Annual Report — Form 10-K
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Exhibit 13.1
Portions of the 1997 Annual Report to Shareholders
1997 Annual Report
Financial Highlights
[Download Table]
Dollars in thousands except per share amounts
Fiscal Year 1997 1996 % Change
Net sales $4,851,624 $4,453,063 +8.9
Earnings before income taxes 307,213 243,505 +26.2
Net earnings 186,213 147,505 +26.2
Basic earnings per share 2.40 1.82 +31.9
Diluted earnings per share 2.40 1.82 +31.9
Cash dividends paid per share .53 .50 +6.0
Stock trading
[Download Table]
Fiscal Year 1997 1996
high low high low
First Quarter 39 3/4 33 7/8 50 7/8 39 1/4
Second Quarter 59 5/8 39 1/4 52 7/8 39 1/4
Third Quarter 68 3/16 52 3/8 42 3/8 35 1/2
Fourth Quarter 65 3/4 42 55/64 44 35 7/16
Nordstrom, Inc. common stock is traded over-the-counter
and quoted daily in leading financial publications. NASDAQ Symbol-NOBE.
Graph - Net Sales
The vertical bar graph compares net sales for the past ten years. Beginning
with the oldest fiscal year on the left, net sales (dollars are in millions)
were as follows: 1988-$2,328; 1989-$2,671; 1990-$2,894; 1991-$3,180;
1992-$3,422; 1993-$3,590; 1994-$3,894; 1995-$4,114; 1996-$4,453; 1997-$4,852;
Graph - Net Earnings
The vertical bar graph compares net earnings for the past ten years. Beginning
with the oldest fiscal year on the left, net earnings (dollars are in millions)
were as follows: 1988-$123.3; 1989-$114.9; 1990-$115.8; 1991-$135.8;
1992-$136.6; 1993-$140.4; 1994-$203.0; 1995-$165.1; 1996-$147.5; 1997-$186.2;
Page 2 Nordstrom Annual Report 1997
Message To Our Shareowners:
In 1997, Nordstrom achieved a marked improvement in financial performance.
Store expansion, better comparable-store sales, improved merchandise margins
and operating refinements contributed to higher earnings and increased
shareowner wealth. The management team also initiated a broad-based program to
increase value for shareowners, customers, employees and the communities we
serve. During the year:
Market capitalization expanded 31 percent to $3.9 billion,
with 3.3 million fewer shares outstanding.
Net earnings rose 26 percent to $186.2 million.
Basic and diluted earnings per share increased to $2.40, up 32 percent.
Net sales were a record $4.9 billion, up 9 percent.
An Expanding National Presence
In 1997, Nordstrom strengthened its presence as a national retailer, opening
three new full-line stores in shopping centers at Roosevelt Field on
Long Island, New York; at Westfarms in West Hartford, Connecticut; and at
Beachwood Place in Cleveland, Ohio.
We added two new Nordstrom Racks: at Factoria in Bellevue, Washington, and at
The Mall at The Source on Long Island, New York. Plus, in Orange County and
San Diego, we expanded two of our original and most productive Racks. Southern
California is also where we located our second and third Faconnable boutiques.
Overall, we increased retail space by more than 800,000 square feet, a
7 percent increase over 1996.
Nordstrom now operates stores in every region of the country. This February, we
entered the Southeast, opening our first full-line store at Perimeter Mall in
Atlanta, Georgia. Three additional stores are planned for Georgia and Florida
through 2001. Our plan is to add new stores with an 8 to10 percent annual
increase in total square feet. Most importantly, significant expansion
opportunities exist in primary locations across the country.
Page 5 Nordstrom Annual Report 1997
Our full-line stores are now organized into four geographic groups: Northwest,
California, Midwest and East. Racks, Direct Sales, Faconnable boutiques,
Nordstrom Product Group and Nordstrom National Credit Bank also operate as
distinct and self-contained units. Company growth is managed through these
clearly focused autonomous teams with more direct lines of reporting to a
specific Co-President.
Value creation is the primary focus of each group. These teams are designed to
develop strategies and plans based on market conditions unique to each
business. Performance will be measured against previous years and compared
with the results of key peer-industry competitors. Over time we expect our
teams to become more efficient, focused and knowledgeable. Each unit will be
more flexible and responsive, allowing business decisions to be made more
quickly and closer to individual customers.
Growing Merchandise Sales
This year's improved growth in comparable-store sales was due in large part to
an enhanced and refined merchandise selection, especially in women's apparel.
Merchandise realignments and staffing changes made in 1996 paid dividends in
1997. In particular, customers were better served with a balanced selection of
Nordstrom brands and leading national brands.
As a result of refinements initiated these past few years, each group
merchandise team has fewer, more experienced people in jobs with expanded
responsibilities. These significant changes are increasing buying leverage and
improving supplier communication and participation. Our goal is to generate
quality sales growth with a better merchandise
mix and more efficient investment of inventory dollars.
Our expanding use of information systems technology is providing greater
flexibility in merchandising and responding to customers. Detailed sales
floor information is now available, including individual SKUs (stock
keeping units) in all full-line stores. Automatic merchandise replenishment
systems, linked directly to vendors, will be in place for approximately 16
percent of our business by year end. Also, the coordinated merger
of various internal database systems will focus resources on improving
customer service. The next important use of technology-Internet shopping-will
begin later this year.
The Catalog
Also benefiting from advanced technology, the four-year-old Direct Sales
Division posted sharp sales and earnings increases. Annual results continue
to exceed prior direct marketing
Page 8 Nordstrom Annual Report 1997
industry performance rates-our sales grew over 50 percent this last year alone.
By the year 2000, we expect this division to be as large as some of our retail
regions today.
In mid-year, we moved from a 119,000 square-foot manual fulfillment center into
a 375,000 square-foot computerized facility in Cedar Rapids, Iowa. Its five-
fold increase in capacity and state-of-the-art systems for order fulfillment
cuts the processing cost per item by about 25 percent. And, more importantly,
it enables us to offer our customers many more styles and an expanded range of
sizes. Anticipating future needs, we have obtained the rights to purchase the
land surrounding our new center so we can easily expand our operations.
Increased capacity at the fulfillment center level necessitated other changes
as well. To help us maintain current levels of service and growth, we added a
235-seat call center in February of this year. Our call centers continue to
increase service standards, with a current abandon rate of only 1.86 percent.
Direct mail makes up approximately 10 percent of the $90 billion women's
apparel industry. That's a $9 billion market we have only just begun to
penetrate. Catalog sales have a positive impact at the store level,
as well. A 1997 study shows that customers receiving The Catalog spent 15
percent more in-store than those who didn't receive The Catalog. The evolution
of this product delivery vehicle will be an increasingly critical link to
existing and future Nordstrom customers.
Nordstrom Product Group
We also expect Nordstrom Product Group (NPG), our manufacturing arm, to play
an important role in building future value. With more than 30 years of
experience and growth, NPG designs, manufactures and markets apparel, footwear
and accessories especially suited to our customers' preferences. These items
are distinguished by superior craftsmanship, materials, fit, size selection,
and style. They provide a real point of difference for Nordstrom and give our
customers products they can't find anywhere else.
Our exclusive brands include Classiques Entier, Evergreen, Callaway Golf by
Nordstrom, and the Greta Garbo Collection. We also feature a collection of
foundation brands-such as Preview Collection, Career Essentials, Tesori, BP.
Wear, N Kids and Baby N-designed to deliver superior products at the lowest
possible price. With all of these brands, our goal is the same: to provide
exclusive world-class products that strengthen Nordstrom's position
Page 11 Nordstrom Annual Report 1997
as a shopping destination. Our Nordstrom brand men's dress shirt collection is
a perfect example of our success in this area-it accounts for more than 75
percent of the volume of dress shirts in our Men's Furnishings department.
By any measure, NPG is a success story. Now accounting for more than 20
percent of our sales, Nordstrom Product Group is approximately the 20th largest
apparel importer in the United States, and the 49th largest importer of
footwear. We look forward to continued growth, as we develop NPG to become more
streamlined and responsive in our ongoing efforts to improve quality while
reducing costs and production lead times.
Company Values
While many aspects of our business must adapt to a highly competitive and
constantly changing marketplace, faith in good people continues to be our
primary focus. From the days of John W. Nordstrom's first store in 1901, each
employee has functioned as an extended member of the Nordstrom family.
Nordstrom standards of service, quality, value and selection are translated
through a diverse blend of energetic and talented managers and front-line
employees.
Company-wide, our singular intent is to improve service every day through the
personal contacts of 37,000 employees-one customer at a time. Our inverted
pyramid style of management, where leaders are promoted from within the
organization, helps create a people-oriented, customer-focused company. We
empower employees to use good judgment and "just take care of the customer."
As Nordstrom's national presence grows, success will rest upon our ability to
sustain these fundamental values. Wherever we conduct business, our objective is
to attract sincere, friendly, career-oriented people. Through customer-focused
teams, our goal is to generate a "home town store" mentality, with the heart
and flexibility of a small, locally based company, while building on the natural
advantages of a large corporation.
Managing for Value
During 1997, the Company initiated a long-term program to assure that we
increase value for shareowners. With this subtle clarification of the company's
management approach, we have begun a journey that will take several years of
patience and persistence.
In managing for value creation, we have set in motion a process to carefully
review our existing business practices. We must determine how our priorities
and goals align with
Page 12 Nordstrom Annual Report 1997
those of the future. Our ambition is to be ranked as a top-tier national
company by enhancing elements that work well now, and changing those needing
improvement.
Besides improving performance and other value initiatives, your Company took
two additional actions to increase shareowner wealth in 1997. The Board of
Directors declared a 12 percent dividend increase, and continued to authorize
share repurchases. In April 1997, the $100 million share repurchase authorized
in November 1996 was completed. Another $100 million program authorized in
February of 1997 was concluded early this year. And in February of this year,
repurchase of an additional $400 million of shares was approved.
Resource Allocation
Going forward, decisions concerning the allocation of human and financial
resources will be based on the anticipated return to shareowners. Decisions
that trigger new site selection, new full-line store, Rack and Faconnable
boutique strategies, or the evolution of Direct Sales and eventually Internet
commerce will be value based.
We are taking steps to strengthen our management structure by more clearly
defining roles and lines of reporting. Management will concentrate on resource
allocation based on a rigorous business-unit process of strategy and planning.
During the years ahead we will continue to streamline merchandise management
and support functions. Our goal is to eliminate redundancies and provide better
leadership through improved planning and preparation. Process clarity and
increased efficiencies will appropriately focus business resources and
execution.
Performance Management
By creating better ways to recognize performance, we hope to measure and
improve individual productivity. As we've said, managing human capital has
always been essential at Nordstrom. Our way of doing business defines each
employee as an entrepreneur-each individual is an "agent" for our customers.
Coupled with our promote-from-within policy, the Company has worked to foster
a climate of trust and honesty.
We believe managing for value will enhance our entrepreneurial culture and
remove barriers for employee responsibility. In time, we hope to develop what
we like to call "Ph.D." selling. Such a structure will encourage employees to
further develop their customer relationships. Economic and other performance
measures will play a greater role in compensation
Page 14 Nordstrom Annual Report 1997
systems in the years ahead. We expect all individuals, from senior management
to front-line employees, to make a contribution to value creation, based upon
their roles and responsibilities to the team. Eventually we intend to enhance
our performance-based measures, tying them more closely to the Company's
economic performance.
Other benchmarks indicate our progress. In 1997, while in the early phase of an
emerging national presence, Nordstrom was ranked first in Fortune Magazine's
annual survey of customer satisfaction in the department store and discount
store category. We were honored in another Fortune Magazine survey as one of
the top 100 places to work in America. And for the last four years, Hispanic
Magazine has placed Nordstrom among the top 100 U.S. companies offering the
most opportunities to Hispanics. We were also recognized in the 1997 Catalyst
Census of Women Corporate Officers and Earners-Nordstrom was one of only seven
companies that have two top-earning women among their five top-earning
corporate officers.
Looking Ahead
Interestingly, it is noteworthy that Nordstrom will recognize its centennial
year in 2001. We certainly intend to celebrate this accomplishment and our
tremendous growth from a single Seattle shoe store in 1901. We are also
preparing today for the next 100 years that will begin February 1, 2002.
Speaking for our management team, we are optimistic about Nordstrom's numerous
avenues for growth. We are poised to penetrate new markets and increase sales
from Nordstrom brands. We also plan to grow sales from new retail channels such
as The Catalog and the Internet. With our new management approach, we are
working to maximize the profitability and value of those opportunities. You
will learn more of our progress as we reach milestones along the way. As we
approach our second century in 2002, we are committed to increasing value for
all our stakeholders.
John J. Whitacre
Chairman and Chief Executive Officer
March 15, 1998
Management Discussion and Analysis
The following discussion and analysis gives a more detailed review
of the past three years, as well as additional information
on future commitments and trends. Some of the information in this
annual report, including anticipated store openings, strategies and goals,
planned capital expenditures and trends in company operations, are forward
looking statements which are subject to risks and uncertainties. Actual
future results and trends may differ materially depending upon a
variety of factors, including but not limited to, the Company's
ability to predict fashion trends, consumer apparel buying patterns,
the Company's ability to control costs and expenses, 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
expansion plans, and the impact of ongoing competitive market
factors. This discussion and analysis should be read in conjunction
with the basic consolidated financial statements and
the Ten-Year Statistical Summary.
Sales
Sales have increased to record levels in each of the past three years.
The components of the percentage change by year are as follows:
[Download Table]
Fiscal Year 1997 1996 1995
--------------------------------------------------------------------------
Sales in comparable stores
(open at least fourteen months) 3.8% 0.6% (0.7%)
Sales in new stores 3.9% 7.0% 5.2%
Direct sales catalog 1.2% 0.7% 1.1%
----- ----- -----
Total percentage increase 8.9% 8.3% 5.6%
===== ===== =====
The Company experienced a healthy rate of comparable store sales
growth in 1997 after two years of stagnation.
In 1995, the Company experienced declining demand for apparel as
well as sales decreases at several stores in the Company's Chicago
and New Jersey markets reflecting the effect of sales
cannibalization resulting from new store
openings in these markets. In mid-1996, the Company changed the
merchandise mix in most of its women's apparel departments in
response to changing customer profiles and vendor product offerings.
While management believed that these changes would better position
our women's apparel departments for future growth, they resulted in
sales decreases in many of the departments. These decreases offset
increases in other areas of business. In addition, in the fourth
quarter, portions of the Company's holiday merchandising strategy
were not executed as well as planned. In 1997, a strong economic
environment and a positive reaction to the changes implemented in
the women's apparel departments pushed
up the growth in comparable store sales.
The Company has continued to expand its store base over the past
several years with new store openings. Sales in new stores includes
sales from these stores until they have been open fourteen months.
Starting at that time, sales from these stores then are included in
the comparable stores calculation. A new store is generally not as
productive as the Company's average store because the customer
base and traffic patterns of each store are developed over time. As a
result, sales growth from these new stores does not match the 8%
increase in average square footage over the past several years.
The direct sales catalog division continues to grow rapidly, with
sales of $156 million in 1997. The division opened
a new and larger fulfillment center in August of 1997, and this
facility provides capacity for even more sales growth
in the future.
Although the Company's average price point has increased over the
past several years, this has been due to
changes in the merchandise mix. There has been little, if any,
inflation in overall merchandise prices during the past several
years.
Page 21 Nordstrom, Inc. and Subsidiaries
Management Discussion and Analysis
Graph - Percentage of 1997 Sales by Merchandise Category
The pie chart depicts each merchandise category and its percent of total
sales. Clockwise: Shoes - 20%; Men's Apparel and Furnishings - 18%; Women's
Accessories - 20%; Children's Apparel and Accessories - 4%; Women's Apparel -
36%; and Other - 2%. The caption below the graph reads ,"Sales by major
merchandise category have changed only slightly over the past several years."
Costs and Expenses
As a result of increased sales, the total amount of costs and
expenses has increased in each year. The operating
margin improved in 1997 after declining the two previous years. As
a percentage of sales, total costs and expenses
were 93.4% in 1995, 94.5% in 1996 and 93.7% for 1997. Unless
otherwise indicated, the changes discussed below are stated as a
percentage of sales as shown on page 26.
Cost of sales and related buying and occupancy costs fluctuate as a
percentage of sales primarily because of changes
in the cost of sales component. With changes in merchandise styles
and selections, cost of sales, and therefore the merchandise gross
margin, can fluctuate up and down from year to year. In 1995, the
merchandise gross margin decreased because excess inventory
levels led to higher markdowns as sales did not meet expectations.
Merchandise margins decreased further in 1996 as a result of the
merchandise changes in the Company's women's apparel departments
discussed earlier and lower initial markups designed to stimulate
sales. The merchandise gross margin improved in 1997. Initial
markups were higher and markdowns were lower, reflecting the
stronger growth in sales and recovery from the impact of the
changes in the women's apparel departments.
Buying costs increased each year. Factors contributing to this trend
include spending on the development and implementation of
merchandise inventory systems, greater investment in development
of the Company's own merchandise brands and additional
merchandising personnel in the Company's newer regions. Occupancy
costs increased in 1995 and 1996 as a result of new store openings and
remodeling of older stores. Occupancy costs decreased in 1997 as the impact
of new store openings and remodeling projects tapered off.
Selling, general and administrative expenses increased in both 1995
and 1996 for several reasons. In 1995, expenses
in comparable stores continued to increase while sales declined. In
addition, bad debts increased as a result of the
growth of the Company's VISA credit card program, and the direct
sales catalog division continued to incur high operating costs. In
1996, selling, general and administrative expenses increased
primarily because of higher bad debts. Rising consumer debt levels
led to higher charge-offs on the Company's credit card balances,
particularly from personal bankruptcies. Improvements in the
operating costs of the direct sales catalog division were offset by
rising expenses in stores.
Page 22 Nordstrom, Inc. and Subsidiaries
Management Discussion and Analysis
Costs and Expenses (continued)
Interest expense increased in 1995 because of higher borrowings to
finance the Company's customer accounts receivable balances.
Interest expense decreased in 1997 primarily because of the impact
of securitization of the Company's VISA
credit card receivables, as described more fully in Notes 6 and 13 to
the accompanying financial statements.
Service charge income and other, net includes income from our
credit card operation as well as other miscellaneous income and
expenses. In 1995, other income increased primarily due to an
increase in service charge income from higher levels of customer
accounts receivable outstanding during the year. Other income
decreased in 1997 primarily because of the impact
of the securitization of the Company's VISA credit card receivables
and because of losses on the closing of our Hawaii leased shoe
departments.
Liquidity and Capital Resources
Net cash used in investing activities exceeded net cash provided by
operating activities in 1995 as the Company
increased its spending on new store construction and its investment
in customer accounts receivable. In 1996 and 1997 net cash provided
exceeded net cash used as the growth trend of credit card receivables
reversed.
The Company believes that operating working capital (net working
capital less short-term investments plus notes payable and the
current portion of long-term debt) is a more appropriate measure of
the Company's on-going working capital requirements than net
working capital because it eliminates the effect of changes in the
levels of short-term investments and borrowings. These levels can
vary each year depending on financing activities. The Company's
operating working capital has fluctuated as shown below:
[Download Table]
Fiscal Year 1997 1996 1995
-----------------------------------------------------------------------------
Operating working capital (in thousands) $1,001,597 $957,194 $1,082,714
Percentage change from prior year 4.6% (11.6%) 26.7%
Net sales/average operating working capital 5.0 4.4 4.2
In 1995, the Company increased its investment in customer accounts
receivable through continuing promotion of its VISA credit card program and by
reducing the minimum payment on its proprietary credit card. This caused
operating working capital to increase at a significantly greater rate than
sales.
During 1996, the Company's proprietary credit card balances did not
continue to increase because of competition
from third-party cards. The Company also reduced its efforts to
promote its VISA credit card because of concerns about rising
charge-offs. In addition, in 1996 the Company securitized its VISA
credit card portfolio. These factors together resulted in a decrease
in operating working capital for the year.
During 1997, the growth in merchandise inventories more than
offset the decline in customer accounts receivable.
As the buyers responded to higher sales gains, they became more
aggressive in their merchandise commitments. Management is taking
actions to reduce the rate of growth in merchandise inventories.
Much of the Company's debt is utilized to finance the Company's
accounts receivable as shown in Note 13 to the accompanying
financial statements. At January 31, 1998 the Company also had
$106 million in outstanding commercial paper and $50 million of
long-term debt maturing in February of 1998 that was not related to
the financing of accounts receivable. This debt was refinanced with
the issuance of fixed rate long-term debt in March of 1998.
Page 23 Nordstrom, Inc. and Subsidiaries
Management Discussion and Analysis
Liquidity and Capital Resources (continued)
Graph - Investing and Operating Cash Flows
The vertical bar graph compares cash provided by operating activities
and cash used in investing activities for each year, for the past ten years.
Dollars in millions.
[Download Table]
Cash used Cash provided
in investing by operating
Year activities activities
---- ------------ ------------
1988 $153.4 $ 46.0
1989 $168.7 $122.2
1990 $200.7 $148.1
1991 $147.2 $154.0
1992 $ 71.9 $235.6
1993 $132.7 $262.1
1994 $246.9 $231.8
1995 $254.0 $121.9
1996 $206.1 $248.9
1997 $260.0 $300.4
The Company has spent approximately $750 million during the last
three years to add new stores and facilities and to improve existing
stores and facilities. Over 2.6 million square feet of selling space
has been added during this time period, representing an increase of
26%. Most of the new stores have been constructed by the Company
on land that it owns or leases under long-term agreements, thus
providing a strong basis for future operations.
The Company plans to spend approximately $850 million on capital
projects during the next three years, with approximately $200
million allocated to the refurbishment of existing stores. Although
the Company has made commitments for stores to be opening in
1998 and beyond, it is possible that some stores may not be opened
as scheduled because of environmental and land use regulations.
Management believes that the Company's current financial strength
and cash flows from operations provide the resources necessary to
maintain its existing stores and the flexibility to take advantage of
these new store opportunities.
The Company recognizes that its operations may be negatively
affected by Year 2000 software issues, either from
its own computer systems or its interactions with outside vendors.
The Company is addressing the Year 2000 impact by establishing
processes for evaluating and managing the risks associated with
this issue. Starting in 1996, the Company developed a plan to replace
or upgrade nearly all of its computer systems to make them Year
2000 compliant. Through 1999, the total cost of this effort is
estimated to be $19 million. Other software systems embedded in
operating equipment such as elevators are also being replaced or
upgraded. While the Company believes all necessary work will be
completed in a timely fashion, there can be no guarantee that all
systems will be compliant by the year 2000 within the estimated
cost or that the systems of other companies and government
agencies on which the Company relies will be converted timely.
Page 24 Nordstrom, Inc. and Subsidiaries
Management Discussion and Analysis
Liquidity and Capital Resources (continued)
In view of the decrease in the Company's debt to capital ratio that
occurred over time, the Board of Directors approved
$100 million common stock repurchase programs in May of 1995,
November of 1996 and again in February of 1997.
The Company has repurchased 7,304,335 outstanding shares of its
common stock under these programs.
Management and the Board of Directors continue to evaluate the
Company's capital structure as a method to create value for the
Company's shareholders. At the Board of Directors meeting in
February, the Board approved an additional $400 million share
repurchase program. Much of this share repurchase program will be
financed through additional debt, which will increase the Company's
debt to capital ratio. With strong cash flows and favorable interest
rates, management believes that this program does not significantly
increase the financial risk of the Company.
Graph - Square Footage by Market Area at End of 1997
The pie chart shows the percent of total square feet in each region and also
gives the number of square feet for that region. Clockwise: California, 33.8%,
4,258,000; Northwest, 21.3%, 2,692,000; Midwest, 14.8%, 1,867,000; East Coast,
22.9%, 2,883,000; Rack, 6.8% 857,000; Other, .4%, 57,000;
Page 25 Nordstrom, Inc. and Subsidiaries
Consolidated Statements of Earnings
[Enlarge/Download Table]
Dollars in thousands except per share amounts
% of % of % of
Year ended January 31, 1998 sales 1997 sales 1996 sales
Net sales $4,851,624 100.0 $4,453,063 100.0 $4,113,517 100.0
----------------- ----------------- -----------------
Costs and expenses:
Cost of sales and related
buying and occupancy 3,295,813 67.9 3,082,037 69.2 2,806,250 68.2
Selling, general and
administrative 1,322,929 27.3 1,217,590 27.3 1,120,790 27.2
Interest, net 34,250 0.7 39,400 0.9 39,295 1.0
Service charge income and
other, net (108,581) (2.2) (129,469) (2.9) (125,130) (3.0)
----------------- ----------------- -----------------
Total costs and expenses 4,544,411 93.7 4,209,558 94.5 3,841,205 93.4
----------------- ----------------- -----------------
Earnings before income taxes 307,213 6.3 243,505 5.5 272,312 6.6
Income taxes 121,000 2.5 96,000 2.2 107,200 2.6
----------------- ----------------- -----------------
Net earnings $ 186,213 3.8 $ 147,505 3.3 $ 165,112 4.0
================= ================= =================
Basic earnings per share $2.40 $1.82 $2.02
================= ================= =================
Diluted earnings per share $2.40 $1.82 $2.01
================= ================= =================
Cash dividends paid per share $.53 $.50 $.50
================= ================= =================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Page 26 Nordstrom, Inc. and Subsidiaries
Consolidated Balance Sheets
[Download Table]
Dollars in thousands
January 31, 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 24,794 $ 28,284
Accounts receivable, net 664,448 714,589
Merchandise inventories 826,045 719,919
Prepaid income taxes and other 79,710 69,607
---------- ----------
Total current assets 1,594,997 1,532,399
Property, buildings and equipment, net 1,252,513 1,152,454
Other assets 17,653 17,654
---------- ----------
Total assets $2,865,163 $2,702,507
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 263,767 $ 163,770
Accounts payable 321,311 310,430
Accrued salaries, wages and taxes 205,273 189,697
Accrued expenses 37,884 41,143
Accrued income taxes 13,242 13,045
Current portion of long-term debt 101,129 51,302
---------- ----------
Total current liabilities 942,606 769,387
Long-term debt 319,736 329,330
Deferred lease credits and other liabilities 127,763 130,598
Shareholders' equity 1,475,058 1,473,192
---------- ----------
Total liabilities and shareholders' equity $2,865,163 $2,702,507
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 27 Nordstrom, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
[Enlarge/Download Table]
Dollars in thousands except per share amounts
Year ended January 31, 1998 1997 1996
Common Stock
Authorized 250,000,000 shares, no par;
issued and outstanding 76,259,052,
79,634,977, and 81,113,144 shares
Balance at beginning of year $ 183,398 $ 168,440 $ 163,334
Issuance of common stock 17,652 14,958 5,106
----------- ---------- ----------
Balance at end of year 201,050 183,398 168,440
----------- ---------- ----------
Retained Earnings
Balance at beginning of year 1,289,794 1,254,532 1,180,466
Net earnings 186,213 147,505 165,112
Cash dividends paid ($.53, $.50 and $.50
per share) (41,168) (40,472) (41,001)
Purchase and retirement of common stock (160,831) (71,771) (50,045)
----------- ----------- -----------
Balance at end of year 1,274,008 1,289,794 1,254,532
----------- ----------- -----------
Total shareholders' equity $1,475,058 $1,473,192 $1,422,972
=========== =========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 28 Nordstrom, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
[CAPTION]
[Enlarge/Download Table]
Dollars in thousands
Year ended January 31, 1998 1997 1996
Operating Activities
Net earnings $186,213 $147,505 $165,112
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 159,725 156,122 134,347
Change in:
Accounts receivable, net 50,141 (7,262) (218,036)
Merchandise inventories (106,126) (93,616) 1,627
Prepaid income taxes and other (10,103) (1,578) (6,634)
Accounts payable 10,881 32,846 4,500
Accrued salaries, wages and taxes 15,576 6,132 (6,526)
Accrued expenses (3,259) 5,124 5,422
Income tax liabilities (2,091) (12,216) (12,621)
Deferred lease credits and other liabilities (547) 15,824 54,743
--------- -------- ---------
Net cash provided by operating activities 300,410 248,881 121,934
--------- --------- ---------
Investing Activities
Additions to property, buildings
and equipment, net (259,935) (204,278) (252,876)
Other, net (49) (1,838) (1,103)
--------- --------- ---------
Net cash used in investing activities (259,984) (206,116) (253,979)
--------- --------- ---------
Financing Activities
Proceeds from accounts receivable securitization - 186,600 -
Increase (decrease) in notes payable 99,997 (68,731) 145,113
Proceeds from issuance of long-term debt 91,644 57,729 140,859
Principal payments on long-term debt (51,210) (117,311) (75,967)
Proceeds from issuance of common stock 17,652 14,958 5,106
Cash dividends paid (41,168) (40,472) (41,001)
Purchase and retirement of common stock (160,831) (71,771) (50,045)
--------- --------- ---------
Net cash (used in) provided by financing
activities (43,916) (38,998) 124,065
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (3,490) 3,767 (7,980)
Cash and cash equivalents at beginning of year 28,284 24,517 32,497
--------- --------- ---------
Cash and cash equivalents at end of year $ 24,794 $ 28,284 $ 24,517
========= ========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Page 29 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in thousands except per share amounts
Note 1: Summary of Significant Accounting Policies
The Company: Nordstrom, Inc. is a fashion specialty retailer offering
a wide selection of high quality apparel, shoes and accessories for
women, men and children, principally through 65 large specialty
stores and 22 clearance stores. All of the Company's stores are
located in the United States, with approximately 36% of its retail
square footage located in the state of California.
The Company purchases a significant percentage of its merchandise
from foreign countries, principally from the Far East. An event
causing a disruption in imports from the Far East could have a
material adverse impact on the Company's operations. In connection
with the purchase of foreign merchandise, the Company has
outstanding letters of credit totaling $77,397 at January 31, 1998.
Basis of Presentation: The Consolidated Financial Statements
include the accounts of Nordstrom, Inc. and its subsidiaries. All
significant intercompany transactions and accounts are eliminated
in consolidation. The presentation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses in the
accompanying financial statements. Actual results could differ from
those estimates.
Merchandise Inventories: Merchandise inventories are stated at the
lower of cost (first-in, first-out basis) or market, using the retail
method.
(Note 1 continued)
Advertising: Costs for newspaper, television, radio and
other media are generally expensed as incurred. Direct response
advertising costs consisting primarily of catalog book production
and printing costs are capitalized and amortized
over the expected life of the catalog, not to exceed 6 months. Direct
response advertising costs reported as prepaid assets are $3,648 at
January 31, 1998. Total advertising expenses were $115,272,
$97,216 and $90,616 in 1997, 1996 and 1995.
Property, Buildings and Equipment: Straight-line
and accelerated methods are applied in the calculation
of depreciation and amortization. Lives used for calculating
depreciation and amortization rates for the principal asset
classifications are as follows: buildings, 10 to 40 years; store
fixtures and equipment, three to 15 years; leasehold improvements,
life of lease or applicable shorter period.
Store Preopening Costs: Store opening and preopening costs are
charged to expense when incurred.
Capitalization of Interest: The interest carrying costs
of facilities being constructed are capitalized during their
construction period based on the Company's weighted average
borrowing rate.
Cash Equivalents: The Company considers all short-term investments
with a maturity at date of purchase of three months or less to be
cash equivalents.
Page 30 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Note 1 continued)
Customer Accounts Receivable: In accordance with industry
practices, installments maturing in more than one year or deferred
payment accounts receivable are included in current assets.
Cash Management: The Company's cash management system provides
for the reimbursement of all major bank disbursement accounts on a
daily basis. Accounts payable at January 31, 1998 and 1997 include
$4,361 and $14,414 of checks drawn
in excess of cash balances not yet presented for payment.
Deferred Lease Credits: Deferred lease credits are amortized on a
straight-line basis over the life of the applicable lease.
Derivatives Policy: The Company limits its use of derivative
financial instruments to the management of well-defined foreign
currency and interest rate risks. Gains and losses related to hedges
of anticipated transactions are deferred and recognized in operating
results, or included in balance sheet amounts when the transaction
occurs. The effect of these activities is not material to the
Company's financial condition or results of operations. The Company
has no off-balance sheet credit risk, and the fair value of derivative
financial instruments at January 31, 1998 and 1997 is not material.
Fair Value of Financial Instruments: The carrying amount of cash
equivalents and notes payable approximates fair value because of
the short maturity of these instruments. The fair value of long-term
debt, estimated using quoted market prices of the same or similar
issues with the same remaining maturity, is approximately
$419,000 and $374,000 at January 31, 1998 and 1997.
Reclassifications: Certain reclassifications of prior year balances
have been made for consistent presentation with
the current year.
Note 2: Employee Benefits
The Company provides a profit sharing plan for employees. The plan
is fully funded by the Company and is non-contributory except for
employee contributions made under Section 401(k) of the Internal
Revenue Code. Under this provision of the plan, the Company provides
matching contributions up to a stipulated percentage of employee
contributions. Company contributions to the profit sharing portion of
the plan vest over a seven year period. The Company contribution is
established each year by the Board of Directors and totaled $45,000,
$36,000 and $40,000 in 1997, 1996 and 1995.
Note 3: Interest Expense
The components of interest expense are as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Nordstrom, Inc.
Short-term debt $ 3,847 $ 432 $ 69
Long-term debt 4,263 4,247 8,635
Nordstrom Credit, Inc.
Short-term debt 7,084 12,703 10,184
Long-term debt 28,624 28,236 27,788
-------- -------- --------
Total interest incurred 43,818 45,618 46,676
Less: Interest income (1,221) (1,395) (2,204)
Capitalized interest (8,347) (4,823) (5,177)
-------- -------- --------
Interest, net $34,250 $39,400 $39,295
======== ======== ========
Page 31 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4: Income Taxes
Income taxes consist of the following:
[Download Table]
Year ended January 31, 1998 1997 1996
Current income taxes:
Federal $ 98,464 $ 88,414 $ 94,855
State and local 18,679 18,150 19,649
--------- --------- ---------
Total current
income taxes 117,143 106,564 114,504
--------- --------- ---------
Deferred income taxes:
Current (4,614) (1,471) (3,339)
Non-current 8,471 (9,093) (3,965)
--------- --------- ---------
Total deferred
income taxes 3,857 (10,564) (7,304)
--------- --------- ---------
Total income taxes $121,000 $ 96,000 $107,200
======== ======== =========
A reconciliation of the statutory Federal income tax rate with the
effective tax rate is as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Statutory rate 35.00% 35.00% 35.00%
State and local
income taxes, net of
Federal income taxes 4.17 4.32 4.39
Other, net 0.21 0.10 (0.03)
------ ------ ------
Effective tax rate 39.38% 39.42% 39.36%
====== ====== ======
(Note 4 continued)
Deferred income taxes result from temporary differences in
the timing of recognition of revenue and expenses for tax and
financial statement reporting as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Tax basis depreciation $ 281 ($ 6,018) ($2,620)
Accrued expenses (4,255) (3,084) (4,833)
Employee benefits 10,278 - -
Other (2,447) (1,462) 149
------- --------- --------
Total deferred
income taxes $3,857 ($10,564) ($7,304)
======= ========= ========
These items comprise substantially all of the deferred tax asset and
liability balances.
Note 5: Earnings Per Share
In 1997 the Company adopted Statement of Financial Accounting
Standards No. 128 which requires disclosure of Basic and Diluted
Earnings Per Share. All prior period earnings per share data has been
restated to comply with this Statement.
Basic earnings per share are computed on the basis of the weighted
average number of common shares outstanding
during the year. Average shares outstanding were 77,486,280,
80,848,984, and 81,919,625 in 1997, 1996 and 1995.
Diluted earnings per share are computed on the basis of the weighted
average number of common shares outstanding during the year plus
dilutive common stock equivalents consisting of shares subject to
stock options. Average shares outstanding including dilutive shares
were 77,675,148, 80,962,379, and 82,058,767 in 1997, 1996 and
1995.
Options with an exercise price greater than the average market price
were not included in the computation of diluted earnings per share.
These options totaled 151,811, 357,082 and 204,225 in 1997, 1996
and 1995.
Page 32 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6: Accounts Receivable
The components of accounts receivable are as follows:
[Download Table]
January 31, 1998 1997
Customers $672,246 $719,916
Other 22,586 21,466
Allowance for doubtful accounts (30,384) (26,793)
--------- ---------
Accounts receivable, net $664,448 $714,589
========= =========
Credit risk with respect to accounts receivable is concentrated in
the geographic regions in which the Company operates stores. At
January 31, 1998 and 1997, approximately 40%
and 43% of the Company's receivables were concentrated
in California. Concentration of the remaining receivables is
considered to be limited due to their geographical dispersion.
Bad debt expense totaled $40,440, $51,352 and $39,589
in 1997, 1996 and 1995.
In August 1996, the Company transferred substantially all
of its VISA credit card receivables (approximately $203,000)
to a trust in exchange for certificates representing undivided
interests in the trust. A Class A certificate with a market value of
$186,600 was sold to a third party, and a Class B certificate, which
is subordinated to the Class A certificate, was retained
by the Company. The Company owns the remaining undivided
interests in the trust not represented by the Class A and Class B
certificates (the "Seller's Interest"). These transactions had no
significant impact on the Company's earnings in 1996.
Cash flows generated from the receivables in the trust are,
to the extent allocable to the investors, applied to the payment of
interest on the Class A and Class B certificates, absorption
of credit losses, and payment of servicing fees to the Company,
which will continue to service the receivables for the trust. Excess
cash flows revert to the Company. The Company's investment in the
Class B certificate and the Seller's Interest totals $20,407 and
$32,516 at January 31, 1998 and 1997,and is included in customer
accounts receivable.
Pursuant to the terms of operative documents of the trust,
in certain events the Company may be required to fund certain
amounts pursuant to a recourse obligation for credit losses. Based
on current cash flow projections, the Company does not believe any
additional funding will be required.
Note 7: Property, Buildings and Equipment
Property, buildings and equipment consist of the following
(at cost):
[Download Table]
January 31, 1998 1997
Land and land improvements $ 52,339 $ 50,542
Buildings 460,284 450,227
Leasehold improvements 825,950 740,802
Store fixtures and equipment 836,041 746,152
----------- -----------
$2,174,614 $1,987,723
Less accumulated depreciation
and amortization (1,087,516) (944,470)
----------- -----------
1,087,098 1,043,253
Construction in progress 165,415 109,201
----------- -----------
Property, buildings and
equipment, net $1,252,513 $1,152,454
=========== ===========
At January 31, 1998, the Company has contractual commitments of
approximately $95,000 for construction of new stores.
At January 31, 1998, the net book value of property located
in California is approximately $295,000. The Company does not carry
earthquake insurance in California because of its high cost.
Page 33 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8: Notes Payable
A summary of notes payable is as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Average daily short-
term borrowings $193,811 $242,033 $173,343
Maximum amount
outstanding 278,471 345,738 303,072
Weighted average
interest rate:
During the year 5.6% 5.4% 5.9%
At year-end 5.5% 5.3% 5.5%
At January 31, 1998, the Company has unsecured lines of credit with
a group of commercial banks totaling $500,000 which are available
as liquidity support for short-term debt, and expire
in July 2002. The lines of credit agreements contain restrictive
covenants which, among other things, require the Company to
maintain a certain minimum level of net worth and a coverage ratio
of no less than 2 to 1. The Company pays commitment fees for the
lines in lieu of compensating balance requirements.
Note 9: Long-Term Debt
A summary of long-term debt is as follows:
[Download Table]
January 31, 1998 1997
Senior notes, 8.875%, due 1998 $ 50,000 $ 50,000
Medium-term notes,
Nordstrom Credit, Inc.,
6.875%-9.6%, due 1998-2002 253,350 211,000
Notes payable,
Nordstrom Credit, Inc.,
6.7%, due 2005 100,000 100,000
Other 17,515 19,632
--------- ---------
Total long-term debt 420,865 380,632
Less current portion (101,129) (51,302)
--------- ---------
Total due beyond one year $319,736 $329,330
========= =========
The senior note agreement contains restrictive covenants which,
among other things, restrict dividends to shareholders to a formula
amount. At January 31, 1998, approximately $856,388 of retained
earnings is not restricted.
Aggregate principal payments on long-term debt are as follows:
1998-$101,129; 1999-$58,931; 2000-$58,626;
2001-$11,454; and 2002-$77,247.
In March of 1998 the Company issued $300,000 of fixed rate long-term debt.
Page 34 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10: Leases
The Company leases land, buildings and equipment under
noncancelable lease agreements with expiration dates ranging from
1998 to 2080. Certain of the leases include renewal provisions at
the Company's option. Most of the leases provide for additional
rentals based upon specific percentages of sales and require the
Company to pay for certain other costs.
Future minimum lease payments as of January 31, 1998 are
as follows: 1998-$39,269; 1999-$36,611; 2000-$32,977;
2001-$30,505; 2002-$23,318; and thereafter-$199,284.
The following is a schedule of rent expense:
[Download Table]
Year ended January 31, 1998 1997 1996
Minimum rent:
Store locations $16,869 $15,468 $15,864
Offices, warehouses
and equipment 17,811 17,815 17,309
Contingent rent:
Store location
percentage rent 12,542 13,673 13,741
Common area costs,
taxes and other 9,839 9,504 9,831
------- ------- -------
Total rent expense $57,061 $56,460 $56,745
======= ======= =======
Note 11: Stock Options
The Company provides a non-qualified stock option
plan for certain key employees. Options are issued at market value
at the date of grant and become exercisable over a four-year period.
The number of shares reserved for future stock option grants is
4,848,189 at January 31, 1998.
The Company has elected to follow the measurement provisions of
Accounting Principles Board (APB) Opinion No. 25, under which no
recognition of expense is required in accounting for its stock
options. If the Company had elected to follow the measurement
provisions of Statement of Financial Accounting Standards No. 123
("SFAS 123") in accounting for its stock options, compensation
expense would be recognized based on the fair value of the options
at the date of grant. To estimate compensation expense which would
be recognized under SFAS 123, the Company used the modified
Black-Scholes option-pricing model with the following weighted-
average assumptions for options granted in 1997, 1996 and 1995,
respectively: risk-free interest rates of 5.4%, 6.4% and 5.5%;
expected volatility factors of .32, .33 and .34; expected dividend
yield of 1% for all years; and expected life of 5 years for 1997 and 7
years for 1996 and 1995. The weighted-average fair value of stock
options granted was $18, $20 and $17 per share in 1997, 1996 and 1995.
If SFAS 123 were used to account for the Company's stock option
plan, the pro forma effect on net earnings and earnings per share
would be as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Pro forma net earnings $183,618 $145,603 $164,078
Pro forma basic
earnings per share $2.37 $1.80 $2.00
Pro forma diluted
earnings per share $2.36 $1.80 $2.00
The effects of applying SFAS 123 in this pro forma disclosure are
not indicative of future amounts as awards prior to 1995 are not
included, and additional awards in future years are anticipated.
Page 35 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Note 11 continued)
A summary of stock option activity follows:
[Download Table]
Weighted-
Average
Shares Exercise Price
Outstanding, February 1, 1995 1,878,250 $35
Granted 419,080 41
Exercised (154,366) 28
Forfeited (41,625) 39
---------- --------------
Outstanding, January 31, 1996 2,101,339 36
Granted 372,122 46
Exercised (429,419) 31
Forfeited (184,289) 40
---------- --------------
Outstanding, January 31, 1997 1,859,753 39
Granted 346,382 53
Exercised (419,239) 34
Forfeited (86,095) 44
---------- --------------
Outstanding, January 31, 1998 1,700,801 $43
========= ==============
There were 879,732, 995,372 and 1,139,638 shares exercisable as
of January 31, 1998, 1997 and 1996 with weighted-average exercise
prices of $38, $36 and $33, respectively.
(Note 11 continued)
The following table summarizes information about stock options
outstanding at January 31, 1998:
[Download Table]
Weighted- Weighted-
Average Average
Range of Remaining Exercise Prices
Exercise Prices Shares Contractual Life
$22-$36 472,346 4 $33
$39-$48 939,385 8 43
$51-$61 289,070 9 57
--------- ---------------- ---------------
1,700,801 7 $43
========= ================ ===============
The following table summarizes information about stock options
exercisable at January 31, 1998:
[Download Table]
Caption>
Weighted-
Range of Average
Exercise Prices Shares Exercise Price
$22-$36 472,346 $33
$39-$48 377,928 44
$51-$61 29,458 55
------- --------------
879,732 $38
======= ==============
Note 12: Supplementary Cash Flow Information
Supplementary cash flow information includes the following:
[Download Table]
Year ended January 31, 1998 1997 1996
Cash paid during
the year for:
Interest (net
of capitalized
interest) $ 35,351 $ 43,356 $ 42,248
Income taxes 126,606 106,982 121,212
Page 36 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13: Credit Card and Financing Subsidiaries
Nordstrom National Credit Bank (the "Bank"), a wholly
owned subsidiary of the Company, issues a credit card for use
in Company stores, and in 1994 introduced a VISA card. Nordstrom
Credit, Inc., also a wholly owned subsidiary, finances all receivables
generated through the use of the proprietary card, and until August
1996, the VISA card. In August 1996, substantially all of the
outstanding VISA receivables were transferred to a trust in
connection with a securitization of the receivables. As a result of
this transaction, Nordstrom Credit, Inc. no longer purchases and
finances receivables generated through the use of the Bank's VISA
card except to the extent that it maintains its interests in the Class
B certificate and the Seller's Interest. The Bank securitizes all new
VISA receivables through the trust.
Condensed combined financial information of these subsidiaries is
as follows:
[Download Table]
Year ended January 31, 1998 1997 1996
Service charge income $108,582 $128,240 $122,973
Other income 18,449 17,823 14,799
-------- -------- --------
Total revenue $127,031 $146,063 $137,772
-------- -------- --------
Net earnings $ 27,944 $ 31,518 $ 23,835
======== ======== ========
(Note 13 continued)
[Download Table]
January 31, 1998 1997
Assets:
Cash and cash equivalents $ 20,184 $ 24,374
Accounts receivable, net 641,761 693,124
Other assets 7,434 7,846
-------- --------
Total assets $669,379 $725,344
======== ========
Liabilities and investment of
Nordstrom, Inc.:
Notes payable:
Nordstrom, Inc. - $ 54,000
Other $158,020 163,770
Accounts payable and
accrued liabilities 24,068 65,576
Long-term debt 353,350 311,000
Investment of
Nordstrom, Inc. 133,941 130,998
-------- --------
Total liabilities and investment
of Nordstrom, Inc. $669,379 $725,344
======== ========
Page 37 Nordstrom, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14: Selected Quarterly Data (unaudited)
[Enlarge/Download Table]
Year ended January 31, 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Net sales $953,747 $1,353,345 $1,089,784 $1,454,748 $4,851,624
Gross profit 307,235 428,991 365,703 453,882 1,555,811
Earnings before income taxes 53,349 96,686 59,645 97,533 307,213
Net earnings 32,349 58,586 36,145 59,133 186,213
Basic and diluted
earnings per share .41 .76 .47 .76 2.40
Dividends per share .125 .125 .14 .14 .53
Year ended January 31, 1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Net sales $905,962 $1,241,464 $984,440 $1,321,197 $4,453,063
Gross profit 288,850 379,576 319,062 383,538 1,371,026
Earnings before income taxes 42,897 74,081 55,736 70,791 243,505
Net earnings 25,897 44,781 34,036 42,791 147,505
Basic and diluted
earnings per share .32 .55 .42 .53 1.82
Dividends per share .125 .125 .125 .125 .50
Page 38 Nordstrom, Inc. and Subsidiaries
Management and Independent Auditors' Report
Report of Management
The accompanying consolidated financial statements,
including the notes thereto, and the other financial information
presented in this Annual Report have been prepared by management.
The financial statements have been prepared in accordance with
generally accepted accounting principles and include amounts that
are based upon our best estimates and judgments. Management is
responsible for the consolidated financial statements, as well as
the other financial information in this Annual Report.
The Company maintains an effective system of internal accounting
control. We believe that this system provides reasonable assurance
that transactions are executed in accordance with management
authorization, and that they
are appropriately recorded, in order to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to adequately safeguard, verify and
maintain accountability of assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of
internal control should not exceed the benefits derived.
The consolidated financial statements and related notes have been
audited by Deloitte & Touche LLP, independent certified public
accountants. The accompanying auditors' report expresses an
independent professional opinion on the fairness of presentation of
management's financial statements.
The Audit Committee of the Board of Directors is composed
of the outside directors, and is responsible for recommending the
independent certified public accounting firm to be retained for the
coming year, subject to shareholder approval. The Audit Committee
meets periodically with the independent auditors,
as well as with management and internal auditors, to review
accounting, auditing, internal accounting controls and financial
reporting matters. The independent auditors and the internal
auditors also meet privately with the Audit Committee.
John A. Goesling
Executive Vice President and Chief Financial Officer
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of
Nordstrom, Inc. and subsidiaries as of January 31, 1998
and 1997, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in
the period ended January 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of Nordstrom, Inc. and subsidiaries as of January 31, 1998
and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended January
31, 1998, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Seattle, Washington; March 17, 1998
Page 39 Nordstrom, Inc. and Subsidiaries
Ten Year Statistical Summary
Dollars in thousands except square footage and per share amounts
[Enlarge/Download Table]
Year ended January 31, 1998 1997 1996 1995 1994 1993
Financial Position
Customer accounts
receivable, net $641,862 $693,123 $874,103 $655,715 $565,151 $584,379
Merchandise inventories 826,045 719,919 626,303 627,930 585,602 536,739
Current assets 1,594,997 1,532,399 1,612,776 1,397,713 1,314,914 1,219,844
Current liabilities 942,606 769,387 818,523 679,652 618,154 503,015
Working capital 652,391 763,012 794,253 718,061 696,760 716,829
Working capital ratio 1.69 1.99 1.97 2.06 2.13 2.43
Property, buildings and
equipment, net 1,252,513 1,152,454 1,103,298 984,195 845,596 824,142
Long-term debt 420,865 380,632 439,943 373,910 438,574 481,945
Debt/capital ratio 31.70 26.98 32.09 25.56 29.11 33.09
Shareholders' equity 1,475,058 1,473,192 1,422,972 1,343,800 1,166,504 1,052,031
Shares outstanding 76,259,052 79,634,977 81,113,144 82,244,098 82,059,128 81,974,797
Book value per share 19.34 18.50 17.54 16.34 14.22 12.83
Total assets 2,865,163 2,702,507 2,732,619 2,396,783 2,177,481 2,053,170
Operations
Net sales 4,851,624 4,453,063 4,113,517 3,894,478 3,589,938 3,421,979
Costs and expenses:
Cost of sales and
related buying and
occupancy 3,295,813 3,082,037 2,806,250 2,599,553 2,469,304 2,339,107
Selling, general and
administrative 1,322,929 1,217,590 1,120,790 1,023,347 940,579 902,083
Interest, net 34,250 39,400 39,295 30,664 37,646 44,810
Service charge income
and other, net (108,581) (129,469) (125,130) (94,644) (88,509) (86,140)
Total costs and expenses 4,544,411 4,209,558 3,841,205 3,558,920 3,359,020 3,199,860
Earnings before income
taxes 307,213 243,505 272,312 335,558 230,918 222,119
Income taxes 121,000 96,000 107,200 132,600 90,500 85,500
Net earnings 186,213 147,505 165,112 202,958 140,418 136,619
Basic earnings per share 2.40 1.82 2.02 2.47 1.71 1.67
Diluted earnings per share 2.40 1.82 2.01 2.46 1.71 1.67
Dividends per share .53 .50 .50 .385 .34 .32
Net earnings as a percent
of net sales 3.84% 3.31% 4.01% 5.21% 3.91% 3.99%
Return on average
shareholders' equity 12.63% 10.19% 11.94% 16.17% 12.66% 13.72%
Sales per square foot
for Company-operated
stores 384 377 382 395 383 381
Stores and Facilities
Company-operated stores 92 83 78 76 74 72
Total square footage 12,614,000 11,754,000 10,713,000 9,998,000 9,282,000 9,224,000
Page 40 Nordstrom, Inc. and Subsidiaries
Dollars in thousands except square footage and per share amounts
[Download Table]
Year ended January 31, 1992 1991 1990 1989
Financial Position
Customer accounts
receivable, net $585,490 $558,573 $519,656 $465,929
Merchandise inventories 506,632 448,344 419,976 403,795
Current assets 1,177,638 1,090,379 1,011,148 913,986
Current liabilities 547,002 546,084 485,883 445,620
Working capital 630,636 544,295 525,265 468,366
Working capital ratio 2.15 2.00 2.08 2.05
Property, buildings and
equipment, net 856,404 806,191 691,937 594,038
Long-term debt 511,000 489,172 468,412 389,216
Debt/capital ratio 40.74 43.59 43.78 43.12
Shareholders' equity 939,231 826,410 733,250 639,941
Shares outstanding 81,844,227 81,737,910 81,584,710 81,465,027
Book value per share 11.48 10.11 8.99 7.86
Total assets 2,041,875 1,902,589 1,707,420 1,511,703
Operations
Net sales 3,179,820 2,893,904 2,671,114 2,327,946
Costs and expenses:
Cost of sales and
related buying and
occupancy 2,169,437 2,000,250 1,829,383 1,563,832
Selling, general and
administrative 831,505 747,770 669,159 582,973
Interest, net 49,106 52,228 49,121 39,977
Service charge income
and other, net (87,443) (84,660) (55,958) (57,268)
Total costs and expenses 2,962,605 2,715,588 2,491,705 2,129,514
Earnings before income
taxes 217,215 178,316 179,409 198,432
Income taxes 81,400 62,500 64,500 75,100
Net earnings 135,815 115,816 114,909 123,332
Basic earnings per share 1.66 1.42 1.41 1.51
Diluted earnings per share 1.66 1.42 1.40 1.51
Dividends per share .31 .30 .28 .22
Net earnings as a percent
of net sales 4.27% 4.00% 4.30% 5.30%
Return on average
shareholders' equity 15.38% 14.85% 16.74% 21.03%
Sales per square foot
for Company-operated
stores 388 391 398 380
Stores and Facilities
Company-operated stores 68 63 59 58
Total square footage 8,590,000 7,655,000 6,898,000 6,374,000
Page 41 Nordstrom, Inc. and Subsidiaries
Officers, Directors and Committees
Chairman
John J. Whitacre
45, Chairman of the Board of Directors
Co-Presidents
Blake W. Nordstrom
37, Co-President
Erik B. Nordstrom
34, Co-President
J. Daniel Nordstrom
35, Co-President
James A. Nordstrom
36, Co-President
Peter E. Nordstrom
35, Co-President
William E. Nordstrom
34, Co-President
Executive Vice Presidents
Jammie Baugh
44, Executive Vice President
Northwest General Manager
Gail A. Cottle
46, Executive Vice President
Product Development
John A. Goesling
52, Executive Vice President and Treasurer
Jack F. Irving
53, Executive Vice President
Faconnable
Robert J. Middlemas
41, Executive Vice President
Midwest General Manager
James R. O'Neal
39, Executive Vice President
California General Manager
Martha S. Wikstrom
41, Executive Vice President
East Coast General Manager
Vice Presidents
Laurie M. Black
38, Vice President
Women's Specialized Apparel Divisional Merchandise Manager
Northwest and California Group
Dale C. Crichton
49, Vice President
Cosmetics Corporate Merchandise Manager
Joseph V. Demarte
46, Vice President
Human Resources
Annette S. Dresser
37, Vice President
Bridge Apparel Divisional Merchandise Manager
Northwest Group
Tamela J. Hickel
37, Vice President
Southeast Regional Manager of Stores
Darrel J. Hume
50, Vice President
Midwest Regional Manager of Stores
David P. Lindsey
48, Vice President
Store Planning
David L. Mackie
49, Vice President
Legal and Real Estate
Jack H. Minuk
43, Vice President
Women's Shoes Corporate Merchandise Manager
Charles T. Mitchell
50, Vice President
Information Services
Suzanne R. Patneaude
51, Vice President
Designer Apparel Corporate Merchandise Manager
Joel T. Stinson
48, Vice President
Operations
Susan A. Wilson Tabor
52, Vice President
The Rack
Karen E. Purpur
54, Secretary
Page 42 Nordstrom, Inc. and Subsidiaries
Directors
Philip M. Condit
56, Director; Chairman and CEO, The Boeing Company
Seattle, WA
D. Wayne Gittinger
65, Director; Partner, Lane Powell Spears Lubersky
Seattle, WA
Enrique Hernandez, Jr.
42, Director; President and CEO,
Inter-Con Security Systems, Inc.
Pasadena, CA
Charles A. Lynch
70, Director; Chairman, Fresh Choice, Inc.
Santa Clara, CA
Ann D. McLaughlin
56, Director; Chairman, The Aspen Institute
Aspen, CO
John A. McMillan
66, Director
Bruce A. Nordstrom
64, Director
John N. Nordstrom
60, Director
Alfred E. Osborne, Jr.
53, Director; Director of the Harold Price Center
for Entrepreneurial Studies and Associate
Professor of Business Economics,
The Anderson School at UCLA
Los Angeles, CA
William D. Ruckelshaus
65, Director; A Principal in Madrona Investment
Group, LLC
Seattle, WA
Elizabeth Crownhart Vaughan
69, Director; President, Salar Enterprises
Portland, OR
John J. Whitacre
45, Chairman of the Board of Directors
Committees
Executive
John A. McMillan
Bruce A. Nordstrom
John N. Nordstrom
Audit
Philip M. Condit
Enrique Hernandez, Jr.
Charles A. Lynch
Ann D. McLaughlin
Alfred E. Osborne, Jr., Chair
William D. Ruckelshaus
Elizabeth Crownhart Vaughan
Compensation and Stock Option
D. Wayne Gittinger
Ann D. McLaughlin
John A. McMillan
Alfred E. Osborne, Jr.
William D. Ruckelshaus, Chair
Elizabeth Crownhart Vaughan
Finance
Philip M. Condit, Chair
John A. Goesling - ex officio
Enrique Hernandez, Jr.
Charles A. Lynch
John N. Nordstrom
Alfred E. Osborne, Jr.
Corporate Governance and Nominating
D. Wayne Gittinger, Chair
Charles A. Lynch
Ann D. McLaughlin
William D. Ruckelshaus
Elizabeth Crownhart Vaughan
Profit Sharing and Benefits
Joseph V. Demarte, Chair
D. Wayne Gittinger
J. Daniel Nordstrom
Peter E. Nordstrom
John J. Whitacre
Page 43 Nordstrom, Inc. and Subsidiaries
Retail Store Facilities
The following table sets forth certain information with respect to
each of the stores operated by the Company.
The Company also operates seven distribution centers and leases
other space for administrative functions.
[Download Table]
Present
Year opened total store
Location or acquired area/sq. ft
California Group
South Coast Plaza 1978 235,000
Brea Mall 1979 195,000
Los Cerritos Center 1981 122,000
Fashion Valley Center 1981 156,000
Hillsdale Shopping Center 1982 149,000
Glendale Galleria 1983 147,000
University Towne Centre 1984 130,000
Topanga Plaza 1984 154,000
Stanford Shopping Center 1984 187,000
Broadway Plaza 1984 193,000
The Village at Corte Madera 1985 116,000
Westside Pavilion 1985 150,000
Horton Plaza 1985 151,000
The Galleria at South Bay 1985 161,000
Montclair Plaza 1986 134,000
North County Fair 1986 156,000
Valley Fair 1987 165,000
MainPlace Mall 1987 169,000
Stonestown Galleria 1988 174,000
Downtown San Francisco 1988 350,000
Arden Fair 1989 190,000
Stoneridge Mall 1990 173,000
Paseo Nuevo 1990 186,000
The Galleria at Tyler 1991 164,000
Santa Anita 1994 151,000
[Download Table]
Present
Year opened total store
Location or acquired area/sq. ft
East Coast Group
Tysons Corner Center 1988 253,000
The Fashion Centre
at Pentagon City 1989 241,000
Garden State Plaza 1990 282,000
Montgomery Mall 1991 225,000
Menlo Park Mall 1991 266,000
Freehold Raceway Mall 1992 174,000
Towson Town Center 1992 205,000
Annapolis Mall 1994 162,000
The Mall at Short Hills 1995 188,000
The Westchester 1995 219,000
King of Prussia 1996 238,000
Westfarms 1997 189,000
Roosevelt Field 1997 241,000
Midwest Group
Oakbrook Center 1991 249,000
Mall of America 1992 240,000
Old Orchard 1994 209,000
Woodfield Shopping Center 1995 215,000
Circle Centre Mall 1995 216,000
Dallas Galleria 1996 249,000
Somerset Collection North 1996 258,000
Beachwood Place 1997 231,000
Page 44 Nordstrom, Inc. and Subsidiaries
[Download Table]
Present
Year opened total store
Location or acquired area/sq. ft
Northwest Group
Downtown Seattle <fn1> 1963 245,000
Lloyd Center 1963 150,000
Northgate Mall 1965 122,000
Tacoma Mall 1966 134,000
Downtown Portland 1966 174,000
Bellevue Square 1967 285,000
Southcenter Mall 1968 170,000
Yakima 1972 44,000
Spokane 1974 121,000
Washington Square 1974 189,000
Anchorage 1975 97,000
Vancouver Mall 1977 71,000
Alderwood Mall 1979 127,000
Salem Center 1980 71,000
Crossroads Plaza 1980 140,000
Fashion Place Mall 1981 110,000
Clackamas Town Center 1981 121,000
Ogden City Mall 1982 76,000
Park Meadows 1996 245,000
Other
Faconnable-New York 1993 10,000
Faconnable-Beverly Hills 1997 17,000
Faconnable-South Coast Plaza 1997 8,000
Ala Moana-Women's 1997 14,000
Ala Moana-Men's 1997 8,000
<FN>
<fn1>
1 Excludes approximately 23,000 square feet of corporate and
administrative offices.
[Download Table]
Present
Year opened total store
Location or acquired area/sq. ft
Rack Group
Clackamas Rack 1983 28,000
Metro Point Rack 1983 50,000
Woodland Hills Rack 1984 48,000
Alderwood Rack 1985 25,000
Mission Valley Rack 1985 57,000
Downtown Portland Rack 1986 19,000
Chino Town Square Rack 1987 30,000
280 Metro Center Rack 1987 31,000
Downtown Seattle Rack 1987 42,000
Bellis Fair Rack 1990 20,000
Marina Square Rack 1990 44,000
Potomac Mills Rack 1990 46,000
Sugarhouse Center Rack 1991 31,000
Towson Rack 1992 31,000
City Place Rack 1992 37,000
Last Chance 1992 48,000
Franklin Mills Rack 1993 43,000
Woodfield Rack 1994 45,000
SuperMall Rack 1995 48,000
Village Square Rack 1996 40,000
Factoria Rack 1997 46,000
The Mall at the Source Rack 1997 48,000
Page 45 Nordstrom, Inc. and Subsidiaries
Shareholder Information
Independent Auditors
Deloitte & Touche LLP
Counsel
Lane Powell Spears Lubersky
Transfer Agent and Registrar
ChaseMellon Shareholder Services
Telephone (800) 522-6645
General Offices
1501 Fifth Avenue, Seattle, WA 98101-1603
Telephone (206) 628-2111
Annual Meeting
May 19, 1998 at 11:00 a.m. Pacific Daylight Time
The Ritz Carlton
San Francisco, CA
Form 10-K
The Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended January, 31, 1998 will
be provided to shareholders upon written request to:
Investors Relations, Nordstrom, Inc.,
P.O. Box 2737
Seattle, WA 98111
or by calling (206) 233-6301.
Shareholder Information Line
In order to provide our shareholders with information about
the Company in a more timely manner, we have established
a shareholder information line.
To obtain the latest financial releases and updates as
soon as they are available, call 1-800-667-3920.
Page 46 Nordstrom, Inc. and Subsidiaries
Appendix
[Download Table]
Graph Page
----------------------------------------
Net Sales 2
Net Earnings 2
Percentage of 1997 Sales by Merchandise Category 22
Investing and Operating Cash Flows 24
Square Footage by Market Area at end of 1997 25
Dates Referenced Herein and Documents Incorporated by Reference
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