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 April 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 001-15059 Nordstrom, Inc. ______________________________________________________ (Exact name of Registrant as specified in its charter) Washington 91-0515058 _______________________________ ___________________ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1617 Sixth Avenue, Seattle, Washington 98101 ____________________________________________________ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (206) 628-2111 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ _____ Common stock outstanding as of May 27, 1999: 140,270,506 shares of common stock. 1 of 13
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 months ended April 30, 1999 and 1998 3 Consolidated Balance Sheets April 30, 1999 and 1998 and January 31, 1999 4 Consolidated Statements of Cash Flows Three months ended April 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 </TABLE> 2 of 13
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts) (unaudited) <TABLE> <CAPTION> Three Months Ended April 30, ---------------------- 1999 1998 ---------- ---------- <S> <C> <C> Net sales $1,039,105 $1,040,215 ---------- ---------- Costs and expenses: Cost of sales and related buying and occupancy 688,196 698,300 Selling, general and administrative 314,384 309,263 Interest, net 12,009 10,232 Service charge income and other, net (27,172) (30,417) ---------- ---------- 987,417 987,378 ---------- ---------- Earnings before income taxes 51,688 52,837 Income taxes 20,150 20,500 ---------- ---------- Net earnings $ 31,538 $ 32,337 ========== ========== Basic earnings per share $ .22 $ .22 ========== ========== Diluted earnings per share $ .22 $ .21 ========== ========== Cash dividends paid per share of common stock outstanding $ .08 $ .07 ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 3 of 13
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) (unaudited) <TABLE> April 30, January 31, April 30, 1999 1999 1998 ---------- ---------- ---------- <S> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 71,932 $ 241,431 $ 19,728 Accounts receivable, net 536,252 587,135 596,741 Merchandise inventories 864,832 750,269 907,322 Prepaid income taxes and other 107,301 101,572 99,316 ---------- ---------- ---------- Total current assets 1,580,317 1,680,407 1,623,107 Land, buildings and equipment, net 1,378,113 1,362,400 1,261,539 Other assets 81,194 72,600 23,342 ---------- ---------- ---------- TOTAL ASSETS $3,039,624 $3,115,407 $2,907,988 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ - $ 78,783 $ 103,252 Accounts payable 391,532 339,635 382,322 Accrued salaries, wages and related benefits 140,427 202,914 136,280 Income taxes and other accruals 86,554 83,869 83,132 Current portion of long-term debt 105,341 63,341 51,129 ---------- ---------- ---------- Total current liabilities 723,854 768,542 756,115 Long-term debt 762,821 804,893 619,505 Deferred lease credits 169,854 147,188 76,380 Other liabilities 80,672 78,131 71,839 Shareholders' Equity: Common stock, no par: 250,000,000 shares authorized; 140,925,098, 142,114,167 and 148,721,480 shares issued and outstanding 237,309 230,761 206,321 Unearned stock compensation (4,454) (4,703) - Retained earnings 1,069,568 1,090,595 1,177,828 ---------- ---------- ---------- Total shareholders' equity 1,302,423 1,316,653 1,384,149 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,039,624 $3,115,407 $2,907,988 ========== ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 4 of 13
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) <TABLE> <CAPTION> Three Months Ended April 30, --------------------- 1999 1998 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Net earnings $ 31,538 $ 32,337 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 45,695 40,903 Amortization of deferred lease credits and other, net (704) (538) Stock-based compensation expense 1,720 - Change in: Accounts receivable, net 50,883 67,707 Merchandise inventories (114,563) (81,277) Prepaid income taxes and other (5,729) (3,945) Accounts payable 51,897 61,011 Accrued salaries, wages and related benefits (62,487) (49,935) Income tax liabilities and other accruals 3,323 13,058 Other liabilities 1,903 5,396 -------- -------- Net cash provided by operating activities 3,476 84,717 -------- -------- INVESTING ACTIVITIES: Additions to land, buildings and equipment (61,408) (49,929) Additions to deferred lease credits 24,201 - Other, net (9,403) (3,112) -------- -------- Net cash used in investing activities (46,610) (53,041) -------- -------- FINANCING ACTIVITIES: Decrease in notes payable (78,783) (160,515) Proceeds from issuance of long-term debt, net - 297,175 Principal payments on long-term debt (94) (50,156) Proceeds from issuance of common stock 5,077 5,271 Cash dividends paid (11,355) (10,629) Purchase and retirement of common stock (41,210) (117,888) -------- -------- Net cash used in financing activities (126,365) (36,742) -------- -------- Net decrease in cash and cash equivalents (169,499) (5,066) Cash and cash equivalents at beginning of period 241,431 24,794 -------- -------- Cash and cash equivalents at end of period $ 71,932 $ 19,728 ======== ======== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 5 of 13
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 1 - Summary of Significant Accounting Policies Basis of Presentation - --------------------- The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of April 30, 1999 and 1998, 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 applicable to interim periods is not necessarily indicative of the results for the fiscal year. The financial information should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 1999. 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 April 30, 1999 and 1998, 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. Reclassifications - ---------------- Certain reclassifications of prior year balances have been made to conform with the presentation for the current year. Note 2 - Earnings Per Share On May 19, 1998, the Company's Board of Directors approved a two-for-one stock split effective June 30, 1998. All share and per share amounts have been adjusted to give retroactive effect to the stock split. <TABLE> <CAPTION> Three Months Ended April 30, -------------------------- 1999 1998 ----------- ----------- <S> <C> <C> Basic shares 141,844,713 150,220,670 Dilutive effect of stock options and restricted stock 1,131,501 537,874 ----------- ----------- Diluted shares 142,976,214 150,758,544 =========== =========== Antidilutive options 0 293,942 =========== =========== </TABLE> 6 of 13
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 3 - Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting For Derivative Instruments and Hedging Activities." SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company expects to adopt SFAS 133 in the fiscal year beginning February 1, 2001. Adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements. Note 4 - Segment Reporting The following tables set forth information for the Company's reportable segments and a reconciliation to the consolidated totals: <TABLE> <CAPTION> Retail Credit Corporate April 30, 1999 Stores Operations and Other Eliminations Total - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net sales and revenues to external customers $ 994,274 - $ 44,831 - $1,039,105 Service charge income - $ 28,378 - - 28,378 Intersegment revenues - 4,977 - $(4,977) - Net earnings 53,358 7,674 (29,494) - 31,538 </TABLE> <TABLE> <CAPTION> Retail Credit Corporate April 30, 1998 Stores Operations and Other Eliminations Total - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net sales and revenues to external customers $ 991,705 - $ 48,510 - $1,040,215 Service charge income - $ 31,451 - - 31,451 Intersegment revenues - 5,430 - $(5,430) - Net earnings 53,387 6,691 (27,741) - 32,337 - --------------------------------------------------------------------------------------------------- </TABLE> Note 5 - Contingent Liabilities Because all of the lawsuits described below are in their preliminary stages, the Company is not in a position at this time to quantify the amount or range of any possible losses related to those claims. The Company intends to vigorously defend itself in the described cases. While no assurance can be given as to the ultimate outcomes of these lawsuits, based on preliminary investigations, management currently believes that resolving these matters will not have a material adverse effect on the Company's financial position. Cosmetics - --------- The Company is one of nine defendants along with other department stores in nine separate but substantially identical lawsuits filed in various Superior Courts of the State of California in May, June and July of 1998. The cases, 7 of 13
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 5 - Contingent Liabilities (cont.) which have now been consolidated in Marin County state court, seek class certification for all California residents who purchased cosmetics for personal use. The complaints allege that the Company and the other department stores collusively control the sale price of cosmetics by charging identical prices, agreeing not to discount cosmetics and urging cosmetic manufacturers to refuse to sell to stores which discount cosmetics. The plaintiffs seek treble damages in an unspecified amount, attorneys' fees and prejudgment interest. Defendants, including the Company, have answered the complaint denying the allegations. Discovery has just commenced and defendants have begun the process of responding to plaintiffs' discovery requests. Nine West - --------- The Company is one of 11 defendants in 12 substantially identical lawsuits filed in Federal District Court in New York in January and February of 1999. In addition to Nine West, a manufacturer of non-athletic footwear, other defendants include various department stores and specialty retailers. The lawsuits purport to be brought on behalf of a class of persons who purchased Nine West footwear from the defendants and allege that the retailer defendants conspired with Nine West and with each other by agreeing to minimum prices to be charged for Nine West shoes. The plaintiffs seek treble damages in an unspecified amount, attorneys' fees and prejudgment interest. All of the lawsuits now have been consolidated in Federal District Court in New York. The defendants have moved to dismiss the consolidated complaint rather than file an answer, and briefing on the motion is complete. The defendants are awaiting a hearing on the motion in June. The Court has stayed discovery pending its decision and plaintiffs have not yet moved for class certification. In addition, both the New York Attorney General and the Federal Trade Commission have opened investigations into the allegations contained in the consolidated lawsuit. The Company and the other defendants have begun submitting documents and information to these agencies. Saipan - ------ The Company is one of 28 defendants, which include 17 United States retailers and buyers and 11 manufacturers, in an action filed in Federal District Court in Los Angeles on January 13, 1999 (the "Federal Complaint"). A companion action was contemporaneously filed in state court in San Francisco against 18 defendants, consisting of United States retailers and buyers including the Company (the "State Complaint"). The Federal Complaint purports to be filed as a class action on behalf of persons who have been employed in garment factories since 1988. The State Complaint is a purported public interest private attorney general action concerning garment manufacturing conditions in Saipan. Both lawsuits allege 'sweatshop' conditions in certain Saipan factories, some of which manufacture clothing which has been sold to the Company. 8 of 13
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 5 - Contingent Liabilities (cont.) In the Federal Complaint, all of the defendants, including the Company, have filed motions to transfer the venue of that case to Saipan. That motion is noted for consideration on July 12, 1999. The retailer or buyer defendants, including the Company, have responded to written interrogatories concerning witnesses and documents that relate to the Saipan garment business. The retailer or buyer defendants, including the Company, also have submitted a motion to dismiss all of the causes of action in the Federal Complaint, other than the claim for false imprisonment, on the grounds that the allegations of the complaint fail to state a claim upon which relief can be granted. In addition, the defendants, including the Company, in the State Complaint have filed a motion to dismiss the claims asserted in that lawsuit. The hearing on that motion is currently unscheduled. The Company is also subject to other ordinary routine litigation incidental to its business and with respect to which no material liability is expected. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Management's Discussion and Analysis section of the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 1999. Results of Operations: - ---------------------- For the quarter ended April 30, 1999, diluted earnings per share were $0.22, an increase of 4.8% over the $0.21 achieved in the prior year. Diluted earnings per share reflects $0.02 per share of non-recurring costs related to the relocation of the Company's data center from Seattle, Washington to Denver, Colorado. During the first quarter of 1999, sales decreased 0.1% compared to the same quarter in 1998. Comparable store sales declined 2.6%, reflecting lower merchandise levels, which in some cases negatively affected product assortment depth and mix. Cost of sales and related buying and occupancy expenses as a percentage of net sales were 66.2% for the quarter ended April 30, 1999, compared to 67.1% for the quarter ended April 30, 1998. The decrease, as a percentage of sales, was due primarily to higher merchandise margins resulting from favorable pricing strategies and lower markdowns. The decrease in cost of sales was partially offset by increased occupancy costs due primarily to new and remodeled stores. Selling, general and administrative expenses as a percentage of sales were 30.3% for the quarter ended April 30, 1999, compared to 29.7% for the quarter ended April 30, 1998. The increase was due to several factors. Management 9 of 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) expenses increased due primarily to additional personnel and consulting resources related to the Company's strategic and planning initiatives. Information services costs increased due primarily to non-recurring costs related to the Company's data center relocation from Seattle, Washington to Denver, Colorado, and higher information system operational costs. These increases were offset by decreased credit expenses due to lower bad debt costs, and lower sales promotion costs due to the timing of certain direct mail projects. Interest, net increased $1.8 million compared to the same quarter in 1998, reflecting higher borrowing levels as a result of the Company's share repurchase activity. Service charge income and other, net decreased $3.2 million for the quarter, compared to the corresponding period in 1998, due primarily to lower accounts receivable balances on which the Company earns service charges. Liquidity and Capital Resources: - -------------------------------- During the quarter, the Company repurchased 1.4 million shares of its common stock for an aggregate of approximately $50 million, including $9 million payable at April 30, 1999. During the quarter, the Company opened a full-line store at MacArthur Center in Norfolk, Virginia and a Rack at Howe 'Bout Arden Shopping Center in Sacramento, California. Construction is progressing as planned on new stores scheduled to open later this year and in 2000. Year 2000 - --------- The Company is taking steps to avoid potential negative consequences of Year 2000 software non-compliance and presently believes that any such non- compliance will not have a material effect on its business, results of operations or financial condition. However, if unforeseen difficulties arise or if the modification, conversion and replacement activities that the Company has undertaken are not completed in a timely manner, the Company's operations may be negatively affected, either from its own computer systems or from interactions with vendors and other third parties with which it does business. The Company is currently evaluating, replacing or upgrading its computer systems in an effort to make them Year 2000 compliant, and expects to have remediation efforts completed for its critical computer systems by mid-1999. Testing is being conducted based on criticality. Non-information technology systems, such as microchips embedded in elevators, are also being evaluated, replaced or upgraded, as needed. Although the Company's initial assessment of its Year 2000 compliance has been completed, reassessments are conducted on an ongoing basis to provide reasonable assurance that all critical risks have been identified and will be mitigated. 10 of 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) The Company's cumulative Year 2000 expenses through April 30, 1999, were approximately $14 million. Approximately $1 million of expenses were incurred during each of the quarters ended April 30, 1999, and April 30, 1998. Approximately $3 million of expenses are expected to be incurred throughout the remainder of 1999. In order to meet Year 2000 compliance goals, the Company has redeployed existing resources. While this reallocation of resources has resulted in the deferral of certain information technology projects, the impact of those deferrals is not material to the Company. The Company believes that all necessary Year 2000 compliance work will be completed in a timely fashion. However, there can be no guarantee that all systems will be compliant by the Year 2000, that the estimated cost of remediation will not increase, or that the systems of others (e.g. vendors and other third parties) on which the Company relies will be compliant. Since 1996, the Company has been communicating with vendors to determine their state of readiness with regard to the Year 2000 issue. Based on its assessment to date, the Company has no indication that any third party is likely to experience Year 2000 non-compliance of a nature which would have a material impact on the Company. However, the risk remains that vendors or other third parties may not have accurately determined their state of readiness, in which case such parties' lack of Year 2000 compliance may have a material adverse effect on the Company's results of operations. The Company will continue to monitor the Year 2000 compliance of third parties with which it does business. The Company believes that the most likely worst-case scenarios that it might confront with respect to Year 2000 issues have to do with the possible failure of third party systems over which the Company has no control, such as, but not limited to, power and telecommunications services. The Company has in place a business continuity plan that addresses recovery from various kinds of disasters, including recovery from significant interruption in conveyance of data within the Company's network information systems. The Company is using this plan to assist in development of more specific Year 2000 contingency plans, which it expects to complete around mid-1999. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its short-term borrowing and investment activities at variable interest rates. During the quarter ended April 30, 1999, the Company reduced short-term investments by $169 million, to a balance of $63 million at April 30, 1999, due primarily to share repurchase activity, maturities of notes payable and repayments of short-term debt. 11 of 13
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 5 in Notes to Consolidated Financial Statements Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- ( 3.1) Amended and Restated Articles of Incorporation of the Registrant are filed herein as an Exhibit. ( 3.2) Bylaws (as amended and restated) of the Registrant are filed herein as an Exhibit. (10.1) First Amendment to the Transfer and Administration Agreement dated August 19, 1997 between Enterprise Funding Corporation, Nordstrom National Credit Bank, The Financial Institutions From Time to Time Parties Thereto, and Nationsbank, N.A. is filed herein as an Exhibit. (10.2) Second Amendment to the Transfer and Administration Agreement dated July 23, 1998 between Enterprise Funding Corporation, Nordstrom National Credit Bank, The Financial Institutions From Time to Time Parties Thereto, and Nationsbank, N.A. is filed herein as an Exhibit. (10.3) Second Amendment to the Series 1996-A Supplement to Master Pooling and Servicing Agreement dated August 14, 1996, between Nordstrom Credit, Inc., Nordstrom National Credit Bank and Norwest Bank Colorado, N.A., as trustee, dated February 25, 1999, is incorporated by reference from the Nordstrom Credit, Inc. Form 10-Q for the quarter ended April 30, 1999, Exhibit 10.1 (10.4) Amendment to the Nordstrom, Inc. 1997 Stock Option Plan is filed herein as an Exhibit. (10.5) The Nordstrom, Inc. Profit Sharing and Employee Deferral Retirement Plan is hereby incorporated by reference from the Registrant's Report on Form S-8, Registration No. 333-79791 filed on June 2, 1999. (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. 12 of 13
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 A. Stein ---------------------------------------------------- Michael A. Stein Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: June 10, 1999 ------------- 13 of 13
NORDSTROM, INC. AND SUBSIDIARIES <TABLE> <CAPTION> Exhibit Index Exhibit Method of Filing - ------- ---------------- <S> <C> <C> 3.1 Amended and Restated Articles Filed herewith electronically of Incorporation 3.2 Bylaws,(as amended and Filed herewith electronically restated) 10.1 First Amendment to the Transfer Filed herewith electronically and Administration Agreement dated August 19, 1997 between Enterprise Funding Corporation, Nordstrom National Credit Bank, The Financial Institutions From Time to Time Parties Thereto, and Nationsbank, N.A. 10.2 Second Amendment to the Transfer Filed herewith electronically and Administration Agreement dated July 23, 1998 between Enterprise Funding Corporation, Nordstrom National Credit Bank, The Financial Institutions From Time to Time Parties Thereto, and Nationsbank, N.A. 10.3 Second Amendment to the Series Incorporated by reference from 1996-A Supplement to Master the Nordstrom Credit, Inc. Pooling and Servicing Form 10-Q for the quarter Agreement dated August 14, ended April 30, 1999, Exhibit 1996, between Nordstrom Credit, 10.1 Inc., Nordstrom National Credit Bank, and Norwest Bank Colorado, N.A., as trustee, dated February 25, 1999. 10.4 Amendment to the Nordstrom, Inc. Filed herewith electronically 1997 Stock Option Plan 10.5 Nordstrom, Inc. Profit Sharing Incorporated by reference and Employee Deferral from the Registrant's Report Retirement Plan on Form S-8, Registration No. 333-79791 filed on June 2, 1999. 27.1 Financial Data Schedule Filed herewith electronically </TABLE>