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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 May 3, 2003
[ ] 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 Exchange Act 12b-2). YES X NO
_____ _____
Common stock outstanding as of May 31, 2003: 135,832,136 shares of
common stock.
1 of 17
NORDSTROM, INC. AND SUBSIDIARIES
--------------------------------
INDEX
-----
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Quarter ended May 3, 2003 and April 30, 2002 3
Condensed Consolidated Balance Sheets
May 3, 2003, January 31, 2003 and April 30, 2002 4
Condensed Consolidated Statements of Cash Flows
Quarter ended May 3, 2003 and April 30, 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
CERTIFICATIONS 16
2 of 17
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
(unaudited)
Quarter Ended
----------------------
May 3, April 30,
2003 2002
---------- ----------
Net sales $1,343,539 $1,245,761
Cost of sales and related
buying and occupancy (888,458) (823,088)
---------- ----------
Gross profit 455,081 422,673
Selling, general and
administrative expenses (426,030) (386,084)
---------- ----------
Operating income 29,051 36,589
Interest expense, net (20,228) (20,049)
Minority interest purchase
and reintegration costs - (42,047)
Service charge income
and other, net 35,632 33,304
---------- ----------
Earnings before income taxes
and cumulative effect of
accounting change 44,455 7,797
Income tax expense (17,300) (19,010)
---------- ----------
Earnings (loss) before cumulative
effect of accounting change 27,155 (11,213)
Cumulative effect of accounting
change (net of tax of $8,541) - (13,359)
---------- ----------
Net earnings (loss) $ 27,155 $ (24,572)
========== ==========
Basic and Diluted earnings (loss) per share $ .20 $ (.18)
========== ==========
Cash dividends paid per share
of common stock outstanding $ .10 $ .09
========== ==========
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
3 of 17
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
May 3, January 31, April 30,
2003 2003 2002
---------- ---------- ----------
(Unaudited) (Audited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 173,434 $ 219,344 $ 216,282
Accounts receivable, net 748,592 762,129 670,786
Merchandise inventories 1,078,232 953,112 994,136
Prepaid expenses 46,613 40,261 36,223
Other current assets 110,286 111,654 108,707
---------- ---------- ----------
Total current assets 2,157,157 2,086,500 2,026,134
Land, buildings and equipment (net of
accumulated depreciation of $1,942,989,
$1,882,976, and $1,716,616) 1,762,039 1,761,544 1,791,676
Goodwill, net 56,609 56,609 32,431
Tradename, net 84,000 84,000 84,000
Other assets 115,036 121,726 101,062
---------- ---------- ----------
TOTAL ASSETS $4,174,841 $4,110,379 $4,035,303
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 726 $ 244 $ 679
Accounts payable 547,745 429,087 565,996
Accrued salaries, wages
and related benefits 207,477 260,562 186,041
Income taxes and other accruals 152,006 188,986 182,566
Current portion of long-term debt 5,615 5,545 3,996
---------- ---------- ----------
Total current liabilities 913,569 884,424 939,278
Long-term debt 1,341,262 1,341,826 1,346,939
Deferred lease credits 393,576 383,100 369,401
Other liabilities 135,055 128,972 97,623
Shareholders' Equity:
Common stock, no par:
500,000,000 shares authorized;
135,809,649, 135,444,041 and
134,997,563 shares issued
and outstanding 363,258 358,069 349,593
Unearned stock compensation (1,843) (2,010) (2,513)
Retained earnings 1,027,713 1,014,105 938,520
Accumulated other comprehensive
earnings (loss) 2,251 1,893 (3,538)
---------- ---------- ----------
Total shareholders' equity 1,391,379 1,372,057 1,282,062
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,174,841 $4,110,379 $4,035,303
========== ========== ==========
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
4 of 17
NORDSTROM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Quarter Ended
----------------------
May 3, April 30,
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net earnings (loss) $27,155 $(24,572)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 62,835 55,290
Amortization of deferred lease credits and other, net (6,409) (4,386)
Stock-based compensation expense 87 1,131
Deferred income taxes, net 5,414 (3,428)
Cumulative effect of accounting change, net of tax - 13,359
Change in assets and liabilities:
Accounts receivable, net 13,713 28,487
Merchandise inventories (123,798) (139,658)
Prepaid expenses (4,058) 1,461
Other assets (108) (39)
Accounts payable 114,578 111,183
Accrued salaries, wages and related benefits (52,875) (51,246)
Income taxes and other accruals (37,000) 37,963
Other liabilities 3,702 3,310
-------- --------
Net cash provided by operating activities 3,236 28,855
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (59,962) (96,827)
Additions to deferred lease credits 17,172 32,692
Other, net 476 (1,366)
-------- --------
Net cash used for investing activities (42,314) (65,501)
-------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable 482 531
Proceeds from long-term borrowings - 431
Principal payments on long-term debt (1,023) (81,874)
Proceeds from sale of interest rate swap 2,341 -
Proceeds from issuance of common stock 4,915 8,096
Cash dividends paid (13,547) (12,111)
-------- --------
Net cash used by financing activities (6,832) (84,927)
-------- --------
Net decrease in cash and cash equivalents (45,910) (121,573)
Cash and cash equivalents at beginning of period 219,344 337,855
-------- --------
Cash and cash equivalents at end of period $173,434 $216,282
======== ========
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
5 of 17
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(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 2002 Annual Report. 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.
Reclassification
- ----------------
We reclassified certain prior year amounts to conform to the current year
presentation.
Change in Fiscal Year
- ---------------------
On February 1, 2003, our fiscal year-end changed from January 31 to the
Saturday closest to January 31. Each fiscal year consists of four 13 week
quarters, with an extra week added onto the fourth quarter every five to six
years. A one-day transition period is included in our first quarter 2003
results.
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 2002 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:
Three Months Ended
------------------------
May 3, April 30,
2003 2002
----------- -----------
Net earnings (loss), as reported $27,155 $(24,572)
Incremental stock-based compensation
expense under fair value, net of tax (6,223) (5,600)
----------- -----------
Pro forma net earnings (loss) $20,932 $(30,172)
=========== ===========
Earnings (loss) per share:
Basic and Diluted - as reported $0.20 $(0.18)
Basic and Diluted - pro forma $0.15 $(0.22)
Recent Accounting Pronouncements
- --------------------------------
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" for
certain decisions made by the FASB as part of the Derivatives Implementation
Group process. SFAS No. 149 also amends SFAS No. 133 to incorporate
clarifications of the definition of a derivative. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003, and should be
applied prospectively. We do not believe the adoption of SFAS No. 149 will
have a material impact on our earnings and financial position.
6 of 17
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 2 - Goodwill and Other Intangible Assets
The carrying amounts of our intangible assets are as follows:
Catalog/
Retail Stores Internet
segment segment Total
--------------------- -------- ---------
Goodwill Tradename Goodwill
-------- --------- --------
Balance as of February 1, 2003
and May 3, 2003 $ 40,893 $ 84,000 $ 15,716 $ 140,609
The purchase of the minority interest of Nordstrom.com in the first quarter of
2002, resulted in additional goodwill of $24,178, of which $8,462 was
allocated to the Retail Stores reporting unit and $15,716 to the
Catalog/Internet reporting unit. Goodwill of $32,431 and Tradename of $84,000
are assigned to the Faconnable reporting unit.
We tested all of our intangible assets during the first quarter of 2003 and
determined that these assets were not impaired. We expect to perform these
impairment tests annually during our first quarter or when other circumstances
indicate we need to do so.
Note 3 - Earnings Per Share
Three Months Ended
------------------------
May 3, April 30,
2003 2002
----------- -----------
Net earnings (loss) $27,155 $(24,572)
Basic shares 135,578,266 134,702,331
Basic earnings (loss) per share $0.20 $(0.18)
Dilutive effect of stock options
and performance share units 219,525 -
Diluted shares 135,797,791 134,702,331
Diluted earnings (loss) per share $0.20 $(0.18)
Antidilutive stock options 13,798,089 12,711,744
Note 4 - Accounts Receivable
The components of accounts receivable are as follows:
May 3, January 31, April 30,
2003 2003 2002
----------- ----------- -----------
Private label trade receivables:
Unrestricted $19,809 $15,599 $20,777
Restricted 574,592 613,647 592,908
Allowance for doubtful accounts (22,354) (22,385) (22,786)
----------- ----------- -----------
Private label trade receivables, net 572,047 606,861 590,899
VISA securitization master trust
certificates 152,327 123,220 55,591
Other 24,218 32,048 24,296
----------- ----------- -----------
Accounts receivable, net $748,592 $762,129 $670,786
=========== =========== ===========
7 of 17
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 4 - Accounts Receivable (Cont.)
The restricted private label receivables back the $300 million Class A notes
and the $200 million variable funding note issued by us in November 2001.
Other accounts receivable consist primarily of vendor receivables and cosmetic
rebates receivable. As all vendor receivables are fully earned at period end,
no allowance for doubtful vendor receivables has been recorded.
Note 5 - Debt
In February 2003, we sold the interest rate swap that converted our $250
million, 5.63% fixed-rate debt to variable rate. We received cash of $2.3
million, which will be recognized as income evenly over the remaining life of
the related debt.
Note 6 - 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 3, 2003 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $1,277,398 - $66,141 - - $1,343,539
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
Quarter ended Retail Credit Catalog/ Corporate
April 30, 2002 Stores Operations Internet and Other Eliminations Total
- ---------------------------------------------------------------------------------------------------
Revenues from external
customers $1,182,709 - $63,052 - - $1,245,761
Service charge income - $31,421 - - - 31,421
Intersegment revenues 3,818 6,525 - - $(10,343) -
Interest expense, net 184 6,439 185 $13,241 - 20,049
Earnings before taxes and
cumulative effect of
accounting change 96,628 6,618 (308) (95,141) - 7,797
Net earnings (loss) 45,662 4,042 (188) (74,088) - (24,572)
Note 7 - Nordstrom.com
On May 31, 2002, we purchased the outstanding shares of Nordstrom.com, Inc.
series C preferred stock for $70,000. The excess of the purchase price over
the fair market value of the preferred stock and professional fees resulted in
a one-time charge of $42,047, which was recorded in the first quarter of 2002.
No tax benefit was recognized, as we do not believe it is probable that this
benefit will be realized.
The purchase of the minority interest of Nordstrom.com resulted in additional
goodwill of $24,178.
Note 8 - Subsequent Event
In June 2003, we purchased $39,170 of our 8.95% senior notes for a total cash
payment of $45,402. Approximately $6,000 of expense will be recognized in the
second quarter of 2003 related to this purchase.
8 of 17
NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 9 - Litigation
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 state
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" 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 period 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. Plaintiffs have not yet moved for class
certification. Pursuant to an order of the court, plaintiffs and defendants
participated in mediation sessions. The California state court has set a
status conference for June 2003.
Washington Public Trust Advocates
- ---------------------------------
By order dated August 9, 2002, the court granted our motion to dismiss us from
Washington Public Trust Advocates, ex rel., et al. v. City of Spokane, et al.,
as previously described, and dismissed us from that lawsuit. Plaintiff
attempted to obtain direct review by the Washington Supreme Court which
declined to hear the case and referred it to the Washington Court of Appeals.
On May 20, 2003, the Washington Court of Appeals affirmed our dismissal.
Other
- -----
We are subject to routine litigation incidental to our business. No material
liability is expected.
9 of 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Dollars in Thousands
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the 2002 Annual Report.
RESULTS OF OPERATIONS:
- ----------------------
Overview
- --------
Earnings for the first quarter of 2003 increased to $27,155 or $0.20 per share
from a net loss of $24,572 or $0.18 per share for the same period in 2002.
The net loss in the first quarter of 2002 was attributable to two one-time
charges related to the minority interest purchase of Nordstrom.com, Inc. and
the adoption of a new accounting pronouncement. Excluding these one-time
charges, earnings for the first quarter of 2003 decreased $3,290 or 10.8% when
compared to the same period last year. This decrease was primarily the result
of negative comparable store sales, higher markdowns taken to liquidate
merchandise and higher expense related to new stores.
Year-over-year net income before and after one-time charges are as follows:
Quarter Ended
-------------------------------------------
May 3, 2003 April 30, 2002
-------------------- --------------------
Diluted Diluted
Dollars EPS Dollars EPS
--------- --------- --------- ---------
Reported net income (loss) $27,155 $0.20 $(24,572) $(0.18)
One-time charges, net of tax:
Minority interest purchase - - 42,047 0.30
Cumulative effect of accounting
change - - 13,359 0.10
--------- --------- --------- ---------
Net income before one-time
charges $27,155 $0.20 $30,834 $0.22
========= ========= ========= =========
Sales
- -----
Total sales for the quarter on a 4-5-4 comparable basis increased 3.5%
primarily due to store openings. Since May 1, 2002, we have opened six full-
line stores and two Nordstrom Rack stores. Same store sales on a 4-5-4
comparable basis decreased 1.4% due to a combination of factors, including a
slowing economy, the war in Iraq and poor weather in the eastern and
midwestern United States.
Our strongest performing merchandise divisions for the quarter were cosmetics,
accessories and the designer and casual contemporary segments of women's
apparel, followed by shoes, men's apparel, women's active wear, intimate
apparel, junior women's and women's bridge apparel. Our weakest divisions
were women's better and special sizes.
Gross Profit
- ------------
Gross profit as a percentage of sales remained flat for the quarter ended May
3, 2003, compared to the same period last year. Higher markdowns taken to
liquidate excess inventory, drive sales and deliver competitive pricing were
partially offset by a lower provision for inventory shrinkage and lower buying
expenses. Total inventory per square foot increased 1.9% due to lower than
expected sales. We expect higher markdowns to continue through the end of the
second quarter as we liquidate our remaining excess inventory.
10 of 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses as a percent of sales increased
70 basis points to 31.7% due to negative leverage from the lower than expected
sales. Selling, general and administrative expense increased $40 million due
to planned incremental spending related to new stores, employee benefits and
sales promotion offset by lower technology expenses.
Interest Expense
- ----------------
Interest expense, net remained flat for the quarter ended May 3, 2003 when
compared to the same period in 2002 due to a decline in the volume of long-
term debt, offset by a slight increase in long-term rates. Also, less
interest income was earned in the quarter as average short-term investments
decreased.
Service Charge Income and Other
- -------------------------------
Service charge income and other, net increased for the quarter ended May 3,
2003 primarily due to gains recorded from our VISA securitization.
Securitization gains continued as increased sales on our VISA cards generated
higher revenues, while the cost of funds declined and bad debt write-offs
stabilized.
Nordstrom.com
- --------------
On May 31, 2002, we purchased the outstanding shares of Nordstrom.com, Inc.
series C preferred stock for $70,000. The excess of the purchase price over
the fair market value of the preferred stock and professional fees resulted in
a one-time charge of $42,047, which was recorded in the first quarter of 2002.
No tax benefit was recognized, as we do not believe it is probable that this
benefit will be realized.
The purchase of the minority interest of Nordstrom.com resulted in additional
goodwill of $24,178.
Cumulative Effect of Accounting Change
- --------------------------------------
During the first quarter of 2002, we completed the initial review required by
SFAS No. 142 "Goodwill and Other Intangible Assets." As a result of our
review, we recorded a cumulative effect of accounting change of $13,359, net
of tax, or $0.10 per share on a diluted basis.
Seasonality
- ------------
Our business, like that of other retailers, is subject to seasonal
fluctuations. Our anniversary sale in July and the holidays in December
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 (Dollars in millions)
- -----------------------------------------------
We converted to a 4-5-4 Retail Calendar at the beginning of 2003. This change
in our fiscal calendar has resulted in three additional days of sales being
included in our 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 three additional
days provides a more comparable basis (4-5-4 vs 4-5-4) from which to evaluate
sales performance in the first quarter. The following reconciliation bridges
the reported GAAP sales to the 4-5-4 comparable sales.
11 of 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
1Q03 1Q02
4-5-4 Gregorian Dollar Total Comp
calendar calendar Increase Sales Sales
-------- --------- -------- ----- -----
Number of Days Reported GAAP 92 89
Reported GAAP Sales $1,343.5 $1,245.8 $97.7 7.8% 2.7%
Less Feb 1-2, 2002 sales ($31.0)
Plus May 1-4, 2002 sales $65.6
Less Feb 1, 2003 sales ($18.2)
------- -------
Reported 4-5-4 sales $1,325.3 $1,280.4 $44.9 3.5% (1.4%)
------- -------
4-5-4 Adjusted Days 91 91
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
We finance our working capital needs and capital expenditures with cash
provided by operations and borrowings.
Cash Flow from Operations
- -------------------------
Net cash provided by operating activities for the quarter ended May 3, 2003
decreased compared to the same period last year. This decrease was primarily
a result of differences in the timing of income tax payments between years.
Capital Expenditures
- --------------------
For the quarter ended May 3, 2003, net cash used in investing activities
decreased compared to the same period in 2002, primarily due to a decrease in
net capital expenditures resulting from a planned reduction in new store
openings.
During the first quarter of fiscal 2003, we opened one full-line store in
Houston, TX. Throughout the remainder of the year ending January 31, 2004, we
expect to open three full-line stores in Richmond, VA, Austin, TX and
Wellington Green, FL; relocate our Lynnwood, WA full-line store and open two
Nordstrom Rack stores in Chicago, IL and Sunrise, FL. For the entire year,
gross square footage is expected to increase 4%. Total square footage of our
stores was 18,613,000 as of the end of first quarter 2003, a 6.5% increase
over the same period last year.
Financing
- ---------
For the quarter ended May 3, 2003, cash used by financing activities decreased
primarily due to the scheduled retirement of $76,750 in medium-term notes in
the prior year.
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, 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. No changes have occurred since our disclosures in the
2002 Annual Report.
12 of 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT.)
Recent Accounting Pronouncements
- --------------------------------
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" for
certain decisions made by the FASB as part of the Derivatives Implementation
Group process. SFAS No. 149 also amends SFAS No. 133 to incorporate
clarifications of the definition of a derivative. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003, and should be
applied prospectively. We do not believe the adoption of SFAS No. 149 will
have a material impact on our earnings and financial position.
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 increased competition, shifting consumer
demand, changing consumer credit markets, changing capital markets, changing
interest rates and general economic conditions, hiring and retaining effective
team members, sourcing merchandise from domestic and international vendors,
investing in new business strategies, achieving our growth objectives and the
impact of economic and competitive market forces, including the impact of
terrorist activity or the impact of war. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In February 2003, we sold the interest rate swap that converted our $250
million, 5.63% fixed-rate debt to variable rate. We received cash of $2.3
million, which will be recognized as income evenly over the remaining life of
the related debt.
Item 4. CONTROLS AND PROCEDURES
"Disclosure controls" are controls and other procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
are also designed to ensure that such information is accumulated and
communicated to our management, including our President and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure. "Internal controls" are procedures that are designed to provide
reasonable assurance that our transactions are properly authorized, our assets
are safeguarded against unauthorized or improper use and our transactions are
properly recorded and reported, all to permit the preparation of our financial
statements in conformity with generally accepted accounting principles.
Within the 90-day period prior to the filing of this report, 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. Based upon that evaluation, the President and the
Chief Financial Officer concluded that our disclosure controls and procedures
are effective in the timely recording, processing, summarizing and reporting
of material financial and non-financial information.
We reviewed our internal controls for effectiveness periodically during the
period covered by this report. No significant changes were made in our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of their last evaluation.
13 of 17
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 9 in Notes to Condensed Consolidated Financial Statements
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
3.1 Bylaws of the Registrant, as amended and restated on May 20, 2003.
99.1 Certification of Chief Executive Officer regarding periodic report
containing financial statements.
99.2 Certification of Chief Financial Officer regarding periodic report
containing financial statements.
(b) Reports on Form 8-K
-------------------
We filed a Form 8-K on February 6, 2003, attaching a press release to
announce our preliminary January 2003 sales results.
We filed a Form 8-K on February 21, 2003 attaching a press release
relating to our results of operations for the quarter and year ended
January 31, 2003.
We filed a Form 8-K on March 5, 2003 attaching a press release to
announce our preliminary February 2003 sales results.
We filed a Form 8-K on March 31, 2003 attaching a press release to
announce the retirement of Joel Stinson, Chief Administrative Officer.
We filed a Form 8-K on March 31, 2003 attaching a press release to
announce our first quarter earnings were expected to be lower than the
previously guided range.
We filed a Form 8-K on April 10, 2003 attaching a press release to
announce our preliminary March 2003 sales results.
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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 9, 2003
------------------
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Certification required by Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Blake W. Nordstrom, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nordstrom, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 9, 2003 /s/ Blake W. Nordstrom
------------------ ----------------------
Blake W. Nordstrom
President
16 of 17
Certification required by Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Michael G. Koppel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nordstrom, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 9, 2003 /s/ Michael G. Koppel
------------------ ----------------------
Michael G. Koppel
Executive Vice President and
Chief Financial Officer
17 of 17
NORDSTROM INC. AND SUBSIDIARIES
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
3.1 By-laws of the Registrant, as Filed herewith electronically
amended and restated on May 20,
2003
99.1 Certification of Chief Executive Filed herewith electronically
Officer regarding periodic report
containing financial statements
99.2 Certification of Chief Financial Filed herewith electronically
Officer regarding periodic report
containing financial statements