Nordstrom Annual Report 2002

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FY2002 Annual Report · Nordstrom

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ANNUAL REPORT 2002

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financial highlights

Dollars in thousands except per share amounts

Fiscal Year

Net sales
Earnings before income taxes and

cumulative effect of accounting change

Earnings before cumulative effect of accounting change
Net earnings
Basic earnings per share
Diluted earnings per share
Cash dividends paid per share

2002

2001

% Change

$5,975,076

$5,634,130

195,624
103,583
90,224
.67
.66
.38

204,488
124,688
124,688
.93
.93
.36

6.1

(4.3)
(16.9)
(27.6)
(28.0)
(29.0)
5.6

Comp-Store Sales % Change

Sales per Square Foot

%
4

•

%
7

•

%
4

•

%
0
4

•

%
6

•

%
7
0
-

•

%
4

•

%
3

•

%
1
1
-

•

%
7
2
-

•

%
9

2
-

•

1
8
3
$

•

3
8
3
$

5
9
3
$

• •

2
8
3
$

•

7
7
3
$

•

4
8
3
$

•

2
6
3
$

•

0
5
3
$

•

2
4
3
$

•

1
2
3
$

•

9
1
3
$

•

92 93 94

95 96 97 98 99 00 01 02

92 93 94

95 96 97 98 99 00 01 02

Gross Profit % of Sales

SG&A as a % of Sales

%
3
.
3
% 3
•
2
.
1
3

•

%
6
.
1
3

•

%
2
.
2
3

•

%
9
.
1
3

•

%
9
.
0
3

•

%
8
.
4
3

•

%
0
.
4
3

•

%
8
.
3
3

•

%
5
.
3
3

•

%
2
.
3
3

•

%
4
.
6
2

•

%
2
.
6
2

%
4
.
6
2

••

%
6
.
1
% 3
•
6
.
9
2

•

%
6
.
0
3

•

%
3
.
0
3

•

%
3
.
8
2

•

%
5
.
7
2

•

%
6
.
7
2

%
7
.
7
2

••

92 93 94

95 96 97 98 99 00 01 02

92 93 94

95 96 97 98 99 00 01 02

Table of contents

12 Management’s Discussion and Analysis

24 Consolidated Statements of Shareholders’ Equity

46 Retail Store Facilities

21 Independent Auditors’ and Management Reports

25 Consolidated Statements of Cash Flows

48 Officers of the Corporation and Executive Team

22 Consolidated Statements of Earnings

26 Notes to Consolidated Financial Statements

49 Board of Directors

23 Consolidated Balance Sheets

44 Eleven-Year Statistical Summary

49 Shareholder Information

View this entire report online. Please visit www.nordstrom.com to see this report and obtain the latest available information.

The saying goes, “It’s the little things that count.”
We’d like to add—it’s the big ones too. In fact, it all counts when
it comes to customer satisfaction.

quality
experience

Our focus at Nordstrom is simple—take care of
the customer and offer a wide selection of quality,
distinctive merchandise at fair prices every day.
It is this commitment that ultimately drives sales
and results. Everything we do, directly or indirectly,
supports our focus on our customers. And our
story always begins with our people…

our
pleasure

In a competitive retail environment, you must
have the best people in the industry on the sales
floor. We look for people who will approach work
with pride and ownership. Our salespeople are
empowered to do whatever it takes to make the
customer happy. Every day, they find new ways
to respond to each customer’s needs.

In addition to anticipating what the customer
wants, we offer special services that enhance
the shopping experience. Whether someone
needs a gift wrapped in our signature pewter
and silver boxes (of course, free of charge), last
minute alterations, or a complimentary makeover,
our services are a unique complement to our
superior salespeople.

BP. Salesperson
Nicole Rhotton, Mission Viejo, CA

Café Bistro
Jose “Pepe” Ruvalcaba, Mission Viejo, CA

2 NORDSTROM INC. AND SUBSIDIARIES

Personal Touch
Personal shopping specialist
Eun Kim, Michigan Ave., IL

Concierge
Cynthia Sanchez, Michigan Ave., IL

BP. Shoe Salesperson
Russell Felicitas, Downtown Seattle, WA

“As shoe merchants, we were raised kneeling in front of customers,
and I believe this represents the essence of our company’s
values and the very core of our culture.”

Bruce Nordstrom

CHAIRMAN OF THE BOARD

Men’s Clothing Salesperson
Million-dollar seller
Larry Smiley, Michigan Ave., IL

Regional Fit Specialist
Lingerie and Prosthesis
Debra Duden, Oak Brook, IL

Alterations
Deena Vu, Bellevue Sq., WA

Cosmetics Skincare Specialist
Claudia Myszko, Mission Viejo, CA

NORDSTROM INC. AND SUBSIDIARIES 3

4 NORDSTROM INC. AND SUBSIDIARIES

distinctive
merchandise

Our goal is to offer a well-edited range of products
for a variety of lifestyles. We serve a broad base of
customers and work hard to offer them an appealing
combination of unique vendors, national and
exclusive brands and private label merchandise.
To have the merchandise when the customer wants
it is the highest form of service we can provide.
We won’t be undersold, and we stand by our
commitment to provide the best possible price for
every item sold in our stores.

Customers want fresh, compelling merchandise
and they recognize quality and value. When we focus
on those things it’s possible to send more customers
home happy—with a shopping bag in hand.

NORDSTROM INC. AND SUBSIDIARIES 5

e R

a t a l o

o m

o m . c

s t r

b l e

6 NORDSTROM INC. AND SUBSIDIARIES

e S t o

all
together

We want to build long-lasting relationships
with our customers—and we want to be
wherever they want us to be. Because we are
one of the few fashion specialty retailers that
provide customers the convenience of shopping
multiple channels: in our stores, at Nordstrom
Racks, through our catalogs or online, we work
hard to demonstrate this commitment every day.
Whether it’s a midnight shopping spree on
nordstrom.com, or a lunchtime dash to the Rack,
the customer will always find Nordstrom
represented in the quality, value, selection and
service each channel provides.

NORDSTROM INC. AND SUBSIDIARIES 7

right
direction

Ultimately, it’s our customers who judge whether
or not we are on the right track. Through emails,
calls, letters and personal feedback on the sales
floor, they let us know how we are serving them.
But we know that the best service we can offer is
to sell them something. As our results reflect, our
customers are responding positively. In 2002 our
sales results beat our industry peer group for 10
consecutive months. And eight months out of those
10 we achieved comparable sales increases. While
we still have ground to cover, we are pleased with
the customer feedback, and with the progress
we’ve made over the past two years.

8 NORDSTROM INC. AND SUBSIDIARIES

NORDSTROM INC. AND SUBSIDIARIES 9

dear customers,
employees and shareholders

Nordstrom is not a faceless company. It includes our salespeople, department managers,
store managers, merchants, support personnel, and our board of directors—all working
together to achieve sustained improvement in our results by providing better service to our
customers. Ours is not a one-quarter, two-quarter, or even a 2003 story. It’s a story focused
on constantly striving to be better, supported by a well-established culture: competitive and
empowering, challenging and supportive, flexible in responding to market opportunities,
and unyielding in working every day to warrant the trust of our customers, employees,
shareholders, and business partners.

Our progress in the past year is measured in small but meaningful steps. We set out to
improve service, drive top line sales, reduce expenses, and implement our perpetual inventory
system nationwide. We’re pleased to report we made progress on all four fronts. For example,
comparable store sales, a reflection of customers voting with their hard earned dollars, grew
1.4 percent in 2002. We also recognize that in this challenging economic environment in which a
number of retailers experienced negative comparable store sales, we made strides in regaining
lost market share.

We continued to make progress in better managing expenses. Selling, general and
administrative expense, as a percentage of sales, showed improvement for the second
consecutive year. This expense had grown considerably in recent years relative to our growth
in sales. The progress with expenses over the last two years, while modest, moves us in the
right direction. Opportunities remain to become more efficient and we intend to act on them,
while remaining committed to enhancing the customer experience—in our stores, through
our catalogs and online.

Blake W. Nordstrom

William D. Ruckelshaus

Bruce A. Nordstrom

John A. McMillan

10 NORDSTROM INC. AND SUBSIDIARIES

Jeanne P. Jackson

Enrique Hernandez Jr.

We opened eight full-line stores in 2002, the most we’ve ever opened in a single year,
in addition to four Nordstrom Racks and one Façonnable boutique. We also successfully
implemented a company-wide perpetual inventory system. While we believe that no
implementation is completely seamless when it comes to installing a roughly $200 million
information technology system, we were able to accomplish this within the established budget
and without a significant misstep. Although our perpetual inventory system is a wonderful tool,
it is not the all-encompassing answer. With this technology in place, the responsibility now lies
with Nordstrom employees, not the system, to make sure that ultimately our customers benefit
from our stores carrying more of the merchandise they are looking for. Our technology will
continue to improve in 2003 as we begin implementation of a new point-of-sale system,
which will enable our salespeople to be more efficient in sales transactions with customers.

Different trends and formats have created a stir within retail over the last few years,
from specialty stores in one period, to e-commerce in another, to discounters and increased
promotions more recently. Our challenge in 2003 and beyond is to be the best Nordstrom
we can be, which we believe is an increasingly attractive niche. While we have a platform
that is viable in multiple channels—full-line stores, Racks, Façonnable boutiques,
catalogs, Internet—we want to act as one company providing customers with a consistent
Nordstrom experience.

Thank you for your support of this company. We look forward to continuing to move in the right
direction in 2003 and we’re eager to demonstrate through our actions and results why you
should continue to be associated with Nordstrom.

Sincerely,

Blake W. Nordstrom

PRESIDENT

John N. Nordstrom

Alfred E. Osborne Jr.

D. Wayne Gittinger

For more information regarding these individuals, please turn to page 50.

NORDSTROM INC. AND SUBSIDIARIES 11

Alison A. Winter

Stephanie M. Shern

Bruce G. Willison

management’s discussion
and analysis

OVERVIEW

Percentage of 2002 Sales by Merchandise Category

Nordstrom is a fashion specialty retailer offering a wide selection

of high-quality apparel, shoes and accessories for men, women and

children. We believe that we offer our customers an exceptional

shopping experience by providing superior service and distinctive

merchandise with an emphasis on quality and value. We also offer

our products through multiple retail channels including our full-line

stores, Nordstrom Rack stores, our catalogs and on the Internet.

Our financial performance is driven largely by our ability to generate

positive comparable store sales, successfully execute store openings,

Children’s Apparel

and Accessories 4%

Other 3%

Men’s Apparel and

Furnishings 17%

Women’s Apparel 35%

manage inventory and control expenses. To that end, our goals for

Shoes 19%

2002 were to drive top-line growth, implement our new perpetual

inventory system and continue lowering expense levels as a percent

of sales.

Women’s Accessories 22%

During 2002, we were able to generate comparable store sales gains

of 1.4%. We are encouraged by these gains in this challenging retail

RESULTS OF OPERATIONS:

and economic environment. In recent years, our sales per square

foot have declined as we have ventured into new markets and

opened new stores. This year our sales per square foot decline

Segment results are discussed in each of the following sections

as applicable.

slowed. In 2002, sales per square foot declined from $321 to

Net Sales (in millions)

$319, in spite of an 8% expansion in our retail square footage.

We substantially completed the implementation of our perpetual

inventory system, which allows us to more effectively manage

inventory. Additionally, we are implementing a new replenishment

system, which is scheduled for completion in the first quarter

of 2003.

Progress was made on controlling expenses in the current year.

In 2002, selling, general and administrative expenses as a percent

of sales were down 0.3% to 30.3%. This decrease is in addition

to the 1.0% decrease we achieved in 2001. While we have made

9
4
0
,
5
$

9
4
1
,
5
$

9
2
5
,
5
$

4
3
6
,
5
$

5
7
9
,
5
$

•

$6,000

$5,750

$5,500

$5,250

$5,000

progress in this area, we are still focused on reaching our goal of

Sales increases and comparable store sales are shown in the table

28.5% to 29.0% of sales in the next few years.

below. Comparable stores are stores open at least one full fiscal

Our focus for 2003 is to increase top line growth through positive

comparable store sales and store openings, improve gross margin

performance through better inventory control, and further reduce

our expenses as a percent of sales.

year at the beginning of the fiscal year.

Fiscal Year

2000

2001

2002

Net sales increase

7.4%

1.9%

6.1%

Comparable store sales:

Full-line stores

Nordstrom Rack & other

Total

0.2%

1.2%

0.3%

(2.6%)

(5.9%)

(2.9%)

0.7%

7.4%

1.4%

12 NORDSTROM INC. AND SUBSIDIARIES

management’s discussion
and analysis

In 2002, net sales increased 6.1% over the prior year. This growth

we added new stores, however, inventory per square foot declined

was primarily due to store openings. During 2002, we opened eight

due to improved performance at full-line stores partially offset by

full-line stores, four Nordstrom Rack stores and one Façonnable

inventory increases at our Nordstrom Rack division. Total shrinkage

boutique. We also closed one Nordstrom Rack location. The net

as a percentage of sales was even with the previous year.

impact was an increase to our retail square footage of 8%.

Comparable store sales increased 1.4% due to increases at both

full-line stores and Nordstrom Rack stores. Sales at Nordstrom

Direct (formerly known as Nordstrom.com) declined slightly with

a planned reduction in catalog sales partially offset by an increase

in Internet sales.

Gross profit as a percentage of net sales declined in 2001 due

to increased markdowns and new store occupancy expenses.

The markdowns were taken to drive sales and to liquidate excess

inventory caused by the decrease in comparable store sales.

Inventory declines at comparable stores were partially offset by the

addition of new stores. The comparable stores inventory decrease

Merchandise division sales were led by Women’s Designer, Cosmetics

was due to a concerted effort to reduce inventory levels during the

and Accessories. Men’s Apparel and Shoes experienced small sales

year resulting in lower inventory per square foot. Total shrinkage as

declines. The Women’s Designer division benefited from the

a percentage of sales was even with the previous year.

addition of new vendors, close scrutiny of developing trends and

a targeted marketing plan. The increase in Cosmetics was primarily

due to the addition of product lines. Accessories improved by

In 2003, we anticipate continuing progress in our ability to improve

gross profit performance through better inventory management.

differentiating its product and offering attractive values.

Selling, General and Administrative

In 2001, net sales increased 1.9% due to store openings. During

2001, we opened four full-line stores, eight Nordstrom Rack stores

and three Façonnable boutiques. We also closed one Nordstrom

Rack store and one full-line store. The net impact was an increase

to our retail square footage of 6%. New store sales were partially

offset by negative comparable store sales and a decline in sales

at Nordstrom Direct. The most significant sales declines were in

Fiscal Year

2000

2001

2002

Selling, general and administrative

expense as a percent of net sales

31.6%

30.6%

30.3%

In 2002, we recognized a charge of $15.6 million to write-down

an investment in a supply chain tool intended to support our private

label division. Due to changes in business strategy, we determined

that this asset was impaired. This charge reduced this asset to its

Men’s Apparel and Shoes while Women’s Apparel was essentially flat.

estimated market value.

In 2003, we plan to open four full-line stores and two Nordstrom

Rack stores, increasing retail square footage by approximately 4%.

Because of the continued challenging retail environment,

comparable store sales are expected to be flat to slightly positive.

Gross Profit

Fiscal Year

2000

2001

2002

Gross profit as a percent of net sales

34.0%

33.2%

33.5%

Gross profit as a percentage of net sales improved in 2002 due

to better inventory management. In our merchandising divisions,

improvement in gross profit rate offset lower sales in certain

categories. Merchandise division gross profit was led by both

Women’s and Men’s Apparel. Additionally, costs related to our

private label operations improved. Total inventory increased as

Excluding the effect of the write-down, selling, general and

administrative expenses as a percentage of net sales decreased

in 2002 to 30.1% from 30.6% in the prior year. This decrease

is the result of improvements in bad debt and selling expense and

reductions in sales promotion. These costs were partially offset

by higher distribution costs and higher information systems expense.

Bad debt expense decreased as both delinquency and write-off

trends stabilized. Selling expense decreased primarily due to

continued efficiencies in shipping costs at Nordstrom Direct.

Sales promotion decreased as Nordstrom Direct executed planned

reductions in catalog size and number of mailings consistent with

sales trends. Distribution costs increased primarily due to higher

merchandise volumes and temporary inefficiencies caused by the

implementation of our perpetual inventory system. The information

NORDSTROM INC. AND SUBSIDIARIES 13

management’s discussion
and analysis

systems expense increase resulted from depreciation and rollout

Minority Interest Purchase and Reintegration Costs

costs of our new perpetual inventory system.

During 2002, we purchased the outstanding shares of

In 2000, we recognized a charge of $13.0 million for certain

severance and other costs related to a change in management.

Also in 2000, we recorded an impairment charge of $10.2 million.

Due to changes in business strategy, we determined that several

software projects under development were either impaired

or obsolete.

Excluding the effect of the severance and impairment charge,

selling, general and administrative expenses as a percentage of net

sales decreased in 2001 to 30.6% versus 31.2% in the prior year.

This improvement in selling, general and administrative expenses

Nordstrom.com, Inc. series C preferred stock for $70.0 million.

The excess of the purchase price over the fair market value of the

preferred stock and professional fees resulted in a one-time charge

of $42.7 million. No tax benefit was recognized on the share

purchase, as we do not believe it is probable that this benefit will

be realized. The impact of not recognizing this income tax benefit

increased our effective tax rate to 47% before the cumulative effect

of accounting change.

Also in 2002, $10.4 million of expense was recognized related

to the purchase of the outstanding Nordstrom.com options and

as a percentage of net sales is due to reductions in sales promotion

warrants.

and improvements in selling expenses. Sales promotion expenses

decreased due to the discontinuation of a company-wide brand

advertising program. Selling expenses decreased as Nordstrom Direct

improved the efficiency of their shipping and call center activities.

These improvements were partially offset by an increase in bad debt

on our credit cards due to increased delinquencies and write-offs.

In 2003, selling, general and administrative expenses as a percent

of net sales are expected to improve slightly as we continue our

focus on expense management.

Interest Expense, Net

Service Charge Income and Other, Net (in millions)

1
4
1
$

•

4
3
1
$

•

0
1
1
$

7
1
1
$

1
3
1
$

•

$150

$140

$130

$120

$110

$100

$90

Interest expense, net increased 9.2% in 2002 primarily due to

lower capitalized interest. Capitalized interest decreased due to

Service charge income and other, net increased in 2002 primarily

lower average balances during the year for construction and

due to gains recorded from our VISA securitization. Securitization

software in progress.

Interest expense, net increased 19.7% in 2001 due to higher

average borrowings, partially offset by a decrease in interest rates.

gains increased this year as credit spreads improved, the cost

of funds decreased and bad debt write-offs stabilized. This

increase was partially offset by a decline in service charge

and late fee income resulting from a decline in our private

Interest expense, net for 2003 is expected to be flat with 2002.

label accounts receivable.

Write-down of Streamline.com, Inc.

Service charge income declined slightly in 2001 due to

We held an investment in Streamline.com, Inc., an Internet grocery

lower interest rates, flat credit sales and a steady number of

and consumer goods delivery company. Streamline ceased its

credit accounts.

operations effective November 2000. During 2000 we wrote off our

entire investment in Streamline, for a total expense of $32.9 million.

In 2003, service charge income is expected to be higher due

to a small increase in credit sales and credit accounts, and

adjustments to interest rates charged.

14 NORDSTROM INC. AND SUBSIDIARIES

management’s discussion
and analysis

Diluted Earnings per Share

LIQUIDITY AND CAPITAL RESOURCES

$1.60

$1.40

$1.20

$1.00

$0.80

8
7
.
0
$

3
9
.
0
$

6
6
.
0
$

1
4
.
1
$

•

6
4
.
1
$

•

We finance our working capital needs, capital expenditures,

acquisitions and share repurchase activity with a combination

of cash flows from operations and borrowings.

We believe that our operating cash flows, existing cash and available

credit facilities are sufficient to finance our operations and planned

growth for the foreseeable future.

Operating Activities

Our operations are seasonal in nature. The second quarter, which

includes our Anniversary Sale, accounts for approximately 28%

Earnings per share decreased in 2002 due to the write down

of net sales, while the fourth quarter, which includes the holiday

of the supply chain tool, the minority interest purchase and

season, accounts for about 29% of net sales. Cash requirements

reintegration costs and the cumulative effect of accounting change.

are highest in the third quarter as we build our inventory for the

Excluding the impact of these charges, earnings per share would

holiday season.

have been $1.19, an increase from the prior year of 28.0%. This

increase was primarily driven by an increase in comparable store

sales, an improvement in gross profit percent and a decrease in

selling, general and administrative expenses as a percent of sales.

The decrease in net cash provided by operating activities between

2002 and 2001 was primarily due to increases in inventories and

accounts receivable partially offset by an increase in net earnings

before noncash items and an increase in our accrual for income

Earnings per share for 2001 were 19.2% higher than 2000 due to

taxes. Inventory grew as we added stores during the year. Accounts

charges recognized in 2000, which include the write-down of

receivable increased as Nordstrom VISA credit sales improved. The

Streamline, the management severance and the asset impairments.

increased income tax accrual resulted from the timing of payments.

Excluding the impact of these charges, 2000 earnings per share

would have been $1.04 resulting in a 2001 earnings per share

decrease of 10.6%. This decrease is primarily due to a decline in

comparable store sales and a decline in gross profit percent offset by

decreases in selling, general and administrative expenses as a

percent of sales.

Fourth Quarter Results

Net cash provided by operating activities increased approximately

$235 million in 2001 compared to 2000 primarily due to decreases

in inventories and accounts receivable. The inventories decreased

as a result of improved inventory management, while accounts

receivable declined due to lower credit sales.

In 2003, cash flows provided by operating activities are expected

to remain fairly consistent with 2002. Inventory increases from store

Fourth quarter 2002 earnings per share were $0.44 compared

openings are expected to slow, offset by slower increases in accounts

with $0.38 in 2001. Total sales for the quarter increased by 7.3%

payable. Accounts receivable should increase modestly as credit

versus the same quarter in the prior year and comparable store

sales grow.

sales increased by 1.9%. The increase in sales was primarily due

to the opening of eight full-line stores and four Nordstrom Rack

stores during the year. Gross profit as a percentage of sales was

flat with the same quarter in the prior year.

Selling, general and administrative expenses as a percent of sales

decreased in the quarter compared to the prior year primarily due

to improved selling costs and reduced sales promotion offset by

higher distribution costs and information systems expense.

Investing Activities

For the last three years, investing activities have primarily consisted

of capital expenditures, the minority interest purchase of

Nordstrom.com and the acquisition of Façonnable.

NORDSTROM INC. AND SUBSIDIARIES 15

management’s discussion
and analysis

Capital Expenditures

five years from the acquisition date. If the former owner continues

Our capital expenditures over the last three years totaled

to have involvement in the business and performance targets are

approximately $738 million, net of developer reimbursements,

met, the contingent payment could approximate $12 million.

principally to add stores, improve existing facilities and purchase

The contingent payment will be expensed when it becomes

or develop new information systems. More than 3.9 million square

probable that the targets will be met.

feet of retail store space has been added during this period,

representing an increase of 27% since January 31, 2000.

Financing Activities

We plan to spend approximately $700-$750 million, net of

developer reimbursements, on capital projects during the next three

Financing activities primarily consist of share repurchases,

dividend payments, as well as proceeds and payments on debt.

years. Compared to the previous three years, we plan to open fewer

Share Repurchase

stores, slow spending on information systems and increase our

In May 1995, the Board of Directors authorized $1.1 billion

spending on the improvement of existing facilities. In the

of share repurchases. As of January 31, 2003, we have purchased

information systems area, we are in the process of replacing our

39 million shares of our common stock for $1 billion, with remaining

point of sale system, which we expect to be substantially completed

share repurchase authority of $82 million. The share repurchase

by 2004.

At January 31, 2003, approximately $227 million has been

contractually committed primarily for the construction of new stores

or remodeling of existing stores. Although we have made

commitments for stores opening in 2003 and beyond, it is possible

that some stores may not be opened as scheduled because of delays

in the development process, or because of the termination of store

site negotiations.

Total Square Footage (in thousands)

6
5
0
,
6
1

•

8
2
4
,
8
1

•

8
4
0
7,
1

•

3
9
5
,
3
1

7
8
4
,
4
1

•

20,000

18,000

16,000

14,000

12,000

10,000

8,000

Acquisition

In 2000, we acquired Façonnable, S.A.S. in exchange for $88

million of cash and 5,074,000 shares of our common stock, for

a total consideration of $169 million. The purchase provides for

a contingent payment to a former owner that may be paid after

16 NORDSTROM INC. AND SUBSIDIARIES

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.

Dividends

In 2002, we paid $.38 per share in common stock dividends,

the sixth consecutive annual dividend increase. We paid $.36

and $.35 per share of common stock in fiscal 2001 and 2000.

Debt to Capital Ratio

By the end of 2001, our debt to capital ratio had increased to

52.1% as a result of retail expansion, share repurchases and

an acquisition. By the end of 2002, this ratio had decreased to

49.6%. Our near-term goal is to reduce this ratio to be in the

range of 40% to 45%.

Debt

In May 2002, we replaced the $200 million variable funding note

backed by Nordstrom VISA credit card receivables with 5-year term

notes also backed by the VISA credit card receivables. Class A and

B notes with a combined face value of $200 million were issued

to third party investors. We used the proceeds to retire the $200

million outstanding on the variable funding note. Based on SFAS

No. 140 “Accounting for Transfers and Servicing of Financial Assets

and Extinguishments of Liabilities” this debt and the related assets

are not reflected in our consolidated balance sheets.

management’s discussion
and analysis

In November 2001, we issued $300 million of Class A notes

Available Credit

backed by Nordstrom private label receivables. These notes bear

In November 2001, we entered into a $300 million unsecured

a fixed interest rate of 4.82% and have a maturity of five years.

revolving credit facility that expires in November 2004. As of

Both the debt and related assets are included in our consolidated

January 31, 2003, no borrowings have been made against this

balance sheets. A portion of the proceeds was used to pay-down

revolving credit facility.

Also in November 2001, we issued a variable funding note backed

by Nordstrom private label receivables with a $200 million capacity.

As of January 31, 2003, no borrowings were outstanding against

this note.

Additionally, we have universal shelf registrations on file with

the Securities and Exchange Commission that permit us to offer

an additional $450 million of securities to the public. These

registration statements allow us to issue various types of securities,

including debt, common stock, warrants to purchase common stock,

warrants to purchase debt securities and warrants to purchase or

sell foreign currency.

Contractual Obligations

The following table summarizes our contractual obligations and

the expected effect on liquidity and cash flows.

Fiscal Year

Total

1 Year

Years

Less than

1-3

4-5

Over 5

Years

Long-term Debt $1,338.4

$5.2

$407.9

$307.1

$618.2

Capital Leases

16.0

Operating Leases

780.4

1.1

73.2

2.2

141.3

123.9

10.5

442.0

Construction

Commitments

227.3

165.2

62.1

—

Total

$2,362.1

$244.7

$613.5

$433.2 $1,070.7

approximately $77 million in medium-term notes and the purchase

of Nordstrom.com, Inc.’s preferred stock for $70 million. The

remaining proceeds will be used for general corporate purposes

and capital expansion.

In October 2000, we 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.

Interest Rate Swaps

We entered into a variable interest rate swap agreement in the

fourth quarter of 2002. The swap had a $250 million notional

amount and a six-year term. Under the agreement, we received

a fixed rate of 5.63% and paid a variable rate based on LIBOR plus

a margin of 1.31% set at six-month intervals (3.25% at January 31,

2003). The swap agreement qualified as a fair value hedge and

was recorded at fair value in other assets at January 31, 2003.

Subsequent to January 31, 2003, we sold the interest rate swap

and received cash of $2.3 million, which will be recognized as

interest income evenly over the remaining life of the related debt.

In the third quarter of 2002, we sold the interest rate swap that

converted our $300 million, 8.95% fixed-rate debt to variable rate.

We received cash of $4.9 million, which will be recognized as

interest income evenly over the remaining life of the related debt.

Noncash Financing

We own 49% of a limited partnership which constructed a new

corporate office building in which we are the primary occupant.

During the first quarter of 2002, the limited partnership refinanced

its construction loan obligation with an $85 million mortgage

secured by the property, of which $79 million was included in

our balance sheet at January 31, 2003. The obligation has a

fixed interest rate of 7.68% and a term of 18 years.

NORDSTROM INC. AND SUBSIDIARIES 17

management’s discussion
and analysis

Debt Ratings

approximates the lower of cost or market. Factors considered in

The following table shows our credit ratings at the date of this report.

determining markdowns include current and anticipated demand,

Credit Ratings

Senior unsecured debt

Commercial paper

* negative outlook

Moody’s*

Baa1

P-2

Standard
and Poor’s*

A-

A-2

customer preferences, age of the merchandise and fashion trends.

We also reserve for obsolescence based on historical trends and

specific identification. Shrinkage is estimated as a percentage of

sales for the period from the last inventory date, based on historical

shrinkage losses.

Vendor Allowances

These ratings could change depending on our performance and other

factors. A significant ratings drop could result in the termination

We receive allowances from merchandise vendors for purchase price

of the $200 million Nordstrom private label receivables variable

adjustments, cooperative advertising programs and cosmetic selling

funding note and a change in interest rates on the $300 million

expenses. Purchase price adjustments are recorded as a reduction

8.95% senior notes and the $300 million revolving credit facility.

of cost of sales at the point they have been earned and the related

The remainder of our outstanding debt is not subject to termination

merchandise has been sold. Allowances for cooperative advertising

or interest rate adjustments based on changes in credit ratings.

programs and cosmetic selling expenses are recorded as a reduction

Critical Accounting Policies

of selling, general and administrative expense when the advertising

or selling expense is incurred.

The preparation of our financial statements requires that we make

estimates and judgments that affect the reported amounts of assets,

Self Insurance

liabilities, revenues and expenses, and disclosure of contingent

We are self insured for certain losses related to health and welfare,

assets and liabilities. We regularly evaluate our estimates including

workers’ compensation and general liability. We record estimates

those related to doubtful accounts, inventory valuation, intangible

of the total cost of claims incurred as of the balance sheet date.

assets, income taxes, self-insurance liabilities, post-retirement

These estimates are based on analysis of historical data and

benefits, contingent liabilities and litigation. We base our estimates

actuarial estimates.

on historical experience and on other assumptions that we believe

to be reasonable under the circumstances. Actual results may differ

from these estimates. The following discussion highlights the

policies we feel are critical.

Revenue Recognition

Allowance for Doubtful Accounts

We evaluate the collectibility of our customer accounts receivable

based on several factors, including historical trends, aging of

accounts, write-off experience and expectations of future

performance. Delinquent accounts are usually written off after

We recognize revenues net of estimated returns and exclude sales

the passage of 151 days without receiving a full scheduled

tax. Retail stores record revenue at the point of sale. Catalog

monthly payment. Accounts are written off sooner in the event

and Internet sales include shipping revenue and are recorded upon

of customer bankruptcy or other circumstances that make further

delivery to the customer. Our sales return liability is estimated

collection unlikely.

based on historical return levels.

Off-balance Sheet Financing

Inventory

We have $200 million in outstanding term notes backed by our

Our inventory is stated at the lower of cost or market using the retail

Nordstrom VISA credit card receivables. On an ongoing basis,

inventory method (first-in, first-out basis). Under the retail method,

our Nordstrom VISA receivables are transferred to a master note

inventory is valued by applying a cost-to-retail ratio to the ending

trust which has issued Class A and B notes to third party investors.

retail value of inventory. As our inventory retail value is adjusted

We hold securities that represent our retained interests in the trust.

regularly to reflect market conditions, our inventory method

18 NORDSTROM INC. AND SUBSIDIARIES

management’s discussion
and analysis

We recognize gains or losses on the sale of Nordstrom VISA

SFAS No. 144 “Accounting for the Impairment or Disposal of

receivables to the trust based on the difference between the face

Long-Lived Assets” - SFAS No. 144 retains the fundamental

value of the receivables sold and the fair value of the assets created

provisions of SFAS No. 121, but establishes new criteria for asset

during the securitization process. The fair value of the assets

classification and broadens the scope of qualifying discontinued

is calculated as the present value of their expected cash flows.

operations. The adoption of this statement did not have a material

The discount rates used to calculate present value represent the

impact on our financial statements.

volatility and risk of the assets. Significant assumptions and

judgments are made to estimate the present value of expected

cash flows and to determine the fair value of our retained interest.

We have no other off-balance sheet transactions.

Realization of Deferred Tax Assets

In January 2003, we sold our Denver Credit facility generating

a capital gain for tax purposes of $15.4 million, which was used to

We adopted SFAS No. 145 “Rescission of FASB Statements No. 4,

44, and 64, Amendment of FASB Statement No. 13, and Technical

Corrections” in the second quarter of 2002. SFAS No. 145 updates,

clarifies and simplifies existing accounting pronouncements related

to extinguishments of debt, provisions of the Motor Carrier Act of

1980 and lease transactions. The adoption of this statement did

not have a material impact on our financial statements.

offset a portion of our existing capital loss carryforwards. Capital

SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal

loss carryforwards of $19.0 million remain available to offset capital

Activities” was also adopted by us in the second quarter of 2002.

gain income in the next three years. No valuation allowance reserve

SFAS No. 146 nullifies EITF 94-3 “Liability Recognition for Certain

has been provided because we believe it is probable that the full

Employee Termination Benefits and Other Costs to Exit an Activity

benefit of these carryforwards will be realized.

Our purchase of the outstanding shares of Nordstrom.com, Inc.

series C preferred stock resulted in an expense of $40.4 million

which we believe will not be deductible for tax purposes. As a result,

we have established a valuation allowance reserve of $16.5 million

(including Certain Costs Incurred in a Restructuring)” by requiring

that a liability for a cost associated with an exit or disposal activity

be recognized when the liability is incurred versus when an entity is

committed to an exit plan. The adoption of this statement did not

have a material impact on our financial statements.

to offset the deferred tax asset related to this purchase.

We adopted SFAS No. 148 “Accounting for Stock-Based

Recent Accounting Pronouncements

Compensation” in the fourth quarter of 2002. SFAS No. 148

amends SFAS No. 123 of the same name and provides alternative

SFAS No. 141 “Business Combinations” - SFAS No. 141 requires

transition methods for a voluntary change to fair value based

that the purchase method of accounting be used for all business

accounting for stock-based employee compensation. SFAS No. 148

combinations initiated after June 30, 2001, and establishes specific

also requires more prominent and frequent disclosures about the

criteria for the recognition of goodwill separate from other intangible

effects of stock-based compensation. Adoption of SFAS No. 148

assets. Adoption of SFAS No. 141 did not have a material impact

did not have a material impact on our financial statements.

on our financial statements.

In November 2002, the Emerging Issues Task Force reached a

SFAS No. 142 “Goodwill and Other Intangible Assets” - Under SFAS

consensus on certain issues discussed in EITF 02-16, “Accounting

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

by a Reseller for Cash Consideration Received from a Vendor.”

This pronouncement addresses the timing and classification of cash

payments received by a reseller from a vendor. Adoption of EITF 02-

amortized over their estimated useful lives. Adoption of SFAS

16 did not have a material impact on our financial statements.

No. 142 resulted in an impairment charge and a reduction in

amortization expense, which is detailed in Note 2 of the Notes

to Consolidated Financial Statements.

In November 2002, the FASB issued FIN 45, “Guarantor’s

Accounting and Disclosure Requirements for Guarantees, Including

NORDSTROM INC. AND SUBSIDIARIES 19

management’s discussion
and analysis

Indirect Guarantees of the Indebtedness of Others.” FIN 45

and challenges posed by increased competition, shifting consumer

elaborates on the disclosures made by a guarantor and also clarifies

demand, changing consumer credit markets, changing capital

that a guarantor is required to recognize, at the inception of a

markets, changing interest rates and general economic conditions,

guarantee, a liability for the fair value of the obligation undertaken

hiring and retaining effective team members, sourcing merchandise

in issuing the guarantee. Adoption of FIN 45 in the fourth quarter

from domestic and international vendors, investing in new business

of 2002 did not have a material impact on our financial statements.

strategies, achieving our growth objectives and the impact of

Cautionary Statement

The preceding disclosures included forward-looking statements

regarding our performance, liquidity and adequacy of capital

resources. These statements are based on our current assumptions

and expectations and are subject to certain risks and uncertainties

that could cause actual results to differ materially from those

projected. Forward-looking statements are qualified by the risks

economic and competitive market forces, including the impact

of terrorist activity or the impact of war. As a result, while we

believe there is a reasonable basis for the forward-looking

statements, you should not place undue reliance on those

statements. This discussion and analysis should be read

in conjunction with the consolidated financial statements

and the Eleven-Year Statistical Summary.

20 NORDSTROM INC. AND SUBSIDIARIES

independent auditors’
and management reports

Independent Auditors’ Report

Management Report

We have audited the accompanying consolidated balance sheets

We are responsible for preparing our financial statements and the

of Nordstrom, Inc. and subsidiaries (the “Company”) as of January

other information that appears in the annual report. The financial

31, 2003 and 2002, and the related consolidated statements of

statements have been prepared in accordance with accounting

earnings, shareholders’ equity and cash flows for each of the three

principles generally accepted in the United States of America

years in the period ended January 31, 2003. These financial

and include estimates based on our best judgment.

statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial

statements based on our audits.

We maintain a comprehensive system of internal controls and

procedures designed to provide reasonable assurance that assets

are safeguarded and transactions are executed in accordance with

We conducted our audits in accordance with auditing standards

established procedures. The concept of reasonable assurance

generally accepted in the United States of America. Those standards

is based on the recognition that the cost of maintaining the system

require that we plan and perform the audit to obtain reasonable

of internal accounting controls should not exceed the benefit

assurance about whether the financial statements are free of

derived from the system.

material misstatement. An audit includes examining, 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, 2003 and 2002,

and the results of their operations and their cash flows for each of

the three years in the period ended January 31, 2003, in conformity

with accounting principles generally accepted in the United States

of America.

The Company changed its method of accounting for goodwill and

other intangible assets upon adoption of Statement of Financial

Accounting Standards No. 142, Goodwill and Other Intangible

Assets, for the year ended January 31, 2003, as discussed in

Note 2 to the consolidated financial statements.

Deloitte and Touche LLP audits our financial statements in

accordance with auditing standards generally accepted in the

United States of America and provides an objective, independent

review of our internal controls and the fairness of our reported

financial condition and results of operations.

The Audit Committee, which is comprised of six independent

directors, meets periodically with our management and the

independent auditors to ensure that each is properly fulfilling

its responsibilities. The Committee oversees our systems of

internal control, accounting practices, financial reporting and

audits to ensure their quality, integrity and objectivity are

sufficient to protect shareholders’ investments.

Michael G. Koppel

Executive Vice President and Chief Financial Officer

Deloitte & Touche LLP

Seattle, Washington

March 28, 2003

NORDSTROM INC. AND SUBSIDIARIES 21

consolidated statements of earnings

2003

% of
sales

2002

% of
sales

2001

% of
sales

$5,975,076

100.0

$5,634,130

100.0

$5,528,537

100.0

(66.8)

33.2

(30.6)

2.6

(1.4)

—

2.4

3.6

(1.4)

2.2

—

2.2

(66.0)

34.0

(31.6)

2.4

(1.1)

(0.6)

—

2.3

3.0

(1.2)

1.8

—

1.8

(3,649,516)

1,879,021

(1,747,048)

131,973

(62,698)

(32,857)

—

130,600

167,018

(65,100)

101,918

—

$101,918

$0.78

$0.35

Dollars in thousands except per share amounts

Year ended January 31,

Net sales

Cost of sales and related

buying and occupancy

Gross profit

Selling, general and administrative

Operating income

Interest expense, net

Write-down of investment

(3,971,372)

2,003,704

(1,813,968)

189,736

(81,9 21)

—

(66.5)

33.5

(30.3)

3.2

(1.4)

—

(0.9)

2.4

3.3

(1.6)

(3,765,859)

1,868,271

(1,722,635)

145,636

(75,038)

—

133,890

204,488

(79,800)

Minority interest purchase and reintegration costs

(53,168)

Service charge income and other, net

140,977

Earnings before income taxes and cumulative

effect of accounting change

Income taxes

Earnings before cumulative effect of

195,624

(92,0 41 )

accounting change

103,583

1.7

124,688

Cumulative effect of accounting change

(net of tax)

Net earnings

Basic earnings per share

Diluted earnings per share

Cash dividends paid per share

(0.2)

1.5

(13,359)

$90,224

$0.67

$0.66

$0.38

—

$124,688

$0.93

$0.36

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

22 NORDSTROM INC. AND SUBSIDIARIES

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

Goodwill, net

Tradename, net

Other assets

Total assets

Liabilities and Shareholders’ Equity

Current liabilities:

Notes payable

Accounts payable

Accrued salaries, wages and related benefits

Income taxes and other accruals

Current portion of long-term debt

Total current liabilities

Long-term debt

Deferred lease credits

Other liabilities

Shareholders’ equity:

Common stock, no par:

500,000,000 shares authorized;

135,444,041 and 134,468,608

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.

2003

2002

$208,329

759,262

953,112

40,261

111,654

2,072,618

1,761,544

40,355

100,133

121,726

$331,327

698,475

888,172

36,888

102,249

2,057,111

1,761,082

38,198

100,133

94,655

$4,096,376

$4,051,179

$244

414,754

260,562

188,986

5,545

870,091

1,341,826

383,100

129,302

358,069

(2,010)

1,014,105

1,893

1,372,057

$4,096,376

$148

490,988

236,373

144,402

78,227

950,138

1,351,044

342,046

93,463

341,316

(2,680)

975,203

649

1,314,488

$4,051,179

NORDSTROM INC. AND SUBSIDIARIES 23

consolidated statements
of shareholders’ equity

Dollars in thousands except per share amounts

Balance at February 1, 2000

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
Purchase and retirement

of common stock
Balance at January 31, 2001

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
Purchase and retirement

of common stock
Balance at January 31, 2002

Net earnings
Other comprehensive earnings:
Foreign currency translation

adjustment

SERP adjustment, net of tax

Comprehensive net earnings:
Cash dividends paid
($.38 per share)

Issuance of common stock for:

Stock option plans
Employee stock purchase plan

Stock compensation
Balance at January 31, 2003

Common Stock

Amount

Unearned Stock
Compensation

132,279,988
—

$247,559
—

$(8,593)
—

Retained
Earnings

$929,616
101,918

Accum. Other
Comprehensive
Earnings

Total

$17,032
—

$1,185,614
101,918

—

—
—

—

181,910
165,842
5,074,000
(14,075)

(3,889,908)
133,797,757
—

—
—

—

186,165
541,677
19,009

(76,000)
134,468,608
—

—
—
—

—

—
—

—

4,039
2,211
77,696
(1,111)

—
330,394
—

—
—

—

3,788
6,754
380

—
341,316
—

—
—
—

—

—
—

—

—
—
—
4,853

—
(3,740)
—

—
—

—

—
—
1,060

—
(2,680)
—

—
—
—

—

—
—

(45,935)

—
—
—
—

(23,461)

6,429

2,824
—

—

—
—
—
—

6,429

2,824
87,710

(45,935)

4,039
2,211
77,696
3,742

(85,509)
900,090
124,688

—
2,824
—

(85,509)
1,229,568
124,688

—
—

(2,175)
—

(48,265)

—
—
—

(1,310)
975,203
90,224

—

—
—
—

—
649
—

(2,175)
122,513

(48,265)

3,788
6,754
1,440

(1,310)
1,314,488
90,224

—
—
—

7,755
(6,511)
—

(1)

7,755
(6,511)
91,468

(51,322)

—

(51,322)

350,004
596,351
29,078
135,444,041

7,959
8,062
732
$358,069

—
—
670
$(2,010)

—
—
—
$1,014,105

—
—
—
$1,893

7,959
8,062
1,402
$1,372,057

(1) The ending balance of the foreign currency translation adjustment and SERP adjustment, net of tax was $8,404 and $(6,511) as of January 31, 2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

24 NORDSTROM INC. AND SUBSIDIARIES

consolidated statements
of cash flows

Dollars in thousands

Year ended January 31,

Operating Activities

Net earnings

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization of buildings and equipment

Amortization of intangible assets

Amortization of deferred lease credits and other, net

Stock-based compensation expense

Deferred income taxes, net
Cumulative effect of accounting change, net of tax
Write-down of investment
Impairment of IT investment
Minority interest purchase expense
Change in operating assets and liabilities,

net of effects 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
Proceeds from sale-leaseback of Denver Credit facility
Minority interest purchase
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

Proceeds from sale of interest rate swap

Proceeds from issuance of common stock

Cash dividends paid
Purchase and retirement of common stock

Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

2003

2002

2001

$90,224

$124,688

$101,918

233,931

—

(22,179)

1,130

6,190
13,359
—
15,570
40,389

(58,397)
(117,379)
521
3,378
(9,826)
23,763
43,771
14,227
278,672

(328,166)
97,673
20,000
(70,000)
—
(3,513)

(284,006)

1,665

(87,697)

4,931

14,663

(51,322)
—

(117,664)
(122,998)
331,327
$208,329

213,089

4,630

(8,886)

3,414

16,114
—
—
—
—

22,556
80,246
(2,438)
(16,770)
(18,241)
(203)
(10,413)
12,088
419,874

(396,048)
126,383
—
—
—
(3,104)

(272,769)

(82,912)

300,000

(18,640)

—

10,090

(48,265)
(1,310)

158,963
306,068
25,259
$331,327

203,048

1,251

(12,761)

6,480

(3,234)
—
32,857
10,227
—

(102,945)
(120,729)
(1,191)
(3,821)
58,212
17,850
5,309
(7,184)
185,287

(330,347)
92,361
—
—
(83,828)
(1,781)

(323,595)

12,126

308,266

(58,191)

—

5,768

(45,935)
(85,509)

136,525
(1,783)
27,042
$25,259

NORDSTROM INC. AND SUBSIDIARIES 25

notes to consolidated
financial statements

Dollars in thousands except per share amounts

costs of $42,506, $30,868 and $38,062 in 2002, 2001 and

Note 1: Summary of Significant Accounting Policies

2000 were included in selling, general and administrative expenses.

The Company: We are a fashion specialty retailer offering high-quality

apparel, shoes and accessories for women, men and children with

142 U.S. stores located in 27 states.

We also operate 23 Façonnable boutiques located primarily in

Advertising: Costs for newspaper, television, radio and other media

are generally expensed as they occur. Direct response advertising

costs, such as catalog book production and printing costs, are

expensed over the life of the catalog, not to exceed six months.

Europe. Additionally, we generate catalog and Internet sales through

Total advertising expenses were $144,482, $145,341 and

Nordstrom Direct (formerly known as Nordstrom.com) and service

$190,991 in 2002, 2001 and 2000.

charge income through Nordstrom Credit, Inc.

Store Preopening Costs: Store opening and preopening costs are

Change in Fiscal Year: Beginning February 1, 2003, our fiscal year

expensed as they occur.

end will change from January 31 to the Saturday closest to January

31. Each fiscal year will consist of four 13 week quarters, with an

extra week added onto the fourth quarter every five to six years.

This fiscal calendar is widely used in the retail industry.

Basis of Presentation: The consolidated financial statements include

the balances of Nordstrom, Inc. and its subsidiaries for the entire

fiscal year. All significant intercompany transactions and balances

are eliminated in consolidation.

Use of Estimates: We make estimates and assumptions that affect

the reported amounts in the financial statements and accompanying

notes. Actual results could differ from those estimates.

Stock Compensation: We apply APB No. 25, “Accounting for Stock

Issued to Employees,” in measuring compensation costs under our

stock-based compensation programs, which are described more fully

in Note 17.

If we had elected to recognize compensation cost based on the fair

value of the options and shares at grant date, net earnings and

earnings per share would have been as follows:

Year ended January 31,

2003

2002

2001

Net earnings, as reported

$90,224

$124,688

$101,918

Incremental stock-based

compensation expense

Reclassifications: Certain reclassifications of prior year balances

under fair value, net of tax

(19,674)

(17,252)

(13,458)

have been made for consistent presentation with the current year.

Pro forma net earnings

$70,550

$107,436

$88,460

Revenue Recognition: We record revenues net of estimated returns

and exclude sales tax. Retail stores record revenue at the point

of sale. Catalog and Internet sales include shipping revenue and

are recorded upon delivery to the customer.

Buying and Occupancy Costs: Buying costs consist primarily of

salaries and expenses incurred by our merchandise managers,

buyers and private label product development group. Occupancy

Earnings per share:

Basic—as reported

Basic—pro forma

Diluted—as reported

Diluted—pro forma

$0.67

$0.52

$0.66

$0.52

$0.93

$0.80

$0.93

$0.80

$0.78

$0.68

$0.78

$0.67

Cash Equivalents: Cash equivalents are short-term investments

with a maturity of three months or less from the date of purchase.

costs include rent, depreciation, property taxes and operating costs

Cash Management: Our cash management system provides

of our retail and distribution facilities.

for the reimbursement of all major bank disbursement accounts on

Shipping and Handling Costs: Our shipping and handling costs

include payments to third-party shippers and costs to store, move

and prepare merchandise for shipment. Shipping and handling

a daily basis. Accounts payable at January 31, 2002 includes

$31,817 of checks not yet presented for payment drawn in excess

of cash balances.

26 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Customer Accounts Receivable: Based on industry practices,

reporting and tax basis of assets and liabilities. The deferred tax

installments maturing in more than one year or deferred payment

assets and liabilities are calculated using the enacted tax rates

accounts receivable are included in current assets.

and laws that will be in effect when the differences are expected

Merchandise Inventories: Merchandise inventories are valued at

to reverse.

the lower of cost or market, using the retail method (first-in,

Loyalty Programs: We have customer loyalty programs in which

first-out basis).

Land, Buildings and Equipment: Depreciation is computed using a

combination of accelerated and straight-line methods. Estimated

useful lives by major asset category are as follows:

customers receive points for qualifying purchases. Upon the

accumulation of a certain number of points, customers receive

a merchandise certificate. We accrue the cost of anticipated

merchandise certificate redemptions upon issuance of the

certificate to the customer. The related expense is recorded

Asset

Buildings

Store fixtures and equipment

Life (in years)

in selling, general and administrative expense.

5-40

3-15

Vendor Allowances: We receive allowances from merchandise

vendors for purchase price adjustments, cooperative advertising

Leasehold improvements

Shorter of life of lease or asset life

programs and cosmetic selling expenses. Purchase price

Software

3-7

adjustments are recorded as a reduction of cost of sales at the

Asset Impairment: We review our intangibles and other long-lived

assets annually for impairment or when circumstances indicate

the carrying value of these assets may not be recoverable.

Deferred Lease Credits: We receive developer reimbursements

as incentives to construct stores in certain developments. We

capitalize the 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

point they have been earned and the related merchandise has been

sold. Allowances for cooperative advertising programs and cosmetic

selling expenses are recorded as a reduction of selling, general

and administrative expense when the advertising or selling expense

is incurred.

Fair Value of Financial Instruments: The carrying amounts of cash

equivalents and notes payable approximate fair value. The fair value

of long-term debt, including current maturities, using quoted market

prices of the same or similar issues, was approximately $1,443,000

and $1,378,000 at January 31, 2003 and 2002.

applicable lease or operating covenant. Construction costs in

Derivatives Policy: We limit our use of derivative financial

excess of developer reimbursements are recorded as prepaid rent

instruments to the management of foreign currency and interest rate

and amortized as rent expense on a straight-line basis over the

risks. The effect of these activities is not material to our financial

life of the applicable lease or operating covenant.

condition or results of operations. We have no material off-balance

Foreign Currency Translation: The assets and liabilities of our foreign

subsidiary have been translated to U.S. dollars using the exchange

sheet credit risk, and the fair value of derivative financial

instruments at January 31, 2003 and 2002 was not material.

rates effective on the balance sheet date, while income and expense

Recent Accounting Pronouncements: In February 2002, we adopted

accounts are translated at the average rates in effect during the year.

the following three pronouncements:

Resulting translation adjustments are recorded as other

SFAS No. 141 “Business Combinations” - SFAS No. 141 requires

comprehensive earnings.

Income Taxes: We use the asset and liability method of accounting

for income taxes. Using this method, deferred tax assets and

liabilities are recorded based on differences between financial

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 SFAS No. 141 did not have a material impact

on our financial statements.

NORDSTROM INC. AND SUBSIDIARIES 27

notes to consolidated
financial statements

SFAS No. 142 “Goodwill and Other Intangible Assets” - Under SFAS

by a Reseller for Cash Consideration Received from a Vendor.”

No. 142, goodwill and intangible assets having indefinite lives will

This pronouncement addresses the timing and classification

no longer be amortized but will be subject to annual impairment

of cash payments received by a reseller from a vendor.

tests. Other intangible assets will continue to be amortized over

Adoption of EITF 02-16 did not have a material impact on

their estimated useful lives. Adoption of SFAS No. 142 resulted

our financial statements.

in an impairment charge and a reduction in amortization expense,

which is detailed in Note 2.

In November 2002, the FASB issued FIN 45, “Guarantor’s

Accounting and Disclosure Requirements for Guarantees, Including

SFAS No. 144 “Accounting for the Impairment or Disposal of

Indirect Guarantees of the Indebtedness of Others.” FIN 45

Long-Lived Assets” - SFAS No. 144 retains the fundamental

elaborates on the disclosures made by a guarantor and also clarifies

provisions of SFAS No. 121, but establishes new criteria for asset

that a guarantor is required to recognize, at the inception of a

classification and broadens the scope of qualifying discontinued

guarantee, a liability for the fair value of the obligation undertaken

operations. The adoption of this statement did not have a material

in issuing the guarantee. Adoption of FIN 45 in the fourth quarter

impact on our financial statements.

of 2002 did not have a material impact on our financial statements.

We adopted SFAS No. 145 “Rescission of FASB Statements No. 4,

44, and 64, Amendment of FASB Statement No. 13, and Technical

Corrections” in the second quarter of 2002. SFAS No. 145 updates,

clarifies and simplifies existing accounting pronouncements related

to extinguishments of debt, provisions of the Motor Carrier Act of

1980 and lease transactions. The adoption of this statement did

not have a material impact on our financial statements.

SFAS No. 146 “Accounting for Costs Associated with Exit or

Disposal Activities” was also adopted by us in the second quarter

of 2002. SFAS No. 146 nullifies EITF 94-3 “Liability Recognition

for Certain Employee Termination Benefits and Other Costs to Exit

an Activity (including Certain Costs Incurred in a Restructuring)”

by requiring that a liability for a cost associated with an exit or

disposal activity be recognized when the liability is incurred

versus when an entity is committed to an exit plan. The adoption

of this statement did not have a material impact on our

financial statements.

We adopted SFAS No. 148 “Accounting for Stock-Based

Compensation” in the fourth quarter of 2002. SFAS No. 148

amends SFAS No. 123 of the same name and provides alternative

transition methods for a voluntary change to fair value based

accounting for employee stock compensation. SFAS No. 148

also requires more prominent and frequent disclosures about the

effects of stock-based compensation. Adoption of SFAS No. 148

did not have a material impact on our financial statements.

Note 2: Cumulative Effect of Accounting Change

Effective February 2002, we adopted SFAS No. 142, “Goodwill

and Other Intangible Assets,” which establishes new accounting

and reporting requirements for 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.

In connection with the adoption of SFAS No. 142, we reviewed

the classification and useful lives of our intangible assets.

Our intangible assets were determined to be either goodwill

or indefinite lived tradename.

As required by SFAS No. 142, we defined our reporting unit as

the Façonnable Business Unit, one level below our reportable Retail

Stores segment. We then tested our intangible assets for impairment

by comparing the fair value of the reporting unit with its carrying

value. Fair value was determined using a discounted cash flow

methodology. SFAS No. 142 requires us to perform these

impairment tests at adoption and at least annually thereafter.

We expect to perform our impairment test annually during our

first quarter or when circumstances indicate we should do so.

Our initial impairment test resulted in an impairment charge

to goodwill of $21,900 in the first quarter of 2002, while the

tradename was determined not to be impaired. The goodwill

impairment resulted from a reduction in management’s estimate

of future growth for this reporting unit. The impairment charge

In November 2002, the Emerging Issues Task Force reached a

is reflected as a cumulative effect of accounting change.

consensus on certain issues discussed in EITF 02-16, “Accounting

28 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

The changes in the carrying amount of our intangible assets for the

Before adoption of SFAS No. 142, we amortized our intangible

year ended January 31, 2003, are as follows:

assets over their estimated useful lives on a straight-line basis

Retail Stores
Segment

Goodwill

Tradename

Catalog/
Internet
Segment
Goodwill

Total

February 1, 2002

$38,198

$100,133

$ — $138,331

Goodwill impairment

(21,900)

—

— (21,900)

Goodwill acquired

through purchase of

minority interest

(see Note 21)

—

24,057

January 31, 2003

$16,298

$100,133

$24,057 $140,488

ranging from 10 to 35 years. Accumulated amortization of

intangible assets was $5,881 as of January 31, 2003 and 2002.

Note 3: Acquisition

In 2000, we acquired Façonnable, S.A.S., of Nice, France, a

designer, wholesaler and retailer of high quality men’s and women’s

apparel and accessories. We paid $87,685 in cash and issued

5,074,000 shares of our common stock for a total consideration

of $168,868. The purchase provides for a contingent payment to

a former owner that may be paid after five years from the acquisition

date. If the former owner continues to have involvement in the

The following table shows the actual results of operations as well as

business and performance targets are met, the contingent payment

pro-forma results adjusted to exclude intangible amortization and the

could approximate $12,000. The contingent payment will be

cumulative effect of accounting change.

expensed when it becomes probable that the targets will be met.

Year ended January 31,

2003

2002

2001

Note 4: Employee Benefits

Reported net earnings

$90,224

$124,688

$101,918

We provide a profit sharing plan and 401(k) plan for our employees.

Intangible amortization,

The profit sharing plan is non-contributory and is fully funded by us.

net of tax

—

2,824

763

The Board of Directors establishes our contribution to the profit

Cumulative effect of

accounting change,

sharing plan each year. The 401(k) plan is funded by voluntary

employee contributions. In addition, we provide matching

net of tax

13,359

—

contributions up to a stipulated percentage of employee

Adjusted net earnings

$103,583

$127,512

$102,681

contributions. Our contributions to the profit sharing plan and

matching contributions to the 401(k) plan totaled $35,162,

Basic and diluted earnings per share:

$28,525 and $29,113 in 2002, 2001 and 2000.

Year ended January 31,

2003

2002

2001

Earnings per share:

Reported net earnings

Basic

$0.67

Diluted

$0.66

Basic and Diluted

$0.93

$0.78

Intangible amortization,

net of tax

—

0.02

Cumulative effect of

accounting change,

net of tax

Adjusted net earnings

0.10

$0.77

0.10

$0.76

—

$0.95

$0.78

NORDSTROM INC. AND SUBSIDIARIES 29

notes to consolidated
financial statements

Note 5: Postretirement Benefits

The components of SERP expense and a summary of significant

We have an unfunded Supplemental Executive Retirement Plan

assumptions are as follows:

(“SERP”), which provides retirement benefits to certain officers

and select employees. Effective February 2003, the SERP was

amended to change the target benefit, eliminate the offset of

our contributions to the 401k and profit sharing plans and make

additional participants eligible. Certain grandfathered participants

will remain under the previous plan provisions.

Year ended January 31,

Service cost

Interest cost

2003

$1,447

3,537

Amortization of adjustments

2,941

2002

$1,092

2,668

1,821

2001

$630

2,044

688

Total SERP expense

$7,925

$5,581

$3,362

Assumption percentages:

The following provides a reconciliation of benefit obligations

and funded status of the SERP:

Discount rate

7.00%

Rate of compensation increase

4.00%

7.25%

5.00%

7.50%

5.00%

January 31,

2003

2002

Note 6: Interest Expense, Net

Change in benefit obligation:

Benefit obligation at beginning of year

$34,411

$23,543

The components of interest expense, net are as follows:

Service cost

Interest cost

Amortization of adjustments

Change in additional minimum liability

1,447

3,537

2,941

7,760

1,092

2,668

1,821

7,308

Year ended January 31,

Short-term debt

Long-term debt

Total interest expense

2003

$677

89,850

90,527

2002

$3,741

83,225

86,966

2001

$12,682

58,988

71,670

Distributions

(2,523)

(2,021)

Less:

Benefit obligations at end of year

$47,573

$34,411

Funded status of plan:

Under funded status

Unrecognized transitional obligation

Unrecognized prior service cost

Unrecognized loss

Accrued pension cost

Balance sheet amounts:

Interest income

Capitalized interest

(4,254)

(4,352)

(1,545)

(10,383)

(1,330)

(7,642)

$(50,125)

$(39,547)

Interest expense, net

$81,921

$75,038

$62,698

—

3,805

15,074

324

6,396

6,983

Note 7: Investment

In September 1998, we made an investment in Streamline.com,

$(31,246)

$(25,844)

Inc., an Internet grocery and consumer goods delivery company.

Streamline ceased its operations effective November 2000, after

Additional minimum liability

$(16,327)

$(8,567)

failing to obtain additional capital to fund its operations. During

Intangible asset

3,805

6,720

2000, we wrote-off our entire investment in Streamline, for a total

pre-tax loss on the investment of $32,857.

30 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Note 8: Income Taxes

Income tax expense consists of the following:

Year ended January 31,

2003

2002

2001

Current income taxes:

Deferred income taxes reflect the net tax effect of temporary

differences 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:

2003

2002

$35,480

$33,896

52,969

25,831

7,406

16,532

28,835

48,584

24,643

13,399

—

21,123

(9,657)

(3,891)

(63,949)

(16,532)

(9,771)

(3,195)

(62,944)

—

$86,572

$78,701

Federal

$76,901

$58,122

$79,778

January 31,

State and local

10,633

6,142

11,591

Total current

income taxes

87,534

64,264

91,369

Accrued expenses

Compensation and

benefits accruals

Merchandise inventories

Deferred income taxes:

Current

Non-current

Total deferred

income taxes

Total before cumulative effect

(4,225)

8,732

(7,217)

(11,215)

Capital loss carryforwards

22,753

(15,054)

Loss on minority interest purchase

Other

4,507

15,536

(26,269)

Total deferred tax assets

167,053

141,645

Land, buildings and

equipment basis and

depreciation differences

(50,401)

(49,978)

of accounting change

92,041

79,800

65,100

Deferred income taxes on

cumulative effect of

Employee benefits

accounting change

(8,541)

—

Other

Total tax expense

$83,500

$79,800

$65,100

Total deferred tax liabilities

A reconciliation of the statutory Federal income tax rate to the

effective tax rate on earnings before the cumulative effect of

accounting change is as follows:

Year ended January 31,

2003

2002

2001

Valuation allowance

Net deferred tax assets

In January 2003 we sold our Denver Credit facility, generating a

capital gain for tax purposes of $15,367 which was used to offset

a portion of our existing capital loss carryforwards. Capital loss

Statutory rate

State and local

income taxes, net of

Federal income taxes

Change in valuation allowance

Other, net

Effective tax rate

35.00%

carryforwards of $18,990 remain available to offset capital gain

3.78

8.45

(0.18)

47.05%

3.93

—

.09

3.93

—

.05

39.02%

38.98%

income in the next three years. No valuation allowance has been

provided because we believe it is probable that the full benefit

of these carryforwards will be realized.

Our purchase of the outstanding shares of Nordstrom.com, Inc.

series C preferred stock resulted in an expense of $40,389 which

we believe will not be deductible for tax purposes. As a result,

we have established a valuation allowance of $16,532 to offset

the deferred tax asset related to this purchase.

NORDSTROM INC. AND SUBSIDIARIES 31

notes to consolidated
financial statements

Note 9: Earnings Per Share

Note 11: Off-balance Sheet Financing

Basic earnings per share is computed using the weighted average

In May 2002, we replaced our $200 million variable funding note

number of common shares outstanding during the year. Diluted

backed by VISA credit card receivables (“VISA VFN”) with 5-year

earnings per share uses the weighted average number of common

term notes also backed by the VISA credit card receivables.

shares outstanding during the year plus dilutive common stock

Class A and B notes with a combined face value of $200 million

equivalents, primarily stock options and performance share units.

were issued to third party investors. These proceeds were used

Options with an exercise price greater than the average market price

were not included in diluted earnings per share. These options

totaled 7,259,273, 8,563,996 and 7,409,387 shares in 2002,

2001 and 2000.

Year ended January 31,

2003

2002

2001

Net earnings

Basic shares

$90,224

$124,688

$101,918

135,106,772

134,104,582 131,012,412

Basic earnings per share

$0.67

$0.93

$0.78

Dilutive effect of stock

options and performance

share units

617,468

234,587

100,673

Diluted shares

135,724,240

134,339,169 131,113,085

Diluted earnings per share

$0.66

$0.93

$0.78

Note 10: Accounts Receivable

The components of accounts receivable are as follows:

to retire the $200 million outstanding on the VISA VFN. We hold

securities that represent our retained interests in a master note

trust. The carrying amounts of the retained interests approximate

fair value and are included in accounts receivable.

In accordance with SFAS No. 140 “Accounting for Transfers and

Servicing of Financial Assets and Extinguishments of Liabilities,”

our consolidated balance sheets do not include this debt and the

related receivables. These related VISA credit card receivables

are sold to the trust on an ongoing basis.

We recognize gains or losses on the sale of VISA receivables to

the trust based on the difference 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 values. The fair values of the assets

are calculated as the present value of their expected future cash

flows. The following table summarizes the estimated fair values

2003

2002

of our retained interests as well as the assumptions used:

January 31,

Private label trade receivables:

Unrestricted

Restricted

$15,599

613,647

$16,242

628,271

Allowance for doubtful accounts

(22,385)

(23,022)

Private label trade receivables, net

606,861

621,491

VISA securitization master trust certificates 123,220

Other

29,181

55,659

21,325

Accounts receivable, net

$759,262

$698,475

The restricted private label receivables back the $300 million

of Class A notes and the $200 million variable funding note

issued by us in November 2001. Other accounts receivable consist

primarily of vendor receivables and cosmetic rebates receivable.

Bad debt expense totaled $29,080, $34,750 and $20,368

in 2002, 2001 and 2000.

32 NORDSTROM INC. AND SUBSIDIARIES

January 31,

Fair value of retained interests:

Assumptions:

Weighted average remaining life (in months)

Average credit losses

Average gross yield

Average interest expense on issued securities

Average payment rate

Discount rates of retained interests:

Class C Certificate

Seller Retained Interest

Interest Only Strip

2003

$124,791

2.8

6.38%

17.81%

1.70%

20.94%

16.79%

10.51%

19.92%

These discount rates represent the volatility and risk of the assets

and are calculated using an established formula that considers both

the current interest rate environment and credit spreads.

notes to consolidated
financial statements

The following table illustrates the sensitivity in the fair market value

The following table illustrates default projections using net credit

estimates of the retained interests given independent changes in

losses as a percentage of average outstanding receivables in

assumptions as of January 31, 2003:

comparison to actual performance:

Gross Yield

$1,207

$2,414 $(1,207) $(2,414)

Original projection

+10%

+20%

-10%

-20%

Year ended January 31,

Interest Expense

on Issued Classes

Card Holders Payment Rate

Charge Offs

Discount Rate

(76)

(99)

(152)

(296)

(531)

(1,059)

(337)

(673)

207

533

339

152

384

1,069

680

Actual

Under the terms of the trust agreement, we may be required to

fund certain amounts upon the occurrence of specific events.

The securitization agreements set a maximum percentage of

receivables that can be associated with employee accounts.

2004

6.16%

N/A

2003

7.66%

6.59%

2002

5.99%

6.62%

The following table summarizes certain income, expenses and cash

As of January 31, 2003, this maximum was exceeded by $1,500.

flows received from and paid to the master note trust.

It is possible that we may be required to repurchase these

Year ended January 31,

2003

2002

2001

Principal collections reinvested

in new receivables

$824,715 $669,582 $485,422

Gains on sales of receivables

8,290

3,147

5,356

Income earned on

retained interests

10,786

6,711

9,035

Cash flows from retained assets:

Retained interests

28,100

11,916

10,050

Servicing fees

5,407

8,440

8,121

Interest income earned on the retained interests is included in

service charge income and other on the consolidated statements

of earnings.

The total principal balance of the VISA receivables was $323,101

and $258,075 as of January 31, 2003 and 2002. Gross credit

losses were $18,580 and $17,050 for the years ended January 31,

2003 and 2002, and receivables past due for more than 30 days

were $8,519 and $8,170 at January 31, 2003 and 2002.

receivables. Aside from this instance, we do not believe any

additional funding will be required.

Our continued 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 “Recognition of Interest Income and Impairment on

Purchased and Retained Beneficial Interests in Securitized Financial

Assets,” holding subordinated, non-subordinated and residual

interests in the trust, and servicing the portfolio.

Note 12: Receivable-backed Securities

In 2001, we issued $300 million of receivable-backed

securities supported by substantially all of our private label

credit card receivables. This transaction is accounted for as

a secured financing.

Total principal receivables of the securitized portfolio at

January 31, 2003 and 2002 were approximately $609,784

and $625,516, and receivables more than 30 days past due were

approximately $16,973 and $19,301. Net charged off receivables

for the years ending January 31, 2003 and 2002 were $29,555

and $28,134. The private label receivables also serve as collateral

for a variable funding facility with a limit of $200,000. Interest

on the facility varies based on the actual cost of commercial paper

plus specified fees. Nothing was outstanding on this facility at

January 31, 2003 or 2002.

NORDSTROM INC. AND SUBSIDIARIES 33

notes to consolidated
financial statements

Our continuing involvement in the securitization of private label

Note 14: Notes Payable

receivables will include pledging new receivables to the master note

A summary of notes payable is as follows:

trust, accounting for the transaction as a secured financing and

servicing the portfolio.

Year ended January 31,

2003

2002

2001

Average daily short-

Note 13: Land, Buildings and Equipment

term borrowings

$370

$81,647

$192,392

Land, buildings and equipment consist of the following:

Maximum amount

outstanding

15,000

177,100

360,480

January 31,

Land and land improvements

Buildings

Leasehold improvements

Capitalized software

2003

$60,692

829,885

943,555

150,655

2002

$59,141

683,926

910,291

46,603

Weighted average

interest rate:

During the year

At year-end

2.0%

—

4.6%

—

6.6%

6.4%

Store fixtures and equipment

1,222,842

1,142,169

Short-term borrowings during the year represent amounts drawn

Construction in progress

436,891

582,361

on our variable funding note, which is described in Note 12.

3,644,520

3,424,491

Less accumulated depreciation

and amortization

(1,882,976)

(1,663,409)

Land, buildings and equipment, net

$1,761,544

$1,761,082

Capitalized software includes external direct costs, internal direct

labor and employee benefits, as well as interest associated with

the development of the computer software. Depreciation begins

We have an unsecured line of credit totaling $300,000, which

is available as liquidity support for our commercial paper program,

and expires in November 2004. The line of credit agreement

contains restrictive covenants, which include maintaining certain

financial ratios. We pay a commitment fee for the line based on

our debt rating. At January 31, 2003 and 2002, there were no

borrowings on the line of credit.

in the period in which the software is ready for its intended use.

Additionally, in connection with the purchase of foreign

Construction in progress includes $61,384 and $127,847 of

merchandise, we have outstanding import letters of credit

software in progress at January 31, 2003 and 2002.

totaling $58,059 and standby letters of credit totaling $20,649

at January 31, 2003.

The total cost of capitalized leased buildings was $13,884 at

January 31, 2003 and 2002, with related accumulated amortization

of $9,261 and $8,854. The amortization of capitalized leased

buildings was recorded in depreciation expense.

In January 2003, we sold our Denver Credit facility for $20,000

and subsequently leased it back. A gain of $103 was recorded at

the time of the sale, while the remaining gain of $15,919 will be

recognized as a reduction to rent expense evenly over the 15 year

life of the lease.

At January 31, 2003, we have contractual commitments of

approximately $227,340 primarily for the construction of new

stores or remodeling of existing stores.

34 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Note 15: Long-Term Debt

We own a 49% interest in a limited partnership which

300,000

250,000

300,000

76,750

100,000

102,521

A summary of long-term debt is as follows:

January 31,

2003

2002

Receivable-backed PL Term, 4.82%,

due 2006

$300,000

Senior debentures, 6.95%,

due 2028

Senior notes, 5.625%, due 2009

Senior notes, 8.95%, due 2005

300,000

250,000

300,000

Medium-term notes, 7.25%, due 2002

—

Notes payable, 6.7%, due 2005

Other

Total long-term debt

Less current portion

100,000

97,371

1,347,371

1,429,271

(5,545)

(78,227)

Total due beyond one year

$1,341,826

$1,351,044

In the third quarter of 2002, we sold the interest rate swap that

converted our $300,000, 8.95% fixed-rate debt to variable rate.

We received cash of $4,931, which will be recognized as interest

income evenly over the remaining life of the related debt.

We entered into a variable interest rate swap agreement effective

in the fourth quarter of 2002. The swap had a $250 million

notional amount and a six-year term. Under the agreement, we

received a fixed rate of 5.63% and paid a variable rate based on

LIBOR plus a margin of 1.31% set at six-month intervals (3.25%

at January 31, 2003). The swap agreement qualified as a fair value

hedge and was recorded at fair value in other assets at January 31,

2003. Subsequent to January 31, 2003, we sold the interest rate

swap and received cash of $2,341, which will be recognized as

interest income evenly over the remaining life of the related debt.

constructed a new corporate office building in which we are the

primary occupant. During the first quarter of 2002, the limited

partnership refinanced its construction loan obligation with an

$85,000 mortgage secured by the property, of which $79,319

was included on our balance sheet at January 31, 2003. This

financial obligation will be amortized as we make rental payments

to the limited partnership over the 18 year life of the permanent

financing. The obligation has a fixed interest rate of 7.68% and

a term of 18 years.

Required principal payments on long-term debt, excluding capital

lease obligations, are as follows:

Year ended January 31,

2004

2005

2006

2007

2008

Thereafter

$5,226

4,683

403,171

303,538

3,584

618,232

NORDSTROM INC. AND SUBSIDIARIES 35

notes to consolidated
financial statements

Note 16: Leases

Performance Share Units:

In 2002, 2001 and 2000 we granted

We lease land, buildings and equipment under noncancelable lease

190,396, 273,864 and 355,072 performance share units which

agreements with expiration dates ranging from 2003 to 2080.

will vest over three years if certain financial goals are met.

Certain leases include renewal provisions at our option. Most of

Employees may elect to receive common stock or cash upon vesting

the leases provide for additional rent payments based upon specific

of these performance shares. At January 31, 2003 and 2002,

percentages of sales and require us to pay for certain common area

$4,441 and $4,713 was recorded in accrued salaries, wages and

maintenance and other costs.

Year ended January 31,

2003

2002

2001

Minimum rent:

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, 2003 and

Store locations

$23,511

$26,951

$16,907

2002, 415,640 and 518,189 units were outstanding.

Offices, warehouses

and equipment

25,851

20,144

21,070

Restricted Stock: We also granted 30,069 and 180,000 shares

Percentage rent:

of restricted stock in 1999 and 1998, with a weighted average

Store locations

7,776

8,047

9,241

fair value of $32.09 and $27.75. In September 2000, we

Total rent expense

$57,138

$55,142

$47,218

accelerated the vesting of 144,000 shares of restricted stock

resulting in compensation expense of $3,039, and cancelled

Future minimum lease payments as of January 31, 2003 are as

14,175 shares of restricted stock. In January 2002, we

follows:

Year ended January 31,

2004

2005

2006

2007

2008

Capital
Leases

$1,120

1,120

Operating
Leases

$73,158

73,053

68,271

63,796

60,088

Thereafter

Total minimum lease payments

10,350

442,015

15,950

$780,381

Less amount representing interest

7,013

accelerated 9,536 unvested shares of restricted stock, resulting

in compensation expense of $193. The remaining shares vested

normally. As of January 31, 2003 and 2002, there were no shares

of unvested restricted stock.

At January 31, 2003, approximately 6,391,703 shares are

reserved for future stock option grants pursuant to the Plan.

We apply APB No. 25, “Accounting for Stock Issued to Employees,”

in measuring compensation costs under our stock-based

compensation programs. Stock options are issued at the fair

market value of the stock at the date of grant. Accordingly, we

recognized no compensation cost for stock options issued under

Present value of net minimum

lease payments

Note 17: Stock-Based Compensation

$8,937

the plan. For performance share units, we record compensation

expense over the performance period at the fair value of the stock

on the date when it is probable that the employees will earn the

Stock Option Plan: We have a stock option plan (the “Nordstrom, Inc.

units. Restricted stock compensation expense is based on the

Plan”) under which stock options, performance share units and

market price on the date of grant and is recorded over the vesting

restricted stock may be granted to key employees. Options vest

period. Stock-based compensation expense for 2002, 2001

over periods ranging from four to eight years, and expire ten years

and 2000 was $1,130, $3,414 and $6,480.

after the date of grant.

36 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Stock option activity for the Nordstrom, Inc. Plan was as follows:

Year ended January 31,

2003

2002

2001

Outstanding, beginning of year

Granted

Exercised

Cancelled

Outstanding, end of year

Options exercisable at end of year

10,763,893

2,423,966

(350,004)

(951,510)

11,886,345

5,724,629

Weighted-
Average
Exercise
Price

$24

$25

$26

Weighted-
Average
Exercise
Price

$27

$24

$27

8,873,342

3,288,826

(186,165)

(1,212,110)

10,763,893

4,533,281

Weighted-
Average
Exercise
Price

$28

$27

$26

8,135,301

2,470,169

(181,910)

(1,550,218)

8,873,342

3,833,379

The following table summarizes information about stock options outstanding for the Nordstrom, Inc. Plan as of January 31, 2003:

Range of
Exercise Prices

$13 – $22

5,499,006

$23 – $32

4,503,716

$33 – $40

1,883,623

11,886,345

Options Outstanding

Options Exercisable

Weighted-
Average
Remaining
Contractual
Life (Years)

Weighted-
Average
Exercise
Price

$19

$26

$36

$25

Weighted-
Average
Exercise
Price

$20

$27

$35

$26

2,557,503

1,716,077

1,451,049

5,724,629

Stock option activity for the Nordstrom.com 1999 and 2000 Plans was as follows:

Year ended January 31,

2003

2002

2001

Outstanding, beginning of year

Granted

Exercised

Cancelled

Outstanding, end of year

Options exercisable at end of year

3,524,808

112,500

—

(3,637,308)

—

Weighted-
Average
Exercise
Price

$1.73

1.92

—

1.73

$ —

Weighted-
Average
Exercise
Price

$1.72

1.92

—

1.68

$1.73

$1.68

4,174,950

41,500

—

(691,642)

3,524,808

1,241,104

Weighted-
Average
Exercise
Price

1,373,950

$1.67

3,794,931

(135,000)

(858,931)

4,174,950

703,750

1.73

1.67

1.68

$1.72

$1.67

NORDSTROM INC. AND SUBSIDIARIES 37

notes to consolidated
financial statements

Nonemployee Director Stock Incentive Plan

and 3.4% as a percent of total options and performance share units

In May 2002, our shareholders approved the 2002 Nonemployee

granted in 2002, 2001 and 2000.

Director Stock Incentive Plan under which we reserved 450,000

shares of our common stock for issuance to nonemployee directors.

SFAS No. 123

The plan authorizes the grant of awards in the form of restricted

shares, stock units, nonqualified stock options or stock appreciation

rights, or any combination of these forms. As of January 31, 2003,

we issued 18,981 shares of common stock for a total expense of

$405 and had 431,019 remaining shares available for issuance.

If we had elected to recognize compensation cost based on the fair

value of the options and shares at grant date as prescribed by SFAS

No. 123, “Accounting for Stock-Based Compensation,” net earnings

and earnings per share would have been the pro forma amounts

shown below:

Nordstrom.com

Nordstrom.com had two stock option plans, the “1999 Plan” and

the “2000 Plan,” as well as warrants issued to vendors in exchange

for services. In the third quarter of 2002, we purchased 3,608,322

options and 470,000 warrants in connection with the purchase of

the minority interest in Nordstrom.com (see Note 21) for a total

cash payment of $11,802. At January 31, 2003, there are no

outstanding options or warrants for Nordstrom.com.

Employee Stock Purchase Plan

We offer an Employee Stock Purchase Plan (“ESPP”) as a benefit

to our employees. Employees participate through payroll deductions

Year ended January 31,

2003

2002

2001

Net earnings, as reported

$90,224

$124,688

$101,918

Incremental stock-based

compensation expense under

fair value, net of tax

(19,674)

(17,252)

(13,458)

Pro forma net earnings

$70,550

$107,436

$88,460

Earnings per share:

Basic—as reported

Basic—pro forma

Diluted—as reported

Diluted—pro forma

$0.67

$0.52

$0.66

$0.52

$0.93

$0.80

$0.93

$0.80

$0.78

$0.68

$0.78

$0.67

in amounts related to their base compensation. At the end of each

The Black-Scholes method was used to estimate the fair value of the

offering period, the participants purchase shares at 85% of the lower

options at grant date based on the following factors:

of the fair market value at the beginning or the end of the offering

period, usually six months. Under the ESPP, we issued 596,351,

541,677 and 165,842 shares in 2002, 2001 and 2000. As of

January 31, 2003 and 2002, we had payroll deductions totaling

$3,000 and $2,641 for the purchase of shares. We have

2,196,130 shares available for issuance at January 31, 2003.

Pacesetter Stock Plan

Year ended January 31,

2003

2002

2001

Stock Options:

Risk-free interest rate

Volatility

Dividend yield

Expected life in years

Weighted-average fair value

4.3%

69.0%

1.5%

5.0

4.8%

68.0%

1.3%

5.0

6.4%

65.0%

1.0%

5.0

We granted 10,653, 6,687 and 100 shares of common stock to

at grant date

$14

$10

$12

key employees under the Pacesetters stock plan in 2002, 2001 and

2000. The Pacesetter stock plan was established in 1997 to provide

additional incentive to employees, officers, consultants or advisors

to promote the success of the business. The related expense of

$240, $130 and $2 was recorded in 2002, 2001 and 2000. As of

January 31, 2003, we have 11,055 shares available for issuance.

ESPP:

Risk-free interest rate

Volatility

Dividend yield

Expected life in years

Weighted-average fair value

1.9%

69.0%

1.5%

0.5

4.3%

68.0%

1.3%

0.5

6.0%

65.0%

1.0%

0.5

Grants to Executive Officers

Options and performance share units granted to our president and

four other most highly compensated individuals were 8.3%, 7.9%

38 NORDSTROM INC. AND SUBSIDIARIES

at grant date

notes to consolidated
financial statements

For Nordstrom.com, we used the following weighted-average

Supplementary cash flow information includes the following:

Year ended January 31,

2003

2002

2001

Cash paid during the year for:

Interest (net of

capitalized interest)

$84,898

$77,025

$58,190

Income taxes

48,386

80,689

88,911

$1.56

$1.39

We have four segments: Retail Stores, Credit Operations,

Note 19: Segment Reporting

assumptions:

Year ended January 31,

2003

2002

2001

Risk-free interest rate

Volatility

Dividend yield

Expected life in years

Weighted-average fair value

at grant date

—

4.5%

6.2%

127.0%

121.0%

0.0%

4.0

0.0%

4.0

Note 18: Supplementary Cash Flow Information

We capitalize certain property, plant and equipment during the

construction period of commercial buildings which is subsequently

derecognized and reclassed to prepaid rent or deferred lease credits.

We also had noncash activity related to the construction of our

corporate office building. The noncash activity is as follows:

Year ended January 31,

2003

2002

2001

Noncash activity:

Reclassification

of new stores

$61,792

$75,555

Corporate office construction

(3,951)

36,120

Catalog/Internet, and Corporate and Other.

The Retail Stores segment derives its revenues from sales of high-

quality apparel, shoes and accessories. It includes our full-line,

Nordstrom Rack and Façonnable stores as well as our product

development group, which coordinates the design and production

of private label merchandise sold in our retail stores.

The Credit Operations segment revenues consist primarily of finance

charges earned through issuance of the Nordstrom private label and

VISA credit cards.

—

The Catalog/Internet segment generates revenues from direct

mail catalogs and the Nordstrom.com website.

We use the same measurements to compute net earnings for

reportable segments as we do for the consolidated company.

The accounting policies of the operating segments are the same

as those described in the summary of significant accounting

policies in Note 1.

NORDSTROM INC. AND SUBSIDIARIES 39

notes to consolidated
financial statements

The following tables set forth the information for our reportable segments and a reconciliation to the consolidated totals:

Year ended January 31, 2003

Revenues from external

customers (b)

Service charge income

Intersegment revenues

Interest expense, net

Depreciation and amortization

Earnings before taxes and cumulative

effect of accounting change

Net earnings (loss)
Assets (a)(b)
Capital expenditures

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
Earnings before taxes
Net earnings (loss)
Assets (a)(b)
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

Earnings before taxes

Net earnings (loss)

Assets (a)(b)

Intangible assets
Capital expenditures

Retail
Stores

Credit
Operations

Catalog/
Internet

Corporate
and Other

Eliminations

Total

$5,704,795

—

$270,281

—

$133,587

29,737

191

201,861

442,115
256,339
2,677,790
230,864

Retail
Stores

$5,356,875
—
20,192
994
182,960
4,630
402,299
245,305
2,570,375
379,819

Retail
Stores

32,783

23,582

3,212

21,194
12,929
750,510
2,058

Credit
Operations

—
$131,267
25,514
25,013
2,253
—
10,652
6,495
699,454
2,054

Credit
Operations

—

972

4,977

(13,565)
(8,275)
97,853
4,507

Catalog/
Internet

$277,255
—
—
77
5,498
—
(8,139)
(4,963)
69,457
2,554

Catalog/
Internet

$5,217,889

—

$310,648

—

$135,337

30,294

795

176,758

1,251

440,212

268,627

2,557,616

143,473
295,834

12,440

29,267

1,786

—

18,851

11,503

703,077

—
3,095

—

(604)

7,552

—

(29,367)

(17,920)

68,010

—
5,187

—

$57,176

23,881

(254,120)
(170,769)
570,223
90,737

Corporate
and Other

—
—
—
$48,954
22,378
—

(200,324)
(122,149)
711,893
11,621

Corporate
and Other

—

$33,240

16,952

—

(262,678)

(160,292)

279,800

—
26,231

—

$5,975,076

133,587

$(62,520)

—

—
—
—
—

—

81,921

233,931

195,624
90,224
4,096,376
328,166

Eliminations

Total

—
—

$(45,706)

—
—
—
—
—
—
—

$5,634,130
131,267
—
75,038
213,089
4,630
204,488
124,688
4,051,179
396,048

Eliminations

Total

—

$5,528,537

135,337

$(42,734)

—

—
—

—

62,698

203,048

1,251

167,018

101,918

3,608,503

143,473
330,347

(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 $75,645 and $68,487 for the years ended January 31, 2003 and 2002, and $12,318 for the period from October 24, 2000,
the date of acquisition, to January 31, 2001, and assets of $219,861, $198,689 and $206,601 as of January 31, 2003, 2002 and 2001.

40 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Note 20: Restructurings, Impairments and Other One-Time Charges

services area. The charge consisted of $4,053 in the disposition of

The following table provides a summary of restructuring, impairments

several software projects under development, $2,685 in employee

and other charges:

Year ended January 31,

2003

2002

2001

severance and $1,206 in other miscellaneous costs. Additionally,

we recorded $2,056 related to settlement costs for two lawsuits.

The restructuring included the termination of 50 employees in the

information technology department. At January 31, 2000, $1,452

Restructuring – employee

severance

Management severance

Asset impairment

Total charges

$ —

—

15,570

$15,570

$1,791

$ —

of the charge remained unpaid.

—

13,000

10,227

$1,791

$23,227

The following table presents the activity and balances of the reserves

established in connection with the restructuring charges:

In July 2002, we recognized a charge of $15,570 to write-down

an IT investment in a supply chain tool intended to support our

manufacturing division. Due to changes in business strategy,

we determined that this asset was impaired. This charge to the

Retail Stores segment reduced this asset to its estimated market

value. The charge was recorded in selling, general and

administrative expense.

Year ended January 31,

Beginning balance

Additions

Payments

Adjustments

Ending balance

Note 21: Nordstrom.com

2003

$ —

—

$ —

2002

$178

1,791

2001

$1,452

—

(1,890)

(1,220)

(79)

$ —

(54)

$178

During the year ended January 31, 2002, we streamlined our

In May 2002, we paid $70,000 for the outstanding shares of

operations through a reduction in workforce of approximately 2,600

Nordstrom.com, Inc. series C preferred stock in fulfillment of our

employees. As a result, we recorded a restructuring charge of

put agreement with the minority interest holders of Nordstrom.com

$1,791 in selling, general and administrative expenses relating to

LLC. The excess of the purchase price over the fair market value

severance for approximately 195 employees. Personnel affected

of the preferred stock and professional fees resulted in a one-time

were primarily located in the corporate center and in full-line stores.

charge of $42,736. No tax benefit was recognized, as we do not

During the year ended January 31, 2001, we recorded an

impairment charge of $10,227, consisting of $9,627 recorded in

selling, general and administrative expenses and $600 in interest

believe it is probable that this benefit will be realized. Purchase

of the minority interest of Nordstrom.com also resulted in additional

goodwill of $24,057.

expense. Due to changes in business strategy, we determined that

In July 2002, we purchased 3,608,322 Nordstrom.com options

several software projects under development were either impaired or

and 470,000 warrants for $11,802. We recognized $10,432 of

obsolete. The charges consisted of $6,542 primarily related to the

expense related to the purchase of these options and warrants.

disposition of transportation management software. Additionally,

merchandise software was written down $3,685 to its estimated fair

value. We also accrued $13,000 for certain severance and other

The following table presents the charges associated with the minority

interest purchase and reintegration costs.

costs related to a change in management.

Year ended January 31,

During the year ended January 31, 2000, we recorded a $10,000

Excess of the purchase price over the fair market

charge in selling, general and administrative expenses primarily

value of the preferred stock

associated with the restructuring of our information technology

Nordstrom.com option/warrant buyback expense

Professional fees incurred

Total

2003

$40,389

10,432

2,347

$53,168

NORDSTROM INC. AND SUBSIDIARIES 41

notes to consolidated
financial statements

Note 22: Vulnerability Due to Certain Concentrations

Washington Public Trust Advocates. In early 2002, we were named

Approximately 30% of our retail square footage is located in the

as one of 30 defendants in Washington Public Trust Advocates,

state of California. At January 31, 2003, the net book value of

ex rel., et al. v. City of Spokane, et al., filed in the Spokane County

property located in California was approximately $263,000.

Superior Court, State of Washington. Plaintiff is a not-for-profit

We carry earthquake insurance in all states with a $50,000

corporation bringing claims on behalf of the City of Spokane and

deductible and a $50,000 payout limit per occurrence.

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 us seeks to recover from

us 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 us, to the people of the City of Spokane regarding lack

of disclosures concerning the developer and the Project. By order

dated August 9, 2002, the court granted our motion to dismiss

us from that lawsuit. Plaintiff attempted to obtain direct review

by the Washington Supreme Court which declined to hear the case

and referred it to the Washington Court of Appeals. The Washington

Court of Appeals has scheduled a hearing on the appeal for

April 25, 2003.

Other. We are subject to routine litigation incidental to our business.

No material liability is expected.

At January 31, 2003 and 2002, approximately 38% and 40% of

our receivables were obligations of customers residing in California.

Concentration of the remaining receivables is considered to be

limited due to their geographical dispersion.

Note 23: Contingent Liabilities

We have been named in various lawsuits and intend to vigorously

defend ourself. While we cannot predict the outcome of these

lawsuits, we believe these matters will not have a material adverse

effect on our financial position, results of operations or cash flows.

Cosmetics. Nordstrom was originally named as a defendant along

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, plaintiffs filed an amended complaint naming a number of

manufacturers of cosmetics and fragrances and two other retailers

as additional defendants. Plaintiffs’ 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.

Plaintiffs seek treble damages and restitution in an unspecified

amount, attorneys’ fees and prejudgment interest, on behalf of

a class of all California residents who purchased cosmetics and

fragrances for personal use from any of the defendants during

the period four years prior to the filing of the amended complaint.

Defendants, including us, have answered the amended complaint

denying the allegations. The defendants have produced documents

and responded to plaintiffs’ other discovery requests, including

providing witnesses for depositions. Plaintiffs have not yet moved

for class certification. Pursuant to an order of the court, plaintiffs

and defendants have participated in mediation sessions. The

California state court has set a status conference for June 2003.

42 NORDSTROM INC. AND SUBSIDIARIES

notes to consolidated
financial statements

Note 24: Selected Quarterly Data (unaudited)

Year ended January 31, 2003

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Total

Net sales

Gross profit

Minority interest purchase

$1,245,761

$1,655,528

$1,323,201

$1,750,586

421,464

551,263

449,354

581,623

$5,975,076

2,003,704

and reintegration costs

(42,047)

(11,121)

—

(53,168)

(Loss)/earnings before cumulative

effect of accounting change

(11,213)

36,335

18,427

60,034

103,583

Cumulative effect of accounting

change (net of tax)

Net (loss)/earnings

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

Dividends per share

Common stock price

High

Low

(13,359)

(24,572)

(.18)

.09

26.29

22.15

—

36,335

.27

.09

26.87

16.58

—

18,427

.14

.10

21.93

15.06

—

60,034

.44

.10

22.39

17.87

(13,359)

90,224

. 67

. 66

. 38

26.87

15.06

The per share amounts for the (loss)/earnings before cumulative effect of accounting change were $(0.08) for basic and diluted in the first

quarter, and $0.77 and $0.76 for basic and diluted for the total year.

Year ended January 31, 2002

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

1st Quarter

$1,218,040

419,610

40,555

24,755

.18

.09

21.17

15.60

2nd Quarter

$1,545,759

504,851

63,499

38,699

.29

.09

22.75

17.00

3rd Quarter

$1,239,241

402,280

17,095

10,495

.08

.09

22.97

13.80

4th Quarter

$1,631,090

541,530

83,339

50,739

.38

.09

25.50

14.25

Total

$5,634,130

1,868,271

204,488

124,688

.93

.36

25.50

13.80

Nordstrom, Inc. common stock is traded on the New York Stock Exchange, NYSE Symbol JWN.

NORDSTROM INC. AND SUBSIDIARIES 43

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

2003

2002

2001

2000

$730,081

953,112

2,072,618

870,091

1,202,527

2.38

1,761,544

1,347,371

.4955

$677,150

888,172

2,057,111

950,138

1,106,973

2.17

1,761,082

1,429,271

.5209

$699,687

945,687

1,812,982

950,568

862,414

1.91

1,599,938

1,112,296

.4929

$596,020

797,845

1,564,648

866,509

698,139

1.81

1,429,492

804,982

.4249

1,372,057

1,314,488

1,229,568

1,185,614

135,444,041

134,468,608

133,797,757

132,279,988

10.13

9.78

9.19

8.96

4,096,376

4,051,179

3,608,503

3,062,081

5,975,076

2,003,704

5,634,130

1,868,271

5,528,537

1,879,021

5,149,266

1,789,506

Selling, general and administrative

(1,813,968)

(1,722,635)

(1,747,048)

(1,523,836)

Operating income

Interest expense, net

Write-down of investment

Minority interest purchase and reintegration costs

Service charge income and other, net

Earnings before income taxes and cumulative

effect of accounting change

Income taxes

Earnings before cumulative effect of accounting change

Cumulative effect of accounting change (net of tax)

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

189,736

(81,921)

—

(53,168)

140,977

195,624

(92,041)

103,583

(13,359)

90,224

.67

.66

.38

1.4%

1.51%

6.72%

319

145,636

(75,038)

—

131,973

(62,698)

(32,857)

—

265,670

(50,396)

—

133,890

130,600

116,783

204,488

(79,800)

124,688

—

167,018

(65,100)

101,918

—

124,688

101,918

.93

.36

(2.9%)

2.21%

9.80%

321

.78

.35

.3%

1.84%

8.44%

342

332,057

(129,500)

202,557

—

202,557

1.47

1.46

.32

(1.1%)

3.93%

16.29%

350

104

166

156

140

18,428,000

17,048,000

16,056,000

14,487,000

Stores

Total square footage

44 NORDSTROM INC. AND SUBSIDIARIES

1999

1998

1997

1996

1995

1994

1993

$567,661

750,269

1,668,689

794,490

874,199

2.10

$641,862

826,045

1,613,492

979,031

634,461

1.65

$693,123

719,919

1,549,819

795,321

754,498

1.95

$874,103

626,303

1,612,776

833,443

779,333

1.94

1,378,006

1,252,513

1,152,454

1,103,298

868,234

.4214

420,865

.3194

380,632

.2720

439,943

.3232

$655,715

627,930

1,397,713

693,015

704,698

2.02

984,195

373,910

.2575

$565,151

585,602

1,314,914

631,064

683,850

2.08

845,596

438,574

.2934

$584,379

536,739

1,219,844

516,397

703,447

2.36

824,142

481,945

.3337

1,300,545

1,458,950

1,457,084

1,408,053

1,330,437

1,153,594

1,038,649

142,114,167

152,518,104

159,269,954

162,226,288

164,488,196

164,118,256

163,949,594

9.15

9.57

9.15

8.68

8.09

7.03

6.34

3,103,689

2,890,664

2,726,495

2,732,619

2,396,783

2,177,481

2,053,170

5,049,182

1,704,237

4,864,604

1,568,791

4,457,931

1,378,472

4,113,717

1,310,931

3,895,642

1,297,018

(1,429,837)

(1,338,235)

(1,232,860)

(1,136,069)

(1,029,856)

274,400

(47,091)

—

230,556

(34,250)

—

145,612

(39,400)

—

174,862

(39,295)

—

267,162

(30,664)

—

3,591,228

1,121,539

(940,708)

180,831

(37,646)

—

3,415,613

1,079,608

(901,446)

178,162

(44,810)

—

110,414

110,907

135,331

134,179

98,311

88,509

86,140

337,723

(131,000)

206,723

—

206,723

1.41

.30

(2.7%)

4.09%

14.98%

362

307,213

(121,000)

186,213

—

186,213

1.20

.265

4.0%

3.83%

12.77%

384

241,543

(95,227)

146,316

—

146,316

.90

.25

0.6%

3.28%

10.21%

377

269,746

(106,190)

163,556

—

163,556

1.00

.25

(0.7%)

3.98%

11.94%

382

334,809

(132,304)

202,505

—

202,505

1.23

.1925

4.4%

5.20%

16.30%

395

231,694

(90,804)

140,890

—

219,492

(84,489)

135,003

—

140,890

135,003

.86

.17

2.7%

3.92%

12.85%

383

.82

.16

1.4%

3.95%

13.73%

381

13,593,000

12,614,000

11,754,000

10,713,000

9,998,000

9,282,000

9,224,000

NORDSTROM INC. AND SUBSIDIARIES 45

retail store facilities open
at January 31, 2003

Location

Store Name

Square
Footage

Year
Store
Opened

Location

Store Name

Square
Footage

Year
Store
Opened

Southwest Group
Arizona
Chandler
Scottsdale
California
Arcadia
Brea
Canoga Park
Cerritos
Corte Madera
Costa Mesa
Escondido
Glendale
Los Angeles
Los Angeles
Mission Viejo
Montclair
Palo Alto
Pleasanton
Redondo Beach
Riverside
Roseville
Sacramento
San Diego
San Diego
San Diego
San Francisco
San Francisco
San Jose
San Mateo
Santa Ana
Santa Barbara
Walnut Creek
Nevada
Las Vegas

East Coast Group
Connecticut
Farmington
Florida
Boca Raton
Coral Gables
Orlando
Tampa
Georgia
Atlanta
Buford

Chandler Fashion Center
Scottsdale Fashion Square

149,000
235,000

151,000
Santa Anita
195,000
Brea Mall
154,000
Topanga
122,000
Los Cerritos Center
116,000
The Village at Corte Madera
235,000
South Coast Plaza
156,000
North County
147,000
Glendale Galleria
120,000
The Grove
150,000
Westside Pavilion
172,000
The Shops at Mission Viejo
134,000
Montclair Plaza
187,000
Stanford Shopping Center
173,000
Stoneridge Mall in Pleasanton
The Galleria at South Bay
161,000
The Galleria at Tyler in Riverside 164,000
149,000
Galleria at Roseville
190,000
Arden Fair
220,000
Fashion Valley
151,000
Horton Plaza
University Towne Centre
130,000
San Francisco Shopping Centre 350,000
174,000
Stonestown Galleria
232,000
Valley Fair
149,000
Hillsdale Shopping Center
MainPlace/Santa Ana
169,000
186,000
Paseo Nuevo in Santa Barbara
Broadway Plaza in Walnut Creek 193,000

2001
1998

1994
1989
1984
1981
1985
1986
1986
1983
2002
1985
1999
1986
1984
1990
1985
1991
2000
1989
1981
1985
1984
1988
1988
2001
1982
1987
1990
1984

Fashion Show

207,000

2002

Westfarms

189,000

1997

Town Center at Boca Raton
Village of Merrick Park
The Florida Mall
International Plaza

Perimeter Mall
Mall of Georgia

193,000
212,000
174,000
172,000

243,000
172,000

2000
2002
2002
2001

1998
2000

Maryland
Annapolis
Bethesda
Columbia
Towson
New Jersey
Edison
Freehold
Paramus
Short Hills
New York
Garden City
White Plains
North Carolina
Durham
Pennsylvania
King of Prussia
Rhode Island
Providence
Virgina
Arlington

Dulles
McLean
Norfolk

Central States
Illinois
Chicago
Oak Brook
Schaumburg
Skokie
Indiana
Indianapolis
Kansas
Overland Park
Michigan
Troy
Minnesota
Bloomington
Missouri
Des Peres
Ohio
Beachwood
Columbus
Texas
Dallas
Frisco
Hurst

Annapolis Mall
Montgomery Mall
The Mall in Columbia
Towson Town Center

Menlo Park
Freehold Raceway Mall
Garden State Plaza
The Mall at Short Hills

Roosevelt Field
The Westchester

162,000
225,000
173,000
205,000

204,000
174,000
282,000
188,000

241,000
219,000

1994
1991
1999
1992

1991
1992
1990
1995

1997
1995

The Streets at Southpoint

149,000

2002

The Plaza at King of Prussia

238,000

1996

Providence Place

206,000

1999

The Fashion Centre
at Pentagon City
Dulles Town Center
Tysons Corner Center
MacArthur Center

241,000

1989

148,000
253,000
166,000

2002
1988
1999

Michigan Avenue
Oakbrook Center
Woodfield Shopping Center
Old Orchard Center

271,000
249,000
215,000
209,000

2000
1991
1995
1994

Circle Centre

216,000

1995

Oak Park Mall

219,000

1998

Somerset Collection

258,000

1996

Mall of America

240,000

1992

West County

193,000

2002

Beachwood Place
Easton Town Center

Dallas Galleria
Stonebriar Centre
North East Mall

231,000
174,000

249,000
149,000
149,000

1997
2001

1996
2000
2001

46 NORDSTROM INC. AND SUBSIDIARIES

Location

Store Name

Square
Footage

Year
Store
Opened

Location

Store Name

Square
Footage

Year
Store
Opened

Anchorage

97,000

1975

Northwest Group
Alaska
Anchorage
Colorado
Broomfield
Littleton
Oregon
Portland
Portland
Portland
Salem
Tigard
Utah
Murray
Orem
Salt Lake City
Washington
Bellevue
Lynnwood
Seattle
Seattle
Spokane
Tacoma
Tukwila
Vancouver
Other
Honolulu, HI
Façonnable
Façonnable

FlatIron Crossing
Park Meadows

Clackamas Town Center
Downtown Portland
Lloyd Center
Salem Center
Washington Square

Fashion Place
University Mall
Crossroads Plaza

Bellevue Square
Alderwood Mall
Downtown Seattle
Northgate
Spokane
Tacoma Mall
Southcenter
Vancouver

Ward Centre Shoes
U.S. (5 boutiques)
International (23 boutiques)

Nordstrom Rack Group
Chandler, AZ
Phoenix, AZ
Scottsdale, AZ
Brea, CA

Chandler Festival Rack
Last Chance
Scottsdale Promenade Rack
Brea Union Plaza Rack

Chino, CA

Colma, CA

Costa Mesa, CA

Fresno, CA
Glendale, CA
Long Beach, CA

Los Angeles, CA

Ontario, CA

Chino Spectrum Towne
Center Rack
Colma Rack

Metro Pointe at South
Coast Rack
Villaggio Retail Center Rack
Glendale Fashion Center Rack
Long Beach CityPlace Rack

The Promenade at Howard
Hughes Center Rack
Ontario Mills Mall Rack

172,000
245,000

121,000
174,000
150,000
71,000
189,000

110,000
122,000
140,000

285,000
127,000
383,000
122,000
137,000
134,000
170,000
71,000

16,000
46,000
77,000

37,000
48,000
38,000
45,000

38,000

31,000

50,000

32,000
36,000
33,000

41,000

2000
1996

1981
1977
1990
1980
1994

1981
2002
1980

1982
1979
1998
1965
1999
1966
1968
1977

2002

2000
1995
2000
1999

2002

1987

1997

2002
2000
2002

2001

40,000

2002

Oxnard, CA
Roseville, CA
Sacramento, CA
San Diego, CA

Esplanade Shopping Center Rack 38,000
36,000
Creekside Town Center Rack
54,000
Howe ‘Bout Arden Center Rack
57,000
Mission Valley Rack

San Francisco, CA 555 Ninth Street Retail

43,000

Center Rack
Westgate Mall Rack
San Leandro Rack

San Jose, CA
San Leandro, CA
Woodland Hills, CA Topanga Rack
Littleton, CO
Broomfield, CO
Buford, GA
Honolulu, HI
Northbrook, IL

Meadows Marketplace Rack
Flatiron Marketplace Rack
Mall of Georgia Crossing Rack
Victoria Ward Center Rack
Northbrook Rack

48,000
44,000
64,000
34,000
36,000
44,000
34,000
40,000

42,000

Oak Brook, IL

The Shops at Oak Brook
Place Rack
Woodfield Rack

Towson Rack
Centerpointe Mall Rack
Troy Marketplace Rack

Schaumburg, IL
Gaithersburg, MD Gaithersburg Rack
Towson, MD
Grand Rapids, MI
Troy, MI
Bloomington, MN Mall of America Rack
Las Vegas, NV
Westbury, NY
Beaverton, OR
Clackamas, OR
Portland, OR

45,000
49,000
31,000
40,000
40,000
41,000
33,000
Silverado Ranch Plaza Rack
The Mall at the Source Rack
48,000
Tanasbourne Town Center Rack 53,000
28,000
Clackamas Promenade Rack
19,000
Downtown Portland Rack

King of Prussia, PA The Overlook at

Philadelphia, PA

Hurst, TX

King of Prussia Rack
Franklin Mills Mall Rack (1)

The Shops at North
East Mall Rack

Preston Shepard Place Rack

Plano, TX
Salt Lake City, UT Sugarhouse Rack
Dulles, VA
Woodbridge, VA

Dulles Town Crossing Rack
Potomac Mills Rack

Auburn, WA

Bellevue, WA
Lynnwood, WA
Seattle, WA
Spokane, WA

SuperMall of the Great
Northwest Rack
Factoria Mall Rack
Golde Creek Plaza Rack
Downtown Seattle Rack
NorthTown Mall Rack

45,000

43,000

40,000

39,000
31,000
41,000
46,000

48,000

46,000
38,000
42,000
28,000

2001
2001
1999
1997

2001

1998
1990
1984
1998
2001
2000
2000
1996

2000

1994
1999
1992
2001
2000
1998
2001
1997
1998
1988
1986

2002

1993

2000

2000
1991
2001
1990

1995

1997
1999
1987
2000

(1) Store closed January 26, 2003, however it has been treated as open for the full year.

NORDSTROM INC. AND SUBSIDIARIES 47

officers of the corporation
and executive team

Michael G. Koppel, 46
Executive Vice President and
Chief Financial Officer

MEMBER OF EXECUTIVE TEAM

Llynn (Len) A. Kuntz, 42
Executive Vice President,
WA/AK Regional Manager,
Full-line Stores

David P. Lindsey, 53
Vice President, Store Planning

David L. Mackie, 54
Vice President, Real Estate,
and Corporate Secretary

Robert J. Middlemas, 46
Executive Vice President,
Central States Regional Manager,
Full-line Stores

Jack H. Minuk, 48
Vice President,
Corporate Merchandise Manager,
Women’s Shoes, Full-line Stores

Blake W. Nordstrom, 42
President

MEMBER OF EXECUTIVE TEAM

Bruce A. Nordstrom, 69
Chairman of the Board of Directors

Erik B. Nordstrom, 39
Executive Vice President,
Full-line Stores

MEMBER OF EXECUTIVE TEAM

Peter E. Nordstrom, 41
Executive Vice President and
President, Full-line Stores

MEMBER OF EXECUTIVE TEAM

James R. O’Neal, 44
Executive Vice President
and President,
Nordstrom Product Group

MEMBER OF EXECUTIVE TEAM

Suzanne R. Patneaude, 56
Vice President,
Corporate Merchandise Manager,
Designer/Savvy, Full-line Stores

R. Michael Richardson, 46
Vice President and
Chief Information Officer

Karen Bowman Roesler, 47
Vice President, Marketing
Nordstrom Credit Group

K. C. (Karen) Shaffer, 49
Executive Vice President,
Nordstrom Rack
NW Rack Regional Manager

Joel T. Stinson, 53
Executive Vice President and
Chief Administrative Officer

MEMBER OF EXECUTIVE TEAM

Delena M. Sunday, 42
Executive Vice President,
Human Resources and Diversity Affairs

MEMBER OF EXECUTIVE TEAM

Geevy S. K. Thomas, 38
Executive Vice President,
South Regional Manager,
Full-line Stores

Officers of the Corporation
and Executive Team
Jammie Baugh, 50
Executive Vice President,
Human Resources, Full-line Stores

Laurie M. Black, 44
Executive Vice President
and President, Nordstrom Rack

MEMBER OF EXECUTIVE TEAM

Mark S. Brashear, 41
Executive Vice President
and President, Façonnable

MEMBER OF EXECUTIVE TEAM

James H. Bromley, 39
Executive Vice President and
President, Nordstrom Direct, Inc.

MEMBER OF EXECUTIVE TEAM

Dale Cameron, 54
Executive Vice President,
Corporate Merchandise Manager,
Cosmetics, Full-line Stores

Robert E. Campbell, 47
Vice President, Strategy and Planning,
Treasurer

Linda Toschi Finn, 55
Executive Vice President, Marketing

MEMBER OF EXECUTIVE TEAM

Bonnie M. Junell, 46
Vice President,
Corporate Merchandise Manager,
Point of View and Narrative,
Full-line Stores

Kevin T. Knight, 47
Executive Vice President,
Chairman and Chief Executive
Officer of Nordstrom fsb,
President of Nordstrom Credit, Inc.

MEMBER OF EXECUTIVE TEAM

48 NORDSTROM INC. AND SUBSIDIARIES

board of directors

Board of Directors
D. Wayne Gittinger, 70
Partner,
Lane Powell Spears Lubersky LLP
Seattle, Washington

Enrique Hernandez Jr., 47
President and CEO,
Inter-Con Security Systems, Inc.
Pasadena, California

Jeanne P. Jackson, 51
Founder and General Partner,
MSP Capital
Newport, California

John A. McMillan, 71
Retired Co-Chairman
of the Board of Directors
Seattle, Washington

Bruce A. Nordstrom, 69
Chairman of the Board of Directors
Seattle, Washington

John N. Nordstrom, 66
Retired Co-Chairman
of the Board of Directors
Seattle, Washington

Alfred E. Osborne Jr., 58
Director of the Harold Price Center
for Entrepreneurial Studies and
Associate Professor of
Business Economics,
The Anderson School at UCLA
Los Angeles, California

William D. Ruckelshaus, 70
A Strategic Director,
Madrona Venture Group
Seattle, Washington

Stephanie M. Shern, 55
Former Vice Chairman and Partner,
Ernst & Young LLP
Little Falls, New Jersey

Bruce G. Willison, 54
Dean, The Anderson School at UCLA
Los Angeles, California

Alison A. Winter, 56
President, Northeast Personal
Financial Services,
The Northern Trust Corporation
Chicago, Illinois

Audit Committee

Enrique Hernandez Jr., Chair
Jeanne P. Jackson
Alfred E. Osborne Jr.
William D. Ruckelshaus
Stephanie M. Shern
Alison A. Winter

Compensation and Stock
Option Committee

Enrique Hernandez Jr.
Jeanne P. Jackson
Alfred E. Osborne Jr.
William D. Ruckelshaus, Chair
Bruce G. Willison
Alison A. Winter

Corporate Governance
and Nominating Committee

D. Wayne Gittinger
Enrique Hernandez Jr.
Alfred E. Osborne Jr., Chair
William D. Ruckelshaus

Executive Committee

John A. McMillan
Bruce A. Nordstrom
John N. Nordstrom

Finance Committee

D. Wayne Gittinger
John A. McMillan
John N. Nordstrom
Alfred E. Osborne Jr.
Bruce G. Willison
Alison A. Winter, Chair

shareholder
information

Independent Auditors

Deloitte & Touche LLP
Seattle, Washington

Counsel

Lane Powell Spears Lubersky LLP
Seattle, Washington

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 Offices

1617 Sixth Avenue
Seattle, Washington 98101-1742
Telephone (206) 628-2111

Annual Meeting

May 20, 2003 at 11:00 a.m.
Pacific Daylight Time
Nordstrom Downtown Seattle Store
John W. Nordstrom Room, fifth floor
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, 2003
will be provided to shareholders
upon request to:
Nordstrom, Inc. Investor Relations
P. O. Box 2737
Seattle, Washington 98111
(206) 303-3200
invrelations@nordstrom.com

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.

Front cover: Erik Rufer, Assistant Buyer, Men’s Shoes, Washington and Alaska