Nordstrom, Inc.
ANNUAL REPORT2008
our scorecard
Dollars in millions except per share and per square foot amounts
Fiscal Year
Net sales
Earnings before income taxes
Net earnings
Earnings per basic share
Earnings per diluted share
Cash dividends paid per share
(cid:27)(cid:43)(cid:42)(cid:44)
(cid:27)(cid:43)(cid:42)(cid:44)
(cid:27)(cid:43)(cid:41)(cid:42)
(cid:27)(cid:43)(cid:41)(cid:42)
(cid:27)(cid:42)(cid:47)(cid:47)
(cid:27)(cid:42)(cid:47)(cid:47)
(cid:27)(cid:42)(cid:48)(cid:41)
(cid:27)(cid:42)(cid:48)(cid:41)
(cid:27)(cid:42)(cid:45)(cid:48)
(cid:27)(cid:42)(cid:45)(cid:48)
2008
$8,272
648
401
1.85
1.83
0.64
2007
$8,828
1,173
715
2.92
2.88
0.54
% Change
(6.3)
(44.8)
(43.9)
(36.6)
(36.5)
18.5
(cid:42)(cid:45)(cid:37)(cid:40)(cid:28)
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(cid:42)(cid:46)(cid:37)(cid:44)(cid:28)
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(cid:42)(cid:43)(cid:37)(cid:44)(cid:28)
(cid:41)(cid:47)(cid:37)(cid:42)(cid:28)
(cid:41)(cid:47)(cid:37)(cid:42)(cid:28)
(cid:41)(cid:46)(cid:37)(cid:41)(cid:28) (cid:41)(cid:45)(cid:37)(cid:47)(cid:28) (cid:41)(cid:45)(cid:37)(cid:46)(cid:28)
(cid:41)(cid:46)(cid:37)(cid:41)(cid:28) (cid:41)(cid:45)(cid:37)(cid:47)(cid:28) (cid:41)(cid:45)(cid:37)(cid:46)(cid:28)
(cid:41)(cid:47)(cid:37)(cid:47)(cid:28)
(cid:41)(cid:47)(cid:37)(cid:47)(cid:28)
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(cid:41)(cid:44)(cid:37)(cid:47)(cid:28)
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(cid:41)(cid:46)(cid:37)(cid:40)(cid:28)
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(cid:41)(cid:44)(cid:37)(cid:47)(cid:28)
(cid:41)(cid:43)(cid:37)(cid:46)(cid:28)
(cid:41)(cid:44)(cid:37)(cid:44)(cid:28)
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(cid:41)(cid:39)(cid:39)(cid:44)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:41)(cid:39)(cid:39)(cid:43)
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(cid:41)(cid:39)(cid:39)(cid:47)
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Sales per Square Foot
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Same-store Sales Percentage Change
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:47)(cid:37)(cid:44)(cid:28)
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(cid:47)(cid:37)(cid:44)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:45)(cid:37)(cid:39)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:45)(cid:37)(cid:39)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:46)(cid:37)(cid:44)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:46)(cid:37)(cid:44)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:42)(cid:37)(cid:48)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:42)(cid:37)(cid:48)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:31)(cid:48)(cid:37)(cid:39)(cid:28)(cid:32)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:31)(cid:48)(cid:37)(cid:39)(cid:28)(cid:32)
(cid:40)(cid:41)(cid:37)(cid:47)(cid:28)
(cid:40)(cid:41)(cid:37)(cid:47)(cid:28)
(cid:40)(cid:41)(cid:37)(cid:48)(cid:28)
(cid:40)(cid:41)(cid:37)(cid:48)(cid:28)
(cid:40)(cid:40)(cid:37)(cid:42)(cid:28)
(cid:40)(cid:40)(cid:37)(cid:42)(cid:28)
(cid:47)(cid:37)(cid:48)(cid:28)
(cid:47)(cid:37)(cid:48)(cid:28)
(cid:46)(cid:37)(cid:45)(cid:28)
(cid:46)(cid:37)(cid:45)(cid:28)
(cid:41)(cid:39)(cid:39)(cid:43)
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Gross Profit
(as a Percentage of Net Sales)
(cid:41)(cid:39)(cid:39)(cid:46)
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SG&A Expense
As a Percentage of Net Sales:
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:75)(cid:102)(cid:107)(cid:88)(cid:99)(cid:23)
(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:58)(cid:105)(cid:92)(cid:91)(cid:96)(cid:107)(cid:23)(cid:74)(cid:92)(cid:94)(cid:100)(cid:92)(cid:101)(cid:107)
(cid:73)(cid:92)(cid:107)(cid:88)(cid:96)(cid:99)(cid:35)(cid:23)(cid:59)(cid:96)(cid:105)(cid:92)(cid:90)(cid:107)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:70)(cid:107)(cid:95)(cid:92)(cid:105)(cid:23)(cid:74)(cid:92)(cid:94)(cid:100)(cid:92)(cid:101)(cid:107)(cid:106)
(cid:75)(cid:102)(cid:107)(cid:88)(cid:99)(cid:23)
(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:23)(cid:58)(cid:105)(cid:92)(cid:91)(cid:96)(cid:107)(cid:23)(cid:74)(cid:92)(cid:94)(cid:100)(cid:92)(cid:101)(cid:107)
(cid:44)(cid:37)(cid:39)(cid:45)
(cid:44)(cid:37)(cid:39)(cid:45)
(cid:44)(cid:37)(cid:40)(cid:45)
(cid:44)(cid:37)(cid:40)(cid:45)
(cid:44)(cid:37)(cid:41)(cid:39)
(cid:44)(cid:37)(cid:41)(cid:39)
(cid:43)(cid:37)(cid:47)(cid:43)
(cid:43)(cid:37)(cid:47)(cid:43)
(cid:43)(cid:37)(cid:44)(cid:40)
(cid:43)(cid:37)(cid:44)(cid:40)
(cid:27)(cid:40)(cid:35)(cid:40)(cid:43)(cid:41)
(cid:27)(cid:46)(cid:46)(cid:45)
(cid:27)(cid:46)(cid:46)(cid:45)
(cid:27)(cid:45)(cid:39)(cid:45)
(cid:27)(cid:45)(cid:39)(cid:45)
(cid:73)(cid:92)(cid:107)(cid:88)(cid:96)(cid:99)(cid:35)(cid:23)(cid:59)(cid:96)(cid:105)(cid:92)(cid:90)(cid:107)(cid:23)(cid:88)(cid:101)(cid:91)(cid:23)(cid:70)(cid:107)(cid:95)(cid:92)(cid:105)(cid:23)(cid:74)(cid:92)(cid:94)(cid:100)(cid:92)(cid:101)(cid:107)(cid:106)
(cid:27)(cid:40)(cid:35)(cid:40)(cid:43)(cid:41)
(cid:27)(cid:48)(cid:46)(cid:44)
(cid:31)(cid:56)(cid:91)(cid:97)(cid:108)(cid:106)(cid:107)(cid:92)(cid:91)(cid:32)
(cid:27)(cid:48)(cid:46)(cid:44)
(cid:31)(cid:56)(cid:91)(cid:97)(cid:108)(cid:106)(cid:107)(cid:92)(cid:91)(cid:32)
(cid:27)(cid:47)(cid:43)(cid:47)
(cid:27)(cid:47)(cid:43)(cid:47)
(cid:27)(cid:42)(cid:40)(cid:41)
(cid:27)(cid:42)(cid:40)(cid:41)
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
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(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)(cid:150)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:41)(cid:39)(cid:39)(cid:44)
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(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)
(cid:41)(cid:39)(cid:39)(cid:47)
(cid:41)(cid:39)(cid:39)(cid:43)
(cid:41)(cid:39)(cid:39)(cid:44)
(cid:41)(cid:39)(cid:39)(cid:45)
(cid:41)(cid:39)(cid:39)(cid:46)(cid:150)
(cid:41)(cid:39)(cid:39)(cid:47)
Earnings before Income Taxes
(as a Percentage of Total Revenues)
Inventory Turn (cost of sales and
related buying and occupancy
divided by average inventory)
Cash Flow from Operations
†2007 cash flow from operations was $312. Cash flow from operations was impacted in 2007 by the securitization accounting change and, to a lesser extent, growth in
credit accounts receivable. 2007 adjusted cash flow from operations of $975 is a non-GAAP financial measure and is calculated as follows: cash flow from operations
of $312, plus the impact of $1,083 related to accounts receivable, and less the impact of $420 related to the investment in asset-backed securities, both primarily
related to the securitization accounting change. We believe that adjusted cash flow from operations is a useful measure for investors to understand the effect of the
securitization accounting change in comparing 2007 results to other years. It should not be considered a substitute for cash flow from operations.
Dear customers, employees anD shareholDers,
While 2008 was a challenging year for Nordstrom, we made a number of positive strides and believe the company is well
positioned in the marketplace with stores in the best locations across the country. Despite the tough climate, we continued
to execute our long-term strategy by staying focused on the quality of our customers’ shopping experience, both in our
stores and online. Our optimism for growing the company and our multi-channel capabilities remains strong as we continue
to strive to gain market share with customers. Throughout the year ahead, we remain committed to a superior customer
experience and merchandise offering while continuing our focus on operating an efficient and profitable business.
Eighteen months ago, in fall 2007, we experienced a softening in our top-line sales, causing inventories to outpace our
sales. As a management team, we took steps to get our inventories and expenses aligned with our projected sales. We
developed alternative plans based on various scenarios to ensure we could react quickly to changing conditions. These
steps put the company on solid footing in 2008 and positioned us to respond quickly to the precipitous drop in the
economy last October. As market circumstances changed, we responded by realigning inventories and reducing both
expenses and capital expenditures once again, which enabled us to manage the business effectively.
Let’s review 2008 results, which contained a few bright spots:
• Sales — Our original plan was flat to negative low single digit same-store sales, which was realistic at the
beginning of the year. Market conditions changed and we ended the year with a total sales decrease of
6.3% to $8.3 billion, and a same-store sales decrease of 9.0%.
• SG&A — We cut selling, general and administrative expenses by approximately $130 million, excluding incremental
expenses related to bad debt and new stores. We will continue to rigorously manage expenses while maintaining
our focus on the customer’s experience at point of sale.
• Earnings — Earnings before interest and taxes (EBIT) were $779 million, a 37% decrease compared to last year’s
EBIT of $1.2 billion.
• Full-line Stores — We opened eight stores in 2008. Our full-line stores experienced a 12.4% same-store sales
decrease. While sales were down, our year-end inventory per square foot was aligned with sales, down 12%
compared with last year.
• Nordstrom Rack — We opened six Nordstrom Racks in 2008. Our Rack division once again had an outstanding
year, achieving a 3.1% same-store sales increase and providing a secondary sales outlet to keep our Nordstrom
store inventories fresh.
• Nordstrom Direct — Net sales increased 8.4% in Nordstrom Direct, our online and catalog business. This indicates
that many of our customers want to be served through multiple channels and our ability to do this well is
contributing to sales growth for the company.
While we certainly weren’t satisfied with the overall results, we positioned ourselves well from a financial standpoint
to begin the new year and lay groundwork for the future. As we move into 2009, business is and will continue to be
challenging. While we don’t know how long the current economic downturn will last, we do have a solid strategy in place
to navigate these difficult times. We’ve made great strides to ensure that every dollar spent is meaningful to the customer
experience — and we continue to challenge activities that are not. Our strategy addresses four key efforts:
• Strive to improve our customers’ service experience.
• Continue to evolve our merchandise offering to meet the changing needs of our customers.
• Deepen the personal relationships with our customers through our multi-channel shopping experience and
Nordstrom Fashion Rewards® program.
• Manage the business effectively through an unpredictable environment and emerge stronger.
The cornerstone of our strategy is customer service. Deepening customer relationships is a simple notion that can be hard
to master and there is literally no finish line — we can always work to improve. For us to be effective we need to continue
doing all we can to serve each customer properly. The relationship our salespeople have with each customer is the heart
and soul of our customer service. Our goal is to give our salespeople the tools and freedom they need to develop those
relationships. One such vehicle is Personal Book, a dynamic tool at the register that allows salespeople to build and
strengthen customer relationships. Among its many features, Personal Book enables salespeople to focus on customer
preferences, so they can be more proactive in serving each customer and driving their business.
Second, our merchants continue to adjust inventory levels with a keen eye to brands and price points our customers want.
We know customers still desire quality and newness in fashion, yet they are more deliberate with their purchases and place
a higher priority on value. Our long-standing tradition of ensuring we have integrity in our pricing, every day of the year, is
especially relevant today. We are proud of our buyers’ heightened efforts to seek out the best values in the marketplace and
to continue to pursue new trends and hot items. We have also done a better job of utilizing Direct-to-Customer shipping, or
DTCs, which enables salespeople to meet customer demand in our stores by accessing inventory company-wide.
A third focus of our strategy is to deepen customer relationships through our multi-channel shopping experience and our
Nordstrom Fashion Rewards® program. We made substantial strides toward a seamless multi-channel shopping experience
in 2008 by adding a new convenience called ‘Buy Online, Pick Up In Store.’ This service enables customers to buy items
online, then pick them up at one of our stores, usually within one hour. Our customers responded well to this convenience
and many customers utilized it during the holidays. In addition, we continued to evolve Nordstrom Fashion Rewards, our
customer loyalty program. Customers who utilize this program continue to outspend customers not taking advantage of
Nordstrom Rewards.
The fourth point of our strategy involves managing our business effectively during this challenging economy. We have
made tough decisions in the past year to scale back expenditures where necessary without compromising our approach
to customer service. We cut selling, general and administrative expenses by approximately $130 million, excluding
incremental expenses related to bad debt and new stores. We also plan to reduce major store remodels from six per year
to two and have postponed several new store openings. We have not cut maintenance capital because it’s important that
we maintain the look, feel and experience of shopping in our stores. We expect our actions in 2009 related to inventory,
expenses, working capital and capital expenditures will allow us to generate positive free cash flow this year and position
the company well when the economy recovers.
Our operating margins and low debt ratio put us in the top tier of our industry. We also see benefit in our investment-grade
credit ratings which rank higher than the majority of our peers. In addition, we have $950 million in short-term borrowing
facilities, which provides flexibility in managing our business.
We are particularly proud of the over 50,000 Nordstrom employees who are working hard to make business happen.
Even in a down economy, we have numerous examples of salespeople exceeding their goals, and going above and beyond
to better serve the customer. It’s especially important for our people to know that the company values their efforts,
welcomes their input and trusts in their ability to make a difference with our customers. If we work collectively as a team,
our entrepreneurial spirit and culture of service will help us realize the goals before us. When our salespeople think of
Nordstrom as their own business, it’s amazing what they can accomplish.
Finally, we are encouraged by the feedback we receive from our customers. We know there are many places where people
can shop, so we are especially grateful that they continue to choose Nordstrom.
For us to be effective, we need to continue doing all we can to serve each customer well and find ways to drive top-line sales.
We have many bright spots in our business that reaffirm for all of us that we have the right foundation and principles.
On behalf of everyone at Nordstrom, thank you for your continued support.
Sincerely,
Blake W. Nordstrom
President, Nordstrom, Inc.
a note from our chairman
On behalf of the Board of Directors, I am pleased to address all of you, our shareholders, on the progress the company
made in 2008, and why we believe Nordstrom is well positioned for 2009 and beyond. As directors, we are committed,
along with the management team, to ensuring that the company’s reputation, financial position and customer service are
maintained at the highest level, and that our people are performing to the best of their ability. Our goal, ultimately, is to
serve our shareholders in a manner that warrants your support, trust and continued investment.
Last year at this time, Blake Nordstrom outlined in the annual report Nordstrom’s strategy, which comprised: gaining
market share by investing in and driving strong performance by existing stores, expanding our presence in the best retail
locations around the country, growing our multi-channel business, and investing time and resources in developing leaders.
The board gave its full support to this strategy. Even though 2008 sales results fell short of all of our expectations, we
believe management made the necessary adjustments during the year to protect the company’s interests and to compete
in an extremely challenging retail environment. We found ourselves, along with many other businesses, working hard in the
fall to adjust to a new sales reality. Throughout the year, the team set inventories appropriately and managed expenses well
with an eye toward continuing the quality of Nordstrom customers’ shopping experience both in our stores and online.
While we expect times ahead will be turbulent, we believe changes in the marketplace will present
opportunities for Nordstrom. During the last several years, we have focused on the company’s
financial condition in order to ensure that our credit rating and access to capital would provide the
advantages necessary to maintain and grow our business. Our investment-grade credit ratings and
access to $950 million in short-term borrowing facilities should position us well, not only for 2009,
but also for the foreseeable future. We are encouraged about where the company is positioned in
the retail landscape. We also believe the advantages Nordstrom holds in terms of reputation with
the customer, the caliber of its employees and management, and its strong performance will allow
Nordstrom to gain market share and take advantage of opportunities that may arise during these
times, emerging a stronger company.
The Nordstrom Board of Directors, through our Compensation Committee, consistently has sought
to maintain a pay-for-performance compensation philosophy. This approach extends from the
salespeople who operate on a commission basis through those members of the executive team who
are rewarded on an EBIT and Return on Invested Capital basis. These measures are highly correlated
with shareholder value and we believe foster outcomes that are in the best interest of our customers
and shareholders. Our approach is simple and straightforward and we try to be as transparent as
possible with our compensation methodology. Though good governance in and of itself does not
dictate or determine shareholder value performance, it is an important aspect of Nordstrom, and
one for which we are proud to see the company consistently recognized as exemplary.
We also are proud that the company was recently named to Fortune magazine’s “World’s Most Admired Companies,”
ranking 24th globally. Additionally, we are honored to be recognized in Fortune’s “100 Best Companies to Work For®” list.
Nordstrom is one of only 12 companies to receive this honor every year since Fortune began printing this list in 1998, and
one of only five companies to make the list every year since The 100 Best Companies to Work For® book was first published
in 1984.
While fully aware of the economic circumstances facing our nation and our business, we are well positioned for the coming
year and believe the best years for Nordstrom lie ahead. On behalf of the entire Board of Directors, thank you for your
continued support.
Enrique Hernandez, Jr.
Chairman
FINANCIALS
2008
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2009
OR
(cid:2)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________ to ____________
Commission file number 001-15059
NORDSTROM, INC.
(Exact name of Registrant as specified in its charter)
Washington
(State or other jurisdiction of
incorporation or organization)
1617 Sixth Avenue, Seattle, Washington
(Address of principal executive offices)
91-0515058
(IRS employer
Identification No.)
98101
(Zip code)
Registrant’s telephone number, including area code: 206-628-2111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, without par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:1) NO (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:2) NO (cid:1)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES (cid:1) NO (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer (cid:1)
Non-accelerated filer (cid:2) (Do not check if a smaller reporting company)
Accelerated filer (cid:2)
Smaller reporting company (cid:2)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:2) NO (cid:1)
As of August 1, 2008 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant
was approximately $5.2 billion using the closing sales price on that day of $28.92. On March 11, 2009, 215,485,680 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 Annual Meeting of Shareholders scheduled to be held on May 19, 2009 are incorporated into Part III.
Nordstrom, Inc. and subsidiaries 1
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2
TABLE OF CONTENTS
PART I
Business.
Item 1.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3.
Item 4. Submission of Matters to a Vote of Security Holders.
Legal Proceedings.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Item 13. Certain Relationships and Related Transactions.
Item 14. Principal Accounting Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Signatures
Consent of Independent Registered Public Accounting Firm
Schedule II – Valuation and Qualifying Accounts
Exhibit Index
Page
4
6
9
9
12
12
13
14
15
30
31
57
57
57
57
57
58
58
58
58
59
60
61
62
Nordstrom, Inc. and subsidiaries 3
Item 1. Business.
PART I
DESCRIPTION OF BUSINESS
Nordstrom incorporated in the state of Washington in 1946 as the successor to a retail shoe business that started in 1901. We are one of the nation’s
leading fashion specialty retailers, with 171 U.S. stores located in 28 states as of March 20, 2009. The west coast and east coast are the areas in which
we have the largest presence. Nordstrom is comprised of four segments: Retail Stores, Direct, Credit, and Other.
Retail Stores derives its revenues from sales of high-quality apparel, shoes, cosmetics and accessories. It includes our 109 ‘Nordstrom’ full-line stores,
58 off-price ‘Nordstrom Rack’ stores, two clearance stores that operate under the name ‘Last Chance,’ and two ‘Jeffrey’ boutiques. The Nordstrom Rack
stores purchase merchandise directly from manufacturers and also serve as outlets for clearance merchandise from our full-line stores.
In 2008, we opened eight full-line stores (Aventura, Florida; Honolulu, Hawaii; Burlington, Massachusetts; Clinton Township, Michigan; Thousand Oaks,
California; Indianapolis, Indiana; Pittsburgh, Pennsylvania; and Naples, Florida), relocated one full-line store (Tacoma, Washington) and opened six Rack
stores (White Plains, New York; Laguna Hills, California; Naperville, Illinois; Lyndhurst, Ohio; Danvers, Massachusetts; and San Antonio, Texas). To date in
2009, we have relocated one full-line store (Murray, Utah) and opened two new Rack stores (Paramus, New Jersey and Dallas, Texas). During the
remainder of 2009, we are scheduled to open three full-line stores (Cherry Hill, New Jersey; Peabody, Massachusetts; and Cincinnati, Ohio) and open
eight additional Rack stores (Sandy, Utah; Orland Park, Illinois; East Palo Alto, California; Los Angeles, California; Southlake, Texas; Orlando, Florida;
Pasadena, California; and Cincinnati, Ohio). In 2010, we are scheduled to open three full-line stores, relocate one full-line store and open four
Rack stores.
Direct generates revenues from sales of high-quality apparel, shoes, cosmetics and accessories by serving our customers on the Internet at
www.nordstrom.com and through our catalogs. The Direct segment’s sales are primarily shipped via third-party carriers from our fulfillment center in
Cedar Rapids, Iowa.
Through our wholly owned federal savings bank, Nordstrom fsb, we offer a private label card, two Nordstrom VISA credit cards and a debit card for
Nordstrom purchases. The credit and debit cards feature a shopping-based loyalty program designed to increase customer visits and spending in our
Retail Stores and Direct segments. Our Credit segment generates income through finance charges and other fees on these cards.
Our Other segment includes our product development team, called Nordstrom Product Group, which designs and contracts to manufacture private label
merchandise sold in our Retail Stores and Direct. In addition, this segment includes our corporate center operations. During the time that we owned it,
this segment also included the operations of our Façonnable business.
For more information about our business and our reportable segments, see Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” on page 15 and Note 15 of the Notes to Consolidated Financial Statements in Item 8.
FISCAL YEAR END
Our fiscal year ends on the Saturday closest to January 31st. References to 2008 relate to the 52-week fiscal year ended January 31, 2009.
References to 2007 and 2006 relate to the 52-week fiscal year ended February 2, 2008 and 53-week fiscal year ended February 3, 2007, respectively.
Fiscal year 2006 includes an extra week (the 53rd week) as a result of our 4-5-4 retail reporting calendar. References to 2009 relate to the 52-week
fiscal year ending January 30, 2010.
TRADEMARKS
We have approximately 139 registered trademarks or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack,
John W. Nordstrom, Caslon, and Classiques Entier. Each of our trademarks is renewable indefinitely provided that it is still used in commerce
at the time of the renewal.
RETURN POLICY
We offer our customers a fair and liberal return policy at our full-line stores and Nordstrom Direct (online and catalog). Our Nordstrom Rack stores
accept returns up to 30 days from the date of purchase. In general, our return policy is somewhat more generous than industry standards.
We utilize historical return patterns to estimate our expected returns.
SEASONALITY
Due to our Anniversary Sale in July and the holidays in December, historically, sales are higher for our Retail Stores and Direct in the second and fourth
quarters of the fiscal year than in the first and third quarters.
INVENTORY
We plan our merchandise purchases and receipts to coincide with the selling patterns that we expect. For instance, our merchandise purchases and
receipts increase prior to our Anniversary Sale, which extends over the last two weeks of July. Also, we purchase and receive a larger amount of
merchandise in the fall as we prepare for the holiday shopping season (from late November through early January). We pay for our merchandise
purchases under the terms established with our vendors.
4
In order to offer merchandise that our customers want, we purchase merchandise from a wide variety of high-quality suppliers. We also have
arrangements with agents and contract manufacturers to produce our private label merchandise. Our suppliers include domestic and foreign
businesses. We expect our suppliers to meet our “Nordstrom Partnership: Standards and Business Practice Guidelines,” which address our standards for
matters such as law, labor, health and safety, and environment.
COMPETITIVE CONDITIONS
Our business is highly competitive. Each of our stores competes with other national, regional and local retail establishments that may carry similar
lines of merchandise, including department stores, specialty stores, boutiques and Internet businesses. Our specific competitors vary from market to
market. We believe the principal methods of competing in our industry include customer service, fashion, quality of product, depth of selection, store
environment and location.
EMPLOYEES
During 2008, we regularly employed on a full- or part-time basis approximately 51,000 employees. Due to the seasonal nature of our business,
employment increased to approximately 54,000 employees in July 2008 and 52,000 in December 2008.
CAUTIONARY STATEMENT
Certain statements in this Annual Report on Form 10-K contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act
of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial results, store openings, capital expenditures and
dividend yield, and trends in company operations. Such statements are based upon current beliefs and expectations of the company’s management and
are subject to significant risks and uncertainties. Actual future results and trends may differ materially from historical results or current expectations
depending upon factors including, but not limited to, the impact of deteriorating economic and market conditions and the resultant impact on
consumer spending patterns, the company’s ability to respond to the business environment and fashion trends, the competitive pricing environment
within the retail sector, effective inventory management, the effectiveness of planned advertising, marketing, and promotional campaigns, successful
execution of the company’s store growth strategy including the timely completion of construction associated with newly planned stores, relocations,
and remodels, all of which may be impacted by the financial health of third parties, the company’s compliance with applicable banking and related laws
and regulations impacting the company’s ability to extend credit to its customers, the company’s compliance with information security and privacy
laws and regulations, employment laws and regulations and other laws and regulations applicable to the company, successful execution of the
company’s multi-channel strategy, the company’s ability to safeguard its brand and reputation, efficient and proper allocation of the company’s capital
resources, successful execution of the company’s technology strategy, trends in personal bankruptcies and bad debt write-offs, availability and cost of
credit, changes in interest rates, the company’s ability to maintain its relationships with company employees and to effectively train and develop its
future leaders, the company’s ability to control costs, risks related to fluctuations in world currencies, weather conditions and hazards of nature that
affect consumer traffic and consumers’ purchasing patterns, and the timing and amounts of any share repurchases by the company.
These and other factors could affect our financial results and cause actual results to differ materially from those contained in any forward-looking
statements we may make. 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. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, new
information or future circumstances.
SEC FILINGS
We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All material we
file with the SEC is publicly available at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet Web site at www.sec.gov that
contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
WEB SITE ACCESS
Our Internet Web site address is www.nordstrom.com. We make available free of charge on or through our Internet Web site our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of changes in beneficial ownership of securities on Form 4 and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of quarterly earnings conference calls and other
financial events over our Internet Web site.
CORPORATE GOVERNANCE
We have a long-standing commitment to upholding a high level of ethical standards. In addition, as required by the listing standards of the New
York Stock Exchange (“NYSE”) and the rules of the SEC, we have adopted Codes of Business Conduct and Ethics for our employees, officers and
directors (“Codes of Ethics”) and Corporate Governance Guidelines. We have posted on our Internet Web site our Codes of Ethics, our Corporate
Governance Guidelines, and our Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, Executive, and Finance
committees. These items are also available in print to any person, without charge, upon request to:
Nordstrom, Inc. Investor Relations
P.O. Box 2737
Seattle, Washington 98111-2737
(206) 303-3200
invrelations@nordstrom.com
Nordstrom, Inc. and subsidiaries 5
Item 1A. Risk Factors.
(Dollars in millions)
Our business faces many risks. We believe the risks described below outline the items of most concern to us. However, these risks are not the only ones
we face. Additional risks and uncertainties, not presently known to us or that we currently consider immaterial, may also impair our business
operations.
DETERIORIATION OF ECONOMIC CONDITIONS
The recent deterioration in economic conditions has hurt our business in several ways. Instability in the stock market, tightening of consumer credit
and the recent decline in the housing market in the United States has caused a reduction in consumer spending. This has had a significant negative
impact on our revenues. We sell high-quality apparel, shoes, cosmetics and accessories, which many consumers consider to be discretionary items.
During economic downturns, fewer customers may shop in our stores and on our Web site, and those who do shop may limit the amount of their
purchases, all of which may lead to higher markdowns and increased marketing and promotional spending in response to lower demand. The
deterioration of economic conditions has also adversely affected our credit customers’ payment patterns and default rates, increasing our bad debt
expense. We do not expect that economic conditions are likely to improve significantly in the near future, and a continuation or worsening of the credit
crisis, or even the fear of such a development, could continue to harm our business.
ABILITY TO RESPOND TO THE BUSINESS ENVIRONMENT AND FASHION TRENDS
Our ability to predict or respond to changes in fashion trends and consumer preferences quickly, and to match our merchandise mix to consumer
tastes, impacts our sales and operating results. If we do not identify and respond to emerging trends in lifestyle and consumer preferences quickly
enough, we may be forced to sell our merchandise at higher average markdown levels and lower average margins, which could harm our business.
In addition, many factors outside of our control, including consumer confidence, weather and other hazards of nature that affect consumer traffic,
and general economic conditions could decrease consumer spending at our stores.
BRAND AND REPUTATION
We have a well-recognized brand that many customers believe offers a high level of customer service and quality merchandise. Any significant damage to
our brand or reputation could negatively impact sales, reduce employee morale and productivity, and diminish customer trust, any of which would harm
our business.
INVENTORY MANAGEMENT
We strive to ensure the merchandise we offer remains fresh and compelling to our customers. We make decisions regarding inventory purchases well in
advance of the season in which it will be sold. If we are not successful at predicting our sales trends and adjusting our purchases, we may have excess
inventory, which would result in additional markdowns and reduce our operating performance. This could have an adverse effect on margins and net
earnings. Conversely, if we fail to purchase enough merchandise, we may not have an adequate supply of products to meet our customers’ demand.
This may cause us to lose sales or harm our customer relationships.
CAPITAL MANAGEMENT AND LIQUIDITY
Our goal is to invest capital to maximize our overall long-term returns. This includes spending on inventory, capital projects and expenses, managing
debt levels, managing accounts receivable through our credit business and returning value to our shareholders through dividends and share
repurchases. To a large degree, capital management and liquidity reflects how well we manage our other key risks. The actions we take to address
other specific risks could affect how well we manage the more general risk of capital management and liquidity. If we do not properly allocate our
capital to maximize returns, our business may suffer.
IMPACT OF COMPETITIVE MARKET FORCES
The retail industry environment continues to change for many of our vendors and customers. In the future, our competition may partner more
effectively with vendors to serve consumers’ needs. If we do not effectively respond to changes in our environment, we may see a loss of market share
to competitors, declining sales and declining profitability due to higher markdowns.
STORE GROWTH PLAN
Our five-year strategic growth plan includes opening several new full-line and Rack stores, with 28 announced store openings through 2013. We
compete with other retailers and businesses for suitable locations for our stores. Local land use and other regulations may impact our ability to find
suitable locations. New store openings also involve certain risks, including constructing, furnishing and supplying a store in a timely and cost effective
manner and accurately assessing the demographic or retail environment for a particular location. Our future sales at new, relocated or remodeled
stores may not meet our projections, which could affect our return on investment. Performance in our new stores could also be negatively impacted if
we are unable to hire employees who are able to deliver the level of service our customers have come to expect when shopping in our stores. Our
expected opening dates have sometimes been delayed because of developer plan delays. If these developer plan delays continue or worsen, they could
have a negative impact on profitability. Our inability to execute our store growth strategy in a way that generates appropriate returns on investment
could affect our future growth and profitability.
6
CONSUMER CREDIT
Our credit card operations drive sales in our stores, allow our stores to avoid third-party transaction fees and generate additional revenues by
extending credit. Our credit card revenue is subject to changes in interest rates which fluctuate based on market conditions. The market conditions
influencing interest rates are based on economic factors that are beyond our control and include, but are not limited to, recession, inflation, deflation,
consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence
and spending. Our ability to extend credit to our customers and to collect payments from them depends on many factors including compliance with
applicable laws and regulations, any of which may change from time to time. Changes in credit card use, payment patterns and default rates have
resulted from a variety of economic, legal, social and other factors that we cannot control or predict with certainty. Changes that impact our ability
to extend credit and collect payments have negatively affected our results and may continue in the future.
AVAILABILITY AND COST OF CREDIT
U.S. and global credit and equity markets have recently undergone significant disruption, making it difficult for many businesses to obtain financing on
acceptable terms or at all. As a result of this disruption, we have experienced an increase in the cost of borrowings necessary to operate our business.
If these conditions continue or become worse, our cost of borrowing could continue to increase. It may also become more difficult to obtain financing
for our operations or to refinance long-term obligations as they become payable. In addition, our borrowing costs can be affected by independent
rating agencies’ short and long-term debt ratings which are based largely on our performance as measured by credit metrics including interest
coverage and leverage ratios. A decrease in these ratings would likely also increase our cost of borrowing and make it more difficult for us to obtain
financing. A significant increase in the costs we incur in order to finance our operations may have a material adverse impact on our business results
and financial condition.
SUPPLY CHAIN DISRUPTION
We do not own or operate any manufacturing facilities and depend on independent third-parties to manufacture our merchandise. We may experience
operational difficulties with our vendors, such as the availability of production capacity, errors in meeting merchandise specifications, insufficient
quality control, failures to meet production deadlines or increases in manufacturing costs. A vendor’s failure to ship merchandise to us on a timely
basis or to meet the required quality standards could cause supply shortages and could result in lost sales. We depend on the orderly operation of the
receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our six distribution
centers and our Direct fulfillment center. We believe that our receiving and distribution process is efficient. However, unforeseen disruptions in
operations due to fires, hurricanes or other catastrophic events, labor disagreements or shipping problems, may result in delays in the delivery of
merchandise to our stores or our customers and could increase our costs. Although we maintain business interruption and property insurance, if any
of the distribution centers or our fulfillment center is shut down for any reason, our insurance coverage may not be sufficient or we may not receive
insurance proceeds in a timely manner.
RELATIONSHIP WITH VENDORS AND DEVELOPERS
Our relationships with our vendors and developers have been a significant contributor to our past success and our position as a retailer of high-quality
and fashion merchandise. Some of our vendors and developers have experienced serious cash flow problems due to the credit market crisis. In
addition, the recent economic deterioration has reduced the availability of funds for vendors and developers.
We depend on the work of our developer partners to be able to sustain our store growth plan. In the case of developer delays of shopping center
expansion, renovation or construction projects or developer bankruptcies, our expected store openings or remodels could be further delayed or
cancelled, and maintenance and leasing at some shopping centers in which we have stores could be adversely affected.
Many of our key vendors limit the number of retail channels they use to sell their merchandise and competition to obtain and sell these goods is
intense. Nearly all of the brands of our top vendors are sold by competing retailers, and many of our top vendors also have their own dedicated retail
stores. If one or more of our top vendors were to increase sales of merchandise through their own stores or to the stores of our competitors, our
business could be adversely affected. We have no guaranteed supply arrangements with our principal merchandising sources. To counteract cash flow
problems, our vendors could attempt to increase their prices, pass through increased costs, alter payment terms or seek other relief. Accordingly,
there can be no assurance that our vendors will continue to meet our quality, style or volume requirements. Our vendors may be forced to reduce their
operations or file for bankruptcy protection, which in some cases would make it difficult for us to serve the market’s needs and could have a material
adverse effect on our business.
GEOGRAPHIC LOCATION OF STORES
A significant amount of our total sales are derived from stores located on the west and east coasts, particularly California, which increases our
dependence on local economic conditions within these states. The success of our credit card business is also highly dependent on our customers’
ability to pay and our ability to minimize risk when extending credit to cardholders. Deterioration in economic conditions and consumer confidence
within these states has negatively impacted our business, including a reduction in overall sales, reduced gross margins and increased expenses
including bad debt expense. These trends could become worse if these factors continue.
LEADERSHIP DEVELOPMENT AND SUCCESSION PLANNING
The training and development of our future leaders is important to our long-term growth. If we do not effectively implement our strategic and business
planning processes to train and develop future leaders, our long-term growth may suffer. We rely on the experience of our senior management, who
have specific knowledge relating to us and our industry that is difficult to replace. If unexpected leadership turnover occurs without adequate
succession plans, the loss of the services of any of these individuals, or any negative perceptions of our business as a result of those losses, could
damage our brand image and our business. Our operations could be adversely affected if we cannot attract and retain qualified key personnel.
Nordstrom, Inc. and subsidiaries 7
EMPLOYMENT LAWS AND REGULATIONS
Our policies and procedures are designed to comply with human resource laws, employment laws and discrimination laws set forth by the federal
government and in each of the states and municipalities where we do business. Human resource laws include regulations related to wage and hour,
meal and rest period, and commissions. Wage and hour laws are complex, and the related enforcement is increasingly aggressive, particularly in the
state of California. Employment and discrimination laws continue to evolve, making ongoing compliance in this area a challenge. Failure to comply
with these laws may result in damage to our reputation, class action lawsuits, legal and settlement costs, disruption of our business, and loss of
customers and employees, which would result in a loss of sales, increased employment costs, low employee morale, and harm to our business and
results of operations.
INFORMATION SECURITY AND PRIVACY
The protection of our customer, employee and company data is important to us. The regulatory environment surrounding information security and
privacy is increasingly demanding, with new and constantly changing requirements across our business units. In addition, our customers have a high
expectation that we will adequately protect their personal information. A significant breach of customer, employee or company data could damage our
reputation and result in lost sales, fines and lawsuits.
INFORMATION TECHNOLOGY STRATEGY
We make investments in information technology to sustain our competitive position. For 2009, we expect to spend approximately $155 on information
technology operations and system development, which is key to our growth. We must monitor and choose the right investments and implement them
at the right pace. Targeting the wrong opportunities, failing to make the best investments, or making an investment commitment significantly above or
below our needs may result in the loss of our competitive position. In addition, if we do not maintain our current systems we may see interruptions to
our business and increase our costs in order to bring our systems up to date.
We may implement too much technology, or change too fast, which could result in failure to adopt the new technology if we are not ready or capable of
accepting it. Excessive technological change impacts the effectiveness of adoption, and could make it more difficult for us to realize benefits from the
technology. However, not implementing new technologies can also compromise our competitive position. If we are unable to strike the appropriate
balance in the pace of our adoption of new technology, our business may suffer.
REGULATORY COMPLIANCE
Our policies and procedures are designed to comply with all applicable laws and regulations, including those imposed by the SEC, NYSE, the banking
industry and foreign countries. Additional legal and regulatory requirements and the fact that foreign laws occasionally conflict with domestic laws,
have increased the complexity of the regulatory environment and the cost of compliance. Failure to comply with the various regulations may result in
damage to our reputation, civil and criminal liability, fines and penalties, increased cost of regulatory compliance and restatements of our
financial statements.
MULTI-CHANNEL STRATEGY EXECUTION
Over the past several years, we have made changes in our Direct business that better align our online shopping environment with the customer experience
in our full-line stores. These changes included: aligning our Direct merchandise offering with our full-line stores to create a seamless experience for our
customers between our stores and Web site, linking the full-line stores and Direct merchandise organizations; reducing the number and frequency of our
Direct catalog mailings; and transitioning our Direct inventory system onto our full-line store platform. Our inability to continue to successfully execute this
strategy could impact our future operating performance.
SEASONALITY
Our business is seasonal in nature. Due to our Anniversary Sale in July and the holidays in December, sales are higher for our Retail Stores and Direct
segment in the second and fourth quarters of the fiscal year than in the first and third quarters. Accordingly, our results may vary considerably from
quarter to quarter. In addition, we have significant additional cash requirements in the period leading up to the months of November and December in
anticipation of higher sales volume in those months, including expenses for additional inventory, advertising and employees.
FOREIGN CURRENCY
We purchase a portion of our inventory from foreign suppliers whose cost to us is affected by fluctuations of their local currency against the U.S. dollar
or who price their merchandise in currencies other than the U.S. dollar. We purchase goods from many countries and are affected by changes in
numerous currencies as well as fluctuations in the U.S. dollar relative to foreign currencies. Changes in the value of the U.S. dollar relative to foreign
currencies may increase our cost of goods sold, and if we are unable to pass these cost increases on to our customers, our gross margins, and
ultimately our earnings, would decrease. Foreign currency fluctuations could have a material adverse effect on our business, financial condition and
results of operations in the future.
ANTI-TAKEOVER PROVISIONS
We are incorporated in the state of Washington and subject to Washington state law. Some provisions of Washington state law could interfere with
or restrict takeover bids or other change-in-control events affecting us. For example, one provision prohibits us, except under specified circumstances,
from engaging in any significant business transaction with any shareholder who owns 10% or more of our common stock (an “acquiring person”) for a
period of five years following the time that the shareholder became an acquiring person.
8
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The following table summarizes the number of retail stores owned or leased by us, and the percentage of total store square footage represented
by each listed category at January 31, 2009:
Owned stores on owned land
Owned on leased land
Leased stores
Partly owned and partly leased
Total
Number of Stores
33
56
79
1
169
% of total store
square footage
24.0%
47.1%
28.1%
0.8%
100.0%
We also own six merchandise distribution centers, located in Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro,
Maryland; and Gainesville, Florida, which are utilized by the Retail Stores segment. The Direct segment utilizes one fulfillment center in Cedar Rapids,
Iowa, which is owned on leased land. Our administrative offices in Seattle, Washington are a combination of leased and owned space. We also lease an
office building in the Denver, Colorado metropolitan area that serves as an office of Nordstrom fsb and Nordstrom Credit, Inc.
Nordstrom, Inc. and subsidiaries 9
The following table lists our retail store facilities as of January 31, 2009:
Location
Full-Line Stores
Store Name
Square
Footage
Year
Store
Opened
Location
Store Name
Square
Footage
Year
Store
Opened
ALASKA
Anchorage
ARIZONA
Chandler
Scottsdale
CALIFORNIA
Arcadia
Brea
Canoga Park
Cerritos
Corte Madera
Costa Mesa
Escondido
Glendale
Irvine
Los Angeles
Los Angeles
Mission Viejo
Montclair
Palo Alto
Pleasanton
Redondo Beach
Riverside
Roseville
Sacramento
San Diego
San Diego
San Diego
San Francisco
San Francisco
San Jose
San Mateo
Santa Ana
Santa Barbara
Thousand Oaks
Walnut Creek
COLORADO
Broomfield
Denver
Lone Tree
CONNECTICUT
Farmington
Anchorage 5th Avenue Mall
97,000
1975
Chandler Fashion Center
Scottsdale Fashion Square
149,000
235,000
2001
1998
Westfield Santa Anita
Brea Mall
Westfield Topanga
Los Cerritos Center
The Village at Corte Madera
South Coast Plaza
Westfield North County
Glendale Galleria
Irvine Spectrum Center
The Grove
Westside Pavilion
The Shops at Mission Viejo
Montclair Plaza
Stanford Shopping Center
Stoneridge Mall
South Bay Galleria
Galleria at Tyler
Westfield Galleria at Roseville
Arden Fair
Fashion Valley
Westfield Horton Plaza
Westfield University Towne Center
Westfield San Francisco Centre
Stonestown Galleria
Westfield Valley Fair
Hillsdale Shopping Center
Westfield MainPlace
Paseo Nuevo
Thousand Oaks
Broadway Plaza
151,000
195,000
213,000
122,000
116,000
235,000
156,000
147,000
130,000
120,000
150,000
172,000
134,000
187,000
173,000
161,000
164,000
149,000
190,000
220,000
149,000
130,000
350,000
174,000
232,000
149,000
169,000
186,000
145,000
193,000
1994
19791
19841
1981
1985
19781
1986
1983
2005
2002
1985
1999
1986
1984
1990
1985
1991
2000
1989
1981
1985
1984
1988
1988
19871
1982
1987
1990
2008
1984
FlatIron Crossing
Cherry Creek Shopping Center
Park Meadows
172,000
142,000
245,000
2000
2007
1996
Westfarms
189,000
1997
FLORIDA
Aventura
Boca Raton
Coral Gables
Miami
Naples
Orlando
Palm Beach Gardens
Tampa
Wellington
Aventura Mall
Town Center at Boca Raton
Village of Merrick Park
Dadeland Mall
Waterside
The Florida Mall
The Gardens
International Plaza
The Mall at Wellington Green
172,000
193,000
212,000
150,000
81,000
174,000
150,000
172,000
127,000
2008
2000
2002
2004
2008
2002
2006
2001
2003
1This store has been subsequently relocated.
10
GEORGIA
Atlanta
Atlanta
Buford
HAWAII
Honolulu
ILLINOIS
Chicago
Oak Brook
Schaumburg
Skokie
INDIANA
Indianapolis
Indianapolis
KANSAS
Overland Park
MARYLAND
Annapolis
Bethesda
Columbia
Towson
MASSACHUSETTS
Burlington
Natick
MICHIGAN
Clinton Township
Novi
Troy
MINNESOTA
Bloomington
MISSOURI
Des Peres
NEVADA
Las Vegas
NEW JERSEY
Edison
Freehold
Paramus
Short Hills
NEW YORK
Garden City
White Plains
Perimeter Mall
Phipps Plaza
Mall of Georgia
243,000
140,000
172,000
1998
2005
2000
Ala Moana Center
211,000
2008
Michigan Avenue
Oakbrook Center
Woodfield Shopping Center
Westfield Old Orchard Center
274,000
249,000
215,000
209,000
2000
1991
1995
1994
Circle Centre
Fashion Mall
216,000
134,000
1995
2008
Oak Park Mall
219,000
1998
Westfield Annapolis Mall
Westfield Montgomery Mall
The Mall in Columbia
Towson Town Center
162,000
225,000
173,000
205,000
1994
1991
1999
1992
Burlington Mall
Natick Collection
143,000
154,000
2008
2007
Partridge Creek
Twelve Oaks Mall
Somerset Collection
122,000
172,000
258,000
2008
2007
1996
Mall of America
240,000
1992
West County
193,000
2002
Fashion Show
207,000
2002
Menlo Park
Freehold Raceway Mall
Westfield Garden State Plaza
The Mall at Short Hills
204,000
174,000
282,000
188,000
1991
1992
1990
1995
Roosevelt Field
The Westchester
241,000
219,000
1997
1995
NORTH CAROLINA
Charlotte
Durham
SouthPark
The Streets at Southpoint
151,000
149,000
2004
2002
Location
Full-Line Stores (continued)
Store Name
Square
Footage
Year
Store
Opened
Location
Nordstrom Rack Group (continued)
Store Name
OHIO
Beachwood
Columbus
OREGON
Portland
Portland
Portland
Salem
Tigard
PENNSYLVANIA
King of Prussia
Pittsburgh
RHODE ISLAND
Providence
TEXAS
Austin
Dallas
Dallas
Frisco
Houston
Hurst
San Antonio
UTAH
Murray
Orem
VIRGINIA
Arlington
Dulles
McLean
Norfolk
Richmond
WASHINGTON
Bellevue
Lynnwood
Seattle
Seattle
Spokane
Tacoma
Tukwila
Vancouver
Other
Beachwood Place
Easton Town Center
231,000
174,000
1997
2001
Clackamas Town Center
Downtown Portland
Lloyd Center
Salem Center
Washington Square
121,000
174,000
150,000
71,000
189,000
1981
19661
19631
1980
19741
King of Prussia
Ross Park
238,000
143,000
1996
2008
Providence Place
206,000
1999
Barton Creek Square
Galleria Dallas
NorthPark Center
Stonebriar Centre
Houston Galleria
North East Mall
The Shops at La Cantera
150,000
249,000
212,000
149,000
226,000
149,000
149,000
2003
1996
2005
2000
2003
2001
2005
Fashion Place
University Mall
110,000
122,000
1981
2002
The Fashion Centre at
Pentagon City
Dulles Town Center
Tysons Corner Center
MacArthur Center
Short Pump Town Center
Bellevue Square
Alderwood
Downtown Seattle
Northgate Mall
River Park Square
Tacoma Mall
Westfield Southcenter
Westfield Vancouver
241,000
1989
148,000
211,000
166,000
128,000
2002
1988
1999
2003
285,000
151,000
383,000
122,000
137,000
144,000
170,000
71,000
19671
19791
19631
1965
19741
19661
1968
1977
12,000
11,000
2007
2007
Atlanta, GA
New York, NY
Jeffrey
Jeffrey
Nordstrom Rack Group
Chandler, AZ
Phoenix, AZ
Scottsdale, AZ
Chandler Festival Rack
Last Chance
Scottsdale Promenade Rack
37,000
48,000
38,000
2000
19921
2000
1This store has been subsequently relocated.
Brea, CA
Chino, CA
Colma, CA
Costa Mesa, CA
Fresno, CA
Glendale, CA
Laguna Hills, CA
Long Beach, CA
Los Angeles, CA
Ontario, CA
Oxnard, CA
Roseville, CA
Sacramento, CA
San Diego, CA
San Francisco, CA
San Jose, CA
San Leandro, CA
San Marcos, CA
Woodland Hills, CA
Broomfield, CO
Lone Tree, CO
Miami, FL
Sunrise, FL
Buford, GA
Honolulu, HI
Chicago, IL
Naperville, IL
Northbrook, IL
Oak Brook, IL
Schaumburg, IL
Danvers, MA
Gaithersburg, MD
Towson, MD
Grand Rapids, MI
Troy, MI
Bloomington, MN
Las Vegas, NV
Westbury, NY
White Plains, NY
Lyndhurst, OH
Beaverton, OR
Clackamas, OR
Portland, OR
King of Prussia, PA
Plano, TX
San Antonio, TX
Salt Lake City, UT
Sterling, VA
Woodbridge, VA
Auburn, WA
Bellevue, WA
Lynnwood, WA
Seattle, WA
Spokane, WA
Tukwila, WA
Brea Union Plaza Rack
Chino Spectrum Towne Center Rack
Colma Rack
Metro Pointe at South Coast Rack
Villaggio Retail Center Rack
Glendale Fashion Center Rack
Laguna Hills Mall Rack
Long Beach CityPlace Rack
The Promenade at Howard Hughes
Center Rack
Ontario Mills Mall Rack
Esplanade Shopping Center Rack
Creekside Town Center Rack
Howe `Bout Arden Center Rack
Westfield Mission Valley Rack
555 Ninth Street Retail Center Rack
Westgate Mall Rack
San Leandro Rack
Grand Plaza Rack
Topanga Rack
Flatiron Marketplace Rack
Meadows Marketplace Rack
Last Chance
The Oasis at Sawgrass Mills Rack
Mall of Georgia Crossing Rack
Ward Centers Rack
The Shops at State and
Washington Rack
Springbrook Prairie Pavilion Rack
Northbrook Rack
The Shops at Oak Brook Place Rack
Woodfield Rack
Liberty Tree Mall Rack
Gaithersburg Rack
Towson Rack
Centerpointe Mall Rack
Troy Marketplace Rack
Mall of America Rack
Silverado Ranch Plaza Rack
The Mall at the Source Rack
City Center Rack
Legacy Village Rack
Tanasbourne Town Center Rack
Clackamas Promenade Rack
Downtown Portland Rack
The Overlook at King of
Prussia Rack
Preston Shepard Place Rack
The Rim Rack
Sugarhouse Rack
Dulles Town Crossing Rack
Potomac Mills Rack
SuperMall of the Great
Northwest Rack
Factoria Mall Rack
Golde Creek Plaza Rack
Downtown Seattle Rack
NorthTown Mall Rack
Southcenter Square Rack
Square
Footage
Year
Store
Opened
45,000
38,000
31,000
50,000
32,000
36,000
35,000
33,000
41,000
40,000
38,000
36,000
54,000
57,000
43,000
48,000
44,000
35,000
64,000
36,000
34,000
26,000
27,000
44,000
34,000
41,000
37,000
40,000
42,000
45,000
43,000
49,000
31,000
40,000
40,000
41,000
33,000
48,000
36,000
40,000
53,000
28,000
32,000
45,000
39,000
35,000
31,000
41,000
46,000
48,000
46,000
38,000
42,000
28,000
35,000
1999
19871
1987
19831
2002
2000
2008
2002
2001
2002
2001
2001
1999
19851
2001
1998
1990
2006
1984
2001
1998
2005
2003
2000
2000
2003
2008
1996
2000
1994
2008
1999
1992
2001
2000
1998
2001
1997
2008
2008
1998
19831
19861
2002
2000
2008
1991
2001
1990
1995
1997
19851
1987
2000
2007
To date in 2009, we have relocated one full-line store and opened two new Rack stores. During the remainder of 2009, we are scheduled to open three
full-line stores and eight additional Rack stores. In 2010, we are scheduled to open three new full-line stores and four Rack stores.
Nordstrom, Inc. and subsidiaries 11
Item 3. Legal Proceedings.
We are involved in routine claims, proceedings and litigation arising from the normal course of our business. We do not believe any such claim,
proceeding or litigation, either alone or in aggregate, will have a material impact on our financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
12
PART II
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
Equity Securities.
MARKET, SHAREHOLDER AND DIVIDEND INFORMATION
MARKET, SHAREHOLDER AND DIVIDEND INFORMATION
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders
Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders
of common stock as of March 11, 2009 was 103,543, based upon the number of registered and beneficial shareholders, as well as the number of
of common stock as of March 11, 2009 was 103,543, based upon the number of registered and beneficial shareholders, as well as the number of
employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 215,485,680 shares of common stock outstanding.
employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 215,485,680 shares of common stock outstanding.
The high and low sales prices of our common stock and dividends declared for each quarter of 2008 and 2007 are presented in the table below:
The high and low sales prices of our common stock and dividends declared for each quarter of 2008 and 2007 are presented in the table below:
Common Stock Price
Common Stock Price
2008
2008
2007
2007
High
High
$40.59
$40.59
$38.65
$38.65
$37.00
$37.00
$18.17
$18.17
$40.59
$40.59
Low
Low
$30.72
$30.72
$25.67
$25.67
$13.66
$13.66
$6.61
$6.61
$6.61
$6.61
High
High
$59.70
$59.70
$56.00
$56.00
$53.47
$53.47
$39.95
$39.95
$59.70
$59.70
Low
Low
$49.35
$49.35
$42.70
$42.70
$36.12
$36.12
$28.00
$28.00
$28.00
$28.00
1st Quarter
1st Quarter
2nd Quarter
2nd Quarter
3rd Quarter
3rd Quarter
4th Quarter
4th Quarter
Full Year
Full Year
2007
2007
Dividends per Share
Dividends per Share
2008
2008
$0.16
$0.16
$0.16
$0.16
$0.16
$0.16
$0.16
$0.16
$0.64
$0.64
$0.135
$0.135
$0.135
$0.135
$0.135
$0.135
$0.135
$0.135
$0.54
$0.54
STOCK PRICE PERFORMANCE
STOCK PRICE PERFORMANCE
The following graph compares, for each of the last five fiscal years ending January 31, 2009, the cumulative total return of Nordstrom, Inc. common
The following graph compares, for each of the last five fiscal years ending January 31, 2009, the cumulative total return of Nordstrom, Inc. common
stock, Standard & Poor’s 500 Index and Standard & Poor’s Retail Index. The Retail Index is comprised of 27 retail companies, including Nordstrom, Inc.,
stock, Standard & Poor’s 500 Index and Standard & Poor’s Retail Index. The Retail Index is comprised of 27 retail companies, including Nordstrom, Inc.,
representing an industry group of the Standard & Poor’s 500 Index. The cumulative total return of Nordstrom, Inc. common stock assumes $100
representing an industry group of the Standard & Poor’s 500 Index. The cumulative total return of Nordstrom, Inc. common stock assumes $100
invested on January 31, 2004 in Nordstrom, Inc. common stock and assumes reinvestment of dividends.
invested on January 31, 2004 in Nordstrom, Inc. common stock and assumes reinvestment of dividends.
PERFORMANCE GRAPH
Nordstrom, Inc. Common Stock
Standard & Poor's Retail Index
Standard & Poor's 500 Index
300
200
100
Dollars
0
1/31/04
1/29/05
1/28/06
2/3/07
2/2/08
1/31/09
Year Ended
End of fiscal year:
End of fiscal year:
Standard & Poor’s 500 Index
Standard & Poor’s 500 Index
Standard & Poor’s Retail Index
Standard & Poor’s Retail Index
Nordstrom, Inc. common stock
Nordstrom, Inc. common stock
2003
2003
100
100
100
100
100
100
2004
2004
104
104
114
114
122
122
2005
2005
113
113
123
123
219
219
2006
2006
128
128
140
140
296
296
2007
2007
123
123
113
113
209
209
2008
2008
73
73
69
69
72
72
Nordstrom, Inc. and subsidiaries 13
Nordstrom, Inc. and subsidiaries 13
Item 6. Selected Financial Data.
(Dollars in millions except sales per square foot and per share amounts)
The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with Item 1A
“Risk Factors,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial
Statements and related notes included in Item 8 of this Annual Report on Form 10-K.
Fiscal year
Operations
Net sales
Same-store sales percentage (decrease) increase1
Credit card revenues2
Gross profit3
Gross profit rate4
Selling, general and administrative expenses:2
Retail stores, direct and other segments2
Retail stores, direct and other segments rate4
Credit segment2
Total selling, general and administrative rate4
Other income and expense, net2
Earnings before interest and income taxes (“EBIT”)
EBIT as a percentage of total revenues
Interest expense, net
Earnings before income taxes (“EBT”)
EBT as a percentage of total revenues
Net earnings
Net earnings as a percentage of total revenues
Earnings per diluted share
Dividends per share
Return on average shareholders’ equity
Sales per square foot5
Financial Position (at year end)
Customer accounts receivable, net
Investment in asset backed securities
Merchandise inventories
Current assets
Current liabilities
Land, buildings and equipment, net
Long-term debt, including current portion
Shareholders’ equity
Book value per share
Total assets
Store Information (at year end)
Full-line stores
Rack and other stores
International Façonnable boutiques
Total square footage
2008
20076
2006
2005
2004
$8,272
(9.0%)
301
2,855
34.5%
$8,828
3.9%
252
3,302
37.4%
$8,561
7.5%
105
3,207
37.5%
(2,111)
25.5%
(275)
28.8%
9
779
9.1%
(131)
648
7.6%
401
4.7%
$1.83
$0.64
34.5%
$388
(2,183)
24.7%
(177)
26.7%
19
1,247
13.7%
(74)
1,173
12.9%
715
7.9%
$2.88
$0.54
43.6%
$435
$1,881
-
900
3,217
1,601
2,221
2,238
1,210
5.62
5,661
$1,705
-
956
3,361
1,635
1,983
2,497
1,115
5.05
5,600
(2,205)
25.8%
(92)
26.8%
134
1,149
13.3%
(43)
1,106
12.8%
678
7.8%
$2.55
$0.42
31.8%
$423
$609
428
997
2,742
1,433
1,757
631
2,169
8.43
4,822
$7,723
6.0%
97
2,835
36.7%
(2,016)
26.1%
(85)
27.2%
99
930
11.9%
(45)
885
11.3%
551
7.1%
$1.98
$0.32
28.4%
$392
$567
561
956
2,874
1,623
1,774
934
2,093
7.76
4,921
$7,131
8.5%
102
2,572
36.1%
(1,934)
27.1%
(86)
28.3%
71
725
10.0%
(78)
647
8.9%
393
5.4%
$1.38
$0.24
23.0%
$369
$580
422
917
2,572
1,341
1,780
1,030
1,789
6.59
4,605
109
60
-
21,876,000
101
55
-
20,502,000
98
57
36
20,170,000
98
57
32
20,070,000
94
56
31
19,397,000
1Same-stores include stores that have been open at least one full year at the beginning of the year and merchandise sales from our Direct segment. Fiscal year 2006 includes an extra week
(the 53rd week) as a result of our 4-5-4 retail reporting calendar. The 53rd week is not included in same-store sales calculations.
2As described in Note 1 of the Notes to Consolidated Financial Statements in Item 8, we have reclassified credit card revenues and selling, general and administrative expenses for our credit
segment in our consolidated statements of earnings to more clearly present our credit card business. Credit card revenues include finance charges, late and other fees generated by our
combined Nordstrom private label card and Nordstrom VISA credit card programs, and interchange fees generated by the use of Nordstrom VISA cards at third-party merchants. These
revenues were previously included in finance charges and other, net in our consolidated statement of earnings. Selling, general and administrative expenses for our credit segment consist
of operational and marketing costs incurred to support and service our credit card programs and bad debt expense, and were previously included in total selling, general and
administrative expenses in our consolidated statements of earnings.
3Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs (for all segments).
4Gross profit and selling, general and administrative rates are calculated as a percentage of net sales.
5Sales per square foot is calculated as net sales for all of our segments divided by weighted average square footage.
6During the third quarter of 2007, we completed the sale of our Façonnable business and realized a gain on sale of $34 ($21, net of tax). Results of operations for fiscal year 2007 include the
international Façonnable boutiques through August 31, 2007 and the domestic Façonnable boutiques through October 31, 2007. Prior to the sale, the domestic Façonnable boutiques were
included in “Rack and other stores.”
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts)
Nordstrom is a fashion specialty retailer offering high-quality apparel, shoes, cosmetics and accessories for women, men and children. We offer a wide
selection of brand name and private label merchandise. We offer our products through multiple channels including full-line ‘Nordstrom’ stores, off-price
‘Nordstrom Rack’ stores, ‘Jeffrey’ boutiques, catalogs and on the Internet at www.nordstrom.com. Our stores are located throughout the United States.
In addition, we offer our customers a variety of payment products and services including our loyalty program.
As a multi-channel retailer, we believe we are well positioned to respond to evolving customer needs and expectations. Our goal is to offer
knowledgeable, friendly and welcoming service in our stores, online, and through our credit business with an integrated offering and consistent
experience. Our salespeople are focused on building deeper relationships with our customers through their product knowledge and ability to offer
solutions which save the customer’s time. We continue to strive to serve our customers better, using resources such as Personal Book, Fashion
Rewards and the ability for our salespeople to seamlessly find inventory anywhere in the company. In 2008, we launched the “Buy Online, Pick Up in
Store” service, which allows customers to purchase online, then pick up their item at a Nordstrom store on the same day. We want to create value for
our customers through our seamless and unique shopping experience.
We’ve found that there’s a great deal of opportunity to grow our sales in existing stores simply by earning a greater share of our customers’ business
across multiple product categories. We use customer research to better serve our customers’ needs and wants, whether it is a new wardrobe of great
foundation pieces or an updated item to enhance their current attire. Our customer still wants newness, fashion, quality and brands. Our goal is to
provide all of these items, with a best-in-market selection of versatile and compelling fashion brands. Over the course of 2008, it became clear that
value and price sensitivity are important factors to our customers. With a broad merchandise offering, we can adjust our mix without changing who we
are or how we are positioned in the market. Our merchants are working hard with our vendors to provide the right balance of quality, value and price
points to our customers.
RESULTS OF OPERATIONS
2008 Overview
The business environment during 2008 was both challenging and volatile. The first half of the year was relatively stable with quarterly same-store sales
decreasing between 6.0% and 6.5%. The second half of 2008 was more volatile as consumers reduced their discretionary spending due to economic
concerns and uncertainty, and retailers struggled to align their businesses with significantly lower levels of demand. As a result, our quarterly same-
store sales in the second half of 2008 declined between 11.1% and 12.5% and our gross profit was negatively impacted. In response, we needed to make
tough choices in the near term while remaining true to our long-term strategy. Even in a challenging and uncertain economy, our strategy remains
unchanged in its focus on customers and building strong relationships with them. We strive to provide superior service and compelling merchandise
within existing product categories in an effort to grow our share of business with core customers. While the conditions in 2008 required that we
significantly reduce expenses, inventory and planned capital expenditures, we believe we have done so while preserving our standards of service,
product and shopping experience.
Our variable cost business model provides flexibility that helps mitigate the impact of slower sales trends on profit margins and cash flows. While we
believe our model adjusts well to changing market trends, we took additional actions on expenses, working capital and planned capital expenditures to
further mitigate operating margin pressure, improve operating cash flow and maintain a healthy balance sheet. We ended the fiscal year with inventory
levels aligned with current sales trends. We followed a disciplined approach to finding and executing expense reduction opportunities and will continue
these efforts through 2009. Given the current economic conditions, our capital expenditures in 2009 will be significantly reduced compared to our plan
last year. These changes include reducing the number of major full-line store remodels from approximately six per year to approximately two per year.
Additionally, the economic environment has affected our real estate development partners, who have delayed or canceled several of our planned new
full-line stores. We are continuously monitoring our capital expenditure plans as economic conditions change. Although we have reduced our planned
capital expenditures overall, we did not reduce our maintenance expenditures budget, as it is important that we maintain the look, feel and experience
of shopping in our stores. Overall, we believe we are well positioned to weather the economic downturn, while maintaining an unwavering focus on our
customers and positioning the company for the future.
Full year earnings before income taxes (“EBT”) decreased $525 from $1,173 in 2007 to $648 in 2008. The Retail Stores, Direct and Other segments
produced $491 of this decrease due to lower sales and increased markdowns, partially offset by decreased variable costs and savings in fixed expenses.
Our Credit segment contributed $34 of the decline in EBT, as our credit card yields were negatively impacted by higher bad debt expense and lower
interest rates.
As described in Note 1 of the Notes to Consolidated Financial Statements in Item 8, we have reclassified credit card revenues and expenses in our
consolidated statements of earnings to more clearly present our credit card business. Credit card revenues include finance charges, late and other fees
generated by our combined Nordstrom private label card and Nordstrom VISA credit card programs, and interchange fees generated by the use of
Nordstrom VISA cards at third-party merchants. These revenues were previously included in finance charges and other, net in our consolidated
statement of earnings. Selling, general and administrative expenses for our credit segment consist of operational and marketing costs incurred to
support and service our credit card programs and bad debt expense, and were previously included in total selling, general and administrative expenses
in our consolidated statements of earnings.
Nordstrom, Inc. and subsidiaries 15
Retail Stores, Direct and Other Segments
Summary
Fiscal year
Net sales
Cost of sales and related buying and occupancy costs
Gross profit1
Selling, general and administrative expenses
% of net sales:
Cost of sales and related buying and occupancy costs
Gross profit
Selling, general and administrative expenses
2008
$8,272
(5,367)
2,905
(2,111)
64.9%
35.1%
25.5%
2007
$8,828
(5,479)
3,349
(2,183)
2006
$8,561
(5,316)
3,245
(2,205)
62.1%
37.9%
24.7%
62.1%
37.9%
25.8%
1Gross profit is calculated as net sales less Retail Stores, Direct and Other segment cost of sales and related buying and occupancy costs.
Net Sales
Fiscal year
Net sales
Net sales (decrease) increase
Same-store sales (decrease) increase
Sales (decrease) increase by channel:
Full-line same-store sales
Rack same-store sales
Net sales – Direct
Percentage of net sales by merchandise category:
Women’s apparel
Shoes
Men’s apparel
Women’s accessories
Cosmetics
Children’s apparel
Other
Total
2008
$8,272
(6.3%)
(9.0%)
2007
$8,828
3.1%
3.9%
(12.4%)
3.1%
8.4%
34%
21%
16%
12%
11%
3%
3%
100%
2.5%
8.7%
17.9%
35%
20%
18%
11%
11%
3%
2%
100%
2006
$8,561
10.8%
7.5%
5.9%
10.9%
24.7%
35%
20%
18%
10%
11%
3%
3%
100%
2008 VS 2007 NET SALES
Net sales declined 6.3% in 2008 compared to 2007. The decrease was due to same-store sales declines in our full-line stores, partially offset by
increases in same-store sales for Rack and Direct, as well as new store openings.
Same-store sales for our full-line stores decreased 12.4% compared to the same period last year. The largest same-store sales decreases came in
women’s apparel and men’s apparel. Women’s apparel continues to experience a market-wide downturn and we have seen a decline in men’s apparel
correspond to the economic downturn, particularly during the fourth quarter. Regionally, business trends were most challenging in markets undergoing
the largest housing price corrections. California was the most challenging region throughout 2008, with same-store sales below the full-line store
average. All other regions were above the same-store sales average for full-line stores.
Our Rack channel had its seventh consecutive year of positive sales growth with a same-store sales increase of 3.1% for the year. Rack purchases
merchandise from third parties and also serves as a clearance channel for our full-line stores. The accessories and men’s apparel categories drove this
growth. Designer handbags led accessories and premium denim led men’s apparel. All regions contributed to the positive same-store sales results.
Our Direct channel net sales increased 8.4% for the year, with results driven by accessories, women’s apparel and kids’ merchandise categories.
The growth in our Direct business was driven by our efforts to better align our merchandise offering and experience with our full-line stores. Our new
“Buy Online, Pick Up in Store” service proved to be a convenient and valued service for our customers over the holiday gift-giving season.
During 2008 we opened eight new full-line and six new Rack stores. These new stores represent 3.3% of our total net sales for fiscal 2008, and
increased our gross square footage by 6.7% during 2008.
2007 VS 2006 NET SALES
Total net sales increased 3.1% as a result of same-store sales increases as well as from the three full-line stores and one Rack store opened during
fiscal 2007. The 2006 fiscal calendar had 53 weeks compared to our normal operating calendar of 52 weeks. In the 53rd week of 2006, we had sales
of $118. Excluding the extra week of sales in fiscal 2006, total sales increased 4.6% in fiscal year 2007. The 53rd week is not included in same-store
sales calculations.
16
Our full-line stores had a 2.5% same-store sales increase in 2007, on top of a 5.9% increase in 2006. The Midwest, South and Northwest were our
strongest performing regions during 2007. By category, our largest same-store sales increases came from our designer apparel, women’s accessories
and men’s apparel categories. Designer apparel offers fashion-forward and aspirational products, and customer demand for these products was strong.
Women’s accessories benefited from increased sales of handbags and fashion jewelry. The increase in men’s apparel was in part due to growth in our
younger contemporary offering.
Our Rack same-store sales increased 8.7% in 2007, following a 10.9% increase in 2006. The sales growth came from all regions and merchandise
categories. Same-store sales were consistent across all regions, which showed high single-digit increases. The largest same-store sales increases were
in accessories and men’s apparel. High performance bodywear, watches and sunglasses led the accessories category. The men’s increase reflects sales
from premium denim, suits and dress shirts.
Nordstrom Direct’s 2007 total net sales increased 17.9% to $644. The growth in our Direct business was driven by our efforts to better align our online
shopping environment with the customer experience in our full-line stores. This includes aligning our merchandise offering with the full-line stores to
create a seamless experience for customers.
During 2007 we opened three new full-line stores and one new Rack store. These new stores represent 1.0% of our total net sales for fiscal 2007, and
increased our gross square footage by 2.6% during 2007.
2009 FORECAST OF SAME-STORE SALES
As of March 20, 2009, we have relocated one full-line store and opened two new Rack stores. In total, we plan to open three new full-line stores and eight
additional Rack stores during the year. This will increase retail square footage by approximately 3.7%. We expect 2009 same-store sales to decrease
approximately 10% to 15%. Based on the pace of business in 2008, same-store sales in the first half of 2009 are expected to be 300 to 400 basis points
lower than the projected annual rate.
Gross Profit
Fiscal year
Gross profit1
Gross profit rate2
Average inventory per square foot
Inventory turnover rate3
2008
$2,905
35.1%
$49.00
5.20
2007
$3,349
37.9%
$52.70
5.16
2006
$3,245
37.9%
$52.37
5.06
1Gross profit is calculated as net sales less Retail Stores, Direct and Other segment cost of sales and related buying and occupancy costs.
2Gross profit rate is calculated as gross profit divided by net sales.
3Inventory turnover rate is calculated as annual cost of sales and related buying and occupancy costs (for all segments) divided by 5-quarter average inventory.
2008 VS 2007 GROSS PROFIT
Gross profit dollars decreased $444 from last year while our gross profit rate declined 280 basis points. Our gross profit rate is made up of both
merchandise margin rates and buying and occupancy cost rate. The deterioration for the year was driven primarily by a decrease in our merchandise
margin rate as we utilized markdowns to respond to slower sales and a more competitive environment. All major merchandise categories at our full-
line stores contributed to this decrease. Our buying and occupancy costs as a percentage of sales increased 76 basis points as many of these costs are
fixed relative to the sales decline.
Our average inventory turnover improved slightly over last year while our average inventory per square foot decreased 7.0% compared to the prior
year. Our merchants’ efforts to align inventory levels to lower demand resulted in the improvement in our inventory turnover rate and our lower
inventory per square foot. Our objective is to match the change in inventory per square foot, which declined 7.0% on average, with our same-store
sales rate, which declined 9.0% for the year.
2007 VS 2006 GROSS PROFIT
Our gross profit rate in 2007 was consistent with 2006. During 2007 we experienced increasing inventory levels coupled with slower sales trends.
To realign our inventory levels, we took higher markdowns during the last half of the year. The increase in markdowns was offset by a decrease in our
buying and occupancy costs, which declined due to lower performance-based incentives and from the sale of our Façonnable business in 2007.
The increase in our average inventory per square foot in 2007 compared with 2006 supported the growth of our designer business in apparel,
accessories and shoes. Although we encountered softer sales trends during the latter half of 2007, inventory discipline and growth in sales throughout
the year resulted in improvement in our inventory turnover rate, which increased 1.9%.
2009 FORECAST OF GROSS PROFIT
In 2009, we expect a 150 to 250 basis point decrease in our gross profit rate. Although we begin 2009 with a good inventory position, we expect continued
gross margin pressure as a result of competitive pressure and lower levels of customer demand. We will also incur additional occupancy expense for the
three new full-line stores and ten new Rack stores in 2009.
Nordstrom, Inc. and subsidiaries 17
Selling, General and Administrative Expenses
Fiscal year
Selling, general and administrative expenses
Selling, general and administrative rate1
2008
$2,111
25.5%
2007
$2,183
24.7%
2006
$2,205
25.8%
1Selling, general and administrative rate is calculated as selling, general and administrative expenses for our Retail Stores, Direct and Other segments as a percentage of net sales.
2008 VS 2007 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses decreased $72 due to lower variable expenses as well as costs savings resulting from our focus on
controlling fixed expenses, partially offset by the additional expenses related to our new stores. During 2008, we opened eight new full-line stores and
six new Rack stores, which contributed $72 of additional expenses.
Our selling, general and administrative expenses as a percentage of net sales increased 79 basis points. The increase as a percentage of net sales was
due to the fixed nature of many of our selling, general and administrative expenses and the impact of declining sales.
2007 VS 2006 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were relatively flat in 2007 compared with 2006. The decrease in selling, general and administrative
expenses as a percentage of net sales was primarily due to decreases in our incentive costs tied to company performance.
2009 FORECAST OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In 2009, our selling, general and administrative dollars are expected to decrease $85 to $175, dependent on our sales performance in 2009. We
anticipate our variable expense model to continue to adjust to sales trends. Additionally, continuing to manage headcount to our business, as well as
targeted reductions in merit-based salary awards, discretionary spending and marketing and technology will reduce our fixed expenses. We expect $42
of additional selling, general and administrative expenses from new stores, which will partially offset the reduction in fixed and variable expenses.
We expect our selling, general and administrative expenses as a percentage of net sales to be slightly higher in 2009 compared with 2008, due to the
fixed nature of many of these expenses in relation to our expected decline in net sales.
Gain on Sale of Façonnable
During the third quarter of 2007, we completed the sale of the Façonnable business in exchange for cash of $216, net of transaction costs, and realized
a gain on sale of $34. The impact to reported earnings per diluted share for the year was $0.09, net of tax of $13.
18
Credit Segment
The Nordstrom Credit card products are designed to grow retail sales and customer relationships by providing superior payment products, services and
loyalty benefits. We believe that owning our credit card business allows us to fully integrate our rewards program with our retail stores and provide
superior service and experience to our customers, thus deepening our relationship with customers and driving higher levels of long-term customer
loyalty. Each card enables participation in the Nordstrom Fashion Rewards® program, through which the customer accumulates points based on their
level of spending (two points per dollar spent at Nordstrom and one point per dollar spent outside of Nordstrom stores). Upon reaching two thousand
points, customers receive twenty dollars in Nordstrom Notes®, which can be redeemed for goods or services in our stores. As customers increase their
level of spending they receive additional benefits, including rewards such as complimentary shipping and alterations in our retail stores. We believe the
Fashion Rewards program, including these additional rewards, drives sales in our Retail Stores and Direct segments.
The table below illustrates a detailed view of the operational results of our Credit segment, consistent with the segment disclosure provided in the
notes to the consolidated financial statements. In order to view the total economic contribution of our credit card program, the following items are
also included in the table below:
•
•
During 2007, we combined our Nordstrom private label credit card and Nordstrom VISA credit card programs into one securitization
program. At this time the Nordstrom VISA credit card receivables were brought on-balance sheet. While the underlying economics of the
business did not change (Nordstrom has always owned 100% of its Credit segment), the accounting for this business segment did change.
For comparability between years, ooff -balanc e sheet income (e xpense), net (credit card revenues, net of bad debt and interest
expense) is shown to mitigate the impact of the change in accounting.
Intercompan y m erchant fees represents the estimated intercompany income of our credit business from the usage of our cards in
the Retail Stores and Direct segments. To encourage the use of Nordstrom cards in our stores, the Credit segment does not charge the
Retail Stores and Direct segments an interchange merchant fee. On a consolidated basis, we avoid these costs which would be incurred if
our customers used third-party cards.
Fiscal year
Finance charge revenue
Late fees and other revenue
Interchange
Total credit card revenues
Interest expense
Net credit card income
Cost of sales — loyalty program
Selling, general and administrative expenses1
Total expense
Other income and expense, net1
Credit card (charge) contribution to earnings before income tax
expense, as presented in segment disclosure
Off-balance sheet income (expense), net2
Intercompany merchant fees
Total credit card (charge) contribution
Average accounts receivable investment (assuming 80% of accounts
receivable is funded with debt)
Credit card (charge) contribution, net of tax, as a percentage of average
accounts receivable investment
2008
$215
18
69
302
(50)
252
(50)
(275)
(325)
1
2007
$194
12
47
253
(64)
189
(47)
(198)
(245)
18
2006
$96
9
-
105
(37)
68
(38)
(92)
(130)
109
(72)
-
48
$(24)
(38)
9
48
$19
47
(6)
43
$84
$382
$332
$283
(3.9%)
3.5%
18.1%
1In 2007, the one-time transitional charge-offs on the Nordstrom VISA receivables of $21 are included in other income and expense, net on our consolidated statement of earnings.
In the above disclosure this amount is included in selling, general and administrative expenses. These charge-offs represent actual write-offs on the Nordstrom VISA credit card
portfolio during the eight-month transitional period.
2Includes off-balance sheet finance charges and other income of $22 in 2007 and $37 in 2006, off-balance sheet interest expense of $6 in 2007 and $21 in 2006, and off-balance sheet bad
debt expense of $7 in 2007 and $22 in 2006.
CREDIT CARD REVENUES
Credit card revenues include finance charges, late and other fees, and interchange fees. The majority of our credit accounts have finance charge rates
that vary with changes in the prime rate. Interchange fees are earned from the use of Nordstrom VISA cards at merchants outside of Nordstrom.
Credit card revenues increased from $253 in 2007 to $302 in 2008 in part due to the Nordstrom VISA portfolio being on-balance sheet for a full year in
fiscal 2008 compared to only three quarters in fiscal 2007, as well as overall portfolio growth. During the first three quarters of fiscal 2008, the positive
impact we saw on finance charge revenue as a result of portfolio growth was partially offset by a significant reduction in the average prime rate as
most of our Nordstrom private label and VISA cards have annual percentage rate terms that are tied to the prime rate. However, during the fourth
quarter of 2008, finance charge revenues improved slightly due to a change in our credit card pricing terms effective November 15, 2008.
The increase in credit card revenues from $105 in 2006 to $253 in 2007 is due to bringing the Nordstrom VISA portfolio on-balance sheet as of May 1,
2007, as well as portfolio growth year over year.
Nordstrom, Inc. and subsidiaries 19
INTEREST EXPENSE
Interest is assigned to the Credit segment proportionate to the amount of debt estimated to fund our credit card receivables, which assumes a mix of
80% debt and 20% equity. The average accounts receivable investment metric included in the table on the previous page represents our best estimate
of the amount of capital for our credit card program that is financed by equity. As a means of assigning comparable cost of capital for our credit card
business, we believe it is important to maintain a capital structure similar to other financial institutions. Based on our research, we have found that
debt as a percentage of credit card receivables for other credit card companies ranges from 70% to 90%. We believe that debt equal to 80% of our
credit card receivables is appropriate given our overall capital structure goals.
Interest expense decreased to $50 in 2008 from $64 in 2007 due to declining variable interest rates, partially offset by higher average borrowings.
Interest expense increased in 2007 compared to 2006 due to higher variable interest rates and higher average borrowings due to bringing the
Nordstrom VISA portfolio on-balance sheet as well as year over year portfolio growth.
COST OF SALES
Cost of sales includes the estimated cost of Nordstrom Notes that will be issued and redeemed under the rewards program. The increase in cost of
sales expense in 2007 compared with 2006 was due to growth in volume.
CREDIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for our credit segment are made up of bad debt and operational and marketing expenses, which are
summarized in the following table:
Fiscal year
Bad debt expense1
Operational and marketing expense
Total credit selling, general and administrative expense
2008
$173
102
$275
2007
$107
91
$198
2006
$17
75
$92
1In 2007, the one-time transitional charge-offs on the Nordstrom VISA receivables of $21 are included in other income and expense, net on our consolidated statement of earnings. In
the above disclosure this amount is included in bad debt expense. These charge-offs represent actual write-offs on the Nordstrom VISA credit card portfolio during the eight-month
transitional period.
Bad Debt Expense
Bad debt expense increased to $173 in 2008 from $107 in 2007 due to increased delinquencies and write-offs reflecting current consumer credit trends,
as well as reserves for higher projected losses inherent in the receivables portfolio as of January 31, 2009. Overall, we believe our credit card portfolio
remains high quality compared with the credit card industry as a whole, with customers considered to have prime or better credit scores making up
approximately 90% of total spending on our credit cards in 2008. While our delinquency and write-off rates have been negatively impacted by the
current economic conditions, our rates remain relatively low when compared to the credit card industry average.
The following table illustrates the allowance for doubtful accounts activity for the past three fiscal years:
Fiscal year
Allowance at beginning of period
Bad debt provision1
Net write–offs (on–balance sheet)
Allowance at end of period
Allowance as a percentage of on-balance sheet
accounts receivable
Bad debt provision as a percentage of average on-balance sheet
accounts receivable
Net write-offs as a percentage of average receivables2
2008
$73
173
(108)
$138
2007
$17
86
(30)
$73
2006
$18
17
(18)
$17
6.8%
9.1%
5.6%
4.1%
5.8%
3.5%
2.7%
2.8%
2.5%
1 In 2007, the one-time transitional charge-offs on the Nordstrom VISA receivables of $21 are included in bad debt expense in the selling, general and administrative expenses table above.
These charge-offs represent actual write-offs on the Nordstrom VISA credit card portfolio during the eight-month transitional period and are not included in the allowance for doubtful
accounts activity in the table above for 2007.
2 Calculated as net write-offs for the combined Nordstrom private label and Nordstrom VISA portfolio as a percentage of average receivables, including average off-balance sheet receivables
in 2007 and 2006 of $182 and $816, respectively.
Operational and Marketing Expense
Operational and marketing expenses are incurred to support and service our credit card products and are included in selling, general and
administrative expenses in the consolidated statement of earnings. Operational and marketing expense increased from $91 in 2007 to $102 in 2008
primarily due to additional marketing expenses as a result of an increase in promotions related to our loyalty program in 2008. The increase in 2007
compared with 2006 was due to the launch of the Fashion Rewards program in 2007.
20
OTHER INCOME AND EXPENSE, NET
During 2006 and the first quarter of 2007, other income and expense, net included income related to our retained interest in the Nordstrom VISA
receivables, which was held in an off-balance sheet trust during these periods. The decline in other income and expense, net from $109 in 2006 to $18 in
2007 is due to bringing the Nordstrom VISA credit card receivables on-balance sheet as of May 1, 2007. Prior to this date, income and expenses related
to the Nordstrom VISA portfolio were recorded net and included in other income and expense, net. After this date, credit card revenues, as well as bad
debt and interest expense are recorded in the respective line items in our consolidated statement of earnings.
2009 FORECAST OF CREDIT CARD REVENUES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In 2009, credit card revenues are expected to increase $50 to $55 due primarily to the changes in our credit card pricing terms which were effective
November 15, 2008. We anticipate selling, general and administrative expense dollars for our credit segment to be approximately flat to down $15
compared to 2008. In fiscal 2008, the rapid economic deterioration in the fourth quarter led to increased bad debt expense as we increased our
reserves in response to anticipated higher delinquencies.
Total Company Results
Interest Expense, Net
Fiscal year
Interest expense, net
2008
$131
2007
$74
2006
$43
2008 VS 2007 INTEREST EXPENSE, NET
Interest expense, net increased $57 in 2008 compared with 2007 due to higher average debt levels resulting from the $1,000 debt offering in the fourth
quarter of 2007, as well as the $850 securitization transaction in May 2007.
2007 VS 2006 INTEREST EXPENSE, NET
We experienced higher interest expense, net, of $74 in 2007 due to higher average debt levels resulting from the issuance of $850 in secured notes in
May 2007 and our $1,000 debt offering during the fourth quarter of 2007.
2009 FORECAST OF INTEREST EXPENSE, NET
We anticipate interest expense, net to increase by $20 to $25 due to the higher cost of debt and higher average debt levels. Additional information
about our interest expense and our fixed and variable rate debt is included in Quantitative and Qualitative Disclosures About Market Risk included as
Item 7A of this Form 10-K.
Income Tax Expense
Fiscal year
Income tax expense
Effective tax rate
2008
$247
38.1%
2007
$458
39.0%
2006
$428
38.7%
2008 VS 2007 INCOME TAX EXPENSE
The decline in income tax expense for the year correlates to the decline in earnings before income taxes. Our effective tax rate decreased to 38.1% for
fiscal 2008 due to a change in our deferred tax assets primarily driven by the closure of several tax years under audit, partially offset by a permanent
item related to investment valuation. The net impact of these items increased earnings per diluted share by $0.04.
2007 VS 2006 INCOME TAX EXPENSE
Our effective tax rate in 2007 increased from the 2006 rate because of the impact of Financial Accounting Standards Board (FASB) Interpretation No.
48, Accounting for Uncertainty in Income Taxes (“FIN 48”) and changes in our estimates of the carrying value of our deferred tax assets.
2009 FORECAST OF INCOME TAX EXPENSE
In 2009, considering the unfavorable impact of anticipated lower sales, we expect our effective tax rate to be between 39.4% and 39.7%.
Net Earnings and Earnings per Diluted Share
Fiscal year
Net earnings
Net earnings as a percentage of total revenues
Earnings per diluted share
2008
$401
4.7%
$1.83
2007
$715
7.9%
$2.88
2006
$678
7.8%
$2.55
2008 VS 2007 NET EARNINGS AND EARNINGS PER DILUTED SHARE
In 2008, net earnings decreased 43.9% and earnings per diluted share decreased 36.5% as a result of lower sales volume, increased markdowns and
higher bad debt expense, partially offset by decreased variable costs and savings in fixed expenses. The decline in earnings per share was also partially
offset by the impact of share repurchases, which caused our weighted average shares outstanding to decrease in 2008 compared with 2007.
Nordstrom, Inc. and subsidiaries 21
2007 VS 2006 NET EARNINGS AND EARNINGS PER DILUTED SHARE
In 2007, net earnings increased 5.5% and earnings per diluted share increased 12.9% compared with 2006 as a result of same-store sales
increases, three full-line stores opened during the year and lower incentive costs tied to company performance. These increases were offset by
increased markdowns at our full-line stores and higher bad debt expense. Additionally, earnings per diluted share for 2007 were impacted by the
following transactions:
•
•
•
$0.09 positive impact from the gain on the sale of the Façonnable business,
$0.07 positive impact from repurchases of common stock, and
$0.06 negative impact from the securitization transaction.
2009 FORECAST OF EARNINGS PER DILUTED SHARE
We expect our earnings per diluted share to be in the range of $1.10 to $1.40 in 2009 primarily due to lower sales volume.
Fourth Quarter Results
The business environment during the fourth quarter challenged the retail industry and our company. Our earnings per diluted share were $0.31 for the
quarter ended January 31, 2009 compared to $0.92 in the same period last year. Net earnings for the fourth quarter of 2008 were $68 compared with
$212 in 2007.
Total sales for the quarter decreased 8.5% to $2,301 while same-store sales declined 12.5%. Results in full-line stores continued to be challenging, as
same-store sales decreased 15.8% for the quarter. Nordstrom Rack remained one of the top performers amongst its off-price competition with a same-
store sales decrease of 1.5%. Women’s apparel and shoes were the Rack categories with same-store sales above the Rack average. Net sales for the
Direct segment increased 9.7%, led by the shoes and kids’ apparel divisions.
Our gross profit rate declined to 32.0% from 37.6% last year as we responded to slower sales trends and the competitive environment with increased
markdowns. We continued to make good progress in aligning inventory levels with sales trends, ending the quarter with inventory per square foot down
12% from the fourth quarter of 2007.
Selling, general and administrative dollars for our Retail Stores, Direct and Other segments were approximately flat compared to last year, while these
expenses as a percentage of net sales increased 191 basis points from 23.3% to 25.2%. Although we continued to vigorously control our expenses in the
fourth quarter, the impact of declining sales resulted in the rate increase. Our new stores expenses in the fourth quarter of 2008 were $20, which offset
expense savings during the quarter.
In the fourth quarter, selling, general and administrative expenses for our credit segment were $90, up from $52 in 2007. The increase was primarily
driven by higher bad debt expense from increased delinquencies and write-offs.
For further information on our quarterly results in 2008 and 2007, refer to Note 16 in the Notes to Consolidated Financial Statements in Item 8.
22
Return on Invested Capital (ROIC) (Non-GAAP financial measure)
We define Return on Invested Capital (ROIC) as follows:
ROIC =
Net Operating Profit After Taxes (NOPAT)
Average Invested Capital
Numerator = NOPAT
Net earnings
+ Income tax expense
+ Interest expense, net
= EBIT
+ Rent expense
- Estimated depreciation on capitalized
operating leases
= Net operating profit
- Estimated income tax expense
= NOPAT
Denominator = Average Invested Capital
Average total assets
- Average non-interest-bearing current liabilities
- Average deferred property incentives
+ Average estimated asset base of capitalized
operating leases
= Average invested capital
We believe that ROIC is a useful financial measure for investors in evaluating our operating performance for the periods presented. When read in
conjunction with our net earnings and total assets and compared to return on assets, it provides investors with a useful tool to evaluate our ongoing
operations and our management of assets from period to period. Over the past several years, we have incorporated ROIC into our key financial metrics,
and since 2005 have used it as an executive incentive measure. Our research has shown historically that overall performance as measured by ROIC
correlates directly to shareholders’ return over the long term. For the 12 fiscal months ended January 31, 2009, our ROIC decreased to 11.6% compared
to 19.4% for the 12 fiscal months ended February 2, 2008. ROIC is not a measure of financial performance under United States GAAP and should not be
considered a substitute for return on assets, net earnings or total assets as determined in accordance with GAAP and may not be comparable to
similarly titled measures reported by other companies. See our ROIC reconciliation to GAAP below. The closest GAAP measure is return on assets, which
decreased to 7.0% from 13.1% for the 12 months ended January 31, 2009 compared to the 12 months ended February 2, 2008. The following is a
reconciliation of return on assets and ROIC:
Net earnings
Add: income tax expense
Add: interest expense, net
Earnings before interest and income taxes
Add: rent expense
Less: estimated depreciation on capitalized
operating leases1
Net operating profit
Estimated income tax expense
Net operating profit after taxes
Average total assets2
Less: average non-interest-bearing current liabilities3
Less: average deferred property incentives2
Add: average estimated asset base of capitalized
operating leases4
Average invested capital
Return on assets
ROIC
12 fiscal months ended
January 31, 2009
$401
247
131
779
37
(19)
797
(303)
$494
$5,768
(1,447)
(400)
322
$4,243
7.0%
11.6%
February 2, 2008
$715
458
74
1,247
48
(26)
1,269
(497)
$772
$5,455
(1,506)
(359)
395
$3,985
13.1%
19.4%
1Depreciation based upon estimated asset base of capitalized operating leases as described in footnote 4 below.
2Based upon the trailing 12-month average.
3Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
4Based upon the trailing 12-month average of the monthly asset base which is calculated as the trailing 12 months rent expense multiplied by 8.
Our ROIC declined primarily due to a decrease in our earnings before interest and income taxes compared to the prior year as well as an increase in our
average invested capital. The increase in average invested capital compared to the prior year is primarily due to the securitization transaction on
May 1, 2007, which brought the entire portfolio of Nordstrom VISA credit card receivables on-balance sheet as of that date.
Nordstrom, Inc. and subsidiaries 23
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of Liquidity and Capital Resources reflects the effects of the correction discussed in Note 1 of the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K.
We maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to minimize our need for short-term borrowings. We believe
that our operating cash flows and available credit facilities are sufficient to finance our cash requirements for the next 12 months.
Over the long term, we manage our cash and capital structure to maximize shareholder return, strengthen our financial position and maintain
flexibility for future strategic initiatives. We continuously assess our debt and leverage levels, capital expenditure requirements, principal debt
payments, dividend payouts, potential share repurchases and future investments or acquisitions. We believe our operating cash flows and available
credit facilities, as well as any potential future borrowing facilities, will be sufficient to fund these scheduled future payments and potential
long-term initiatives.
In 2008 cash decreased by $286 to $72 as of January 31, 2009. The decrease was driven by capital expenditures of $563, returns to our shareholders
through dividends and repurchases of our common stock totaling $402, and purchases made by our customers for third-party merchandise and services
using Nordstrom VISA credit cards of $232. These decreases were partially offset by cash provided by operating activities of $848.
Operating Activities
The majority of our operating cash inflows are related to sales to our customers, including the collection of accounts receivable. We also receive cash
payments for property incentives from developers. Our operating cash outflows generally consist of payments to our inventory vendors (net of vendor
allowances), payments to our employees for wages, salaries and other employee benefits, and payments to our landlords for rent. Operating cash
outflows also include payments for income taxes and interest payments on our short and long-term borrowings.
2008 VS 2007 OPERATING ACTIVITIES
Net cash provided by operating activities increased from $312 in 2007 to $848 in 2008. In 2007, the conversion of our Nordstrom VISA credit card
receivables into an on-balance sheet securitization program reduced cash provided by operating activities by $663. As a result of this transaction, we
recorded the Nordstrom VISA credit card receivables on our consolidated balance sheet and eliminated our investment in asset backed securities. The
increase in cash provided by operating activities in 2008 compared with 2007 was also due to lower variable expenses, fixed cost reductions and a decrease
in cash paid for taxes in 2008. These increases were offset by the impact of declining sales in 2008 as well as an increase in cash paid for interest.
2009 FORECAST OF OPERATING ACTIVITIES
In 2009, we expect our operating cash flows to decline as a result of lower sales.
Investing Activities
Our investing cash flows typically consist of capital expenditures and, beginning in the second quarter of 2007, customer purchases (net of payments) for
goods and services outside of Nordstrom using the Nordstrom VISA credit cards.
2008 VS 2007 INVESTING ACTIVITIES
Net cash used in investing activities increased $371 to $792 in 2008, primarily due to an increase in third-party purchases using the Nordstrom VISA credit
cards and an increase in capital expenditures. Additionally, the sale of our Façonnable business in 2007 partially offset investing cash outflows in the
prior year.
In 2008, we experienced growth in our Nordstrom VISA credit receivables related to purchases made by our customers for merchandise and services
outside of Nordstrom. This drove an increase in cash used for accounts receivable originated at third parties, which was $232 in 2008 compared with
$151 in 2007. The Nordstrom VISA credit cards enable our customers to purchase at merchants outside of Nordstrom and accumulate points for our
Nordstrom Fashion Rewards® program (two points per dollar spent at Nordstrom and one point per dollar spent outside of Nordstrom stores). Upon
reaching two thousand points, customers receive twenty dollars in Nordstrom Notes®, which can be redeemed for goods or services in our stores.
We believe participation in the Fashion Rewards program has resulted in beneficial shifts in customer spending patterns and incremental sales in
our stores.
CAPITAL EXPENDITURES
Our capital expenditures over the last three years totaled $1,328, with $563 in 2008, $501 in 2007 and $264 in 2006. With these capital expenditures, we
added stores, enhanced existing facilities and improved our information systems. The largest components of these expenditures were for new or
relocated stores and store remodels. We also received property incentives from our developers of $119 in 2008, $58 in 2007 and $31 in 2006. These
incentives are included in our cash provided by operations in our consolidated statements of cash flows, however operationally we view these as an
offset to our capital expenditures. Our capital expenditures, net of property incentives, for the last three years by category are summarized in the
following table:
Fiscal year
Category:
New store openings and relocations
Remodels (major and minor)
Information technology
Other
Total
2008
55%
30%
8%
7%
100%
2007
51%
27%
8%
14%
100%
2006
35%
39%
13%
13%
100%
24
The following table summarizes our store count and square footage activity during 2008:
Balance at February 2, 2008
New store openings & relocations
Store closings
Balance at January 31, 2009
Store Count
Full–line
Stores
101
8
—
109
Rack and
Other Stores
55
6
(1)
60
Total
156
14
(1)
169
Square Footage
Full–line
Stores
18.4
1.2
—
19.6
Rack and
Other Stores
2.1
0.2
—
2.3
Total
20.5
1.4
—
21.9
In 2008 we opened eight full-line stores (Aventura Mall in Aventura, Florida; Ala Moana Center in Honolulu, Hawaii; Burlington Mall in Burlington,
Massachusetts; Partridge Creek in Clinton Township, Michigan; Thousand Oaks in Thousand Oaks, California; Fashion Mall in Indianapolis, Indiana; Ross
Park in Pittsburgh, Pennsylvania; and Waterside in Naples, Florida), relocated one full-line store (Tacoma Mall in Tacoma, Washington), and opened six
Rack stores (City Center in White Plains, New York; Laguna Hills Mall in Laguna Hills, California; Springbrook Prairie Pavilion in Naperville, Illinois; Legacy
Village in Lyndhurst, Ohio; Liberty Tree Mall in Danvers, Massachusetts; and The Rim in San Antonio, Texas). Together these openings increased our
gross square footage by 6.7%.
2009 AND LONG-TERM CAPITAL EXPENDITURES FORECAST
During 2008 we made adjustments to our capital plan as a result of developer delays due to the current economic conditions. With these changes, we
delayed two planned store openings originally planned for 2009. To date in 2009, we have relocated one full-line store and opened two new Rack
stores. During the remainder of 2009, we anticipate opening three new full-line stores and eight additional new Rack stores.
We expect that our capital expenditures (net of property incentives) will be approximately $2,100 over the next five years, with approximately $325
planned for 2009. Over these five years, we plan to use 47% of this investment to build new and relocated stores, 28% on remodels (major and minor),
12% on information technology and 13% for other projects. Our current five-year plans include 28 new stores announced through 2013, which
represents an 11% increase in square footage. Almost half of these stores will be in the Northeast and South. We have also reduced the number of major
full-line store remodels from approximately six per year to approximately two per year. We believe that we have the capacity to address additional
capital investments should opportunities arise.
As of January 31, 2009, we were contractually committed to spend $54 for constructing new stores, remodeling existing stores, and other
capital projects.
Financing Activities
Our net cash used in financing activities was $342 in 2008 compared with $64 provided by financing activities in 2007. In 2008, our financing activities
consisted of $250 in principal paid related to our 5.625% senior notes, dividend payments of $138, and share repurchases of $264, partially offset by $275 of
proceeds from commercial paper issuances.
2008 SHORT AND LONG-TERM BORROWING ACTIVITY
During 2008, we issued $150 in notes using our 2007-A Variable Funding Note (“VFN”) facility, which were repaid in full as of January 31, 2009. We also
issued commercial paper, ending the year with outstanding borrowings of $275. The majority of the outstanding commercial paper as of year-end was
used to repay our $250 senior notes, which we retired in January 2009.
DIVIDENDS
Fiscal year
Cash dividends paid per share
2008
$0.64
2007
$0.54
2006
$0.42
In 2008, we paid dividends of $0.64 per share, the twelfth consecutive year that our annual dividends increased. In determining the amount of dividends to
pay, we analyze our dividend payout ratio and dividend yield, and balance the dividend payment with our operating performance and capital resources. For
the dividend yield, which is calculated as our dividends per share divided by our stock price, we plan to target a 1.0% to 1.5% long-term yield. We will
balance any potential future dividend changes with our operating performance and available capital resources.
In February 2009, we declared a first quarter dividend of $0.16 per share, which is consistent with 2008.
2008 SHARE REPURCHASES
Our reported results for 2008 include $264 in share repurchases. During 2008 we repurchased 6.9 shares of our common stock for an aggregate
purchase price of $238, at an average price per share of $34.29. In addition, our results for the period include the settlement of $26 in repurchases
initiated in the fourth quarter of 2007. In August 2007 our Board of Directors authorized a $1,500 share repurchase program and in November 2007
authorized an additional $1,000 for share repurchases, bringing the total program to $2,500. Although the program will not expire until August 2009, we
suspended our share repurchase program in September 2008. We may resume the program in the future if economic conditions improve. As of
January 31, 2009, we had $1,126 in remaining capacity under our share repurchase program. The actual amount and timing of future share repurchases
will be subject to market conditions and applicable Securities and Exchange Commission rules.
Nordstrom, Inc. and subsidiaries 25
Credit Capacity and Commitments
The following table summarizes our credit capacity, the amounts outstanding and the expiration per period:
2007–A $300 variable funding note
$100 variable funding note
$650 commercial paper/unsecured line of credit
Import letters of credit
Total
Total
Amounts
Outstanding
-
-
$275
$5
$280
Less than
1 year
—
-
$275
$5
$280
1–3 years
—
—
—
—
—
3–5 years
—
—
—
—
—
More than
5 years
—
—
—
—
—
Our 2007-A Variable Funding Note facility is backed by substantially all of the Nordstrom private label card receivables and a 90% interest in the
Nordstrom VISA credit card receivables with a capacity of $300. Borrowings under the facility incur interest based upon the cost of commercial paper
issued by the third-party bank conduit plus specified fees. We pay a commitment fee for the note based on the size of the commitment and the amount
of borrowings outstanding.
Our $100 variable funding facility is backed by the remaining 10% interest in the Nordstrom VISA credit card receivables and is available as liquidity
support to our wholly owned federal savings bank, Nordstrom fsb. As of January 31, 2009, no issuances have been made against this facility. Borrowings
under the facility incur interest based upon the cost of commercial paper issued by the third-party bank conduit plus specified fees.
During 2008, we increased our short-term borrowing capacity by exercising the $150 accordion feature on our revolving credit facility. The accordion
feature allowed us to increase our existing $500 unsecured line of credit to $650. In conjunction with the increase of our unsecured line of credit, we
also increased our $500 commercial paper program to $650. The issuance of commercial paper has the effect, while it is outstanding, of reducing our
borrowing capacity under the line of credit by an amount equal to the principal amount of the commercial paper.
Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market
conditions. Our unsecured line of credit expires in November 2010.
We currently have an automatic shelf registration statement on file with the Securities and Exchange Commission. Under the terms of the registration
statement, and subject to the filing of certain post-effective amendments, we are authorized to issue an unlimited principal amount of debt securities.
We are continuing to monitor the credit markets to determine the best time to refinance with long-term debt. Our next debt maturity is a $350
securitized note due in April 2010.
Debt Covenants
Our borrowing facilities include restrictive covenants, including the following significant restrictions:
Facility
2007–A $300 variable funding note
$100 variable funding note
$650 commercial paper/unsecured line of credit
Description of Covenant
Standard and Poor’s BB+ and Moody’s Ba1 ratings or better
Standard and Poor’s BB+ and Moody’s Ba1 ratings or better
Leverage ratio (“Adjusted Debt to EBITDAR” not greater than approximately four times)
As of January 31, 2009 and February 2, 2008 we were in compliance with these covenants. We will monitor each of these covenants closely in 2009 to
ensure that we make any necessary adjustments to our plans and believe that we will remain in compliance with this covenant during 2009. See
additional disclosure of Adjusted Debt to EBITDAR on the following page.
The following table shows our credit ratings at the date of this report:
Credit Ratings
Senior unsecured debt
Commercial paper
Senior unsecured outlook
Moody’s
Baa2
P-2
Negative
Standard
and Poor’s
A-
A-2
Negative/Watch
These ratings could change depending on our performance and other factors. Our 2007-A VFN, which matures in November 2009, and our $100 variable
funding facility can be cancelled or not renewed if our debt ratings fall below Standard and Poor’s BB+ rating or Moody’s Ba1 rating. Our other
outstanding debt is not subject to termination or interest rate adjustments based on changes in our credit ratings. We are currently four ratings above
the minimum for our Standard and Poor’s covenant requirements, and two ratings above the minimum for our Moody’s covenant requirements.
26
Adjusted Debt to EBITDAR (Non-GAAP financial measure)
We define Adjusted Debt to Earnings before Interest, Income Taxes, Depreciation, Amortization and Rent (“EBITDAR”) as follows:
Adjusted Debt to EBITDAR =
Adjusted Debt
Earnings before Interest, Income Taxes, Depreciation,
Amortization and Rent (EBITDAR)
Numerator = Adjusted Debt
Debt
+ Rent expense x 8
= Adjusted Debt
Denominator = EBITDAR
Net Earnings
+ Income tax expense
+ Interest expense, net
+ Depreciation and amortization of buildings and equipment
+ Rent expense
= EBITDAR
Adjusted Debt to EBITDAR is one of our key financial metrics and we believe that our debt levels are best analyzed using this measure. Our goal today
is to manage debt levels at a point which we believe will help us maintain an investment grade credit rating as well as operate with an efficient capital
structure for our size, growth plans and industry. Investment grade credit ratings are important to maintaining access to a variety of short-term and
long-term sources of funding, and we rely on these funding sources to continue to grow our business. We believe a higher ratio, among other factors,
could result in rating agency downgrades. In contrast, we believe a lower ratio would result in a higher cost of capital and could negatively impact
shareholder returns. As of January 31, 2009, our Adjusted Debt to EBITDAR was 2.5 compared to 1.8 at the end of 2007. The increase was the result of
a decrease in EBITDAR in 2008 compared with 2007, driven primarily by a reduction in net earnings from $715 in 2007 to $401 in 2008.
Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should not be considered a substitute for debt to net earnings,
net earnings or debt as determined in accordance with GAAP. In addition, Adjusted Debt to EBITDAR does have limitations:
•
•
Adjusted Debt is our best estimate of the total company debt we would incur if we had purchased the property associated with our
operating leases.
EBITDAR does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, including
leases, or the cash requirements necessary to service interest or principal payments on our debt.
Other companies in our industry may calculate Adjusted Debt to EBITDAR differently than we do, limiting its usefulness as a
•
comparative measure.
To compensate for these limitations, we analyze Adjusted Debt to EBITDAR in conjunction with other GAAP financial and performance measures
impacting liquidity, including operating cash flows, capital spending and net earnings (see our Adjusted Debt to EBITDAR reconciliation to GAAP below).
The closest GAAP measure is debt to net earnings, which was 6.3 and 3.5 for 2008 and 2007, respectively. The following is a reconciliation of debt to net
earnings and Adjusted Debt to EBITDAR:
Debt2
Add: rent expense x 83
Adjusted Debt
Net earnings
Add: income tax expense
Add: interest expense, net
Earnings before interest and income taxes
Add: depreciation and amortization of buildings and equipment
Add: rent expense4
EBITDAR
Debt to Net Earnings
Adjusted Debt to EBITDAR
20081
$2,513
298
$2,811
401
247
131
779
302
37
$1,118
6.3
2.5
20071
$2,497
382
$2,879
715
458
74
1,247
269
48
$1,564
3.5
1.8
1The components of adjusted debt are as of the end of 2008 and 2007, while the components of EBITDAR are for the 12 months ended January 31, 2009 and February 2, 2008.
2Debt includes $275 of outstanding commercial paper borrowings as of January 31, 2009. There were no commercial paper borrowings outstanding as of February 2, 2008.
3The multiple of eight times rent expense used to calculate adjusted debt is our best estimate of the debt we would record for our leases which are classified as operating,
if they had met criteria for a capital lease, or if we had purchased the property.
4The decrease in rent expense is primarily due to the sale of our Façonnable business in the third quarter of 2007.
Nordstrom, Inc. and subsidiaries 27
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of January 31, 2009. We expect to
fund these commitments primarily with operating cash flows generated in the normal course of business and credit available to us under existing and
potential future facilities.
Long-term debt
Capital lease obligations
Other long-term liabilities
Operating leases
Purchase obligations
Total
Total
$3,759
20
178
696
1,059
$5,712
Less than
1 year
$134
3
13
79
983
$1,212
1–3 years
$549
4
39
160
72
$824
3–5 years
$690
4
25
122
4
$845
More than
5 years
$2,386
9
101
335
-
$2,831
Included in the required debt repayments disclosed above are estimated total interest payments of $1,534 as of January 31, 2009, payable over the
remaining life of the debts.
Other long-term liabilities consist of workers’ compensation and general liability insurance reserves, postretirement benefits and a portion of our
Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) reserves. The repayment
amounts presented above were determined based on historical payment trends. We expect to pay $13 of uncertain tax positions under FIN 48 in the
next 12 months and include this balance in other long-term liabilities as due in less than one year. We are unable to reasonably estimate the timing of
future cash flows for the remaining FIN 48 balance and have excluded this from the table above. Other long-term liabilities not requiring cash
payments, such as deferred property incentives and deferred revenue, were excluded from the table above.
Purchase obligations primarily consist of purchase orders for unreceived goods or services and capital expenditure commitments.
This table also excludes the short-term liabilities, other than the current portion of long-term debt, disclosed on our 2008 consolidated balance sheet,
as the amounts recorded for these items will be paid in the next year.
CRITICAL ACCOUNTING ESTIMATES
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 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 estimates
we feel are critical and should be read in conjunction with the Notes to the Consolidated Financial Statements.
Our management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of
Directors and the Audit Committee has reviewed the company’s disclosures that follow.
Inventory
Our merchandise inventories are primarily stated at the lower of cost or market using the retail inventory method. Under the retail method, the
valuation of inventories and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of ending
inventory. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer
preferences, age of the merchandise and fashion trends. As our inventory retail value is adjusted regularly to reflect market conditions, our inventory
is valued at the lower of cost or market. Inherent in the retail inventory method are certain management judgments that may affect the ending
inventory valuation as well as gross margin. Among others, the significant estimates used in inventory valuation are obsolescence and shrinkage.
We reserve for obsolescence based on historical trends and specific identification. Shrinkage is estimated as a percentage of net sales for the period
from the most recent semi-annual inventory count based on historical shrinkage results. Therefore, our obsolescence reserve and shrinkage
percentage contain uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors,
including market conditions, the selling environment, historical results and current inventory trends.
Management does not believe that the assumptions used in these estimates will change significantly based on prior experience. In prior years, we have
made no material changes to our estimates included in the calculations of the obsolescence and shrinkage reserves. We do not believe a 10% change in
the obsolescence reserve or our shrink percentage would have a material effect on our net earnings.
Revenue Recognition
We recognize revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and
online sales include shipping revenue and are recorded upon estimated delivery to the customer. As part of the normal sales cycle, we receive
customer merchandise returns. To recognize the financial impact of sales returns, we estimate the amount of goods that will be returned and reduce
sales and cost of sales accordingly. Inherent in establishing and maintaining a sales return reserve are management judgments around customer
return patterns and return rates. We utilize historical return patterns to estimate our expected returns.
28
Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, there is a possibility that
actual returns could differ from recorded amounts. A 10% change in the sales return reserve would have had a $4 impact on our net earnings for the
year ended January 31, 2009.
Allowance for Doubtful Accounts
Our allowance for doubtful accounts represents our best estimate of the losses inherent in our Nordstrom private label card and Nordstrom VISA credit
card receivables as of the balance sheet date. We evaluate the collectibility of our accounts receivable based on several factors, including historical
trends of 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. Management believes the allowance for doubtful accounts is adequate to cover anticipated losses in our credit card
accounts receivable under current conditions; however, significant deterioration in any of the factors mentioned above or in general economic
conditions could materially change these expectations. In prior years, we have not made material changes to our estimates involved in the allowance
for doubtful accounts. A 10% change in our allowance for doubtful accounts would have affected net earnings by $9 for the fiscal year ended
January 31, 2009.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, we calculate income taxes using the asset and
liability approach. We recognize deferred tax assets and liabilities based on the difference between the financial statement carrying amounts and
respective tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which
we expect those temporary differences to reverse. As audits of income tax returns for prior years are completed, adjustments may occur related to
previously recorded deferred taxes. These potential adjustments, if any, are not expected to be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”). Under
SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition-related items, including expensing
acquisition-related costs as incurred, valuing noncontrolling interests (minority interests) at fair value at the acquisition date, and expensing
restructuring costs associated with an acquired business. SFAS 141(R) also includes a substantial number of new disclosure requirements. SFAS 141(R) is
to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not permitted.
Generally, the effect of SFAS 141(R) will depend on the circumstances of any potential future acquisition.
Also in December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for a noncontrolling interest (minority interest)
in a subsidiary, provides guidance on the accounting for and reporting of the deconsolidation of a subsidiary, and increases transparency through
expanded disclosures. Specifically, SFAS 160 requires the recognition of a minority interest as equity in the consolidated financial statements and separate
from the parent company’s equity. It also requires consolidated net earnings in the consolidated statement of earnings to include the amount of net
earnings attributable to minority interest. This statement will be effective for Nordstrom as of the beginning of fiscal year 2009. Early adoption is not
permitted. We do not believe the impact of the adoption of SFAS 160 will have a material impact on our consolidated financial statements.
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, (“FSP FAS 157-2”), which delayed the effective date of SFAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually), to fiscal years beginning after November 15, 2008. We are presently evaluating the impact of the adoption of SFAS 157 for our nonfinancial assets
and nonfinancial liabilities and do not believe it will have a material effect on our consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities — an
amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 expands the disclosure requirements in SFAS 133 about an entity’s derivative instruments and
hedging activities. This statement will be effective for Nordstrom as of the beginning of fiscal year 2009. We do not believe the impact of the adoption of
SFAS 161 will have a material impact on our consolidated financial statements.
Nordstrom, Inc. and subsidiaries 29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in millions)
INTEREST RATE RISK
Our primary exposure to market risk is through changes in interest rates. In seeking to minimize risk, we manage exposure through our regular
operating and financing activities. We do not use financial instruments for trading or other speculative purposes and are not party to any leveraged
financial instruments.
We have both credit card receivables that generate finance charge income and debt obligations for which we pay fixed and variable interest expense.
We manage our net interest rate exposure through our mix of fixed and variable rate borrowings. A portion of our credit card receivables maintains a fixed
interest rate. Additionally, a portion of this portfolio is used as convenience by our customers who pay in full monthly. The annualized effect of a one-
percentage-point change in interest rates would not materially affect net earnings.
Additionally, short-term borrowing and investing activities generally bear interest at variable rates, but because they have maturities of three months or
less, we believe that the risk of material loss is low, and that the carrying amount approximates fair value.
The table below presents information about our debt obligations that are sensitive to changes in interest rates at January 31, 2009. For debt obligations,
including our capital leases, the table presents principal amounts, at book value, by maturity date, and related weighted average interest rates.
Dollars in millions
Long-term debt
Fixed
Avg. int. rate
Variable
Avg. int. rate
2009
2010
2011
2012
2013
Thereafter
Total at
January 31,
2009
Fair value at
January 31,
2009
$24
6.3%
—
—
$356
5.0%
—
—
$6
8.8%
—
—
$6
8.5%
$500
0.5%
$7
8.4%
—
—
$1,339
6.7%
—
—
$1,738
6.4%
$500
0.5%
$1,400
$350
FOREIGN CURRENCY EXCHANGE RISK
The majority of our revenue, expense and capital expenditures are transacted in U.S. dollars. However, we periodically enter into foreign currency
purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency
prices. We do not believe the fair value of our outstanding forward contracts at January 31, 2009 to be material.
30
Item 8. Financial Statements and Supplementary Data.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Securities
Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented
fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent
limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently,
an effective internal control system can only provide reasonable, not absolute, assurance, with respect to reporting financial information.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria
established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2009.
Deloitte and Touche LLP, an independent registered public accounting firm, is retained to audit Nordstrom’s consolidated financial statements and
the effectiveness of the Company’s internal control over financial reporting. Its accompanying reports are based on audits conducted in accordance
with the standards of the Public Company Accounting Oversight Board (United States).
/s/ Michael G. Koppel
Michael G. Koppel
Executive Vice President and Chief Financial Officer
/s/ Blake W. Nordstrom
Blake W. Nordstrom
President
Nordstrom, Inc. and subsidiaries 31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nordstrom, Inc.
Seattle, Washington
We have audited the internal control over financial reporting of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 31, 2009, based on
criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and
principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009,
based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements and financial statement schedule as of and for the year ended January 31, 2009, of the Company and our report dated March 20,
2009, expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 20, 2009
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nordstrom, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 31, 2009 and
February 2, 2008, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the
period ended January 31, 2009. Our audits also included the financial statement schedule listed in the index at Item 15(a)2. These financial
statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and
subsidiaries as of January 31, 2009 and February 2, 2008, and the results of their operations and cash flows for each of the three fiscal years in the
period ended January 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal
control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 20, 2009, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 20, 2009
Nordstrom, Inc. and subsidiaries 33
Nordstrom, Inc.
Consolidated Statements of Earnings
In millions except per share amounts
Fiscal year
Net sales
Credit card revenues
Total revenues
Cost of sales and related buying and occupancy costs
Selling, general and administrative expenses:
Retail stores, direct and other segments
Credit segment
Other income and expense, net
Gain on sale of Façonnable
Earnings before interest and income taxes
Interest expense, net
Earnings before income taxes
Income tax expense
Net earnings
Earnings per basic share
Earnings per diluted share
Basic shares
Diluted shares
2008
$8,272
301
8,573
(5,417)
(2,111)
(275)
9
–
779
(131)
648
(247)
$401
$1.85
$1.83
216.6
219.2
2007
$8,828
252
9,080
(5,526)
(2,183)
(177)
19
34
1,247
(74)
1,173
(458)
$715
$2.92
$2.88
244.8
248.8
2006
$8,561
105
8,666
(5,354)
(2,205)
(92)
134
—
1,149
(43)
1,106
(428)
$678
$2.60
$2.55
260.7
265.7
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
34
Nordstrom, Inc.
Consolidated Balance Sheets
In millions
January 31, 2009
February 2, 2008
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Merchandise inventories
Current deferred tax assets, net
Prepaid expenses and other
Total current assets
Land, buildings and equipment, net
Goodwill
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Commercial paper
Accounts payable
Accrued salaries, wages and related benefits
Other current liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt, net
Deferred property incentives, net
Other liabilities
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value: 1,000 shares authorized;
215.4 and 220.9 shares issued and outstanding
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
$72
1,942
900
210
93
3,217
2,221
53
170
$5,661
$275
563
214
525
24
1,601
2,214
435
201
997
223
(10)
1,210
$5,661
$358
1,788
956
181
78
3,361
1,983
53
203
$5,600
—
$556
268
550
261
1,635
2,236
369
245
936
201
(22)
1,115
$5,600
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 35
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
In millions except per share amounts
Balance at January 28, 2006
Net earnings
Other comprehensive earnings (loss):
Foreign currency translation adjustment
Unrecognized gain on postretirement benefit obligations
net of tax of $(2), prior to adoption of SFAS 158
Fair value adjustment to investment in
asset backed securities, net of tax of $2
Comprehensive net earnings
Adjustment to initially apply SFAS 158, net of tax of $8
Cash dividends paid ($0.42 per share)
Issuance of common stock for:
Stock option plans
Employee stock purchase plan
Other
Stock-based compensation
Repurchase of common stock
Balance at February 3, 2007
Cumulative effect adjustment to adopt FIN 48
Adjusted Beginning Balance at February 3, 2007
Net earnings
Other comprehensive (loss) earnings:
Foreign currency translation adjustment
Postretirement plan adjustments,
net of tax of ($5)
Fair value adjustment to investment in asset backed
securities, net of tax of $3
Comprehensive net earnings
Cash dividends paid ($0.54 per share)
Issuance of common stock for:
Stock option plans
Employee stock purchase plan
Other
Stock-based compensation
Repurchase of common stock
Balance at February 2, 2008
Net earnings
Other comprehensive earnings:
Postretirement plan adjustments,
net of tax of ($8)
Comprehensive net earnings
Cash dividends paid ($0.64 per share)
Effect of postretirement plan measurement
date change pursuant to SFAS 158
Issuance of common stock for:
Stock option plans
Employee stock purchase plan
Other
Stock-based compensation
Repurchase of common stock
Balance at January 31, 2009
Common Stock
Shares
269.5
—
Amount
$686
—
Retained
Earnings
$1,404
678
—
—
—
—
—
3.8
0.5
—
—
(16.5)
257.3
—
257.3
—
—
—
—
—
2.2
0.4
0.1
—
(39.1)
220.9
—
—
—
—
0.8
0.6
—
—
(6.9)
215.4
—
—
—
—
—
94
17
1
29
—
827
—
827
—
—
—
—
—
61
17
5
26
—
$936
—
—
—
—
17
17
1
26
—
$997
—
—
—
—
(110)
—
—
—
—
(621)
1,351
(3)
1,348
715
—
—
—
(134)
—
—
—
—
(1,728)
$201
401
—
(138)
(3)
—
—
—
—
(238)
$223
Accumulated
Other
Comprehensive
Earnings (Loss)
$3
—
1
3
(3)
(13)
—
—
—
—
—
—
(9)
—
(9)
—
(15)
7
(5)
—
—
—
—
—
—
$(22)
—
12
—
—
—
—
—
—
—
$(10)
Total
$2,093
678
1
3
(3)
679
(13)
(110)
94
17
1
29
(621)
2,169
(3)
2,166
715
(15)
7
(5)
702
(134)
61
17
5
26
(1,728)
$1,115
401
12
413
(138)
(3)
17
17
1
26
(238)
$1,210
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Statements of Cash Flows
In millions
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
Gain on sale of Façonnable
Amortization of deferred property incentives and other, net
Stock-based compensation expense
Deferred income taxes, net
Tax benefit from stock-based payments
Excess tax benefit from stock-based payments
Provision for bad debt expense
Change in operating assets and liabilities:
Accounts receivable
Investment in asset backed securities
Merchandise inventories
Prepaid expenses
Other assets
Accounts payable
Accrued salaries, wages and related benefits
Other current liabilities
Income taxes
Deferred property incentives
Other liabilities
Net cash provided by operating activities
Investing Activities
Capital expenditures
Change in accounts receivable originated at third parties
Proceeds from sale of Façonnable
Proceeds from sale of assets
Purchases of short-term investments
Sales of short-term investments
Other, net
Net cash used in investing activities
Financing Activities
Proceeds from commercial paper
Proceeds from long-term borrowings, net
Principal payments on long-term borrowings
Increase (decrease) in cash book overdrafts
Proceeds from exercise of stock options
Proceeds from employee stock purchase plan
Excess tax benefit from stock-based payments
Cash dividends paid
Repurchase of common stock
Other, net
Net cash (used in) provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2008
$401
302
—
(21)
28
(36)
3
(4)
173
(93)
—
53
9
29
16
(54)
28
(76)
119
(29)
848
(563)
(232)
—
2
—
—
1
(792)
275
150
(410)
20
13
17
4
(138)
(264)
(9)
(342)
(286)
358
$72
2007
$715
269
(34)
(36)
26
(42)
28
(26)
107
(1,083)
420
—
(9)
(27)
(19)
(64)
36
(6)
58
(1)
312
(501)
(151)
216
12
—
—
3
(421)
—
2,510
(680)
5
34
17
26
(134)
(1,702)
(12)
64
(45)
403
$358
2006
$678
285
—
(36)
37
(58)
44
(38)
17
(61)
128
(39)
(5)
(8)
84
49
23
(6)
31
17
1,142
(264)
—
—
—
(110)
164
(8)
(218)
—
—
(307)
(51)
51
16
38
(110)
(621)
—
(984)
(60)
463
$403
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 37
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Founded in 1901 as a shoe store in Seattle, today Nordstrom is a fashion specialty retailer that offers customers a well-edited selection of high-
quality fashion brands focused on clothing, shoes and accessories for men, women and children. This breadth of merchandise allows us to serve both
our affluent customer segment as well as those who appreciate quality products and experiences. We offer a wide selection of brand name and
private label merchandise. We offer our products through multiple retail channels, including 109 ‘Nordstrom’ full-line stores, 56 off-price ‘Nordstrom
Rack’ stores, two ‘Jeffrey’ boutiques, two clearance stores, our catalogs and through our online store at www.nordstrom.com. Our stores are located
throughout the United States.
Our credit operations offer a Nordstrom private label card, two Nordstrom VISA credit cards and a debit card for Nordstrom purchases, which
generate credit card revenues. We offer our customers a variety of payment products and services, including our loyalty program.
Our operations also include a product development group, which coordinates the design and production of private label merchandise sold in our
retail stores.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31st. References to 2008 relate to the 52-week fiscal year ended January 31, 2009.
References to 2007 and 2006 relate to the 52-week fiscal year ended February 2, 2008 and the 53-week fiscal year ended February 3, 2007,
respectively. Fiscal year 2006 includes an extra week (the 53rd week) as a result of our 4-5-4 retail reporting calendar. References to 2009 relate to
the 52-week fiscal year ending January 30, 2010.
Principles of Consolidation
The consolidated financial statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are
eliminated 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.
Reclassification
In order to improve the transparency related to our Credit segment, we have reclassified credit card revenues and expenses in our consolidated
statements of earnings in 2007 and 2006 to conform to our 2008 presentation. Credit card revenues were previously included in finance charges and
other, net in our consolidated statement of earnings and selling, general and administrative expenses for our credit segment were previously included in
total selling, general and administrative expenses in our consolidated statements of earnings. These reclassifications did not impact our reported net
earnings, earnings per share or cash flows for these periods.
Net Sales
We record revenues net of estimated returns and we exclude sales taxes. Our retail stores record revenue at the point of sale. Our catalog and online
sales include shipping revenue and are recorded upon estimated receipt by the customer. We recognize revenue associated with our gift cards upon
redemption of the gift card. As part of the normal sales cycle, we receive customer merchandise returns. To recognize the financial impact of sales
returns, we estimate the amount of goods that will be returned and reduce sales and cost of sales accordingly. We utilize historical return patterns
to estimate our expected returns. Our sales return reserves were $70 and $56 at the end of 2008 and 2007.
Credit Card Revenues and Credit Selling, General and Administrative Expenses
Credit card revenues include finance charges, late and other fees generated by our combined Nordstrom private label card and Nordstrom VISA
credit card programs, and interchange fees generated by the use of Nordstrom VISA cards at third-party merchants. These revenues were previously
included in finance charges and other, net in our consolidated statement of earnings. Selling, general and administrative expenses for our credit
segment consist of operational and marketing costs incurred to support and service our credit card programs and bad debt expense, and were
previously included in total selling, general and administrative expenses in our consolidated statements of earnings.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandise and product development groups. Occupancy costs
include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and distribution operations.
Shipping and Handling Costs
Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment.
Shipping and handling costs of $106, $87 and $78 in 2008, 2007 and 2006 were included in selling, general and administrative expenses.
38
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Advertising
Production costs for newspaper, radio and other media are expensed the first time the advertisement is run. Total advertising expenses, net of vendor
allowances, of $98, $101 and $109 in 2008, 2007 and 2006 were included in selling, general and administrative expenses.
Other Income and Expense, Net
On May 1, 2007, we converted our Nordstrom private label card and Nordstrom VISA credit card programs into one securitization program. Prior to the
transaction, other income and expense, net consisted primarily of earnings from our investment in asset backed securities and securitization gains and
losses, which were both generated from the Nordstrom VISA credit card program.
Gift card breakage is another component of other income and expense, net. Based on an analysis of our program since its inception in 1999, we
determined that balances remaining on cards issued beyond five years ago are unlikely to be redeemed and therefore may be recognized as income.
Breakage income was $7, $6 and $5 in 2008, 2007 and 2006. This breakage income is approximately 3.5% of the amount initially issued as gift cards.
Stock-Based Compensation
We recognize stock-based compensation expense on a straight-line basis over the requisite service period. The total compensation expense is reduced
by estimated forfeitures expected to occur over the vesting period of the award. We estimate the fair value of stock options granted using the Binomial
Lattice option valuation model. We believe that this model provides a better estimate of fair value than the Black-Scholes option valuation model, as it
can accommodate variability in assumptions for expected volatility, dividends and risk-free interest rates. Refer to Note 12: Shareholders’ Equity and
Stock Compensation Plans for additional information on our stock option plans and related stock-based compensation expense.
Cash Equivalents
Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost,
which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily
basis. Accounts payable at the end of 2008 and 2007 included $66 and $46 of checks not yet presented for payment drawn in excess of our bank
deposit balances.
Supplemental Cash Flow Information
Fiscal year
Cash paid during the year for:
Interest (net of capitalized interest)
Income taxes
2008
$145
340
2007
$75
478
2006
$55
449
Statement of Cash Flows Correction
Subsequent to the issuance of our 2007 Annual Report on Form 10-K, we determined that beginning in the second quarter of 2007, cash flows arising
from VISA originations and repayments for sales outside of Nordstrom are more properly defined as an investing activity rather than an operating
activity within our consolidated statements of cash flows. As a result, net cash used in operating activities and net cash used in investing activities
in the accompanying consolidated statement of cash flows for 2007 have been corrected from the amounts previously reported as follows:
Operating Activities:
Change in accounts receivable
Net cash provided by operating activities
Fiscal year 2007
As
previously
reported
As
corrected
$(1,234)
161
$(1,083)
312
Investing Activities:
Change in accounts receivable originated at third parties
Net cash used in investing activities
—
(270)
(151)
(421)
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Securitization of Accounts Receivable
Prior to May 2007, through our wholly owned federal savings bank, Nordstrom fsb, we offered a private label card and two Nordstrom VISA credit
cards. The private label card receivables were held in a trust, which could issue third-party debt that was secured by the private label receivables;
the private label program was treated as ‘on-balance sheet,’ with the receivables, net of bad debt allowance, and debt, if any, recorded on our
consolidated balance sheet, the finance charge income recorded in credit card revenues, and the bad debt expense recorded in credit segment
selling, general and administrative expenses.
The Nordstrom VISA credit card receivables were held in a separate trust (the VISA Trust), which could issue third-party debt that was secured by the
Nordstrom VISA credit card receivables. The Nordstrom VISA credit card program was treated as ‘off-balance sheet.’ We recorded the fair value of
our interest in the VISA Trust on our consolidated balance sheet, gains on the sale of receivables to the VISA Trust and our share of the VISA Trust’s
finance income in other income and expense, net.
On May 1, 2007, we converted the Nordstrom private label cards and Nordstrom VISA credit card programs into one securitization program, which is
accounted for as a secured borrowing (on-balance sheet). When we combined the securitization programs, our investment in asset backed securities,
which was accounted for as available-for-sale securities, was eliminated and we reacquired all of the Nordstrom VISA credit card receivables
previously held off-balance sheet. These reacquired Nordstrom VISA credit card receivables were recorded at fair value at the date of acquisition.
We have transitioned the Nordstrom VISA credit card receivable portfolio to historical cost, net of bad debt allowances, on our consolidated
balance sheet.
Also on May 1, 2007, the trust issued securities that are backed by substantially all of the Nordstrom private label card receivables and 90% of the
Nordstrom VISA credit card receivables. Under the securitization, the receivables are transferred to a third-party trust on a daily basis. The balance
of the receivables transferred to the trust fluctuates as new receivables are generated and old receivables are retired (through payments received,
charge-offs or credits for merchandise returns). These combined receivables back the Series 2007-1 Notes, the Series 2007-2 Notes, and two unused
variable funding notes that are discussed in Note 6: Debt and Credit Facilities.
Our credit card securitization agreements set a maximum percentage of receivables that can be associated with various receivable categories, such
as employee or foreign receivables. As of January 31, 2009 and February 2, 2008, these maximums were not exceeded.
The following table summarizes certain income, expenses and cash flows received from and paid to the VISA Trust prior to the May 2007 transaction:
Period
Principal collections reinvested in new receivables
Gains on sales of receivables
Income earned on beneficial interests
Cash flows (used in) provided by beneficial interests:
Investment in asset backed securities
Servicing fees
3 months ended
May 1, 2007
$819
3
21
12 months ended
February 3, 2007
$3,094
20
75
(457)
2
494
16
Net credit losses were $9 and $22 in 2007 and 2006.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, using the retail method (weighted average cost).
Land, Buildings and Equipment
Depreciation is computed using the straight-line method. Estimated useful lives by major asset category are as follows:
Asset
Buildings and improvements
Store fixtures and equipment
Leasehold improvements
Software
Life (in years)
5–40
3–15
Shorter of initial lease term or asset life
3–7
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we review our goodwill
annually for impairment in the first quarter or when circumstances indicate the carrying value of these assets may not be recoverable. SFAS 142
requires that the test be performed through the application of a two-step fair value test. The first step of the test compares the book value to the
estimated fair value which is based on future cash flows. If fair value does not exceed carrying value then a second step is performed to quantify
the amount of the impairment.
40
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, when facts
and circumstances indicate that the carrying values of long-lived assets may be impaired, we perform an evaluation of recoverability by comparing
the carrying values of the net assets to projected undiscounted future cash flows in addition to other quantitative and qualitative analyses. Upon
indication that the carrying values of long-lived assets may not be recoverable, we recognize an impairment loss. We estimate the fair value of the
assets using the discounted future cash flows of the assets. Property, plant and equipment assets are grouped at the lowest level for which there are
identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level.
Leases
We recognize lease expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time that we control the
leased property.
We lease the land or the land and buildings at many of our full-line stores, and we lease the buildings at many of our Rack stores. Additionally, we
lease office facilities, warehouses and equipment. Most of these leases are classified as operating leases and they expire at various dates through
2080. We have no significant individual or master lease agreements.
Our fixed, noncancelable lease terms generally are 20 to 30 years for full-line stores and 10 to 15 years for Rack stores. Many of our leases include
options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception.
For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent expense on a straight-line basis and record the
difference between the rent expense and the rent payable as a liability.
Most of our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs.
Some leases require additional payments based on sales and are recorded in rent expense when the contingent rent is probable.
Leasehold improvements made at the inception of the lease are amortized over the shorter of the asset life or the initial lease term as described
above. Leasehold improvements made during the lease term are also amortized over the shorter of the asset life or the remaining lease term.
We receive incentives to construct stores in certain developments. These incentives are recorded as a deferred credit and recognized as a reduction
to rent expense on a straight-line basis over the lease term as described above. At the end of 2008 and 2007, this deferred credit balance was $478
and $408. Also, we may receive incentives based on a store’s net sales; we recognize these incentives in the year that they are earned as a reduction
of rent expense.
Foreign Currency Translation
During 2008, we did not own any material foreign subsidiaries, and therefore, we did not recognize any foreign currency translation in accumulated
other comprehensive earnings. Prior to the sale of the Façonnable business in the third quarter of 2007, the assets and liabilities of our foreign
subsidiaries were translated to U.S. dollars using the exchange rates effective on the balance sheet date, while income and expense accounts were
translated at the average rates in effect during the year. The resulting translation adjustments were recorded in accumulated other comprehensive
earnings in 2007 and 2006.
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 are expected to 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 expense will be deductible for tax purposes.
Effective February 4, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. In accordance with FIN 48, we regularly evaluate the likelihood of realizing the
benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and
information available. We follow the general guidelines that FIN 48 sets forth in determining whether a tax position will ultimately prevail. If we
believe it is more likely than not that our position will be sustained, we recognize a benefit. The amount of the benefit is the amount which we
believe is greater than 50% likely to be realized.
Other Current Liabilities
Included in other current liabilities were gift card liabilities of $175 and $188 at the end of 2008 and 2007.
Nordstrom, Inc. and subsidiaries 41
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Loyalty Program
Customers who reach a cumulative purchase threshold when using our Nordstrom private label cards or our Nordstrom VISA credit cards receive
Nordstrom Notes®. These Nordstrom Notes can be redeemed for goods or services in our stores. We estimate the net cost of the Nordstrom Notes
that will be issued and redeemed and record this cost as rewards points are accumulated. In addition to this long-standing benefit, in 2007 we
launched an enhanced loyalty program, Fashion Rewards®. Under this program, Nordstrom customers receive higher levels of cumulative benefits
based on their annual spend. We record the cost of the loyalty program benefits for Nordstrom Notes and alterations in cost of sales given that we
provide customers with products or services for these rewards. Other costs of the loyalty program, which primarily include shipping and fashion
events, are recorded as selling, general and administrative expenses. These expenses are recorded based on estimates of benefits expected to be
accumulated and redeemed in relation to sales.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic selling expenses, purchase price adjustments, cooperative advertising programs and
vendor sponsored contests. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction to
the related cost when incurred. 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 and promotion programs and vendor sponsored contests are recorded in
cost of sales and related buying and occupancy costs and selling, general and administrative expenses as a reduction to the related cost when
incurred. Any allowances in excess of actual costs incurred that are recorded in selling, general and administrative expenses are recorded as a
reduction to cost of sales. The following table shows vendor allowances earned during the year:
Fiscal year
Cosmetic selling expenses
Purchase price adjustments
Cooperative advertising and promotion
Vendor sponsored contests
Total vendor allowances
Allowances were recorded in our consolidated statements of earnings as follows:
Fiscal year
Cost of sales and related buying and occupancy costs
Selling, general and administrative expenses
Total vendor allowances
2008
$112
96
65
3
$276
2008
$157
119
$276
2007
$120
86
61
2
$269
2007
$146
123
$269
2006
$121
70
67
3
$261
2006
$138
123
$261
Fair Value of Financial Instruments
The carrying amounts of cash equivalents approximate fair value. See Note 6: Debt and Credit Facilities for the fair value of our long-term debt.
Derivatives Policy
We periodically enter into foreign currency purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to
hedge against fluctuations in foreign currency prices. These forward contracts do not qualify for derivative hedge accounting, therefore any
changes in the fair value of financial contracts are reflected in the statement of earnings. The notional amounts of our foreign currency forward
contracts at the contract rates were $3 and $10 at the end of 2008 and 2007.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations (“SFAS 141(R)”). Under
SFAS 141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition-related items, including
expensing acquisition-related costs as incurred, valuing noncontrolling interests (minority interests) at fair value at the acquisition date, and
expensing restructuring costs associated with an acquired business. SFAS 141(R) also includes a substantial number of new disclosure requirements.
SFAS 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Early adoption is not
permitted. Generally, the effect of SFAS 141(R) will depend on the circumstances of any potential future acquisition.
Also in December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for a noncontrolling interest
(minority interest) in a subsidiary, provides guidance on the accounting for and reporting of the deconsolidation of a subsidiary, and increases
transparency through expanded disclosures. Specifically, SFAS 160 requires the recognition of a minority interest as equity in the consolidated financial
statements and separate from the parent company’s equity. It also requires consolidated net earnings in the consolidated statement of earnings to
include the amount of net earnings attributable to minority interest. This statement will be effective for Nordstrom as of the beginning of fiscal year
2009. Early adoption is not permitted. We do not believe the adoption of SFAS 160 will have a material impact on our consolidated financial statements.
42
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, (“FSP FAS 157-2”), which delayed the effective date of SFAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually), to fiscal years beginning after November 15, 2008. We are presently evaluating the impact of the adoption of SFAS 157 for our nonfinancial
assets and nonfinancial liabilities and do not believe it will have a material effect on our consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 expands the disclosure requirements in SFAS 133 about an entity’s derivative instruments
and hedging activities. This statement will be effective for Nordstrom as of the beginning of fiscal year 2009. We do not believe the adoption of SFAS 161
will have a material impact on our consolidated financial statements.
NOTE 2: ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
Trade receivables:
Unrestricted
Restricted
Allowance for doubtful accounts
Trade receivables, net
Other
Accounts receivable, net
January 31, 2009
February 2, 2008
$14
2,005
(138)
1,881
61
$1,942
$18
1,760
(73)
1,705
83
$1,788
The following table summarizes the restricted trade receivables:
Private label card receivables
Nordstrom VISA credit card receivables
Restricted trade receivables
January 31, 2009
$636
1,369
$2,005
February 2, 2008
$630
1,130
$1,760
The restricted trade receivables secure our Series 2007-1 Notes, the Series 2007-2 Notes and our two variable funding notes. The restricted trade
receivables relate to substantially all of our Nordstrom private label card receivables and our Nordstrom VISA credit card receivables.
The unrestricted trade receivables consist primarily of the remaining portion of our Nordstrom private label and Nordstrom VISA credit card
receivables and accrued finance charges not yet allocated to customer accounts.
Other accounts receivable consist primarily of credit card receivables due from third-party financial institutions and vendor claims.
Nordstrom, Inc. and subsidiaries 43
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 3: LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment consist of the following:
Land and land improvements
Buildings and building improvements
Leasehold improvements
Store fixtures and equipment
Software
Construction in progress
Less: accumulated depreciation and amortization
Land, buildings and equipment, net
January 31, 2009
$67
847
1,631
2,214
347
222
5,328
(3,107)
$2,221
February 2, 2008
$65
842
1,313
1,995
303
391
4,909
(2,926)
$1,983
The total cost of buildings and equipment held under capital lease obligations was $28 at the end of both 2008 and 2007, with related accumulated
amortization of $21 in 2008 and $20 in 2007. The amortization of capitalized leased buildings and equipment of $1 in both 2008 and 2007 was
recorded in depreciation expense.
NOTE 4: EMPLOYEE BENEFITS
We provide a 401(k) and profit sharing plan for our employees. Our Board of Directors establishes our profit sharing contribution each year.
The 401(k) component is funded by voluntary employee contributions and our matching contributions up to a fixed percentage of employee
contributions. Our expense related to the profit sharing component and matching contributions to the 401(k) component totaled $39, $50
and $73 in 2008, 2007 and 2006.
NOTE 5: INCOME TAXES
We recorded a liability for uncertain tax benefits upon adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (“FIN 48”) as of February 4, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits for
2008 and 2007 is as follows:
Fiscal Year
Unrecognized tax benefit at beginning of year
Gross increase to tax positions in prior periods
Gross decrease to tax positions in prior periods
Gross increase to tax positions in current period
Lapse of statute
Settlements
Unrecognized tax benefit at end of year
2008
$27
2
(1)
4
(1)
(3)
$28
2007
$21
5
(1)
3
(1)
-
$27
Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $13 by January 30, 2010, if years close and audits are
completed during 2009.
As of January 31, 2009 and February 2, 2008, $10 and $9 of the ending gross unrecognized tax benefit balance relates to deferred items which, if
recognized, would not impact the effective tax rate.
Interest and penalties related to income tax matters are classified as a component of income tax expense. During 2008 and 2007, our income tax
expense included $2 and $3 of tax-related interest and penalties. At the end of 2008 and 2007, our liability for interest and penalties was $6 and $4.
44
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
We file income tax returns in federal and various state and local jurisdictions. Prior to 2008, we filed returns in France and other foreign
jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2002.
During 2008, the IRS completed its routine examinations of our federal filings for the years 2002 through 2006. As a result of adjustments identified
in the IRS examinations and revisions of estimates, we increased our deferred tax assets, specifically related to land, buildings and equipment which
also resulted in a reduction in our effective tax rate. Additionally, the federal tax returns for 2007 and 2008 are under concurrent year processing
(accelerated audits), which are expected to be completed in 2009 and 2010. We also currently have an active examination in France for the years
2001 through 2004, related to our Façonnable business which we sold in 2007.
Income tax expense consists of the following:
Fiscal year
Current income taxes:
Federal
State and local
Total current income tax expense
Deferred income taxes:
Current
Non-current
Total deferred income tax benefit
Total income tax expense
2008
$244
39
283
(29)
(7)
(36)
$247
2007
$435
65
500
(24)
(18)
(42)
$458
2006
$423
63
486
(10)
(48)
(58)
$428
A reconciliation of the statutory Federal income tax rate to the effective tax rate on earnings before income taxes is as follows:
Fiscal year
Statutory rate
State and local income taxes, net of federal
income taxes
Deferred tax adjustment
Permanent differences
Other, net
Effective tax rate
2008
35.0%
3.4
(3.2)
2.0
0.9
38.1%
2007
35.0%
3.4
-
-
0.6
39.0%
2006
35.0%
3.2
-
-
0.5
38.7%
Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts
used for tax purposes. The major components of deferred tax assets and liabilities are as follows:
Compensation and benefits accruals
Accrued expenses
Merchandise inventories
Land, buildings and equipment basis and
depreciation differences
Gift cards and gift certificates
Loyalty reward certificates
Allowance on accounts receivables
Federal benefit of state taxes
Other
Total deferred tax assets
Land, buildings and equipment basis and
depreciation differences
Total deferred tax liabilities
Net deferred tax assets
January 31, 2009
$99
63
26
February 2, 2008
$105
56
28
7
17
11
54
10
2
289
–
–
$289
-
15
10
28
9
13
264
(4)
(4)
$260
Nordstrom, Inc. and subsidiaries 45
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 6: DEBT AND CREDIT FACILITIES
We hold both secured and unsecured debt. The primary collateral for our secured debt is our Nordstrom private label card and Nordstrom VISA credit
card receivables. A summary of long-term debt is as follows:
January 31, 2009
February 2, 2008
Secured
Series 2007-1 Class A Notes, 4.92%, due April 2010
Series 2007-1 Class B Notes, 5.02%, due April 2010
Series 2007-2 Class A Notes, one-month LIBOR plus 0.06%
per year, due April 2012
Series 2007-2 Class B Notes, one-month LIBOR plus 0.18%
per year, due April 2012
Mortgage payable, 7.68%, due April 2020
Other
Unsecured
Senior notes, 5.625%, due January 2009
Senior notes, 6.25%, due January 2018, net of unamortized discount
Senior debentures, 6.95%, due March 2028
Senior notes, 7.00%, due January 2038, net of unamortized discount
Other
Total long-term debt
Less: current portion
Total due beyond one year
$326
24
454
46
63
17
930
–
646
300
343
19
1,308
2,238
(24)
$2,214
$326
24
454
46
67
19
936
250
646
300
342
23
1,561
2,497
(261)
$2,236
Both the Series 2007-1 Class A & B Notes and the Series 2007-2 Class A & B Notes are secured by substantially all of the Nordstrom private label card
receivables and a 90% interest in the Nordstrom VISA credit card receivables.
Our mortgage payable is secured by an office building which had a net book value of $82 at the end of 2008.
Other secured and unsecured debt consists primarily of capital lease obligations and liabilities related to the acquisition of Jeffrey.
During the fourth quarter of 2008, we retired our $250 in 5.625% senior notes. The notes were paid using commercial paper borrowings.
The fair value of long-term debt, including current maturities, using quoted market prices of the same or similar issues, was $1,750 and $2,514
at the end of 2008 and 2007.
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2009
2010
2011
2012
2013
Thereafter
The components of interest expense, net are as follows:
Fiscal year
Interest expense on long-term debt and short-term
borrowings
Less:
Interest income
Capitalized interest
Interest expense, net
2008
$145
(3)
(11)
$131
2007
$102
(16)
(12)
$74
46
$23
355
5
505
5
1,332
2006
$63
(15)
(5)
$43
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
As of January 31, 2009, we had total short-term borrowing capacity for general corporate purposes of $950, of which we have borrowings
outstanding of $275. Of the total capacity, we have $650 under our commercial paper program, which is backed by our unsecured line of credit.
As of January 31, 2009, we had $275 in outstanding issuances of commercial paper. We paid a weighted average interest rate of approximately 1%
for these issuances, which had a term of three days. As of February 2, 2008, we had no outstanding issuances of commercial paper. As of January 31,
2009 and February 2, 2008, we had no outstanding borrowings under our line of credit. The remaining $300 in short-term capacity as of January 31,
2009 was available under a Variable Funding Note facility (“2007-A VFN”). As of January 31, 2009 and February 2, 2008, we had no outstanding
issuances against this facility.
During 2008, we increased our short-term borrowing capacity, by exercising the $150 accordion feature on our revolving credit facility.
The accordion feature allowed us to increase our existing $500 unsecured line of credit to $650. In conjunction with the increase of our unsecured
line of credit, we also increased our $500 commercial paper program to $650.
Our short-term borrowing facilities include restrictive covenants. Our commercial paper program allows us to use the proceeds to fund share
repurchases as well as operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on,
among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding,
of reducing the borrowing capacity under the line of credit by an amount equal to the principal amount of the commercial paper. The unsecured
line of credit expires in November 2010 and requires that we maintain a leverage ratio not greater than approximately four times adjusted debt to
earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”). As of January 31, 2009 and February 2, 2008 we were in
compliance with this covenant.
Our 2007-A VFN is backed by substantially all of the Nordstrom private label card receivables and a 90% interest in the Nordstrom VISA credit card
receivables with a commitment of $300. Borrowings under the facility incur interest based upon the cost of commercial paper issued by the third-
party bank conduit plus specified fees. We pay a commitment fee for the note based on the size of commitment and the amount of borrowings
outstanding. The facility matures November 2009 and can be cancelled if our debt ratings fall below Standard and Poor’s BB+ rating or Moody’s Ba1
rating. As of March 20, 2009, our rating by Standard and Poor’s was A-, four grades above BB+, and by Moody’s was Baa2, two grades above Ba1.
Our wholly owned federal savings bank, Nordstrom fsb, also maintains a variable funding facility with a short-term credit capacity of $100. This
facility is backed by the remaining 10% interest in the Nordstrom VISA credit card receivables and is available, if needed, to provide liquidity support
to Nordstrom fsb. As of January 31, 2009 and February 2, 2008, Nordstrom fsb had no outstanding borrowings under this facility. Borrowings under
the facility incur interest based upon the cost of commercial paper issued by the third-party bank conduit plus specified fees.
NOTE 7: LEASES
Future minimum lease payments as of January 31, 2009 are as follows:
Fiscal year
2009
2010
2011
2012
2013
Thereafter
Total minimum lease payments
Less amount representing interest
Present value of net minimum lease payments
Capital Leases
$3
2
2
2
2
9
20
(7)
$13
Operating Leases
$79
82
78
64
58
335
$696
Rent expense for 2008, 2007 and 2006 are as follows:
Fiscal year
Minimum rent:
Store locations
Offices, warehouses and equipment
Percentage rent — store locations
Property incentives — store locations
Total rent expense
2008
2007
2006
$63
13
9
(48)
$37
$67
14
14
(47)
$48
$67
15
12
(46)
$48
The rent expense above does not include common area maintenance costs of $19 in both 2008 and 2007 and $16 in 2006.
Nordstrom, Inc. and subsidiaries 47
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 8: SELF INSURANCE
We retain a portion of the risk for certain losses related to health and welfare, workers’ compensation and general liability claims. Liabilities
associated with these losses include estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost
based on analysis of historical data and independent actuarial estimates.
• Health and Welfare – We are self insured for the majority of our health and welfare coverage and we do not use stop-loss coverage. Participants
contribute to the cost of their coverage through both premiums and out of pocket expenses and are subject to certain plan limits and deductibles.
Our health and welfare reserve was $16 and $14 at the end of 2008 and 2007.
• Workers’ Compensation – We have a retention per claim of $1 or less and no policy limits. Our workers’ compensation reserve was $53 at the end
of both 2008 and 2007 and our expense was $19, $15 and $21 in 2008, 2007 and 2006.
• General Liability – Our General Liability encompasses two types of losses – Employment Practices Liability and Commercial General Liability. We
have a retention per claim of $1 or less and a policy limit up to $25 and $150, respectively. Our general liability insurance reserve was $11 at the end
of 2008 and $10 at the end 2007.
NOTE 9: POST-RETIREMENT BENEFITS
We have an unfunded Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain officers and select employees.
The SERP has different benefit levels depending on the participant’s role in the company. As of January 31, 2009 and February 2, 2008, there were 33
and 38 officers and select employees eligible for SERP benefits. This plan is non-qualified and does not have a minimum funding requirement.
Effective February 3, 2007, we adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans (“SFAS 158”). The impact of the adoption of SFAS 158 is reflected within our consolidated financial statements as of
February 3, 2007. SFAS 158 requires the recognition of a plan’s overfunded or underfunded status as an asset or liability in the consolidated balance
sheet and the recognition of changes in that funded status in the year in which the changes occur through comprehensive income.
The following table reflects the effects of the adoption of SFAS 158 on our consolidated balance sheet as of February 3, 2007:
Other assets
Total assets
Other liabilities
Accumulated other comprehensive earnings (loss), net
Total shareholders’ equity
Total liabilities and shareholders’ equity
Before Application
of Statement 158
$185
4,820
228
1
2,179
$4,820
Adjustments
$2
2
12
(10)
(10)
$2
After Application
of Statement 158
$187
4,822
240
(9)
2,169
$4,822
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive earnings (pre-tax) included prior service
cost of $(2) and $(3) and accumulated loss of $(9) and $(28) at the end of 2008 and 2007.
The change in benefit obligation and plan assets for 2008 and 2007 are as follows:
Change in benefit obligation:
Benefit obligation at beginning of year
Participant service cost
Interest cost
Benefits paid
Actuarial gain
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contribution
Distributions
Fair value of plan assets at end of year
Underfunded status
January 31, 2009
February 2, 2008
$95
3
7
(4)
(16)
$85
—
$4
(4)
—
$(85)
$98
3
6
(4)
(8)
$95
—
$4
(4)
—
$(95)
The accumulated benefit obligation was $81 at January 31, 2009 and $86 at February 2, 2008.
48
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Amounts recognized as liabilities in the consolidated balance sheets consist of:
Current liabilities
Noncurrent liabilities
Net amount recognized
The components of SERP expense are as follows:
Fiscal year
Participant service cost
Interest cost
Amortization of net loss
Amortization of prior service cost
Total expense
January 31, 2009
$5
80
$85
February 2, 2008
$5
90
$95
2008
$2
6
2
1
$11
2007
$2
6
3
1
$12
2006
$2
6
3
1
$12
Weighted-average assumptions used to determine benefit obligation and net periodic benefit cost are as follows:
Fiscal year
Assumption percentages used to determine
benefit obligation:
Discount rate
Rate of compensation increase
Assumption percentages used to determine net
periodic benefit cost:
Discount rate
Rate of compensation increase
Measurement date
2008
2007
2006
6.95%
3.00%
6.35%
3.00%
6.00%
4.00%
6.35%
3.00%
1/31/09
6.00%
4.00%
10/31/07
6.00%
4.00%
10/31/06
In accordance with SFAS 158, during 2008, we recognized a one-time adjustment of ($3) to retained earnings in shareholders’ equity as a result of
changing our benefit obligation measurement date from October 31 to our fiscal year-end.
In 2008, the methodology for selecting the discount rate was to match the plan’s cash flows to that of a theoretical bond portfolio yield curve that
provides the equivalent yields on zero-coupon, non-callable bonds with an AA rating or better by Moody’s and have at least $250 of outstanding issue for
each maturity. In 2007, we used a discount rate that was determined by constructing a hypothetical bond portfolio based on bonds available on
October 31, 2007 rated AA or better by either Moody’s or Standard & Poor’s. The discount rate changed from 6.35% in 2007 to 6.95% in 2008 to reflect
the current interest rate environment.
In 2008, we updated the post-retirement mortality table to better reflect plan experience. In addition, we updated our assumptions relating to bonus
payments, profit sharing contribution and salary growth.
As of January 31, 2009, the expected future benefit payments based upon the assumptions described above and including benefits attributable
to future employee service for the following periods are as follows:
Fiscal year
2009
2010
2011
2012
2013
2014-2018
$5
5
5
6
6
37
In 2009, we expect less than $1 of costs currently in accumulated other comprehensive earnings to be recognized as components of net periodic
benefit cost. We expect to make contributions to the plan of $5.
Nordstrom, Inc. and subsidiaries 49
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 10: SALE OF FAÇONNABLE
During the third quarter of 2007, we completed the sale of our Façonnable business in exchange for cash of $216, net of transaction costs. As part of
this transaction, goodwill of $28, acquired tradename of $84, and foreign currency translation of $16 were removed from our consolidated balance
sheet and we recorded a gain of $34. Upon the closing of this transaction, we entered into a Transition Services Agreement, whereby we will
continue to provide certain back office functions related to the Façonnable U.S. wholesale business for a limited amount of time as part of a
transition period.
NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES
We are involved in routine claims, proceedings and litigation arising in the normal course of our business. We do not believe any such claim,
proceeding or litigation, either alone or in aggregate, will have a material impact on our results of operations, financial position or liquidity. Our
estimated total purchase obligations, capital expenditure contractual commitments and inventory purchase orders were $1,059 as of January 31,
2009. In connection with the purchase of foreign merchandise, we have outstanding import letters of credit totaling $5 as of January 31, 2009.
NOTE 12: SHAREHOLDERS’ EQUITY AND STOCK COMPENSATION PLANS
Share Repurchase Program
2008 SHARE REPURCHASES
During 2008 we repurchased 6.9 shares for $238 at an average price of $34.29. Although our share repurchase program will not expire until August
2009, we suspended the program in September 2008. We may resume the program in the future if economic conditions improve. As of January 31,
2009, we had $1,126 in remaining capacity under our share repurchase program. The actual amount and timing of future share repurchases will be
subject to market conditions and applicable Securities and Exchange Commission rules.
2007 SHARE REPURCHASES
In August 2007, our Board of Directors authorized a $1,500 share repurchase program and in November 2007 authorized an additional $1,000 for
share repurchases.
During 2007, we repurchased 39.1 shares for $1,728 at an average price per share of $44.17, including $300 repurchased as part of an accelerated
share repurchase program. We repurchased 5.4 shares of our common stock on May 23, 2007 at $55.17 per share and in June 2007, we received 0.4
shares at no additional cost, based on the volume weighted average price of our common stock from June 1, 2007 to June 26, 2007. This resulted in
an average price per share of $51.69 for the accelerated share repurchase as a whole.
2006 SHARE REPURCHASES
At the beginning of 2006, we had $213 remaining from a program authorized by our Board of Directors in February 2005. In 2006, our Board of
Directors authorized an additional $1,000 of share repurchases. In 2006, we repurchased 16.5 shares for $621 at an average price of $37.57 per share.
Dividends
In 2008, we paid dividends of $0.64 per share. We paid dividends of $0.54 and $0.42 in 2007 and 2006.
50
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
Stock Compensation Plans
We currently grant stock options, performance share units and common shares under our 2004 Equity Incentive Plan.
The following table summarizes our stock-based compensation expense:
Fiscal year
Stock options
Employee stock purchase plan
Performance share units
Other
Total stock-based compensation expense before income tax benefit
Income tax benefit
Total stock- based compensation expense, net of income tax benefit
2008
$24
2
–
2
28
(10)
$18
2007
$23
2
(1)
2
26
(9)
$17
2006
$27
2
7
1
37
(13)
$24
The stock-based compensation expense before income tax benefit was recorded in our consolidated statements of earnings as follows:
Fiscal year
Cost of sales and related buying and occupancy costs
Selling, general and administrative expenses
Total stock- based compensation expense before income tax benefit
2008
$10
18
$28
2007
$10
16
$26
2006
$12
25
$37
Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (“SFAS 123(R)”), requires the benefits of tax deductions in excess of the
compensation cost recognized for those awards to be classified as financing cash inflows rather than operating cash inflows. This amount is shown
as “Excess tax benefit from stock-based payments” in the consolidated statement of cash flows and was $4, $26 and $38 in 2008, 2007 and 2006.
STOCK OPTIONS
We used the following assumptions to estimate the fair value for stock options at grant date:
Fiscal year
Risk-free interest rate
Volatility
Dividend yield
Expected life in years
2008
2.0% – 4.3%
45.0%
1.3%
5.5
2007
4.6% – 4.7%
35.0%
1.0%
5.7
2006
4.9% – 5.1%
37.0%
1.0%
5.4
The weighted average fair value per option at the grant date was $15, $20 and $16 in 2008, 2007 and 2006. The following describes the significant
assumptions used to estimate the fair value of options granted:
•
•
•
•
Risk-free interest rate: The risk-free interest rate represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life
of the stock options.
Expected volatility: The expected volatility is based on a combination of the historical volatility of our common stock and the implied volatility
of exchange traded options for our common stock.
Expected dividend yield: The expected dividend yield is our forecasted dividend yield for the next ten years.
Expected life in years: The expected life represents the estimated period of time until option exercise. The expected term of options granted
was derived from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior taking into
consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior.
In 2008 and 2007, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise
price was set at $38.02 and $53.63, respectively, the closing price of our common stock on February 28, 2008 and March 1, 2007 (the date of grant).
In 2006, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise price was
set at $40.27, the closing price of our common stock on the Committee meeting date. The stock option awards provide recipients with the
opportunity for financial rewards when our stock price increases. The awards are determined based upon a percentage of the recipients’ base salary
and the fair value of the stock options. In 2008, we awarded stock options to 1,230 employees compared to 1,195 and 1,236 employees in the same
periods in 2007 and 2006.
Nordstrom, Inc. and subsidiaries 51
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
As of January 31, 2009, we have options outstanding under two stock option plans (collectively, the “Nordstrom, Inc. Plans”). Options vest
over periods ranging from four to eight years, and expire ten years after the date of grant. We recognize stock-based compensation expense on
a straight–line basis over the requisite service period. A summary of the stock option activity for 2008 under the Nordstrom, Inc. Plans is
presented below:
Fiscal Year
Outstanding, beginning of year
Granted
Exercised
Cancelled
Outstanding, end of year
Options exercisable at end of year
Options vested or expected to vest at end of year
Shares
10.9
2.2
(0.8)
(0.5)
11.8
7.5
11.1
Weighted–
Average
Exercise Price
$25
38
17
40
$27
$19
$26
2008
Weighted-Average
Remaining Contractual
Life (Years)
Aggregate
Intrinsic
Value
6
4
6
$9
$9
$9
The total intrinsic value of options exercised during 2008, 2007 and 2006 was $14, $79 and $111. The total fair value of stock options vested during
fiscal years 2008, 2007 and 2006 was $24, $24 and $30. As of January 31, 2009, the total unrecognized stock-based compensation expense related to
nonvested stock options was $37, which is expected to be recognized over a weighted average period of 30 months.
PERFORMANCE SHARE UNITS
We grant performance share units to executive officers as one of the ways to align compensation with shareholder interests. Performance share
units are payable in either cash or stock as elected by the employee; therefore they are classified as a liability award in accordance with Statement
of Financial Accounting Standards No. 123(R), Share-Based Payment. Performance share units vest after a three-year period only when our total
shareholder return (reflecting daily stock price appreciation and compound reinvestment of dividends) is positive and outperforms companies in a
defined group of direct competitors determined by the Compensation Committee of our Board of Directors. The percentage of units that are earned
depends on our relative position at the end of the vesting period and can range from 0% to 125% of the number of units granted.
The liability is remeasured and the appropriate earnings adjustment is taken at each fiscal quarter-end during the vesting period. The performance
share unit liability is remeasured using the estimated vesting percentage multiplied by the closing market price of our common stock on the current
period-end date and is pro-rated based on the amount of time passed in the vesting period. The price used to issue stock or cash for the
performance share units upon vesting is the closing market price of our common stock on the vest date.
As of January 31, 2009, we had no liabilities related to performance share units. As of February 2, 2008, our liabilities included $3 for performance
share units. As of January 31, 2009, we did not have any unrecognized stock-based compensation expense for unvested performance share units as
we had a negative total shareholder return for all outstanding periods. This position may change before the end of the vesting period for the
unvested performance share units. At February 2, 2008, 113,743 units were unvested. During the year ended January 31, 2009, 79,504 units were
granted, 57,006 units were vested but unearned and 18,852 units were cancelled, resulting in an ending balance of 117,389 unvested units as of
January 31, 2009.
The following table summarizes the information for performance share units that vested during the period:
Fiscal Year
Number of performance share units earned1
Total fair value of performance share units earned
Total amount of performance share units settled or to be settled for cash
2008
–
–
–
2007
191,794
$12
$3
2006
216,865
$11
$6
1In 2008, 57,006 units were vested, but unearned as the units had a negative total shareholder return as of January 31, 2009 (vest date).
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
The Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred
or issued in the form of restricted or unrestricted stock, nonqualified stock options or stock appreciation rights. In 2008, we deferred shares with a
total expense of $1. As of January 31, 2009, we had 0.7 remaining shares available for issuance.
EMPLOYEE STOCK PURCHASE PLAN
We offer an Employee Stock Purchase Plan (“ESPP”) as a benefit to our employees. Employees may make payroll deductions of up to ten percent of
their base and bonus compensation. At the end of each six-month offering period, participants may purchase shares of our common stock at 90% of
the fair market value on the last day of each offer period. Beginning in 2006, we recorded compensation expense over the purchase period at the
fair value of the ESPP at the end of each reporting period. We issued 0.6 shares under the ESPP during the year ended January 31, 2009. As of
January 31, 2009 and February 2, 2008, we had current liabilities of $5 and $6, respectively, for future purchase of shares under the ESPP.
52
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 13: ACCUMULATED OTHER COMPREHENSIVE (LOSS) EARNINGS
The following table shows the components of accumulated other comprehensive (loss) earnings, net of tax:
Foreign currency translation
Unrecognized loss on postretirement benefit
obligations, prior to adoption of SFAS 158
Adjustment to initially apply SFAS 158
Unrecognized loss on postretirement benefit
obligations, subsequent to adoption of SFAS 158
Fair value adjustment to investment in asset
backed securities
Total accumulated other comprehensive loss
January 31, 2009
—
February 2, 2008
-
February 3, 2007
$15
—
—
$(10)
—
$(10)
-
-
$(22)
-
$(22)
(16)
(13)
—
5
$(9)
Included in our adjustment to initially apply SFAS 158 in 2006 are our SERP and our employee retiree medical plan. The adoption of SFAS 158 had a
$(3) impact (net of tax of $2) to accumulated other comprehensive earnings for the retiree medical plan.
NOTE 14: EARNINGS PER SHARE
Earnings per basic share is computed using the weighted average number of common shares outstanding during the year. Earnings per diluted 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.
The computation of earnings per share is as follows:
Fiscal year
Net earnings
2008
$401
2007
$715
Basic shares
Dilutive effect of stock options and performance
216.6
244.8
share units
Diluted shares
Earnings per basic share
Earnings per diluted share
2.6
219.2
4.0
248.8
$1.85
$1.83
$2.92
$2.88
2006
$678
260.7
5.0
265.7
$2.60
$2.55
Options and other equity instruments totaling 4.9 shares in 2008, 2.7 shares in 2007 and 1.9 shares in 2006 were excluded from earnings per diluted
share because their impact was anti-dilutive.
Since the beginning of 2006, 6.9 shares have been issued upon the exercise of stock options; we repurchased a total of 62.5 shares during the three
fiscal years ended January 31, 2009.
Nordstrom, Inc. and subsidiaries 53
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 15: SEGMENT REPORTING
We offer three main channels through which our customers can shop: full-line and Rack retail stores and Nordstrom Direct (online and catalog). Our
goal is to create an integrated, consistent merchandise offering for our customers regardless of which channel they choose. These three channels
meet the aggregation criteria set forth in Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (“SFAS 131”) with the exception of “distribution method.” Nordstrom Direct sells merchandise via our online store and the
catalog as opposed to in a retail store. As such, we aggregate our full-line and Rack stores into the RRetail Stores segment and report DD irect as a
separate segment.
The CCredit segment earns finance charges and late fee income through operation of the Nordstrom private label and Nordstrom VISA credit cards.
The OOther segment includes our product development group, which coordinates the design and production of private label merchandise sold in our
retail stores, and our distribution network. This segment also includes our corporate center operations. During the time that we owned it, this
segment also included the operations of our Façonnable business.
The segment information for 2007 and 2006 has been reclassified from our previous disclosures to reflect how we currently view our business.
These changes include the 2008 view of interest expense between our Credit and Other segments and the 2008 view of our sales return reserve
between our Direct and Other segments. These changes do not impact the consolidated statements of earnings.
The following table summarizes net sales by merchandise category:
Fiscal year
Women’s apparel
Shoes
Men’s apparel
Women’s accessories
Cosmetics
Children’s apparel
Other
Total
2008
$2,812
1,721
1,362
963
921
269
224
$8,272
The following table presents our sales by merchandise category as a percentage of net sales:
Fiscal year
Women’s apparel
Shoes
Men’s apparel
Women’s accessories
Cosmetics
Children’s apparel
Other
Total
2008
34%
21%
16%
12%
11%
3%
3%
100%
2007
$3,063
1,784
1,571
941
950
285
234
$8,828
2007
35%
20%
18%
11%
11%
3%
2%
100%
2006
$2,963
1,731
1,561
848
942
286
230
$8,561
2006
35%
20%
18%
10%
11%
3%
3%
100%
In general, we use the same measurements to compute earnings before income taxes for reportable segments as we do for the consolidated
company. However, redemptions of our Nordstrom Notes® are included in net sales for our Retail Stores segment. The sales amount in our Other
segment includes an entry to eliminate these transactions from our consolidated net sales. There is no impact to consolidated earnings before
income taxes for this adjustment. In addition, our sales return reserve and other corporate adjustments are recorded in the Other segment. Other
than described above, the accounting policies of the operating segments are the same as those described in the summary of significant accounting
policies in Note 1.
54
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
The following tables set forth the information for our reportable segments:
Fiscal year 2008
Net sales (a)
Net sales (decrease) increase
Credit card revenue
Other income and expense, net
Interest expense, net (b)
Depreciation and amortization
Earnings before income taxes
Earnings before income taxes
as a percentage of net sales
Goodwill
Assets (c)
Capital expenditures
Fiscal year 2007
Net sales (a)
Net sales increase
Credit card revenue
Other income and expense, net
Interest expense, net (b)
Depreciation and amortization
Earnings before income taxes
Earnings before income taxes
as a percentage of net sales
Goodwill
Assets (c)
Capital expenditures
Fiscal year 2006
Net sales (a)
Net sales increase
Credit card revenue
Other income and expense, net
Interest expense, net (b)
Depreciation and amortization
Earnings before income taxes
Earnings before income taxes
as a percentage of net sales
Goodwill
Acquired tradename
Assets (c)
Capital expenditures
Retail
Stores
$7,674
(5.9%)
—
(5)
—
259
884
11.5%
38
2,740
529
Retail
Stores
$8,159
3.1%
—
(1)
—
228
1,256
15.4%
38
2,555
431
Retail
Stores
$7,912
9.9%
—
(1)
—
237
1,204
15.2%
8
—
2,306
224
Direct
$698
8.4%
—
—
—
8
187
26.8%
15
123
15
Direct
$644
17.9%
—
—
—
3
165
25.6%
15
133
35
Direct
$546
24.7%
—
—
—
3
134
24.5%
16
—
105
3
Credit
—
N/A
302
1
(50)
1
(72)
N/A
—
1,963
2
Credit
—
N/A
253
(3)
(64)
1
(38)
N/A
—
1,783
3
Credit
-
N/A
105
109
(37)
1
47
N/A
-
-
1,063
1
Other
$(100)
N/A
(1)
13
(81)
34
(351)
N/A
—
835
17
Other
$25
N/A
(1)
23
(10)
37
(210)
N/A
—
1,129
32
Other
$103
N/A
-
26
(6)
44
(279)
N/A
28
84
1,348
36
Total
$8,272
(6.3%)
301
9
(131)
302
648
7.8%
53
5,661
563
Total
$8,828
3.1%
252
19
(74)
269
1,173
13.3%
53
5,600
501
Total
$8,561
10.8%
105
134
(43)
285
1,106
12.9%
52
84
4,822
264
(a) Net sales in Other include foreign sales of $0, $62 and $104 for 2008, 2007 and 2006.
(b) Interest income of $2, $14 and $13 for 2008, 2007 and 2006 is recorded in our Other segment as an offset to interest expense, net.
(c) Assets in Other include foreign assets of $212 at the end of 2006. There were no material foreign assets at the end of 2008 or 2007. Assets in Other also include unallocated assets in
corporate headquarters, consisting primarily of cash, land, buildings and equipment, and deferred tax assets.
Nordstrom, Inc. and subsidiaries 55
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
NOTE 16: SELECTED QUARTERLY DATA (UNAUDITED)
Fiscal year 2008
Net sales
Same-store sales
percentage change
Credit card revenues
Gross profit1
Selling, general and administrative expenses:
Retail stores, direct and other segments
Credit segment
Other income and expense, net
Earnings before income taxes
Net earnings
Net earnings as a percentage of
net sales
Earnings per basic share
Earnings per diluted share
Fiscal year 2007
Net sales
Same-store sales
percentage change
Credit card revenues
Gross profit1
Selling, general and administrative expenses:
Retail stores, direct and other segments
Credit segment
Other income and expense, net
Earnings before income taxes
Net earnings
Net earnings as a percentage of
net sales
Earnings per basic share
Earnings per diluted share
1st Quarter
$1,879
2nd Quarter
$2,287
3rd Quarter
$1,805
4th Quarter
$2,301
Total
$8,272
(6.5%)
70
700
494
51
2
196
119
6.3%
$0.54
$0.54
(6.0%)
72
799
547
57
2
235
143
6.3%
$0.66
$0.65
(11.1%)
74
620
490
77
—
94
71
3.9%
$0.33
$0.33
(12.5%)
85
736
580
90
5
123
68
3.0%
$0.32
$0.31
(9.0%)
301
2,855
2,111
275
9
648
401
4.8%
$1.85
$1.83
1st Quarter
$1,954
2nd Quarter
$2,390
3rd Quarter
$1,970
4th Quarter
$2,514
Total
$8,828
9.5%
27
739
502
32
29
254
157
8.0%
$0.61
$0.60
5.9%
73
876
587
49
(3)
293
180
7.6%
$0.72
$0.71
2.2%
75
742
509
44
(6)
272
166
8.4%
$0.69
$0.68
(0.7%)
77
945
585
52
(1)
354
212
8.4%
$0.93
$0.92
3.9%
252
3,302
2,183
177
19
1,173
715
8.1%
$2.92
$2.88
1Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs.
56
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
As of the end of the period covered by this Annual Report on Form 10-K, the Company performed an evaluation under the supervision and with the
participation of management, including our President and Chief Financial Officer, of the design and effectiveness of our disclosure controls and
procedures (as defined in rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation,
our President and our Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and
procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial
information within the time periods specified within the Commission’s rules and forms. Our President and Chief Financial Officer also concluded that
our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely
discussions regarding required disclosure.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during
our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
The following information required under this item is filed as part of this report:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Page
31
32
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required under this item is included in the following sections of our Proxy Statement for our 2009 Annual Meeting of Shareholders,
which sections are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year:
Executive Officers
Election of Directors
Board Committees
Director Nominating Process
Web site Access to Corporate Governance Documents
Section 16(a) Beneficial Ownership Reporting Compliance
Corporate Governance
The certifications of our President and Chief Financial Officer required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are
included as exhibits to this Annual Report on Form 10-K and were included as exhibits to each of our quarterly reports on Form 10-Q. Our President
certified to the New York Stock Exchange (NYSE) on June 11, 2008 pursuant to Section 303A.12(a) of the NYSE’s listing standards, that he was not
aware of any violation by the Company of the NYSE’s corporate governance listing standards as of that date.
Item 11. Executive Compensation.
The information required under this item is included in the following sections of our Proxy Statement for our 2009 Annual Meeting of Shareholders,
which sections are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year:
Compensation of Executive Officers
Compensation Committee Report
Director Compensation
Compensation Committee Interlocks and Insider Participation
Nordstrom, Inc. and subsidiaries 57
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The information required under this item is included in the following section of our Proxy Statement for our 2009 Annual Meeting of Shareholders,
which sections are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year:
Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plans
Item 13. Certain Relationships and Related Transactions.
The information required under this item is included in the following sections of our Proxy Statement for our 2009 Annual Meeting of Shareholders,
which sections are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year:
Election of Directors
Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services.
The information required under this item is included in the following section of our Proxy Statement for our 2009 Annual Meeting of Shareholders,
which section is incorporated by reference herein and will be filed within 120 days after the end of our fiscal year:
Ratification of the Appointment of Independent Registered Public Accounting Firm
Item 15. Exhibits, Financial Statement Schedules.
The following information required under this item is filed as part of this report:
PART IV
(a)1. FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
(a)2. FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
(a)3. EXHIBITS
Page
31
32
33
34
35
36
37
Page
61
Exhibits are incorporated herein by reference or are filed with this report as set forth in the Index to Exhibits on pages 62 through 66 hereof.
All other schedules and exhibits are omitted because they are not applicable, not required, or because the information required has been given as
part of this report.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NORDSTROM, INC.
(Registrant)
/s/
Michael G. Koppel
Michael G. Koppel
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 20, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Principal Financial Officer:
Principal Executive Officer:
/s/
Michael G. Koppel /s/
Michael G. Koppel
Executive Vice President and Chief Financial Officer
Principal Accounting Officer:
Blake W. Nordstrom
Blake W. Nordstrom
President
/s/
Directors:
/s/
/s/
/s/
/s/
/s/
Date: March 20, 2009
James A. Howell
James A. Howell
Vice President, Finance
Phyllis J. Campbell /s/
Phyllis J. Campbell
Director
Robert G. Miller /s/
Robert G. Miller
Director
Erik B. Nordstrom /s/
Erik B. Nordstrom
Director
Philip G. Satre /s/
Philip G. Satre
Director
Alison A. Winter
Alison A. Winter
Director
Enrique Hernandez, Jr.
Enrique Hernandez, Jr.
Chairman of the Board of Directors
Blake W. Nordstrom
Blake W. Nordstrom
Director
Peter E. Nordstrom
Peter E. Nordstrom
Director
Robert D. Walter
Robert D. Walter
Director
Nordstrom, Inc. and subsidiaries 59
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 033-18321, 333-63403, 333-40064, 333-40066, 333-79791, 333-101110,
333-118756, and 333-146049 on Form S-8 and No. 333-147664 on Form S-3 of our reports dated March 20, 2009, relating to the consolidated financial
statements and financial statement schedule of Nordstrom, Inc. and subsidiaries and the effectiveness of Nordstrom, Inc.’s internal control over
financial reporting appearing in this Annual Report on Form 10-K of Nordstrom, Inc. for the year ended January 31, 2009.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 20, 2009
60
NORDSTROM, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Column A
Description
Deducted from related consolidated balance sheet account
Column B
Balance at beginning
of period
Column C
Additions
Charged to costs
and expenses
Column D
Column E
Deductions
Balance at end
of period
Allowance for doubtful accounts:
Year ended:
January 31, 2009
February 2, 2008
February 3, 2007
Reserves
Allowance for sales return, net:
Year ended:
January 31, 2009
February 2, 2008
February 3, 2007
$73
17
18
$56
55
51
$173
86 (A)
17
$108 (B)
30 (B)
18 (B)
$1,051
1,023
894
$1,037 (C)
1,022 (C)
890 (C)
$138
73
17
$70
56
55
(A) These expenses do not include write-offs of $21 related to the one-time transition of our VISA portfolio to on-balance sheet, which were included in other income and expense, net.
(B) Deductions consist of write-offs of uncollectible accounts, net of recoveries.
(C) Deductions consist of actual returns offset by the value of the merchandise returned and the sales commission reversed.
Nordstrom, Inc. and subsidiaries 61
Nordstrom, Inc. and Subsidiaries
Exhibit Index
3.1 Articles of Incorporation as amended and restated on February 21, 2007
Exhibit
3.2 Bylaws, as amended and restated on November 19, 2008
Method of Filing
Incorporated by reference from the Registrant’s Form 8-K filed
on February 23, 2007, Exhibit 3.1
Incorporated by reference from the Registrant’s Form 8-K filed
on November 24, 2008, Exhibit 3.1
4.1
Indenture between Registrant and Norwest Bank Colorado, N.A., as trustee,
dated March 11, 1998
Incorporated by reference from Registration No. 333-47035,
Exhibit 4.1
4.2
Senior indenture between Registrant and Norwest Bank Colorado, N.A., as
trustee, dated January 13, 1999
Incorporated by reference from Registration No. 333-69281,
Exhibit 4.3
4.3
Form of Subordinated Indenture between Registrant and Norwest Bank
Colorado, N.A., as trustee, dated January 13, 1999
Incorporated by reference from Registration No. 333-69281,
Exhibit 4.4
4.4
4.5
Series 2007-1 Note purchase agreement, dated as of April 25, 2007, by
and between Nordstrom Credit Card Master Note Trust II and J.P. Morgan
Securities Inc. and Greenwich Capital Markets, Inc., as representative of the
initial purchasers
Series 2007-2 Note purchase agreement, dated as of April 25, 2007, by
and between Nordstrom Credit Card Master Note Trust II and J.P. Morgan
Securities Inc. and Greenwich Capital Markets, Inc., as representative of the
initial purchasers
Incorporated by reference from the Registrant’s Form 8-K filed
on May 1, 2007, Exhibit 4.1
Incorporated by reference from the Registrant’s Form 8-K filed
on May 1, 2007, Exhibit 4.2
4.6 Amended and Restated Master Indenture, dated as of May 1, 2007, by and
between Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank,
National Association, as indenture trustee
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 4.1
4.7
4.8
Series 2007-1 Indenture Supplement, dated as of May 1, 2007, by and between
Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National
Association, as indenture trustee
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 4.2
Series 2007-2 Indenture Supplement, dated as of May 1, 2007, by and between
Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National
Association, as indenture trustee
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 4.3
4.9 Note purchase agreement, dated as of May 2, 2007, by and between Nordstrom
Credit Card Receivables II LLC, Nordstrom fsb, Nordstrom Credit, Inc., Falcon
Asset Securitization Company, LLC and J.P. Morgan Chase Bank, N.A.
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended May 5, 2007,
Exhibit 4.6
4.10
Indenture Supplement, dated as of May 2, 2007, by and between Nordstrom
Credit Card Master Note Trust II and Wells Fargo Bank, National Association
4.11
Form of 6.25% Note due January 2018
4.12 Nordstrom 2007-A Amendment No. 1 to Note Purchase Agreement
10.1 Merchant Agreement dated August 30, 1991 between Registrant and Nordstrom
National Credit Bank
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended May 5, 2007,
Exhibit 4.7
Incorporated by reference from the Registrant’s Form 8-K filed
on December 3, 2007, Exhibit 4.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended May 3, 2008,
Exhibit 4.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended July 31, 1991,
Exhibit 10.1
10.2
Investment Agreement dated October 8, 1984 between the Registrant and
Nordstrom Credit, Inc.
Incorporated by reference from the Nordstrom Credit, Inc. Form
10, Exhibit 10.1
62
10.3
1997 Nordstrom Stock Option Plan, amended and restated on
February 16, 2000
Exhibit
10.4 Commercial Paper Dealer Agreement dated October 2, 1997 between Registrant
and Bancamerica Securities, Inc.
10.5 Commercial Paper Agreement dated October 2, 1997 between Registrant and
Credit Suisse First Boston Corporation
10.6
Issuing and Paying Agency Agreement dated October 2, 1997 between
Registrant and First Trust of New York, N.A.
Method of Filing
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended August 2, 2003,
Exhibit 10.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended October 31, 1997,
Exhibit 10.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended October 31, 1997,
Exhibit 10.2
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended October 31, 1997,
Exhibit 10.3
10.7 Performance Undertaking dated December 4, 2001 between Registrant and
Bank One, N.A.
Incorporated by reference from the Registrant’s Annual Report
on Form 10-K for the year ended January 31, 2002, Exhibit 10.38
10.8 Promissory Note dated April 18, 2002 between 1700 Seventh, L.P. and New York
Life Insurance Company
10.9 Promissory Note dated April 18, 2002 between 1700 Seventh, L.P. and
Life Investors Insurance Company of America
10.10 Guaranty Agreement dated April 18, 2002 between Registrant, New York Life
Insurance Company and Life Investors Insurance Company of America
10.11 The 2002 Nonemployee Director Stock Incentive Plan
10.12 Nordstrom, Inc. Leadership Separation Plan (Effective March 1, 2005)
10.13 Nordstrom, Inc. Executive Management Group Bonus Plan
10.14 2004 Equity Incentive Plan
10.15 Commitment of Nordstrom, Inc. to Nordstrom fsb dated June 17, 2004
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended April 30, 2002,
Exhibit 10.2
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended April 30, 2002,
Exhibit 10.3
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended April 30, 2002,
Exhibit 10.4
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended July 31, 2002,
Exhibit 10.1
Incorporated by reference from Registrant’s Annual Report on
Form 10-K for the year ended January 29, 2005, Exhibit 10.43
Incorporated by reference from Registrant’s definitive proxy
statement filed with the Commission on April 15, 2004
Incorporated by reference from Registrant’s definitive proxy
statement filed with the Commission on April 15, 2004
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended July 31, 2004,
Exhibit 10.4
10.16 Nordstrom fsb Segregated Earmarked Deposit Agreement and Security
Agreement by and between Nordstrom fsb and Nordstrom, Inc. dated
July 1, 2004
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended July 31, 2004,
Exhibit 10.5
10.17 Revolving Credit Facility Agreement dated November 4, 2005, between
Registrant and each of the initial lenders named therein as Lenders,
JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., as Syndication
Agents, U.S. Bank, National Association, as Documentation Agent and
Bank of America, N.A. as administrative agent
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended October 29, 2005,
Exhibit 10.1
10.18 Press release dated August 21, 2007 announcing that its Board of
Directors authorized a $1.5 billion share repurchase program
Incorporated by reference from the Registrant’s Form 8-K filed
on August 22, 2007, Exhibit 99.1
Nordstrom, Inc. and subsidiaries 63
10.19 Press release dated November 19, 2007 announcing that its Board of
Directors authorized a $1.0 billion share repurchase program
Incorporated by reference from the Registrant’s Form 8-K filed
on November 19, 2007, Exhibit 99.1
Exhibit
Method of Filing
10.20 Director Compensation Summary
10.21 2007 Stock Option Notice Award Agreement and Form of Notice
10.22 2007 Performance Share Unit Award Agreement and Form of Notice
10.23 Form of Restricted Stock Award under the 2002 Nonemployee Director Stock
Incentive Plan
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 3, 2007,
Exhibit 10.54
Incorporated by reference from the Registrant’s Form 8-K filed
on February 26, 2007, Exhibit 10.1
Incorporated by reference from the Registrant’s Form 8-K filed
on February 26, 2007, Exhibit 10.2
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended August 4, 2007,
Exhibit 10.1
10.24 Nordstrom, Inc. 2002 Nonemployee Director Stock Incentive Plan
(2007 Amendment)
Incorporated by reference from the Registrant’s Form 8-K filed
on November 19, 2007, Exhibit 10.39
10.25 Nordstrom Executive Deferred Compensation Plan (2007)
10.26 Nordstrom Directors Deferred Compensation Plan (2007)
10.27 Nordstrom, Inc. 2004 Equity Incentive Plan (2007 Amendment)
Incorporated by reference from the Registrant’s Form 8-K filed
on November 19, 2007, Exhibit 10.40
Incorporated by reference from the Registrant’s Form 8-K filed
on November 19, 2007, Exhibit 10.41
Incorporated by reference from the Registrant’s Form 8-K filed
on November 19, 2007, Exhibit 10.44
10.28 First Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank,
dated March 1, 2000
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.32
10.29 Second Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank,
dated March 2, 2000
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.33
10.30 Third Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank,
dated October 1, 2001
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.34
10.31 Fourth Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank,
dated November 1, 2002
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.35
10.32 Fifth Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank,
dated November 1, 2005
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.36
10.33 Sixth Amendment to Merchant Agreement and Operating Procedures dated
August 30, 1991 between Registrant and Nordstrom National Credit Bank, dated
May 1, 2007
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.37
10.34 Forms of Notice of 1999 Stock Option Grant and Stock Option Agreements under
the Nordstrom, Inc. 1997 Equity Incentive Plan
10.35 Forms of Notice of 2001 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.38
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.40
64
Exhibit
10.36 Form of Notice of 2002 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
10.37 Form of Notice of 2003 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
10.38 Form of Notice of 2004 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
Method of Filing
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.41
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.42
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.43
10.39 Form of Notice of 2005 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 2004 Equity Incentive Plan
Incorporated by reference from the Registrant’s Form 8-K filed
on March 1, 2005, Exhibit 10.1
10.40 Form of Notice of 2006 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 2004 Equity Incentive Plan
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.45
10.41 Form of 2006 Performance Share Unit Notice and Performance Share Unit
Award Agreement
Incorporated by reference from the Registrant’s Form 8-K filed
on February 28, 2006, Exhibit 10.1
10.42 Participation Agreement, dated as of May 1, 2007, by and between Nordstrom
fsb, as seller and Nordstrom Credit, Inc., as purchaser
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.1
10.43 Servicing Agreement, dated as of May 1, 2007, by and between Nordstrom fsb,
and Nordstrom Credit, Inc.
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.2
10.44 Amended and Restated Receivables Purchase Agreement, dated as of May 1,
2007, by and between Nordstrom Credit, Inc., as seller and Nordstrom Credit
Card Receivables II LLC, as purchaser
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.3
10.45 Amended and Restated Transfer and Servicing Agreement, dated as of May 1,
2007, by and between Nordstrom Credit Card Receivables II LLC, as transferor,
Nordstrom fsb, as servicer, Wells Fargo Bank, National Association, as indenture
trustee, and Nordstrom Credit Card Master Note Trust II, as issuer
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.4
10.46 Second Amended and Restated Trust Agreement, dated as of May 1, 2007, by
and between Nordstrom Credit Card Receivables II LLC, as transferor, and
Wilmington Trust Company, as owner trustee
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.5
10.47 Amended and Restated Administration Agreement, dated as of May 1, 2007, by
and between Nordstrom Credit Card Master Note Trust II, as issuer, and
Nordstrom fsb, as administrator
Incorporated by reference from the Registrant’s Form 8-K filed
on May 8, 2007, Exhibit 99.6
10.48 Amendment 2006-1 to the Nordstrom, Inc. Leadership Separation Plan
10.49 Notice of Exercise of Accordion on Revolving Credit Facility Agreement dated
May 13, 2008
10.50 Nordstrom 401(k) Plan & Profit Sharing, amended and restated on
August 27, 2008
10.51 Nordstrom, Inc. Employee Stock Purchase Plan, amended and restated on
August 27, 2008
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.56
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended August 2, 2008,
Exhibit 10.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended November 1, 2008,
Exhibit 10.1
Incorporated by reference from the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended November 1, 2008,
Exhibit 10.2
Nordstrom, Inc. and subsidiaries 65
10.52 Nordstrom, Inc. 2004 Equity Incentive Plan (2008 Amendment)
Exhibit
10.53 Amendment 2008-1 to the Nordstrom Executive Deferred Compensation
Plan (2007)
10.54 Amendment 2008-1, Nordstrom, Inc. Leadership Separation Plan
10.55 Nordstrom Supplemental Executive Retirement Plan (2008)
10.56 2008 Stock Option Notice Award Agreement and Form of Notice
10.57 2008 Performance Share Unit Agreement and Form of Notice
10.58 Form of Notice of 2000 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
Method of Filing
Incorporated by reference from the Registrant’s Form 8-K filed
on November 24, 2008, Exhibit 10.1
Incorporated by reference from the Registrant’s Form 8-K filed
on November 24, 2008, Exhibit 10.2
Incorporated by reference from the Registrant’s Form 8-K filed
on November 24, 2008, Exhibit 10.3
Incorporated by reference from the Registrant’s Form 8-K filed
on November 24, 2008, Exhibit 10.4
Incorporated by reference from the Registrant’s Form 8-K filed
on February 22, 2008, Exhibit 10.1
Incorporated by reference from the Registrant’s Form 8-K filed
on February 22, 2008, Exhibit 10.2
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.39
10.59 Form of 2005 Performance Share Unit Notice and Performance Share Unit
Award Agreement
Incorporated by reference from the Registrant’s Form 8-K filed
on March 1, 2005, Exhibit 10.2
21.1 Significant subsidiaries of the Registrant
Filed herewith electronically
23.1 Consent of Independent Registered Public Accounting Firm
Filed as page 60 of this report
31.1 Certification of President required by Section 302(a) of the Sarbanes-
Filed herewith electronically
Oxley Act of 2002
31.2 Certification of Chief Financial Officer required by Section 302(a) of the
Filed herewith electronically
Sarbanes-Oxley Act of 2002
32.1 Certification of President and Chief Financial Officer pursuant to 18 U.S.C.
Furnished herewith electronically
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
66
SHAREHOLDER
INFORMATION
Margaret Myers, 62
Executive Vice President,
General Merchandise Manager,
Accessories and Women’s
Specialized Divisions
Blake W. Nordstrom, 48
President
Erik B. Nordstrom, 45
Executive Vice President,
President of Stores
James F. Nordstrom, Jr., 36
Executive Vice President,
President, Nordstrom Direct
Peter E. Nordstrom, 47
Executive Vice President,
President of Merchandising
Loretta Soffe, 42
Executive Vice President,
General Merchandise Manager,
Women’s Apparel Division
Delena M. Sunday, 48
Executive Vice President,
Human Resources and Diversity Affairs
David M. Witman, 50
Executive Vice President,
General Merchandise Manager,
Men’s and Kidswear Divisions
Executive Officers
Laurie M. Black, 50
Executive Vice President,
General Merchandise Manager,
Cosmetics Division
Robert E. Campbell, 53
Treasurer and Vice President,
Investor Relations
Linda Toschi Finn, 61
Executive Vice President, Marketing
James A. Howell, 43
Vice President, Finance
David G. Johansen, 58
Vice President, Corporate
Secretary and Counsel
Kevin T. Knight, 53
Executive Vice President,
Chairman and Chief Executive
Officer of Nordstrom fsb,
President, Nordstrom Credit, Inc.
Michael G. Koppel, 52
Executive Vice President and
Chief Financial Officer
Daniel F. Little, 47
Executive Vice President and
Chief Administrative Officer
Scott A. Meden, 46
Executive Vice President
and President, Nordstrom Rack
Jack H. Minuk, 54
Executive Vice President,
General Merchandise Manager,
Shoe Division
68
Audit Committee
Phyllis J. Campbell, Chair
Robert G. Miller
Philip G. Satre
Robert D. Walter
Alison A. Winter
Compensation Committee
Alison A. Winter, Chair
Enrique Hernandez, Jr.
Robert G. Miller
Robert D. Walter
Corporate Governance and
Nominating Committee
Enrique Hernandez, Jr., Chair
Philip G. Satre
Alison A. Winter
Executive Committee
Enrique Hernandez, Jr., Chair
Blake W. Nordstrom
Erik B. Nordstrom
Peter E. Nordstrom
Finance Committee
Robert G. Miller, Chair
Phyllis J. Campbell
Peter E. Nordstrom
Philip G. Satre
Board of Directors and Committees
Board of Directors
Phyllis J. Campbell, 57
Chairman of the Pacific Northwest
JPMorgan Chase
Seattle, Washington
Enrique Hernandez, Jr., 53
Nordstrom, Inc. Chairman of the Board
President and CEO,
Inter-Con Security Systems, Inc.
Pasadena, California
Robert G. Miller, 64
Chief Executive Officer,
Albertsons LLC
Boise, Idaho
Blake W. Nordstrom, 48
President
Nordstrom, Inc.
Seattle, Washington
Erik B. Nordstrom, 45
Executive Vice President and
President of Stores
Nordstrom, Inc.
Seattle, Washington
Peter E. Nordstrom, 47
Executive Vice President and
President of Merchandising
Nordstrom, Inc.
Seattle, Washington
Philip G. Satre, 59
Private Investor
Reno, Nevada
Robert D. Walter, 63
Private Investor
Columbus, OH
Alison A. Winter, 62
Founder
Braintree Holdings, LLC
Pasadena, California
Nordstrom, Inc. and subsidiaries 69
Shareholder Information
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Seattle, Washington
Form 10-K
The Company’s annual report on Form 10-K
for the year ended January 31, 2009 will be
provided to shareholders upon request to:
Counsel
Lane Powell PC
Seattle, Washington
Transfer Agent and Registrar
The Bank of New York Mellon
P. O. Box 3316 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 19, 2009 at 11:00 a.m.
Pacific Daylight Time
Benaroya Hall
Illsley Ball Nordstrom Recital Hall
200 University Street
Seattle, Washington 98101-3428
Nordstrom, Inc. Investor Relations
P. O. Box 2737
Seattle, Washington 98111-2737
(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 http://www.nordstrom.com
(Investor Relations, Corporate Governance).
The Company intends to provide disclosure of
any amendments or waivers to its Code of
Business Conduct and Ethics online within four
business days following the date of
amendment or waiver. 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, 2009.
After our 2009 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).
© 2009 Nordstrom, Inc.
70
PlEAsE rECYClE