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 July 31, 1996 [ ] 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 0-6074 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.) 1501 Fifth Avenue, Seattle, Washington 98101 ____________________________________________________ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (206) 628-2111 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ _____ Common stock outstanding as of August 26, 1996: 81,132,088 shares of common stock. 1 of 9
NORDSTROM, INC. AND SUBSIDIARIES -------------------------------- INDEX ----- <TABLE> <CAPTION> Page Number <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Statements of Earnings Three and six months ended July 31, 1996 and 1995 3 Consolidated Balance Sheets July 31, 1996 and 1995 and January 31, 1996 4 Consolidated Statements of Cash Flows Six months ended July 31, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 8 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 </TABLE> 2 of 9
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts) (unaudited) <TABLE> <CAPTION> Three Months Six Months Ended July 31, Ended July 31, --------------------- --------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net sales $1,241,464 $1,149,239 $2,147,426 $1,964,838 Costs and expenses: Cost of sales and related buying and occupancy 861,888 779,784 1,479,000 1,333,518 Selling, general and administrative 328,836 299,838 597,623 539,261 Interest, net 10,333 9,639 19,727 17,679 Service charge income and other, net (33,674) (29,087) (68,254) (60,362) ---------- ---------- ---------- ---------- Total costs and expenses 1,167,383 1,060,174 2,028,096 1,830,096 ---------- ---------- ---------- ---------- Earnings before income taxes and extraordinary item 74,081 89,065 119,330 134,742 Income taxes 29,300 35,200 47,200 53,200 ---------- ---------- ---------- ---------- Earnings before extraordinary item 44,781 53,865 72,130 81,542 Extraordinary charge related to the early extinguishment of debt, net of income taxes of $900 - - 1,452 - ---------- ---------- ---------- ---------- Net earnings $ 44,781 $ 53,865 $ 70,678 $ 81,542 ========== ========== ========== ========== Earnings before extraordinary item per average share of common stock outstanding $ .55 $ .65 $ .89 $ .99 ========== ========== ========== ========== Net earnings per average share of common stock outstanding $ .55 $ .65 $ .87 $ .99 ========== ========== ========== ========== Cash dividends paid per share of common stock outstanding $ .125 $ .125 $ .25 $ .25 ========== ========== ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein and in the Nordstrom 1995 Annual Report to Shareholders. </TABLE> 3 of 9
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited) <TABLE> <CAPTION> July 31, January 31, July 31, 1996 1996 1995 ---------- ---------- ---------- <S> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 50,322 $ 24,517 $ 35,564 Accounts receivable, net 935,859 893,927 837,833 Merchandise inventories 756,501 626,303 696,224 Prepaid income taxes and other 66,324 68,029 59,721 ---------- ---------- ---------- Total current assets 1,809,006 1,612,776 1,629,342 Property, buildings and equipment, net 1,124,358 1,103,298 1,040,483 Other assets 16,315 16,545 15,929 ---------- ---------- ---------- TOTAL ASSETS $2,949,679 $2,732,619 $2,685,754 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 295,918 $ 232,501 $ 97,207 Accounts payable 414,393 277,584 369,634 Accrued salaries, wages and taxes 177,536 185,540 170,493 Accrued expenses 50,596 47,834 48,423 Accrued income taxes 13,165 14,644 19,669 Current portion of long-term debt 74,220 74,210 50,997 ---------- ---------- ---------- Total current liabilities 1,025,828 832,313 756,423 Long-term debt 321,943 365,733 439,297 Deferred lease credits and other deferred items 119,390 111,601 88,438 Shareholders' equity: Common stock, without par value: 250,000,000 shares authorized; 81,365,397, 81,113,144 and 82,174,647 shares issued and outstanding 181,668 168,440 165,158 Retained earnings 1,300,850 1,254,532 1,236,438 ---------- ---------- ---------- Total shareholders' equity 1,482,518 1,422,972 1,401,596 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,949,679 $2,732,619 $2,685,754 ========== ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein and in the Nordstrom 1995 Annual Report to Shareholders. </TABLE> 4 of 9
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) <TABLE> <CAPTION> Six Months Ended July 31, ------------------ 1996 1995 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Earnings before extraordinary item $ 72,130 $ 81,542 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary charge related to the early extinguishment of debt, net of income taxes of $900 (1,452) - Depreciation and amortization 76,191 61,311 Change in: Accounts receivable, net (41,932) (161,942) Merchandise inventories (130,198) (68,294) Prepaid income taxes and other 1,705 1,674 Accounts payable 136,809 96,550 Accrued salaries, wages and taxes (8,004) (20,008) Accrued expenses 2,762 7,433 Income tax liabilities and other (3,651) (4,320) Deferred lease credits 9,961 25,317 -------- -------- Net cash provided by operating activities 114,321 19,263 -------- -------- INVESTING ACTIVITIES: Additions to property, buildings and equipment, net (96,596) (117,331) Other (425) (240) -------- -------- Net cash used in investing activities (97,021) (117,571) -------- -------- FINANCING ACTIVITIES: Increase in notes payable 63,417 9,819 Proceeds from issuance of common stock 13,228 1,823 Proceeds from issuance of long-term debt, net - 140,919 Principal payments on long-term debt (43,780) (25,616) Cash dividends paid (20,312) (20,566) Purchase and retirement of common stock (4,048) (5,004) -------- -------- Net cash provided by financing activities 8,505 101,375 -------- -------- Net increase in cash and cash equivalents 25,805 3,067 Cash and cash equivalents at beginning of period 24,517 32,497 -------- -------- Cash and cash equivalents at end of period $ 50,322 $ 35,564 ======== ======== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein and in the Nordstrom 1995 Annual Report to Shareholders. </TABLE> 5 of 9
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 1: The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of July 31, 1996 and 1995, and the related consolidated statements of earnings and cash flows for the periods then ended, have been prepared from the accounts without audit. The consolidated financial information is applicable to interim periods and is not necessarily indicative of the results to be expected for the year ending January 31, 1997. It is not considered necessary to include detailed footnote information as of July 31, 1996 and 1995. The financial information should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Nordstrom 1995 Annual Report to Shareholders. In the opinion of management, the consolidated financial information includes all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position of Nordstrom, Inc. and subsidiaries as of July 31, 1996 and 1995, and the results of their operations and cash flows for the periods then ended, in accordance with generally accepted accounting principles applied on a consistent basis. Certain reclassifications of prior year balances have been made for consistent presentation. Note 2: During the first quarter of 1996, the Company elected to prepay $43,100 of Nordstrom Credit, Inc. 9.375% sinking fund debentures in order to take advantage of lower short-term interest rates. This resulted in an extraordinary charge of $1,452, net of applicable income taxes of $900 ($0.02 per share). Note 3: The summarized unaudited combined results of operations of Nordstrom Credit, Inc. and Nordstrom National Credit Bank are as follows: <TABLE> <CAPTION> Three Months Six Months Ended July 31, Ended July 31, 1996 1995 1996 1995 ------- ------- ------- ------- <S> <C> <C> <C> <C> Total revenue $39,152 $32,315 $78,364 $61,838 Earnings before income taxes and extraordinary item 10,746 5,749 24,278 14,475 Extraordinary charge related to the early extinguishment of debt, net of income taxes of $900 - - 1,452 - Net earnings 6,746 3,674 13,856 9,260 </TABLE> 6 of 9
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 4: On August 15, 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. Class A certificates with a market value of $186,600 were sold to a third party, and Class B certificates, which are subordinated to the Class A certificates, were retained by the Company. As a result of these transactions, the Company will recognize a gain of $3,300. Cash flows generated from the receivables in the trust will be allocated 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. Excess cash flows revert to the Company. The Company owns the remaining undivided interests in the trust not represented by the Class A and Class B certificates, and will continue to service the receivables for the trust. 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. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Management Discussion and Analysis section of the Nordstrom 1995 Annual Report to Shareholders. Results of Operations: - ---------------------- During the second quarter of 1996, sales increased 8.0% when compared with the same quarter in 1995. For the six-month period, sales increased 9.3% compared to the same period in 1995. Comparable store sales increased by 1.1% for the quarter and 2.3% for the six-month period, with the remainder of the increase coming from new units. Comparable store sales increases softened during the second quarter as a result of slowing consumer demand. The Company remains cautious with respect to sales projections for the remainder of the year. Cost of sales and related buying and occupancy costs increased as a percentage of sales for the quarter and the six-month period as compared to the corresponding periods in 1995, due primarily to lower merchandise margins resulting from increased markdowns. Markdowns in the second quarter were higher than expected primarily due to a reassessment and realignment of the merchandise mix between various women's apparel departments. Occupancy costs increased as a percentage of sales for the quarter and six-month period due to depreciation related to new stores and remodeling projects. Selling, general and administrative expenses increased as a percentage of sales during the second quarter and for the six-month period as compared to the corresponding periods in 1995 primarily due to higher bad debt expenses. This resulted from growth in the Company's VISA card program as well as an increase in the general level of bad debt write-offs. Direct selling expenses also increased. These increases were partially offset by lower distribution costs for the Company's direct sales division, decreased spending on development of a new payroll system which was implemented in early 1996, and lower employee benefit costs. 7 of 9
Item. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) For the quarter and the six-month period, interest expense increased as a percentage of sales when compared to the corresponding period in 1995, due to higher levels of short-term debt outstanding to finance customer accounts receivable. The increase was partially offset by a decrease in interest rates. Service charge income and other, net increased as a percentage of sales for the second quarter and for the six-month period when compared to the corresponding period in 1995. Net revenues from the Company's VISA and proprietary card programs increased significantly as a result of growth in these programs. The impact of this increase in the six-month period was partially offset by the effect of one-time gains in the prior year on the sale of a closed distribution facility and a full-line store, totaling $6.3 million ($0.05 per share after income taxes). Financial Condition: - -------------------- The Company's working capital at July 31, 1996 decreased when compared to July 31, 1995 due primarily to increased levels of short-term debt. In August of 1996, the Company completed a securitization of it's VISA receivables. Net proceeds from the transaction were primarily used to reduce short-term and long-term debt. Certain other information regarding this securitization of receivables is included in Note 4 to the financial statements under Part I, Item 1. The Company intends to seek additional external capital in the third quarter to fund its general working capital needs. In August 1996, the Company opened two full-line stores at Somerset Collection North in Troy, Michigan and at Park Meadows Mall in Denver, Colorado. This completes the store opening schedule for 1996. Construction is progressing as planned on the four new stores scheduled to open in 1997. PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Sandy Rios, Clare Romanus and Annette Russell v. Nordstrom, Inc., U.S. District Court for the Central District of California, Cause No. CV-96-4927 JSL. - --------------------------------------------------------------------- On May 28, 1996, a class action lawsuit was filed in the California Superior Court for the County of Santa Barbara on behalf of three former employees and on behalf of all other similarly situated current and former California employees of the Company. The lawsuit was removed by the Company to the United States District Court for the Central District of California, in Los Angeles. The Plaintiffs allege that the Company's commission compensation system in California violated California labor laws from May 1993 to the present, and claim that the Company improperly decreased its employees' commissions by holding the employees responsible for: (i) merchandise returns that occur after the pay period in which the merchandise was purchased, and (ii) merchandise returns where the employee had no involvement in the sale. Plaintiffs seek monetary damages for the alleged decreases in commissions, statutory penalties, including up to 30 days' wages for each employee separated from the Company during the class period, injunctive relief, attorneys' fees and punitive damages. The matter has not yet been certified by the Court as a class action, and the Company has denied any liability for the claims. Management believes that the Company has meritorious defenses to these claims, and the Company intends to defend this lawsuit vigorously. 8 of 9
Item 5. Other Information - -------------------------- On August 29, 1996, the Company announced the retirement of Co-Chairman Raymond A. Johnson effective September 6, 1996. Mr. Johnson will remain on the Board of Directors of the Company. Co-Chairman John J. Whitacre will continue to serve in the position of Chairman. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- (3.2) By-laws of the Registrant, as amended, are filed herein as an Exhibit. (27.1) Financial Data Schedule is filed herein as an Exhibit. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter for which this report is filed. 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/ John A. Goesling ------------------------------------------ John A. Goesling, Executive Vice President and Treasurer (Principal Financial and Accounting Officer) Date: September 4, 1996 - ------------------------ 9 of 9
NORDSTROM, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Exhibit Index Exhibit Method of Filing - ------- ---------------- <S> <C> 3.2 By-laws of the Registrant Filed herewith electronically 27.1 Financial Data Schedule Filed herewith electronically </TABLE>