UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 2004
[ ] 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
_____ _____
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). YES X NO
_____ _____
Common stock outstanding as of May 29, 2004: 140,422,630 shares of
common stock.
1 of 22
Explanatory Note
This Amendment to the Quarterly Report on Form 10-Q for Nordstrom, Inc. (the
"Company") for the fiscal quarter ended May 1, 2004, is being filed to correct
two errors in our previously issued financial statements: the statements of
cash flows presentation of property incentive cash inflows and the balance
sheet classification of leased assets that were previously treated as sale-
leaseback transactions. In addition, we have reclassified balances in our
previously issued financial statements to conform to our current presentation.
The principal reclassification items relate to the balance sheet and cash flow
presentation of the following: our Auction Rate Securities, our presentation
of outstanding checks drawn on our disbursement bank accounts, and our third
party credit card receivables. See Note 10 in our Notes to Condensed
Consolidated Financial Statements for a discussion of these corrections and
reclassifications, and a reconciliation of amounts previously reported to
those shown herein. We have also revised our discussion in Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Information not affected by the corrections and reclassifications
as described in Note 10 remains unchanged and reflects the disclosures made at
the time of the original filing of the Form 10-Q on June 8, 2004. Our
previously reported net earnings, earnings per share and shareholders' equity
are not impacted by these corrections and reclassifications.
2 of 22
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Quarter ended May 1, 2004 and May 3, 2003 4
Condensed Consolidated Balance Sheets May 1, 2004,
January 31, 2004 and May 3, 2003 (restated) 5
Condensed Consolidated Statements of Cash Flows
Quarter ended May 1, 2004 and May 3, 2003 (restated) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
3 of 22
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands except per share amounts)
(unaudited)
Quarter Ended
----------------------
May 1, May 3,
2004 2003
---------- ----------
Net sales $1,535,490 $1,335,472
Cost of sales and related
buying and occupancy costs (972,932) (886,095)
---------- ----------
Gross profit 562,558 449,377
Selling, general and
administrative expenses (452,734) (420,326)
---------- ----------
Operating income 109,824 29,051
Interest expense, net (36,684) (20,228)
Service charge income
and other, net 39,487 35,632
---------- ----------
Earnings before income taxes 112,627 44,455
Income tax expense (43,900) (17,300)
---------- ----------
Net earnings $ 68,727 $ 27,155
========== ==========
Basic earnings per share $ 0.49 $ 0.20
========== ==========
Diluted earnings per share $ 0.48 $ 0.20
========== ==========
Basic shares 139,110 135,578
========== ==========
Diluted shares 141,975 135,798
========== ==========
Cash dividends paid per share
of common stock outstanding $ 0.11 $ 0.10
========== ==========
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
4 of 22
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
May 1, January 31, May 3,
2004 2004 2003
---------- ---------- ----------
As Restated, see Note 10
------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 172,372 $ 340,281 $ 141,817
Short-term investments 85,000 176,000 54,452
Accounts receivable, net 640,581 666,811 647,100
Retained interest in accounts receivable 307,663 272,294 155,609
Merchandise inventories 1,020,812 901,623 1,078,232
Current deferred tax assets 127,063 121,681 109,006
Prepaid expenses 49,088 46,153 43,106
---------- ---------- ----------
Total current assets 2,402,579 2,524,843 2,229,322
Land, buildings and equipment (net of
accumulated depreciation of $2,159,707,
$2,121,158 and $1,949,900) 1,787,436 1,807,778 1,849,082
Goodwill, net 51,714 51,714 51,714
Tradename, net 84,000 84,000 84,000
Other assets 99,045 100,898 68,425
---------- ---------- ----------
TOTAL ASSETS $4,424,774 $4,569,233 $4,282,543
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $563,733 $458,809 $533,074
Accrued salaries, wages
and related benefits 175,773 276,007 163,396
Other accrued expenses 294,613 314,753 252,575
Income taxes payable 53,844 66,157 32,579
Current portion of long-term debt 6,502 6,833 5,615
---------- ---------- ----------
Total current liabilities 1,094,465 1,122,559 987,239
Long-term debt 1,024,283 1,227,410 1,341,262
Deferred property incentives, net 399,927 407,856 425,606
Other liabilities 174,469 177,399 135,055
Shareholders' Equity:
Common stock, no par:
500,000 shares authorized;
139,816, 138,377 and 135,810 shares
issued and outstanding 466,573 424,645 363,258
Unearned stock compensation (522) (597) (1,843)
Retained earnings 1,254,566 1,201,093 1,027,713
Accumulated other comprehensive
earnings 11,013 8,868 4,253
---------- ---------- ----------
Total shareholders' equity 1,731,630 1,634,009 1,393,381
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,424,774 $4,569,233 $4,282,543
========== ========== ==========
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
5 of 22
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Quarter Ended
------------------------
May 1, May 3,
2004 2003
---------- ----------
As Restated, see Note 10
-------------------------
OPERATING ACTIVITIES:
Net earnings $68,727 $27,155
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 64,917 62,835
Amortization of deferred property incentives
and other, net (8,666) (6,409)
Stock-based compensation expense 1,264 87
Deferred income taxes, net (3,597) 1
Tax benefit on stock option exercise 6,536 110
Provision for bad debt expense 6,390 7,830
Change in operating assets and liabilities:
Accounts receivable, net 18,930 (466)
Retained interest in accounts receivable (33,335) (29,107)
Merchandise inventories (113,386) (123,798)
Prepaid expenses (933) (4,058)
Other assets 691 (108)
Accounts payable 121,052 151,460
Accrued salaries, wages and related benefits (98,019) (52,765)
Other accrued expenses (20,077) (18,646)
Income taxes payable (27,218) (28,491)
Property incentives 833 17,172
Other liabilities 7,428 3,702
---------- ----------
Net cash (used in) provided by operating activities (8,463) 6,504
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures (48,257) (59,962)
Sales of short-term investments 1,122,150 498,916
Purchases of short-term investments (1,031,150) (432,102)
Other, net 1,194 476
---------- ----------
Net cash provided by investing activities 43,937 7,328
---------- ----------
FINANCING ACTIVITIES:
Principal payments on long-term debt (198,739) (541)
Increase (decrease) in bank overdrafts (21,586) 10,564
Proceeds from exercise of stock options 25,920 457
Proceeds from employee stock purchases 6,276 4,458
Cash dividends paid (15,254) (13,547)
Other, net - 2,341
---------- ----------
Net cash (used in) provided by financing activities (203,383) 3,732
---------- ----------
Net decrease in cash and cash equivalents (167,909) 17,564
Cash and cash equivalents at beginning of period 340,281 124,253
---------- ----------
Cash and cash equivalents at end of period $172,372 $141,817
========== ==========
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
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NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements contained in
our 2003 Amended Annual Report filed with the Securities and Exchange
Commission on April 8, 2005. The same accounting policies are followed for
preparing quarterly and annual financial data. All adjustments necessary for
the fair presentation of the results of operations, financial position and
cash flows have been included and are of a normal, recurring nature.
Due to the seasonal nature of the retail industry, quarterly results are not
necessarily indicative of the results for the full fiscal year.
Reclassifications
----------------
Certain reclassifications of previously reported balances have been made to
conform with our current presentation.
See Note 10 for a discussion of the significant reclassifications and a
reconciliation of amounts previously reported to those shown herein.
Stock Compensation
------------------
We apply APB No. 25, "Accounting for Stock Issued to Employees," in measuring
compensation costs under our stock-based compensation programs, which are
described more fully in our 2003 Annual Report.
If we had elected to recognize compensation cost based on the fair value of
the options and shares at grant date, net earnings and earnings per share
would have been as follows:
Quarter Ended
----------------------
May 1, May 3,
2004 2003
---------- ----------
Net earnings, as reported $68,727 $27,155
Add: stock-based compensation
expense included in reported
net earnings, net of tax 771 53
Deduct: stock-based
compensation expense
determined under fair value,
net of tax (5,651) (6,276)
---------- ----------
Pro forma net earnings $63,847 $20,932
========== ==========
Earnings per share:
Basic - as reported $0.49 $0.20
Diluted - as reported $0.48 $0.20
Basic - pro forma $0.46 $0.15
Diluted - pro forma $0.45 $0.15
7 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 1 - Summary of Significant Accounting Policies (Cont.)
Recent Accounting Pronouncements
--------------------------------
During November 2003, the EITF reached a consensus on Issue 03-10,
"Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers." EITF 03-10 addresses the accounting and
disclosure treatment for a retailer's reimbursement receipt from a vendor for
coupons offered directly to consumers by the vendor. EITF 03-10 is effective
for coupons redeemed by retailers in fiscal years beginning after December 15,
2003. The adoption of EITF 03-10 did not have a material impact on our
financial statements.
Note 2 - Postretirement Benefits
The expense components of our Supplemental Executive Retirement Plan, which
provides retirement benefits to certain officers and select employees, are as
follows:
Quarter Ended
------------------------
May 1, May 3,
2004 2003
----------- -----------
Service cost $372 $205
Interest cost 991 855
Amortization of net loss 386 188
Amortization of prior service cost 240 173
----------- -----------
Total expense $1,989 $1,421
=========== ===========
Note 3 - Earnings Per Share
Quarter Ended
------------------------
May 1, May 3,
2004 2003
----------- -----------
Net earnings $68,727 $27,155
======= =======
Basic shares 139,110 135,578
Dilutive effect of stock options and
performance share units 2,865 220
----------- -----------
Diluted shares 141,975 135,798
=========== ===========
Basic earnings per share $0.49 $0.20
Diluted earnings per share $0.48 $0.20
Antidilutive stock options 1,980 13,798
8 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 4 - Accounts Receivable
The components of accounts receivable are as follows:
May 1, January 31, May 3,
2004 2004 2003
----------- ----------- -----------
Trade receivables:
Unrestricted $30,800 $25,228 $32,591
Restricted 556,647 589,992 574,592
Allowance for doubtful accounts (19,934) (20,320) (22,354)
----------- ----------- -----------
Trade receivables, net 567,513 594,900 584,829
Other 73,068 71,911 62,271
----------- ----------- -----------
Accounts receivable, net $640,581 $666,811 $647,100
=========== =========== ===========
The restricted private label receivables back the $300,000 Class A notes and
the $200,000 variable funding note issued by us in November 2001. Other
accounts receivable consist primarily of credit card receivables due from
third-party financial institutions and vendor rebates, which are believed to
be fully realizable as they are collected soon after they are earned.
Note 5 - Debt
During the first quarter of 2004, we retired $196,770 of our 8.95% senior
notes and $973 of our 6.7% medium-term notes for a total cash payment of
$219,587. We recognized $20,842 of expense in the first quarter of 2004
related to this purchase.
We had an interest rate swap outstanding with a fair value of ($12,630) and
($8,091) at May 1, 2004 and January 31, 2004, recorded in other liabilities.
Our swap has a $250,000 notional amount, expires in 2009 and is designated as
a fully effective fair value hedge. Under the agreement, we received a fixed
rate of 5.63% and paid a variable rate based on LIBOR plus a margin of 2.3%
set at six-month intervals (3.945% at May 1, 2004.)
We did not make any borrowings under our unsecured line of credit or our
variable funding note backed by Nordstrom private label receivables during the
first quarter of 2004.
Note 6 - Comprehensive Net Earnings
Quarter Ended
------------------------
May 1, May 3,
2004 2003
----------- -----------
Net earnings $68,727 $27,155
Foreign currency translation adjustment 921 358
Securitization adjustment, net of tax of ($783)
and ($764) 1,224 1,195
----------- -----------
Comprehensive net earnings $70,872 $28,708
=========== ===========
9 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 7 - Segment Reporting
The following tables set forth the information for our reportable segments and
a reconciliation to the consolidated totals:
Quarter ended Retail Credit Catalog/ Corporate
May 1, 2004 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
Net sales $1,454,607 $- $80,883 $- $- $1,535,490
Service charge income - 40,156 - - - 40,156
Intersegment revenues 4,037 7,600 - - (11,637) -
Interest expense, net 125 5,363 (69) 31,265 - 36,684
Earnings before taxes 177,123 10,123 5,991 (80,610) - 112,627
Net earnings (loss) 108,083 6,177 3,656 (49,189) - 68,727
Assets 2,847,705 870,699 102,135 604,235 - 4,424,774
Quarter ended Retail Credit Catalog/ Corporate
May 3, 2003 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
Net sales $1,269,331 $- $66,141 $- $- $1,335,472
Service charge income - 33,932 - - - 33,932
Intersegment revenues 6,251 6,848 - - (13,099) -
Interest expense, net 94 5,373 (16) 14,777 - 20,228
Earnings before taxes 95,796 6,380 (2,459) (55,262) - 44,455
Net earnings (loss) 58,516 3,897 (1,502) (33,756) - 27,155
Assets 2,922,317 703,934 104,320 551,972 - 4,282,543
As of May 1, 2004, January 31, 2004 and May 3, 2003, Retail Stores assets
included $35,998 of goodwill and $84,000 of tradename, and Catalog/Internet
assets included $15,716 of goodwill. Goodwill and tradename included in all
segments totaled $135,714.
Note 8 - Litigation
We are involved in routine claims, proceedings, and litigation arising from
the normal course of our business. We do not believe any such claim,
proceeding or litigation, either alone or in aggregate, will have a material
impact on our results of operations, financial position, or liquidity.
Note 9 - Subsequent Event
In May 2004, we replaced our existing $300,000 unsecured line of credit with a
$350,000 unsecured line of credit, which is available as liquidity support for
our commercial paper program. Under the terms of the agreement, we pay a
variable rate of interest based on LIBOR plus a margin of 0.31%. The margin
increases to 0.41% if more than $175,000 is outstanding on the facility. The
line of credit agreement expires in three years and contains restrictive
covenants, which include maintaining a leverage ratio. We also pay a
commitment fee for the line based on our debt rating.
Also in May 2004, we renewed our variable funding note backed by Nordstrom
private label receivables and reduced the capacity by $50,000 to $150,000.
This note is renewed annually and interest is paid based on the actual cost of
commercial paper plus specified fees. We also pay a commitment fee for the
note based on the amount of the facility.
10 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 10 - Restatement and Reclassifications
Subsequent to issuance of our 2004 quarterly financial statements, we have
corrected two errors in our previously issued financial statements: the
statements of cash flows presentation of property incentive cash inflows and
the balance sheet classification of leased assets that were previously treated
as sale-leaseback transactions. Our previously reported net earnings, earnings
per share and shareholders' equity are not impacted by these corrections.
Statements of cash flows presentation of property incentives cash inflows: On
February 7, 2005, the Chief Accountant of the U.S. Securities and Exchange
Commission ("SEC") released a letter expressing the SEC's views on certain
lease accounting matters and their application under generally accepted
accounting principles in the United States of America. Following the issuance
of this letter, we reviewed our lease accounting policies and determined that
our classification of property incentives in our consolidated statements of
cash flows was not in accordance with GAAP.
We historically recognized property incentives in our consolidated statements
of cash flows as a separate line item in investing activities. After a review
of our lease accounting policies, we determined that property incentives
should be classified in operating activities and, accordingly, have restated
our statements of cash flows.
Leased assets previously treated as sale-leaseback transactions: From 1998 to
2000, we partnered with developers to build five new full-line stores. We
controlled the construction phase of the new stores' development and we
received payments from the developers to offset a portion of the related
capital expenditures. In our previously issued financial statements, we
treated those stores as being sold to and leased back from the developer. As
we analyzed our lease accounting in connection with the SEC Staff's letter
discussed above, we determined that sale-leaseback accounting treatment was
not correct because we have ongoing involvement at the stores. We have
restated our previously issued balance sheets by classifying the stores'
assets in land, buildings and equipment, the developer payment in deferred
property incentives, and eliminating the net of those two balances, which was
previously recorded in other assets and prepaid expenses. The impact to
earnings is not material.
Reclassifications
We have reclassified balances in our previously issued financial statements to
conform to our current presentation. The principal reclassification items are
as follows:
Auction rate securities: In order to maximize our earnings on available
capital, we invest in high-quality bonds known as Auction Rate Securities
("ARS"), which we had classified as cash equivalents in previously issued
financial statements. The interest rates for ARS that we invest in are set for
short periods, ranging from seven to 35 days, via auction. At the end of each
interest period, we choose to rollover our holdings or redeem the investment
for cash. A `market maker' facilitates the redemption of the ARS and the
underlying issuers are not required to redeem the investments within 90 days
of our purchase of the investments. We have reclassified $85,000, $176,000 and
$54,452 at the end of May 1, 2004, January 31, 2004 and May 3, 2003 to short
term investments and we have reflected the purchases and sales of these
securities in our statements of cash flows for 2003 through 2004.
11 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 10 - Restatement and Reclassifications (cont.)
Disbursement Accounts: Our treasury management process uses a series of
depository and disbursement accounts, primarily at three large national banks.
When checks we have issued are presented to the disbursement account bank,
funds are transferred from the depository bank to offset the disbursements. In
our previously issued financial statements, we offset the outstanding checks
drawn on the disbursement bank account against the balances in our depository
bank accounts. Our new presentation reflects the outstanding checks drawn on
the disbursement bank as a component of accounts payable in the current
liabilities section of our balance sheet. We reclassified $69,664, $73,010 and
$71,746 at the end of May 1, 2004, January 31, 2004 and May 3, 2003 and we
updated the statements of cash flows to reflect this reclassification.
Third Party Credit Card Receivables: We receive payment from third party
credit card issuers for purchases made by customers using the issuers' credit
cards (for example, VISA and American Express). The issuers typically pay us
within three days of the credit card transaction. In our previously issued
financial statements, we treated these receivables as in-transit cash deposits
and recorded the balances in cash and cash equivalents. We reclassified
$45,215, $32,953 and $38,053 at the end of May 1, 2004, January 31, 2004 and
May 3, 2003 from cash and cash equivalents to accounts receivable and we
updated the statements of cash flows to reflect this reclassification.
In addition to these reclassifications, we have revised the grouping of some
liabilities within the current liabilities section of the 2003 and 2004
balance sheets.
The following table summarizes the impacts of the restatements and
reclassifications on the previously issued financial statements:
Year to Date Ended May 1, 2004
---------------------------------------------------
As As Restated
Originally Restatement Reclass and
Reported Adjustments Adjustments Reclassified
---------- ----------- ----------- ------------
Consolidated Statement
of Earnings
Cost of sales and related buying
and occupancy costs $(970,460) $ - $ (2,472) $ (972,932)
Gross profit 565,030 - (2,472) 562,558
Selling, general and
administrative expense (455,206) - 2,472 (452,734)
Operating income 109,824 - - 109,824
Consolidated Statement of
Cash Flows
Net cash used in
operating activities (15,274) 833 5,978 (8,463)
Net cash (used in) provided
by investing activities (46,230) (833) 91,000 43,937
Net cash used in financing
activities (181,797) - (21,586) (203,383)
---------- ----------- ----------- ------------
12 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 10 - Restatement and Reclassifications (cont.)
May 1, 2004
----------------------------------------------------------
As As Restated
Originally Restatement Reclass and
Reported Adjustments Adjustments Reclassified
---------- ----------- ------------ ------------
Consolidated Balance Sheet
Cash and cash equivalents $232,923 $ - $ (60,551) $ 172,372
Short-term investments - - 85,000 85,000
Accounts receivable, net 595,366 - 45,215 640,581
Prepaid expenses 52,529 (3,441) - 49,088
Total current assets 2,336,356 (3,441) 69,664 2,402,579
Land, buildings and
equipment net 1,705,460 81,976 - 1,787,436
Other assets 147,544 (48,499) - 99,045
Total assets 4,325,074 30,036 69,664 4,424,774
Accounts payable 604,142 - (40,409) 563,733
Accrued salaries, wages
and related benefits 234,271 - (58,498) 175,773
Other accrued expenses 126,042 - 168,571 294,613
Total current liabilities 1,024,801 - 69,664 1,094,465
Deferred property
incentives, net 369,891 30,036 - 399,927
Total liabilities and
shareholders' equity 4,325,074 30,036 69,664 4,424,774
---------- ------- -------- ---------
Year to Date Ended May 3, 2003
------------------------------------------------
Consolidated Statement of
Cash Flows
Net cash used in
operating activities $ (7,622) $17,172 $ (3,046) $ 6,504
Net cash (used in) provided by
investing activities (42,314) (17,172) 66,814 7,328
Net cash (used in) provided by
financing activities (6,832) - 10,564 3,732
--------- -------- --------- ----------
13 of 22
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except per share amounts)
(unaudited)
Note 10 - Restatement and Reclassifications (cont.)
May 3, 2003
----------------------------------------------------------
As As Restated
Originally Restatement Reclass and
Reported Adjustments Adjustments Reclassified
---------- ----------- ------------ ------------
Consolidated Balance Sheet
Cash and cash equivalents $ 162,576 $ - $ (20,759) $141,817
Short-term investments - - 54,452 54,452
Accounts receivable, net 609,047 - 38,053 647,100
Prepaid expenses 46,613 (3,507) - 43,106
Total current assets 2,161,083 (3,507) 71,746 2,229,322
Land, buildings and
equipment net 1,762,039 87,043 - 1,849,082
Other assets 119,931 (51,506) - 68,425
Total assets 4,178,767 32,030 71,746 4,282,543
Accounts payable 550,395 - (17,321) 533,074
Accrued salaries, wages
and related benefits 207,477 - (44,081) 163,396
Other accrued expenses 119,427 - 133,148 252,575
Total current liabilities 915,493 - 71,746 987,239
Deferred property
incentives, net 393,576 32,030 - 425,606
Total liabilities and
shareholders' equity 4,178,767 32,030 71,746 4,282,543
---------- ------- -------- ---------
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's
Discussion and Analysis section of our 2003 Amended Annual Report. All dollar
amounts are in millions except per share amounts.
RESULTS OF OPERATIONS:
----------------------
Overview
--------
Earnings for the first quarter of 2004 increased to $68.7 or $0.48 per diluted
share from $27.2 or $0.20 per diluted share for the same period in 2002. This
increase was driven by strong sales, improved gross margin and total expense
leverage.
14 of 22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (cont.)
Sales
-----
Total sales for the quarter on a 4-5-4 comparable basis increased 16.6%
compared to the first quarter of last year due to substantial same store sales
increases and store openings. Same store sales on a 4-5-4 comparable basis
increased 13.2% for the quarter. The sales growth is attributable to our
merchandising efforts, supported by our enhanced information systems, and the
strengthening retail environment. For the twelve months ended May 1, 2004, we
have opened four full-line stores and two Nordstrom Rack stores. See our GAAP
sales reconciliation on page 16.
Sales at Nordstrom Direct increased 22.3% due to strong Internet demand and
favorable fill rates. Internet sales in the first quarter of 2004 increased
42.8% while catalog remained flat with last year.
All of our geographic regions and major merchandise divisions reported same
store sales increases. Our strongest performing merchandise divisions for the
quarter were accessories, intimate apparel, shoes, men's apparel, women's
designer and better apparel.
Gross Profit
------------
First Quarter
-------------------
2004 2003
-------- --------
Gross profit as a percent of sales 36.6% 33.6%
In the first quarter of 2004, gross profit increased $113.2 and as a
percentage of sales improved by 300 basis points compared to the same period
last year. Our improved performance resulted from lower markdowns and greater
leverage on our buying and occupancy expenses. Also, we continued to see
improvements in our inventory management, as total inventory at the end of the
first quarter of 2004 decreased $57.4 as compared to the prior period. On a
same store basis, inventory declined 9.2%.
Selling, General and Administrative Expense
-------------------------------------------
First Quarter
-------------------
2004 2003
-------- --------
Selling, general and
administrative expense
as a percent of sales 29.4% 31.4%
The improvement in the first quarter of 2004 resulted primarily from overall
expense control and leverage on better than expected same store sales.
Expenses, other than selling labor, variable compensation tied to performance,
and costs associated with new stores, were consistent with prior year levels,
allowing us to fully leverage the incremental sales. On a same store basis,
we saw the most significant improvement in our non-selling labor and benefit
costs.
15 of 22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Interest Expense
----------------
Interest expense, net increased $16.5 for the quarter ended May 1, 2004 when
compared to the same period in 2003 due to $20.8 in additional expense that
resulted from the prepayment premiums and deferred cost write-offs associated
with the repurchase of $197.7 of long-term debt during the quarter. Excluding
this expense, interest expense decreased versus the first quarter of last year
primarily due to the lower overall debt levels. Over the 12 months ended May
1, 2004, we have retired $303.5 of our outstanding long-term debt.
Service Charge Income and Other
-------------------------------
Service charge income and other, net increased $3.9 for the quarter ended May
1, 2004 primarily due to income recorded from our VISA securitization. Our
first quarter 2004 service charge income benefited from substantial increases
in our VISA receivables compared to the same period in 2003.
Seasonality
------------
Our business, like that of other retailers, is subject to seasonal
fluctuations. Our anniversary sale in July and the holidays in December
typically result in higher sales in the second and fourth quarters of the
fiscal year. Accordingly, results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year.
GAAP Sales Reconciliation
-------------------------
We converted to a 4-5-4 Retail Calendar at the beginning of 2003. This change
in our fiscal calendar has resulted in one less day of sales being included in
our 2004 first quarter versus the same period in the prior year. Sales
performance numbers included in this document have been calculated on a
comparative 4-5-4 basis. We believe that adjusting for the difference in days
provides a more comparable basis from which to evaluate sales performance.
The following reconciliation bridges the reported GAAP sales to the 4-5-4
comparable sales.
% Change % Change
Dollar Total Comp
Sales Reconciliation ($M) QTD 2003 QTD 2004 Increase Sales Sales
---------------------------- --------- --------- -------- --------- --------
Number of Days Reported GAAP 92 91
Reported GAAP Sales $1,335.5 $1,535.5 $200.0 15.0% N/A
Less Feb. 1, 2003 sales ($18.2) -
--------- ---------
Reported 4-5-4 sales $1,317.3 $1,535.5 $218.2 16.6% 13.2%
--------- ---------
4-5-4 Adjusted Days 91 91
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
We finance our working capital needs, capital expenditures, acquisitions,
dividends, debt repurchase and share repurchase activities with a combination
of cash flows from operations and borrowings.
16 of 22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Cash Flow from Operations
-------------------------
Cash flow from operating activities decreased by $15.0 in 2004. Higher net
earnings were offset by our merchandise purchase and payment flow changes in
2004 as compared to 2003, the timing of performance related payments and the
timing of property incentive payments. Toward the end of 2003 and into 2004,
we have achieved a more even flow of merchandise purchases in relation to our
sales trends. Our 2004 inventory turns have improved over the prior year; the
payables leverage we achieved in 2004 is consistent with our merchandise
purchase plan. Performance related payments in 2004 increased due to the
improvement in our 2003 operations as compared to 2002. Property incentive
payments, which are often received near the time of capital expenditures,
decreased in 2004 as we are planning to open fewer stores in 2004.
Cash Flow from Investing
------------------------
In the first quarter of 2004, net cash provided by investing activities
increased from the reduction in our short-term investments, which was used to
repurchase outstanding debt.
We opened one full-line store in Charlotte, NC during the first quarter of
2004. Additionally, we expect to open one full-line store in Miami, FL in the
fall of 2004. For the entire year, gross square footage is expected to
increase 2%. During the first quarter of 2004, gross retail square footage
increased from 19,138,000 to 19,289,000.
Cash Flow from Financing
------------------------
For the quarter ended May 1, 2004, cash used in financing activities increased
primarily due to our current year debt repurchase, offset by an increase in
the proceeds received primarily from employee stock option exercises.
Proceeds from employee stock purchases were $6.3 and $4.5 in the first
quarters of 2004 and 2003.
During the first quarter of 2004, we retired $196.8 of our 8.95% senior notes
and $1.0 of our 6.7% medium-term notes for a total cash payment of $219.6. We
recorded $20.8 of expense in the first quarter of 2004 related to this
purchase.
In May 2004, we replaced our existing $300.0 unsecured line of credit with a
$350.0 unsecured line of credit, which is available as liquidity support for
our commercial paper program. Under the terms of the agreement, we pay a
variable rate of interest based on LIBOR plus a margin of 0.31%. The margin
increases to 0.41% if more than $175.0 is outstanding on the facility. The
line of credit agreement expires in three years and contains restrictive
covenants, which include maintaining a leverage ratio. We also pay a
commitment fee for the line based on our debt rating.
Also in May 2004, we renewed our variable funding note backed by Nordstrom
private label receivables and reduced the capacity by $50.0 to $150.0. This
note is renewed annually and interest is paid based on the actual cost of
commercial paper plus specified fees. We also pay a commitment fee for the
note based on the amount of the facility.
We believe that our operating cash flows, existing cash and available credit
facilities are sufficient to finance our cash requirements for the next 12
months. Additionally, we believe our operating cash flows, existing cash and
credit available to us under existing and potential future facilities are
sufficient to meet our cash requirements for the next 10 years.
17 of 22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
CRITICAL ACCOUNTING POLICIES:
-----------------------------
The preparation of our financial statements requires that we make estimates
and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities.
We regularly evaluate our estimates including those related to doubtful
accounts, inventory valuation, intangible assets, income taxes, self-insurance
liabilities, post-retirement benefits, sales return accruals, contingent
liabilities and litigation. We base our estimates on historical experience
and other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates. Our
accounting policies and methodologies in 2004 are consistent with those
discussed in our 2003 Amended Annual Report.
Recent Accounting Pronouncements
--------------------------------
During November 2003, the EITF reached a consensus on Issue 03-10,
"Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to
Consumers by Manufacturers." EITF 03-10 addresses the accounting and
disclosure treatment for a retailer's reimbursement receipt from a vendor for
coupons offered directly to consumers by the vendor. EITF 03-10 is effective
for coupons redeemed by retailers in fiscal years beginning after December 15,
2003. The adoption of EITF 03-10 did not have a material impact on our
financial statements.
FORWARD-LOOKING INFORMATION CAUTIONARY STATEMENT:
-------------------------------------------------
The preceding disclosures included forward-looking statements regarding our
performance, liquidity and adequacy of capital resources. These statements
are based on our current assumptions and expectations and are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Forward-looking statements are qualified by
the risks and challenges posed by our ability to predict fashion trends,
consumer apparel buying patterns, our ability to control costs, weather
conditions, hazards of nature such as earthquakes and floods, trends in
personal bankruptcies and bad debt write-offs, changes in interest rates,
employee relations, our ability to continue our expansion plans, and the
impact of economic and competitive market forces, including the impact of
terrorist activity or the impact of a war on us, our customers and the retail
industry. As a result, while we believe there is a reasonable basis for the
forward-looking statements, you should not place undue reliance on those
statements. This discussion and analysis should be read in conjunction with
the condensed consolidated financial statements.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, we
performed an evaluation under the supervision and with the participation of
management, including our President and Chief Financial Officer, of our
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)
under the Securities and Exchange Act of 1934 (the "Exchange Act")). Based
upon that evaluation, our President and our Chief Financial Officer concluded
that, as of the end of the period covered by this Quarterly Report, our
disclosure controls and procedures are effective in the timely recording,
processing, summarizing and reporting of material financial and non-financial
information.
There has been no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most
recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
18 of 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
Cosmetics
---------
We were originally named as a defendant along with other department store and
specialty retailers in nine separate but virtually identical class action
lawsuits filed in various Superior Courts of the State of California in May,
June and July 1998 that have now been consolidated in Marin County Superior
Court. In May 2000, plaintiffs filed an amended complaint naming a number of
manufacturers of cosmetics and fragrances and two other retailers as
additional defendants. Plaintiffs' amended complaint alleges that the retail
price of the "prestige" or "Department Store" cosmetics sold in department and
specialty stores was collusively controlled by the retailer and manufacturer
defendants in violation of the Cartwright Act and the California Unfair
Competition Act.
Plaintiffs seek treble damages and restitution in an unspecified amount,
attorneys' fees and prejudgment interest, on behalf of a class of all
California residents who purchased cosmetics and fragrances for personal use
from any of the defendants during the four years prior to the filing of the
amended complaint. Defendants, including us, have answered the amended
complaint denying the allegations. The defendants have produced documents and
responded to plaintiffs' other discovery requests, including providing
witnesses for depositions.
We entered into a settlement agreement with the plaintiffs and the other
defendants on July 13, 2003. In furtherance of the settlement agreement, the
case was refiled in the United States District Court for the Northern District
of California on behalf of a class of all persons who currently reside in the
United States and who purchased "Department Store" cosmetics from the
defendants during the period May 29, 1994 through July 16, 2003. The Court
has given preliminary approval to the settlement. A summary notice of class
certification and the terms of the settlement has been disseminated to class
members. A hearing on whether the Court will grant final approval of the
settlement is being scheduled. If approved by the Court, the settlement will
result in the plaintiffs' claims and the claims of all class members being
dismissed, with prejudice, in their entirety. In connection with the
settlement agreement, the defendants will provide class members with certain
free products and pay the plaintiffs' attorneys' fees. Our share of the cost
of the settlement will not have a material adverse effect on our financial
condition, results of operations or cash flows.
Other
-----
We are involved in various routine legal proceedings incidental to the
ordinary course of business. In management's opinion, the outcome of pending
legal proceedings, separately and in the aggregate, will not have a material
adverse effect on our business or consolidated financial condition.
19 of 22
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
-----------------------------------------------------------------------
Equity Securities
-----------------
(e) Repurchases
-----------
Total Total Number Maximum Number (or
Number of Average of Shares (or Units) (Approximate Dollar Value)
Shares Price Paid Purchased as Part of of Shares (or Units) that
(or Units) Per Share Publicly Announced May Yet Be Purchased Under
Purchased (or Units) Plans or Programs the Plans or Programs (2)
---------- ---------- -------------------- --------------------------
Feb. 2004 - - - $82 million
(2/1/04 to
2/28/04)
---------- ---------- -------------------- --------------------------
Mar. 2004 - - - $82 million
(2/29/04 to
4/3/04)
---------- ---------- -------------------- --------------------------
Apr. 2004 672 (1) $39.99 - $82 million
(4/4/04 to
5/1/04)
---------- ---------- -------------------- --------------------------
(1) The 672 shares redeemed were not part of a publicly announced repurchase
plan or program. These shares were owned and tendered by an employee to
Nordstrom as payment for an option exercise.
(2) In May 1995, the Board of Directors authorized $1.1 billion of share
repurchases, with no expiration date.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
10.1 Third Amendment to the Note Purchase Agreement dated
December 4, 2001 between Nordstrom Private Label Receivables,
LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and
Bank One, NA, as agent, dated February 29, 2004 is hereby
incorporated by reference from the Nordstrom Credit, Inc. Form
10-Q for the quarter ended May 1, 2004, Exhibit 10.3
10.2 Fourth Amendment to the Note Purchase Agreement dated
December 4, 2001 between Nordstrom Private Label Receivables,
LLC, Nordstrom fsb, Falcon Asset Securitization Corporation, and
Bank One, NA, as agent, dated May 28, 2004 is hereby incorporated
by reference from the Nordstrom Credit, Inc. Form 10-Q for the
quarter ended May 1, 2004, Exhibit 10.4
31.1 Certification of President required by Section 302(a)
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer required by Section 302(a)
of the Sarbanes-Oxley Act of 2002.
20 of 22
Item 6. Exhibits and Reports on Form 8-K (cont.)
------------------------------------------------
32.1 Certification of President regarding periodic report containing
financial statements pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer regarding periodic report
containing financial statements pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
We filed a Form 8-K on February 5, 2004 attaching a press release to
announce our preliminary January 2004 sales results.
We filed a Form 8-K on February 19, 2004 attaching a press release to
announce our results of operations for the quarter and year ended
January 31, 2004.
We filed a Form 8-K on March 4, 2004 attaching a press release to
announce our preliminary February 2004 sales results.
We filed a Form 8-K on April 8, 2004 attaching a press release to
announce our preliminary March 2004 sales results.
21 of 22
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
Executive Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: June 3, 2005
------------
22 of 22
NORDSTROM INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
------- ----------------
10.1 Third Amendment to the Note Incorporated by reference from
Purchase Agreement dated December Nordstrom Credit, Inc. Form 10-Q
4, 2001 between Nordstrom Private for the quarter ended May 1,
Label Receivables, LLC, Nordstrom 2004, Exhibit 10.3
fsb, Falcon Asset Securitization
Corporation, and Bank One, NA, as
agent, dated February 29, 2004
10.2 Fourth Amendment to the Note Incorporated by reference from
Purchase Agreement dated December Nordstrom Credit, Inc. Form 10-Q
4, 2001 between Nordstrom Private for the quarter ended May 1,
Label Receivables, LLC, Nordstrom 2004, Exhibit 10.4
fsb, Falcon Asset Securitization
Corporation, and Bank One, NA, as
agent, dated May 28, 2004
31.1 Certification of President Filed herewith electronically
required by Section 302(a) of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Filed herewith electronically
Officer required by Section 302(a)
of the Sarbanes-Oxley Act of 2002
32.1 Certification of President Furnished herewith electronically
regarding periodic report
containing financial statements
pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Furnished herewith electronically
Officer regarding periodic report
containing financial statements
pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002