Nordstrom
Annual Report 2001

Plain-text annual report

2001 ANNUAL REPORT [why this store. why now.] 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + 550pms + metalic 8002 + Var OFC Varn pms 550 pms 8002 Cyan Mag Yelo Blk 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 2001 2000 % Change $5,634,130 204,488 124,688 .93 .93 .36 2001 $5,528,537 167,018 101,918 .78 .78 .35 1.9 22.4 22.3 19.2 19.2 2.9 2000 high low high low 21.17 22.75 22.97 25.50 15.60 17.00 13.80 14.25 34.50 30.00 19.50 21.00 18.25 16.56 14.19 14.88 Nordstrom, Inc. common stock is traded on the New York Stock Exchange NYSE Symbol JWN Comparable Store Sales % Change Total Sales % Change • • Sales per Square Foot % 8 9 . • % 6 7. • % 4 1 . • % 4 1 . • % 1 5 . • % 6 5 . • % 4 4 . • % 5 8 . • % 7 0 - . • % 4 8 . • % 6 0 . • % 0 4 . • % 1 9 . • % 8 3 . • % 7 2 - . • % 1 1 - . • % 7 2 . • % 0 2 . • % 4 7. • % 3 0 . • 91 92 93 94 95 96 97 98 99 00 % 9 . 1 • % 9 . 2 - • 01 5 9 3 $ • 8 8 3 $ 1 8 3 $ 3 8 3 $ ••• 4 8 3 $ 2 8 3 $ 7 7 3 $ ••• 2 6 3 $ • 0 5 3 $ • 2 4 3 $ • 1 2 3 $ • 91 92 93 94 95 96 97 98 99 00 01 SG&A as a % of Sales Diluted Earnings per Share . % 6 1 % 3 • 6 9 2 . • % 6 . 0 3 • % 3 8 2 . • 3 2 1 $ . • 6 8 0 $ . 0 0 1 $ . • 2 8 0 $ . 2 8 0 $ . ••• 1 4 1 $ . • 0 2 1 $ . • 6 4 1 $ . • 3 9 . 0 8 $ 7 0 $ • . • 0 9 0 $ . • % 6 7. 2 % 7 7. 2 ••• % 5 7. 2 % 2 6 2 . % 4 6 2 . % 2 6 2 . % 4 6 2 . •••• 91 92 93 94 95 96 97 98 99 00 01 91 92 93 94 95 96 97 98 99 00 01 Index 9 Management’s Discussion and Analysis 19 Consolidated Statements of Cash Flows 40 Officers of the Corporation 16 Consolidated Statements of Earnings 20 Notes to Consolidated Financial Statements and Executive Team 17 Consolidated Balance Sheets 37 Independent Auditors’ and Management Report 41 Board of Directors and Committees 18 Consolidated Statements of Shareholders’ Equity 38 Eleven-Year Statistical Summary 42 Retail Store Facilities 1 NORDSTROM INC. AND SUBSIDIARIES View this entire report online. Please visit www.nordstrom.com to see this report and obtain the latest available information. 44 Shareholder Information 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar pms 550 + metalic 8002 + black + varnish IFC Cyan Mag Yelo Blk pms 8002 why Nordstrom? What is it that makes this company uniquely positioned to not only survive, but thrive, in today’s uncertain economic environment? Good question. At Nordstrom, we truly believe we have something special to offer. Most notably, we have a team of really incredible people all dedicated to enhancing our reputation and improving the way we do business on a daily basis. So who better to answer questions about the state of our company than the folks ultimately responsible for making it all happen. 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 01 Cyan Mag Yelo Blk Varn pms 8002 Q: What is Nordstrom doing differently in response to the challenging state of retail today? AA:: "Today, from a merchandising standpoint, it’s all about great items. Styles customers can really get excited about. Things I get excited about. To me, that’s the definition of customer service. When the customer leaves the store with a big smile on her face because she found just what she was looking for. Or maybe she picked up something that just caught her eye. Something she couldn’t resist. At Nordstrom, we carry a huge selection. Both name brands and private labels. Stock a ton of sizes. And these days value is a big part of the equation. The customer needs to feel she’s getting her money’s worth. Whether it’s a $50 pair of shoes or a $250 pair of shoes, I need to make sure it’s the best pair of shoes available for that price. When all is said and done, we want every customer to walk away feeling really good about what they bought.” GENIE YAO BP. SHOES BUYER Northern California 13 YEARS OF SERVICE 2 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 02 Cyan Mag Yelo Blk Varn pms 8002 AA:: "I work in Encore, our plus-size department, and some women come in not feeling that good about themselves. But I tell them we don’t allow that here. It’s not allowed. So lift your head up when you come into my department. And when we get to the counter it’s like a little party. Women are laughing and conversing, and it’s just a whole new experience for them. We discuss things. It’s uplifting. I think that brings them back here even during times we’re going through right now. Maybe more so. So to answer the question are we doing anything different? Maybe there is a renewed sense of community and a greater appreciation for the people we interact with. More of a connection. But really that’s the way we’ve always gone about it. Sure we’re selling clothes. But it’s more about the relationships. About listening to customers and caring enough to make them feel good. And that makes me feel good. I’m proud to be working for a family-owned business that truly appreciates its customers — and allows its sales associates the freedom to do whatever it takes to ensure their satisfaction." SUE BAKER ENCORE SALESPERSON Indianapolis, Indiana 6 YEARS OF SERVICE NORDSTROM INC. AND SUBSIDIARIES 2 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 03 Cyan Mag Yelo Blk Varn pms 8002 Q: What are the key benefits you expect to realize with Perpetual Inventory? AA:: “First and foremost, we view Perpetual Inventory as a tool — a very powerful tool that will ultimately allow us to better serve the customer. It will accomplish this in many ways. The big plus at the point of sale will be our ability to track down and transfer an item for a customer much more quickly and efficiently. The obvious byproduct of this greater efficiency is expense savings. Our legacy system was very manual. With the new system, there’s no more paperwork. In the end, we’ll save time. We’ll save money. We’ll have more time to spend with that customer. At its core, Perpetual Inventory is a merchandising system. Basically, it will give our buyers the ability to make better decisions about the products they buy for our stores. If they know more about what they’re selling by store, by size and by color, they will be able to make better decisions about what to buy in the future. What’s more, they’ll be able to more effectively manage their inventory, and react to trends a lot faster. Right now, there’s definitely a lot of learning going on, but in general the implementation is going very well. When all is said and done, Perpetual Inventory undoubtedly will have a positive impact on the way we run our business, but only to the extent that it allows us to be a better, smarter, more efficient retailer. And better serve our customers." TONJA KUNTZ VICE PRESIDENT CORPORATE MERCHANDISE MANAGER Women’s Active Sportswear/Hosiery/Lingerie 14 YEARS OF SERVICE 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 04 Cyan Mag Yelo Blk Varn pms 8002 Q: How does Nordstrom transfer the company’s core values to new markets? AA:: "At Nordstrom, we’re not only trying to build long-term relationships with our customers, we’re building lasting relationships with our employees as well. And that’s how the culture thrives. All of my managers, my mentors, have wanted me to succeed. That’s something you really feel around here. In fact, they recommended me for the manager position here in Tampa. So I made the move. Now I’m passing my knowledge and experience on to the next generation. Ultimately, I want the people on my team to go on to Orlando or Coral Gables when we open those stores. I think that’s what it’s really all about. By promoting from within, we’re grooming people for what they really want to do. We’re creating new leaders. And that’s an awesome feeling, because you’re also working toward the company’s goals. In the end, everyone wins." JAIME FERNANDEZ MEN’S FURNISHINGS DEPARTMENT MANAGER Tampa, Florida 4 YEARS OF SERVICE NORDSTROM INC. AND SUBSIDIARIES 5 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 05 Cyan Mag Yelo Blk Varn pms 8002 Q: What is the company doing to bring expenses under control? A: "Speaking from an operations perspective, I think we have established clarity on exactly what we need to invest in. As you might imagine, we are focusing our resources on the customer experience — what they see, what they feel when they walk into our stores. To that end, we engaged in some pretty in-depth analysis on what is at the core of our long-term operational strategy. After deciding on the things it made sense committing to, we made sure we could deliver them with a quality/cost balance. It all boils down to best practices. Leveraging our size to make smarter purchases. Looking at our distribution network and utilizing it to service the stores more efficiently. The bottom line in operations, we feel that if we can deliver our product to store managers, regional managers, merchandisers, front-line salespeople in a manner that is essentially transparent to them, they will be free of distractions in their interactions with the customers in our stores.” MIKE SATO VICE PRESIDENT Full-Line Stores Operations 17 YEARS OF SERVICE 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 06 Cyan Mag Yelo Blk Varn pms 8002 Q: What is Nordstrom doing to enhance the customer experience? A: "Nordstrom has always been defined by the customer experience — and it’s this experience that draws customers in and keeps them coming back. As a company, it’s what we all focus on. From the buyers who buy the clothes, to people who stock the shelves. And of course, there’s our salespeople. We pride ourselves on having the best in the business. My job is to remove any barriers that would keep them from making the customer happy. To give them the tools they need, and then get out of the way. As for the store itself, I think we have done a better job recently defining the merchandise offering in each of our departments, which makes it easier for customers to find what they’re looking for. I also think the buyers have done a good job of taking all the feedback—and they get a lot—and adjusting the merchandise mix to reflect what our customers really want." MICHELLE HAGGARD STORE MANAGER Riverside, California 10 YEARS OF SERVICE NORDSTROM INC. AND SUBSIDIARIES 7 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 07 Cyan Mag Yelo Blk Varn pms 8002 Dear Customers, Employees and Shareholders, Dear Customers, Employees and Shareholders, At Nordstrom, nothing is more important than the connection between our salespeople and customers. For this relationship to flourish, our customers must believe we are sincere in our desire to make their shopping experience as enjoyable and rewarding as possible. And our folks on front lines must feel that they are empowered to not only meet, but exceed our customers’ expectations. Over the past 12 months, we have made significant progress in our goal to regain the trust and goodwill of these two key groups. As we’ve increased our focus on the front lines, we have also reviewed many of our operating procedures and practices to make sure our time and energy are well spent — all while building upon the core values that define our culture and differentiate our position in the marketplace. I’ve highlighted some of our more noteworthy accomplishments below. • We’ve worked to clarify the offering in each of our lifestyle departments, making it easier for customers to find the items that appeal to them, while providing more balance to our overall merchandise mix. • We’ve improved on getting the right item, at the right time, at the right price in each of these departments, which is helping to drive volume. • We’ve finished testing and begun implementation of our Perpetual Inventory system, a vital merchandising tool that will provide us with information to make smarter decisions throughout the selling process, and better serve our customers. • We’ve streamlined back-of-the-house operations, saving valuable time and effort, while also helping us achieve significant reductions in our overall costs. There is no doubt that none of these things would have been possible without the focus and dedication of our entire team. Through their efforts, we believe we are getting back on track regarding what it is that makes Nordstrom unique and special. But we realize there is still more work to be done. Obviously, these are challenging times, and consumers have many choices when it comes to spending their hard- earned money. At Nordstrom, we need to make sure that we are providing real, tangible reasons why they might choose to shop with us. We must continue to hone our listening skills, and maintain a sense of urgency when responding to our customers’ needs. I’m confident we’re doing just that. Sincerely, Blake W. Nordstrom PRESIDENT 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 +varnish PAGE 08 Cyan Mag Yelo Blk Varn pms 8002 Management’s Discussion and Analysis Overview Net Sales (in millions) Earnings for 2001 (the fiscal year ended January 31, 2002) for Nordstrom, Inc. and its subsidiaries (collectively, the “Company”) increased by 22% as compared to 2000. This increase was primarily attributable to nonrecurring charges experienced in the prior year. Excluding nonrecurring charges, earnings for 2001 declined by 8.4% due in large part to the slowing economy. The Company experienced a modest increase in net sales due to the opening of new stores but comparable store sales (sales from stores open at least one full fiscal year) declined. Gross profit as a percent of sales also declined primarily due to higher markdowns taken to increase sales and liquidate excess inventories. Selling, general and administrative expenses as a percent of sales declined as a result of focused ef forts in 2001 to reduce costs. $6,000 $5,500 $5,000 $4,500 $4,000 5 6 8 , 4 $ 9 4 0 , 5 $ 9 4 1 , 5 $ 9 2 5 , 5 $ 4 3 6 , 5 $ 1997 1998 1999 2000 2001 In 2002 (the fiscal year ending January 31, 2003), the Company Year over year net sales percentage increases and comparable store plans to focus on sales growth, managing merchandise inventory sales percentages are as follows: levels, controlling expenses, and making disciplined capital Fiscal Year investment decisions. The Company will also strive to build on its core values of customer service and delivering the right mix of quality merchandise at the right price. Net sales increase Comparable store sales 2001 1.9% (2.9%) 2000 1999 7.4% 0.3 % 2.0% (1.1%) RESULTS OF OPERATIONS The net sales increase of 1.9% in 2001 was due to new store openings. During 2001, the Company opened four Nordstrom full-line stores, eight Nordstrom Rack stores and three Façonnable boutiques. The increases in net sales were of fset by negative Percentage of 2001 Sales by Merchandise Category comparable store sales and a decline in sales at Nordstrom.com. Children’s Apparel and Accessories 4% Other 3% Men’s Apparel and Furnishings 18% Comparable store sales in the first half of the year were lower by 1.3% and in the second half of the year were lower by 4.4%. The decline in the second half of 2001 was largely due to the overall slowdown in the economy. The most significant sales Women’s Apparel 35% declines were in men’s apparel and shoes while women’s apparel was essentially f lat. Shoes 19% Net sales increased 7.4% in 2000 due to new store openings. During 2000, the Company opened six Nordstrom full-line stores and ten Nordstrom Rack stores. Comparable store sales were essentially f lat in 2000, with increases in shoes, cosmetics and accessories of fset by decreases in women’s apparel. The decrease in women’s apparel was primarily attributable Women’s Accessories 21% to a change in product mix. NORDSTROM INC. AND SUBSIDIARIES 9 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 09 Cyan Mag Yelo Blk pms 550 pms 8002 Management’s Discussion and Analysis In 2002, the Company plans to open eight full-line stores, Excluding nonrecurring charges, selling, general and administrative four Nordstrom Rack stores and two Façonnable boutiques, expenses as a percentage of net sales decreased in 2001 primarily increasing retail square footage 8%. Given the continued weakness due to a focused ef fort to control expenses in the areas of sales in the economy, comparable store sales are planned to be f lat. promotion, direct selling and information technology. These Based on the sales trend seen in the prior year, comparable store decreases were partially of fset by an increase in bad debt on sales are planned to be negative in the first half of the year the Company’s credit cards. and positive in the second half of the year. Gross Profit Gross profit as a percentage of net sales is as follows: In 2000, before nonrecurring charges, the increase in selling, general and administrative expenses as a percent of sales was due to increased costs in the areas of direct selling, credit and sales promotion, related in part to store openings, and increased costs for information services resulting from Fiscal Year 2001 2000 1999 the Company’s investment in new technology. Gross profit as a percent Fiscal 2000 included nonrecurring charges of $23 million, of net sales 33.2% 34.0% 34.8% of which approximately $10 million (pre-tax) related to the Gross profit as a percentage of net sales declined in 2001 due to higher markdowns and new store occupancy expenses. The higher markdowns were taken to drive sales and to liquidate excess inventory caused by the decrease in comparable store sales. In 2000, the decline in gross profit as a percentage of sales was due to increased markdowns taken to liquidate excess inventory and increased occupancy expenses as a result of additional stores. In 2002, gross profit as a percentage of sales is expected to improve moderately through careful management of inventory levels in relation to sales trends. However, any improvement may be limited if sales trends are weaker than expected. The Company write-of f of abandoned and impaired information technology projects, and approximately $13 million (pre-tax) related to employee severance and other costs associated with a change in management. In 2002, selling, general and administrative expenses as a percent of net sales are expected to improve slightly as the Company continues its focus on expense management while incurring higher costs related to new stores, higher depreciation related to new information systems and continued high levels of bad debt. expects to complete the rollout of its perpetual inventory system Interest Expense, Net in 2002. The benefits of having better inventory tracking tools Interest expense, net increased 19.7% in 2001 due to higher through perpetual inventory should, over time, also improve gross average borrowings, partially of fset by a decrease in interest rates. profit performance. In 2000, interest expense, net increased 24.4% primarily due to higher average borrowings. Selling, General and Administrative Selling, general and administrative expenses as a percent of net sales are as follows: Fiscal Year 2001 2000 1999 Selling, general and administrative Nonrecurring charges Selling, general and administrative before nonrecurring charges 30.6% — 31.6% 0.4% 29.6% 0.2% 30.6% 31.2% 29.4% 10 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 10 Cyan Mag Yelo Blk pms 550 Management’s Discussion and Analysis Service Charge Income and Other, Net (in millions) Earnings per Share (Diluted) 1 1 1 $ 0 1 1 $ 7 1 1 $ 1 3 1 $ 4 3 1 $ 0 2 . 1 $ 1 4 . 1 $ 6 4 . 1 $ 8 7 . 0 $ 3 9 . 0 $ $140 $130 $120 $110 $100 $1.60 $1.40 $1.20 $1.00 $0.80 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 Service charge income and other, net primarily represents income Diluted earnings per share are as follows: from the Company’s credit card operations. Service charge income declined slightly in 2001 due to lower interest rates, f lat credit sales and a steady number of credit accounts. This decline was of fset by lower miscellaneous charges compared to the prior year. In 2000, service charge income increased due to higher credit sales and increases in the number of credit accounts. Credit sales and Fiscal Year Diluted earnings per share Nonrecurring charges Diluted earnings per share 2001 $.93 — 2000 1999 $.78 .26 $1.46 .04 before nonrecurring charges $.93 $1.04 $1.50 the number of credit accounts increased as a result of a targeted Excluding nonrecurring charges, earnings per share for 2001 were marketing ef fort toward inactive accounts and the introduction of 10.6% worse than 2000 primarily driven by a decline in comparable a rewards program. In 2002, service charge income is planned to be higher due to a store sales and a decline in gross profit percent of fset by decreases in selling, general and administrative expenses as a percent of sales. small increase in credit sales and credit accounts, and adjustments Excluding nonrecurring charges, earnings per share for 2000 were to interest rates charged. Write-of f of Investment The Company held common shares in Streamline, Inc., an Internet grocery and consumer goods delivery company, at a cost of approximately $33 million. Streamline ceased its operations ef fective November 2000. During 2000, the Company wrote of f its entire investment in Streamline. 30.7% lower than 1999 primarily due to the decline in gross profit percent and higher selling, general and administrative expenses, partially of fset by higher service charge income. Fourth Quarter Results Fourth quarter 2001 earnings per share were $.38 compared with $.20 in 2000. The prior year included a $.01 nonrecurring charge related to the write-of f of the remaining Streamline investment. Total sales for the quarter declined by 1.5% versus the same quarter in the prior year and comparable store sales declined by 3.4%. The decline in sales was primarily due to the overall slowdown in the economy. Gross profit increased compared to the same quarter in the prior year due to lower markdowns. Selling, general and administrative expenses improved in the quarter compared to the NORDSTROM INC. AND SUBSIDIARIES 11 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 11 Cyan Mag Yelo Blk pms 550 pms 8002 Management’s Discussion and Analysis prior year due to lower costs in selling and sales promotion, At January 31, 2002, approximately $456 million has been partially of fset by higher bad debt. The lower selling, general contractually committed for the construction of new stores and administrative costs were the result of a focused ef fort or remodel of existing stores. Although the Company has made to control costs. LIQUIDITY AND CAPITAL RESOURCES The Company finances its working capital needs, capital expenditures, acquisitions, and share repurchase activity with a combination of cash f lows from operations and borrowings. Management believes that the Company’s operating cash f lows, existing cash and available credit facilities are suf ficient to finance the Company’s operations and planned growth for the foreseeable future. Cash Flows from Operations Net cash provided by operating activities increased approximately $238 million in 2001 compared to 2000 primarily due to decreases in merchandise inventories and accounts receivable. commitments for stores opening in 2002 and beyond, it is possible that some stores may not be opened as scheduled because of delays inherent in the development process, or because of the termination of store site negotiations. Total Square Footage (thousands) 4 1 6 , 2 1 3 9 5 , 3 1 7 8 4 , 4 1 6 5 0 , 6 1 8 4 0 7, 1 18,000 16,000 14,000 12,000 10,000 1997 1998 1999 2000 2001 Net cash provided by operating activities decreased approximately $193 million in 2000 compared to 1999 largely due to lower Share Repurchase net earnings and increases in credit card accounts receivable and merchandise inventories. In 2002, cash f lows provided by operating activities are expected to decrease due to increases in accounts receivable related to increases in credit sales and inventory increases related to the opening of new stores. Capital Expenditures In May 1995, the Board of Directors authorized $1.1 billion of share repurchases. As of January 31, 2002, the Company has purchased 39 million shares of its common stock for $1 billion, with remaining share repurchase authority of $82 million. The share repurchase represents 24% of the shares outstanding as of May 1995 after adjusting for the 1998 stock split, at an average price per share of $25.93. Share repurchases have been partially financed through additional borrowings, resulting in an increase in the Company’s debt to capital ratio. The Company’s capital expenditures aggregated approximately $683 million over the last three years, net of developer reimbursements, principally to add stores, improve existing facilities and purchase Dividend Policy or develop new information systems. Over 3.5 million square feet of retail store space was added during this period, representing an increase of 25% since January 31, 1999. In 2001, the Company paid $.36 per share of common stock in cash dividends, the fifth consecutive annual dividend increase. The Company paid $.35 and $.32 per share of common stock The Company plans to spend approximately $875 million, net of in fiscal 2000 and 1999. developer reimbursements, on capital projects during the next three years, including new stores, the remodeling of existing stores, new systems and technology, and other items. 12 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 12 Cyan Mag Yelo Blk pms 550 pms 8002 Management’s Discussion and Analysis Acquisition In 2000, the Company acquired Façonnable, S.A. ("Façonnable"), of Nice, France, a designer, wholesaler and retailer of high quality consolidated balance sheets. The Visa VFN is scheduled to expire in April 2002. The Company is in the process of renewing this credit facility. men’s and women’s apparel and accessories. The Company paid The Company owns a 49% interest in a limited partnership which $88 million in cash and issued 5,074,000 shares of common constructed a new corporate of fice building in which the Company stock of the Company for a total consideration of $169 million. is the primary occupant. Land, building and equipment includes The purchase also provides for a contingent payment to one capitalized costs related to this building of $93 million and $57 of the previous owners that may be paid after five years from million as of January 31, 2002 and 2001. The Company is a the acquisition date. If the previous owner continues to have guarantor of a $93 million credit facility of the limited partnership active involvement in the business and performance targets of which $89 million and $53 million is outstanding as of January are met, the contingent payment would approximate $10 million. 31, 2002 and 2001 and is included in other long-term debt. Since the contingent payment is performance based, the actual amount paid will likely vary from this amount and will be expensed when it becomes probable that the targets will be met. Debt, Available Credit and Debt Ratings In October 2000, the Company issued $300 million of 8.95% Senior Notes due in 2005. These proceeds were used to reduce short-term indebtedness, to fund the acquisition of Façonnable, and for general corporate purposes. The Company entered into a variable interest rate swap agreement in the third quarter of 2001. The swap has a $300 million notional amount and a four-year term. Under the agreement, the Company receives a fixed rate of 8.95% and pays a variable rate based on LIBOR plus a margin of 4.44% set at six-month intervals (6.85% at January 31, 2002). Any dif ferences between the amounts paid and received on interest rate swap agreements are recognized as adjustments to interest expense over the life of the swap. In November 2001, the Company issued $300 million of Class A notes backed by Nordstrom Private Label Receivables (“PL Term”). The PL Term bears a fixed interest rate of 4.82% and has a maturity of five years. Both the debt and related assets of the PL Term are included in the Company’s consolidated balance sheet. The Company will use the proceeds for general corporate purposes and capital expansion. The limited partnership is currently refinancing the $93 million credit facility and has signed a commitment agreement for an $85 million mortgage secured by the property. The obligation will have a fixed interest rate of 7.68% and a term of 18 years. The Company expects the agreement to close in April 2002 subject to various requirements. The dif ference between the amount outstanding under the original credit facility and the new mortgage will be funded by the Company. In November 2001, the Company entered into a $300 million unsecured revolving credit facility that expires in November 2004. This credit facility replaced an existing $500 million line of credit, that was scheduled to expire in July 2002. As of January 31, 2002, no borrowings have been made against this revolving credit facility. In November 2001, the Company issued a variable funding note backed by Nordstrom Private Label Receivables (“PL VFN”) with a $200 million capacity. As of January 31, 2002, no borrowings have been made against this note. The Company has the following credit ratings as of the date of this report. Credit Ratings Senior unsecured debt Commercial paper *negative outlook Moody’s* Standard and Poor’s* Baa1 P-2 A- A-2 The Company has an outstanding $200 million variable funding These ratings are subject to change depending on the Company’s note backed by Nordstrom VISA credit card receivables (“Visa VFN”). performance. A significant ratings drop could result in the In accordance with SFAS No. 140 "Accounting for Transfers and termination of the $200 million PL VFN and the $200 million Servicing of Financial Assets and Extinguishments of L iabilities" Visa VFN, and a change in interest rates on the $300 million this debt and the related assets are not reflected in the Company’s 8.95% Senior Notes and the $300 million revolving credit facility. NORDSTROM INC. AND SUBSIDIARIES 13 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 13 Cyan Mag Yelo Blk pms 550 Management’s Discussion and Analysis The remainder of the Company’s outstanding debt is not subject Put Agreement to termination or interest rate adjustments based on changes in credit ratings. The holders of the minority interest of Nordstrom.com LLC, through their ownership interests in its managing member, Nordstrom.com, The following table summarizes the Company’s contractual Inc., have the right to sell their shares of Nordstrom.com, Inc. to the obligations and the expected ef fect on liquidity and cash f lows Company for ef fectively $80 million in the event that certain events excluding the $93 million construction loan and any potential do not occur. This right would terminate if the Company provides at liability related to the Nordstrom.com Put Agreement. least $100 million in additional funding to Nordstrom.com, Inc. Less than 1 Year 1 - 3 Years 4 – 5 Years Over 5 Years Fiscal Year Total Long-term Debt $1,330.6 $77.7 $3.0 $700.6 $549.3 Capital Leases 17.2 1.3 2.2 2.2 11.5 prior to July 1, 2002 or if Nordstrom.com, Inc. completes an initial public of fering of its common stock prior to September 1, 2002. It is possible that the Company will choose not to provide the $100 million in additional funding and that Nordstrom.com, Inc. will not complete an initial public of fering on or before September 1, 2002. If and when the Company determines that neither of those events is likely to occur and that the purchase of the minority interest shares Operating Leases 674.1 66.9 125.2 108.5 373.5 is probable, the Company will begin to accrete, over the period Construction Commitments 456.1 195.9 151.2 — 109.0 million and the fair value of the shares. Based on current values remaining prior to the purchase, the dif ference between that $80 Total $2,478.0 $341.8 $281.6 $811.3 $1,043.3 for similar businesses, management of the Company believes that the amount of that dif ference could range from $55 million to Construction commitments include $109 million shown in the Over 5 Years category for new stores construction. These contracts do not have specific due dates and may become due sooner than $65 million. five years. Valuation of Intangible Assets CRITICAL ACCOUNTING POLICIES The preparation of the Company’s financial statements require that management make estimates and judgments that af fect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on- going basis, the Company evaluates its estimates including those related to doubtful accounts, inventory valuation, intangible The Company is in the process of performing a valuation to determine if there has been an impairment of the $138 million intangible asset resulting from the purchase of Façonnable. This is the Company’s only intangible asset. The valuation is dependent on many factors including future performance and market conditions. Should this asset be impaired, a charge will be recorded in the first quarter of 2002. assets, income taxes, self-insurance liabilities, pensions, contingent Realization of Deferred Tax Assets liabilities and litigation. The Company bases its estimates on historical experience and on other assumptions that management believes to be reasonable under the circumstances. Actual results may dif fer from these estimates under dif ferent assumptions or conditions. As of January 31, 2002, the Company has $34 million of capital loss carryforwards. The utilization of this deferred tax asset is contingent upon the ability to generate capital gains within the next four years. No valuation allowance has been provided because management believes it is probable that the full benefit of the carryforwards will be realized. 14 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 14 Cyan Mag Yelo Blk pms 550 Management’s Discussion and Analysis RECENT ACCOUNTING PRONOUNCEMENTS In February 2002, the Company adopted SFAS No. 144, In February 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137 and No. 138. It requires the fair value of all derivatives to be recognized as assets or liabilities, and specifies accounting for changes in their fair value. Adoption of this standard did not have a material impact on the Company’s “Accounting for the Impairment or Disposal of Long-L ived Assets.” SFAS No. 144 retains the fundamental provisions of SFAS No. 121, but establishes new criteria for asset classification and broadens the scope of qualifying discontinued operations. The adoption of this statement did not have a material impact on the Company’s financial statements. financial statements. FORWARD-LOOKING INFORMATION CAUTIONARY STATEMENT In March 2001, the Company adopted SFAS No. 140 “Accounting Certain statements made in this annual report include forward- for Transfers and Servicing of Financial Assets and Extinguishments looking statements regarding the Company’s performance, liquidity of L iabilities,” a replacement of SFAS No. 125 with the same title. and adequacy of capital resources. These statements are based It revises the standards for securitizations and other transfers of on the Company’s current assumptions and expectations and are financial assets and collateral and requires certain additional subject to certain risks and uncertainties that could cause actual disclosures, but otherwise retains most of SFAS No. 125’s results to dif fer materially from those projected. Forward-looking provisions. Adoption of this standard did not have a material statements are qualified by the risks and challenges posed by impact on the Company’s financial statements. increased competition, shifting consumer demand, changing consumer credit markets, changing capital markets and general economic conditions, hiring and retaining ef fective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving growth objectives, and other risks and uncertainties, including the uncertain economic and political environment arising from the terrorist acts of September 11th and subsequent terrorist activities. As a result, while the Company believes there is a reasonable basis for the forward-looking statements, one should not place undue reliance on those statements. The Emerging Issues Task Force reached a consensus on Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” which provides guidance on how a transferor that retains an interest in securitized financial assets, or an enterprise that purchases a beneficial interest in securitized financial assets, should account for related interest income and impairment. Adoption of this accounting issue for the quarter ended July 31, 2001, did not have a material impact on the Company’s financial statements. In February 2002, the Company adopted SFAS No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of goodwill separate from other intangible assets. Adoption of the accounting provisions of SFAS No. 141 did not have a material impact on the Company’s financial statements. Under SFAS No. 142, goodwill and intangible assets having indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives. The Company is currently evaluating the impact of SFAS No. 142 on its earnings and financial position. NORDSTROM INC. AND SUBSIDIARIES 15 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 15 Cyan Mag Yelo Blk pms 550 Consolidated Statements of Earnings Dollars in thousands except per share amounts Year ended January 31, % of sales 2002 % of sales 2001 % of sales 2000 Net sales $5,634,130 100.0 $5,528,537 100.0 $5,149,266 100.0 Cost of sales and related buying and occupancy (3,765,859) (66.8) (3,649,516) (66.0) (3,359,760) (65.2) Gross profit 1,868,271 33.2 1,879,021 34.0 1,789,506 34.8 Selling, general and administrative (1,722,635) (30.6) (1,747,048) (31.6) (1,523,836) (29.6) Operating income 145,636 2.6 131,973 2.4 265,670 5.2 Interest expense, net (75,038) (1.4) (62,698) (1.1) (50,396) (1.0) Write-down of investment Service charge income and other, net Earnings before income taxes — 133,890 204,488 — 2.4 3.6 (32,857) (0.6) 130,600 167,018 2.3 3.0 — 116,783 332,057 — 2.2 6.4 Income taxes Net earnings Basic earnings per share Diluted earnings per share Cash dividends paid per share (79,800) (1.4) (65,100) (1.2) (129,500) (2.5) $124,688 2.2 $101,918 1.8 $202,557 3.9 $0.93 $0.93 $0.36 $0.78 $0.78 $0.35 $1.47 $1.46 $0.32 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 16 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 16 Cyan Mag Yelo Blk pms 550 pms 8002 Consolidated Balance Sheets Dollars in thousands January 31, Assets Current assets: Cash and cash equivalents Accounts receivable, net Merchandise inventories Prepaid expenses Other current assets Total current assets Land, buildings and equipment, net Intangible assets, net Other assets Total assets L iabilities 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; 134,468,608 and 133,797,757 shares issued and outstanding Unearned stock compensation Retained earnings Accumulated other comprehensive earnings Total shareholders’ equity Total liabilities and shareholders’ equity The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 2002 2001 $331,327 698,475 888,172 34,375 102,249 2,054,598 1,761,082 138,331 94,768 $25,259 721,953 945,687 28,760 91,323 1,812,982 1,599,938 143,473 52,11 0 $4,048,779 $3,608,503 $148 490,988 236,373 142,002 78,227 947,738 1,351,044 342,046 93,463 341,316 (2,680) 975,203 649 1,314,488 $4,048,779 $83,060 466,476 234,833 153,613 12,586 950,568 1,099,710 275,252 53,405 330,394 (3,740) 900,090 2,824 1,229,568 $3,608,503 NORDSTROM INC. AND SUBSIDIARIES 17 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 17 Cyan Mag Yelo Blk pms 550 pms 8002 Consolidated Statements of Shareholders’ Equity Dollars in thousands except per share amounts Common Stock Unearned Stock Amount Compensation Shares Retained Earnings Accum. Other Comprehensive Earnings Total Balance at February 1, 1999 142,114,167 $230,761 $(4,703) $1,074,487 Net earnings Unrealized gain on investment, net of tax Comprehensive net earnings: Cash dividends paid ($.32 per share) Issuance of common stock Stock compensation — — — — 341,947 40,274 Purchase and retirement of common stock (10,216,400) — — — — 9,577 7,221 — — — — — — (3,890) 202,557 — — (44,463) — — — (302,965) — $1,300,545 — 202,557 $17,032 17,032 — — — — — 219,589 (44,463) 9,577 3,331 (302,965) Balance at January 31, 2000 132,279,988 247,559 (8,593) 929,616 17,032 1,185,614 Net earnings Other comprehensive earnings: — Unrealized loss on investment during period, net of tax — Reclassification of realized loss, net of tax Foreign currency translation adjustment Comprehensive net earnings: Cash dividends paid ($.35 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Business acquisition Stock compensation, net — — — — — — — — — — 181,910 165,842 4,039 2,211 5,074,000 77,696 (14,075) (1,111) 4,853 — — — — — — — — — 101,918 — 101,918 — — — — (45,935) — — — — (23,461) (23,461) 6,429 2,824 — — — — — — — 6,429 2,824 87,710 (45,935) 4,039 2,211 77,696 3,742 (85,509) Purchase and retirement of common stock (3,889,908) — — (85,509) Balance at January 31, 2001 133,797,757 330,394 (3,740) 900,090 2,824 1,229,568 Net earnings Other comprehensive earnings: Foreign currency translation adjustment Comprehensive net earnings: Cash dividends paid ($.36 per share) Issuance of common stock for: Stock option plans Employee stock purchase plan Stock compensation — — — — 186,165 541,677 19,009 Purchase and retirement of common stock (76,000) — — — — 3,788 6,754 380 — — — — — — — 1,060 — 124,688 — 124,688 — — (48,265) — — — (1,310) (2,175) (2,175) — — — — — — 122,513 (48,265) 3,788 6,754 1,440 (1,310) Balance at January 31, 2002 134,468,608 $341,316 $(2,680) $975,203 $649 $1,314,488 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 18 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms Blk + metallic 8002+ 550 blue Cyan Mag Yelo Blk PAGE 18 pms 550 pms 8002 Consolidated Statements of Cash Flows Dollars in thousands Year ended January 31, Operating Activities Net earnings 2002 2001 2000 $124,688 $101,918 $202,557 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of buildings and equipment Amortization of intangible assets Amortization of deferred lease credits and other, net Stock-based compensation expense Deferred income taxes, net Write-down of investment 213,089 4,630 (8,538) 3,414 15,662 — Change in operating assets and liabilities, net of ef fects from acquisition of business: Accounts receivable, net Merchandise inventories Prepaid expenses Other assets Accounts payable Accrued salaries, wages and related benefits Income tax liabilities and other accruals Other liabilities Net cash provided by operating activities Investing Activities Capital expenditures Additions to deferred lease credits Payment for acquisition, net of cash acquired Other, net Net cash used in investing activities Financing Activities Proceeds (payments) from 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 provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year 22,556 215,731 (1,684) (16,770) (159,636) (203) (11,310) 12,088 413,717 (390,138) 126,383 — (3,309) (267,064) (82,912) 300,000 (18,640) — 10,542 (48,265) (1,310) 159,415 306,068 25,259 203,048 1,251 (12,349) 6,480 (3,716) 32,857 (102,945) 6,741 (173) (3,821) (67,924) 17,850 3,879 (7,184) 175,912 (321,454) 92,361 (83,828) (1,781) (314,702) 12,126 308,266 (58,191) — 6,250 (45,935) (85,509) 137,007 (1,783) 27,042 Cash and cash equivalents at end of year $331,3 27 $25,259 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 193,718 — (6,387) 3,331 (22,859) — (29,854) 79,894 (6,976) (8,880) (76,417) 14,942 965 25,212 369,246 (305,052) 114,910 — (452) (190,594) (7,849) — (63,341) 16,000 9,577 (44,463) (302,965) (393,041) (214,389) 241,431 $27,042 NORDSTROM INC. AND SUBSIDIARIES 19 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 2 pms PAGE 19 Cyan Mag Yelo Blk pms 550 pms 8002 Notes to Consolidated Financial Statements Dollars in thousands except per share amounts Advertising: Costs for newspaper, television, radio and other media Note 1: Summary of Significant Accounting Policies The Company: Nordstrom, Inc. is a fashion specialty retailer of fering a wide selection of high-quality apparel, shoes and accessories for women, men and children, in the United States through 80 Nordstrom full-line stores, 46 Nordstrom Rack and clearance stores, 4 Façonnable boutiques and 2 free-standing are generally expensed as incurred. Direct response advertising costs, consisting primarily of catalog book production and printing costs, are deferred and recognized over the expected life of the catalog, not to exceed six months. Total advertising expenses were $145,341, $190,991 and $160,957 in 2001, 2000 and 1999. Store Preopening Costs: Store opening and preopening costs shoe stores. The Company also operates 24 Façonnable boutiques are charged to expense when incurred. located primarily in Europe. Additionally, the Company generates Cash Equivalents: Cash equivalents represent short-term investments catalog and Internet sales through Nordstrom.com LLC and service with a maturity of three months or less from the time of purchase. charge income through Nordstrom Credit, Inc. Cash Management: The Company’s cash management system Basis of Presentation: The consolidated financial statements provides for the reimbursement of all major bank disbursement include the balances of Nordstrom, Inc. and its subsidiaries for accounts on a daily basis. Accounts payable at January 31, 2002 the entire fiscal year. All significant intercompany transactions includes $31,817 of checks not yet presented for payment drawn and balances are eliminated in consolidation. in excess of cash balances. Use of Estimates: Management makes estimates and assumptions Customer Accounts Receivable: In accordance with industry that af fect the reported amounts in the financial statements and practices, installments maturing in more than one year and deferred accompanying notes. Actual results could dif fer from those payment accounts receivable are included in current assets. estimates. Merchandise Inventories: Merchandise inventories are stated Reclassifications: Certain reclassifications of prior year balances at the lower of cost (first-in, first-out basis) or market, using have been made for consistent presentation with the current year. the retail method. Revenue Recognition: Revenues are recorded net of estimated Land, Buildings and Equipment: Depreciation is computed using returns and exclude sales tax. Revenue is recorded at the point a combination of accelerated and straight-line methods. Estimated of sale for retail stores. Catalog and e-commerce sales include useful lives by major asset category are as follows: shipping revenue and are recorded upon shipment to the customer. Buying and Occupancy Costs: Buying costs consist primarily of salaries and expenses incurred by the Company’s merchandise managers, buyers and private label product development group. Asset Buildings Store fixtures and equipment Life (in years) 5-40 3-15 Leasehold improvements Shorter of life of lease or asset life Occupancy costs include rent, depreciation, property taxes and operating costs related to the Company’s retail and distribution Software 3-7 facilities. Shipping and Handling Costs: The Company's costs for shipping and handling to customers include payments to third-party shippers and costs incurred to store, move and prepare merchandise for shipment. Shipping and handling costs of $30,868, $38,062 and $29,085 in 2001, 2000 and 1999 were included in selling, general and administrative expenses. Asset Impairment: The Company reviews its intangibles and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may not be recoverable. 20 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 20 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Deferred Lease Credits: The Company receives developer impact on the Company’s financial statements. reimbursements as incentives to construct stores in certain developments. The Company capitalizes certain property, plant and equipment for these stores during the construction period. At the end of the construction period, developer reimbursements in excess of construction costs are recorded as deferred lease credits and amortized as a reduction to rent expense, on a straight- line basis over the life of the applicable lease or operating covenant. Construction costs in excess of developer reimbursements are recorded as prepaid rent and amortized as rent expense on a straight-line basis over the life of the applicable lease or operating covenant. Fair Value of Financial Instruments: The carrying amount of cash equivalents and notes payable approximates fair value. 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 $1,378,000 and $1,041,000 at January 31, 2002 and 2001. The Emerging Issues Task Force (“EITF”) has reached a consensus on Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” which provides guidance on how a transferor that retains an interest in securitized financial assets, or an enterprise that purchases a beneficial interest in securitized financial assets, should account for related interest income and impairment. Adoption of this accounting issue in the quarter ended July 31, 2001, did not have a material impact on the Company’s financial statements. In July 2001, the FASB issued SFAS No. 141 “Business Combinations.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and establishes specific criteria for the recognition of goodwill separate from other intangible assets. Adoption of the accounting provisions of SFAS No. 141 in February 2002 did not have a material impact on the Derivatives Policy: The Company limits its use of derivative Company’s financial statements. financial instruments to the management of foreign currency and interest rate risks. The ef fect of these activities is not material to the Company’s financial condition or results of operations. The Company has no material of f-balance sheet credit risk, and the fair value of derivative financial instruments at January 31, 2002 and 2001 is not material. At February 1, 2002, the Company implemented SFAS No. 142 “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets having indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives. Prior to the adoption of SFAS No. 142, Recent Accounting Pronouncements: In February 2001, the the Company’s intangible assets were amortized over their Company adopted Statement of Financial Accounting Standards estimated useful lives on a straight-line basis ranging from 10 (“SFAS”) No. 133, “Accounting for Derivative Instruments and to 35 years. Accumulated amortization of intangible assets was Hedging Activities,” as amended by SFAS No. 137 and No. 138. $5,881 and $1,251 at January 31, 2002 and 2001. The Company It requires the fair value of all derivatives to be recognized as either is currently evaluating the impact of SFAS No. 142 on its earnings assets or liabilities and specifies accounting for changes in their and financial position. fair value. Adoption of this standard did not have a material impact on the Company’s financial statements. In February 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-L ived Assets.” In March 2001, the Company adopted SFAS No. 140 “Accounting SFAS No. 144 retains the fundamental provisions of SFAS No. 121, for Transfers and Servicing of Financial Assets and Extinguishments but establishes new criteria for asset classification and broadens of L iabilities,” a replacement of SFAS No. 125 with the same title. the scope of qualifying discontinued operations. The adoption of It revises the standards for securitizations and other transfers of this statement did not have a material impact on the Company’s financial assets and collateral and requires certain additional financial statements. disclosures, but otherwise retains most of SFAS No. 125’s provisions. Adoption of this standard did not have a material NORDSTROM INC. AND SUBSIDIARIES 21 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 21 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 2: Acquisition Note 5: Income Taxes In 2000, the Company acquired Façonnable, S.A. ("Façonnable"), Income tax expense consists of the following: of Nice, France, a designer, wholesaler and retailer of high quality Year ended January 31, 2002 2001 2000 men’s and women’s apparel and accessories. The Company paid $87,685 in cash and issued 5,074,000 shares of common stock of the Company for a total consideration of $168,868. The purchase also provides for a contingent payment to one of the previous owners that may be paid after five years from the acquisition date. If the previous owner continues to have active involvement in the business and performance targets are met, the contingent payment would approximate $10,000. Since the contingent payment is performance based, the actual amount paid will likely vary from Current income taxes: Federal $58,122 $79,778 $130,524 State and local 6,142 11,591 21,835 Total current income taxes Deferred income taxes: Current Non-current 64,264 91,369 152,359 (7,217) (11,215) (18,367) 22,753 (15,054) (4,492) this amount and will be expensed when it becomes probable that Total deferred income taxes 15,536 (26,269) (22,859) the targets will be met. Note 3: Employee Benefits Total income taxes $79,800 $65,100 $129,500 A reconciliation of the statutory Federal income tax rate to the The Company provides a profit sharing plan and 401(k) plan for Company’s ef fective tax rate is as follows: employees. The profit sharing plan is non-contributory and is fully funded by the Company. The Board of Directors establishes the Company’s contribution to the profit sharing plan each year. The 401(k) plan is funded by voluntary employee contributions. In addition, the Company provides matching contributions up to a stipulated percentage of employee contributions. The Company’s Year ended January 31, 2002 2001 2000 Statutory rate State and local income taxes, net of Federal income taxes 35.00% 35.00% 35.00% 3.93 .09 3.93 .05 4.06 (.06) matching contributions to the 401(k) plan and contributions to the Other, net profit sharing plan totaled $28,525, $29,113 and $47,500 in 2001, Ef fective tax rate 39.02% 38.98% 39.00% 2000 and 1999. Note 4: Interest Expense, Net The components of interest expense, net are as follows: Year ended January 31, 2002 2001 2000 Short-term debt Long-term debt $3,741 $12,682 $2,584 83,225 58,988 56,831 Total interest expense Less: Interest income Capitalized interest 86,966 (1,545) (10,383) 71,670 59,415 (1,330) (7,642) (3,521) (5,498) Interest expense, net $75,038 $62,698 $50,396 22 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 22 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Deferred income taxes ref lect the net tax ef fect of temporary Note 6: Earnings Per Share dif ferences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows: Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding during the year. January 31, Accrued expenses Compensation and benefits accruals Merchandise inventories Capital loss on investment Other 2002 2001 weighted average number of common shares outstanding during Diluted earnings per share is computed on the basis of the $33,896 $33,458 the year plus dilutive common stock equivalents (primarily stock options, performance share units and restricted stock). 48,584 24,643 13,399 21,123 43,803 26,290 12,751 18,298 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 8,563,996, 7,409,387 and 2,798,966 shares in 2001, 2000 and 1999. Total deferred tax assets 141,645 134,600 Year ended January 31, 2002 2001 2000 Land, buildings and equipment basis and depreciation dif ferences (49,978) (25,678) Net earnings $124,688 $101,918 $202,557 Basic shares 134,104,582 131,012,412 137,814,589 Employee benefits Other (9,771) (10,937) Basic earnings per share $0.93 $0.78 $1.47 (3,195) (3,748) Dilutive ef fect of stock options Total deferred tax liabilities (62,944) (40,363) and restricted stock 234,587 100,673 610,255 Net deferred tax assets $78,701 $94,237 Diluted shares 134,339,169 131,113,085 138,424,844 As of January 31, 2002, the Company has $34,357 of capital loss carryforwards available to be utilized within four years to reduce future capital gain income. No valuation allowance has been provided because management believes it is more likely than not that the full benefit of the carryforwards will be realized. Diluted earnings per share $0.93 $0.78 $1.46 Note 7: Investment In September 1998, the Company made an investment in Streamline.com, Inc. (“Streamline”), an Internet grocery and consumer goods delivery company. Streamline ceased its operations ef fective November 22, 2000, due to failure to obtain additional capital to fund its operations. During 2000, the Company wrote of f its entire investment in Streamline, for a total pre-tax loss on the investment of $32,857. NORDSTROM INC. AND SUBSIDIARIES 23 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 23 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 8: Accounts Receivable volatility and risk of the assets and are calculated using an The components of accounts receivable are as follows: January 31, 2002 2001 Unrestricted trade receivables $73,157 $716,218 Restricted trade receivables 628,271 — Other 21,325 22,266 Allowance for doubtful accounts (24,278) (16,531) Accounts receivable, net $698,475 $721,953 Bad debt expense totaled $34,750, $20,368 and $11,707 in 2001, 2000 and 1999. established formula that considers both the current interest rate environment and credit spreads. The following table summarizes the estimated fair value of the securities held by the Company and certain cash f lows received from and paid to the master trust. Year ended January 31, 2002 2001 Class B Certificate Seller Retained Interest Interest Only Strip Principal collections reinvested $10,849 $11,000 47,102 1,335 42,052 3,464 Restricted trade receivables back the $300 million of Class A notes in new receivables 669,582 485,422 and the $200 million variable funding note issued by the Company Gains on sales of receivables in November 2001. Other accounts receivable consists primarily Income earned on retained assets of vendor receivables and cosmetic rebates receivable. Cash f lows from retained assets: Note 9: Receivable-backed Securities Nordstrom has $200 million in outstanding debt securities (Class A) and holds securities that represent undivided interests (Class B and Seller Retained Interest) or residual interests (Interest Only Strip) Class B Certificate Seller Retained Interest Interest Only Strip Servicing Fees 3,147 6,711 715 6,217 4,984 8,440 5,356 9,035 684 4,411 4,955 8,121 in a master trust. These securities are collateralized by Nordstrom Interest income earned on the Class B certificate, Interest Only VISA credit card receivables that are sold to the trust on an ongoing Strip and the Seller Retained Interest are included in service charge basis. The carrying amounts of the retained interests approximate income and other on the consolidated statements of earnings. fair value and are included in customer accounts receivable. Gains or losses are recognized on the sale of VISA receivables to the trust based on the dif ference between the face value of the receivables sold and the fair value of the assets created in the securitization process. The receivables sold to the trust are then allocated between the various interests in the trust based on those interests’ relative fair market value. The fair values of the assets are calculated as the present value of their expected future cash f lows, which assumes the weighted average remaining life of 2.4 months, average credit losses of 7.41%, average gross yield of 17.48%, average interest expense on issued securities of 2.38%, average payment rate of 22.04%, and discount rates of 7.75% for the Seller Retained Interest, 13.62% for the Class B and 25.35% for the Interest Only Strip. These discount rates represent the 24 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 24 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements The following table illustrates the change in fair market value Under the terms of the trust agreement, the Company may be estimates given independent changes in assumptions. required to fund certain amounts upon the occurrence of specific +10% +20% -10% -20% events. The Company does not believe additional funding will be required. 668 1,339 (661) (1,312) — 156 — 313 — — (156) (313) Gross Yield: IO Strip Class B Seller Retained Interest Interest Expense on Issued Classes: IO Strip Class B Seller Retained Interest Card Holders Payment Rate: IO Strip Class B Seller Retained Interest Charge Of fs: IO Strip Class B (85) (170) — — — — (76) (137) 7 58 14 110 (325) (647) — — Seller Retained Interest (136) (271) Discount Rate: IO Strip Class B (10) (28) (19) (57) Seller Retained Interest (71) (142) The Company’s continuing involvement in the securitization of Visa receivables will include recording gains/losses on sales in accordance with SFAS No. 140 and recognizing income on retained assets as prescribed by EITF 99-20, holding both subordinated, non-subordinated, and residual interests in the trust, and servicing the portfolio. The Company also issued $300 million of receivable-backed securities supported by substantially all of its private label credit cards. This transaction is accounted for as a secured financing. 171 — — 195 Total principal receivables of the securitized portfolio on January (18) 31, 2002 were approximately $625,516, receivables more than (161) 30 days past due were approximately $19,301, and charged of f receivables for the 12 months ending January 31, 2002 were 661 $28,134. The private label receivables also serve as collateral for — a variable funding facility with a limit of $200 million. Nothing 273 was outstanding on this facility on January 31, 2002. 19 57 142 The Company’s continuing involvement in the securitization of private label receivables will include pledging new receivables to the master note trust, accounting for the transaction as a secured financing and servicing the portfolio. 85 — — 90 (9) (71) 330 — 136 10 29 71 The total principal balance of the VISA receivables is $258,075 as of January 31, 2002. Gross credit losses were $17,050 for the 12 months ending January 31, 2002 and receivables past due for more than 30 days were $8,170 on January 31, 2002. The following table illustrates default projections using net credit losses as a percentage of average outstanding receivables in comparison to actual performance: 2002 2001 2000 Original projection Actual 7.66% N/A 5.99% 6.62% 5.39% 5.46% NORDSTROM INC. AND SUBSIDIARIES 25 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 25 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 10: Land, Buildings and Equipment Note 11: Notes Payable Land, buildings and equipment consist of the following: A summary of notes payable is as follows: January 31, 2002 2001 Year ended January 31, 2002 2001 2000 Land and land improvements $59,141 $60,871 Average daily short- Buildings 683,926 760,029 term borrowings $81,647 $192,392 $45,030 Leasehold improvements 910,291 903,925 Maximum amount Capitalized software 46,603 38,642 outstanding 177,100 360,480 178,533 Store fixtures and equipment 1,142,169 1,172,914 Weighted average Less accumulated depreciation and amortization (1,663,409) (1,554,081) 2,842,130 2,936,381 interest rate: During the year At year-end 4.6% — 6.6% 6.4% 5.8% 6.0% 1,178,721 1,382,300 At January 31, 2002, the Company has an unsecured line of credit totaling $300,000, which is available as liquidity support Construction in progress 582,361 217,638 for the Company’s commercial paper program, and expires in November 2004. The line of credit agreement contains restrictive $1,761,082 $1,599,938 covenants, which include maintaining certain financial ratios. Land, buildings and equipment, net Capitalized software includes external direct costs, capitalized internal direct labor and other employee benefits, and capitalized interest associated with the development of internal-use computer software. Depreciation begins in the period in which the software is ready for its intended use. Construction in progress includes $127,847 and $46,696 of software in progress at January 31, 2002 and 2001. The Company pays a commitment fee for the line based on the Company’s debt rating. In November 2001, the Company issued a variable funding note backed by Nordstrom Private Label Receivables (“PL VFN”) with a $200 million capacity. Interest on the PL VFN varies based on 30-day commercial paper rated at A1/P1. As of January 31, 2002, there have been no borrowings on the PL VFN. At January 31, 2002, the Company has contractual commitments of approximately $456,090 for the construction of new stores or remodeling of existing stores. Additionally, in connection with the purchase of foreign merchandise, the Company has outstanding letters of credit totaling $77,085 at January 31, 2002. 26 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 26 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 12: Long-Term Debt The Company owns a 49% interest in a limited partnership that A summary of long-term debt is as follows: January 31, 2002 2001 completed construction on a new corporate of fice building in which the Company is the primary occupant. Land, buildings and equipment includes capitalized costs related to this building Receivable-backed PL Term, 4.82%, of $92,952 and $57,270 as of January 31, 2002 and 2001 due 2006 Senior debentures, 6.95%, due 2028 $300,000 — which includes noncash amounts of $78,003 and $41,883 as of 300,000 $300,000 of $89,180 and $53,060 is included in other long-term debt. January 31, 2002 and 2001. The corresponding finance obligation Senior notes, 5.625%, due 2009 250,000 250,000 This finance obligation will be amortized as rental payments are Senior notes, 8.950%, due 2005 300,000 300,000 made by the Company to the limited partnership over the life of Medium-term notes, 7.25%, due 2002 76,750 87,750 the permanent financing. The Company is a guarantor of a Notes payable, 6.7%, due 2005 100,000 100,000 $93,000 credit facility of the limited partnership. The credit Other Total long-term debt Less current portion 102,521 74,546 facility provides for interest at either the LIBOR rate plus 0.75%, 1,429,271 1,112,296 (78,227) (12,586) or the greater of the Federal Funds rate plus 0.5% and the prime rate, and matures in August 2002 (2.63% and 6.36% at Total due beyond one year $1,351,044 $1,099,710 January 31, 2002 and 2001). The Company entered into a variable interest rate swap agreement in the third quarter of 2001. The swap has a $300 million notional amount and a four-year term. Under the agreement, the Company receives a fixed rate of 8.95% and pays a variable rate based on LIBOR plus a margin of 4.44% set at six-month intervals (6.85% at January 31, 2002). Any dif ferences between the amounts paid The limited partnership is currently refinancing the $93,000 credit facility and has signed a commitment agreement for an $85,000 mortgage secured by the property. The obligation will have a fixed interest rate of 7.68% and a term of 18 years. The Company expects the agreement to close in April 2002 subject to various requirements. The dif ference between the amount outstanding under the original credit facility and the new mortgage will be and received on interest rate swap agreements are recognized as funded by the Company. adjustments to interest expense over the life of the swap. The swap agreement qualifies as a fair value hedge and is recorded at fair value in other liabilities. In November 2001, the Company issued $300 million of Class A notes backed by Nordstrom Private Label Receivables (“PL Term”). The PL Term bears a fixed interest rate of 4.82% and has a maturity of five years. The Company will use the proceeds for general corporate purposes and capital expansion. Required principal payments on long-term debt, excluding capital lease obligations and construction loan obligations, are as follows: Year ended January 31, 2003 2004 2005 2006 2007 Thereafter $77,730 1,535 1,463 400,410 300,188 549,332 NORDSTROM INC. AND SUBSIDIARIES 27 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 27 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 13: Leases periods ranging from four to eight years, and expire ten years after The Company leases land, buildings and equipment under the date of grant. noncancelable lease agreements with expiration dates ranging In addition to option grants, the Company granted 273,864, from 2002 to 2080. Certain leases include renewal provisions 355,072 and 272,970 performance share units in 2001, 2000 at the Company’s option. Most of the leases provide for additional and 1999, which will vest over three years if certain financial goals rent payments based upon specific percentages of sales and are attained. Employees may elect to receive common stock or cash require the Company to pay for certain common area maintenance upon vesting of these performance shares. At January 31, 2002 and other costs. Year ended January 31, 2002 2001 2000 Minimum rent: Store locations $26,951 $16,907 $18,794 Of fices, warehouses and equipment 20,144 21,070 19,926 Percentage rent: Store locations 8,047 9,241 7,441 Total rent expense $55,142 $47,218 $46,161 Future minimum lease payments as of January 31, 2002 are as follows: Year ended January 31, Capital Leases Operating Leases and 2001, $4,713 and $2,741 was recorded in accrued salaries, wages and related benefits for these performance shares. Employees who receive performance share units pay no monetary consideration. No amounts have been paid and no common stock has been issued in connection with this program. As of January 31, 2002, 518,189 units were outstanding. The Company also granted 30,069 and 180,000 shares of restricted stock in 1999 and 1998, with a weighted average fair value of $32.09 and $27.75. In September 2000, the Company accelerated the vesting of 144,000 shares of restricted stock resulting in compensation expense of $3,039, and also cancelled 14,175 shares of restricted stock as a result of management changes. In January 2002, the Company accelerated the vesting on the remaining 9,536 unvested shares of restricted stock, resulting in compensation expense of $193. At January 31, 2002, $1,335 $66,940 there are no shares of unvested restricted stock. 2003 2004 2005 2006 2007 Thereafter Total minimum lease payments Less amount representing interest Present value of net minimum 1,120 1,120 1,120 1,120 11,470 17,285 7,851 64,480 60,680 56,191 52,285 373,517 $674,093 lease payments $9,434 Note 14: Stock-Based Compensation Stock Option Plan At January 31, 2002, approximately 7,856,298 shares are reserved for future stock option grants pursuant to the Plan. The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” in measuring compensation costs under its stock-based compensation programs. Accordingly, no compensation cost has been recognized for stock options issued under the Plan. Performance share compensation expense is recorded over the performance period at the fair value of the stock at the date when probable that such shares have been earned. Restricted stock 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 2001, 2000 and The Company has a stock option plan (“the Plan”) under which 1999 was $3,414, $6,480 and $3,331. stock options, performance share units and restricted stock may be granted to key employees. Stock options are issued at the fair market value of the stock at the date of grant. Options vest over 28 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 28 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Stock option activity for the Nordstrom, Inc. Plan was as follows: Year ended January 31, 2002 Weighted- Average Exercise Price 2001 Weighted- Average Exercise Price Shares Shares Shares Outstanding, beginning of year 8,873,342 $27 8,135,301 $28 5,893,632 Granted Exercised Cancelled 3,288,826 (186,165) (1,212,110) Outstanding, end of year 10,763,893 Options exercisable at end of year 4,533,281 19 18 25 $24 $27 2,470,169 (181,910) (1,550,218) 8,873,342 3,833,379 21 20 28 $27 $26 2,926,368 (341,947) (342,752) 8,135,301 3,145,393 2000 Weighted- Average Exercise Price $27 31 23 30 $28 $25 The following table summarizes information about stock options outstanding for the Nordstrom, Inc. Plan as of January 31, 2002: Options Outstanding Options Exercisable Range of Exercise Prices Shares $13 – $22 6,183,330 $23 – $32 2,479,733 $33 – $40 2,100,830 10,763,893 Weighted- Average Remaining Contractual L ife (Years) 8 6 7 7 Stock option activity for the Nordstrom.com 1999 and 2000 Plans were as follows: Year ended January 31, Outstanding, beginning of year 4,174,950 Shares Granted Exercised Cancelled 41,500 — (691,642) Outstanding, end of year 3,524,808 Options exercisable at end of year 1,241,104 2002 Weighted- Average Exercise Price $1.72 1.92 — 1.68 $1.73 $1.68 Shares 1,373,950 3,794,931 (135,000) (858,931) Weighted- Average Exercise Price $19 27 36 $24 2001 Weighted- Average Exercise Price $1.67 1.73 1.67 1.68 Shares 1,671,982 1,683,022 1,178,277 4,533,281 Shares — 1,379,950 — (6,000) Weighted- Average Exercise Price $20 27 35 $27 2000 Weighted- Average Exercise Price — $1.67 — 1.67 4,174,950 $1.72 1,373,950 $1.67 703,750 $1.67 — — NORDSTROM INC. AND SUBSIDIARIES 29 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 29 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Nordstrom.com The Black-Scholes method was used to estimate the fair value of Nordstrom.com has two stock option plans, the “1999 Plan” and the the options at grant date based on the following factors: “2000 Plan.” Vested options under the 1999 Plan are exercisable only in the event of an initial public of fering of Nordstrom.com. As of January 31, 2002, the weighted average contractual life for options outstanding was 8.2 years with exercise prices ranging from $1.67 to $1.92 per share. No compensation cost has been recognized related to the options under the 2000 plan because the exercise price was equal to the fair value of Nordstrom.com stock Year ended January 31, 2002 2001 2000 Stock Options: Risk-free interest rate Volatility Dividend yield Expected life in years 4.8% 68.0% 1.3% 5.0 6.4% 65.0% 1.0% 5.0 5.7% 61.0% 1.0% 5.0 on the date of grant. The options vest over a period of two and one- Weighted-average fair value half to four years and must be exercised within ten years of the at grant date $10 $12 $17 grant date. Nordstrom.com LLC has also issued warrants to purchase 2,176,250 common shares at an exercise price of $1.67 to its managing member, Nordstrom.com, Inc. The warrants expire on January 31, 2012. As of January 31, 2002, warrants to purchase 135,000 common shares are exercisable. Employee Stock Purchase Plan In May 2000, the Company’s shareholders approved the establishment of an Employee Stock Purchase Plan (the “ESPP”) ESPP: Risk-free interest rate Volatility Dividend yield Expected life in years 4.3% 68.0% 1.3% 0.5 6.0% 65.0% 1.0% 0.5 Weighted-average fair value at grant date $5 $6 — — — — — under which 3,500,000 shares of the Company’s common stock For Nordstrom.com, the Company used the following weighted- are reserved for issuance to employees. The plan qualifies as a average assumptions: noncompensatory employee stock purchase plan under Section 423 of the Internal Revenue Code. Employees are eligible to participate through payroll deductions in amounts related to their base compensation. At the end of each of fering period, shares are purchased by the participants at 85% of the lower Year ended January 31, Risk-free interest rate Volatility Dividend yield of the fair market value at the beginning or the end of the of fering Expected life in years 2002 4.5% 2001 6.2% 127.0% 121.0% 0.0% 4.0 0.0% 4.0 2000 6.0% 81.0% 0.0% 4.0 period, usually six months. Under the ESPP, 541,677 and 165,842 shares were issued in 2001 and 2000. As of January 31, 2002, payroll deductions totaling $2,641 were accrued for purchase of Weighted-average fair value at grant date $1.56 $1.39 $1.05 shares on March 31, 2002. SFAS No. 123 Note 15: Postretirement Benefits The Company has a Supplemental Executive Retirement Plan If the Company had elected to recognize compensation cost ("SERP"), which provides retirement benefits to certain of ficers based on the fair value of the options and shares at grant date and other select employees of the Company. The benefits are as prescribed by SFAS No. 123, “Accounting for Stock-Based unfunded and limited to a maximum of 60% of the monthly Compensation,” net earnings and earnings per share would have average compensation less the actuarial equivalent of any been the pro forma amounts shown below: monthly benefits payable under the profit sharing plan. Year ended January 31, 2002 2001 2000 Pro forma net earnings $107,436 $88,460 $192,916 Pro forma basic EPS Pro forma diluted EPS $0.80 $0.80 $0.68 $0.67 $1.40 $1.39 30 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 30 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements The following provides a reconciliation of benefit obligations, Note 16: Supplementary Cash Flow Information funded status of the SERP, as well as a summary of significant assumptions: January 31, The Company capitalizes certain property, plant and equipment during the construction period of commercial buildings which are 2002 2001 subsequently derecognized and leased back. During the year ended Change in benefit obligation: Benefit obligation at beginning of year $23,543 $23,645 January 31, 2002, the noncash activity related to the derecognition of new stores that qualified as sale and leaseback were $75,555. 630 Supplementary cash f low information includes the following: Service cost Interest cost Amortization of adjustments Change in additional minimum liability 1,092 2,668 1,821 7,308 2,044 688 (1,519) Distributions (2,021) (1,945) Benefit obligations at end of year $34,411 $23,543 Year ended January 31, 2002 2001 2000 Cash paid during the year for: Interest (net of capitalized interest) $77,025 $58,190 $54,195 Income taxes 80,689 88,911 129,566 Funded status of plan: Under funded status Unrecognized transitional obligation Unrecognized prior service cost Unrecognized loss Accrued pension cost Note 17: Segment Reporting $(39,547) $(28,964) The Company has three reportable segments that have been 324 6,396 6,983 648 240 5,792 identified based on dif ferences in products and services of fered and regulatory conditions: the Retail Stores, Credit Operations, and Catalog/Internet segments. The Retail Stores segment derives $(25,844) $(22,284) its revenues from sales of high-quality apparel, shoes and Balance sheet amounts: Additional minimum liability $(8,567) $(1,259) Intangible asset 6,720 888 The components of SERP expense are as follows: accessories. 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. The 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 website. January 31, Service cost Interest cost Amortization of adjustments 2002 2001 2000 The measurements used to compute net earnings for reportable $1,092 2,668 1,821 $630 2,044 688 $906 segments are consistent with those used to compute net earnings 1,952 1,013 for the Company. The accounting policies of the operating segments are the same as those described in the summary of Total SERP expense $5,581 $3,362 $3,871 significant accounting policies in Note 1. Assumption percentages: The following tables set forth the information for the Company’s Discount rate 7.25% Rate of compensation increase 5.00% 7.50% 5.00% 6.50% reportable segments and a reconciliation to the consolidated totals: 5.00% NORDSTROM INC. AND SUBSIDIARIES 31 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 31 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Year ended January 31, 2002 Revenues from external customers (b) Service charge income Intersegment revenues Interest expense, net Depreciation and amortization Amortization of intangible assets Income tax expense (benefit) Net earnings (loss) Assets (a)(b) Intangible assets Capital expenditures Year ended January 31, 2001 Revenues from external customers (b) Service charge income Intersegment revenues Interest expense, net Depreciation and amortization Amortization of intangible assets Income tax expense (benefit) Net earnings (loss) Assets (a)(b) Intangible assets Capital expenditures Year ended January 31, 2000 Revenues from external customers Service charge income Intersegment revenues Interest expense, 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 $5,356,875 — 20,204 994 182,960 4,630 150,921 235,815 2,564,375 138,331 373,909 — $129,697 33,767 24,994 2,253 — 9,104 14,226 695,556 — 2,054 $277,255 — — 77 5,498 — — (8,139) 69,457 — 2,554 — — — $48,973 22,378 — (80,225) (117,214) 719,391 — 11,621 — — $(53,971) — — — — — — — — $5,634,130 129,697 — 75,038 213,089 4,630 79,800 124,688 4,048,779 138,331 390,138 Retail Stores Credit Operations Catalog/ Internet Corporate and Other Eliminations Total $5,217,889 — 30,294 795 176,758 1,251 165,150 258,416 2,557,616 143,473 286,941 Retail Stores $4,914,293 — 20,285 728 170,826 191,790 300,009 2,051,327 263,352 — $135,121 26,889 29,267 1,786 — 13,140 20,557 703,077 — 3,095 Credit Operations — $125,727 25,963 26,933 1,424 19,450 30,417 601,320 2,792 $310,648 — — (604) 7,552 — — (29,367) 68,010 — 5,187 Catalog/ Internet $234,973 — — (167) 6,313 — (35,685) 95,241 5,206 — — — $33,240 16,952 — (113,190) (147,688) 279,800 — 26,231 Corporate and Other — — — $22,902 15,155 (81,740) (92,184) 314,193 33,702 — — $(57,183) — — — — — — — — Eliminations — — $(46,248) — — — — — — $5,528,537 135,121 — 62,698 203,048 1,251 65,100 101,918 3,608,503 143,473 321,454 Total $5,149,266 125,727 — 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. (b) Includes sales of foreign operations of $68,487 for the year ended January 31, 2002, and $12,318 for the period from October 24, 2000, the date of acquisition, to January 31, 2001, and assets of $198,689 and $206,601 as of January 31, 2002 and 2001. 32 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 32 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 18: Restructurings, Impairments, and Other One-Time Charges During the year ended January 31, 2000, the Company recorded The following table provides a summary of restructuring, impairments and other charges: Year ended January 31, Employee severance Other expenses 2002 $1,791 — Restructuring subtotal 1,791 Management severance Asset impairment Litigation settlement costs — — — $13,000 10,227 — a charge of $10,000 in selling, general and administrative expenses primarily associated with the restructuring of the Company’s information technology services area. The charge consisted of 2001 2000 $4,053 in the disposition of several software projects under — — — $2,685 1,206 3,891 — 4,053 2,056 development, $2,685 in employee severance and $1,206 in other miscellaneous costs. Additionally, the Company recorded $2,056 related to settlement costs for two lawsuits. The restructuring included the termination of 50 employees in the information technology department. The following table presents the activity and balances of the Total charges $1,791 $23,227 $10,000 reserves established in connection with the restructuring charges: During the year ended January 31, 2002, the Company streamlined its operations through a reduction in workforce of approximately 2,600 employees. As a result, the Company recorded a restructuring charge of $1,791 in selling, general and administrative expenses relating to severance for approximately 195 employees. Personnel af fected were primarily located in the corporate center and in full-line stores. During the year ended January 31, 2001, the Company Year ended January 31, Beginning balance Additions Payments Adjustments Ending balance 2002 $178 1,7 91 2001 $1,452 2000 — — $3,891 (1,890) (1,220) (2,122) (79) $— (54) (317) $178 $1,452 Note 19: Vulnerability Due to Certain Concentrations recorded an impairment charge of $10,227, consisting of Approximately 31% of the Company’s retail square footage is $9,627 recorded in selling, general and administrative located in the state of California. At January 31, 2002, the net expenses and $600 in interest expense. Due to changes book value of property located in California was approximately in business strategy, the Company determined that several $276,000. Accordingly, the Company carries earthquake insurance software projects under development were either impaired or in California with a $50,000 deductible and a $50,000 coverage obsolete. The charges consisted of $6,542 primarily related limit per occurrence. to the disposition of transportation management software. Additionally, merchandise software was written down $3,685 to its estimated fair value. During the same year, the Company accrued and paid $13,000 for certain severance and other costs related to a change in management. At January 31, 2002 and 2001, approximately 40% and 41% of the Company’s receivables were obligations of customers residing in California. Concentration of the remaining receivables is considered to be limited due to their geographical dispersion. NORDSTROM INC. AND SUBSIDIARIES 33 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 33 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 20: Nordstrom.com Put Agreement Cosmetics. The Company was originally named as a defendant along The holders of the minority interest of Nordstrom.com LLC, through their ownership interests in its managing member, Nordstrom.com, Inc., have the right to sell their shares of Nordstrom.com, Inc. to the Company for ef fectively $80 million in the event that certain events do not occur. This right would terminate if the Company provides at least $100 million in additional funding to Nordstrom.com, Inc. prior to July 1, 2002 or if Nordstrom.com, Inc. completes an initial public of fering of its common stock prior to September 1, 2002. It is possible that the Company will choose not to provide the $100 million in additional funding and that Nordstrom.com, Inc. will not complete an initial with other department store and specialty retailers in nine separate but virtually identical class action 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. In May 2000, plaintif fs filed an amended complaint naming a number of manufacturers of cosmetics and fragrances and two other retailers as additional defendants. Plaintif fs' amended complaint alleges that the retail price of the "prestige" cosmetics sold in department and specialty stores was collusively controlled by the retailer and manufacturer defendants in violation of the Cartwright Act and the California Unfair Competition Act. public of fering on or before September 1, 2002. If and when Plaintif fs seek treble damages and restitution in an unspecified the Company determines that neither of those events is likely to amount, attorneys' fees and prejudgment interest, on behalf of occur and that the purchase of the minority interest shares is a class of all California residents who purchased cosmetics and probable, the Company will begin to accrete, over the period fragrances for personal use from any of the defendants during remaining prior to the purchase, the dif ference between that $80 the period four years prior to the filing of the amended complaint. million and the fair value of the shares. Based on current values Defendants, including the Company, have answered the amended for similar businesses, management of the Company believes complaint denying the allegations. The Company and the other that the amount of that dif ference could range from $55,000 retail defendants have produced documents and responded to plaintif fs' other discovery requests, including providing witnesses for depositions. Plaintif fs have not yet moved for class certification. Pursuant to an order of the court, plaintif fs and defendants participated in mediation sessions in May and September 2001. to $65,000. Note 21: Contingent L iabilities The Company has been named in various lawsuits and intends to vigorously defend itself in those cases. The Company is not in a position at this time to quantify the amount or range of any possible losses related to those claims. While no assurance can be given as to the ultimate outcome of these lawsuits, based on preliminary investigations, management currently believes that resolving these matters will not have a material adverse ef fect on the Company's financial position, results of operations or cash f lows. 34 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 34 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Washington Public Trust Advocates. In early 2002, the Company was named as one of 30 defendants in Washington Public Trust Advocates, ex rel., et al. v. City of Spokane, et al., filed in the Spokane County Superior Court, State of Washington. Plaintif f is a not-for-profit corporation bringing claims on behalf of the City of Spokane and the Spokane Parking Public Development Authority. The claims relate to the River Park Square Mall and Garage Project in Spokane, Washington (the “Project”), which includes a Nordstrom store. The portion of the complaint applicable to the Company seeks to recover from the Company the amount of a Department of Housing and Urban Development loan made to the developer of the Project. Damages are sought in the amount of $22.75 million, or a lesser amount to the extent that the HUD loan proceeds were used for the construction of the store and not as tenant improvements. Other portions of the complaint seek to invalidate bonds issued to finance the public parking garage serving the Project, terminate the lease of the parking garage by the City of Spokane, and rescind other agreements between the City of Spokane and the developer of the Project, as well as damages from the developer of the Project in unspecified amounts. The Complaint also alleges breach of fiduciary duties by various defendants, including the Company, to the people of the City of Spokane regarding lack of disclosures concerning the developer and the Project. Unspecified damages are sought for this cause of action. The lawsuit was recently filed, the Company has not answered, and no discovery has commenced. 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. NORDSTROM INC. AND SUBSIDIARIES 35 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 35 Cyan Mag Yelo Blk pms 550 Notes to Consolidated Financial Statements Note 22: Selected Quarterly Data (unaudited) Year ended January 31, 2002 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 Common stock price High Low $1,218,040 $1,545,759 $1,239,241 $1,631,090 $5,634,130 504,851 402,280 541,530 1,868,271 419,610 40,555 24,755 .18 .18 .09 21.17 15.60 63,499 38,699 .29 .29 .09 22.75 17.00 17,095 10,495 .08 .08 .09 22.97 13.80 83,339 50,739 .38 .38 .09 25.50 14.25 204,488 124,688 .93 .93 .36 25.50 13.80 Total Year ended January 31, 2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net sales Gross profit Write-down of investment Earnings before income taxes Net earnings Basic earnings per share Diluted earnings per share Dividends per share Common stock price High Low $1,153,377 $1,457,035 $1,262,390 $1,655,735 $5,528,537 407,722 — 53,689 32,789 .25 .25 .08 34.50 18.25 502,722 (10,540) 74,501 45,401 .35 .35 .09 30.00 16.56 438,522 (20,655) (5,520) (3,320) (.03) (.03) .09 19.50 14.19 530,055 1,879,021 (1,662) 44,348 27,048 .20 .20 .09 21.00 14.88 (32,857) 167,018 101,918 .78 .78 .35 34.50 14.19 36 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk + 1 pms PAGE 36 Cyan Mag Yelo Blk pms 550 Independent Auditors’ and Management Report Independent Auditors’ Report Management Report We have audited the accompanying consolidated balance Management is responsible for preparing the Company’s sheets of Nordstrom, Inc. and subsidiaries (the “Company”) financial statements and the other information that appears as of January 31, 2002 and 2001, and the related consolidated in the annual report. The financial statements have been statements of earnings, shareholders’ equity and cash f lows for prepared in accordance with accounting principles generally each of the three years in the period ended January 31, 2002. accepted in the United States of America and include estimates These financial statements are the responsibility of the Company’s based on management’s best judgment. management. Our responsibility is to express an opinion on these financial statements based on our audits. The Company maintains a comprehensive system of internal controls and procedures designed to provide reasonable We conducted our audits in accordance with auditing standards assurance that assets are safeguarded and transactions are generally accepted in the United States of America. Those executed in accordance with established procedures. standards require that we plan and perform the audit to obtain The concept of reasonable assurance is based on the recognition reasonable assurance about whether the financial statements that the cost of maintaining the system of internal accounting are free of material misstatement. An audit includes examining, controls should not exceed the benefit derived from the system. on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and subsidiaries as of January 31, 2002 and 2001, and the results of their operations and their cash f lows for each of the three years in the period ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Deloitte and Touche LLP audits the Company’s financial statements in accordance with auditing standards generally accepted in the United States of America and provides an objective, independent review of the Company’s internal controls and the fairness of its reported financial condition and results of operations. The Audit Committee, which is comprised of five independent directors, meets periodically with management and the independent auditors to ensure that each is properly fulfilling its responsibilities. The Committee oversees the Company’s systems of internal control, accounting practices, financial reporting and audits to ensure their quality, integrity and objectivity are suf ficient to protect shareholders’ investments. Deloitte & Touche LLP Seattle, Washington March 25, 2002 Michael G. Koppel Executive Vice President and Chief Financial Of ficer NORDSTROM INC. AND SUBSIDIARIES 37 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk. + metalic 8002 PAGE 37 Cyan Mag Yelo Blk pms 8002 Eleven-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 Gross profit 2002 2001 2000 1999 $677,150 888,172 $699,687 945,687 $596,020 $567,661 797,845 750,269 2,054,598 1,812,982 1,564,648 1,668,689 947,738 1,106,860 2.17 1,761,082 1,429,271 .5209 950,568 862,414 1.91 1,599,938 1,112,296 .4929 866,509 698,139 1.81 794,490 874,199 2.10 1,429,492 1,378,006 804,982 868,234 .4249 .4214 1,314,488 1,229,568 1,185,614 1,300,545 134,468,608 133,797,757 132,279,988 142,114,167 9.78 9.19 8.96 9.15 4,048,779 3,608,503 3,062,081 3,103,689 5,634,130 1,868,271 5,528,537 1,879,021 5,149,266 5,049,182 1,789,506 1,704,237 Selling, general and administrative (1,722,635) (1,747,048) (1,523,836) (1,429,837) Operating income Interest expense, net Write-down of investment Service charge income and other, net 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 145,636 (75,038) — 133,890 204,488 (79,800) 124,688 .93 .93 .36 (2.9%) 2.21% 9.80% 321 131,973 (62,698) (32,857) 130,600 167,018 (65,100) 101,918 .78 .78 .35 .3% 1.84% 8.44% 342 265,670 274,400 (50,396) (47,091) — 116,783 332,057 — 110,414 337,723 (129,500) (131,000) 202,557 206,723 1.47 1.46 .32 (1.1%) 3.93% 16.29% 350 1.41 1.41 .30 (2.7%) 4.09% 14.98% 362 Stores Total square footage 156 140 104 97 17,048,000 16,056,000 14,487,000 13,593,000 38 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 PAGE 38 Cyan Mag Yelo Blk pms 8002 1998 1997 1996 1995 1994 1993 1992 $641,862 826,045 $693,123 719,919 1,613,492 1,549,819 979,031 634,461 1.65 795,321 754,498 1.95 $874,103 626,303 1,612,776 833,443 779,333 1.94 1,252,513 1,152,454 1,103,298 420,865 .3194 380,632 .2720 439,943 .3232 $655,715 $565,151 $584,379 $585,490 627,930 585,602 536,739 1,397,713 1,314,914 1,219,844 693,015 704,698 2.02 984,195 373,910 .2575 631,064 683,850 2.08 845,596 438,574 .2934 516,397 703,447 2.36 824,142 481,945 .3337 506,632 1,177,638 558,768 618,870 2.11 856,404 491,076 .4029 927,465 1,458,950 1,457,084 1,408,053 1,330,437 1,153,594 1,038,649 152,518,104 159,269,954 162,226,288 164,488,196 164,118,256 163,949,594 163,688,454 9.57 9.15 8.68 8.09 7.03 6.34 5.67 2,890,664 2,726,495 2,732,619 2,396,783 2,177,481 2,053,170 2,041,875 4,864,604 1,568,791 4,457,931 1,378,472 4,113,717 1,310,931 3,895,642 3,591,228 1,297,018 1,121,539 3,415,613 1,079,608 3,174,822 1,007,554 (1,338,235) (1,232,860) (1,136,069) (1,029,856) (940,708) (901,446) 230,556 (34,250) — 110,907 307,213 (121,000) 186,213 1.20 1.20 .265 4.0% 3.83% 12.77% 384 145,612 (39,400) — 135,331 241,543 (95,227) 146,316 .90 .90 .25 0.6% 3.28% 10.21% 377 174,862 (39,295) — 134,179 269,746 (106,190) 163,556 1.00 1.00 .25 (0.7%) 3.98% 11.94% 382 267,162 (30,664) — 98,311 334,809 (132,304) 202,505 1.23 1.23 .1925 4.4% 5.20% 16.30% 395 180,831 (37,646) — 88,509 231,694 (90,804) 140,890 .86 .86 .17 2.7% 3.92% 12.85% 383 178,162 (44,810) — 86,140 219,492 (84,489) 135,003 .82 .82 .16 1.4% 3.95% 13.73% 381 (831,005) 176,549 (49,106) — 87,443 214,886 (80,527) 134,359 .82 .82 .155 1.4% 4.23% 15.41% 388 92 83 78 76 74 72 68 12,614,000 11,754,000 10,713,000 9,998,000 9,282,000 9,224,000 8,590,000 NORDSTROM INC. AND SUBSIDIARIES 39 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 PAGE 39 Cyan Mag Yelo Blk pms 8002 Officers of the Corporation and Executive Team Officers of the Corporation Michael G. Koppel, 45 James R. O'Neal, 43 Jammie Baugh, 49 Executive Vice President, Human Resources MEMBER OF EXECUTIVE TEAM Laurie M. Black, 43 Executive Vice President and President, Nordstrom Rack MEMBER OF EXECUTIVE TEAM Mark S. Brashear, 40 Executive Vice President and President, Façonnable, S.A.S. Dale Cameron, 53 Executive Vice President, Corporate Merchandise Manager, Cosmetics Full-line Stores Executive Vice President and Executive Vice President and Chief Financial Of ficer MEMBER OF EXECUTIVE TEAM President, Nordstrom Product Group MEMBER OF EXECUTIVE TEAM L lynn (Len) A. Kuntz, 41 Suzanne R. Patneaude, 55 Executive Vice President, WA/AK Regional Manager Full-line Stores Vice President, Corporate Merchandise Manager, Designer/ Savvy Full-line Stores David P. L indsey, 52 R. Michael Richardson, 45 Vice President, Store Planning Vice President and David L. Mackie, 53 Vice President, Real Estate and Legal Affairs Robert J. Middlemas, 45 Executive Vice President, Chief Information Of ficer Karen Bowman Roesler, 46 Vice President, Marketing Nordstrom Credit Group K.C. (Karen) Shaf fer, 48 Central States Regional Manager Executive Vice President, Robert E. Campbell, 46 Full-line Stores Nordstrom Rack NW Regional Manager Vice President, Strategy and Planning, Treasurer N. Claire Chapman, 41 Corporate Secretary L inda Toschi Finn, 54 MEMBER OF EXECUTIVE TEAM Bonnie M. Junell, 45 Vice President, Jack H. Minuk, 47 Vice President, Joel T. Stinson, 52 Executive Vice President and Corporate Merchandise Manager, Chief Administrative Of ficer Women’s Shoes Full-line Stores President MEMBER OF EXECUTIVE TEAM Delena M. Sunday, 41 Executive Vice President, Diversity Af fairs MEMBER OF EXECUTIVE TEAM MEMBER OF EXECUTIVE TEAM Bruce A. Nordstrom, 68 Geevy S.K. Thomas, 37 Executive Vice President, Marketing Blake W. Nordstrom, 41 Corporate Merchandise Manager, Chairman of the Board of Directors Executive Vice President, Point of View, Narrative Full-line Stores Kevin T. Knight, 46 Executive Vice President, Chairman and Chief Executive Of ficer of Nordstrom fsb, President of Nordstrom Credit, Inc. MEMBER OF EXECUTIVE TEAM Erik B. Nordstrom, 38 Executive Vice President, Full-line Stores Peter E. Nordstrom, 40 Executive Vice President and President, Full-line Stores MEMBER OF EXECUTIVE TEAM South Regional Manager Full-line Stores Additional Member of Nordstrom, Inc. Executive Team J. Daniel Nordstrom, 39 Chief Executive Of ficer, Nordstrom.com 40 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk. + metalic 8002 PAGE 40 Cyan Mag Yelo Blk pms 8002 Board of Directors and Committees Committees Executive John A. McMillan Bruce A. Nordstrom John N. Nordstrom Corporate Governance and Nominating D. Wayne Gittinger, Chair Enrique Hernandez, Jr. Alfred E. Osborne, Jr. William D. Ruckelshaus Audit Enrique Hernandez, Jr. Alfred E. Osborne, Jr. William D. Ruckelshaus Bruce G. Willison, Chair Alison A. Winter Compensation and Stock Options Enrique Hernandez, Jr. Alfred E. Osborne, Jr. William D. Ruckelshaus, Chair Alison A. Winter Finance D. Wayne Gittinger Enrique Hernandez, Jr. John A. McMillan John N. Nordstrom Alfred E. Osborne, Jr., Chair Bruce G. Willison FIRST ROW D. Wayne Gittinger, 69 Partner, Lane Powell Spears Lubersky LLP Seattle, Washington Enrique Hernandez, Jr., 46 President and CEO, Inter-Con Security Systems, Inc. Pasadena, California John A. McMillan, 70 Retired Co-Chairman of the Board of Directors Seattle, Washington SECOND ROW Bruce A. Nordstrom, 68 Chairman of the Board of Directors Seattle, Washington John N. Nordstrom, 65 Retired Co-Chairman of the Board of Directors Seattle, Washington Alfred E. Osborne, Jr., 57 Director of the Harold Price Center for Entrepreneurial Studies and Associate Professor of Business Economics, The Anderson School at UCLA Los Angeles, California THIRD ROW William D. Ruckelshaus, 69 A Strategic Director, Madrona Venture Group Seattle, Washington Bruce G. Willison, 53 Dean, The Anderson School at UCLA Los Angeles, California Alison A. Winter, 55 Executive Vice President for Midwest Personal Financial Services, The Northern Trust Corporation Chicago, Illinois NORDSTROM INC. AND SUBSIDIARIES 41 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 + varnish PAGE 41 Cyan Mag Yelo Blk Varn pms 8002 Retail Store Facilities open at January 31, 2002 Redondo Beach The Galleria at South Bay Location Southwest Group Arizona Chandler Scottsdale California Arcadia Brea Canoga Park Cerritos Corte Madera Costa Mesa Escondido Glendale Los Angeles Mission Viejo Montclair Palo Alto Pleasanton Riverside Roseville Sacramento San Diego San Diego San Diego San Francisco San Francisco San Jose San Mateo Santa Ana Santa Barbara Walnut Creek East Coast Group Connecticut Farmington Florida Boca Raton Tampa Georgia Atlanta Buford Store Name Store Square Footage Chandler Fashion Center 149,000 Scottsdale Fashion Square 235,000 Santa Anita Brea Mall Topanga Los Cerritos Center The Village at Corte Madera 151,000 195,000 154,000 122,000 116,000 Location Maryland Annapolis Bethesda Columbia Towson New Jersey Edison Freehold Paramus Short Hills South Coast Plaza 235,000 New York North County 156,000 Garden City Glendale Galleria 147,000 White Plains Store Name Store Square Footage Annapolis Mall 162,000 Montgomery Mall 225,000 The Mall in Columbia 173,000 Towson Town Center 205,000 Menlo Park 266,000 Freehold Raceway Mall 174,000 Garden State Plaza 282,000 The Mall at Short Hills 188,000 Roosevelt Field The Westchester 241,000 219,000 Westside Pavilion The Shops at Mission Viejo Montclair Plaza Stanford Shopping Center Stoneridge Mall The Galleria at Tyler in Riverside Galleria at Roseville Arden Fair 150,000 172,000 134,000 187,000 173,000 161,000 164,000 149,000 190,000 Fashion Valley Center 220,000 Horton Plaza University Towne Centre Stonestown Galleria San Francisco Shopping Centre Valley Fair Hillsdale Shopping Center MainPlace/Santa Ana Paseo Nuevo Broadway Plaza 151,000 130,000 174,000 350,000 232,000 149,000 169,000 186,000 193,000 Westfarms 189,000 Town Center at Boca Raton International Plaza 193,000 172,000 Perimeter Mall 243,000 Mall of Georgia 172,000 Pennsylvania King of Prussia The Plaza at King of Prussia 238,000 Rhode Island Providence Virgina Arlington McLean Norfolk Central States Illinois Chicago Oak Brook Schaumburg Skokie Indiana Indianapolis Kansas Overland Park Michigan Troy Minnesota Bloomington Ohio Beachwood Columbus Providence Place 206,000 The Fashion Centre at Pentagon City 241,000 Tysons Corner Center 253,000 MacArthur Center 166,000 Michigan Avenue 271,000 Oakbrook Center 249,000 Woodfield Shopping Center 215,000 Old Orchard Center 209,000 Circle Centre 216,000 Oak Park Mall 219,000 Somerset Collection 258,000 Mall of America 240,000 Beachwood Place Easton Town Center 231,000 174,000 42 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 PAGE 42 Cyan Mag Yelo Blk pms 8002 Location Texas Dallas Frisco Hurst Northwest Group Alaska Anchorage Colorado Broomfield L ittleton Oregon Portland Portland Portland Salem Tigard Utah Murray Salt Lake City Washington Bellevue Lynnwood Seattle Seattle Spokane Tacoma Tukwila Vancouver Other Honolulu, HI Honolulu, HI Façonnable Façonnable Nordstrom Rack Group Chandler, AZ Phoenix, AZ Scottsdale, AZ Brea, CA Chino, CA Colma, CA Store Name Store Square Footage Location Store Name Store Square Footage Dallas Galleria 249,000 Glendale, CA Glendale Fashion Center Rack Costa Mesa, CA Metro Pointe Rack Stonebriar Centre North East Mall 149,000 149,000 Los Angeles, CA The Promenade at Howard Hughes Center Rack Oxnard, CA Roseville, CA Esplanade Shopping Center Rack Creekside Town Center Rack Sacramento, CA Howe ‘Bout Arden Center Rack Anchorage 97,000 San Diego, CA FlatIron Crossing 172,000 Park Meadows 245,000 Clackamas Town Center 121,000 Downtown Portland L loyd Center Salem Center 174,000 150,000 71,000 Washington Square 189,000 Fashion Place Crossroads Plaza 110,000 140,000 Bellevue Square 285,000 Alderwood Mall 127,000 Downtown Seattle 383,000 Northgate Spokane Tacoma Mall Southcenter Vancouver Mall 122,000 137,000 134,000 170,000 71,000 San Francisco, CA San Jose, CA San Leandro, CA Woodland Hills, CA L ittleton, CO Broomfield, CO Buford, GA Honolulu, HI Northbrook, IL Oak Brook, IL Schaumburg, IL Gaithersburg, MD *Silver Spring, MD Towson, MD Grand Rapids, MI Troy, MI Bloomington, MN Las Vegas, NV Westbury, NY Beaverton, OR Clackamas, OR Portland, OR Mission Valley Rack 555 Ninth Street Retail Center Rack Westgate Mall Rack San Leandro Rack Topanga Rack Meadows Marketplace Rack Flatiron Marketplace Rack Mall of Georgia Crossing Rack Victoria Ward Center Rack Northbrook Rack The Shops at Oak Brook Place Rack Woodfield Rack Gaithersburg Rack City Place Rack Towson Rack Centerpointe Mall Rack Troy Marketplace Rack Mall of America Rack Silverado Ranch Plaza Rack The Mall at the Source Rack Tanasbourne Town Center Rack Clackamas Promenade Rack Downtown Portland Rack Women’s Ala Moana Shoes Men’s Ala Moana Shoes U.S. (4 boutiques) International (24 boutiques) Chandler Festival Rack Last Chance The Promenade Rack Brea Union Plaza Rack Chino Marketplace Rack Colma Rack 14,000 8,000 40,000 81,000 37,000 48,000 38,000 45,000 30,000 31,000 Philadelphia, PA Franklin Mills Mall Rack Hurst, TX Plano, TX The Shops at North East Mall Rack Preston Shepard Place Rack Salt Lake City, UT Sugarhouse Rack Dulles, VA Woodbridge, VA Auburn, WA Bellevue, WA Lynnwood, WA Seattle, WA Spokane, WA Dulles Town Crossing Rack Potomac Mills Rack SuperMall of the Great Northwest Rack Factoria Mall Rack Golde Creek Plaza Rack Downtown Seattle Rack NorthTown Mall Rack 50,000 36,000 41,000 38,000 36,000 54,000 57,000 43,000 48,000 44,000 64,000 34,000 36,000 44,000 34,000 40,000 42,000 45,000 49,000 37,000 31,000 40,000 40,000 41,000 33,000 48,000 53,000 28,000 19,000 43,000 40,000 39,000 31,000 41,000 46,000 48,000 46,000 38,000 42,000 28,000 * Store closed January 21, 2002, however it has been treated as open for the full year. NORDSTROM INC. AND SUBSIDIARIES 43 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + metalic 8002 PAGE 43 Cyan Mag Yelo Blk pms 8002 Shareholder Information Independent Auditors Deloitte & Touche LLP Counsel Lane Powell Spears Lubersky LLP Transfer Agent and Registrar Mellon Investor Services LLC P.O. Box 3315 South Hackensack, New Jersey 07606 Telephone (800) 318-7045 TDD for Hearing Impaired (800) 231-5469 Foreign Shareholders (201) 329-8660 TDD Foreign Shareholders (201) 329-8354 General Of fices 1617 Sixth Avenue Seattle, Washington 98101-1742 Telephone (206) 628-2111 Annual Meeting May 21, 2002 at 11:00 a.m. Pacific Daylight Time Nordstrom Downtown Seattle Store John W. Nordstrom Room, fifth f loor 1617 Sixth Avenue Seattle, Washington 98101-1742 Form 10-K The Company's annual report on Form 10-K for the year ended January 31, 2002 will be provided to shareholders upon written request to: Nordstrom, Inc. Investor Relations P.O. Box 2737 Seattle, Washington 98111 Or by calling (206) 303-3200 Shareholder Information Please visit www.nordstrom.com to obtain shareholder 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. 44 NORDSTROM INC. AND SUBSIDIARIES 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Blk. + metalic 8002 PAGE 44 Cyan Mag Yelo Blk pms 8002 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar metalic 8002 + Var. PAGE IBC Varn pms 550 Cyan Mag Yelo Blk 20200324 NORDSTROM 2001 Annual Report • VERSION 8.375 x 10.875 • SCITEX • 175 lpi • Kodak 80# Cougar Full Color + 550pms + Var OBC Varn pms 550 Cyan Mag Yelo Blk 

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