Nordstrom Annual Report 2003

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FY2003 Annual Report · Nordstrom

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[more than a store]

NORDSTROM, INC. ANNUAL REPORT 2003

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

2003

2002

% Change

$6,491,673

$5,975,076

398,141

242,841

1.78

1.76

0.41

195,624

103,583

90,224

0.67

0.66

0.38

88.6

103.5

134.4

169.2

165.7

166.7

7.9

Sales per Square Foot/
Comp-Store Sales Percentage Change

Gross Profit as a Percentage of Sales

SG&A Expense as a Percentage of Sales

35.1%

31.6%

$350

$342

$327

$321

$319

34.8%

34.0%

33.6%

33.2%

30.6%

30.4%

30.0%

29.6%

4.3%

1.4%

0.3%

-1.1%

-2.9%
01

Earnings before Income
Taxes and Cumulative Effect
of Accounting Change as a
Percentage of Sales

Inventory Turn
(Cost of sales and related buying and
occupancy divided by average inventory)

4.54

Cash Flow from Operations
in millions

6.4%

6.1%

4.34

4.31

4.19

4.10

3.6%

3.3%

3.0%

$573.2

$426.4

$369.2

$283.2

$185.3

PLEASE VISIT WWW.NORDSTROM.COM TO OBTAIN ADDITIONAL SHAREHOLDER INFORMATION

FINANCIAL INFORMATION TABLE OF CONTENTS ON PAGE 13

when you listen,

an interesting thing happens.

Bonnie Weiner,
Bonnie Weiner,
The Westchester, White Plains, New York
The Westchester, White Plains, New York

Kieran Dodge,
Kieran Dodge,
Alderwood, Lynnwood, Washington
Alderwood, Lynnwood, Washington

Elizabeth Duong,
Elizabeth Duong,
Valley Fair, San Jose, California
Valley Fair, San Jose, California

People keep talking. They tell you what they like, what they don’t
People keep talking. They tell you what they like, what they don’t

like, what works, what’s missing. It’s a simple process really — one
like, what works, what’s missing. It’s a simple process really — one

that can lead a company to better performance and happier
that can lead a company to better performance and happier

employees and
customers. By listening to you — our customers, employees and
customers. By listening to you — our customers,
customers.

customers, empl

shareholders — we build lasting relationships and continue to define
shareholders — we build lasting relationships and continue to define

Nordstrom om as a shopping experience that’s more than just a store.
Nordstrom as a shopping experience that’s more than just a store.

[ 1 ]
]
[

“

Matt did everything possible to ensure the shoes would be delivered to me that night.

He checked the stockroom, called the shipping company and looked in the mailroom.

I want you to know how grateful and delighted I am.

Michael, Tysons Corner Center customer

Vanessa Q. Reyes,
Alderwood, Lynnwood, Washington

Susan Frad,
Alderwood, Lynnwood, Washington

”

To enhance the customer’s

experience through better

information and reduced wait

times, new touch-screen
“point of sale” registers and
“personal book” software will
be fully implemented

by the end of 2004.

Susana Campos, John Calas, Kelly Derewenko,
Sarah Stitt, Jason Bauer, Jose Vargas,
employees at Village of Merrick Park, Coral Gables, Florida

In a world of technology, people still matter the most. We live in an age

where computers can do amazing things. But have you ever had a computer escort you through

a store to find the perfect outfit for your daughter’s wedding? Or tailor it to perfection? Or have

it delivered to your door that same day? That’s the advantage of real people. And at Nordstrom,

you’ll find helpful people at every corner — from our sales floor to our concierge service to live

operators at all 93 Nordstrom stores.

Technology can be amazing too — especially if it’s helping people serve people. That’s the

purpose behind our perpetual inventory system. It helps our buyers track their inventory

nationwide, so they can maximize each store’s assortment and sales. And this year, two new

tools — “point of sale” registers and “personal book” software — will be implemented in all

Nordstrom stores to enhance service during and after the sale.

Real operators. Personal shoppers. On-site tailors. Salespeople who have the tools they need

to make their customers happy. Little things individually, but when you add them together you

get something truly amazing — a shopping experience that’s one of a kind.

[ 3 ]

From a steaming hot latte at

our Ebar to a day of

pampering at the Spa,

Nordstrom is a great place

to shop — and unwind.

A place to delight your senses. We’re more than just a store — today’s
A place to delight your senses. We’re more than just a store — today’s

customers seek a contemporary haven that’s equal parts bustling marketplace and
customers seek a contemporary haven that’s equal parts bustling marketplace and

soothing oasis. That’s the feeling we aim to create every day at Nordstrom. While our
soothing oasis. That’s the feeling we aim to create every day at Nordstrom. While our

customers explore our store, we attend to the details that add value to the Nordstrom
customers explore our store, we attend to the details that add value to the Nordstrom

experience — spacious aisles, convenient restrooms, public seating and plenty of
experience — spacious aisles, convenient restrooms, public seating and plenty of

amenities. Other little extras add an exclusive touch and are available to everyone —
amenities. Other little extras add an exclusive touch and are available to everyone —

elegant complimentary gift boxes, live piano music, a concierge service, personal
elegant complimentary gift boxes, live piano music, a concierge service, personal

shoppers, and free skincare and makeup consultations.
shoppers, and free skincare and makeup consultations.

We’ve learned from you that shopping is about more than buying new clothes — it’s an
We’ve learned from you that shopping is about more than buying new clothes — it’s an

experience. So from the shine of our floors to the drape of our suits, we put our heart
experience. So from the shine of our floors to the drape of our suits, we put our heart

into every detail.
into every detail.

[ 4 ]
[ 4 ]
]
[
]
[[

Rickelle Jones,
Alderwood, Lynnwood, Washington

the first professional makeover of my life.

She had arranged a makeover in Cosmetics –

“I thought I was ready to go, but Stephanie had not finished her magic.
”

Kathy, Old Orchard customer

Fun, friends, fashion,

real life, cool info. All

at BPnordstrom.com

When it comes to fashion, everyone wants to look great. As our

customers have told us, fashion means different things to different people, and

everyone enjoys finding something that’s fresh and new.

As a fashion specialty store, we take pride in offering a unique selection of

exclusive and name brand merchandise. Our merchants have developed a

reputation over the years for nurturing new and small vendors — such as M•A•C,

Exclusively Misook and Donald J Pliner — into national prominence. By taking a

chance on new vendors, we differentiate our store and continue to attract new

designers and customers to Nordstrom.

We also seek to attract people of all shapes and sizes. Our commitment to sizes —

men’s shoes in sizes 5-20 and widths aa to eeeeee, women’s shoes in sizes 4-14

and widths aaa to ww, petite to plus-sizes in women’s fashions, and short to extra-

extra-large tall clothes for men — distinguishes us from other retailers. Everyone

wants to look great. At Nordstrom we go out of our way to make it happen.

[ 6 ]

“

Terry, my salesperson, was keenly aware that the clothes needed

to be color-coordinated, sensibly styled and

not too costly. She pulled together several items that looked fabulous.
In all honesty, the shopping experience was magical.

Valerie, North County customer

”

[ 7 ]

I know I have a reputation to uphold, as well as the Nordstrom name.

“I want to make Nordstrom a great experience for every customer.
”

Khaleel Grant, Downtown Seattle employee

A reputation built one customer at a time. OOne lesson we keep
A reputation built one customer at a time. One lesson we keep

learning from our customers is that loyalty is built over time. Every customer
learning from our customers is that loyalty is built over time. Every customer

experience impacts our reputation, either positively or negatively, so we must
experience impacts our reputation, either positively or negatively, so we must

continually earn our customers’ trust and business in everything we do — whether
continually earn our customers’ trust and business in everything we do — whether

it’s in our stores, online or over the phone.
it’s in our stores, online or over the phone.

By listening to you, and taking care of one customer at a time, we continue to define
By listening to you, and taking care of one customer at a time, we continue to define

the Nordstrom experience. It’s an experience that’s built on people, products and
the Nordstrom experience. It’s an experience that’s built on people, products and

place. But more importantly, it’s built on relationships — people-to-people
place. But more importantly, it’s built on relationships — people-to-people

connections that make Nordstrom more than just a store.
connections that make Nordstrom more than just a store.

[ 8 ]
]
[

Right up to the point that we opened the doors I was nervous and I remember saying to

our Chairman, Bruce Nordstrom, that I was worried no one would come. He stopped, looked at

me kind of sideways, and said, ‘Young man, I always worry. And I’ve been doing this a long
time.’ It just speaks, I think, to the humbleness of our company. We work very hard
every day to earn the loyalty of the customer.

“ Bruce Bonnet, Alderwood Store Manager
”

recalling the grand opening of the new Nordstrom Alderwood

message to shareholders

Dear customers, employees and shareholders,

The year 2003 was a pivotal one for our company. Over the last several years, we have
focused on driving sales volume, reducing expenses and upgrading and utilizing new
technology — all to improve service and our bottom-line results. We’ve made considerable
progress on these goals this past year:

• Posted second consecutive year of positive comparable store sales — our best

performance in 9 years

• Monthly same-store sales outperformed our retail peer group for 22

consecutive months

• Improved gross profit 150 basis points for the full year — our best performance

in over 10 years

• Reduced S,G&A for third consecutive year

• Achieved highest net income and earnings per share in company history

As evidenced by our results, we are happy to report that Nordstrom is continuing to move in
the right direction. Our customers are responding favorably to our merchandise mix. We’ve
continued to find ways to manage and reduce expenses that we believe have maintained or
enhanced the quality of our customers’ experience. Plus, we are beginning to take advantage
of systems upgrades to maximize our inventory investment and deliver a fresh stream of
compelling goods to each of our stores.

Perhaps the biggest accomplishment is that we are becoming more disciplined as a
company — while strengthening the foundation that has made Nordstrom so successful. Our
goal has always been to drive volume by doing everything possible to enhance our
customers’ shopping experience. Each of our choices on people, technology, merchandise,
expense and capital investments must enable us to build on our culture and be competitive
into the future.

We’ve always believed that the best approach to this business is to have good people, give
them the tools they need to be successful, then get out of their way and let them compete.
Recently, we have added new technologies that will help our people be more competitive and
better serve the customers as well. One example is our perpetual inventory system. This
technology investment gives our merchants real-time visibility into which items are selling,
so they can fine-tune their merchandise allocations by store. By delivering the right
merchandise mix to each store, inventories turn more quickly, which opens up space for
more fresh goods. Perpetual inventory is beginning to contribute to our results in a
meaningful way. On a comparable basis, inventories per square foot are down over 8% from
last year — and we are just beginning this journey. We need to keep pushing until we can
utilize perpetual inventory to its full potential.

[ 10 ]

We are especially excited about two new selling tools that will roll out to all full-line stores
by the end of 2004. New touch-screen, point-of-sale registers will reduce wait times, speed
up merchandise searches across our company, and connect our salespeople to
Nordstrom.com and its inventory. These registers also contain “personal book” software, a
powerful relationship-building tool that we consider a “people” initiative rather than a
“technology” initiative. Similar to the physical personal books that many of our salespeople
have relied on in the past, this new tool will track customer requests and needs online —
ensuring better accuracy and more consistent and timely follow through.

Success for our company is not going to take a new strategy or an entirely new business
model. Instead it’s taking what we already do well and continuing to execute those strengths
better — so we deliver meaningful results to both customers and shareholders. We are
privileged to have a reputation built by thousands of Nordstrom employees over the years, as
well as a current team committed to raising the bar even further. As always, our focus
remains on the customer and doing everything possible to enhance the Nordstrom
experience. We have made significant investments over the past three years on
infrastructure and tools that will improve operating efficiencies. We are learning how to use
technology to improve our flow of merchandise and strengthen our personal connection with
the customer. And we are managing expenses more effectively, creating disciplines that will
enable us to operate more profitably. We’re going to continue to invest in remodeling stores
to maintain our existing store base in a relevant and compelling way for the customer. We
owe it to our customers, employees and shareholders to evolve our operating model so it
competes effectively for the long run — a model that will be poised to take advantage of
future opportunities as they arise.

For the past several years, we have all worked hard trying to strengthen the foundation that
made this company so successful. We believe this is the best time in our company’s history
to take advantage of numerous opportunities to move our business to the next level. We are
an organization comprised of passionate, competitive individuals who are playing to win …
and to make Nordstrom more than just a store.

Blake W. Nordstrom
President

executive team

Laurie M. Black,

Mark S. Brashear,

James H. Bromley,

Executive Vice

Executive Vice President

Executive Vice

President and President,

and President, Façonnable

President and President,

Nordstrom Rack

Nordstrom Direct

Daniel F. Little,

Blake W. Nordstrom,

Erik B. Nordstrom,

Executive Vice

President and Chief

Administrative Officer

President

Executive Vice President,

Full-line Stores

Linda Toschi Finn,

Kevin T. Knight,

Michael G. Koppel,

Executive Vice

Executive Vice President,

President, Marketing

Chairman and Chief

Executive Vice President

and Chief Financial Officer

Executive Officer of

Nordstrom fsb,

President of Nordstrom

Credit, Inc.

Peter E. Nordstrom,

James R. O'Neal,

Delena M. Sunday,

Executive Vice President

Executive Vice President,

Human Resources and

and President,

Nordstrom Product Group

Diversity Affairs

and President,

Full-line Stores

[ 12 ]

table of contents

14 Management’s Discussion and Analysis

25 Independent Auditors’ and Management Reports

26 Consolidated Statements of Earnings

27 Consolidated Balance Sheets

28 Consolidated Statements of Shareholders’ Equity

29 Consolidated Statements of Cash Flows

30 Notes to Consolidated Financial Statements

48 Eleven-Year Statistical Summary

50 Retail Store Facilities

52 Officers of the Corporation and Executive Team

53 Board of Directors and Committees

53 Shareholder Information

NORDSTROM, INC. and SUBSIDIARIES
[ 13 ]

management’s discussion and analysis

Nordstrom is a fashion specialty retailer offering a wide selection of high-

OVERVIEW

quality apparel, shoes and accessories for women, men and children.

We offer our products through multiple retail channels including our

full-line stores, Nordstrom Rack stores, our catalogs and on the Internet

at www.nordstrom.com.

STRATEGIC PRIORITIES

We are pleased to report a year of strong financial performance. Our results

were driven by strong sales momentum, significant gross profit improvement

and modest selling, general and administrative expense improvement resulting

in diluted earnings per share of $1.76.

During 2003, we generated 4-5-4 comparable store sales gains of 4.3%

We remain committed to increasing our market share while achieving

and total sales gains of 8.6% (see our GAAP sales reconciliation on page

sustained increases in profitability and return on capital. Our core

18). In recent years, our sales per square foot have declined as we have

initiatives to accomplish these goals are as follows:

ventured into new markets and opened new stores. This year we saw a

CORE INITIATIVES

Drive top-line growth – Our single most important goal is to drive and sustain

positive comparable store sales into the future. We believe our ultimate

success in accomplishing this goal will come from continuing to develop

and maintain strong customer relationships by providing superior service

and distinctive merchandise with an emphasis on quality and value. We

turnaround in that trend as our sales per square foot increased to $327

from $319 last year, in spite of a 4% expansion in our retail square footage.

Gross profit showed significant improvement, increasing to 35.1%

of sales from 33.6% last year. Strong sales and substantially lower

markdowns were the primary drivers of the improvement with lower

shrinkage and improved buying and occupancy expense as a percent to

are also working to increase sales volume through a combination of

sales also contributing.

merchandising and productivity initiatives, such as maximizing system

tools to better tailor our store inventories by market.

Complete systems upgrades – Over the past three years we have made

significant information technology investments. They have included the

implementation of our perpetual inventory system which includes a more

Our expenses as a percent of sales improved for the third year in a row.

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

sales were down 0.4% to 30.0%. This decrease is in addition to the 0.2%

improvement we achieved in 2002. While we continue to make progress

in this area, we are still focused on reaching our goal of 28.0% - 28.5%

sophisticated replenishment system, a warehouse management system

of sales by 2006.

in our distribution centers and our financial system. We are currently rolling

out our “Point of Sale” registers including new Personal Book technology

and installing a new human resources management system. These

additions have been successfully implemented and have not disrupted our

operations. The systems upgrades that we have undertaken are providing

the necessary tools to help us operate more efficiently and compete

more effectively.

Reduce expenses – We believe we have opportunities to reduce our

expenses and achieve greater operating efficiency. Despite incremental

Pretax margin increased to 6.1% of sales, a level we had not expected to

achieve until 2005. Return on equity increased to 16.15% from a prior year

return of 6.71%. Both pretax margin and return on equity reached their

highest levels in three years. Overall, our diluted earnings per share

increased to $1.76 from $0.66 last year.

Improved profitability and reduced inventory levels contributed to higher

cash levels in 2003. A portion of these funds were used to retire $105.7

million in debt during 2003 and $196.8 million of debt in the first quarter

of 2004, reducing our debt to capital ratio to approximately 39% by the end

costs associated with information technology and new store investments,

of first quarter 2004.

we have lowered our selling, general and administrative expenses as a

percent of sales in each of the last three years. We are pursuing several

additional selling, general and administrative expense reduction opportunities,

including reduced supply chain costs, information technology and non-

selling costs, which we believe will help us achieve our intermediate-term

goal of 28.0% - 28.5% by 2006. Improved operating efficiencies combined

with solid sales performance will generate improved profitability for the

company and our investors.

NORDSTROM, INC. and SUBSIDIARIES
[ 14 ]

management’s discussion and analysis

Percentage of 2003 Sales by Merchandise Category

We had significant sales growth in 2003 as net sales increased 8.6% over

Children’s Apparel
and Accessories 4%

Other 4%

Men’s Apparel and
Furnishings 17%

Women’s Apparel 36%

Shoes 20%

Women’s Accessories
and Cosmetics 19%

RESULTS OF OPERATIONS

Segment results are discussed in each of the following sections

as applicable.

Net Sales (in millions)

$6,492

$5,975

$5,529

$5,634

$5,149

the prior year. This growth resulted from comparable store sales increases

and store openings. Comparable store sales on a 4-5-4 basis increased

4.3% due to increases at both full-line stores and Nordstrom Rack stores.

Additionally, we opened four full-line stores and two Nordstrom Rack

stores during 2003, increasing our retail square footage 4%. Sales at

Nordstrom Direct increased approximately 15.4% due to favorable fill

rates and strong Internet sales. During 2003, Internet sales increased

approximately 46% while catalog sales declined by 9%.

Merchandise division sales were led by Women's Designer, Accessories

and Cosmetics, followed by Men's Apparel and Women’s and Men’s Shoes.

The results in these divisions were driven by fresh inventories, compelling

values and new product launches. All divisions realized benefits from our

new perpetual inventory system, which is discussed further in the next

section. Moderate customer response to our merchandise mix caused sales

declines in our Women’s Special Sizes and Children’s divisions.

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

due to store openings. During 2002, we opened eight full-line stores, four

Nordstrom Rack stores and one Façonnable boutique. We also closed one

Nordstrom Rack location. The net impact was an increase in 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 declined slightly with a planned reduction in catalog sales partially

offset by an increase in Internet sales.

In 2004, we plan to open two full-line stores, increasing retail square

footage by approximately 2%. We expect 2004 comparable store sales to

increase in the low single digits and total sales to increase in the mid-single

digits. Internet sales are expected to continue increasing while catalog

sales are expected to decline slightly for an overall moderate increase in

Nordstrom Direct sales.

Sales increases and 4-5-4 comparable store sales are shown in the table

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

the beginning of the fiscal year.

Fiscal Year

Net sales increase

2001

1.9%

4-5-4 Comparable store sales

(2.9%)

2002

6.1%

1.4%

2003

8.6%

4.3%

See our GAAP sales reconciliation on page 18.

NORDSTROM, INC. and SUBSIDIARIES
[ 15 ]

management’s discussion and analysis

Gross Profit

Fiscal Year

Gross profit as a percent

of net sales

Inventory per square foot

Inventory turnover

Selling, General and Administrative

2001

2002

2003

Fiscal Year

2001

2002

2003

33.2%

$52.10

4.10

33.6%

35.1%

expense as a percent of sales

30.6%

30.4%

30.0%

Selling, general and administrative

$51.72

$47.11

4.31

4.54

The 2002 selling, general and administrative expense includes an

impairment charge of $15.6 million related to the write-down of an

We saw an improvement in our 2003 gross profit as a percentage of net

information technology investment in a supply chain tool in our private label

sales due to strong sales, substantially lower markdowns and improved

division. We believe that excluding this charge provides a more comparable

shrinkage numbers as well as an improvement in expenses related to our

basis from which to evaluate performance between years. Without this

private label business. Merchandise division gross profit was led by

charge, 2002 selling, general and administrative expenses as a percentage

Accessories, Women's Specialized Apparel, Women’s Contemporary/Juniors

of sales would have been 30.2%.

and Men's Apparel. Our new perpetual inventory system gives us greater

visibility into our inventory, allowing us to more effectively manage this

capital. Better inventory management has enabled us to reduce the

markdowns needed to turn slow-moving merchandise and decrease

overall inventory levels in spite of new store additions. Inventory per

square foot declined 8.9% due to improved performance at both the full-

Excluding the effects of the 2002 impairment charge, selling, general

and administrative expenses as a percentage of net sales decreased in

2003 to 30.0% from 30.2% in the prior year. This improvement is primarily

the result of leverage on better-than-planned sales and overall expense

improvements. The most notable expense improvements were:

line stores and our Nordstrom Rack division. Buying and occupancy

•Information technology expense declined this year after the completion

expenses benefited from leverage on a higher sales base resulting in a

of our perpetual inventory implementation.

small improvement on a percent of sales basis.

•Distribution costs improved as a result of efficiencies gained from our

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

new warehouse management system.

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. This was partially

•Nordstrom Direct continued to execute planned reductions in

catalog size consistent with their catalog sales trends, reducing

overall catalog costs.

offset by increased markdowns in certain categories due to excess

•Selling expense as a percent to sales improved due to effective

inventories. Total inventory increased as we added new stores, however,

management of our staffing levels.

inventory per square foot declined due to improved performance at full-

line stores partially offset by inventory increases at our Nordstrom Rack

These improvements were partially offset by the following:

division. Total shrinkage as a percentage of sales was even with the

•Incentive compensation expense increased as our financial

previous year.

performance improved.

In 2004, we expect to see continuing improvement in our gross profit

•Our credit and collection expense increased primarily due to additional

performance through lower markdowns and increased inventory turnover.

loyalty program expense resulting from higher credit sales.

Additionally we plan a slight improvement in our buying and occupancy

expenses on a percent of sales basis.

NORDSTROM, INC. and SUBSIDIARIES
[ 16 ]

management’s discussion and analysis

Selling, general and administrative expenses as a percentage of net sales

Minority Interest Purchase and Reintegration Costs

decreased in 2002 to 30.2% from 30.6% in the prior year, excluding the

effect of the 2002 write-down. 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 systems expense increase resulted from

depreciation and rollout costs of our new perpetual inventory system.

In 2004, selling, general and administrative expenses as a percent of

sales are expected to continue to improve as we identify and pursue

expense reduction opportunities. Some of the key areas we are targeting

During 2002, we purchased the outstanding shares of 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 2002 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 warrants.

Service Charge Income and Other, Net (in millions)

$155

$141

$131

$134

include Supply Chain and Information Technology. Our distribution centers

$117

are beginning to reduce the merchandise ticketing needed and are focusing

on freight costs. We plan on streamlining our information technology,

eliminating old systems and leveraging off of new systems. In addition,

we continue to focus on maximizing productivity improvements resulting

from our new technologies.

Interest Expense, Net

Interest expense, net increased 11.0% in 2003 primarily due to the

repurchase of $105.7 million in debt and lower capitalized interest. The

debt repurchase resulted in additional expense of $14.3 million. These

expenses were partially offset by lower interest expense resulting from

the reduced debt balance outstanding. Capitalized interest decreased due

to lower average construction and software in progress balances resulting

We continued to see improvements in our 2003 service charge income and

other, net primarily due to higher VISA securitization income. Our

securitization income benefited from substantial increases in our VISA credit

sales and receivables during the year, as well as a small improvement in

the cost of funds and bad debt write-offs. This increase was partially offset

by a decline in service charge and late fee income resulting from a decline

in our private label accounts receivable.

primarily from the completion of several software projects.

Service charge income and other, net increased in 2002 primarily due to

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

capitalized interest. Capitalized interest decreased due to lower average

balances during the year for construction and software in progress.

income recorded from our VISA securitization. Securitization income

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

Interest expense for 2004 is expected to increase in the first quarter of

in our private label accounts receivable.

2004 as we repurchased $196.8 million in debt. The debt repurchase

resulted in $20.8 million of additional expense. Interest expense will

decline for the rest of the year due to our reduced debt balance

outstanding. We expect to see a year-over-year reduction in interest

expense of $11.0 - $13.0 million.

In 2004, service charge income and other, net is expected to increase

$7.0 - $9.0 million as we continue to see growth in our VISA credit sales

and corresponding securitization income, offset by a small decline in

service charge and late fee income from our private label credit card.

NORDSTROM, INC. and SUBSIDIARIES
[ 17 ]

management’s discussion and analysis

Diluted Earnings per Share

Gross profit as a percentage of sales showed strong improvement,

$1.76

increasing to 36.8% from 33.3% last year. Significant improvements in

$1.46

$0.93

$0.78

$0.66

In 2002, our earnings per share included the write down of a supply chain

markdowns and shrinkage combined with a small improvement in buying

and occupancy expenses substantially increased gross profit as a

percent of sales.

Selling, general and administrative expenses as a percent of sales

increased to 29.1% from 28.6% last year primarily due to higher incentive

compensation offset by improved selling costs, lower distribution costs,

lower marketing costs and lower information systems expense.

tool, the Nordstrom.com minority interest purchase and reintegration

GAAP Sales Reconciliation (in millions)

costs and the cumulative effect of accounting change, for a total impact

of $71.0 million or $0.53 per share. We believe that excluding these

charges provides a more comparable basis from which to evaluate

performance between years. Without the impact of these charges, 2002

earnings per share would have been $1.19.

We converted to a 4-5-4 Retail Calendar at the beginning of 2003. Sales

performance numbers included in this document have been calculated

on a comparative 4-5-4 basis. We believe that adjusting for the difference

in days provides a more comparable basis (4-5-4 vs 4-5-4) from which to

evaluate sales performance. The following reconciliation bridges the

Our earnings per share in 2003 increased to $1.76 from $0.66 in 2002.

reported GAAP sales to the 4-5-4 comparable sales.

Excluding the prior year charges noted above, 2003 earnings per share

increased $0.57 or 48%. This increase was primarily driven by a strong

Sales Reconciliation

QTD 2003

increase in comparable store sales, significant improvement in gross

Number of Days

Dollar
QTD 2002 Increase

% Change % Change
Comp
Sales

Total
Sales

profit percent and a moderate decrease in selling, general and administrative

Reported GAAP

expenses as a percent of sales.

Reported GAAP sales

$1,932.5 $1,750.6 $181.9

10.4%

7.0%

Earnings per share decreased in 2002 compared to 2001 due to the

charges described above. Excluding the impact of these charges, earnings

per share would have been $1.19, an increase from 2001 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.

Diluted earnings per share are expected to increase 15% - 18% in 2004.

Fourth Quarter Results

Fourth quarter 2003 earnings were $104.3 million compared with $60.0

million in 2002. Total sales for the quarter increased by 10.4% versus the

same quarter in the prior year and comparable store sales increased by

8.5%. The increase in total sales resulted from an increase in comparable

store sales for the quarter and the opening of four full-line stores and two

Nordstrom Rack stores during the year.

Less Nov. 1-2, 2002 sales

Plus Feb. 1, 2003 sales

$(43.7)

$18.2

Reported 4-5-4 sales

$1,932.5 $1,725.1 $207.4

12.0%

8.5%

4-5-4 Adjusted Days

Sales Reconciliation

YTD 2003

Number of Days

Dollar
YTD 2002 Increase

% Change % Change
Comp
Sales

Total
Sales

Reported GAAP

365

Reported GAAP sales

$6,491.7 $5,975.1 $516.6

8.6%

4.1%

Less Feb. 1, 2003 sales

$(18.2)

Less Feb. 1-2, 2002 sales

Plus Feb. 1, 2003 sales

$(30.9)

$18.2

Reported 4-5-4 sales

$6,473.5 $5,962.4 $511.1

8.6%

4.3%

4-5-4 Adjusted Days

364

NORDSTROM, INC. and SUBSIDIARIES
[ 18 ]

management’s discussion and analysis

LIQUIDITY AND CAPITAL RESOURCES

Investing Activities

We finance our working capital needs, capital expenditures, acquisitions,

For the last three years, investing activities have primarily consisted of capital

debt repurchase and share repurchase activity with a combination of

expenditures and the minority interest purchase of Nordstrom.com.

cash flows from operations and borrowings.

Capital Expenditures

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

credit facilities are sufficient to finance our cash requirements for the next

12 months. Additionally, we believe our operating cash flows, existing cash

and credit available to us under existing and potential future facilities are

sufficient to meet our cash requirements for the next 10 years.

Our capital expenditures over the last three years totaled approximately

$712 million, net of developer reimbursements, principally to add stores,

improve existing facilities and purchase or develop new information

systems. More than 3.0 million square feet of retail store space has

been added during this period, representing an increase of 19% since

Operating Activities

January 31, 2001.

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

We plan to spend approximately $725 - $775 million, net of developer

our Anniversary Sale, accounts for approximately 28% of net sales, while

reimbursements, on capital projects during the next three years.

the fourth quarter, which includes the holiday season, accounts for about

Approximately 63% of this investment will be to build new stores and

30% of net sales. Cash requirements are highest in the third quarter as

remodel existing stores and 17% will go toward information technology,

we build our inventory for the holiday season.

while the remaining 20% is for maintenance and other miscellaneous

The increase in net cash provided by operating activities between 2003 and

2002 was primarily due to an increase in net earnings before noncash items,

decreases in inventories and increases in accounts payable partially

offset by an increase in our retained interest in accounts receivable.

Strong sales and effective inventory management left us with low inventory

levels after the holidays. January receipts of new merchandise replenished

our inventory levels resulting in an increase in accounts payable. Retained

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

stores, slow spending on information systems and increase our spending

on the improvement of existing facilities. To maximize the profitability of

our new stores, we are opening fewer new stores but are placing them

in established large regional shopping centers. In the information systems

area, we are in the process of implementing our “Point of Sale” system,

which we expect to complete during 2004.

interest in accounts receivable increased as Nordstrom VISA credit sales

At January 31, 2004, approximately $249 million has been contractually

increased during the year.

committed primarily for the construction of new stores or remodeling of

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 taxes. Inventory grew as

existing stores. Although we have made commitments for stores opening

in 2004 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.

we added stores during the year. Accounts receivable increased as

Total Square Footage (in thousands)

Nordstrom VISA credit sales improved. The increased income tax accrual

resulted from the timing of payments.

In 2004, cash flows provided by operating activities are expected to be in

the range of approximately $380.0 - $420.0 million. Payables are expected

14,487

to remain consistent with 2003 and inventory is expected to increase

modestly from new store openings. These factors will be partially offset

by a slower growth in accounts receivable compared to 2003.

19,138

18,428

17,048

16,056

NORDSTROM, INC. and SUBSIDIARIES
[ 19 ]

management’s discussion and analysis

Financing Activities

Financing activities primarily consist of proceeds from the exercise of stock

options, dividend payments and principal payments on debt.

Dividends

Class A and B notes total $200 million and were issued by the trust in May

2002. These are 5-year term notes backed by our VISA credit card

receivables. The proceeds from these notes were used to retire $200

million outstanding on a previous off-balance sheet securitization also backed

by our VISA credit card receivables.

In 2003, we paid $0.41 per share in common stock dividends, the seventh

consecutive annual dividend increase. We paid $0.38 and $0.36 per share

Debt

of common stock in fiscal 2002 and 2001.

Debt Buyback

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

Nordstrom private label receivables. These notes bear a fixed interest rate

of 4.82% and have a maturity of five years. Both the debt and related

During 2003, we purchased $103.2 million of our 8.95% senior notes and

assets are included in our consolidated balance sheets. A portion of the

$2.5 million of our 6.7% medium-term notes for a total cash payment of

proceeds was used to pay-down approximately $77 million in medium-

$120.8 million. Approximately $14.3 million of expense was recognized

term notes and the purchase of Nordstrom.com, Inc.'s preferred stock for

during the year related to these purchases.

$70 million. The remaining proceeds will be used for general corporate

During the first quarter of 2004, we retired $196.8 million of our 8.95%

purposes and capital expansion.

senior notes for a total cash payment of $218.6 million. Approximately

Interest Rate Swaps

$20.8 million of expense has been recorded in first quarter of 2004. This

expense and the related interest savings is expected to reduce first

quarter earnings per share by approximately $0.08 per share.

Debt to Capital Ratio

At the end of 2003, our debt to capital ratio decreased to 43.0% from

49.6% in 2002 and a high of 52.1% in 2001. This was primarily due to the

repurchase of $105.7 million in debt during 2003. Our first quarter 2004

To manage our interest rate risk, we had interest rate swaps with a fair

value of ($8.1) million and $3.2 million outstanding at January 31, 2004

and 2003. Both interest rate swaps were designated as fully effective fair

value hedges. Our current swap has a $250 million notional amount, expiring

in 2009. Under the agreement, we received a fixed rate of 5.63% and paid

a variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals

(3.945% at January 31, 2004).

repurchase of $196.8 million in debt brings our debt to capital ratio to about

In 2002 and 2003, we received $4.9 million and $2.3 million for the sale

39%, exceeding our near-term debt to capital goal of 40% to 45%.

of two interest rate swaps. The first swap converted our $300 million, 8.95%

Off-Balance Sheet Financing

fixed-rate debt to variable rate, while the second swap converted our

$250 million, 5.63% fixed-rate debt to variable rate. The cash proceeds

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

from each of the swap terminations will be recognized as interest income

Nordstrom VISA credit card receivables. On an ongoing basis, our

evenly over the remaining life of the related debt.

Nordstrom VISA receivables are transferred to a master note trust, which

has issued Class A and B notes to third party investors. We hold securities

Noncash Financing

that represent our retained interests in the trust. Based on SFAS No. 140

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

“Accounting for Transfers and Servicing of Financial Assets and

office building in which we are the primary occupant. During the first quarter

Extinguishments of Liabilities,” this debt and the related receivables are

of 2002, the limited partnership refinanced its construction loan obligation

not reflected in our consolidated balance sheets, however the carrying amount

with an $85 million mortgage secured by the property, of which $79.2 million

of our retained interests is included on our balance sheet.

was included in our balance sheet at January 31, 2004. The obligation has

Our off-balance sheet financing allows us to obtain financing at rates lower

than our conventional unsecured debt, adding another option to diversify our

financing sources. Additionally, our exposure to credit losses on the underlying

VISA receivables is limited to our retained interests. The details of our off-balance

sheet financing are disclosed in Note 9: Off-balance Sheet Financing.

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

NORDSTROM, INC. and SUBSIDIARIES
[ 20 ]

management’s discussion and analysis

Available Credit

Contractual Obligations

We have an unsecured revolving credit facility totaling $300 million that

The following table summarizes our contractual obligations and the

expires in November 2004. Under the terms of the agreement, we pay a

expected effect on our liquidity and cash flows. We expect to fund these

variable rate of interest based on LIBOR plus a margin of 0.50%

commitments primarily with operating cash flows generated in the normal

(1.6% at January 31, 2004.) The margin increases to 0.63% if more than

course of business and credit available to us under existing and potential

$150 million is outstanding on the facility. The line of credit agreement

future facilities.

contains restrictive covenants, which include maintaining certain financial

ratios. We also pay a commitment fee for the line based on our debt rating.

As of January 31, 2004, no borrowings have been made against this

revolving credit facility. We plan to renew this credit facility or replace it

with a similar facility prior to its expiration. Based on the factors above,

we do not believe the expiration of this credit facility will have an impact

on our liquidity.

Fiscal Year

Total

Less
than
1 year

1-3
years

3-5
years

More
than 5
years

Long-term debt

$1,234.3

$5.4

$405.4

$457.2 $366.3

Capital lease

obligations

Operating leases

Purchase

16.2

718.2

2.4

73.3

3.5

3.1

7.2

134.7

119.5

390.7

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

obligations

341.8

231.9

100.3

7.3

2.3

Nordstrom private label receivables with a $200 million capacity that we

Other long-term

renew annually. Interest on this facility varies based on the actual cost

liabilities

86.2

4.1

12.9

7.3

61.9

of commercial paper plus specified fees. As of January 31, 2004, no

Total

$2,396.7

$317.1

$656.8

$594.4 $828.4

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

Long-term debt includes $200 million in off-balance sheet financing

related to our VISA securitization, which comes due in April 2007 and does

not include the $196.8 million of debt repurchased in the first quarter of

2004. In addition to the required debt repayment disclosed above, we estimate

total interest payments of approximately $669 million being paid over

to purchase common stock, warrants to purchase debt securities and warrants

the remaining life of the debt.

to purchase or sell foreign currency.

Debt Ratings

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

Credit Ratings

Senior unsecured debt

Commercial paper

Outlook

Moody’s

Baa1

P-2

Stable

Standard
and Poor’s

A-

A-2

Stable

These ratings could change depending on our performance and other factors.

A significant ratings drop could result in the termination of the $200

million Nordstrom private label receivables variable funding note and

an interest rate change on the $300 million revolving credit facility. The

remainder of our outstanding debt is not subject to termination or interest

rate adjustments based on changes in credit ratings.

This table excludes the short-term liabilities, other than the current

portion of long-term debt, disclosed on our balance sheets as the amounts

recorded for these items will be paid in the next year. Purchase orders

totaling $681.2 million have also been excluded from this table.

Other long-term liabilities include estimated repayment schedules

primarily for postretirement benefits based on their current payout rates.

Other long-term liabilities not requiring cash payments, such as deferred

revenue, were excluded from the table above.

NORDSTROM, INC. and SUBSIDIARIES
[ 21 ]

management’s discussion and analysis

Share Repurchase

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

repurchases. As of January 31, 2004, we have purchased 39 million

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.

shares of our common stock for $1 billion, with remaining share repurchase

Vendor Allowances

authority of $82 million. The share repurchase represents 24% of the

shares outstanding as of May 1995 after adjusting for the 1998 stock

split, at an average price per share of $25.93. No shares were repurchased

during 2003.

We receive allowances from merchandise vendors for purchase price

adjustments, cooperative advertising programs and cosmetic selling

expenses. Purchase price adjustments are recorded as a reduction of cost

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

CRITICAL ACCOUNTING POLICIES

has been sold. Allowances for cooperative advertising programs and

The preparation of our financial statements requires that we make

estimates and judgments that affect the reported amounts of assets,

liabilities, revenues and expenses, and disclosure of contingent assets and

liabilities. We regularly evaluate our estimates including those related

cosmetic selling expenses are recorded as a reduction of selling, general

and administrative expense when the advertising or selling expense is incurred.

Allowances in excess of actual costs incurred are recorded as a reduction

to cost of sales.

to doubtful accounts, inventory valuation, intangible assets, income taxes,

Self Insurance

self-insurance liabilities, post-retirement benefits, sales return accruals,

contingent liabilities and litigation. We base our 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

We recognize 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. Our sales

return liability is estimated based on historical return levels.

Inventory

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

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

by applying a cost-to-retail ratio to the ending retail value of inventory. As

our inventory retail value is adjusted regularly to reflect market conditions,

our inventory method approximates the lower of cost or market. Factors

considered in determining markdowns include current and anticipated demand,

customer preferences, age of the merchandise and fashion trends.

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

workers' compensation and general liability. We record estimates

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

estimates are based on analysis of historical data and independent

actuarial estimates.

Allowance for Doubtful Accounts

Our allowance for doubtful accounts represents our best estimate of the

losses inherent in our customer accounts receivable as of the balance sheet

date. We evaluate the collectibility of our accounts receivable based on

several factors, including historical trends, aging of accounts, write-off

experience and expectations of future performance. We recognize finance

charges on delinquent accounts until the account is written off. Delinquent

accounts are written off when they are determined to be uncollectible, usually

after the passage of 151 days without receiving a full scheduled monthly

payment. Accounts are written off sooner in the event of customer

bankruptcy or other circumstances that make further collection unlikely.

NORDSTROM, INC. and SUBSIDIARIES
[ 22 ]

management’s discussion and analysis

Off-Balance Sheet Financing

Recent Accounting Pronouncements

On an ongoing basis, our Nordstrom VISA receivables are sold to a master

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement

note trust, which has issued $200 million in term notes backed by those

133 on Derivative Instruments and Hedging Activities.” SFAS No. 149

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

amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging

receivables to the trust based on the difference between the face value

Activities” for certain decisions made by the FASB as part of the Derivatives

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

Implementation Group process. SFAS No. 149 also amends SFAS No. 133

securitization process. The fair value of the assets is calculated as the

to incorporate clarifications of the definition of a derivative. SFAS No. 149

present value of their expected cash flows. The discount rates used to calculate

is effective for contracts entered into or modified after June 30, 2003, and

present value represent the volatility and risk of the assets. Significant

should be applied prospectively. The adoption of this statement did not

assumptions and judgments are made to estimate the present value of

have a material impact on our financial statements.

expected cash flows and to determine the fair value of our retained

interest. We have no other off-balance sheet transactions. For additional

information see Note 9: Off-balance sheet financing.

Valuation of Long-Lived Assets

We review our intangibles and other long-lived assets annually for

impairment or when events or changes in circumstances indicate the

carrying value of these assets may not be recoverable. We estimate the

fair value of an asset based on the future cash flows the asset is expected

to generate. An impairment loss is recognized when the carrying value

of the asset exceeds its fair value. Factors used in the valuation of long-

lived assets include, but are not limited to, management’s plans for future

operations, recent operating results and projected cash flows.

Realization of Deferred Tax Assets

In January 2002, we sold our Denver Credit facility generating a capital

gain for tax purposes of $15.5 million, which was used to offset a portion

of our existing capital loss carryforwards. Capital loss carryforwards of

$16.1 million remain available to offset capital gain income in the next two

years. No valuation allowance reserve has been provided because we believe

it is probable that the full benefit of these carryforwards will be realized.

In January 2003, the FASB issued Interpretation No. 46 (Revised 2003) or

FIN 46, “Consolidation of Variable Interest Entities,” which requires the

consolidation of variable interest entities (VIEs). An entity is considered

to be a VIE when its equity investors lack controlling financial interest or

the entity has insufficient capital to finance its activities without additional

subordinated financial support. Consolidation of a VIE by an investor is

required when it is determined that the majority of the entity’s expected

losses or residual returns will be absorbed by that investor. FIN 46 is effective

for variable interest entities created or acquired after January 31, 2003.

For variable interest entities created before February 1, 2003, FIN 46

must be applied for the first interim or annual period ending after

December 15, 2003. The adoption of FIN 46 did not have an impact on

our financial statements.

During November 2003, the EITF reached a consensus on Issue 03-10,

"Application of Issue No. 02-16 by Resellers to Sales Incentives Offered

to Consumers by Manufacturers." EITF 03-10 addresses the accounting

and disclosure treatment for a retailer’s reimbursement receipt from a

vendor for coupons offered directly to consumers by the vendor. EITF 03-

10 is effective for coupons distributed to consumers for fiscal years

beginning after December 15, 2003. We do not believe the adoption of EITF

Our 2002 purchase of the outstanding shares of Nordstrom.com, Inc.

03-10 will have an impact on our financial statements.

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 $15.8 million to offset the deferred

tax asset related to this purchase.

NORDSTROM, INC. and SUBSIDIARIES
[ 23 ]

management’s discussion and analysis

In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures

about Pensions and other Postretirement Benefits," establishing additional

annual disclosure requirements about plan assets, investment strategy,

measurement date, plan obligations and cash flows. The revised standard

also establishes interim disclosure requirements related to the benefit

cost recognized and contributions paid. Our adoption of the revised SFAS

No. 132 as of January 2004 did not have any impact on our results of

operation or financial condition.

Cautionary Statement

The preceding disclosures include 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 and challenges posed by our ability

to predict fashion trends, consumer apparel buying patterns, our ability

to control costs, weather conditions, hazards of nature such as earthquakes

and floods, trends in personal bankruptcies and bad debt write-offs,

changes in interest rates, employee relations, our ability to continue our

expansion plans, and the impact of economic and competitive market

forces, including the impact of terrorist activity or the impact of a war on

us, our customers and the retail industry. 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.

NORDSTROM, INC. and SUBSIDIARIES
[ 24 ]

independent auditors’ and management reports

INDEPENDENT AUDITORS' REPORT

MANAGEMENT REPORT

We have audited the accompanying consolidated balance sheets of

We are responsible for the preparation, integrity and fair presentation of

Nordstrom, Inc. and subsidiaries (the "Company") as of January 31, 2004

our financial statements and the other information that appears in the annual

and 2003, and the related consolidated statements of earnings, shareholders'

report. The financial statements have been prepared in accordance with

equity and cash flows for each of the three years in the period ended

accounting principles generally accepted in the United States of America

January 31, 2004. These financial statements are the responsibility of

and include estimates based on our best judgment.

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, at an appropriate cost-benefit

We conducted our audits in accordance with auditing standards generally

relationship, that our financial information is accurate and reliable, our

accepted in the United States of America. Those standards require that

assets are safeguarded and transactions executed in accordance with

we plan and perform the audit to obtain reasonable assurance about

established procedures.

whether the financial statements are free of 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

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.

statement presentation. We believe that our audits provide a reasonable

The Audit Committee, which is comprised of five independent directors,

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, 2004 and 2003, and the results of

their operations and their cash flows for each of the three years in the period

ended January 31, 2004, 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

meets regularly with our management, internal auditors 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.

Standards No. 142, Goodwill and Other Intangible Assets, for the year ended

Michael G. Koppel

January 31, 2003, as discussed in Note 2 to the consolidated financial

Executive Vice President and Chief Financial Officer

statements.

Deloitte & Touche LLP

Seattle, Washington

March 26, 2004

Blake W. Nordstrom

President

NORDSTROM, INC. and SUBSIDIARIES
[ 25 ]

consolidated statements of earnings

Dollars in thousands except per share amounts

Fiscal Year

Net sales

Cost of sales and related

buying and occupancy

Gross profit

Selling, general and administrative

Operating income

Interest expense, net

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 of $8,541)

Net earnings

Basic earnings per share

Diluted earnings per share

Cash dividends paid per share

2003

$6,491,673

(4,213,955)

2,277,718

(1,943,715)

334,003

(90,952)

—

155,090

398,141

(155,300)

242,841

—

$242,841

$1.78

$1.76

$0.41

% of
sales

100.0

(64.9)

35.1

(30.0)

5.1

(1.4)

—

2.4

6.1

(2.4)

3.7

—

3.7

2002

$5,975,076

(3,965,271)

2,009,805

(1,818,381)

191,424

(81,921)

(53,168)

139,289

195,624

(92,041)

% of
sales

100.0

(66.4)

33.6

(30.4)

3.2

(1.4)

(0.9)

2.4

3.3

(1.6)

2001

$5,634,130

(3,762,754)

1,871,376

(1,725,740)

145,636

(75,038)

—

133,890

204,488

(79,800)

103,583

1.7

124,688

(13,359)

$90,224

$0.67

$0.66

$0.38

(0.2)

1.5

—

$124,688

$0.93

$0.36

% of
sales

100.0

(66.8)

33.2

(30.6)

2.6

(1.4)

—

2.4

3.6

(1.4)

2.2

—

2.2

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

NORDSTROM, INC. and SUBSIDIARIES
[ 26 ]

Dollars in thousands

January 31,

Assets

Current assets:

Cash and cash equivalents

Accounts receivable, net

Retained interest in accounts receivable

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;

138,376,669 and 135,444,041

shares issued and outstanding

Unearned stock compensation

Retained earnings

Accumulated other comprehensive earnings

Total shareholders’ equity

Total liabilities and shareholders’ equity

consolidated balance sheets

2004

2003

$476,224

633,858

272,294

901,623

49,750

121,681

2,455,430

1,724,273

56,609

84,000

145,376

$219,344

639,630

124,543

953,112

40,261

111,138

2,088,028

1,761,544

56,609

84,000

121,726

$4,465,688

$4,111,907

$286

512,035

333,428

196,967

6,833

1,049,549

1,227,410

377,321

177,399

424,645

(597)

1,201,093

8,868

1,634,009

$4,465,688

$244

429,808

260,562

188,986

5,545

885,145

1,345,050

383,100

125,748

358,069

(2,010)

1,014,105

2,700

1,372,864

$4,111,907

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

NORDSTROM, INC. and SUBSIDIARIES
[ 27 ]

consolidated statements of shareholders’ equity

Dollars in thousands except per share amounts

Common Stock

Unearned Stock
Amount Compensation

Accum. Other
Retained Comprehensive
Earnings
Earnings

Total

Balance at February 1, 2001

133,797,757

$330,394

$(3,740)

$900,090

$6,701

$1,233,445

Net earnings

Other comprehensive earnings:

Foreign currency translation adjustment

Securitization fair value adjustment,

net of tax of $1,355

Comprehensive net earnings

Cash dividends paid ($0.36 per share)

Issuance of common stock for:

Stock option plans

Employee stock purchase plan

Stock compensation

Purchase and retirement

of common stock

—

186,165

541,677

19,009

—

3,788

6,754

380

(76,000)

—

Balance at January 31, 2002

134,468,608

341,316

Net earnings

Other comprehensive earnings:

Foreign currency translation adjustment

SERP adjustment, net of tax of $4,163

Securitization fair value adjustment,

net of tax of $607

Comprehensive net earnings

Cash dividends paid ($0.38 per share)

Issuance of common stock for:

Stock option plans

Employee stock purchase plan

Stock compensation

—

350,004

596,351

29,078

7,959

8,062

732

—

1,060

—

(2,680)

—

670

124,688

—

124,688

—

(48,265)

—

(1,310)

975,203

90,224

—

(51,322)

—

(2,175)

(2,120)

—

(2,120)

120,393

(48,265)

3,788

6,754

1,440

(1,310)

2,406

1,316,245

—

90,224

7,755

(6,511)

(950)

—

7,755

(6,511)

(950)

90,518

(51,322)

7,959

8,062

1,402

Balance at January 31, 2003

135,444,041

358,069

(2,010)

1,014,105

2,700

1,372,864

Net earnings

Other comprehensive earnings:

Foreign currency translation adjustment

SERP adjustment, net of tax of $3,304

Securitization fair value adjustment,

net of tax of $(2,530)

Comprehensive net earnings

Cash dividends paid ($0.41 per share)

Issuance of common stock for:

Stock option plans

Employee stock purchase plan

Stock compensation

—

2,259,771

647,480

25,377

57,981

9,677

(1,082)

Balance at January 31, 2004

138,376,669

$424,645

—

1,413

$(597)

242,841

—

242,841

—

(55,853)

—

7,379

(5,168)

3,957

—

7,379

(5,168)

3,957

249,009

(55,853)

57,981

9,677

331

$1,201,093

$8,868

$1,634,009

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

NORDSTROM, INC. and SUBSIDIARIES
[ 28 ]

consolidated statements of cash flows

Dollars in thousands

Fiscal Year

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 goodwill and tradename

Amortization of deferred lease credits and other, net

Stock-based compensation expense

Deferred income taxes, net

Cumulative effect of accounting change, net of tax

Impairment of IT investment

Minority interest purchase expense

Change in operating assets and liabilities:

Accounts receivable, net

Retained interest in accounts receivable

Merchandise inventories

Prepaid expenses

Other assets

Accounts payable

Accrued salaries, wages and related benefits

Income taxes 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

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 increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

2003

2002

2001

$242,841

$90,224

$124,688

250,683

—

(27,712)

17,894

32,027

—

15,593

(141,264)

28,213

(10,109)

99,516

56,115

3,105

6,237

573,225

(258,314)

46,007

—

3,451

(208,856)

—

(111,439)

2,341

57,459

(55,853)

—

(107,489)

256,880

219,344

$476,224

233,931

—

(22,179)

1,130

6,190

13,359

15,570

40,389

6,362

(67,561)

(117,379)

521

3,378

(2,537)

23,763

43,771

14,227

283,159

(328,166)

97,673

20,000

(70,000)

(3,513)

(284,006)

1,665

(87,697)

4,931

14,663

(51,322)

—

(117,664)

(118,511)

337,855

$219,344

213,089

4,630

(8,886)

3,414

16,114

—

28,168

(5,475)

80,246

(2,438)

(16,770)

(11,850)

(203)

(10,413)

12,088

426,402

(396,048)

126,383

—

(3,104)

(272,769)

(82,912)

300,000

(18,640)

—

10,090

(48,265)

(1,310)

158,963

312,596

25,259

$337,855

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

NORDSTROM, INC. and SUBSIDIARIES
[ 29 ]

notes to consolidated financial statements

Dollars in thousands except per share amounts

Shipping and Handling Costs: Our shipping and handling costs include

Note 1: Summary of Significant Accounting Policies

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

apparel, shoes and accessories for women, men and children with 148 U.S.

stores located in 27 states.

We also operate 31 Façonnable boutiques located primarily in Europe.

Additionally, we generate catalog and Internet sales through Nordstrom

Direct (formerly known as Nordstrom.com) and service charge income through

Nordstrom Credit, Inc.

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

merchandise for shipment. Shipping and handling costs of $47,614,

$42,506 and $30,868 in 2003, 2002 and 2001 were included in selling,

general and administrative expenses.

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. Total advertising expenses

were $154,466, $151,368 and $145,341 in 2003, 2002 and 2001.

Change in Fiscal Year: On February 1, 2003, our fiscal year end changed

Store Preopening Costs: Store opening and preopening costs are expensed

from January 31st to the Saturday closest to January 31st. Our new

as they occur.

fiscal year consists of four 13 week quarters, with an extra week added

onto the fourth quarter every five to six years. A one-day transition period

is included in our first quarter 2003 results. Fiscal years 2003, 2002 and

2001 ended on January 31, 2004, 2003 and 2002, respectively.

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 15.

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

The following table illustrates the effect on net income and earnings per

share if we had applied the fair value recognition provisions of SFAS No.

123, “Accounting for Stock-Based Compensation.”

in consolidation.

Use of Estimates: We make estimates and assumptions that affect

amounts reported in the financial statements and accompanying notes.

Actual results could differ from those estimates.

Fiscal Year

2003

2002

2001

Net earnings, as reported

$242,841

$90,224

$124,688

Add: stock-based compensation

expense included in reported

net income, net of tax

9,898

2,240

2,598

Reclassifications: Certain reclassifications of prior year balances have

been made for consistent presentation with the current year.

Deduct: stock-based compensation

expense determined under fair

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. Our sales return liability is estimated based on

historical return levels.

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 costs include

rent, depreciation, property taxes and operating costs of our retail and

distribution facilities.

value, net of tax

(23,749)

(21,914)

(19,850)

Pro forma net earnings

$228,990

$70,550

$107,436

Earnings per share:

Basic — as reported

Diluted — as reported

Basic — pro forma

Diluted — pro forma

$1.78

$1.76

$1.68

$1.67

$0.67

$0.66

$0.52

$0.93

$0.80

NORDSTROM, INC. and SUBSIDIARIES
[ 30 ]

notes to consolidated financial statements

Cash Equivalents: Cash equivalents are short-term investments with

Foreign Currency Translation: The assets and liabilities of our foreign

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

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

As of January 31, 2004 and 2003, we have restricted cash of $7,140 and

$7,523 included in our cash balances. The restricted cash is held in a trust

for use by our Supplemental Executive Retirement Plan and Deferred

Compensation Plans.

Cash Management: Our cash management system provides for the

reimbursement of all major bank disbursement accounts on a daily basis.

Accounts payable at January 31, 2004 and 2003 includes $17,853

and $13,882 of checks not yet presented for payment drawn in excess of

cash balances.

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

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

translation adjustments are recorded as other 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 reporting and tax basis

of assets and liabilities. The deferred tax assets and liabilities are

calculated using the enacted tax rates and laws that will be in effect

when the differences are expected to reverse. We establish valuation

allowances for tax benefits when we believe it is not likely that the related

Merchandise Inventories: Merchandise inventories are valued at the

expense will be deductible for tax purposes.

lower of cost or market, using the retail method (first-in, first-out basis).

Loyalty Programs: We have customer loyalty programs in which customers

Land, Buildings and Equipment: Depreciation is computed using a

receive points for qualifying purchases. Upon the accumulation of a

combination of accelerated and straight-line methods. Estimated useful

certain number of points, customers receive a merchandise certificate.

lives by major asset category are as follows:

Asset

Buildings

Store fixtures and equipment

Anticipated merchandise certificate redemptions are expensed as points

Life (in years)

are earned by the customer, adjusted for expected redemption based

5-40

3-15

on historical trends. Credit customers generally earn one to three points

for every dollar charged to their Nordstrom Retail or Nordstrom VISA credit

Leasehold improvements

Shorter of life of lease or asset life

card, and each point is worth $0.01. The related expense is recorded in

Software

3-7

selling, general and administrative expense.

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

Vendor Allowances: We receive allowances from merchandise vendors

annually for impairment or when circumstances indicate the carrying

for purchase price adjustments, cooperative advertising programs and

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 in accordance with EITF Issue No. 97-10, “The Effect of Lessee

Involvement in Asset Construction.” At the end of the construction period,

developer reimbursements in excess of construction costs are recorded

cosmetic selling expenses. Purchase price adjustments are recorded as

a reduction of cost of sales at 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. Allowances in excess of actual costs incurred

are recorded as a reduction to cost of sales.

as deferred lease credits and amortized as a reduction to rent expense,

Fair Value of Financial Instruments: The carrying amounts of cash

on a straight-line basis over the life of the applicable lease or operating

equivalents and notes payable approximate fair value. See Note 13 for

covenant. Construction costs in excess of developer reimbursements are

the fair values of our long-term debt, including current maturities and interest

recorded as prepaid rent and amortized as rent expense on a straight-

rate swap agreements.

line basis over the life of the applicable lease or operating covenant.

NORDSTROM, INC. and SUBSIDIARIES
[ 31 ]

notes to consolidated financial statements

Derivatives Policy: We limit our use of derivative financial instruments

In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures

to the management of foreign currency and interest rate risks. Our

about Pensions and other Postretirement Benefits," establishing additional

derivative financial instruments for foreign currency are not material to

annual disclosure requirements about plan assets, investment strategy,

our financial condition or results of operations and we have no material

measurement date, plan obligations and cash flows. The revised standard

off-balance sheet credit risk. See Note 13 for a further description of our

also establishes interim disclosure requirements related to the benefit

interest rate swaps.

Recent Accounting Pronouncements:

In April 2003, the FASB issued

SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments

cost recognized and contributions paid. Our adoption of the revised SFAS

No. 132 as of January 2004 did not have an impact on our results of

operation or financial condition.

and Hedging Activities.” SFAS No. 149 amends SFAS No. 133, “Accounting

Note 2: Cumulative Effect of Accounting Change

for Derivative Instruments and Hedging Activities” for certain decisions

made by the FASB as part of the Derivatives Implementation Group

process. SFAS No. 149 also amends SFAS No. 133 to incorporate

clarifications of the definition of a derivative. SFAS No. 149 is effective for

contracts entered into or modified after June 30, 2003, and should be applied

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

impact on our financial statements.

In January 2003, the FASB issued Interpretation No. 46 (Revised 2003) or

FIN 46, “Consolidation of Variable Interest Entities,” which requires the

consolidation of variable interest entities (VIEs). An entity is considered

to be a VIE when its equity investors lack controlling financial interest or

the entity has insufficient capital to finance its activities without additional

In 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 are no longer amortized but will be subject

to annual impairment tests. Our intangible assets were determined to be

either goodwill or indefinite lived tradename.

We have three reporting units that we evaluate. At the beginning of 2002,

we had $138,331 of intangibles associated with our Façonnable Business

Unit, one level below our reportable Retail Stores segment. The purchase

of the minority interest of Nordstrom.com in the first quarter of 2002

resulted in additional goodwill of $24,178 of which $8,462 was

allocated to the Retail Stores reporting unit and $15,716 to the Catalog/Internet

subordinated financial support. Consolidation of a VIE by an investor is

reporting unit.

required when it is determined that the majority of the entity’s expected

losses or residual returns will be absorbed by that investor. FIN 46 is effective

for variable interest entities created or acquired after January 31, 2003.

For variable interest entities created before February 1, 2003, FIN 46

must be applied for the first interim or annual period ending after

December 15, 2003. The adoption of FIN 46 did not have an impact on our

financial statements.

During November 2003, the EITF reached a consensus on Issue 03-10,

"Application of Issue No. 02-16 by Resellers to Sales Incentives Offered

to Consumers by Manufacturers." EITF 03-10 addresses the accounting

and disclosure treatment for a retailer’s reimbursement receipt from a

vendor for coupons offered directly to consumers by the vendor. EITF 03-

10 is effective for coupons distributed to consumers for fiscal years

beginning after December 15, 2003. We do not believe the adoption of EITF

03-10 will have an impact on our financial statements.

We test 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. We perform our impairment

test annually during our first quarter or when circumstances indicate

we should do so. Our initial impairment test of the Façonnable Business

Unit resulted in an impairment charge to tradename of $16,133 and to

goodwill of $5,767. These impairments resulted from a reduction in

management's estimate of future growth for this reporting unit. The

impairment charge is reflected as a cumulative effect of accounting

change. No further impairments have occurred to date.

NORDSTROM, INC. and SUBSIDIARIES
[ 32 ]

notes to consolidated financial statements

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

Note 3: Employee Benefits

ended January 31, 2004 and 2003 are as follows:

Retail Stores
Segment

Goodwill Tradename

Catalog/
Internet
Segment
Goodwill

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

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

Total

Board of Directors establishes our contribution to the profit sharing plan

February 1, 2002

$38,198 $100,133

$— $138,331

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

(5,767)

(16,133)

— (21,900)

In addition, we provide matching contributions up to a stipulated percentage

Impairment

Goodwill acquired

through purchase of

minority interest

(see Note 20)

8,462

—

15,716

24,178

January 31, 2004 and 2003 $40,893

$84,000

$15,716 $140,609

of employee contributions. Our contributions to the profit sharing plan

and matching contributions to the 401(k) plan totaled $52,030, $35,162

and $28,525 in 2003, 2002 and 2001.

Note 4: Postretirement Benefits

We have an unfunded Supplemental Executive Retirement Plan ("SERP"),

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

which provides retirement benefits to certain officers and select employees.

pro-forma results adjusted to exclude intangible amortization and the

During 2003, the SERP was amended to change the target benefit, provide

cumulative effect of the accounting change.

transition benefits, eliminate the offset of our contributions to the 401(k)

Fiscal Year

2003

2002

2001

Reported net earnings

$242,841

$90,224

$124,688

and profit sharing plans and increase the retirement age. Certain

grandfathered participants will remain under the previous plan provisions.

Intangible amortization, net of tax

—

2,824

The following provides a reconciliation of benefit obligations and funded

Cumulative effect of the

accounting change,

status of the SERP:

January 31,

2004

2003

net of tax

—

13,359

—

Adjusted net earnings

$242,841

$103,583

$127,512

Change in benefit obligation:

Accumulated benefit obligation

Basic and diluted earnings per share:

Fiscal Year
Earnings per share:

2003

Basic Diluted

2002

2001
Basic &
Basic Diluted Diluted

Reported net earnings $1.78

$1.76

$0.67

$0.66

$0.93

Intangible amortization,

net of tax

—

0.02

Cumulative effect of

accounting change,

net of tax

—

0.10

—

Adjusted net earnings $1.78

$1.76

$0.77

$0.76

$0.95

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

over their estimated useful lives on a straight-line basis ranging from 10

to 35 years. Accumulated amortization of intangible assets was $5,881

as of January 31, 2004 and 2003.

at beginning of year

$47,573

$34,411

Service cost

Interest cost

Amortization of adjustments

Change in additional minimum liability

Distributions

Accumulated benefit obligation

819

3,420

1,444

9,046

(2,689)

1,447

3,537

2,941

7,760

(2,523)

at end of year

Funded status of plan:

Under funded status

Unrecognized prior service cost

Unrecognized loss

Accrued pension cost

Balance sheet amounts:

Additional minimum liability

Intangible asset

$59,613

$47,573

$(64,870)

$(50,125)

6,228

24,403

3,805

15,074

$(34,239)

$(31,246)

$(25,373)

6,228

$(16,327)

3,805

NORDSTROM, INC. and SUBSIDIARIES
[ 33 ]

notes to consolidated financial statements

The components of SERP expense and a summary of significant assumptions

Note 6: Income Taxes

are as follows:

Fiscal Year

Service cost

Interest cost

Amortization of adjustments

2003

$819

3,420

1,444

2002

2001

$1,447

$1,092

3,537

2,941

2,668

1,821

Total SERP expense

$5,683

$7,925

$5,581

Assumption percentages:

Discount rate

Rate of compensation increase

6.25%

4.00%

7.00%

4.00%

7.25%

5.00%

Measurement date

10/31/03

10/31/02

12/1/01

Note 5: Interest Expense, Net

The components of interest expense, net are as follows:

Fiscal Year

Short-term debt

Long-term debt

Total interest expense

Less:

Interest income

Capitalized interest

2003

$652

99,866

100,518

2002

$677

89,850

90,527

2001

$3,741

83,225

86,966

(5,981)

(3,585)

(4,254)

(4,352)

(1,545)

(10,383)

Interest expense, net

$90,952

$81,921

$75,038

Income tax expense consists of the following:

Fiscal Year

Current income taxes:

Federal

State and local

Total current

income taxes

Deferred income taxes:

Current

Non-current

Total deferred

income taxes

2003

2002

2001

$118,559

$76,901

$58,122

15,516

10,633

6,142

134,075

87,534

64,264

(7,904)

29,129

(4,225)

8,732

(7,217)

22,753

21,225

4,507

15,536

Total before cumulative effect

of accounting change

155,300

92,041

79,800

Deferred income taxes on

cumulative effect of

accounting change

—

(8,541)

—

Total income taxes

$155,300

$83,500

$79,800

NORDSTROM, INC. and SUBSIDIARIES
[ 34 ]

notes to consolidated financial statements

A reconciliation of the statutory Federal income tax rate to the effective

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

tax rate on earnings before the cumulative effect of accounting change

for tax purposes of $15,484 which was used to offset a portion of our

is as follows:

Fiscal Year

Statutory rate

State and local

income taxes, net of

Federal income taxes

Change in valuation allowance

Other, net

Effective tax rate

2003

2002

2001

35.00%

existing capital loss carryforwards. Capital loss carryforwards of $16,117

remain available to offset capital gain income in the next two years. No valuation

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

benefit of these carryforwards will be realized.

3.10

—

0.91

3.78

8.45

(0.18)

3.93

—

0.09

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

preferred stock in 2002 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 $15,752 to offset the deferred tax asset related to

39.01%

47.05%

39.02%

this purchase.

Deferred income taxes reflect the net tax effect of temporary differences

Note 7: Earnings per Share

between amounts recorded for financial reporting purposes and amounts

Basic earnings per share is computed using the weighted average number

used for tax purposes. The major components of deferred tax assets and

of common shares outstanding during the year. Diluted earnings per

liabilities are as follows:

January 31,

Accrued expenses

Compensation and

benefits accruals

Merchandise inventories

Capital loss carryforwards

Loss on minority interest purchase

Other

2004

$41,096

61,553

24,630

6,286

15,752

22,414

2003

$35,480

52,969

25,831

7,406

15,752

28,319

Total deferred tax assets

171,731

165,757

Land, buildings and

equipment basis and

depreciation differences

Employee benefits

Other

Total deferred tax liabilities

Valuation allowance

Net deferred tax assets

(78,558)

(6,540)

(5,532)

(90,630)

(15,752)

$65,349

(50,401)

(9,657)

(3,891)

(63,949)

(15,752)

$86,056

share uses the weighted average number of common shares outstanding

during the year plus dilutive common stock equivalents, primarily stock options

and performance share units.

Options with an exercise price greater than the average market price were

not included in diluted earnings per share. These options totaled 5,335,209,

7,259,273 and 8,563,996 shares in 2003, 2002 and 2001.

Fiscal Year

Net earnings

Basic shares

2003

2002

2001

$242,841

$90,224

$124,688

136,329,144

135,106,772

134,104,582

Basic earnings per share

$1.78

$0.67

$0.93

Dilutive effect of

stock options and

performance share units

1,409,997

617,468

234,587

Diluted shares

137,739,141

135,724,240

134,339,169

Diluted earnings per share

$1.76

$0.66

$0.93

NORDSTROM, INC. and SUBSIDIARIES
[ 35 ]

notes to consolidated financial statements

Note 8: Accounts Receivable

In accordance with SFAS No. 140, our consolidated balance sheets do not

The components of accounts receivable are as follows:

include this debt and the related receivables. These related VISA credit

January 31,

Trade receivables:

Unrestricted

Restricted

Allowance for doubtful accounts

Trade receivables, net

Other

2004

2003

card receivables are sold to the trust on an ongoing basis.

$25,228

589,992

(20,320)

594,900

38,958

$15,599

613,647

(22,385)

606,861

32,769

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

Accounts receivable, net

$633,858

$639,630

cash flows. The following table summarizes the estimated fair values of

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. As all vendor receivables are fully

earned at period end, no allowance for doubtful vendor receivables has

been recorded.

Bad debt expense totaled $27,975, $29,080 and $34,750 in 2003, 2002

and 2001.

Note 9: Off-balance Sheet Financing

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

by VISA credit card receivables ("VISA VFN") 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.

These proceeds were used 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 as defined by SFAS No. 140 “Accounting for

Transfers and Servicing of Financial Assets and Extinguishments of

Liabilities” and are included in the balance sheets as retained interest in

accounts receivable.

our retained interests as well as the assumptions used:

January 31,

2004

Fair value of retained interests:

$270,570

2003

$124,791

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

2.5

5.45%

17.79%

1.41%

23.39%

10.67%

6.80%

12.60%

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.

NORDSTROM, INC. and SUBSIDIARIES
[ 36 ]

notes to consolidated financial statements

The following table illustrates the sensitivity in the fair market value

The total principal balance of the VISA receivables was $465,198 and

estimates of the retained interests given independent changes in

$323,101 as of January 31, 2004 and 2003. Gross credit losses were

assumptions as of January 31, 2004:

$22,393, $18,580 and $17,050 for the years ended January 31, 2004, 2003

Gross Yield

$1,594

$3,187

$(1,594)

$(3,187)

+10%

+20%

-10%

-20%

Interest Expense on Issued

Classes

Card Holders Payment Rate

Charge Offs

Discount Rate

(60)

(532)

(539)

(411)

(121)

(842)

(1,077)

(821)

537

541

412

121

1,264

1,084

825

These sensitivities are hypothetical and should be used with caution. The

effect of an adverse change in a particular assumption on the fair value

of the retained interest is calculated without changing any other assumption.

In reality, changes in one factor may result in changes in another, which

might alter the reported sensitivities.

The following table summarizes certain income, expenses and cash flows

received from and paid to the master note trust.

and 2002, and receivables past due for more than 30 days were $8,805 and

$8,519 at January 31, 2004 and 2003.

The following table illustrates default projections using net credit losses

as a percentage of average outstanding receivables in comparison to

actual performance:

Fiscal Year

Original projection

Actual

2004

5.59%

N/A

2003

6.16%

5.57%

2002

7.66%

6.59%

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. As of January 31, 2004, this maximum

was exceeded by $1,595. In addition, other excess concentrations total

$186. It is possible that we may be required to repurchase these receivables.

Aside from these instances, we do not believe any additional funding will

Fiscal Year

Principal collections reinvested in

2003

2002

2001

be required.

new receivables

$1,332,790

$824,715

$669,582

Gains on sales of receivables

4,920

Income earned on retained interests 31,926

8,290

10,786

3,147

6,711

Cash flows from retained assets:

Retained interests

Servicing fees

58,222

7,631

28,100

5,407

11,916

8,440

Interest income earned on the retained interests is included in service charge

income and other on the consolidated statements of earnings.

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.

NORDSTROM, INC. and SUBSIDIARIES
[ 37 ]

notes to consolidated financial statements

Note 10: Receivable-backed Securities

The total cost of capitalized leased buildings was $20,035 and $13,884 at

Total principal receivables of the securitized portfolio at January 31, 2004

and 2003 were approximately $584,828 and $609,784, and receivables

more than 30 days past due were approximately $14,910 and $16,973. Net

January 31, 2004 and 2003 respectively, with related accumulated

amortization of $14,021 and $9,261. The amortization of capitalized

leased buildings was recorded in depreciation expense.

charged off receivables for the years ended January 31, 2004, 2003 and

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

2002 were $28,703, $29,555 and $28,134.

The private label receivables also serve as collateral for a variable funding

subsequently leased it back. The related gain of $16,022 is being recognized

as a reduction to rent expense evenly over the 15 year life of the lease.

facility with a limit of $200,000. Interest on the facility varies based on the

At January 31, 2004, we have contractual commitments of approximately

actual cost of commercial paper plus specified fees. Nothing was

$249,000 primarily for the construction of new stores or remodeling of

outstanding on this facility at January 31, 2004 or 2003.

existing stores.

Our continuing involvement in the securitization of private label receivables

Note 12: Notes Payable

will include pledging new receivables to the master note trust, accounting

for the transaction as a secured financing and servicing the portfolio.

During 2002, we borrowed $15,000 at 2% on our variable funding note

(described in Note 10.) Nothing was outstanding at January 31, 2004

Note 11: Land, Buildings and Equipment

and 2003.

Land, buildings and equipment consist of the following:

We have an unsecured line of credit totaling $300 million, which is available

January 31,

Land and land improvements

Buildings

Leasehold improvements

Capitalized software

Store fixtures and equipment

Construction in progress

2004

$63,636

768,373

991,366

206,751

1,724,067

79,016

3,833,209

2003

as liquidity support for our commercial paper program, and expires in

$60,692

829,885

943,555

150,655

November 2004. Under the terms of the agreement, we pay a variable rate

of interest based on LIBOR plus a margin of 0.50%, or 1.6% at January 31,

2004. The margin increases to 0.63% if more than $150 million is

outstanding on the facility. The line of credit agreement contains restrictive

1,222,842

covenants, which include maintaining certain financial ratios. We also pay

436,891

a commitment fee for the line based on our debt rating. As of January

3,644,520

31, 2004, no borrowings have been made against this revolving credit

Less accumulated depreciation

facility. We plan to renew this credit facility or replace it with a similar facility

and amortization

(2,108,936)

(1,882,976)

prior to its expiration.

Land, buildings and equipment, net $1,724,273

$1,761,544

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 in the period in which

the software is ready for its intended use. Construction in progress

includes $24,657 and $61,384 of software in progress at January 31, 2004

and 2003.

Additionally, in connection with the purchase of foreign merchandise, we

have outstanding import letters of credit totaling $54,536 and standby letters

of credit totaling $1,370 at January 31, 2004.

NORDSTROM, INC. and SUBSIDIARIES
[ 38 ]

notes to consolidated financial statements

Note 13: Long-Term Debt

A summary of long-term debt is as follows:

January 31,

2004

2003

Receivable-backed PL Term, 4.82%,

In 2002 and 2003, we received $4,931 and $2,341 for the sale of two

interest rate swaps. The first swap converted our $300 million, 8.95% fixed-

rate debt to variable rate, while the second swap converted our $250

million, 5.63% fixed-rate debt to variable rate. The cash proceeds from

each of the swaps will be recognized as interest income evenly over the

due 2006

$300,000

remaining life of the related debt.

Senior debentures, 6.95%,

due 2028

Senior notes, 5.625%, due 2009

Senior notes, 8.95%, due 2005

Notes payable, 6.7%, due 2005

Mortgage payable, 7.68%, due 2020

Other

Fair market value

of interest rate swap

Total long-term debt

Less current portion

300,000

250,000

196,770

97,500

79,204

18,860

300,000

250,000

300,000

100,000

79,618

17,753

(8,091)

1,234,243

(6,833)

3,224

1,350,595

(5,545)

Total due beyond one year

$1,227,410

$ 1,345,050

The fair value of long-term debt, including current maturities, using

quoted market prices of the same or similar issues, was approximately

$1,336,000 and $1,443,000 at January 31, 2004 and 2003.

We own a 49% interest in a limited partnership which constructed a

new corporate office building in which we are the primary occupant.

During 2002, the limited partnership refinanced its construction loan

obligation with a mortgage secured by the property. This mortgage will

be amortized as we make rental payments to the limited partnership

over the life of the mortgage.

Required principal payments on long-term debt, excluding capital lease

obligations, the fair market value of the interest rate swap and $196,770

Year to date we have purchased $103,230 of our 8.95% senior notes and

of debt repurchased in the first quarter of 2004, are as follows:

$2,500 of our 6.7% medium-term notes for a total cash payment of

$120,760. Approximately $14,300 of expense has been recorded during

the year related to these purchases.

During the first quarter of 2004, we retired $196,770 of our 8.95% senior

notes for a total cash payment of $218,554. Approximately $20,781 of expense

has been recorded in the first quarter of 2004. This expense and the

Year ended January 31,

2005

2006

2007

2008

2009

related interest savings is expected to reduce first quarter earnings per

Thereafter

share by approximately $0.08 per share.

To manage our interest rate risk, we had outstanding at January 31, 2004

and 2003, interest rate swaps with a fair value of ($8,091) and $3,224

recorded in other liabilities and other assets, respectively. All interest rate

swaps were designated as fully effective fair value hedges. Our current

swap has a $250 million notional amount, expiring in 2009. Under the

agreement, we received a fixed rate of 5.63% and paid a variable rate based

on LIBOR plus a margin of 2.3% set at six-month intervals (3.945% at

January 31, 2004).

5,420

101,613

303,800

3,677

253,564

366,253

NORDSTROM, INC. and SUBSIDIARIES
[ 39 ]

notes to consolidated financial statements

Note 14: Leases

Note 15: Stock-Based Compensation

We lease land, buildings and equipment under noncancelable lease

Stock Option Plan: We have a stock option plan ("the Plan") under which

agreements with expiration dates ranging from 2004 to 2080. Certain leases

stock options, performance share units and restricted stock are granted

include renewal provisions at our option. Most of the leases provide for

to key employees. Options vest over periods ranging from four to eight

additional rent payments based upon specific percentages of sales and

years, and expire ten years after the date of grant.

require us to pay for certain common area maintenance and other costs.

Performance Share Units: In 2003, 2002 and 2001 we granted 113,904,

Fiscal Year

Minimum rent:

Store locations

Offices, warehouses

2003

2002

2001

190,396 and 273,864 performance share units, which will vest over three

$24,071

$19,609

$26,951

performance share units vested at 125% of their value as of January 31,

years if certain financial goals are met. For the first time, 227,881

2004. Employees do not pay any monetary consideration upon vesting and

and equipment

23,158

27,610

20,144

may elect to receive common stock or cash. At January 31, 2004 and 2003,

Percentage rent:

Store locations

Total rent expense

7,920

7,776

8,047

benefits for the 2001-2003 grants. As of January 31, 2004 and 2003,

$55,149

$54,995

$55,142

284,805 and 415,640 units were outstanding.

$18,657 and $4,441 were recorded in accrued salaries, wages and related

Future minimum lease payments as of January 31, 2004 are as follows:

At January 31, 2004, approximately 4,166,239 shares are reserved for

Year ended January 31,

2005

2006

2007

2008

2009

Thereafter

Total minimum lease payments

Less amount representing interest

Present value of net minimum lease

Capital
Leases

$2,398

1,932

1,564

1,565

7,167

16,191

4,704

payments

$11,487

Operating
Leases

$73,265

69,522

65,216

61,140

58,332

390,731

$718,206

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 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

units. Stock-based compensation expense for 2003, 2002 and 2001 was

$17,894, $1,130 and $3,414.

NORDSTROM, INC. and SUBSIDIARIES
[ 40 ]

notes to consolidated financial statements

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

Fiscal Year

2003

2002

2001

Outstanding, beginning of year

Granted

Exercised

Cancelled

Expired

Outstanding, end of year

Options exercisable at end of year

Weighted-
Average
Exercise
Price

$25

10,763,893

$24

$27

2,423,966

(350,004)

(948,788)

(2,722)

11,886,345

5,724,629

$24

$25

$26

Weighted-
Average
Exercise
Price

$27

$24

$27

8,873,342

3,288,826

(186,165)

(1,151,884)

(60,226)

10,763,893

4,533,281

11,886,345

2,714,503

(2,259,771)

(655,737)

(1,488)

11,683,852

5,356,810

The following table summarizes information about stock options outstanding for the Nordstrom, Inc. Plan as of January 31, 2004:

Range of
Exercise Prices

$15 – $22

6,209,577

$23 – $32

3,820,685

$33 – $40

1,653,590

11,683,852

Options Outstanding

Options Exercisable

Weighted
Average
Remaining
Contractual
Life (Years)

Weighted-
Average
Exercise
Price

$19

$24

Weighted-
Average
Exercise
Price

$20

$27

2,054,663

1,842,619

1,459,528

5,356,810

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

Fiscal Year

2002

2001

Outstanding, beginning of year

Granted

Exercised

Cancelled

Outstanding, end of year

Options exercisable at end of year

Weighted-
Average
Exercise
Price

$1.73

4,174,950

$1.72

1.92

—

1.73

—

41,500

—

(691,642)

3,524,808

1,241,104

1.92

—

1.68

$1.73

$1.68

3,524,808

112,500

—

(3,637,308)

—

NORDSTROM, INC. and SUBSIDIARIES
[ 41 ]

notes to consolidated financial statements

Nonemployee Director Stock Incentive Plan

Grants To Executive Officers

The Nonemployee Director Stock Incentive Plan authorizes the grant of

Options and performance share units granted to our president and the other

stock awards to nonemployee directors. These awards may be deferred

four most highly compensated individuals were 9.3%, 8.3% and 7.9% as

or issued in the form of restricted or unrestricted stock, nonqualified

a percent of total options and performance share units granted in 2003,

stock options or stock appreciation rights. We issued 15,849 and 18,981

2002 and 2001.

shares of common stock for a total expense of $318 and $405 for the years

ended January 31, 2004 and 2003. An additional 10,672 shares were

SFAS No. 123

deferred for a total expense of $183 in 2003. At January 31, 2004, we had

404,498 remaining shares available for issuance.

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 20) for a total cash payment of $11,802. At

January 31, 2004 and 2003, there are no outstanding options or warrants

for Nordstrom.com.

The following table illustrates the effect on net income and earnings per

share if we had applied the fair value recognition provisions of SFAS No.

123, “Accounting for Stock-Based Compensation.”

Fiscal Year

2003

2002

2001

Net earnings, as reported

$242,841

$90,224

$124,688

Add: stock-based compensation

expense included in reported

net income, net of tax

9,898

2,240

2,598

Deduct: stock-based compensation

expense determined under fair

value, net of tax

(23,749)

(21,914)

(19,850)

Employee Stock Purchase Plan

Pro forma net earnings

$228,990

$70,550

$107,436

Earnings per share:

Basic — as reported

Diluted — as reported

Basic — pro forma

Diluted — pro forma

$1.78

$1.76

$1.68

$1.67

$0.67

$0.66

$0.52

$0.93

$0.80

We offer an Employee Stock Purchase Plan as a benefit to our employees.

Employees participate through payroll deductions in amounts related to

their base compensation. At the end of each offering period, the participants

purchase shares at 85% of the lower of the fair market value at the

beginning or the end of the offering period, usually six months. We issued

647,480, 596,351 and 541,677 shares under this plan in 2003, 2002 and 2001.

As of January 31, 2004 and 2003, we had payroll deductions totaling

$3,728 and $3,000 for the purchase of shares. We have 1,548,650 shares

available for issuance at January 31, 2004.

Pacesetter Stock Plan

We granted 9,528, 10,653 and 6,687 shares of common stock to key

employees under the Pacesetters stock plan in 2003, 2002 and 2001. 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 $164, $240 and $130 was

recorded in 2003, 2002 and 2001. An additional 1,527 shares were deferred

for a related expense of $26 in 2003. As of January 31, 2004, there are

no remaining shares available for issuance.

NORDSTROM, INC. and SUBSIDIARIES
[ 42 ]

notes to consolidated financial statements

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

Fiscal Year

2003

2002

2001

options at grant date based on the following factors:

Noncash activity:

Reclassification

of new stores

Corporate office construction

$753

1,880

$61,792

$75,555

(3,951)

36,120

Supplementary cash flow information includes the following:

Fiscal Year

2003

2002

2001

Cash paid during the year for:

Interest (net of

Fiscal Year

Stock Options:

Risk-free interest rate

Volatility

Dividend yield

Expected life in years

Weighted-average fair value

at grant date

ESPP:

Risk-free interest rate

Volatility

Dividend yield

Expected life in years

Weighted-average fair value

2003

2002

2001

2.9%

71.0%

1.5%

5.0

4.3%

69.0%

1.5%

5.0

4.8%

68.0%

1.3%

5.0

1.1%

71.0%

1.5%

0.5

1.9%

69.0%

1.5%

0.5

4.3%

68.0%

1.3%

0.5

at grant date

For options issued in 2001 under the Nordstrom.com plans, we used a risk-

free interest rate of 4.5%, volatility of 127%, dividend yield of 0% and

$10

$14

$10

capitalized interest)

$96,824

121,271

$84,898

$77,025

48,386

80,689

Income taxes

Note 18: Segment Reporting

We have four segments: Retail Stores, Credit Operations, 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

expected life of 4 years to calculate the fair value at grant date of $1.56.

sold in our retail stores.

Note 16: Accumulated Other Comprehensive Earnings

The following table shows the components of accumulated other

comprehensive earnings:

The Credit Operations segment revenues consist primarily of finance

charges earned through issuance of the Nordstrom private label and

VISA credit cards.

January 31,

2004

Foreign currency translation

$15,783

2003

$8,404

SERP adjustment

(11,679)

(6,511)

2002

$649

—

Securitization fair value

The Catalog/Internet segment generates revenues from direct mail

catalogs and the Nordstrom.com website.

During 2003, Nordstrom Direct, which contains our Internet and catalog

business, was consolidated into Nordstrom, Inc. as a division. As a result

adjustment

4,764

807

1,757

of this change, the Internet and catalog segment will be presented as part

Total accumulated other

of our retail stores segment starting in 2004.

comprehensive earnings

$8,868

$2,700

$2,406

Note 17: 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:

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
[ 43 ]

notes to consolidated financial statements

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

Fiscal Year 2003

Retail
Stores

Credit
Operations

Catalog/
Internet

Corporate
and Other

Eliminations

Total

Revenues from external customers (b)

$6,199,023

—

$292,650

Service charge income

Intersegment revenues

Interest expense, net

Depreciation and amortization

Earnings before taxes

Net earnings (loss)

Assets (a)(b)

Capital expenditures

Fiscal Year 2002

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

Fiscal Year 2001

—

$142,773

25,652

697

224,018

582,737

355,432

2,686,927

242,331

34,276

22,122

2,838

17,473

10,658

878,541

1,104

—

(105)

5,052

8,625

5,261

93,070

4,729

—

$68,238

18,775

(210,694)

(128,510)

807,150

10,150

—

$6,491,673

142,773

$(59,928)

—

90,952

250,683

398,141

242,841

4,465,688

258,314

Retail
Stores

Credit
Operations

Catalog/
Internet

Corporate
and Other

Eliminations

Total

—

$133,587

29,737

191

201,861

450,476

261,439

2,686,252

230,864

32,783

23,582

3,212

21,194

12,929

753,377

2,058

—

972

4,977

(21,926)

(13,375)

89,512

4,507

—

$57,176

23,881

(254,120)

(170,769)

582,766

90,737

—

$5,975,076

133,587

$(62,520)

—

81,921

233,931

195,624

90,224

4,111,907

328,166

Retail
Stores

Credit
Operations

Catalog/
Internet

Corporate
and Other

Eliminations

Total

Revenues from external customers (b)

$5,721,517

—

$253,559

Revenues from external customers (b)

$5,370,761

—

$263,369

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

—

$131,267

20,192

994

182,960

4,630

402,313

245,313

2,570,375

379,819

25,514

25,013

2,253

—

10,652

6,495

699,454

2,054

—

5,498

—

(8,153)

(4,971)

69,457

2,554

—

$48,954

22,378

—

(200,324)

(122,149)

720,964

11,621

—

$5,634,130

131,267

$(45,706)

—

75,038

213,089

4,630

204,488

124,688

4,060,250

396,048

(a) Segment assets in Corporate and Other include unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and

equipment, and deferred tax assets.

(b) Includes foreign sales of $92,524, $82,126 and $78,210 for the years ended January 31, 2004, 2003 and 2002, and assets of $234,459, $219,861

and $198,689 as of January 31, 2004, 2003 and 2002.

NORDSTROM, INC. and SUBSIDIARIES
[ 44 ]

notes to consolidated financial statements

Note 19: Restructurings and Impairments

Fiscal Year

In 2002, we recognized a charge of $15,570 to write-down an IT investment

in a supply chain tool intended to support our private label division. A strategic

decision was made not to expand our private label division to support an

external wholesale business, resulting in impairment to an in-process software

project designed to support this activity. 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.

In 2001, we streamlined our operations through a reduction in workforce

of approximately 2,600 employees. As a result, we recorded a restructuring

charge of $1,791 in selling, general and administrative expenses relating

Excess of the purchase price over the

fair market value of the preferred stock

Nordstrom.com option/warrant buyback expense

Professional fees incurred

Total

Note 21: Self Insurance

2002

$40,389

10,432

2,347

$53,168

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

workers' compensation and general liability. We record estimates

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

estimates are based on analysis of historical data and independent

to severance for approximately 195 employees. Personnel affected were

actuarial estimates.

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

The following table presents the activity and balances of the reserves

Workers Compensation – we have a deductible per claim of $1,000 or less

and no policy limits. Our workers compensation reserve is $57,400 at

established in connection with the restructuring charges:

January 31, 2004.

Fiscal Year

Beginning balance

Additions

Payments

Adjustments

Ending balance

Note 20: Nordstrom.com

2003

$ —

—

2002

$ —

—

$ —

2001

$178

1,791

(1,890)

(79)

$ —

General Liability – we have a deductible per claim of $1,000 or less and

a policy limit up to $150,000. Our general liability reserve is $10,300 at

January 31, 2004.

Health and Welfare – We are self insured for our health and welfare

coverage and do not have stop-loss coverage. Participants contribute to

the cost of their coverage and are subject to certain plan limits and

deductibles. Our health and welfare reserve is $10,000 at January 31, 2004.

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

Note 22: Vulnerability Due to Certain Concentrations

Inc. series C preferred stock in fulfillment of our put agreement with the

minority interest holders of Nordstrom.com LLC. 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 $42,736. No tax benefit

was recognized, as we do not 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.

In July 2002, we purchased 3,608,322 Nordstrom.com options and 470,000

warrants for $11,802. We recognized $10,432 of expense related to the

purchase of these options and warrants.

The following table presents the charges associated with the minority interest

purchase and reintegration costs:

Approximately 29% of our retail square footage is located in the state

of California. At January 31, 2004, the net book value of property located

in California was approximately $284,000. We carry earthquake insurance

in all states with a $50,000 deductible and a $50,000 payout limit

per occurrence.

At January 31, 2004 and 2003, approximately 37% and 38% 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.

NORDSTROM, INC. and SUBSIDIARIES
[ 45 ]

notes to consolidated financial statements

Note 23: Contingent Liabilities

will grant final approval of the settlement is scheduled for June 8, 2004.

We have been named in various lawsuits and intend to vigorously defend

ourselves. 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.

If approved by the Court, the settlement will result in the plaintiffs' claims

and the claims of all class members being dismissed, with prejudice, in

their entirety. In connection with the settlement agreement, the defendants

will provide class members with certain free products and pay the plaintiffs’

attorneys’ fees. Our share of the cost of the settlement will not have a material

Cosmetics. We were originally named as a defendant along with other

adverse effect on our financial condition.

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" or “Department

Store” 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.

We entered into a settlement agreement with the plaintiffs and the other

defendants on July 16, 2003. In furtherance of the settlement agreement,

the case was refiled in the United States District Court for the Northern

District of California on behalf of a class of all persons who currently reside

in the United States and who purchased “Department Store” cosmetics

from the defendants during the period May 29, 1994 through July 16,

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

of 30 defendants in Washington Public Trust Advocates, ex rel., et al. v. City

of Spokane, et al., filed in the Spokane County Superior Court, State of

Washington. Plaintiff is a not-for-profit corporation bringing claims on

behalf of the City of Spokane and the Spokane Parking Public Development

Authority. The claims relate to the River Park Square Mall and Garage

Project in Spokane, Washington (the "Project"), which includes a Nordstrom

store. The portion of the complaint applicable to us seeks to recover

from us the amount of a Department of Housing and Urban Development

(“HUD”) 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. On May 20, 2003, the Washington Court of Appeals affirmed

2003. The Court has given preliminary approval to the settlement. A

our dismissal.

summary notice of class certification and the terms of the settlement has

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

been disseminated to class members. A hearing on whether the Court

No material liability is expected.

NORDSTROM, INC. and SUBSIDIARIES
[ 46 ]

notes to consolidated financial statements

Note 24: Selected Quarterly Data (unaudited)

Fiscal Year 2003

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

Fiscal Year 2002

Net sales

Gross profit

Minority interest purchase and reintegration costs

(Loss)/earnings before cumulative effect of

accounting change

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

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Total

$1,343,539

$1,794,975

$1,420,610

$1,932,549

$6,491,673

455,081

44,455

27,155

.20

.10

18.61

15.00

602,780

108,071

65,871

.48

.10

21.75

15.78

509,296

74,569

45,469

.33

.10

31.23

20.81

710,561

171,046

104,346

.76

.74

.11

40.75

29.76

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2,277,718

398,141

242,841

1.78

1.76

.41

40.75

15.00

Total

$1,245,761

$1,655,528

$1,323,201

$1,750,586

$5,975,076

422,953

(42,047)

(11,213)

(13,359)

(24,572)

(.18)

.09

26.29

22.15

551,960

(11,121)

451,988

—

582,904

2,009,805

—

(53,168)

36,335

—

36,335

.27

.09

26.87

16.58

18,427

—

18,427

.14

.10

21.93

15.06

60,034

—

60,034

.44

.10

22.39

17.87

103,583

(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.

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

NORDSTROM, INC. and SUBSIDIARIES
[ 47 ]

eleven-year statistical summary

Dollars in thousands except square footage and per share amounts

Fiscal Year

Financial Position

Customer accounts receivable, net

Retained interest in accounts receivable

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

Selling, general, and administrative

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

Stores

Total square footage

2003

2002

2001

2000

$594,900

272,294

901,623

2,455,430

1,049,549

1,405,881

2.34

1,724,273

1,234,243

.4304

1,634,009

138,376,669

11.81

4,465,688

6,491,673

2,277,718

(1,943,715)

334,003

(90,952)

—

155,090

398,141

(155,300)

242,841

—

242,841

1.78

1.76

.41

4.3%

3.74%

16.15%

327

179

$606,861

124,543

953,112

2,088,028

885,145

1,202,883

2.36

1,761,544

1,350,595

.4960

1,372,864

$621,491

55,659

888,172

2,057,111

950,138

1,106,973

2.17

1,761,082

1,429,271

.5206

1,316,245

$649,504

50,183

945,687

1,812,982

950,568

862,414

1.91

1,599,938

1,112,296

.4922

1,233,445

135,444,041

134,468,608

133,797,757

10.14

4,111,907

9.79

9.22

4,051,179

3,608,503

5,975,076

2,009,805

5,634,130

1,871,376

5,528,537

1,879,021

(1,818,381)

(1,725,740)

(1,747,048)

191,424

(81,921)

—

(53,168)

139,289

195,624

(92,041)

103,583

(13,359)

90,224

.67

.66

.38

1.4%

1.51%

6.71%

319

166

145,636

(75,038)

—

133,890

204,488

(79,800)

124,688

—

124,688

.93

.36

(2.9%)

2.21%

9.78%

321

131,973

(62,698)

(32,857)

—

130,600

167,018

(65,100)

101,918

—

101,918

.78

.35

.3%

1.84%

8.43%

342

156

140

19,138,000

18,428,000

17,048,000

16,056,000

NORDSTROM, INC. and SUBSIDIARIES
[ 48 ]

eleven-year statistical summary

1999

1998

1997

1996

1995

1994

1993

$557,190

38,830

797,845

1,564,648

866,509

698,139

1.81

1,429,492

804,982

.4249

1,185,614

$560,564

7,097

750,269

1,668,689

794,490

874,199

2.10

1,378,006

868,234

.4214

1,300,545

$621,704

20,158

826,045

1,613,492

979,031

634,461

1.65

1,252,513

420,865

.3194

1,458,950

$661,332

31,791

719,919

1,549,819

795,321

754,498

1.95

1,152,454

380,632

.2720

1,457,084

$874,103

$655,715

$565,151

—

626,303

1,612,776

833,443

779,333

1.94

1,103,298

439,943

.3232

1,408,053

—

627,930

1,397,713

693,015

704,698

2.02

984,195

373,910

.2575

—

585,602

1,314,914

631,064

683,850

2.08

845,596

438,574

.2934

1,330,437

1,153,594

132,279,988

142,114,167

152,518,104

159,269,954

162,226,288

164,488,196

164,118,256

8.96

3,062,081

9.15

9.57

3,103,689

2,890,664

9.15

2,726,495

8.68

2,732,619

8.09

7.03

2,396,783

2,177,481

5,149,266

1,789,506

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

(1,523,836)

(1,429,837)

(1,338,235)

(1,232,860)

(1,136,069)

(1,029,856)

265,670

(50,396)

—

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)

—

116,783

110,414

110,907

135,331

134,179

98,311

88,509

332,057

(129,500)

202,557

—

202,557

1.47

1.46

.32

(1.1%)

3.93%

16.29%

350

104

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

—

140,890

.86

.17

2.7%

3.92%

12.85%

383

14,487,000

13,593,000

12,614,000

11,754,000

10,713,000

9,998,000

9,282,000

NORDSTROM, INC. and SUBSIDIARIES
[ 49 ]

Square
Footage

Year
Store
Opened

Location

Store Name

Square
Footage

Year
Store
Opened

retail store facilities open at january 31, 2004

Location

Store Name

SOUTHWEST GROUP
Arizona
Chandler

Scottsdale
California
Arcadia

Brea

Canoga Park

Cerritos

Chandler Fashion Center

Scottsdale Fashion Square

Santa Anita

Brea Mall

Topanga

Los Cerritos Center

Corte Madera

The Village at Corte Madera

Costa Mesa

South Coast Plaza

Escondido

Glendale

Los Angeles

North County

Glendale Galleria

The Grove

Westside Pavilion

Mission Viejo

The Shops at Mission Viejo

Montclair

Palo Alto

Montclair Plaza

Stanford Shopping Center

Pleasanton

Stoneridge Mall

Redondo Beach

South Bay Galleria

Riverside

Roseville

The Galleria at Tyler in Riverside

Galleria at Roseville

Sacramento

Arden Fair

San Diego

Fashion Valley

Horton Plaza

University Towne Centre

San Francisco

San Francisco Shopping Centre

San Francisco

Stonestown Galleria

San Jose

San Mateo

Santa Ana

Valley Fair

Hillsdale Shopping Center

MainPlace/Santa Ana

Santa Barbara

Paseo Nuevo in Santa Barbara

Broadway Plaza

149,000

235,000

151,000

195,000

154,000

122,000

116,000

235,000

156,000

147,000

120,000

150,000

172,000

134,000

187,000

173,000

161,000

164,000

149,000

190,000

220,000

151,000

130,000

350,000

174,000

232,000

149,000

169,000

186,000

193,000

2001

1998

1994

1979

1984

1981

1985

1978

1986

1983

2002

1985

1999

1986

1984

1990

1985

1991

2000

1989

1981

1985

1984

1988

1987

1982

1987

1990

1984

Walnut Creek
Nevada
Las Vegas

EAST COAST GROUP
Connecticut
Farmington
Florida
Boca Raton

Fashion Show

207,000

2002

Westfarms

189,000

1997

Town Center at Boca Raton

Coral Gables

Village of Merrick Park

Orlando

Tampa

The Florida Mall

International Plaza

Wellington

The Mall at Wellington Green

193,000

212,000

174,000

172,000

127,000

2000

2002

2001

2003

Georgia
Atlanta

Buford
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
Virginia
Arlington

Dulles

McLean

Norfolk

Skokie
Indiana
Indianapolis
Kansas
Overland Park
Michigan
Troy
Minnesota
Bloomington
Missouri
Des Peres

NORDSTROM, INC. and SUBSIDIARIES
[ 50 ]

Perimeter Mall

Mall of Georgia

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

243,000

172,000

162,000

225,000

173,000

205,000

204,000

174,000

282,000

188,000

241,000

219,000

1998

2000

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

Richmond

Short Pump Town Center

CENTRAL STATES GROUP
Illinois
Chicago

Michigan Avenue

Oak Brook

Oakbrook Center

Schaumburg

Woodfield Shopping Center

Old Orchard Center

241,000

148,000

253,000

166,000

128,000

274,000

249,000

215,000

209,000

1989

2002

1988

1999

2003

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

retail store facilities open at january 31, 2004

Location

Store Name

Square
Footage

Year
Store
Opened

Location

Store Name

Square
Footage

Year
Store
Opened

Beachwood Place

Easton Town Center

Barton Creek Square

Dallas Galleria

Stonebriar Centre

The Galleria

North East Mall

231,000

174,000

150,000

249,000

149,000

226,000

149,000

1997

2001

2003

1996

2000

2003

2001

Anchorage

97,000

1975

Ohio
Beachwood

Columbus
Texas

Austin

Dallas

Frisco

Houston

Hurst

NORTHWEST GROUP
Alaska
Anchorage
Colorado
Broomfield

Littleton
Oregon
Portland

Portland

Salem

Tigard
Utah
Murray

Orem

Salt Lake City
Washington
Bellevue

FlatIron Crossing

Park Meadows

Clackamas Town Center

Downtown Portland

Lloyd Center

Salem Center

Washington Square

Fashion Place

University Mall

Crossroads Plaza

Bellevue Square

Lynnwood

Alderwood

Seattle

Spokane

Tacoma

Tukwila

Vancouver

OTHER

Downtown Seattle

Northgate

Spokane

Tacoma Mall

Southcenter

Vancouver

Honolulu, HI

Ward Centre Shoes

Façonnable

U.S. (5 boutiques)

International (31 boutiques)

NORDSTROM RACK GROUP

Chandler, AZ

Chandler Festival Rack

Phoenix, AZ

Last Chance

Scottsdale, AZ

Scottsdale Promenade Rack

Brea, CA

Chino, CA

Colma, CA

Brea Union Plaza Rack

Chino Spectrum Towne Center Rack

38,000

Colma Rack

Costa Mesa, CA

Metro Pointe at South Coast Rack

172,000

245,000

121,000

174,000

150,000

71,000

189,000

110,000

122,000

140,000

285,000

151,000

383,000

122,000

137,000

134,000

170,000

71,000

16,000

58,000

92,000

37,000

48,000

38,000

45,000

31,000

50,000

2000

1996

1981

1966

1963

1980

1974

1981

2002

1980

1967

1979

1963

1965

1974

1966

1968

1977

1997

2000

1992

2000

1999

1987

1983

Fresno, CA

Villaggio Retail Center Rack

Glendale, CA

Glendale Fashion Center Rack

Long Beach, CA

Long Beach CityPlace Rack

Los Angeles, CA

Ontario, CA

Oxnard, CA

The Promenade at Howard
Hughes Center Rack

Ontario Mills Mall Rack

Esplanade Shopping Center Rack

Roseville, CA

Creekside Town Center Rack

Sacramento, CA

Howe `Bout Arden Center Rack

San Diego, CA

Mission Valley Rack

32,000

36,000

33,000

41,000

40,000

38,000

36,000

54,000

57,000

San Francisco, CA

555 Ninth Street Retail Center Rack

43,000

San Jose, CA

Westgate Mall Rack

San Leandro, CA

San Leandro Rack

Woodland Hills, CA

Topanga Rack

Broomfield, CO

Flatiron Marketplace Rack

Littleton, CO

Meadows Marketplace Rack

Sunrise, FL

Buford, GA

Honolulu, HI

Chicago, IL

The Oasis at Sawgrass Mills Rack

Mall of Georgia Crossing Rack

Victoria Ward Center Rack

The Shops at State and
Washington Rack

Northbrook, IL

Northbrook Rack

48,000

44,000

64,000

36,000

34,000

27,000

44,000

34,000

41,000

40,000

Oak Brook, IL

The Shops at Oak Brook Place Rack

42,000

Schaumburg, IL

Woodfield Rack

Gaithersburg, MD

Gaithersburg Rack

Towson, MD

Towson Rack

Grand Rapids, MI

Centerpointe Mall Rack

Troy, MI

Troy Marketplace Rack

Bloomington, MN

Mall of America Rack

Las Vegas, NV

Silverado Ranch Plaza Rack

Westbury, NY

The Mall at the Source Rack

Beaverton, OR

Tanasbourne Town Center Rack

Clackamas, OR

Clackamas Promenade Rack

Portland, OR

Downtown Portland Rack

45,000

49,000

31,000

40,000

41,000

33,000

48,000

53,000

28,000

19,000

King of Prussia, PA

The Overlook at King of Prussia Rack 45,000

Hurst, TX

Plano, TX

The Shops at North East Mall Rack

40,000

Preston Shepard Place Rack

Salt Lake City, UT

Sugarhouse Rack

Dulles, VA

Dulles Town Crossing Rack

Woodbridge, VA

Potomac Mills Rack

Auburn, WA

SuperMall of the Great
Northwest Rack

Bellevue, WA

Factoria Mall Rack

Lynnwood, WA

Golde Creek Plaza Rack

Seattle, WA

Downtown Seattle Rack

Spokane, WA

NorthTown Mall Rack

39,000

31,000

41,000

46,000

48,000

46,000

38,000

42,000

28,000

2002

2000

2002

2001

2002

2001

1999

1985

2001

1998

1990

1984

2001

1998

2003

2000

2003

1996

2000

1994

1999

1992

2001

2000

1998

2001

1997

1998

1983

1986

2002

2000

1991

2001

1990

1995

1997

1985

1987

2000

NORDSTROM, INC. and SUBSIDIARIES
[ 51 ]

officers of the corporation and executive team

Jammie Baugh, 51
Executive Vice President,
Human Resources, Full-line Stores

Laurie M. Black, 45
Executive Vice President
and President, Nordstrom Rack
Member of Executive Team

Mark S. Brashear, 42
Executive Vice President
and President, Façonnable
Member of Executive Team

James H. Bromley, 40
Executive Vice President and
President, Nordstrom Direct
Member of Executive Team

Dale Cameron, 55
Executive Vice President,
Corporate Merchandise Manager,
Cosmetics, Full-line Stores

Robert E. Campbell, 48
Vice President,
Finance, Full-line Stores

Linda Toschi Finn, 56
Executive Vice President, Marketing
Member of Executive Team

Bonnie M. Junell, 47
Vice President,
Corporate Merchandise Manager,
Point of View and Narrative,
Full-line Stores

Kevin T. Knight, 48
Executive Vice President,
Chairman and Chief Executive
Officer of Nordstrom fsb,
President of Nordstrom Credit, Inc.
Member of Executive Team

Michael G. Koppel, 47
Executive Vice President and
Chief Financial Officer
Member of Executive Team

Llynn (Len) A. Kuntz, 43
Executive Vice President,
WA/AK Regional Manager,
Full-line Stores

David P. Lindsey, 54
Vice President, Store Planning

Daniel F. Little, 42
Executive Vice President and
Chief Administrative Officer
Member of Executive Team

David L. Mackie, 55
Vice President, Real Estate,
and Corporate Secretary

Robert J. Middlemas, 47
Executive Vice President,
Central States Regional Manager,
Full-line Stores

Jack H. Minuk, 49
Vice President,
Corporate Merchandise Manager,
Women's Shoes, Full-line Stores

Blake W. Nordstrom, 43
President
Member of Executive Team

Bruce A. Nordstrom, 70
Chairman of the Board of Directors

Erik B. Nordstrom, 40
Executive Vice President,
Full-line Stores
Member of Executive Team

Peter E. Nordstrom, 42
Executive Vice President and
President, Full-line Stores
Member of Executive Team

James R. O'Neal, 45
Executive Vice President
and President,
Nordstrom Product Group
Member of Executive Team

Suzanne R. Patneaude, 57
Vice President,
Corporate Merchandise Manager,
Designer/Savvy, Full-line Stores

R. Michael Richardson, 47
Vice President and
Chief Information Officer

Karen Bowman Roesler, 48
Vice President, Marketing
Nordstrom Credit Group

K. C. (Karen) Shaffer, 50
Executive Vice President,
Nordstrom Rack
NW Rack Regional Manager

Delena M. Sunday, 43
Executive Vice President,
Human Resources and Diversity Affairs
Member of Executive Team

Geevy S. K. Thomas, 39
Executive Vice President,
South Regional Manager,
Full-line Stores

NORDSTROM, INC. and SUBSIDIARIES
[ 52 ]

board of directors and committees

shareholder information

AUDIT COMMITTEE
Enrique Hernandez, Jr., Chair
Jeanne P. Jackson
Alfred E. Osborne, Jr.
William D. Ruckelshaus
Alison A. Winter

COMPENSATION COMMITTEE
Enrique Hernandez, Jr.
Jeanne P. Jackson
Alfred E. Osborne, Jr.
William D. Ruckelshaus, Chair
Alison A. Winter

CORPORATE GOVERNANCE
AND NOMINATION COMMITTEE
Enrique Hernandez, Jr.
Alfred E. Osborne, Jr., Chair
William D. Ruckelshaus

EXECUTIVE COMMITTEE
Enrique Hernandez, Jr.
John A. McMillan
Bruce A. Nordstrom
John N. Nordstrom

FINANCE COMMITTEE
D. Wayne Gittinger
Jeanne P. Jackson
John A. McMillan
John N. Nordstrom
Alison A. Winter, Chair

BOARD OF DIRECTORS
D. Wayne Gittinger, 71
Partner,
Lane Powell Spears Lubersky LLP
Seattle, Washington

Enrique Hernandez, Jr., 48
Lead Director
President and CEO,
Inter-Con Security Systems, Inc.
Pasadena, California

Jeanne P. Jackson, 52
Founder and General Partner,
MSP Capital
Newport, California

John A. McMillan, 72
Retired Co-Chairman
of the Board of Directors
Seattle, Washington

Bruce A. Nordstrom, 70
Chairman of the Board of Directors
Seattle, Washington

John N. Nordstrom, 67
Retired Co-Chairman
of the Board of Directors
Seattle, Washington

Alfred E. Osborne, Jr., Ph.D., 59
Senior Associate Dean
UCLA Anderson Graduate School
of Management
Los Angeles, California

William D. Ruckelshaus, 71
A Strategic Director,
Madrona Venture Group
Seattle, Washington

Alison A. Winter, 57
President, Northeast Personal
Financial Services,
The Northern Trust Corporation
Chicago, Illinois

Shown on back cover: Faith Vergara, Alderwood, Lynnwood, Washington

NORDSTROM, INC. and SUBSIDIARIES
[ 53 ]

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 25, 2004 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, 2004 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
Additional shareholder information, including
Nordstrom’s Corporate Governance Guidelines and
Code of Business Conduct and Ethics, is available
online at www.nordstrom.com. In addition,
the Company is always willing to discuss
matters of concern to shareholders.
(206) 303-3200
invrelations@nordstrom.com

CERTIFICATIONS
We have filed the required certifications under Section
302 of the Sarbanes-Oxley Act of 2002 regarding the
quality of our public disclosures as Exhibits 31.1 and
31.2 to our annual report on Form 10-K for the year
ended January 31, 2004. After our 2004 Annual Meeting
of Shareholders, we intend to file with the New York
Stock Exchange the CEO certification regarding our
compliance with the NYSE's corporate governance
listing standards as required by NYSE Rule 303A.12(a).