<PAGE>
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, 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 December 1, 2000: 133,953,503 shares of
common stock.
1 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited)
Consolidated Statements of Earnings
Three and Nine months ended
October 31, 2000 and 1999 3
Consolidated Balance Sheets
October 31, 2000 and 1999 and
January 31, 2000 4
Consolidated Statements of
Shareholders' Equity
Nine months ended October 31,
2000 and 1999 5
Consolidated Statements of Cash Flows
Nine months ended October 31, 2000
and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,254,296 $1,110,114 $3,850,090 $3,592,614
Cost of sales and related
buying and occupancy (823,868) (717,844) (2,523,836) (2,349,388)
---------- ---------- ---------- ----------
Gross profit 430,428 392,270 1,326,254 1,243,226
Selling, general and
administrative expenses (436,296) (351,564) (1,229,995) (1,063,427)
---------- ---------- ---------- ----------
Operating (loss)/income (5,868) 40,706 96,259 179,799
Interest expense, net (15,995) (13,091) (43,587) (37,583)
Write-down of investment (20,655) - (31,195) -
Service charge income
and other, net 36,998 27,418 101,193 80,694
---------- ---------- ---------- ----------
(Loss)/earnings before income
taxes (5,520) 55,033 122,670 222,910
Income tax benefit/(expense) 2,200 (21,400) (47,800) (86,900)
---------- ---------- ---------- ----------
Net (loss)/earnings $ (3,320) $ 33,633 $ 74,870 $ 136,010
========== ========== ========== ==========
Basic (loss) earnings per
share $ (.03) $ .25 $ .58 $ .98
========== ========== ========== ==========
Diluted (loss) earnings per
share $ (.03) $ .25 $ .58 $ .97
========== ========== ========== ==========
Cash dividends paid per share
of common stock outstanding $ .09 $ .08 $ .26 $ .24
========== ========== ========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</TABLE>
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<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
October 31, January 31, October 31,
2000 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,750 $ 27,042 $ 21,193
Short-term investment 1,662 25,527 18,762
Accounts receivable, net 638,936 616,989 551,574
Merchandise inventories 1,186,391 797,845 1,041,873
Prepaid income taxes and other 115,254 97,245 90,881
---------- ---------- ----------
Total current assets 1,957,993 1,564,648 1,724,283
Land, buildings and equipment, net 1,597,302 1,429,492 1,454,187
Available-for-sale investment - 35,251 28,143
Intangible assets, net 158,042 - -
Other assets 53,249 32,690 39,521
---------- ---------- ----------
TOTAL ASSETS $3,766,586 $3,062,081 $3,246,134
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 110,612 $ 70,934 $ 137,957
Accounts payable 624,011 390,688 496,580
Accrued salaries, wages
and related benefits 195,209 211,308 183,390
Income taxes and other accruals 154,044 135,388 116,277
Current portion of long-term debt 11,591 58,191 58,146
---------- ---------- ----------
Total current liabilities 1,095,467 866,509 992,350
Long-term debt 1,070,020 746,791 747,076
Deferred lease credits 328,934 194,995 240,223
Other liabilities 56,388 68,172 65,506
Shareholders' Equity:
Common stock, no par:
250,000,000 shares authorized;
133,999,405, 132,279,988 and
135,185,569 shares issued
and outstanding 330,990 247,559 246,698
Unearned stock compensation (3,937) (8,593) (8,681)
Retained earnings 888,724 929,616 948,293
Accumulated other comprehensive
income - 17,032 14,669
---------- ---------- ----------
Total shareholders' equity 1,215,777 1,185,614 1,200,979
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,766,586 $3,062,081 $3,246,134
========== ========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</TABLE>
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<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Accumulated Other
Common Stock Unearned Retained Comprehensive
Shares Amount Compensation Earnings Income Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
February 1, 2000 132,279,988 $247,559 $(8,593) $929,616 $17,032 $1,185,614
Net earnings - - - 74,870 - 74,870
Other comprehensive earnings:
Unrealized loss on
investment during period,
net of tax (23,461) (23,461)
Reclassification of
realized loss, net of tax - - - - 6,429 6,429
-------
Comprehensive net earnings 57,838
Cash dividends
($.26 per share) - - - (33,877) (33,877)
Issuance of common stock for:
Stock option plans 173,558 3,904 - - - 3,904
Employee stock purchase
plan 165,842 2,194 - - - 2,194
Business acquisition 5,074,000 77,696 - - - 77,696
Stock-based compensation (14,075) (363) 4,656 - - 4,293
Purchase and retirement of
common stock (3,679,908) - - (81,885) - (81,885)
-----------------------------------------------------------------------
Balance at
October 31, 2000 133,999,405 $330,990 $(3,937) $888,724 $ - $1,215,777
=======================================================================
Balance at
February 1, 1999 142,114,167 $230,761 $(4,703) $1,074,487 - $1,300,545
Net earnings - - - 136,010 - 136,010
Unrealized gain on
investment, net of tax - - - - $14,669 14,669
------
Comprehensive net earnings 150,679
Cash dividends
($.24 per share) - - - (33,686) - (33,686)
Issuance of common stock 344,802 9,343 - - - 9,343
Stock-based compensation - 6,594 (3,978) - - 2,616
Purchase and retirement of
common stock (7,273,400) - - (228,518) - (228,518)
-----------------------------------------------------------------------
Balance at
October 31, 1999 135,185,569 $246,698 $(8,681) $ 948,293 $14,669 $1,200,979
=======================================================================
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</TABLE>
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<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 74,870 $136,010
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 149,195 143,179
Amortization of deferred lease credits and other, net (8,800) (4,943)
Stock-based compensation expense 4,293 2,616
Write-down of investment 31,195 -
Changes in assets and liabilities, net of effects
of acquisition:
Accounts receivable, net (12,367) 35,561
Merchandise inventories (377,042) (291,604)
Prepaid income taxes and other (14,460) (1,027)
Accounts payable 212,984 156,945
Accrued salaries, wages and related benefits (16,099) (12,976)
Income taxes and other accruals 5,090 (5,380)
Other liabilities (10,255) 4,933
-------- --------
Net cash provided by operating activities 38,604 163,314
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (283,644) (219,360)
Additions to deferred lease credits 142,370 98,599
Payment for acquisition, net of cash acquired (83,377) -
Other, net (5,614) (6,025)
-------- --------
Net cash used for investing activities (230,265) (126,786)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 39,678 59,174
Proceeds from long-term borrowings 308,266 -
Principal payments on long-term debt (57,911) (63,079)
Proceeds from issuance of common stock 6,098 9,343
Cash dividends paid (33,877) (33,686)
Purchase and retirement of common stock (81,885) (228,518)
-------- --------
Net cash provided by (used for) financing activities 180,369 (256,766)
-------- --------
Net decrease in cash and cash equivalents (11,292) (220,238)
Cash and cash equivalents at beginning of period 27,042 241,431
-------- --------
Cash and cash equivalents at end of period $ 15,750 $ 21,193
======== ========
Noncash financing activities:
Assets acquired by incurring long-term debt $ 24,402 $ -
======== ========
<FN>
These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained herein.
</TABLE>
6 of 17
<PAGE>
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 October 31, 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 October 31, 2000 and 1999, and the
results of their operations and cash flows for the periods then ended,
in accordance with accounting principles generally accepted in the United
States of America applied on a consistent basis.
The consolidated financial statements include the operating results of
Faconnable, S.A. ("Faconnable") from the date of acquisition (Note 2).
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 and No. 138, requires the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. Adoption of this standard in the fiscal year
beginning February 1, 2001, is not expected to have a material impact on the
Company's consolidated financial statements.
The Company adopted Financial Accounting Standards Board Interpretation No.
44, "Accounting for Certain Transactions involving Stock Compensation" in
July 2000, which provides guidance for certain issues that arose in applying
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Adoption of this Interpretation did not have a material impact
on the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"), a replacement of Statement 125 with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain additional disclosures, but otherwise retains
most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers
after March 31, 2001 with certain disclosures required for periods ending on
7 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Summary of Significant Accounting Policies (cont.)
or after December 31, 2000. Adoption of the accounting provisions of this
standard is not expected to have a material impact on the Company's
consolidated financial statements.
Note 2 - Acquisition
On October 24, 2000, the Company acquired 100% of Faconnable, of Nice, France,
a designer, wholesaler and retailer of high quality men's and women's apparel
and accessories. The Company paid $87,685 in cash and issued 5,074,000 shares
of common stock of the Company, for a total value of approximately $170,000
including expenses. The acquisition is being accounted for under the purchase
method of accounting, and, accordingly, Faconnable's results of operations
have been included in the Company's results of operations since October 24,
2000. The purchase price has been allocated to Faconnable's assets and
liabilities based on their estimated fair values as of the date of
acquisition. Goodwill and other identifiable intangible assets related to
this acquisition are being amortized over their estimated useful lives on a
straight-line basis over 10 years to 35 years.
The purchase also provides for contingent payments to two shareholders that
may be paid after five years from the date of acquisition based on the
performance of the subsidiary and the continued active involvement of the
principals in Faconnable. The contingent payments will be recorded as
compensation expense when it becomes probable that the performance targets
will be met.
The following unaudited pro forma information presents the results of the
Company's operations assuming the Faconnable acquisition occurred at the
beginning of each period presented:
Nine Months
Ended October 31,
-----------------------
2000 1999
---------- ----------
Net sales $3,896,288 $3,634,448
Net earnings $ 74,166 $ 132,776
Basic and diluted earnings per share $ 0.55 $ 0.92
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of the beginning of each period presented, nor is it
necessarily indicative of future operating results.
A summary of the purchase price allocation for the Faconnable acquisition is
as follows:
Fair value of identifiable assets acquired $ 38,646
Intangible assets recorded 158,144
Liabilities assumed (27,410)
==========
Total purchase price $ 169,380
==========
8 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - Earnings Per Share
Three Months Nine Months
Ended October 31, Ended October 31,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- ------------
Basic shares 129,315,092 136,721,774 130,041,747 139,274,764
Dilutive effect of
stock options and
restricted stock - 345,158 144,612 709,897
----------- ----------- ----------- -----------
Diluted shares 129,315,092 137,066,932 130,186,359 139,984,661
=========== =========== =========== ===========
Antidilutive options 8,913,270 4,885,296 5,754,360 2,439,582
=========== =========== =========== ===========
Note 4 - Investment
In September 1998, the Company purchased non-voting convertible preferred
stock in Streamline, Inc. ("Streamline"), an internet grocery and consumer
goods delivery company, for total consideration of $22,857. In June 1999,
Streamline completed an initial public offering of common stock. Upon
completion of the offering, the Company's investment was converted to common
stock. In January 2000, Streamline merged with Beacon Home Direct, Inc., a
privately-held company, in which the Company had previously purchased
preferred stock for total consideration of $10,000. The total investment in
Streamline was reduced to its quoted market value of $1,662 as of October 31,
2000, which is classified as short-term.
Due to the financial condition of Streamline, the Company determined that the
decline in the fair market value of its investment is other than temporary,
therefore a loss of $20,655 was recorded in the statement of earnings for the
quarter ended October 31, 2000, for a total loss on the investment of $31,195
for the year to date.
Streamline ceased its operations effective November 22, 2000, due to failure
to obtain additional capital to fund its operations. The Company will write-
off the reminder of its investment in Streamline in the fourth quarter of this
fiscal year.
Note 5 - Debt
In October 2000, the Company issued $300 million of 8.95% Senior Notes due
2005. These proceeds were used to reduce short-term indebtedness, to fund the
acquisition of Faconnable and for general corporate purposes.
The Company owns a 49% interest in a limited partnership which is constructing
a new corporate office building in which the Company will be the primary
occupant. In accordance with Emerging Issues Task Force Issue No. 97-10 "The
Effect of Lessee Involvement in Asset Construction," the Company is
considered to be the owner of the property. Construction in progress includes
9 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 5 - Debt (cont.)
capitalized costs related to this building of $39,700 as of October 31, 2000.
The corresponding finance obligation of $35,600 as of October 31, 2000 is
included in other long-term debt.
The Company is a guarantor of a $93,000 construction credit facility of the
limited partnership. This credit facility provides for interest at either the
LIBOR rate plus 0.75%, or the greater of the Federal Funds rate plus 0.5% and
the prime rate and matures in August 2002.
Note 6 - Segment Reporting
The following tables set forth information for the Company's reportable
segments and a reconciliation to the consolidated totals:
<TABLE>
<CAPTION>
Three months ended Retail Credit Catalog/ Corporate
October 31, 2000 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues to
external customers $1,181,807 - $ 72,489 - - $1,254,296
Service charge income - $ 34,071 - - 34,071
Intersegment revenues 11,940 5,950 - $(17,890) -
Net earnings 54,636 5,459 (12,971) $ (50,444) - (3,320)
Three months ended Retail Credit Catalog/ Corporate
October 31, 1999 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $1,058,105 - $ 52,009 - - $1,110,114
Service charge income - $ 28,651 - - 28,651
Intersegment revenues 7,198 5,396 - $(12,594) -
Net earnings 51,943 8,293 (10,010) $ (16,593) - 33,633
Nine months ended Retail Credit Catalog/ Corporate
October 31, 2000 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $3,649,696 - $200,394 - - $3,850,090
Service charge income - $ 96,665 - - - 96,665
Intersegment revenues 25,914 18,601 - - $(44,515) -
Net earnings 196,585 12,899 (24,709) $(109,905) - 74,870
Nine months ended Retail Credit Catalog/ Corporate
October 31, 1999 Stores Operations Internet and Other Eliminations Total
---------------------------------------------------------------------------------------------------
Net sales and revenues to
external customers $3,451,583 - $141,031 - - $3,592,614
Service charge income - $ 84,135 - - - 84,135
Intersegment revenues 14,575 17,907 - - $(32,482) -
Net earnings 208,198 20,461 (21,295) $ (71,354) - 136,010
</TABLE>
10 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Contingent Liabilities
Because all of the lawsuits described below (with the exception of Nine West)
are 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 the described
cases. While no assurance can be given as to the ultimate outcome of these
lawsuits, based on preliminary investigations, management currently believes
that these matters will not have a material adverse effect on the Company's
financial position.
Cosmetics
---------
The Cosmetics lawsuit has been previously described in the Nordstrom, Inc.
Annual Report on Form 10-K for the fiscal year ended January 31, 2000.
Nine West
---------
With regard to the Nine West lawsuit, as described in the Nordstrom, Inc.
Annual Report on Form 10-K for the fiscal year ended January 31, 2000, the
court has preliminarily approved a settlement and has authorized the
plaintiffs to send notices of the settlement to class members. A hearing on
final approval of the settlement is scheduled for December 2000. The
settlement does not admit any violation of the law or admit liability by any
defendant. The settlement does not require any payment from the Company.
Credit Fees
-----------
The Company has been named a defendant in a purported class action in the
Federal District Court for the Eastern District of Pennsylvania. The case
purports to be brought under the National Bank Act and the Arizona Consumer
Loan Act of 1997. Plaintiff, a resident of Pennsylvania and a user of
Nordstrom's credit through Nordstrom fsb, a wholly owned subsidiary of the
Company, claims to represent all customers of Nordstrom who have been extended
credit by Nordstrom fsb under revolving credit accounts for consumer purchases
at Nordstrom stores. Plaintiff claims that Nordstrom fsb has been paid
principal, interest and late fees in violation of said statutes on account of
which plaintiff seeks recovery or forfeiture thereof. The Company has not yet
filed a response to the Amended Complaint which was filed in October 2000.
Bar Code
--------
The Company is named as one of 135 retailer defendants in a lawsuit filed in
the United States District Court for the District of Arizona. Plaintiff
claims that the Company and the other defendants have infringed certain
patents held by it related to methods of scanning production markings (bar
codes) placed on work pieces or merchandise. The complaint seeks from each
defendant an award of damages for past infringement, to be trebled because of
alleged willful and deliberate infringement. Most of the retailer defendants,
including the Company, have entered into a Joint Defense Agreement.
The Company is also subject to other ordinary routine litigation incidental to
its business and with respect to which no material liability is expected.
11 of 17
<PAGE>
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "management's discussion and analysis of financial condition and
results of operations" includes "forward-looking statements" within the
meaning of the private securities litigation reform act of 1995. This act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward-looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results.
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. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report.
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:
----------------------
During the third quarter of 2000, sales increased 13.0% compared to the
corresponding quarter in 1999. For the nine-month period, sales increased
7.2% compared to the corresponding period in 1999. Comparable store sales
(sales in stores open at least one full fiscal year at the beginning of the
fiscal year) increased 4.7% for the quarter and 1.2% for the nine-month
period. The increase in comparable store sales for the quarter was primarily
due to calendar variations, the most significant of which was a shift in the
timing of the 2000 Anniversary Sale which resulted in five more Anniversary
Sale days being included in the third quarter of 2000 than were in the 1999
third quarter.
Gross profit as a percentage of net sales decreased to 34.3% in the third
quarter of 2000, as compared to 35.3% in the same period in 1999. For the
nine-month period, gross profit as a percentage of net sales decreased to
34.4%, as compared to 34.6% in the same period in 1999. The decrease for the
quarter and the nine-month period was primarily due to an increase in
markdowns.
12 of 17
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
For the third quarter of 2000, selling, general and administrative expenses
as a percentage of net sales increased to 34.8%, compared to 31.7% for the
third quarter of 1999. For the nine-month period, selling, general and
administrative expenses as a percentage of net sales were 31.9%, compared to
29.6% for the corresponding period in 1999. The increase for the quarter was
partially due to nonrecurring charges in 2000 related to severance expenses of
approximately $13 million as a result of changes in management, and a charge
for the write-off of certain information technology investments of
approximately $10 million. The increases for the quarter and the nine-month
period were also due to several other factors, including: increased sales
promotion expenses in the full-line stores; increased credit expenses related
to marketing programs for numerous credit products and a new loyalty program
for the Company's proprietary credit card; and higher wage and other
personnel expenses.
Interest expense, net increased by 22.2% during the quarter, to $16 million.
For the nine-month period, interest expense, net increased 16.0% to $43.6
million. The increases for the quarter and the nine-month period were due to
an increase in levels of short-term debt outstanding and an increase in
interest rates, partially offset by a decrease in the average levels of long-
term debt outstanding.
During the quarter and the nine-month period, losses of $20.7 million and
$31.2 million, respectively, were recorded to recognize the write down of the
value of the investment in Streamline, Inc., which was deemed by management to
be other than temporary. The fair market value of the investment in
Streamline is $1.7 million as of October 31, 2000. Streamline ceased its
operations effective November 22, 2000, due to failure to obtain additional
capital to fund its operations. The Company will write-off the remainder of
this investment in the fourth quarter of this year.
Service charge income and other, net increased by 34.9% during the quarter,
to $37 million. For the nine-month period, service charge income and other,
net increased 25.4% to $101.2 million. The increase for the quarter and the
nine-month period was due to higher accounts receivable securitization gains,
and higher service charge and late fee income associated with increases in the
number of credit accounts and credit sales.
The net loss for the quarter ended October 31, 2000 was $3.3 million, compared
to net earnings of $33.6 million in the same period in 1999. The diluted loss
per share was $0.03 for the third quarter ended October 31, 2000, compared to
diluted earnings per share of $0.25 achieved in the same period in 1999. Net
earnings for the nine months ended October 31, 2000 decreased 45.0% to $74.9
million from $136 million in the same period in 1999. For the nine months
ended October 31, 2000, diluted earnings per share were $0.58, a decrease of
40.2% from the $0.97 achieved in the same period in 1999. The decreases in
earnings and earnings per share for the quarter and the nine-month period were
primarily due to nonrecurring charges related to changes in management and
write-off of certain information technology investments, and higher selling,
general and administrative expenses, partially offset by higher service charge
income. Net earnings and earnings per share were also impacted by a $20.7
million pretax charge for the quarter and a $31.2 million pretax charge for
the nine-month period related to the write-down of the Streamline investment.
The decreases in diluted earnings per share for the quarter and year to date
were partially offset by a decrease in the number of shares outstanding.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Liquidity and Capital Resources:
--------------------------------
The Company finances its working capital needs, capital expenditures and
share repurchase activity with cash provided by operations and external
borrowings. The Company's cash and cash equivalents decreased $11,300 during
the nine-month period ended October 31, 2000, as cash used for investing
activities was more than the cash provided by operations and additional
financing activities. The increase in accounts payable was primarily due to a
change in the Company's policy to pay its vendors based on receipt of goods
rather than the invoice date.
For the nine months ended October 31, 2000, cash flow used for investing
activities is comprised primarily of capital expenditures for new store
expansion and information technology-related projects.
During the quarter, the Company opened four new full-line stores in Frisco,
Texas; Broomfield, Colorado; Roseville, California and Chicago, Illinois. The
Company also opened five new Rack stores in Honolulu, Hawaii; Spokane,
Washington; Oak Brook, Illinois; Scottsdale, Arizona and Chandler, Arizona
during the quarter. For the year to date, the Company has opened a total of
five new full-line and ten new Rack stores. Additionally, in November 2000,
the Company opened one full-line store in Boca Raton, Florida. Construction
is progressing as planned on new stores scheduled to open in 2001.
Although the Company has made commitments for stores opening in 2001 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.
For the nine months ended October 31, 2000, cash provided by financing
activities was $180 million, due primarily to debt proceeds partially offset
by cash used to purchase and retire common stock under the Company's stock
purchase program.
In October 2000, the Company issued $300 million of 8.95% Senior Notes due
2005, these proceeds were used to reduce short-term indebtedness, to fund the
acquisition of Faconnable and for general corporate purposes.
During the nine months ended October 31, 2000, the Company repurchased 3.6
million shares of its common stock for an aggregate of approximately $81.3
million under a stock purchase program. At October 31, 2000, the Company had
remaining share repurchase authorization of approximately $87 million.
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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Recent Accounting Pronouncements
--------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
For Derivative Instruments and Hedging Activities," as amended by SFAS No.
137 and No. 138, requires the Company to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Adoption of this standard in the fiscal year
beginning February 1, 2001, is not expected to have a material impact on the
Company's consolidated financial statements.
The Company adopted Financial Accounting Standards Board Interpretation No.
44, "Accounting for Certain Transactions involving Stock Compensation" in
July 2000, which provides guidance for certain issues that arose in applying
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Adoption of this Interpretation did not have a material impact
on the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"), a replacement of Statement 125 with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain additional disclosures, but otherwise retains
most of SFAS No. 125's provisions. SFAS No. 140 is effective for transfers
after March 31, 2001 with certain disclosures required for periods ending on
or after December 31, 2000. Adoption of the accounting provisions of this
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 short-term and is recorded on the balance
sheet at fair value based upon the quoted market price with unrealized gains
or losses reported as a separate component of accumulated other comprehensive
earnings. Realized gains and losses and declines in value judged to be other
than temporary are included in net earnings. At October 31, 2000, the
Company had outstanding borrowings of approximately $111 million under short-
term notes payable, which bear interest from 6.56% to 6.70%, and mature from
November 1, 2000 to November 7, 2000. In October 2000, the Company issued
$300 million of 8.95% Senior Notes due 2005. These proceeds were used to
reduce short-term indebtedness, to fund the acquisition of Faconnable and for
general corporate purposes.
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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 7 in Notes to Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
(10.1) Share Purchase and Contribution Agreement dated as of September
27, 2000 by and among Nordstrom, Inc., Nordstrom European Capital
Group, and the Selling Shareholders of Faconnable, S.A., is
hereby incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement on Form S-3, Registration
No. 333-50028 filed on November 15, 2000.
(10.2) Amendment to the Share Purchase and Contribution Agreement dated
as of October 20, 2000 by and among Nordstrom, Inc., Nordstrom
European Capital Group, and the Selling Shareholders of
Faconnable, S.A., is hereby incorporated by reference to Exhibit
2.2 to the Registrant's Registration Statement on Form S-3,
Registration No. 333-50028 filed on November 15, 2000.
(10.3) The Put Agreement dated November 1, 1999 between Nordstrom, Inc.
and the holders of the Series C Preferred Stock of Nordstrom.com,
Inc. is filed herein as an Exhibit.
(27.1) Financial Data Schedule is filed herein as an Exhibit.
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K on September 7, 2000 to announce senior
management changes. The Company also filed a Form 8-K on October 11, 2000 to
announce non-recurring charges and third quarter earnings expectations.
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<PAGE>
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: December 13, 2000
-----------------
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NORDSTROM, INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
------- ----------------
10.1 Share Purchase and Contribution Incorporated by reference to Exhibit
Agreement dated as of September 2.1 to the Registrant's Registration
27, 2000 by and among Nordstrom, Statement on Form S-3, Registration
Inc., Nordstrom European Capital No. 333-50028 filed on November
Group, and the Selling 15, 2000.
Shareholders of Faconnable, S.A.
10.2 Amendment to the Share Purchase Incorporated by reference to Exhibit
and Contribution Agreement dated 2.2 to the Registrant's Registration
as of October 20, 2000 by and Statement on Form S-3, Registration
among Nordstrom, Inc., Nordstrom No. 333-50028 filed on November
European Capital Group, and the 15, 2000.
Selling Shareholders of
Faconnable, S.A.
10.3 The Put Agreement dated November Filed herewith electronically
1, 1999 between Nordstrom, Inc.
and the holders of the Series C
Preferred Stock of Nordstrom.com,
Inc.
27.1 Financial Data Schedule Filed herewith electronically
