1999 NORDSTROM ANNUAL REPORT “Give me choices!” “Show me what’s current!” “I want it all in one place.” “Wow! This looks different!” “I want service tailored to my needs.” “Shopping should be fun!” “Inspire me!” “What’s up with the new styles?” “Where am I supposed to look?” 144 Cyan Mag Yelo Blk “Who has time for malls?” “I want to look fashionable – but I’m not a size four!” “Do you have it in my size?” “I want the latest fashion.” “I want perks for using my Nordstrom card.” “You really want to know what my ideal shopping “It’s about time!” “Don’t make me go all over the store to find jeans!” “I want it to feel like my store.” “Show me what’s current, then let me decide if it’s me.” 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK IFC x IBC NORDSTROM, INC. AND SUBSIDIARIES 1 “This is more like it!” xperience would be?” “Where am I supposed to look?” “It’s gotta just click!” “Will I wear what’s on every billboard? Not on your life!” It’s gotta be my kind of music.” “I want to get in and get out.” Sometimes the best thing we can do is sit back andlisten 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 01 144 Cyan Mag Yelo Blk 2 NORDSTROM, INC. AND SUBSIDIARIES “Shopping for yourself with kids? Yeah, right!” “Why should motherhood deprive me of looking my best?” “Who has the time… to get into the car, drive to the mall and search for clothes?” Imagine shopping from your home while sipping on a cup of tea. Sound appealing? To our catalog and online shoppers, it’s more than appealing – it’s a way of life. Who shops at nordstrom.com? Insomniacs. Moms who work full time. Stay-at-home dads. People who live in Memphis, Boise, Albuquerque or Syracuse – hundreds of miles from the nearest Nordstrom store. Or customers who live right across from a mall, 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 02 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 3 “I want to shop in the quiet of my bedroom, wearing a pair of sweats, slippers and an oversized t-shirt.” but want the Nordstrom experience delivered to them. All kinds of people shop our nordstrom.com Web site and Nordstrom Life/Style and Clothes for Life by Nordstrom catalogs. And a rush of others are discovering nordstromshoes.com, The World’s Biggest Shoe Store! Who has the time to shop at Nordstrom? Now we all do. Mother of three Community volunteer Age: 39 Home: Marin County, California Hobbies: yoga, gardening, book club 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 03 Cyan Mag Yelo Blk 4 NORDSTROM, INC. AND SUBSIDIARIES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 04 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 5 Dot coms are everywhere. The Nordstrom experience is one of a kind. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 05 Cyan Mag Yelo Blk 6 NORDSTROM, INC. AND SUBSIDIARIES “I have a lot of free time and I Travel Agent Married for 37 years Age: 60 Home: Seattle, Washington Hobbies: grandchildren, dancing Should a passion for fashion fade over time? Of course not. We believe all customers are entitled to a shopping experience that leaves them feeling good, looking fashionable – and thinking of Nordstrom first when it comes time to buy again. To help ensure this, we are dividing women’s apparel in our stores into two distinct hemispheres: Classic and Modern. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 06 Cyan Mag Yelo Blk “I can still catch that certain someone gazing...” “Timeless, classic and all in one place, that’s what I want.” NORDSTROM, INC. AND SUBSIDIARIES 7 “I deserve to be pampered.” “Act my age?” “Slow Down?” plan to enjoy it!”“My granddaughter gets excited about what she wears – I should too!” “I’m not ready for the bingo parlor yet This more intimate, boutique-like setting will make our stores easier to navigate and shopping more enjoyable.We want each customer to immediately recognize the area designed for her, whether her tastes are modern, classic or mainstream. After all, fashion is not about age; it’s about attitude. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 07 Cyan Mag Yelo Blk 8 NORDSTROM, INC. AND SUBSIDIARIES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 08 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 9 Whether your style is classic, mainstream or modern, we’ll make you feel right at home. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 09 Cyan Mag Yelo Blk 10 NORDSTROM, INC. AND SUBSIDIARIES “I want to get in “A second opinion never hurts.” “Just point me to what I’m looking for...” and get out.” Although some men may go to the ends of the earth for an unforgettable game of golf, or spend hours sitting on a hard aluminum bench while munching lukewarm hot dogs – just so they can root their favorite team to victory – don’t expect that same passion when it comes to shopping. Most men want to get into a store – and get out. To make shopping more expeditious, we’ve gathered all the tools a man needs to accomplish his goal successfully. Knowledgeable salespeople. Skillful tailors. An in-depth array of career and con- temporary styles, including exclusive brands such as Façonnable, Halogen, and Callaway Golf Apparel by Nordstrom. And sizes that go beyond the norm: dress shirts in 57 sizes; clothing and sportswear in xxl and tall sizes; and footwear in an unbeatable selection of styles, sizes and widths. After all, a man wants shopping to be effortless. So we made it that way. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 10 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 11 “I’m not shopping for a good time, I’m looking for the clothes I need.” Investment Broker Sports fanatic Age: 43 Home: Redondo Beach, California Hobbies: golf, hoops, jazz 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 11 Cyan Mag Yelo Blk 12 NORDSTROM, INC. AND SUBSIDIARIES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 12 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 13 Let us handle the details, while you relax and savor the moment. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 13 Cyan Mag Yelo Blk 14 NORDSTROM, INC. AND SUBSIDIARIES “I like to challenge my friends... ‘Guess what I paid for this?!’” “Shopping for bargains gives me such a rush!” “Once a week just isn’t enough!” “Score!” Not everyone who has a love for bowling is on the PBA tour. And not everyone who loves Nordstrom merchandise shops at our full-line stores.They hit the Nordstrom Rack. Nordstrom Rack customers are willing to sacrifice a few frills in exchange for incredible bargains. When new arrivals are shipped in from our full-line stores, great deals are lurking everywhere. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 14 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 15 ” How popular is the Nordstrom Rack? At the end of 1999, there were 27 Nordstrom Rack stores in operation. By the end of 2000, we could have more than 35 Nordstrom Racks nationwide. And that’s just the beginning. Mae West once said,“I generally avoid temptation unless I can’t resist it.” That might explain the appeal of the Nordstrom Rack. After all, it’s not just discount. It’s Nordstrom. Office Manager Social activities coordinator Age : 27 Home: Chicago, Illinois Hobbies: decorating, shopping, bowling 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 15 Cyan Mag Yelo Blk 16 NORDSTROM, INC. AND SUBSIDIARIES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 16 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 17 If you love great deals and Nordstrom quality, the Nordstrom Rack’s right up your alley. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 17 Cyan Mag Yelo Blk 18 NORDSTROM, INC. AND SUBSIDIARIES “I have eclectic tastes.” “So, will I wear what’s on every billboard? Not on your life!” Interior Designer Aspiring playwright Age : 31 Home: White Plains, New York Hobbies : art collecting, samba dancing e 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 18 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 19 “Let me express myself– don’t sell me the look on every corner.” “I am fascinated by all forms of expression.” “Inspire Me! I can dress myself!” and then step aside... Fashion, like art, has the power to go beyond the intellect, to inspire the senses and infuse the soul with emotion. and draped fabric signal what’s fresh. Modern music builds excitement. And new brands such as Halogen, and BCBG Exclusively for Nordstom, offer stimulating choices she desires. Our modern departments aspire to do just that, connecting with our customer in a myriad of ways. Theatrical windows reveal our personality and allow the shopper to see into the soul of our store. Visual cues like painted columns, colored lights The store of the future is not an illusion. It’s a shop- ping experience reinvented by Nordstrom. It may look a step ahead, but it’s all here, right now. e’re listening! 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 19 Cyan Mag Yelo Blk 20 NORDSTROM, INC. AND SUBSIDIARIES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 20 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 21 Futuristic windows, designed by artist Kenny Scharf, offer a glimpse into our new modern world. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 21 Cyan Mag Yelo Blk 22 NORDSTROM, INC. AND SUBSIDIARIES This is the Nordstrom Experience “Wow! This looks different!” “Who has time for malls?” “Shopping should be fun.” “I want service tailored to my needs.” “I want to look fashionable – but I’m not a size four!” “Give me choices!” “Show me what’s hot now!” “I want it all in one place.” “Inspire me!” “What’s up with the new styles?” “I want the latest fashion.” “I want perks for using my Nordstrom card.” “You really want to know “It’s about time!” “Don’t make me go all over the store to find “Show me what’s current, then let me “I want it to feel like my store.” We 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 22 144 Cyan Mag Yelo Blk Today’s customer demands more from her shopping endeavors. She wants to look great, be inspired, have fun, shop when she wants, be pampered, and alternately, be left free to roam. How can one retailer fulfill the wants and needs of so many unique individuals? By listening. One customer at a time. NORDSTROM, INC. AND SUBSIDIARIES 23 It’s true, our world is changing. Technology has opened up new channels of communication and shopping, and brought our world closer together. But the more things change, the more one thing remains the same: As our world evolves, the Nordstrom experience will always revolve around you. How do we know? hat my ideal shopping experience would be?” “This is more like it!” eans!” ecide if it’s me.” “Where am I supposed to look?” “It’s gotta just click.” “Will I wear what’s on every billboard? Not on your life!” “It’s gotta be my kind of music.” “I want to get in and get out.” We listened e’re listening! 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 23 144 Cyan Mag Yelo Blk 24 NORDSTROM, INC. AND SUBSIDIARIES “I find the great thing in this world is not so much where we stand as in what direction we are moving.” — OLIVER WENDELL HOLMES 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 24 144 Cyan Mag Yelo Blk NARRATIVE.QX4 4/7/00 12:14 PM Page 25 Dear Shareholders, NORDSTROM, INC. AND SUBSIDIARIES 25 JOHN WHITACRE, Chairman & CEO The 1999 fiscal year was one of transition for Nordstrom, designed to position us to compete successfully in the future.Transition was, and is, necessary. Competition has never been more intense, whether from specialty retailers or big-box department stores. Our industry is consolidating, making existing competitors even more formidable.Additionally, the playing field is expanding to include new ways of reaching customers.This letter and the accompanying annual report will highlight the progress made during the year and outline our plans for the future. New stores propel sales growth. Our sales growth was fueled by the opening of full-line stores in Norfolk,Virginia; Providence, Rhode Island; Mission Viejo, California; and Columbia, Maryland; plus three new Rack stores, and the relocation of our Spokane Nordstrom and Alderwood Rack stores into new, larger facilities.We are well positioned for future growth.There are a number of attractive markets with- in the United States that we have not yet penetrated, or in which we are not fully represented. We added 6.6 percent to our stores’ gross square foot- age in 1999, and expect upper single-digit percentage growth annually over the next several years. Our com- parable store sales in 1999 declined 1.1 percent. In recent years we had allowed inventory levels to expand at a rate in excess of our growth in sales, and have taken steps to better align these two measures.While some of the shortfall in sales was offset by improvements achieved in gross margin, we fully recognize the need to generate sales growth from existing stores — as well as from new stores. However, we want to ensure that it is quality sales growth, and later in this letter I’ll describe several initiatives directed to accomplish this. Streamlined structure strengthens buying process. In 1999 we realigned the buying structure to promote clarity and accountability, to gain increased leverage in market, and to facilitate stronger partnerships with ven- dors through fewer and more focused points of con- tact.We want our most experienced merchants to have the greatest influence over our merchandise buying decisions. Our aim is to quickly take advantage of emerging national trends, while maintaining awareness of local competitive factors and customer preference. New subsidiary expands Internet presence. In fall of 1999 we formed a subsidiary company called nordstrom.com, which consists of our catalog and e-commerce businesses. Since the Web site was launched in October of 1998, it has evolved significant- ly in terms of its look, ease of navigation, and the 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 25 144 Cyan Mag Yelo Blk NARRATIVE.QX4 4/7/00 12:14 PM Page 26 26 NORDSTROM, INC. AND SUBSIDIARIES merchandise offered.We believe we have the brand, tech- nology, strategic alliances and people to become leaders in online apparel retailing, and that the timing is right for us to aggressively expand in this growing channel. We also believe it is complementary to our traditional, store- based business and will enhance and broaden the power of our brand. Our subsidiary’s first major project, nordstromshoes.com, emerged as the world’s biggest shoe store, offering millions of pairs of shoes for sale online. We are pleased with the sales performance thus far, and look forward to continuing to expand this channel as we seek to be wherever our customers want us to be. “There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.” — JOHN F. KENNEDY Key Initiatives. We are focused on several key initiatives that we believe will have significant and long-term impacts on our business: • Improving our merchandise • Building our brand • Strengthening our information resources and processes Reinvigorating women’s business with better merchandise. While each key initiative is vitally important, nothing is as critical as ensuring that we have the right merchandise — in the right quantities, sizes, styles and colors — in every one of our stores. Our initial focus is on women’s merchandise, which represents the largest single category for us and also has been our greatest challenge in recent years. Specifically, we want to reinvigorate our women’s business by injecting more fashion into the mix. Fashion transcends age and cuts across all segments of women’s merchandise.With classic styles, it can be time- less fashion; with mainstream styles, it’s everyday fashion; with modern styles, it’s contemporary fashion; and with forward styles, it’s cutting-edge fashion.The point is that in each of these segments, our objective is to have an updated, fresh and evolving collection of merchandise that represents more of what our customers want to buy. “Excellence is to do a common thing in an uncommon way.” — BOOKER T. WASHINGTON Building a world-class brand. To a great extent, our brand is the “Nordstrom shopping experience” — defined primarily through our people and products.We want to couple the right merchandise with compelling presentation as we strive to deliver a sat- isfying, unforgettable experience for our customers. Through improved in-store signage, merchandise and window displays, and other visual aids, we also want to make our stores easier and more fun to shop. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 26 144 Cyan Mag Yelo Blk NARRATIVE.QX4 4/7/00 12:14 PM Page 27 NORDSTROM, INC. AND SUBSIDIARIES 27 Part of our brand includes our communication with customers. We hope you enjoyed the national television spots we ran in launching NORDSTROMshoes.com in November of 1999, and more recently, the national media campaign and other promotional activities for our full-line stores. As we invite our customers to reinvent themselves, we want to convey the message that change is positive, and accepting some level of risk can be rewarding. Better technology enables better service. Our effort to strengthen our information resources rep- resents a major step forward. Over time, our people will have the necessary tools to better perform our customer- intensive style of retailing. Whether it’s information needed in developing more effective partnerships with our vendors, moving merchandise more quickly from point of manufacture to the sales floor, or responding more quickly to sales trends and retaining better balance in inventory levels, our ultimate objective is to better serve our customers. “We must recognize the full human equality of all our people.” — ROBERT F. KENNEDY People build our future. As you can sense, there is a lot going on at Nordstrom. Much of the work is long-term in nature, designed to deliver enduring benefits. None of it is easy, but all of it is necessary in order for Nordstrom to compete and win in the years ahead. Simply stated, we want to be better. We’re proud of our 99-year heritage of striving to provide outstanding serv- ice to every customer. We’re proud of our people, who are the lifeblood of our company and the vital link between our products and our customers. During 1999 we were honored to be included among: • Fortune magazine’s “100 Best Companies to Work For in America” • Working Woman’s “Top 25 Companies for Executive Women” • Fortune’s “50 Best Workplaces for Blacks, Asians, and Hispanics” Yet we cannot stand still. Our goal is to achieve total shareholder return among the top quartile of our peers, and that requires that we continue to build — stores, systems, capabilities and people. The 21st century is sure to bring new opportunities for growth. As we expand, the key will be to impart a distinct, consistent message across all channels, in every customer interaction, that is uniquely one Nordstrom. Thank you for your continued support as we work to better serve our customers, employees, communities and shareholders. Sincerely, John Whitacre Chairman and Chief Executive Officer 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 27 424 144 Cyan Mag Yelo Blk 28 NORDSTROM, INC. AND SUBSIDIARIES Financial Highlights Dollars in thousands except per share amounts Fiscal Year Net sales Earnings before income taxes Net earnings Basic earnings per share Diluted earnings per share Cash dividends paid per share Stock Prices Fiscal Year First Quarter Second Quarter Third Quarter Fourth Quarter 1999 1998 % Change $5,124,223 $5,027,890 332,057 202,557 1.47 1.46 .32 337,723 206,723 1.41 1.41 .30 1.9 (1.7) (2.0) 4.3 3.5 6.7 1999 1998 high low 4413⁄16 39 3⁄8 33 1⁄8 28 34 5⁄8 30 3⁄8 23 1⁄8 215⁄16 high 339⁄16 40 3⁄8 39 1⁄2 44 1⁄8 low 25 1⁄8 30 1⁄8 22 271⁄16 Nordstrom, Inc. common stock is traded on the New York Stock Exchange and quoted daily in leading financial publications. NYSE symbol — JWN 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 28 BUMP BUMP 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 29 Index 30 Management’s Discussion and Analysis 34 Consolidated Statements of Earnings 35 Consolidated Balance Sheets 36 Consolidated Statements of Shareholders’ Equity 37 Consolidated Statements of Cash Flows 38 Notes to Consolidated Financial Statements 49 Management and Independent Auditors’ Reports 50 Ten-Year Statistical Summary 52 Officers of Nordstrom, Inc. 55 Directors and Committees 56 Retail Store Facilities 58 Shareholder Information 6 4 1 $ . Net Sales Dollars in Millions Diluted Earnings Per Share 8 2 0 5 $ , 2 5 8 4 $ , 4 2 1 5 $ , 8 4 4 4 $ , 7 0 1 4 $ , 3 9 8 3 $ , 1 9 5 3 $ , 6 1 4 3 $ , 5 7 1 3 $ , 2 9 8 2 $ , 3 2 1 $ . 0 0 1 $ . 0 9 $ . 2 8 $ . 2 8 $ . 6 8 $ . 1 7 $ . . 1 4 1 0 $ 2 1 $ . 90 91 92 93 94 95 96 97 98 99 90 91 92 93 94 95 96 97 98 99 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 29 BUMP BUMP 424 144 Cyan Mag Yelo Blk 30 NORDSTROM, INC. AND SUBSIDIARIES Management’s Discussion and Analysis including, but not limited to, The following discussion and analysis reviews the past three years, as well as additional information on future expectations and trends. Some of the information in this annual report, including anticipated store openings, 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 vari- the ety of factors, 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 earth- quakes 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. Overview During 1999 (the fiscal year ended January 31, 2000), Nordstrom, Inc. and its subsidiaries (collectively, the “Company”) achieved record sales and an improvement in gross margin.These improvements were offset by third quarter 1999 charges of approximately $10 million (pre- tax), primarily associated with the restructuring of the Company’s information technology services area in order to improve efficiency and effectiveness. The Company also experienced substantially increased operating ex- penses associated with the accelerated development of nordstrom.com and nordstromshoes.com. On November 1, 1999, the Company established a new subsidiary, nordstrom.com, to promote the rapid expan- sion of both its Internet commerce and catalog businesses. The Company contributed the assets and certain liabili- ties 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 81.4% of nordstrom.com, with Benchmark Capital and Madrona Investment Group holding the remaining interest. The first major endeavor in November 1999 by nordstrom.com was the launching of the Internet site nordstromshoes.com, which offers online access to mil- lions of pairs of shoes.The launch was supported by a mul- timedia national advertising campaign. Also during 1999, the Company opened four new full- line stores in Providence, Rhode Island; Mission Viejo, California; Columbia, Maryland; and Norfolk, Virginia. The Company also opened three new Rack stores in Sacramento, California; Brea, California; and Gaithersburg, Maryland. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 30 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 31 2% Other 4% Children’s Apparel and Accessories 18% Men’s Apparel and Furnishings 36% Women’s Apparel 19% Shoes 21% Women’s Accessories Percentage of 1999 Sales by Merchandise Category Results of Operations Sales The Company achieved a 1.9% sales increase in 1999. Certain components of the percentage change in sales by year are as follows: Fiscal Year 1999 1998 1997 Sales in comparable stores (1.1%) (2.7%) NORDSTROM.com Total increase 8.3% 1.9% 33.0% 3.6% 4.0% 49.8% 9.1% Comparable store sales (sales in stores open at least one full fiscal year at the beginning of the fiscal year) decreased in 1999 primarily due to missed fashion prod- uct offering opportunities in the women’s, kids’ and jun- iors’ apparel divisions. The decrease in comparable store sales in 1998 was attributable to management’s focus on controlling inventory levels, which resulted in lower, but more profitable, sales. In 1997, comparable store sales growth reflected the strong economic environment and a positive reaction to changes in the merchandise mix in the women’s apparel departments, which occurred in mid-1996. In addition to the aforementioned new full-line and Rack stores, the Company opened a replacement full-line store and a replacement Rack store in 1999. New stores are generally not as productive as “comparable stores” because the customer base and traffic patterns of each store are developed over time. Sales at nordstrom.com continued to contribute to the Company’s sales growth with sales of $210 million, $194 million and $146 million in 1999, 1998 and 1997, respec- tively. The Company’s average price point has varied slightly over the past three years, due primarily to changes in the merchandise mix. Inflation in overall merchandise costs and prices has not been significant during the past three years. Gross Margin Gross margin (net sales less cost of sales and related buy- ing and occupancy expenses) as a percentage of net sales improved to 34.5% in 1999, as compared to 33.5% in 1998, and 32.1% in 1997. in improvement reflects changes The 1999 the Company’s buying processes and vendor programs. The 1998 improvement was principally due to favorable pric- ing strategies and the Company’s increased focus on managing inventory levels, which resulted in lower markdowns. A decrease in buying costs, due to efficien- cies gained through restructuring of certain buying responsibilities, also contributed to the improvement in 1998. The improvement in gross margin percentage in both 1999 and 1998 was partially offset by increased occupancy costs related to new stores and remodeling projects. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 31 424 144 Cyan Mag Yelo Blk 32 NORDSTROM, INC. AND SUBSIDIARIES Selling, General, and Administrative Selling, general, and administrative expenses as a percent- age of net sales were 29.1% in 1999, 28.0% in 1998, and 27.3% in 1997. Liquidity and Capital Resources The Company finances its working capital needs, capital expenditures and share repurchase activity with cash pro- vided by operations and borrowings. The 1999 increase, as a percentage of net sales, was due to the aforementioned $10 million of pre-tax restructuring charges. In addition, the Company incurred substantial additional costs associated with the accelerated develop- ment of nordstrom.com and nordstromshoes.com. In August 1999, the Company announced that, compared to its plan prior thereto, nordstrom.com would increase operating expenses by approximately $22 million over the balance of the year, in order to accelerate growth and development of its Internet business channel. The actual increase for 1999 was $23 million. These increases were partially offset by lower bad debt expense due to the improved credit quality of the Company’s credit card receivables. The 1998 increase in selling, general, and administrative expenses, as a percentage of net sales, was due to higher sales promotion costs for the Company’s direct sales cata- log division, and spending on Year 2000 compliance and other information system operational costs. The increase was partially offset by decreases in bad debt expenses associated with the Company’s credit card business and lower selling expenses, as a percentage of sales. Interest Expense, Net Interest expense, net increased 7% in 1999 and 37% in 1998 as a result of higher average borrowings to finance share repurchases.The Company repurchased 10.2 million shares and 11.2 million shares at an aggregate cost of $303 million and $346 million in 1999 and 1998, respectively. Service Charge Income and Other, Net Service charge income and other, net primarily repre- sents income from the Company’s credit card operations, offset by miscellaneous expenses. Service charge income and other, net was flat in 1999 and 1998, both in dollars and as a percent of sales. Net Earnings Net earnings for 1999 were slightly lower than 1998 as the Company’s record sales and gross margin were offset by increases in selling, general, and administrative expens- es. Net earnings for 1998 increased as compared to 1997 primarily due to gross margin improvements. For the fiscal year ended January 31, 2000, net cash pro- vided by operating activities decreased approximately $223 million compared to the fiscal year ended January 31, 1999, primarily due to the non-recurring benefit of prior year reductions in inventories and customer receiv- able account balances. Net cash provided by operating activities for the fiscal year ended January 31, 1999 increased by approximately $301 million as compared to the fiscal year ended January 31, 1998, primarily due to a reduction in merchandise inventories resulting from management’s focus on managing inventory levels and a decrease in customer receivable balances. For the fiscal year ended January 31, 2000, net cash used in investing activities decreased approximately $68 million compared to the fiscal year ended January 31, 1999, prima- rily due to an increase in funds provided by developers to defray part of the Company’s costs of constructing new stores. The Company’s capital expenditures aggregated approximately $700 million over the last three years, net of deferred lease credits, principally to add new stores and facilities and to improve existing stores and facilities. Over 2.7 million square feet of retail store space has been added during this time period, representing an increase of 23% since January 31, 1997. The Company plans to spend approximately $1.0 billion, net of deferred lease credits, on capital projects during the next three years, including new stores, the remodeling of existing stores, new systems and technology, and other items. At January 31, 2000, approximately $80 million has been contractually committed for the construction of new stores or remodel of existing stores. Although the Company has made commitments for stores opening in 2000 and beyond, it is possible that some stores may not be opened as scheduled because of delays inherent in the development process, or for other reasons. In addition to its cash flow from operations, the Company has funds available under its revolving credit facility. Management believes that the Company’s current financial strength and credit position enable it to maintain its existing stores and to take advantage of attractive new opportunities. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 32 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 33 The Board of Directors has authorized an aggregate of $1.1 billion of share repurchases since May 1995. As of January 31, 2000, the Company had purchased approxi- mately 35 million shares of its common stock for approx- imately $931 million pursuant to these authorizations, and had remaining share repurchase authority of $169 million. Share repurchases have been financed, in part, through additional borrowings, resulting in a planned increase in the Company’s debt to capital (debt plus shareholders’ equity) ratio. At January 31, 2000, the Company’s debt to capital ratio was .42. In March 1998, the Company issued $300 million of 6.95% Senior Debentures due in 2028. The proceeds were used to repay commercial paper and current matu- rities of long-term debt. In January 1999, the Company issued $250 million of 5.625% Senior Notes due in 2009, the proceeds of which were used to repay short-term debt and for general corporate purposes. A substantial portion of the Company’s total debt of $876 million at January 31, 2000, finances the Company’s credit card portfolio, which aggregated $612 million at that date. Year 2000 The Company transitioned into the Year 2000 without any material negative effects on its business, operations or financial condition. The Company’s accumulative Year 2000 expenses, through January 31, 2000, were $17 mil- lion. Approximately $4 million of expense was incurred in 1999, $7 million in 1998 and $5 million in 1997. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which will require an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instru- ments at fair value. Adoption of this standard, as amended by the Company, beginning February 1, 2001, is not expected to have a material impact on the Company’s consolidated financial statements. Southwest 32.7% 4,729,000 Other 0.4% 57,000 Rack 8.1% 1,174,000 Central States 14.4% 2,086,000 Northwest 19.1% 2,770,000 East Coast 25.3% 3,671,000 Square Footage by Market Segment at January 31, 2000 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 33 424 144 Cyan Mag Yelo Blk 34 NORDSTROM, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Dollars in thousands except per share amounts Year ended January 31, Net sales Costs and expenses: 2000 % of sales 1999 % of sales 1998 % of sales $5,124,223 100.0 $ 5,027,890 100.0 $4,851,624 100.0 Cost of sales and related buying and occupancy Selling, general, and administrative Interest, net 3,359,760 1,491,040 50,396 Service charge income and other, net (109,030) Earnings before income taxes Income taxes Net earnings Basic earnings per share Diluted earnings per share Cash dividends paid per share 4,792,166 332,057 129,500 $ 202,557 $ 1.47 $ 1.46 $ .32 65.5 29.1 1.0 (2.1) 93.5 6.5 2.5 4.0 66.5 28.0 0.9 (2.1) 93.3 6.7 2.6 4.1 3,344,945 1,405,270 47,091 (107,139) 4,690,167 337,723 131,000 $ 206,723 $ 1.41 $ 1.41 $ .30 67.9 27.3 0.7 (2.2) 93.7 6.3 2.5 3.8 3,295,813 1,322,929 34,250 (108,581) 4,544,411 307,213 121,000 $ 186,213 $ 1.20 $ 1.20 $ .265 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 34 424 144 Cyan Mag Yelo Blk Consolidated Balance Sheets NORDSTROM, INC. AND SUBSIDIARIES 35 Dollars in thousands January 31, Assets Current assets: Cash and cash equivalents Short-term investment Accounts receivable, net Merchandise inventories Prepaid income taxes and other Total current assets Land, buildings and equipment, net Available-for-sale investment Other assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Notes payable Accounts payable Accrued salaries, wages and related benefits Income taxes and other accruals Current portion of long-term debt Total current liabilities Long-term debt Deferred lease credits Other liabilities Shareholders’ equity: Common stock, no par: 250,000,000 shares authorized; 132,279,988 and 142,114,167 shares issued and outstanding Unearned stock compensation Retained earnings Accumulated other comprehensive income Total shareholders’ equity Total liabilities and shareholders’ equity 2000 1999 $ 27,042 25,527 616,989 797,845 97,245 1,564,648 1,429,492 35,251 32,690 $ 241,431 — 587,135 750,269 74,228 1,653,063 1,378,006 — 56,994 $ 3,062,081 $ 3,088,063 $ 70,934 $ 78,783 390,688 211,308 135,388 58,191 866,509 746,791 194,995 68,172 339,635 196,366 100,739 63,341 778,864 804,893 147,188 56,573 247,559 (8,593) 929,616 17,032 230,761 (4,703) 1,074,487 — 1,185,614 1,300,545 $ 3,062,081 $ 3,088,063 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 35 424 144 Cyan Mag Yelo Blk 36 NORDSTROM, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity Dollars in thousands except per share amounts Common Stock Shares Amount Unearned Compensation Retained Earnings Accum. Other Comprehensive Income Total 159,269,954 $183,398 — $1,289,794 — $1,473,192 (16,108) (16,108) Balance at February 1, 1997, as previously reported Adjustment for sales returns reserve, net of taxes Balance at February 1, 1997, as adjusted Net earnings Cash dividends paid ($.265 per share) Issuance of common stock Stock compensation Purchase and retirement of Net earnings Cash dividends paid ($.30 per share) Issuance of common stock Stock compensation Purchase and retirement 159,269,954 183,398 — — — — 838,478 4,672 17,406 246 — — — — — — — — 1,273,686 186,213 (41,168) — (160,831) 1,257,900 206,723 (44,059) — — common stock (7,595,000) — Balance at January 31, 1998 152,518,104 201,050 — — — — 599,593 194,070 14,971 14,740 $ (4,703) of common stock (11,197,600) — — (346,077) Balance at January 31, 1999 142,114,167 230,761 (4,703) 1,074,487 Net earnings Unrealized gain on investment Comprehensive net earnings Cash dividends paid ($.32 per share) Issuance of common stock Stock compensation Purchase and retirement — — — — — — — — 341,947 40,274 9,577 7,221 — — — — — (3,890) 202,557 — — (44,463) — — of common stock (10,216,400) — — (302,965) — — — — — — — — — — — — — $17,032 — — — — — — 1,457,084 186,213 (41,168) 17,406 246 (160,831) 1,458,950 206,723 (44,059) 14,971 10,037 (346,077) 1,300,545 202,557 17,032 219,589 (44,463) 9,577 3,331 (302,965) Balance at January 31, 2000 132,279,988 $247,559 $(8,593) $ 929,616 $17,032 $1,185,614 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 36 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 37 Consolidated Statements of Cash Flows Dollars in thousands Year ended January 31, Operating Activities Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization Amortization of deferred lease credits and other, net Stock-based compensation expense Change in: Accounts receivable, net Merchandise inventories Prepaid income taxes and other Accounts payable Accrued salaries, wages and related benefits Income tax liabilities and other accruals Other liabilities 2000 1999 1998 $ 202,557 $ 206,723 $ 186,213 193,718 (6,387) 3,331 (29,854) (47,576) (23,017) 51,053 14,942 12,205 7,154 180,655 (3,501) 10,037 77,313 75,776 30,983 18,324 17,156 (20,454) 8,296 158,969 (2,092) 246 50,141 (106,126) (11,616) 10,881 9,635 2,104 2,301 Net cash provided by operating activities 378,126 601,308 300,656 Investing Activities Capital expenditures Additions to deferred lease credits Investments in unconsolidated affiliates Other, net Net cash used in investing activities Financing Activities (Decrease) increase in notes payable Proceeds from issuance of long-term debt Principal payments on long-term debt Capital contribution to subsidiary from minority shareholders Proceeds from issuance of common stock Cash dividends paid Purchase and retirement of common stock Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year (305,052) 114,910 — (9,332) (306,737) (259,935) 74,264 (32,857) (2,251) — — (49) (199,474) (267,581) (259,984) (7,849) — (63,341) 16,000 9,577 (44,463) (302,965) (184,984) 544,165 (101,106) — 14,971 (44,059) (346,077) (393,041) (117,090) (214,389) 241,431 216,637 24,794 99,997 91,644 (51,210) — 17,406 (41,168) (160,831) (44,162) (3,490) 28,284 Cash and cash equivalents at end of year $ 27,042 $ 241,431 $ 24,794 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 37 424 144 Cyan Mag Yelo Blk 38 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 71 large specialty stores and 28 clear- ance stores.All of the Company’s stores are located in the United States, with approximately 34% of its retail square footage located in the state of California. The Company purchases a significant percentage of its merchandise from foreign countries, principally in 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 $60,038 at January 31, 2000. On November 1, 1999 the Company established a sub- sidiary to operate its Internet commerce and catalog busi- nesses, nordstrom.com llc. The Company contributed certain assets and liabilities associated with its Internet commerce and catalog businesses, and $10 million in cash. Funds associated with Benchmark Capital and Madrona Investment Group collectively contributed $16 million in cash to the new entity. At January 31, 2000 the Company owns approximately 81.4% of nordstrom.com llc, with Benchmark Capital and Madrona Investment Group holding the remaining minority interest. The minority interest holders have the right to put their shares of nordstrom.com llc to the Company at a multiple of their original investment in the event that certain events do not occur. This put right will expire if the Company provides additional funding to nordstrom.com llc prior to September 2002. Basis of Presentation: The consolidated financial state- ments include the accounts of Nordstrom, Inc. and its subsidiaries, the most significant of which are Nordstrom Credit, Inc., Nordstrom National Credit Bank and nordstrom.com llc. All significant intercompany transactions and balances are eliminated in consolidation. The presentation of these financial statements in con- formity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Prior to 1999, the Company did not record sales returns on the accrual basis of accounting because the difference between the cash and accrual basis of accounting was not material. In 1999, the Company began accruing sales returns.Accordingly, the Company recorded the cumula- tive effect of this change on prior periods, which resulted in an increase in current assets of $9,840, an increase in current liabilities of $25,948 and a corresponding decrease in retained earnings of $16,108 as of February 1, 1997. Because the effects of this change were insignifi- cant in 1997 and 1998, the Company recorded such amounts in 1999 as a reduction in net income of $1,313, or $.01 per share. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 38 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 39 Merchandise Inventories: Merchandise inventories are stat- ed at the lower of cost (first-in, first-out basis) or market, using the retail method. 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 six months. Net capitalized direct response adver- tising costs were $3,938 and $3,436 at January 31, 2000 and 1999, and are included in prepaid income taxes and other on the consolidated balance sheets. Total advertis- ing expenses were $160,957, $145,841 and $115,272 in 1999, 1998 and 1997. Land, Buildings and Equipment: For buildings and equip- ment acquired prior to February 1, 1999, depreciation is computed using a combination of accelerated and straight-line methods. The straight-line method was adopted for all property placed into service after February 1, 1999 in order to better reflect the utilization of the assets over time. The effect of this change on net earnings for 1999 was not material. Lives used for calcu- lating depreciation and amortization rates for the princi- pal asset classifications are as follows: buildings, five to 40 years; store fixtures and equipment, three to 15 years; leasehold improvements, life of lease or applicable shorter period; software, three to seven years. Store Preopening Costs: Store opening and preopening costs are charged to expense when incurred. Capitalization of Interest: The interest-carrying costs of capital assets under development or construction are capitalized 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. Investments: Short-term and available-for-sale investments consist of available-for-sale equity securities which are recorded at market value based on quoted market prices using the specific identification method. Unrealized gains (and losses) from changes in market value are reflected in accumulated other comprehensive income, net of related deferred taxes. All other investments are recorded at cost and included in other assets. Customer Accounts Receivable: In accordance with indus- try practices, installments maturing in more than one year or deferred payment accounts receivable are includ- ed in current assets. Net Sales: Revenues are recorded net of estimated returns and exclude sales tax. Cash Management: The Company’s cash management sys- tem provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at January 31, 2000 and 1999 include $7,605 and 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 39 424 144 Cyan Mag Yelo Blk 40 NORDSTROM, INC. AND SUBSIDIARIES (Note 1 continued) $10,189 of checks not yet presented for payment drawn in excess of cash balances. Deferred Lease Credits: Deferred lease credits are amor- tized on a straight-line basis primarily over the life of the applicable lease. 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 the Company’s investment in mar- ketable equity securities is based upon the quoted market price and is approximately $60,778 at January 31, 2000. The fair value of long-term debt (including current maturities), using quoted market prices of the same or similar issues with the same remaining term to maturity, is approximately $715,500 and $894,000 at January 31, 2000 and 1999. Derivatives Policy: The Company limits its use of deriva- tive financial instruments to the management of foreign currency and interest rate risks.The effect of these activ- ities is not material to the Company’s financial condition or results of operations. The Company has no material off-balance sheet credit risk, and the fair value of deriva- tive financial instruments at January 31, 2000 and 1999 is not material. Statement of Financial Accounting Standards 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.The Company is currently reviewing the impact of this statement; however, based on the Company’s mini- mal use of derivatives, 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 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 contribu- tions made under Section 401(k) of the Internal Revenue Code. Under this provision of the plan, the Company provides matching contributions up to a stipu- lated 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 $47,500, $50,000 and $45,000 in 1999, 1998 and 1997. Note 3: Interest, Net The components of interest, net are as follows: Year ended January 31, 2000 1999 1998 Short-term debt Long-term debt $ 2,584 $ 10,707 $ 10,931 56,831 43,601 32,887 Total interest cost 59,415 54,308 43,818 Less: Interest income (3,521) (1,883) Capitalized interest (5,498) (5,334) (1,221) (8,347) Interest, net $50,396 $47,091 $34,250 Note 4: Income Taxes Income taxes consist of the following: Year ended January 31, 2000 1999 1998 Current income taxes: Federal $130,524 $113,270 $ 98,464 State and local 21,835 19,672 18,679 Total current income taxes Deferred income taxes: Current Non-current Total deferred income taxes 152,359 132,942 117,143 (18,367) (1,357) (4,614) (4,492) (585) 8,471 (22,859) (1,942) 3,857 Total income taxes $129,500 $131,000 $121,000 A reconciliation of the statutory Federal income tax rate to the effective tax rate is as follows: Year ended January 31, 2000 1999 1998 Statutory rate State and local income taxes, net of Federal income taxes Other, net 35.00% 35.00% 35.00% 4.06 (.06) 4.03 (0.24) 4.17 0.21 Effective tax rate 39.00% 38.79% 39.38% 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 40 424 144 Cyan Mag Yelo Blk Deferred income tax assets and liabilities result from temporary differences in the timing of recognition of revenue and expenses for tax and financial reporting pur- poses. Significant deferred tax assets and liabilities, by nature of the temporary differences giving rise thereto, are as follows: 2000 1999 $ 29,276 $ 30,071 35,651 24,461 30,404 18,801 January 31, Accrued expenses Compensation and benefits accruals Merchandise inventories Land, buildings and equipment basis and depreciation differences Employee benefits NORDSTROM, INC. AND SUBSIDIARIES 41 January 2000, this public company merged with a private company in a pooling-of-interests transaction. The Company had an investment in the preferred stock of the acquired private company since October 1998. The Company’s available-for-sale investment has been increased to reflect the consummation of the merger. A portion of the investment is reported as short-term because the Company intends 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 January 31, 2000, net of applicable taxes of $10.9 million. (22,982) (34,519) (11,008) (10,659) Note 7: Accounts Receivable The components of accounts receivable are as follows: Unrealized gain on investment (10,889) — January 31, Other 12,570 11,011 Customers Net deferred tax assets $57,079 $45,109 Other 2000 1999 $611,858 $592,204 20,969 19,474 Note 5: Earnings Per Share Basic earnings per share are computed on the basis of the weighted average number of common shares outstand- ing during the year. Average shares outstanding were 137,814,589, 146,241,091 and 154,972,560 in 1999, 1998 and 1997. Diluted earnings per share are computed on the basis of the weighted average number of common shares outstand- ing during the year plus dilutive common stock equiva- lents (primarily stock options). Weighted average diluted shares outstanding were 138,424,844, 146,858,271 and 155,350,296 in 1999, 1998 and 1997. 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 2,798,966, 1,146,113 and 303,622 shares in 1999, 1998 and 1997. Note 6: Investment In September 1998, the Company purchased non-voting convertible preferred stock in a private company. In June 1999, this company completed an initial public offering of common stock. Upon completion of the offering, the Company’s investment was converted to common stock, which has been categorized as available-for-sale. In Allowance for doubtful accounts (15,838) (24,543) Accounts receivable, net $616,989 $587,135 Credit risk with respect to accounts receivable is concen- trated in the geographic regions in which the Company operates stores. At January 31, 2000 and 1999, approxi- mately 38% of the Company’s receivables were obliga- tions of customers residing in California. Concentration of the remaining receivables is considered to be limited due to their geographical dispersion. Bad debt expense totaled $11,707, $23,828 and $40,440 in 1999, 1998 and 1997. Nordstrom National Credit Bank, a wholly owned sub- sidiary of the Company, issues both a proprietary and VISA credit card. In 1996, the Company transferred sub- stantially all of its VISA credit card receivables (approxi- mately $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 subordinat- ed 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”). Cash flows generated from the receivables in the trust are, to the extent allocable to the investors, applied to the 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 41 424 144 Cyan Mag Yelo Blk 42 NORDSTROM, INC. AND SUBSIDIARIES (Note 7 continued) Note 9: Notes Payable payment of interest on the Class A and Class B certifi- cates, absorption of credit losses, and payment of servicing fees to the Company, which services 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 $42,754 and $8,208 at January 31, 2000 and 1999, 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 8: Land, Buildings and Equipment Land, buildings and equipment consist of the following (at cost): January 31, 2000 1999 Land and land improvements $ 59,237 $ 57,337 Buildings Leasehold improvements Capitalized software 650,414 870,821 20,150 500,831 957,877 7,603 A summary of notes payable is as follows: Year ended January 31, 2000 1999 1998 Average daily short- term borrowings Maximum amount outstanding Weighted average interest rate: During the year At year-end $ 45,030 $195,596 $ 193,811 178,533 385,734 278,471 5.8% 6.0% 5.5% 5.2% 5.6% 5.5% At January 31, 2000, the Company has an unsecured line of credit with a group of commercial banks totaling $500,000 which is available as liquidity support for the Company’s commercial paper program, and expires in July 2002.The line of credit agreement contains restric- tive covenants which, among other things, require the Company to maintain a certain minimum level of net worth and a coverage ratio (as defined) of no less than 2 to 1.The Company pays a commitment fee for the line based on the Company’s debt rating. Note 10: Long-Term Debt A summary of long-term debt is as follows: Store fixtures and equipment 1,037,936 944,202 January 31, 2000 1999 Less accumulated depreciation and amortization (1,370,726) (1,235,410) due 2028 $ 300,000 $ 300,000 Senior notes, 5.625%, due 2009 250,000 250,000 2,638,558 2,467,850 Senior debentures, 6.95%, 1,267,832 1,232,440 Construction in progress 161,660 145,566 Land, buildings and equipment, net $1,429,492 $1,378,006 At January 31, 2000, the net book value of property located in California is approximately $335,000. The Company does not carry earthquake insurance in California because of its high cost. At January 31, 2000, the Company has contractual com- mitments of approximately $80 million for the construc- tion of new stores or remodel of existing stores. Medium-term notes, payable by Nordstrom Credit, Inc., 7.0%-8.67%, due 2000-2002 Notes payable, of Nordstrom Credit, Inc., 6.7%, due 2005 Other Total long-term debt Less current portion 145,350 203,350 100,000 100,000 9,632 14,884 804,982 868,234 (58,191) (63,341) Total due beyond one year $746,791 $804,893 Aggregate principal payments on long-term debt are as follows: 2000-$58,191; 2001-$11,454; 2002-$77,247; 2003-$319; 2004-$350; and thereafter-$657,421. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 42 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 43 Note 11: Leases The Company leases land, buildings and equipment under noncancelable lease agreements with expiration dates ranging from 2000 to 2080. Certain 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, 2000 are as follows: 2000-$52,940; 2001-$52,762; 2002- $44,050; 2003-$42,092; 2004-$41,010; and thereafter- $326,281. The following is a schedule of rent expense: Year ended January 31, 2000 1999 1998 Minimum rent: Store locations $18,794 $ 19,167 $16,869 Offices, warehouses and equipment Store locations percentage rent 19,926 19,208 17,811 7,441 8,603 12,542 Total rent expense $46,161 $46,978 $47,222 Note 12: Stock-Based Compensation The Company has a stock option plan (the “Plan”) administered by the Compensation Committee of the Board of Directors (the “Committee”) under which stock options, performance share units and restricted stock may be granted to key employees of the Company. Stock options are issued at the fair market value of the stock at the date of grant. Options vest over periods rang- ing from four to eight years, and expire ten years after the date of grant. In certain circumstances, vesting of some options may be accelerated. In addition to option grants each year, in 1999 and 1998 the Committee granted 272,970 and 185,201 perform- ance share units, respectively, which will vest over three years if certain financial goals are attained. Employees may elect to receive common stock or cash upon vesting of these performance shares.The Committee also granted 30,069 and 180,000 shares of restricted stock in 1999 and 1998 with weighted average fair values of $32.09 and $27.75, respectively, which vest over five years. No mon- etary consideration is paid by employees who receive performance share units or restricted stock. The Company applies Accounting Principles Board Opinion No. 25 (“APB 25”) in measuring compensation costs under the Plan. Accordingly, no compensation cost has been recognized for stock options because the option price equals the market price on the date of grant. For is performance share units, compensation expense recorded over the performance period based on the fair market value of the stock at the date it is determined that such shares have been earned. For restricted stock grants, compensation expense is based on the market price on the date of grant and is recorded over the vesting period. Stock-based compensation expense for 1999, 1998 and 1997 was $3,331, $10,037 and $246, respectively. In addition to the above, in the fourth quarter of 1999, nordstrom.com established an option plan under which 3.4 million options were granted at an option price of $1.67 per share. Pursuant to APB 25, no compensation cost has been recognized for the options because the option price was equal to, or in excess of, the fair value of nordstrom.com’s stock on the date of grant. The options vest over a period of two and one-half to four years and must be exercised within ten years of the grant date. If the Company had elected to follow the measurement provisions of SFAS No. 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 1999, 1998 and 1997, respectively: risk-free interest rates of 5.7%, 5.2% and 5.4%; expected volatility factors of .61, .46 and .32; expected dividend yield of 1% for all years; and expected lives of 5 years for all years. If SFAS 123 were used to account for the Company’s stock-based compensation programs, the pro forma net earnings and earnings per share would be as follows: Year ended January 31, 2000 1999 1998 Pro forma net earnings $192,936 $201,499 $183,618 Pro forma basic earnings per share $1.40 $1.38 $1.18 Pro forma diluted earnings per share $1.39 $1.37 $1.18 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 43 424 144 Cyan Mag Yelo Blk 44 NORDSTROM, INC. AND SUBSIDIARIES (Note 12 continued) 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. The number of shares reserved for future stock option grants pursuant to the Plan is 3,212,879 at January 31, 2000. Stock option activity for the Plan was as follows: Year ended January 31, 2000 1999 1998 Outstanding, beginning of year Granted Exercised Cancelled Shares 5,893,632 2,926,368 (341,947) (342,752) Outstanding, end of year 8,135,301 Options exercisable at end of year 3,145,393 Weighted-average fair value of options granted during the year Weighted- Average Exercise Price Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Shares $27 3,401,602 $21 3,719,506 3,252,217 (599,593) (160,594) 5,893,632 2,544,092 31 23 30 $28 $25 $17 31 18 27 $27 $23 $14 692,764 (838,478) (172,190) 3,401,602 1,759,464 $19 26 17 22 $21 $19 $ 9 The following table summarizes information about stock options outstanding for the Plan as of January 31, 2000: Range of Exercise Prices Shares $11 – $23 2,807,518 $24 – $33 2,919,777 $34 – $40 2,408,006 8,135,301 Options Outstanding Options Exercisable Weighted- Average Remaining Contractual Life (Years) 7 8 9 8 Weighted- Average Exercise Price $21 $29 $37 $28 Weighted- Average Exercise Price $20 $29 $34 $25 Shares 1,487,867 1,457,294 200,232 3,145,393 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 44 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 45 Note 13: Supplementary Cash Flow Information Supplementary cash flow information includes the following: Year ended January 31, 2000 1999 1998 Cash paid during the year for: Interest (net of capitalized interest) Income taxes $ 54,195 $ 44,418 $ 35,351 129,566 126,157 126,606 Note 14: Segment Reporting The Company has three reportable segments which have been identified based on differences in products and services offered and regulatory conditions: the Retail Stores, Credit Operations, and Catalog/Internet seg- ments. The Retail Stores segment derives its sales from high-quality apparel, shoes and accessories for women, men and children, sold through retail store locations. It includes the Company’s Product Development Group which coordinates the design and production of private label merchandise sold in the Company’s retail stores. Credit Operations segment revenues consist primarily of finance charges earned through issuance of the Nordstrom proprietary and VISA credit cards. The Catalog/Internet segment generates revenues from direct mail catalogs and the nordstrom.com and nordstromshoes.com Web sites. The Company’s senior management utilizes various measurements to assess segment performance and to allocate resources to segments. The measurements used to compute net earnings for reportable segments are consistent with those used to compute net earnings for the Company. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. Corporate and Other includes certain expenses and a portion of interest expense which are not allocated to the operating seg- ments. Intersegment revenues primarily consist of fees for credit card services and are based on fees charged by third party cards. The following tables set forth the information for the Company’s reportable segments and a reconciliation to the consolidated totals: Year ended January 31, 2000 Net sales and revenues to external customers Service charge income Intersegment revenues Interest, net Depreciation and amortization Income tax expense (benefit) Net earnings (loss) Assets (a) Capital expenditures Retail Stores Credit Operations Catalog/ Internet Corporate and Other Eliminations Total $4,914,293 — $209,930 — $117,974 20,285 728 170,765 191,790 300,009 25,963 26,933 1,424 19,450 30,417 2,051,327 601,320 263,352 2,792 — — — — — (167) $ 22,902 6,313 — (35,685) 95,241 5,206 15,216 (81,740) (92,184) 314,193 33,702 — $5,124,223 — 117,974 $(46,248) — — — — — — — 50,396 193,718 129,500 202,557 3,062,081 305,052 (a) Segment assets in Corporate and Other include unallocated assets in corporate headquarters, consisting primarily of land, buildings and equipment, and deferred tax assets. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 45 424 144 Cyan Mag Yelo Blk 46 NORDSTROM, INC. AND SUBSIDIARIES (Note 14 continued) Year ended January 31, 1999 Net sales and revenues to external customers Service charge income Intersegment revenues Interest, net Depreciation and amortization Income tax expense (benefit) Net earnings (loss) Assets (a) Capital expenditures Year ended January 31, 1998 Net sales and revenues to external customers Service charge income Intersegment revenues Interest, net Depreciation and amortization Income tax expense (benefit) Net earnings (loss) Assets (a) Capital expenditures Retail Stores Credit Operations Catalog/ Internet Corporate and Other Eliminations Total — — — — — — $ 4,834,049 — $ 193,841 — $ 119,926 23,748 — 166,099 182,800 288,503 26,736 31,139 806 16,200 25,606 2,040,938 607,255 273,906 2,191 — — — 4,613 — (17,681) 57,803 4,121 — $ 5,027,890 — 119,926 $(50,484) $ 16,488 (536) 9,137 (68,000) (89,705) 382,067 26,519 — — — — — — 47,091 180,655 131,000 206,723 3,088,063 306,737 Retail Stores Credit Operations Catalog/ Internet Corporate and Other Eliminations Total $ 4,705,875 — $ 145,749 — $ 122,026 35,529 — 147,847 152,700 235,122 27,400 36,187 667 10,300 15,895 1,956,527 681,391 221,384 242 — — — 3,082 — (12,936) 73,790 17,390 — $ 4,851,624 — 122,026 $(62,929) $ (1,170) (767) 7,373 (42,000) (51,868) 178,956 20,919 — — — — — — 34,250 158,969 121,000 186,213 2,890,664 259,935 (a) Segment assets in Corporate and Other include unallocated assets in corporate headquarters, consisting primarily of land, buildings and equipment, and deferred tax assets. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 46 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 47 brought on behalf of a class of persons who purchased Nine West footwear from the defendants during the peri- od January 1988 to mid-February 1999. Plaintiffs’ con- solidated complaint alleges that the retailer defendants agreed with Nine West and with each other on the mini- mum prices to be charged for Nine West shoes. The plaintiffs seek treble damages in an unspecified amount, attorneys’ fees and prejudgment interest. Defendants moved to dismiss the consolidated complaint, and the court denied the motion on January 7, 2000.The Court had stayed discovery pending its decision on the motion to dismiss, and defendants have now begun the process of producing documents and responding to plaintiffs’ other discovery requests. Plaintiffs have not yet moved for class certification. Vacation Policy.The Company has reached a settlement in its previously described lawsuit relating to its vacation policy. The settlement is subject to the execution of a definitive settlement agreement and court approval. A final approval hearing has been set for April 28, 2000. Saipan. The Company has reached a settlement in its previously described lawsuits relating to its sourcing of clothing products from independent garment manufac- turers in Saipan (Commonwealth of Northern Mariana Islands). The settlement is subject to court approval. No hearing has been set to date. 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 15: 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 investi- gations, 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 fra- grances, not to discount such prices, and to urge manufac- turers to refuse to sell to retailers who sell cosmetics and fragrances at discount prices, resulting in artificially inflat- ed retail prices paid by the class in violation of California state law.The plaintiffs seek treble damages in an unspeci- fied amount, attorneys’ fees and prejudgment interest. Defendants, including the Company, have answered the consolidated complaint denying the allegations. Discovery has commenced and defendants are nearing completion of the initial phase of producing documents and respond- ing to plaintiffs’ other 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 men’s, women’s and children’s non-athletic footwear and accessories, which has subsequently been acquired by Jones Apparel, other defendants include various department store and special- ty retailers. The lawsuits have now been consolidated in federal district court in New York and purport to be 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 47 424 144 Cyan Mag Yelo Blk 48 NORDSTROM, INC. AND SUBSIDIARIES Note 16: Selected Quarterly Data (unaudited) Year ended January 31, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Net sales Gross profit Earnings before income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share $1,039,105 $1,443,395 $1,110,114 $ 1,531,609 $5,124,223 350,909 51,688 31,538 .22 .22 .08 500,047 116,189 70,839 .51 .51 .08 392,270 521,237 1,764,463 55,033 33,633 109,147 66,547 332,057 202,557 .25 .25 .08 .50 .50 .08 1.47 1.46 .32 Year ended January 31, 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total Net sales Gross profit Earnings before income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share $1,040,215 $1,447,284 $1,094,349 $ 1,446,042 $5,027,890 341,915 52,837 32,337 .22 .21 .07 476,041 113,062 69,162 .47 .47 .07 377,249 487,740 1,682,945 63,175 38,675 108,649 66,549 337,723 206,723 .27 .27 .08 .47 .47 .08 1.41 1.41 .30 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 48 424 144 Cyan Mag Yelo Blk Management and Independent Auditors’ Reports NORDSTROM, INC. AND SUBSIDIARIES 49 and subsidiaries Independent Auditors’ Report We have audited the accompanying consolidated balance sheets of Nordstrom, (the Inc. “Company”) as of January 31, 2000 and 1999, and the related consolidated statements of earnings, shareholders’ equity and cash flows for each of the three years in the period ended January 31, 2000. These financial state- ments are the responsibility of the Company’s manage- ment. 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 dis- closures 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, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and subsidiaries as of January 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2000, in conformity with generally accepted accounting principles. As discussed in Note 1, the accompanying financial statements have been restated to reflect an accrual for sales returns. Deloitte & Touche LLP Seattle,Washington; March 10, 2000 Management Report The accompanying consolidated financial statements, including the notes thereto, and the other financial infor- mation presented in this Annual Report have been pre- pared by management.The financial statements have been prepared in accordance with generally accepted account- ing principles and include amounts that are based upon our best estimates and judgments. Management is respon- sible 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 in order to permit they are appropriately recorded, preparation of financial statements in conformity with generally accepted accounting principles and to ade- quately safeguard, verify and maintain accountability for assets. The concept of reasonable assurance is based on the recognition that the cost of a system of internal con- trol should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by Deloitte & Touche LLP, independ- ent certified public accountants.The accompanying audi- tors’ report expresses an independent professional opin- ion on the fairness of presentation of management’s financial statements. The Audit Committee of the Board of Directors is com- posed 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 the 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. Michael A. Stein Executive Vice President and Chief Financial Officer 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 49 424 144 Cyan Mag Yelo Blk 50 NORDSTROM, INC. AND SUBSIDIARIES Ten-Year Statistical Summary Dollars in thousands except square footage and per share amounts Year ended January 31, Financial Position Customer accounts receivable, net Merchandise inventories Current assets Current liabilities Working capital Working capital ratio Land, buildings and equipment, net Long-term debt, including current portion Debt/capital ratio Shareholders’ equity Shares outstanding Book value per share Total assets Operations Net sales Costs and expenses: Cost of sales and related buying and occupancy Selling, general, and administrative Interest, net Service charge income and other, net Total costs and expenses Earnings before income taxes Income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share Comparable store sales percentage increase (decrease) Net earnings as a percent of net sales Return on average shareholders’ equity Sales per square foot for Company-operated stores Stores Total square footage 2000 1999 1998 $596,020 797,845 1,564,648 866,509 698,139 1.81 $567,661 750,269 1,653,063 778,864 874,199 2.12 $641,862 826,045 1,613,492 979,031 634,461 1.65 1,429,492 1,378,006 1,252,513 804,982 .4249 868,234 .4214 420,865 .3194 1,185,614 1,300,545 1,458,950 132,279,988 142,114,167 152,518,104 8.96 9.15 9.57 3,062,081 3,088,063 2,890,664 5,124,223 5,027,890 4,851,624 3,359,760 1,491,040 50,396 (109,030) 4,792,166 332,057 129,500 202,557 1.47 1.46 .32 (1.1%) 3.95% 16.29% 350 104 3,344,945 1,405,270 47,091 (107,139) 4,690,167 337,723 131,000 206,723 1.41 1.41 .30 (2.7%) 4.11% 14.98% 362 97 3,295,813 1,322,929 34,250 (108,581) 4,544,411 307,213 121,000 186,213 1.20 1.20 .265 4.0% 3.84% 12.77% 384 92 14,487,000 13,593,000 12,614,000 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 50 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 51 1997 1996 1995 1994 1993 1992 1991 $693,123 719,919 1,549,819 795,321 754,498 1.95 $874,103 626,303 1,612,776 833,443 779,333 1.94 1,152,454 1,103,298 380,632 .2720 439,943 .3232 $655,715 627,930 1,397,713 693,015 704,698 2.02 984,195 373,910 .2575 $565,151 585,602 1,314,914 631,064 683,850 2.08 845,596 438,574 .2934 $584,379 536,739 1,219,844 516,397 703,447 2.36 824,142 481,945 .3337 1,457,084 1,408,053 1,330,437 1,153,594 1,038,649 $585,490 506,632 1,177,638 558,768 618,870 2.11 856,404 491,076 .4029 927,465 $558,573 448,344 1,090,379 556,394 533,985 1.96 806,191 468,148 .4308 816,100 159,269,954 162,226,288 164,488,196 164,118,256 163,949,594 163,688,454 163,475,820 9.15 8.68 8.09 7.03 6.34 5.67 4.99 2,726,495 2,732,619 2,396,783 2,177,481 2,053,170 2,041,875 1,902,589 4,448,019 4,106,817 3,892,614 3,591,228 3,415,613 3,174,822 2,891,856 3,079,459 1,217,086 39,400 (129,469) 4,206,476 241,543 95,227 146,316 .90 .90 .25 0.6% 3.29% 10.21% 377 83 2,802,786 1,120,120 39,295 (125,130) 3,837,071 269,746 106,190 163,556 1.00 1.00 .25 (0.7%) 3.98% 11.94% 382 78 2,598,624 1,023,161 30,664 (94,644) 2,469,689 2,336,005 2,167,268 1,999,251 940,708 37,646 (88,509) 901,446 44,810 (86,140) 831,005 49,106 (87,443) 747,565 52,228 (84,660) 3,557,805 3,359,534 3,196,121 2,959,936 2,714,384 334,809 132,304 202,505 231,694 90,804 140,890 1.23 1.23 .1925 4.4% 5.20% 16.30% 395 76 .86 .86 .17 2.7% 3.92% 12.85% 383 74 219,492 84,489 135,003 .82 .82 .16 1.4% 3.95% 13.73% 381 72 214,886 80,527 134,359 .82 .82 .155 1.4% 4.23% 15.41% 388 68 177,472 62,204 115,268 .71 .71 .15 0% 3.99% 14.97% 391 63 11,754,000 10,713,000 9,998,000 9,282,000 9,224,000 8,590,000 7,655,000 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 51 424 144 Cyan Mag Yelo Blk 52 NORDSTROM, INC. AND SUBSIDIARIES Officers of Nordstrom, Inc. Jammie Baugh, 46 Llynn (Len) A. Kuntz, 39 Executive Vice President, Human Resources Vice President and Executive Vice President, Full-Line Store Strategy Laurie M. Black, 40 F. Richard Lennon, 59 Vice President, Accessories, Gifts, Women’s Specialized, Northwest Vice President, Chief Information Officer Region, Full-Line Stores Robert E. Campbell, 44 Vice President, Strategy and Planning, and Treasurer Gail A. Cottle, 48 Executive Vice President and President, Nordstrom Product Group Dale C. Crichton, 51 Executive Vice President, Cosmetics, Full-Line Stores Joseph V. Demarte, 48 Vice President, Human Resources Annette S. Dresser, 39 Vice President, Women’s Contemporary, Full-Line Stores Linda Toschi Finn, 52 Vice President, Marketing Director, Full-Line Stores Tamela J. Hickel, 39 Vice President, Southeast Regional Manager Darrel J. Hume, 52 Vice President, Regional Manager of Stores, Central States Darren R. Jackson, 35 Vice President and Chief Financial Officer, Full-Line Stores Bonnie M. Junell, 43 Vice President, Brass Plum/Kids, Northwest, Full-Line Stores Kevin T. Knight, 44 Vice President and President, Nordstrom Credit Group Michael G. Koppel, 43 Vice President, Corporate Controller David P. Lindsey, 50 Vice President, Store Planning David L. Mackie, 51 Vice President, Real Estate Robert J. Middlemas, 43 Executive Vice President, General Manager, Central States Jack H. Minuk, 45 Vice President, Women’s Shoes, Full-Line Stores Blake W. Nordstrom, 39 Executive Vice President and President, Nordstrom Rack Group Erik B. Nordstrom, 36 Executive Vice President, Northwest General Manager Peter E. Nordstrom, 37 Executive Vice President, Director of Full-Line Store Merchandising Strategy William E. Nordstrom, 36 Executive Vice President, East Coast General Manager James R. O’Neal, 41 Executive Vice President, Southwest General Manager Suzanne R. Patneaude, 53 Vice President, Designer Apparel, Full-Line Stores N. Claire Stack, 38 Corporate Secretary and Director of Legal Affairs Michael A. Stein, 50 Executive Vice President and Chief Financial Officer 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 52 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 53 Joel T. Stinson, 50 Vice President, Operations Dana K. Summers, 40 Divisional Vice Presidents Nordstrom Full-Line Stores Mark S. Brashear, 38 Vice President, Business Information and Planning, Vice President, General Execution Manager, Southwest Region Full-Line Stores Delena M. Sunday, 39 Vice President, Diversity Affairs Susan A. Wilson Tabor, 54 Executive Vice President, General Manager, Nordstrom Rack Group Geevy S. K. Thomas, 35 Martine Burkel, 40 Vice President, Accessories, Gifts, Women’s Specialized, East Coast Region Nora M. Cummings, 45 Vice President, San Diego/Arizona Regional Manager Sherry E. Eversaul, 52 Vice President, Women’s Apparel, Contemporary Forward Bridge/Better, Vice President and Executive Vice President, Merchandising Strategy, Halogen Kathleen V. Ferguson, 40 Vice President, Customer Relationship Marketing Margaret (Peggy) Mansur, 41 Vice President, East Coast/Central States, Cosmetics Vicki McWilliams, 42 Vice President, Northern California Regional Manager Margaret Myers, 52 Vice President, Accessories and Women’s Specialized, Southwest Region Lisa S. O’Neal, 42 Vice President, Women’s Apparel, Classic/Mainstream, Better/Moderate David M. Witman, 41 Vice President, East Coast/Central States, Men’s Wear Nordstrom Credit Group Karen Bowman Roesler, 44 Vice President, Credit Marketing and Risk Carol R. Simonson, 48 Vice President, Finance, Strategy and Planning Full-Line Stores John J. Whitacre, 47 Chairman and Chief Executive Officer Martha S. Wikstrom, 43 Executive Vice President and President, Full-Line Store Group NORDSTROM.com, LLC Victoria B. Dellinger, 40 Executive Vice President, Merchandising Kimberly Jaderholm, 39 Vice President, Human Resources J. Daniel Nordstrom, 37 Chief Executive Officer and President, NORDSTROM.com, LLC Kathryn E. Olson, 41 Executive Vice President, Marketing Paul Onnen, 37 Vice President, Chief Technology Officer Michael Sato, 33 Vice President, Fulfillment Operations Robert A. Schwartz, 39 Executive Vice President, E-Commerce Kurt D. Whitesel, 38 Executive Vice President, Chief Operating Officer and Chief Financial Officer 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 53 424 144 Cyan Mag Yelo Blk Corporate Service Center Mary D. Amundson, 46 Vice President, Compensation and Benefits Jon M. Anastasio, 48 Vice President, Executive and Organizational Development D. Wayne Howard, 44 Vice President, Supply Chain Strategy W. Drew Murphy, 54 Vice President, Risk Management and Loss Prevention R. Michael Richardson, 43 Vice President, Systems Development and Enterprise Technologies Linda Gail Schantz, 46 Vice President, Logistics Janis M. Walsh, 47 Vice President, Information Technology Services Brooke F. White, 37 Vice President, Public Relations 54 NORDSTROM, INC. AND SUBSIDIARIES (Divisional Vice Presidents continued) Nordstrom Product Group Margaret Desmond Fortescue, 38 Vice President, Director of Information Technology Kathleen M. Gersch, 31 Vice President, Director of Finance and Strategic Planning Kent S. Grimes, 47 Vice President, Director of Product Groups Dean A. Holly, 47 Vice President, Director of Sourcing and Production James Mahan, 37 Vice President, Director of Human Resources Patrick C. Smith, 41 Vice President, Director of Operations Michael A. Tam, 42 Vice President, Director of Brands Nordstrom Rack Group Timothy J. Bean, 43 Vice President, Merchandise Manager, Shoes Kelly Cole Berka, 44 Vice President, Southwest Regional Manager Janet Meiser Blasquez, 42 Vice President, Merchandise Manager, Women’s Apparel Marsha Savery, 49 Vice President, Marketing Director Marcia A. Scott, 39 Vice President, Merchandise Manager for Accessories, Cosmetics, Lingerie, Kids and Gifts K. C. Shaffer, 45 Vice President, Northwest Regional Manager Dean H. White, 44 Vice President, Merchandise Manager, Men’s Apparel 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 54 424 144 Cyan Mag Yelo Blk Directors and Committees NORDSTROM, INC. AND SUBSIDIARIES 55 Directors D. Wayne Gittinger, 67 Director; Partner, Lane Powell Spears Lubersky LLP Seattle, Washington Enrique Hernandez, Jr., 44 Director; President and CEO, Inter-Con Security Systems, Inc. Pasadena, California Ann D. McLaughlin, 58 Director; Chairman, The Aspen Institute Aspen, Colorado John A. McMillan, 68 Director Bruce A. Nordstrom, 66 Director John N. Nordstrom, 62 Director Alfred E. Osborne, Jr., 55 Director; Director of the Harold Price Center for Entrepreneurial Studies and Associate Professor of Business Economics, The Anderson School at UCLA Los Angeles, California William D. Ruckelshaus, 67 Director; A Principal in Madrona Investment Group, LLC Seattle, Washington Elizabeth Crownhart Vaughan, 71 Director; President, Salar Enterprises Portland, Oregon John J. Whitacre, 47 Chairman of the Board of Directors Bruce G. Willison, 51 Director; Dean, The Anderson School at UCLA Los Angeles, California Committees Executive John A. McMillan Bruce A. Nordstrom John N. Nordstrom John J. Whitacre Audit Enrique Hernandez, Jr. Ann D. McLaughlin, Chair Alfred E. Osborne, Jr. William D. Ruckelshaus Elizabeth Crownhart Vaughan Bruce G. Willison Compensation and Stock Option Enrique Hernandez, Jr. Ann D. McLaughlin Alfred E. Osborne, Jr. William D. Ruckelshaus, Chair Elizabeth Crownhart Vaughan Finance D. Wayne Gittinger Enrique Hernandez, Jr. John A. McMillan John N. Nordstrom Alfred E. Osborne, Jr., Chair Bruce G. Willison Corporate Governance and Nominating D. Wayne Gittinger, Chair Ann D. McLaughlin Alfred E. Osborne, Jr. William D. Ruckelshaus Elizabeth Crownhart Vaughan Profit Sharing and Benefits Mary D. Amundson Joseph V. Demarte, Chair D. Wayne Gittinger Peter E. Nordstrom Michael A. Stein John J. Whitacre 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 55 424 144 Cyan Mag Yelo Blk 56 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 owns or leases other space for administrative functions. Location Store Name Southwest Group Year opened or Present total store acquired area/sq. ft. Fashion Square 1998 235,000 Arizona Scottsdale California Arcadia Brea Santa Anita Fashion Park Brea Mall Canoga Park Topanga Plaza Cerritos Los Cerritos Center Corte Madera The Village at Corte Madera Costa Mesa South Coast Plaza Escondido Glendale North County Fair Glendale Galleria Los Angeles Westside Pavilion Mission Viejo The Shops at Mission Viejo Montclair Palo Alto Montclair Plaza Stanford Shopping Center Pleasanton Stoneridge Mall Redondo Beach The Galleria at South Bay Riverside The Galleria at Tyler Sacramento Arden Fair Mall San Diego San Diego San Diego Fashion Valley Center Horton Plaza University Towne Centre San Francisco Stonestown Galleria San Francisco San Francisco Centre San Mateo Santa Ana Hillsdale Shopping Center MainPlace Mall Santa Barbara Paseo Nuevo Mall Santa Clara Valley Fair Walnut Creek Broadway Plaza 1994 1979 1984 1981 1985 1978 1986 1983 1985 1999 1986 1984 1990 1985 1991 1989 1981 1985 1984 1988 1988 1982 1987 1990 1987 1984 151,000 195,000 154,000 122,000 116,000 235,000 156,000 147,000 150,000 172,000 134,000 187,000 173,000 161,000 164,000 190,000 220,000 151,000 130,000 174,000 350,000 149,000 169,000 186,000 165,000 193,000 Location Store Name East Coast Group (continued) New Jersey Edison Freehold Millburn Paramus New York Garden City Menlo Park Mall Freehold Raceway Mall The Mall at Short Hills Garden State Plaza Roosevelt Field Mall White Plains The Westchester Mall Pennsylvania Year opened or Present total store acquired area/sq. ft. 1991 1992 1995 1990 266,000 174,000 188,000 282,000 1997 1995 241,000 219,000 King of Prussia King of Prussia Plaza 1996 238,000 Rhode Island Providence Providence Place 1999 206,000 Virginia Arlington McLean Norfolk The Fashion Centre 1989 241,000 at Pentagon City Tysons Corner Center MacArthur Center 1988 1999 253,000 166,000 Central States Group Illinois Oakbrook Oakbrook Center Schaumburg Woodfield Shopping Center Skokie Indiana Old Orchard Center 1991 1995 1994 249,000 215,000 209,000 Indianapolis Circle Centre Mall 1995 216,000 Kansas Overland Park Oak Park Mall 1998 219,000 Michigan Troy Minnesota Somerset Collection North 1996 258,000 East Coast Group Connecticut Farmington Georgia Atlanta Maryland Annapolis Bethesda Columbia Towson Westfarms Mall 1997 189,000 Beachwood Beachwood Place 1997 231,000 Perimeter Mall 1998 243,000 Texas Dallas Dallas Galleria 1996 249,000 Bloomington Mall of America 1992 240,000 Ohio Annapolis Mall Montgomery Mall The Mall in Columbia Towson Town Center 1994 1991 1999 1992 162,000 225,000 173,000 205,000 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 56 424 144 Cyan Mag Yelo Blk NORDSTROM, INC. AND SUBSIDIARIES 57 Year opened or Present total store acquired area/sq. ft. Location Store Name Northwest Group Year opened or Present total store acquired area/sq. ft. Location Store Name Rack Group Phoenix, AZ Last Chance Alaska Anchorage Colorado Denver Oregon Portland Portland Portland Salem Tigard Utah Murray Anchorage 5th Avenue Mall 1975 97,000 Park Meadows Mall 1996 245,000 Clackamas Town Center Downtown Portland Lloyd Center Salem Center Washington Square Fashion Place Mall 1981 1966 1963 1980 1974 121,000 174,000 150,000 71,000 189,000 Brea, CA Chino, CA Colma, CA Brea Union Plaza Rack Chino Town Square Rack 280 Metro Center Rack Costa Mesa, CA Metro Point Rack Sacramento, CA Howe Bout Arden Rack San Diego, CA Mission Valley Rack San Jose, CA Westgate Mall Rack San Leandro, CA Marina Square Rack Woodland Hills, CA Woodland Hills Rack Littleton, CO Meadows Market Place Rack Salt Lake City Crossroads Plaza Washington Bellevue Lynnwood Seattle Seattle Spokane Tacoma Tukwila Bellevue Square Alderwood Mall Downtown Seattle (1) Northgate Mall River Park Square Tacoma Mall Southcenter Mall Vancouver Vancouver Mall Downtown Yakima Yakima Other Façonnable Beverly Hills, CA Costa Mesa, CA New York, NY Women’s Ala Moana Honolulu, HI Men’s Ala Moana Honolulu, HI 1981 1980 110,000 140,000 Northbrook, IL Village Square Rack Schaumburg, IL Woodfield Rack Gaithersburg, MD Shady Grove Boulevard Rack Silver Spring, MD City Place Rack Towson, MD Towson Rack Bloomington, MN Mall of America Rack Hempstead, NY The Mall at the Source Rack Beaverton, OR Tanasbourne Rack Portland, OR Clackamas Rack Portland, OR Downtown Portland Rack Philadelphia, PA Franklin Mills Rack Salt Lake City, UT Sugarhouse Center Rack Woodbridge, VA Potomac Mills Rack Auburn, WA SuperMall Rack Bellevue, WA Factoria Square Rack Lynnwood, WA Golde Creek Plaza Rack Seattle, WA Downtown Seattle Rack 1967 1979 1998 1965 1999 1966 1968 1977 1972 285,000 127,000 383,000 122,000 137,000 134,000 170,000 71,000 44,000 1997 1997 1993 17,000 8,000 10,000 1997 14,000 1997 8,000 1992 1999 1987 1987 1983 1999 1985 1998 1990 1984 1998 1996 1994 1999 1992 1992 1998 1997 1998 1983 1986 1993 1991 1990 1995 1997 1999 1987 48,000 45,000 30,000 31,000 50,000 54,000 57,000 48,000 44,000 48,000 34,000 40,000 45,000 49,000 37,000 31,000 41,000 48,000 53,000 28,000 19,000 43,000 31,000 46,000 48,000 46,000 38,000 42,000 (1) Excludes approximately 278,000 square feet of corporate and administrative offices. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 57 424 144 Cyan Mag Yelo Blk 58 NORDSTROM, INC. AND SUBSIDIARIES Shareholder Information Independent Auditors Deloitte & Touche LLP Counsel Lane Powell Spears Lubersky LLP Transfer Agent and Registrar ChaseMellon Shareholder Services Telephone (800) 318-7045 General Offices 1617 Sixth Avenue Seattle, Washington 98101-1742 Telephone (206) 628-2111 Annual Meeting May 16, 2000 at 11:00 a.m. Pacific Daylight Time Westin Hotel 1900 Fifth Avenue Seattle, Washington Form 10-K The Company’s Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended January 31, 2000 will be provided to shareholders upon written request to: Nordstrom, Inc. Investor Relations P.O. Box 2737 Seattle, Washington 98111 or by calling (206) 233-6301. Shareholder Information Please visit our www.nordstrom.com Web site to obtain the latest available information. In addition, the Company is always willing to discuss matters of concern to shareholders, including its vendor standards compliance mechanisms and progress in achieving compliance. 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK PAGE 58 424 144 Cyan Mag Yelo Blk Nordstrom at a Glance Nordstrom, Inc. is one of the nation’s leading fashion specialty retailers, with 104 stores located in 23 states, including 71 full-line stores, 27 Nordstrom Racks, three Façonnable boutiques, two free-standing shoe stores, and one clearance store. The Company also serves customers through its online presence at http://www.nord- strom.com, as well as through its direct sales catalogs. Nordstrom, Inc. is publicly traded on the NYSE under the symbol JWN. 144 Cyan Mag Yelo Blk 20000208 Leonhardt Group 2000 Annual Report 7.75 x 9.5 • PDF • 175 lpi • KODAK OBC x OFC