results of Operations: - ---------------------- The Company achieved a 10.3% sales increase during the first quarter of 2000 compared to the same quarter in 1999. Comparable store sales (sales in stores open at least one full fiscal year at the beginning of the fiscal year) increased 5.3%, partially due to one more Saturday and Sunday, and one less Monday in the fiscal 2000 quarter than the first quarter of 1999. Sales in the first quarter of 2000 also reflect the impact of clearance activity for certain merchandise resulting from a reconfiguration of the women's merchandise mix in the stores. Gross profit (net sales less cost of sales and related buying and occupancy expenses) as a percentage of net sales improved to 35.0% in the first quarter of 2000, as compared to 33.8% in the same period in 1999. The increase was due primarily to improvements in the Company's vendor programs and lower occupancy costs as a percent of sales, which were partially offset by higher markdowns due to the transition in the women's merchandise mix. Selling, general and administrative expenses as a percentage of sales were 31.9% for the quarter ended April 30, 2000, compared to 30.4% for the quarter ended April 30, 1999. The increase was primarily due to the increased promotional expense associated with the Company's national advertising campaign, credit card marketing programs, system expenditures and costs related to growth and development of the Nordstrom.com subsidiary. Interest expense, net, increased by 10.7% during the quarter, to $13.3 million, reflecting higher average borrowing levels, as compared to the prior year, a portion of which was used to finance the Company's share repurchase activity. 9 of 13

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Net earnings for the three months ended April 30, 2000 increased 4.0% to $32.8 million from $31.5 million in the same period in 1999, primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses. Diluted earnings per share were $0.25, an increase of 13.6% over the $0.22 achieved in the prior year, primarily due to a decrease in the number of shares outstanding. Liquidity and Capital Resources: - -------------------------------- The Company finances its working capital needs, capital expenditures and share repurchase activity with cash provided by operations and borrowings. The Company's cash and cash equivalents decreased $2.6 million during the quarter ended April 30, 2000, as cash used for operating activities and capital expenditures was slightly more than the cash provided by additional short-term borrowings. The decrease in cash provided by operating activities was primarily due to a decrease in cash collected from credit card receivables. During the quarter, the Company opened a new full-line store and a new Rack store in Atlanta, Georgia. Additionally, in May 2000, the Company opened a Rack store in Plano, Texas and one in Hurst, Texas. The Company plans to open another five full-line stores and eight Rack stores during the remainder of fiscal year 2000. Although the Company has made commitments for stores opening in 2000 and beyond, it is possible that in one or more instances store site negotiations may be terminated and the store may not be built or delays may occur. Furthermore, environmental and land use regulations and the difficulties encountered by shopping center developers in securing financing could make future development of stores more difficult, time-consuming and expensive. In November 1999, the Board of Directors authorized an additional repurchase of $150 million of the Company's common stock. During the three months ended April 30, 2000, the Company repurchased 1.5 million shares of its common stock for an aggregate of approximately $32 million. At April 30, 2000, the Company had remaining share repurchase authorization of approximately $137 million. The Company has invested $32.9 million in common shares of a public company, which has a market value of $27.5 million as of April 30, 2000. The unrealized loss has been reflected as a component of other comprehensive income, as management believes that the reduction in fair value is temporary. This investee is attempting to obtain additional capital to allow it to fund its operations beyond their current fiscal year. In the event it is unable to secure additional financing, the decrease in value may be deemed to be other than temporary, and the Company may have to recognize a charge to earnings. 10 of 13

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Seasonality - ------------ The Company's business, like that of other retailers, is subject to seasonal fluctuations. Due to the Company's anniversary sale in July and holidays in December, sales are higher in the second and fourth quarters of the fiscal year than in the first and third quarters. Accordingly, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. Year 2000 - --------- The Company transitioned into the Year 2000 without any material negative effects on its business, operations or financial condition. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its short-term borrowing and investment activities which generally bear interest at variable rates. Because the short-term borrowings and investments, other than the investment in marketable equity securities, have maturities of three months or less, the Company believes that the risk of material loss is low, and that the carrying amount approximates fair value. The Company's investment in marketable equity securities is classified as available-for-sale and is recorded on the balance sheet at fair value based upon the quoted market price with unrealized gains or loss reported as a separate component of accumulated other comprehensive (loss) income. During the quarter, the Company borrowed $148 million under short term notes payable, which bear interest from 6.03% to 6.10%, and mature from May 1, 2000 to May 22, 2000. PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------------------------- The information required under this item is included in the following section of Part I, Item 1 of this report: Note 5 in Notes to Consolidated Financial Statements 11 of 13

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. 12 of 13

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 G. Koppel ---------------------------------------------------- Michael G. Koppel Vice President and Corporate Controller (Principal Accounting Officer) Date: June 7, 2000 ------------ 13 of 13

NORDSTROM, INC. AND SUBSIDIARIES Exhibit Index Exhibit Method of Filing - ------- ---------------- 27.1 Financial Data Schedule Filed herewith electronically

5 1,000 3-MOS JAN-31-2001 APR-30-2000 24,461 0 602,759 15,418 922,727 1,656,237 2,861,526 1,413,588 3,157,525 966,784 757,886 0 0 250,688 908,675 3,157,525 1,146,336 1,146,336 745,655 1,079,351 0 0 13,296 53,689 20,900 32,789 0 0 0 32,789 0.25 0.25