UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 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 November 30, 1999: 134,597,726 shares of common stock. 1 of 16
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 Nine months ended October 31, 1999 and 1998 3 Consolidated Balance Sheets October 31, 1999 and 1998 and January 31, 1999 4 Consolidated Statements of Shareholders' Equity Nine months ended October 31, 1999 and 1998 5 Consolidated Statements of Cash Flows Nine months ended October 31, 1999 and 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 </TABLE> 2 of 16
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts) (unaudited) <TABLE> <CAPTION> Three Months Nine Months Ended October 31, Ended October 31, ---------------------- -- ------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Net sales $1,110,114 $1,094,349 $3,592,614 $3,581,848 ---------- ---------- ---------- ---------- Costs and expenses: Cost of sales and related buying and occupancy 717,844 717,100 2,349,388 2,386,643 Selling, general and administrative 351,184 328,235 1,058,968 1,017,008 Interest, net 13,091 12,715 37,583 34,001 Service charge income and other, net (27,038) (26,876) (76,235) (84,878) ---------- ---------- ---------- ---------- 1,055,081 1,031,174 3,369,704 3,352,774 ---------- ---------- ---------- ---------- Earnings before income taxes 55,033 63,175 222,910 229,074 Income taxes 21,400 24,500 86,900 88,900 ---------- ---------- ---------- ---------- Net earnings $ 33,633 $ 38,675 $ 136,010 $ 140,174 ========== ========== ========== ========== Basic earnings per share $ .25 $ .27 $ .98 $ .95 ========== ========== ========== ========== Diluted earnings per share $ .25 $ .27 $ .97 $ .95 ========== ========== ========== ========== Cash dividends paid per share of common stock outstanding $ .08 $ .08 $ .24 $ .22 ========== ========== ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 3 of 16
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) <TABLE> <CAPTION> October 31, January 31, October 31, 1999 1999 1998 (unaudited) (unaudited) ----------- ---------- ----------- <S> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 21,193 $ 241,431 $ 20,269 Short-term investment 18,762 - - Accounts receivable, net 551,574 587,135 570,920 Merchandise inventories 1,041,873 750,269 1,048,386 Prepaid income taxes and other 98,745 92,426 97,949 ---------- ---------- ---------- Total current assets 1,732,147 1,671,261 1,737,524 Land, buildings and equipment, net 1,424,635 1,362,400 1,352,345 Long-term investment 28,143 - - Other assets 80,173 81,746 72,797 ---------- ---------- ---------- TOTAL ASSETS $3,265,098 $3,115,407 $3,162,666 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 137,957 $ 78,783 $ 344,483 Accounts payable 496,580 339,635 495,875 Accrued salaries, wages and related benefits 189,535 202,914 177,189 Income taxes and other accruals 101,888 96,281 78,017 Current portion of long-term debt 58,146 63,341 59,113 ---------- ---------- ---------- Total current liabilities 984,106 780,954 1,154,677 Long-term debt 747,076 804,893 560,285 Deferred lease credits 240,223 147,188 132,194 Other liabilities 76,606 65,719 67,441 Shareholders' Equity: Common stock, no par: 250,000,000 shares authorized; 135,185,569, 142,114,167 and 141,968,889 shares issued and outstanding 246,698 230,761 217,625 Unearned stock compensation (8,681) (4,703) (4,953) Retained earnings 964,401 1,090,595 1,035,397 Accumulated other comprehensive income 14,669 - - ---------- ---------- ---------- Total shareholders' equity 1,217,087 1,316,653 1,248,069 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,265,098 $3,115,407 $3,162,666 ========== ========== ========== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 4 of 16
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (dollars in thousands) (unaudited) <TABLE> <CAPTION> Accumulated Other Common Stock Unearned Retained Comprehensive Shares Amount Compensation Earnings Income Total ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Balance at February 1, 1999 142,114,167 $230,761 $(4,703) $1,090,595 - $1,316,653 - -------------------------------------------------------------------------------------------------- Net earnings - - - 136,010 - 136,010 Unrealized gain on investment - - - - $14,669 14,669 ------- Comprehensive net earnings 150,679 Cash dividends ($.24 per share) - - - (33,686) - (33,686) Issuance of common stock 344,802 9,343 - - - 9,343 Stock compensation - 6,594 (3,978) - - 2,616 Purchase and retirement of common stock (7,273,400) - - (228,518) - (228,518) ----------------------------------------------------------------------- Balance at October 31, 1999 135,185,569 $246,698 $(8,681) $ 964,401 $14,669 $1,217,087 ======================================================================= Balance at February 1, 1998 152,518,104 $201,050 - $1,274,008 - $1,475,058 - -------------------------------------------------------------------------------------------------- Net earnings - - - 140,174 - 140,174 Cash dividends ($.22 per share) - - - (32,708) - (32,708) Issuance of common stock 648,385 11,580 - - - 11,580 Stock compensation - 4,995 $(4,953) - - 42 Purchase and retirement of common stock (11,197,600) - - (346,077) - (346,077) ----------------------------------------------------------------------- Balance at October 31, 1998 141,968,889 $217,625 $(4,953) $1,035,397 - $1,248,069 ======================================================================= <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 5 of 16
NORDSTROM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) <TABLE> <CAPTION> Nine Months Ended October 31, --------------------- 1999 1998 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Net earnings $136,010 $140,174 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 140,809 129,729 Amortization of deferred lease credits and other, net (2,823) (1,538) Stock-based compensation expense 2,616 42 Change in: Accounts receivable, net 35,561 93,528 Merchandise inventories (291,604) (222,341) Prepaid income taxes and other (8,273) (10,132) Accounts payable 156,945 174,564 Accrued salaries, wages and related benefits (13,379) (9,026) Income tax liabilities and other accruals 2,269 2,545 Other liabilities 4,847 6,396 -------- -------- Net cash provided by operating activities 162,978 303,941 -------- -------- INVESTING ACTIVITIES: Capital expenditures (219,041) (241,303) Additions to deferred lease credits 98,599 57,238 Investments in unconsolidated affiliates - (32,857) Other, net (6,008) (1,397) -------- -------- Net cash used in investing activities (126,450) (218,319) -------- -------- FINANCING ACTIVITIES: Borrowings 59,174 377,862 Principal payments on debt (63,079) (100,804) Proceeds from issuance of common stock 9,343 11,580 Cash dividends paid (33,686) (32,708) Purchase and retirement of common stock (228,518) (346,077) -------- -------- Net cash used in financing activities (256,766) (90,147) -------- -------- Decrease in cash and cash equivalents (220,238) (4,525) Cash and cash equivalents at beginning of period 241,431 24,794 -------- -------- Cash and cash equivalents at end of period $ 21,193 $ 20,269 ======== ======== <FN> These statements should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. </TABLE> 6 of 16
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 1 - Summary of Significant Accounting Policies Basis of Presentation - --------------------- The consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the "Company") as of October 31, 1999 and 1998, and the related consolidated statements of earnings, cash flows, and shareholders' equity for the periods then ended, have been prepared from the accounts without audit. The consolidated financial information applicable to interim periods is not necessarily indicative of the results for the fiscal year. The financial information should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Nordstrom, Inc. Annual Report on Form 10-K for the fiscal year ended January 31, 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 October 31, 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. Recent Accounting Pronouncements - -------------------------------- Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting For Derivative Instruments and Hedging Activities," as amended, 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. Management expects that adoption of this standard, in its fiscal year beginning February 1, 2001, will not have a material impact on the Company's consolidated financial statements. Reclassifications - ----------------- Certain prior year amounts have been reclassified to conform with the presentation for the current year. Note 2 - Information Technology Restructuring and Other Charges In October 1999, the Company committed to a restructuring of its information technology services area in order to improve efficiency and effectiveness. The restructuring included a reduction in the work force and the cessation and concurrent write-off of certain systems projects. The Company recorded a $8 million pre-tax charge during the quarter in connection with this restructuring. Also, during the quarter ended October 31, 1999, the Company accrued $2 million in connection with the pending settlements of previously disclosed lawsuits related to its vacation policy and the sourcing of clothing products from Saipan. 7 of 16
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 3 - Earnings Per Share <TABLE> <CAPTION> Three Months Nine Months Ended October 31, Ended October 31, ------------------------- ------------------------ 1999 1998 1999 1998 ------------ ----------- ----------- ------------ <S> <C> <C> <C> <C> Basic shares 136,721,774 144,489,687 139,274,764 147,712,059 Dilutive effect of stock options and restricted stock 345,158 463,509 709,897 569,379 ----------- ----------- ----------- ----------- Diluted shares 137,066,932 144,953,196 139,984,661 148,281,438 =========== =========== =========== =========== Antidilutive options 4,885,296 685,327 2,439,582 397,663 =========== =========== =========== =========== </TABLE> Note 4 - Investment In September 1998, the Company purchased non-voting convertible preferred stock in a private company. In June 1999, that company completed an initial public offering of its common stock and the Company's investment was converted to common stock. A portion of the common stock investment is reported as short-term because the Company expects to sell it within one year. Accumulated other comprehensive income includes the increase in the fair market value of the investment based on its quoted market value at October 31, 1999, net of applicable income taxes of $9.4 million. Note 5 - Segment Reporting The following tables set forth information for the Company's reportable segments and a reconciliation to the consolidated totals: <TABLE> <CAPTION> Three months ended Retail Credit Catalog/ Corporate October 31, 1999 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Net sales and revenues to external customers $1,053,479 - $ 52,009 $ 4,626 - $1,110,114 Service charge income - $ 28,651 - - - 28,651 Intersegment revenues 7,198 5,396 - - $(12,594) - Net earnings 51,943 8,293 (10,010) (16,593) - 33,633 8 of 16
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 5 - Segment Reporting (cont.) Three months ended Retail Credit Catalog/ Corporate October 31, 1998 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $1,039,858 - $ 49,917 $ 4,574 - $1,094,349 Service charge income - $ 29,572 - - - 29,572 Intersegment revenues 6,808 5,751 - - $(12,559) - Net earnings 54,444 5,731 (9,316) (12,184) - 38,675 Nine months ended Retail Credit Catalog/ Corporate October 31, 1999 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $3,441,146 - $141,031 $10,437 - $3,592,614 Service charge income - $ 84,135 - - - 84,135 Intersegment revenues 14,575 17,907 - - $(32,482) - Net earnings 208,198 20,461 (21,295) (71,354) - 136,010 Nine months ended Retail Credit Catalog/ Corporate October 31, 1998 Stores Operations Internet and Other Eliminations Total - --------------------------------------------------------------------------------------------------- Net sales and revenues to external customers $3,429,018 - $141,704 $11,126 - $3,581,848 Service charge income - $ 90,573 - - - 90,573 Intersegment revenues 20,745 19,193 - - $(39,938) - Net earnings 200,476 17,505 (16,535) (61,272) - 140,174 </TABLE> Note 6 - Contingent Liabilities Because the cosmetics and Nine West lawsuits described below are still 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 those 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 a defendant along with other department stores in nine separate but virtually identical lawsuits filed in various Superior Courts of the State of California in May, June and July 1998 that have now been consolidated in Marin County state court. The plaintiffs seek to represent a class of all California residents who purchased cosmetics and fragrances for personal use from any of the defendants during the period May 1994 through May 1998. Plaintiffs' consolidated complaint alleges that the Company and other department stores agreed to charge identical prices for cosmetics and 9 of 16
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 6 - Contingent Liabilities (cont.) fragrances, not to discount such prices, and to urge manufacturers to refuse to sell to retailers who sell cosmetics and fragrances at discount prices, resulting in artificially-inflated retail prices paid by the class in violation of California state law. The plaintiffs seek treble damages in an unspecified amount, attorneys' fees and prejudgment interest. Defendants, including the Company, have answered the consolidated complaint denying the allegations. Discovery has commenced and defendants have begun the process of producing documents and responding to plaintiffs' discovery requests. Plaintiffs have not yet moved for class certification. Nine West The Company was named as a defendant in a number of substantially identical lawsuits filed in federal district courts in New York and elsewhere beginning in January and February 1999. In addition to Nine West, a leading manufacturer and retailer of women's non-athletic footwear and accessories, other defendants include various department store and specialty retailers. The lawsuits have now been consolidated in federal district court in New York and purport to be brought on behalf of a class of persons who purchased Nine West footwear from the defendants during the period January 1988 to mid-February 1999. Plaintiffs' consolidated complaint alleges that the retailer defendants agreed with Nine West and with each other on the minimum prices to be charged for Nine West shoes. The plaintiffs seek treble damages in an unspecified amount, attorneys' fees and prejudgment interest. Defendants have moved to dismiss the consolidated complaint, and briefing on the motion is complete. The Court has stayed discovery pending its decision on the motion to dismiss, and plaintiffs have not yet moved for class certification. In addition, the Federal Trade Commission has opened an investigation into the allegations in the pending Nine West lawsuits, as have the Attorneys General of the states of New York, Ohio, Texas and Florida. The Company and the other defendants have submitted documents and information to those agencies. 10 of 16
NORDSTROM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 6 - Contingent Liabilities (cont.) Other The Company is also subject to other ordinary routine litigation incidental to its business and with respect to which no material liability is expected. Note 7 - Subsequent Events On November 1, 1999, the Company established a subsidiary to operate its Internet commerce and catalog businesses, Nordstrom.com LLC. The Company contributed the assets and certain liabilities associated with its internet commerce and catalog businesses and $10 million in cash to the subsidiary. Affiliates of Benchmark Capital and Madrona Investment Group, collectively, contributed $16 million in cash to the new entity. The Company owns approximately 84% of Nordstrom.com LLC, with Benchmark Capital and Madrona Investment Group holding the remaining interest. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements made in this filing that are not historical facts are forward looking information that involve risks and uncertainties. Forward-looking statements typically are identified by the use of such terms as "may," "will," "expect," "believe," "anticipate," "estimate," "plan" and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, which include, but are not limited to, the following: the Company's ability to predict fashion trends, consumer apparel buying patterns, the Company's ability to control costs and expenses, the Company's ability to overcome technological problems, trends in personal bankruptcies and bad debt write-offs, employee relations, adverse weather conditions and other hazards of nature such as earthquakes and floods, the Company's ability to continue its store, brand and line expansion plans, and the impact of competitive market forces. 11 of 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 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 third quarter ended October 31, 1999, diluted earnings per share were $0.25, compared to $0.27 per share for the third quarter last year. The decrease in earnings was attributable to charges of $10 million ($.04 per share net of taxes) related to staff reductions and discontinued project write-offs in the Company's information technology area and the estimated cost of certain lawsuit settlements. For the nine-month period ended October 31, 1999, diluted earnings per share were $0.97, an increase of 2.1% over the $0.95 achieved in the prior year. The increase was due primarily to continuing improvement in gross margin and a decrease in the number of shares outstanding. During the third quarter of 1999, sales increased 1.4% compared to the corresponding quarter in 1998. For the nine-month period, sales increased 0.3% compared to the corresponding period in 1998. Comparable store sales declined 1.9% for the quarter and 2.3% for the nine-month period. The comparable store sales trend for the quarter improved from the 2.6% decline reported for the first half of the year. For the quarter and nine-month period, comparable sales decreases are believed to be primarily due to missed fashion product offering opportunities in the women's, kids and juniors apparel divisions. Cost of sales and related buying and occupancy expenses as a percentage of net sales for the third quarter were 64.7%, compared to 65.5% for the third quarter of 1998, and 65.4% for the nine-month period, compared to 66.6% for the corresponding period in 1998. For the quarter, the decrease in cost of sales resulted primarily from improvements in the Company's buying processes and vendor programs. The decrease in cost of sales for the nine-month period is also attributable to buying improvements, as well as lower markdowns. The decrease for the nine-month period was partially offset by an increase in occupancy costs due to new stores and remodeling projects. For the third quarter of 1999, selling, general and administrative expenses as a percentage of sales increased to 31.6%, compared to 30.0% for the third quarter of 1998. For the nine-month period, selling, general and administrative expenses were 29.5%, compared to 28.4% for the corresponding period in 1998. For the quarter, management costs increased due to the addition of personnel, the cost of consulting resources related to the Company's strategic and planning initiatives, and estimated charges related to the aforementioned lawsuit settlements. For the quarter and nine-month period, 12 of 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) information services costs also increased due to restructure costs and project write-offs, as well as increased operational costs related to new systems. The increases were offset by decreases in bad debt expense for the quarter and nine-month period, due to the improved credit quality of the Company's receivables. Service charge income and other, net decreased $8.6 million for the nine-month period compared to the corresponding period in 1998. The decrease was due primarily to lower accounts receivable balances on which the Company earns service charges. Liquidity and Capital Resources: - -------------------------------- The Company's working capital at October 31, 1999 increased compared to October 31, 1998 due primarily to a decrease in short-term borrowings. In January 1999, the Company issued $250 million of Senior Notes which were used, in part, to repay borrowings under the Company's commercial paper program. During the nine-months ended October 31, 1999, the Company repurchased 7.3 million shares of its common stock for an aggregate of approximately $228 million. At October 31, 1999, the Company had remaining share repurchase authorization of approximately $93 million. In November 1999, the Board of Directors authorized an additional repurchase of $150 million of the Company's common stock. During the quarter, the Company opened three new full-line stores in Providence, Rhode Island, Mission Viejo, California and Columbia, Maryland, and a new Rack store in Brea, California. The Company also opened a full-line store in Spokane, Washington which replaced an existing store and has additional square footage of 16,000 compared to the former store. On November 9, 1999, the Company opened a Rack replacement store in Lynnwood, Washington with 12,000 square feet of more space, and opened a new Rack store on November 19, 1999 in Gaithersburg, Maryland. Construction is progressing as planned on new stores scheduled to open in 2000. For the nine-month period ended October 31, 1999, cash flow financed all of the Company's operational and capital needs. The net reduction in cash, since the beginning of the year, is essentially due to share repurchase activity. 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 13 of 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) 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 has evaluated, replaced or upgraded its computer systems in an effort to make them Year 2000 compliant. While these remediation efforts are essentially complete for its critical computer systems, testing is ongoing. 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. The Company's cumulative Year 2000 expenses through October 31, 1999, were approximately $16.2 million. Approximately $730,000 of expenses were incurred during the third quarter ended October 31, 1999, compared to approximately $1.2 million of expenses incurred in the third quarter of 1998. For the nine-month period ended October 31, 1999, approximately $2.9 million of expenses were incurred, compared to $5.5 million in the corresponding period of 1998. Approximately $800,000 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 an ongoing effort to develop and validate more specific Year 2000 contingency plans. 14 of 16
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. 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 6 in Notes to Consolidated Financial Statements Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- (10.1) Amended and Restated Revolving Credit Facility between Registrant and a group of commercial banks, dated October 15, 1999 is 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. 15 of 16
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 Koppel ---------------------------------------------------- Michael Koppel Vice President and Corporate Controller Date: December 15, 1999 ----------------- 16 of 16
NORDSTROM, INC. AND SUBSIDIARIES Exhibit Index Exhibit Method of Filing - ------- ---------------- 10.1 Amended and Restated Revolving Filed herewith electronically Credit Facility between Registrant and a group of commercial banks, dated October 15, 1999 27.1 Financial Data Schedule Filed herewith electronically