Nordstrom, INc. AnnuAl RepoRt 2009
Front & Back COVER
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
$435
$423
$392
$388
$368
2005
2006
2007
2008
2009
SaleS per Square Foot
Same-Store SaleS percentage change
2006
2005
6.0% 7.5%
2007
3.9%
2008
(9.0%)
2009
(4.2%)
2009
$8,258
696
441
2.03
2.01
0.64
2008
$8,272
648
401
1.85
1.83
0.64
37.5% 37.4%
36.7%
35.5%
34.5%
% Change
(0.2)
7.4
9.9
9.7
9.8
_
29.8%
28.7%
27.1%
26.5%
26.7%
26.0%
25.5%
25.4%
25.5%
24.5%
2005
2006
2007
2008
2009
groSS proFit
(aS a percentage oF net SaleS)
2005
2006
2007
2008
2009
Sg&a expenSe
(aS a percentage oF net SaleS)
12.8% 12.9%
11.3%
5.20
5.16
5.41
5.06
4.84
8.1%
7.6%
2005
2006
2007
2008
2009
2005
2006
2007
2008
2009
earningS beFore income taxeS
(aS a percentage oF total revenueS)
inventory turn
(coSt oF SaleS and related buying and
occupancy divided by average inventory)
Total
Credit Segment
Retail, Direct & Other Segments
$1,251
$1,142
$975
(Adjusted)
$848
$776
$312
2005
2006
2007†
2008
2009
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.
INSIDE LEFT COVER
We made significant headway in our business this past year, emerging stronger than we were before
the downturn that began nearly two years ago. Throughout, we’ve tried to keep a steady focus on
our customers. We follow, first and foremost, a customer strategy at Nordstrom — not a price, brand,
technology or any other corporate strategy. We believe it is this singular focus on our customers that has
kept us disciplined, guided careful decision making and enabled us to take advantage of opportunities.
Let’s briefly recap some of our 2009 results:
• Net earnings of $441 million, a 9.9% increase from the prior year.
• Total retail sales decrease of 0.2% to $8.26 billion, and same-store sales decline of 4.2% for
the year.
• Higher gross profit driven by more regular price selling.
• Free cash flow of $579 million.
• Inventory turn of 5.4, a historically high rate for our business.
Our performance last year exceeded our expectations and put us in a better position both financially and
competitively. We achieved our results by seeing the business through the eyes of our customers. This
led us to enhanced service, merchandise that is more current and compelling, improvements to our multi-
channel capabilities and continued discipline in the way we manage our business.
A COMPELLING OFFERING
One of the ways we created closer alignment with customers was through our merchandise mix. In a
historically challenging year, our buyers had much at stake and the strength of our vendor relationships
mattered more than ever. We planned cautiously so that we could maximize our merchandise flexibility
and evolve with our customers. With inventory, we were careful to stay in line with sales trends while
bringing in merchandise that resonated with our customers.
Even in tough times, we wanted to be able to deliver on our customers’ expectations. We found ways
to continue leveraging our broad, diverse merchandise offering that reflected our customers’ desire
for value, quality and newness. We moved quickly to provide new merchandise as customers started to
respond. Our merchandise is now as current as it’s ever been, and there is a steady flow of new fashion
into our stores.
MULTI-CHANNEL PROGRESS
We know more of our customers are choosing to shop with us in different ways. Customers don’t see
a distinction between a Nordstrom store, nordstrom.com or our catalogs. To them, it’s just Nordstrom,
and they want a consistently great shopping experience no matter where or how they choose to shop.
In fall of 2009, we took a big step forward in serving customers across multiple channels by creating
shared inventory between our full-line stores and nordstrom.com. Now, online customers can access
merchandise no matter where it is located. If we are out of stock of an item at our fulfillment center, our
systems instantly locate whether it is at any of our full-line stores and we can fulfill the online order at
the store level.
As a result, customers are able to find what they are looking for more often from us online. Shopping
across channels is more convenient. From a business standpoint, this capability greatly improved
efficiency, enabling us to turn inventory faster and bring in newer merchandise.
We view these and other multi-channel improvements as simply another means to create a seamless
shopping experience for customers. Ultimately, our goal is to enable the customer to shop with us on
their terms — 24 hours a day, 7 days a week.
Blake’s Letter
DISCIPLINED EXECUTION
Our commitment to customers has also guided careful expense management. The dramatic drop in 2008
prompted us to take a hard look at our business. We questioned aspects of our operations that did not
enhance the shopping experience. We wanted to protect the things that help us take care of customers
while scaling back other costs. This meant becoming leaner primarily at the back of the house — areas of
the business that did not engage with customers. This editing and prioritizing based on the customer has
enabled us to manage our business more effectively and profitably.
We also invested in our future by growing our store presence in top markets and retail locations across the
country. We opened three Nordstrom stores, relocated another and opened 13 Nordstrom Racks.
THE ROAD AHEAD
Although the economy remains uncertain and there is lingering caution with customers, we are making
solid progress. We are better able to serve our customers in a manner they would like. We achieved earnings
growth and strengthened our financial position. While it is premature to say things have turned around,
we feel encouraged by some key factors:
• Building sales momentum in 2009, including consecutive same-store sales increases
each of the last four months of the year.
• Fresh, compelling merchandise that customers are telling us they want.
• Tight inventory management and the flexibility to quickly respond to trends across all stores.
• More ways to connect with customers on a multi-channel basis, including plans for an
enhanced online experience, improved mobile shopping capabilities and better engagement
with customers through social networking.
• Continuing store growth, with announced plans for three new Nordstrom stores, one store
relocation and 17 Nordstrom Rack openings in 2010.
We’ve learned a great deal during this difficult stretch and the experience has made us better. Looking ahead,
we believe we can earn more business. At the same time, we remain grounded in our customer strategy
and mindful of what we’ve been through. Improving service is at the core of our business and something
we have to work hard at each and every day.
On behalf of everyone at Nordstrom, thank you for your continued support.
Sincerely,
Blake W. Nordstrom
President, Nordstrom, Inc.
Peter E. Nordstrom
President of Merchandising, Nordstrom, Inc.
Erik B. Nordstrom
President of Stores, Nordstrom, Inc.
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Adversity is a great test of character. How a company responds under difficult circumstances tells you a lot
about the true qualities of the business and the people behind it. During an extraordinarily turbulent time
in fashion retail and the broader economy, Nordstrom performed admirably in 2009. With continued focus
on the customer, the company strengthened its financial condition and firmly positioned itself for growth.
This past year proved the axiom that where there are challenges, there are opportunities. In spite of
a difficult sales environment, the company developed and employed a more efficient and profitable
business model, made strategic investments, increased market share and, most important, found new
ways to take care of customers. Nordstrom is a company that is evolving in step with its customers and
preparing to serve them in new and better ways in the future.
In 2009 the company increased free cash flow and strengthened its fundamentals. Earnings Before
Interest and Income Taxes (EBIT) and Return on Invested Capital, important measures for our shareholders,
improved over the prior year. The company managed working capital well while also maintaining
investment grade credit ratings. All of these factors should provide Nordstrom with an advantage in the
marketplace and enhanced flexibility.
In my letter last year, I said that changes in the marketplace presented opportunities for Nordstrom, and
it has been encouraging to see the company effectively take advantage of many. The progress made
during 2009 in the multi-channel aspect of our business is a good example of an initiative on which the
board has long been focused. The company was able to make the shopping experience more seamless
for customers this past year by linking its online and in-store inventory, thereby increasing merchandise
availability on nordstrom.com.
As members of the Board of Directors, we are accountable for ensuring that the principles, policies and
people are in place to take Nordstrom in the right direction on behalf of our shareholders, a responsibility
we take seriously. We believe in following sound practices and operating transparently, and took steps
last year to refresh our review and oversight capabilities by rotating some of our committee chair
responsibilities. We remain committed to maintaining a strong, diverse and independent board and will
continue looking for ways to improve our ability to govern to the highest standards.
Our unwavering focus on improving customer service at Nordstrom will not change — in fact,
we believe it is this commitment that drives results and will continue to define success for
Nordstrom. We are confident the business is in good hands and run with the utmost integrity.
On behalf of the entire Board of Directors, thank you for your support.
Enrique Hernandez, Jr.
Chairman
CHAIRMAN letter
Insert Indesign file here (“Financials 2009”)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:53)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2010
OR
(cid:133)
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:53) NO (cid:133)
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:133) NO (cid:53)
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:53) NO (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES (cid:53) NO (cid:133)
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:133)
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:53)
Non-accelerated filer (cid:133) (Do not check if a smaller reporting company)
Accelerated filer (cid:133)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:133) NO (cid:53)
As of July 31, 2009 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was
approximately $4.8 billion using the closing sales price on that day of $26.44. On March 12, 2010, 218,020,643 shares of common stock were outstanding.
Portions of the Proxy Statement for the 2010 Annual Meeting of Shareholders scheduled to be held on May 18, 2010 are incorporated into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
Nordstrom, Inc. and subsidiaries 1
[This page intentionally left blank.]
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. Reserved.
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.
Item 8.
Financial Statements and Supplementary Data.
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, and Director Independence.
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
13
13
14
15
16
32
33
60
60
60
60
60
61
61
61
61
62
63
64
65
Nordstrom, Inc. and subsidiaries 3
Item 1. Business.
PART I
DESCRIPTION OF BUSINESS
Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in the state of Washington in 1946. We are one of the nation’s leading
fashion specialty retailers, with 187 U.S. stores located in 28 states as of March 19, 2010. The west and east coasts are the areas in which we have the
largest presence. We have four reportable segments: Retail Stores, Direct, Credit, and Other.
The Retail Stores segment derives its revenues from sales of high-quality apparel, shoes, cosmetics and accessories. It includes our 112 ‘Nordstrom’
full-line stores, 72 off-price ‘Nordstrom Rack’ stores, two ‘Jeffrey’ boutiques, and one clearance store that operates under the name ‘Last Chance.’
The Nordstrom Rack stores purchase merchandise directly from manufacturers and also serve as outlets for clearance merchandise from our
full-line 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. The Direct segment’s merchandise is primarily shipped from our fulfillment center in Cedar Rapids, Iowa. However, beginning in
the third quarter of 2009, we linked our Direct segment’s inventory with that of our full-line stores and now have the ability to fulfill online orders from
any of our full-line stores. This has given our customers access to more of our merchandise. Additionally we offer our customers the option to
purchase items on our Web site and pick them up in our full-line stores. These enhancements have enabled us to better serve customers across various
channels and improve sales.
Our Credit segment includes our wholly owned federal savings bank, Nordstrom fsb, through which 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 program designed to increase customer
visits and spending. Although the primary purpose of our Credit business is to foster greater customer loyalty and drive more sales, we also generate
revenues 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 segments. In addition, this segment includes our corporate center operations.
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 16 and Note 14 of the Notes to Consolidated Financial Statements in Item 8.
FISCAL YEAR
We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2009, 2008 and 2007 relate to the 52-week
fiscal years ended January 30, 2010, January 31, 2009 and February 2, 2008, respectively. References to 2010 relate to the 52-week fiscal year ending
January 29, 2011.
TRADEMARKS
We have 136 trademarks, each of which is the subject of one or more trademark registrations and/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 online at Nordstrom Direct. Our Nordstrom Rack stores accept returns
up to 30 days from the date of purchase with the original price tag and sales receipt. In general, our return policy is considered to be more generous
and liberal than industry standards.
SEASONALITY
Due to our Anniversary Sale in July, the holidays in December and the half-yearly sales that occur in the second and fourth quarters, our sales are
historically higher 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 expected sales trends. 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.
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 legal and regulatory compliance, labor, health and safety, and the environment.
4
COMPETITIVE CONDITIONS
Our business is highly competitive. We compete 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 keys to competing in our industry include customer service, fashion newness, quality of product, the shopping experience, depth of
selection, store environment and location.
EMPLOYEES
During 2009, we employed approximately 48,000 employees on a full- or part-time basis. Due to the seasonal nature of our business, employment
increased to approximately 51,000 employees in July 2009 and 53,000 in December 2009. We do not have a significant number of employees who are
members of a union. We believe our relationship with our employees is good.
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, anticipated 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 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 company’s ability to safeguard its brand and reputation, effective
inventory management, efficient and proper allocation of the company’s capital resources, 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, trends in personal bankruptcies and bad debt write-offs, availability and cost of credit, impact of the current regulatory
environment and financial system reforms, changes in interest rates, disruptions in the company’s supply chain, the company’s ability to maintain its
relationship with vendors and developers who may be experiencing economic difficulties, the geographic locations of the company’s stores, the company’s
ability to maintain its relationships with its employees and to effectively train and develop its future leaders, 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 information technology strategy, successful execution of the company’s multi-channel strategy, risks related to fluctuations in
world currencies, public health concerns and the resulting impact on consumer spending patterns, supply chain, and employee health, weather conditions
and hazards of nature that affect consumer traffic and consumers’ purchasing patterns, the effectiveness of planned advertising, marketing and
promotional campaigns, and the company’s ability to control costs. These and other factors could affect our financial results and cause actual results to
differ materially from any forward-looking information we may provide. The company undertakes 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 a 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 Web site address is www.nordstrom.com. We make available free of charge on or through our Web site our annual and quarterly reports on Form
10-K and 10-Q (including related filings in XBRL format), 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 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 Web site our Codes of Ethics, our Corporate Governance
Guidelines, and our Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, 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 are not the only risks we
face. Additional risks and uncertainties, not presently known to us or that we currently consider immaterial, may also impair our business operations.
DETERIORATION OF ECONOMIC CONDITIONS
The deterioration in economic conditions over the past two years has hurt our business in several ways. Rising unemployment, tightening of consumer
credit and the decline in the housing market in the United States have all contributed to 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 lower sales, 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 delinquency rates, increasing our
bad debt expense. While some macroeconomic indicators suggest that a modest economic recovery has begun, key factors such as employment levels,
consumer credit and housing market conditions remain weak. A sluggish economic recovery or a renewed downturn could have a significant adverse
effect on our business.
ABILITY TO RESPOND TO THE BUSINESS ENVIRONMENT AND FASHION TRENDS
We strive to ensure the merchandise we offer remains current and compelling to our customers. We make decisions regarding inventory purchases well
in advance of the season in which it will be sold. Therefore, our ability to predict or respond to changes in fashion trends, consumer preferences and
spending patterns, and to match our merchandise levels and mix to sales trends and consumer tastes, significantly impacts our sales and operating
results. If we do not identify and respond to emerging trends in consumer spending and 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. Conversely, if we fail to purchase enough
merchandise, we may lose opportunities for additional sales and damage our relationships with our customers.
CONSUMER CREDIT
Our credit card operations help drive sales in our stores, allow our stores to avoid third-party transaction fees and generate additional revenues by
extending credit. Our credit card revenues and profitability are subject in large part to economic and market conditions that are beyond our control,
including, but not limited to, interest rates, consumer credit availability, consumer debt levels, unemployment trends and other matters. Increases in
unemployment have corresponded with rising credit card delinquencies and write-offs, which may continue in the future. Further, these economic
conditions could impair our ability to assess the creditworthiness of our customers if the criteria and/or models we use to underwrite and manage our
customers become less predictive of future losses, which could cause our losses to rise and have a negative impact on our results of operations.
REGULATORY ENVIRONMENT AND FINANCIAL SYSTEM REFORMS
Current economic conditions, particularly in the financial markets, have resulted in increased legislative and regulatory actions. The Credit Card
Accountability, Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”) included new rules and restrictions on credit card pricing, finance
charges and fees, customer billing practices and payment application. These provisions are likely to affect our credit business practices and could
have a negative impact on our revenues and profitability.
In addition, Congress and the Obama Administration are currently considering various proposals for reform of the financial system. Proposed reforms
include the elimination of the thrift charter and all retailer-owned bank charters, creation of a new federal agency to supervise and enforce consumer
lending laws and regulations, and expanded state authority over consumer lending. The final details of financial system reform legislation, if any, are
highly uncertain at this time. Depending on the nature and extent of any reforms, our credit business could be significantly adversely affected.
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 attract, retain, 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.
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. In addition, a security breach could require that we expend significant additional resources
related to our information security systems and could result in disruption of our operations, particularly our online sales operations.
BRAND AND REPUTATION
We have a well-recognized brand that many consumers 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.
6
STORE GROWTH PLANS
Our five-year strategic growth plan includes opening several new full-line and Rack stores, with 30 announced store openings. The majority of these
openings will occur by 2012. 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. We also depend on the work of our developer partners to sustain our store growth plans. Developer
delays of shopping center construction, expansion or renovation projects, or developer financial difficulties, could cause the delay or cancellation of
our expected store openings or remodels, or could adversely affect maintenance and leasing at some shopping centers in which we have stores.
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 inability to execute
our store growth strategy in a way that generates appropriate returns on investment could affect our future growth and profitability.
INFORMATION TECHNOLOGY STRATEGY
We make investments in information technology to sustain our competitive position. In 2010, we expect to spend approximately $160 on information
technology operations and systems development, which is key to our growth. We must monitor and choose the right investments and implement them
at the right pace. Excessive technological change could impact the effectiveness of adoption, and could make it more difficult for us to realize benefits
from the technology. 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.
MULTI-CHANNEL STRATEGY EXECUTION
Over the past several years, we have made changes in our business to improve the shopping experience across all channels. These changes included
aligning our online merchandise offering with our full-line stores to create a seamless experience for our customers between our stores and Web site,
combining the full-line stores’ and Direct merchandise organizations; providing a more focused catalog offering; and creating a shared inventory
platform between Direct and our full-line stores. We plan to make additional changes in our multi-channel merchandise planning process over the next
few years. If we encounter challenges associated with change management, the ability to hire and retain key personnel involved in these efforts,
implementation of associated information technology, or adoption of new processes, our ability to continue to successfully execute this strategy could
be adversely affected. As a result, we may not derive the expected benefits to our sales and profitability, or we may incur increased costs relative to
our current projections.
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.
Our credit segment faces competition from large banks, and other credit card companies, some of which have substantial financial resources. Many of
our competitors offer general-purpose credit card products with a variety of loyalty programs. In addition, there is intense competition for cardholders
with “prime” credit ratings who make up a significant portion of our credit portfolio. If we do not effectively respond to the competitive banking and
credit card environment, we could lose market share to our competitors, which would have an adverse effect on our credit business.
CAPITAL MANAGEMENT AND LIQUIDITY
Our access to debt and equity capital, and our ability to invest capital to maximize the total returns to our shareholders, is critical to our long-term
success. We utilize capital to finance our operations and working capital, make capital expenditures, manage our debt levels and return value to our
shareholders through dividends and share repurchases. As a result of the financial crisis, global credit and equity markets have undergone significant
disruption, making it difficult for many businesses to obtain financing on acceptable terms or at all. Our ability to obtain capital and the cost of the
capital depend on financial market conditions and 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. If our access to capital is restricted or if our cost of capital
increases, our operations and financial condition could be adversely affected. Further, if we do not properly allocate our capital to maximize returns,
our operations and cash flows could be adversely affected and our long-term cost of capital could increase.
SUPPLY CHAIN DISRUPTION
The effective and efficient operation of our supply chain, including merchandise sourcing and procurement, receiving and distribution, is critical to the
success of our business. Our supply chain operations may be adversely impacted by difficulties with our suppliers, such as production capacity
constraints, errors in meeting merchandise specifications, including specifications dictated by consumer product safety laws, insufficient quality
control, failures to meet production deadlines, or increases in manufacturing costs. Additionally, unforeseen disruptions in our supply chain due to
severe weather, natural or man-made disasters, labor disputes, shipping problems, or information systems malfunction, may adversely affect our
ability to deliver merchandise to our stores or our customers and could increase our costs.
Nordstrom, Inc. and subsidiaries 7
RELATIONSHIPS WITH VENDORS
Our relationships with our merchandise vendors have been a significant contributor to our past success and our position as a retailer of high-quality
fashion merchandise. Some of our vendors have experienced serious cash flow problems due to the credit market crisis and economic deterioration.
To address these problems, our vendors could attempt to increase their prices, alter payment terms or seek other relief, all of which could increase our
costs. In some cases, they may be forced to reduce their operations or file for bankruptcy protection, which could have an adverse effect on our
business if we are unable to procure the desired merchandise on acceptable terms.
We also have no guaranteed supply arrangements with our key vendors, many of whom limit the number of retail channels they use to sell their
merchandise. Competition to obtain and sell this merchandise 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, or to limit or reduce our access to their merchandise, our business could be
adversely affected.
GEOGRAPHIC LOCATION OF STORES
A significant amount of our total sales is derived from stores located on the west and east coasts, particularly California, which increases our exposure
to local economic conditions, severe weather, natural disasters and other natural or man-made disruptions within these regions. Deterioration in
economic conditions and consumer confidence within these regions has negatively impacted our business, including a reduction in overall sales,
reduced gross margins and increased expenses, including bad debt expense. Any continued economic deterioration, severe weather patterns, natural
disasters or other disruptions in these regions, could have a significant adverse effect on our business. In addition, many states in these regions are
facing significant budget shortfalls, and may seek to address those shortfalls through unfavorable changes in tax laws and interpretation of existing
laws which could adversely affect our results of operations.
EMPLOYMENT LAWS AND REGULATIONS
Our policies and procedures are designed to comply with employment laws and regulations set forth by the federal government and in each of the
states and municipalities where we do business. These include laws and regulations related to wages and hours, meals and rest periods, and
commissions. These laws and regulations are complex and continuously evolving, and the related enforcement is increasingly aggressive, particularly
in the state of California. Significant legislative changes that impact our relationship with our workforce could increase our expenses and adversely
affect our operations. Possible legislative changes include changes to an employer’s obligation to recognize collective bargaining units, the process by
which collective bargaining agreements are negotiated or imposed and health care mandates. In addition, if we fail to comply with applicable laws and
regulations we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, disruption of our business, changes to
our employment practices, and loss of customers and employees, which could result in a loss of sales, increased employment costs, low employee
morale, and harm to our business and results of operations.
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.
IMPACT OF PUBLIC HEALTH CONCERNS
Our business and operations could be materially and adversely affected by a regional or widespread pandemic, which could cause, among other things,
a decrease in consumer spending that would negatively impact our sales; staffing shortages in our stores, distribution centers, or corporate offices;
supply chain disruptions; or disruptions in the operations of our merchandise vendors or property developers. Any of these effects could have a
significant adverse impact on our sales, costs, reputation and long-term growth plans.
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. 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.
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 30, 2010:
Owned on leased land
Leased stores
Owned stores on owned land
Partly owned and partly leased
Total
Number of Stores
58
91
34
1
184
% of total store
square footage
46.5%
28.9%
23.9%
0.7%
100.0%
The following table summarizes our store opening activity during the last three years:
Fiscal year
Number of stores, beginning of year
Stores opened
Stores acquired
Sale of Façonnable boutiques
Stores closed
Number of stores, end of year
2009
169
16
-
-
(1)
184
2008
156
14
-
-
(1)
169
20071
191
5
2
(41)
(1)
156
1During the third quarter of 2007, we completed the sale of our Façonnable business. Fiscal year 2007 includes international Façonnable boutiques through August 31, 2007 and domestic
Façonnable boutiques through October 31, 2007 as follows: 36 international and 4 domestic boutiques at the beginning of 2007; one international boutique opened during 2007; and all 41
boutiques sold as part of the sale of the Façonnable business.
In 2009, we opened three full-line stores (Cherry Hill, New Jersey; Peabody, Massachusetts; and Cincinnati, Ohio), relocated one full-line store (Murray,
Utah) and opened thirteen Rack stores (Paramus, New Jersey; Dallas, Texas; Sandy, Utah; Orland Park, Illinois; East Palo Alto, California; Southlake,
Texas; Maple Grove, Minnesota; Los Angeles, California; Pasadena, California; San Jose, California; Austin, Texas; Orlando, Florida; and Cincinnati, Ohio).
To date in 2010, we have opened three new Rack stores (Houston, Texas; Kendall, Florida; and Coral Gables, Florida). During the remainder of 2010, we
are scheduled to open three full-line stores (Braintree, Massachusetts; Newport Beach, California; and Santa Monica, California), relocate one full-line
store (Cerritos, California) and open fourteen additional Rack stores (Denver, Colorado; Framingham, Massachusetts; Atlanta, Georgia; New York,
New York; Arlington, Virginia; Fairfax, Virginia; Durham, North Carolina; St. Louis, Missouri; Boca Raton, Florida; Chicago, Illinois; Tampa, Florida;
Lakewood, California; Burbank, California; and Peoria, Arizona).
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 for our Credit segment.
Nordstrom, Inc. and subsidiaries 9
The following table lists our retail store facilities as of January 30, 2010:
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
Santa Anita
Brea Mall
Topanga
Los Cerritos Center
The Village at Corte Madera
South Coast Plaza
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
Galleria at Roseville
Arden Fair
Fashion Valley
Horton Plaza
University Towne Center
San Francisco Centre
Stonestown Galleria
Valley Fair
Hillsdale Shopping Center
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
GEORGIA
Atlanta
Atlanta
Buford
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
Perimeter Mall
Phipps Plaza
Mall of Georgia
1This store has been subsequently relocated.
10
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
243,000
140,000
172,000
1998
2005
2000
HAWAII
Honolulu
ILLINOIS
Chicago
Oak Brook
Schaumburg
Skokie
INDIANA
Indianapolis
Indianapolis
KANSAS
Overland Park
MARYLAND
Annapolis
Bethesda
Columbia
Towson
MASSACHUSETTS
Burlington
Natick
Peabody
MICHIGAN
Clinton Township
Novi
Troy
MINNESOTA
Bloomington
MISSOURI
Des Peres
NEVADA
Las Vegas
NEW JERSEY
Cherry Hill
Edison
Freehold
Paramus
Short Hills
NEW YORK
Garden City
White Plains
NORTH CAROLINA
Charlotte
Durham
OHIO
Beachwood
Cincinnati
Columbus
OREGON
Portland
Ala Moana Center
211,000
2008
Michigan Avenue
Oakbrook Center
Woodfield Shopping Center
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
Annapolis Mall
Montgomery Mall
The Mall in Columbia
Towson Town Center
Burlington Mall
Natick Collection
Northshore Mall
162,000
225,000
173,000
205,000
1994
1991
1999
1992
143,000
154,000
143,000
2008
2007
2009
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
Cherry Hill Mall
Menlo Park
Freehold Raceway Mall
Garden State Plaza
The Mall at Short Hills
143,000
204,000
174,000
282,000
188,000
2009
1991
1992
1990
1995
Roosevelt Field
The Westchester
241,000
219,000
1997
1995
SouthPark
The Streets at Southpoint
151,000
149,000
2004
2002
Beachwood Place
Kenwood Towne Centre
Easton Town Center
231,000
144,000
174,000
1997
2009
2001
Clackamas Town Center
121,000
1981
Location
Full-Line Stores (continued)
Store Name
OREGON (continued)
Portland
Portland
Salem
Tigard
Downtown Portland
Lloyd Center
Salem Center
Washington Square
Square
Footage
Year
Store
Opened
174,000
150,000
71,000
189,000
19661
19631
1980
19741
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
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
144,000
122,000
19811
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
Southcenter
Vancouver
241,000
148,000
211,000
166,000
128,000
1989
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
Brea, CA
Chino, CA
Colma, CA
Costa Mesa, CA
East Palo Alto, CA
Fresno, CA
Glendale, CA
Laguna Hills, CA
Long Beach, CA
Chandler Festival Rack
Last Chance
Scottsdale Promenade Rack
Brea Union Plaza Rack
Chino Spectrum Towne Center Rack
Colma Rack
Metro Pointe at South Coast Rack
Ravenswood 101 Rack
Villaggio Retail Center Rack
Glendale Fashion Center Rack
Laguna Hills Mall Rack
Long Beach CityPlace Rack
37,000
48,000
38,000
45,000
38,000
31,000
50,000
41,000
32,000
36,000
35,000
33,000
2000
19921
2000
1999
19871
1987
19831
2009
2002
2000
2008
2002
1This store has been subsequently relocated.
Location
Nordstrom Rack Group (continued)
Store Name
Los Angeles, CA
Los Angeles, CA
Ontario, CA
Oxnard, CA
Pasadena, CA
Roseville, CA
Sacramento, CA
San Diego, CA
San Francisco, CA
San Jose, CA
San Jose, CA
San Leandro, CA
San Marcos, CA
Woodland Hills, CA
Broomfield, CO
Lone Tree, CO
Orlando, FL
Sunrise, FL
Buford, GA
Honolulu, HI
Chicago, IL
Naperville, IL
Northbrook, IL
Oak Brook, IL
Orland Park, IL
Schaumburg, IL
Danvers, MA
Gaithersburg, MD
Towson, MD
Grand Rapids, MI
Troy, MI
Bloomington, MN
Maple Grove, MN
Paramus, NJ
Las Vegas, NV
Westbury, NY
White Plains, NY
Cincinnati, OH
Lyndhurst, OH
Beaverton, OR
Clackamas, OR
Portland, OR
King of Prussia, PA
Austin, TX
Dallas, TX
Plano, TX
San Antonio, TX
Southlake, TX
Salt Lake City, UT
Sandy, UT
Sterling, VA
Woodbridge, VA
Auburn, WA
Bellevue, WA
Lynnwood, WA
Seattle, WA
Spokane, WA
Tukwila, WA
Beverly Connection Rack
The Promenade at Howard Hughes
Center Rack
Ontario Mills Mall Rack
Esplanade Shopping Center Rack
Hastings Village Rack
Creekside Town Center Rack
Howe `Bout Arden Center Rack
Mission Valley Rack
555 Ninth Street Retail Center Rack
Oakridge Rack
Westgate Mall Rack
San Leandro Rack
Grand Plaza Rack
Topanga Rack
Flatiron Marketplace Rack
Meadows Marketplace Rack
Millenia Crossing Rack
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
Orland Park Place Rack
Woodfield Rack
Liberty Tree Mall Rack
Gaithersburg Rack
Towson Rack
Centerpointe Mall Rack
Troy Marketplace Rack
Mall of America Rack
Arbor Lakes Rack
Bergen Town Center Rack
Silverado Ranch Plaza Rack
The Mall at the Source Rack
City Center Rack
Rookwood Pavilion Rack
Legacy Village Rack
Tanasbourne Town Center Rack
Clackamas Promenade Rack
Downtown Portland Rack
The Overlook at King of
Prussia Rack
Gateway Center Rack
Park Lane Rack
Preston Shepard Place Rack
The Rim Rack
Shops of Southlake Rack
Sugarhouse Rack
The Commons at Southtowne 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
30,000
2009
41,000
40,000
38,000
42,000
36,000
54,000
57,000
43,000
30,000
48,000
44,000
35,000
64,000
36,000
34,000
36,000
27,000
44,000
34,000
41,000
37,000
40,000
42,000
35,000
45,000
43,000
49,000
31,000
40,000
40,000
41,000
34,000
34,000
33,000
48,000
36,000
35,000
40,000
53,000
28,000
32,000
45,000
35,000
36,000
39,000
35,000
36,000
31,000
35,000
41,000
46,000
48,000
46,000
38,000
42,000
28,000
35,000
2001
2002
2001
2009
2001
1999
19851
2001
2009
1998
1990
2006
1984
2001
1998
2009
2003
2000
2000
2003
2008
1996
2000
2009
1994
2008
1999
1992
2001
2000
1998
2009
2009
2001
1997
2008
2009
2008
1998
19831
19861
2002
2009
2009
2000
2008
2009
1991
2009
2001
1990
1995
1997
19851
1987
2000
2007
Nordstrom, Inc. and subsidiaries 11
[This page intentionally left blank.]
12
Item 3. Legal Proceedings.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us of
state and/or federal wage and hour laws. Some of these suits purport or have been determined to be class actions and/or seek substantial damages.
While we cannot predict the outcome of these matters with certainty, 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. Reserved.
Nordstrom, Inc. and subsidiaries 13
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities.
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
of common stock as of March 12, 2010 was 134,493, 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 218,020,643 shares of common stock outstanding.
The high and low sales prices of our common stock and dividends declared for each quarter of 2009 and 2008 are presented in the table below:
Common Stock Price
2009
2008
High
$23.17
$26.70
$36.52
$39.01
$39.01
Low
$11.19
$18.15
$26.25
$31.32
$11.19
High
$40.59
$38.65
$37.00
$18.17
$40.59
Low
$30.72
$25.67
$13.66
$6.61
$6.61
Dividends per Share
2009
$0.16
$0.16
$0.16
$0.16
$0.64
2008
$0.16
$0.16
$0.16
$0.16
$0.64
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Full Year
STOCK PRICE PERFORMANCE
The following graph compares, for each of the last five fiscal years ending January 30, 2010, the cumulative total return of Nordstrom, Inc. common
stock, Standard & Poor’s Retail Index and Standard & Poor’s 500 Index. The Retail Index is comprised of 30 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
invested on January 29, 2005 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
1/29/05
1/28/06
2/3/07
2/2/08
1/31/09
1/30/10
Year Ended
End of fiscal year:
Nordstrom, Inc. common stock
Standard & Poor’s Retail Index
Standard & Poor’s 500 Index
2004
100
100
100
2005
179
108
110
2006
243
123
124
2007
172
99
119
2008
56
61
71
2009
158
93
92
14
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
Earnings Results
Net sales
Credit card revenues
Gross profit1
Selling, general and administrative (“SG&A”) expenses:2
Retail stores, direct and other segments (“Retail”)2
Credit segment2
Earnings on investment in asset-backed securities, net2,3
Earnings before interest and income taxes (“EBIT”)
Interest expense, net
Earnings before income taxes (“EBT”)
Net earnings
Balance Sheet and Cash Flow Data
Accounts receivable, net
Investment in asset-backed securities
Merchandise inventories
Current assets
Land, buildings and equipment, net
Total assets
Current liabilities
Long-term debt, including current portion
Shareholders’ equity
Cash flow from operations
Performance Metrics
Same-store sales percentage (decrease) increase4
Gross profit % of net sales
SG&A % of net sales:
Retail
Total
EBIT as a percentage of total revenues
EBT as a percentage of total revenues
Net earnings as a percentage of total revenues
Return on average shareholders’ equity
Sales per square foot5
Retail SG&A expense per square foot5
Per Share Information
Earnings per diluted share
Dividends per share
Book value per share
Store Information (at year end)
Full-line stores
Rack and other stores6
International Façonnable boutiques6
Total square footage
2009
2008
20076
20067
2005
$8,258
369
2,930
$8,272
301
2,855
$8,828
252
3,302
$8,561
105
3,207
$7,723
97
2,835
(2,109)
(356)
-
834
(138)
696
441
(2,103)
(274)
-
779
(131)
648
401
(2,161)
(198)
18
1,247
(74)
1,173
715
$2,035
-
898
4,054
2,242
6,579
2,014
2,613
1,572
1,251
$1,942
-
900
3,217
2,221
5,661
1,601
2,238
1,210
848
$1,788
-
956
3,361
1,983
5,600
1,635
2,497
1,115
312
(4.2%)
35.5%
25.5%
29.8%
9.7%
8.1%
5.1%
31.7%
$368
$94
$2.01
0.64
7.22
(9.0%)
34.5%
25.4%
28.7%
9.1%
7.6%
4.7%
34.5%
$388
$99
$1.83
0.64
5.62
3.9%
37.4%
24.5%
26.7%
13.7%
12.9%
7.9%
43.6%
$435
$106
$2.88
0.54
5.05
(2,180)
(92)
109
1,149
(43)
1,106
678
$684
428
997
2,742
1,757
4,822
1,433
631
2,169
1,142
7.5%
37.5%
25.5%
26.5%
13.3%
12.8%
7.8%
31.8%
$423
$108
(2,006)
(85)
89
930
(45)
885
551
$640
561
956
2,874
1,774
4,921
1,623
934
2,093
776
6.0%
36.7%
26.0%
27.1%
11.9%
11.3%
7.1%
28.4%
$392
$102
$2.55
0.42
8.43
$1.98
0.32
7.76
112
72
-
22,773,000
109
60
-
21,876,000
101
55
-
20,502,000
98
57
36
20,170,000
98
57
32
20,070,000
1Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs (for all segments).
2In 2009, we reclassified other income and expense, net in our consolidated statement of earnings, which was previously presented separately. A portion of other income and expense, net
has been reclassified to earnings on investment in asset-backed securities, net, and the remaining portion has been reclassified to selling, general and administrative expenses.
3On May 1, 2007, we combined our Nordstrom private label credit card and Nordstrom VISA credit card programs into one securitization program. At that time the Nordstrom VISA credit card
receivables were brought on-balance sheet.
4Same-stores include stores that have been open at least one full year at the beginning of the year and sales from our Direct segment.
5Sales per square foot and Retail SG&A expense per square foot are calculated as net sales and Retail SG&A expense, respectively, 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.”
7Fiscal 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 our calculation of same-store sales.
Nordstrom, Inc. and subsidiaries 15
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)
OVERVIEW
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 various channels: our ‘Nordstrom’ branded full-line stores and
Web site (which we refer to as “multi-channel”), our off-price ‘Nordstrom Rack’ stores, and our ‘Jeffrey’ boutiques. Our stores are located throughout
the United States. In addition, we offer our customers a loyalty program associated with a variety of payment products and services, including credit
and debit cards.
We believe our multi-channel offering is important to our success and is consistent with our commitment to customer service. Our goal is to provide a
seamless integrated shopping experience to our customers whenever and however they choose to shop. With that in mind, we are continuing to make
improvements to our multi-channel capabilities. In 2008, we launched the “Buy Online, Pick Up in Store” service, which allows customers to purchase
merchandise online and then pick up their item(s) at a Nordstrom store on the same day. In 2009, we updated our inventory platform to create shared
inventory across all of our full-line stores and our online store, allowing us to fulfill online orders from any full-line store. These enhancements have led
to greater merchandise selections online, improved convenience, as well as significant improvements in our sell-through rates (the proportion of
available merchandise that we are able to sell) and inventory turnover.
Our merchandising efforts have also been a significant contributor to our recent success. By managing our inventory levels effectively during the
economic downturn that began approximately two years ago, we were well positioned to increase purchases as sales improved and maintain fresh
merchandise in our stores without taking excessive markdowns. Our customers have continued to respond favorably to our merchandise assortment,
thereby contributing to additional sales growth and higher rates of regular-priced sales.
Throughout 2009, we demonstrated discipline in the management of our expenses. Our model is focused on controlling our fixed expenses, while
flexing our variable and performance-related expenses with our sales and earnings results. Our sales per square foot in 2009 declined to $368,
consistent with our sales per square foot of $369 in 2004. However, as a result of our expense management efforts, we decreased our selling, general
and administrative expenses per square foot for our Retail Stores, Direct and Other segments over the same time period, from $100 in 2004 to $94 in
2009. This flexibility in managing our business and the ability to adjust quickly to changes in trends have put us in a healthy position heading into 2010.
The economic environment continues to have a significant impact on our customers. Consumers are cautious about spending, unemployment levels
continue to be high and economic uncertainty remains. As a result of these conditions, we experienced elevated delinquency and write-off rates on our
credit card portfolio. We expect unemployment levels will remain elevated during 2010.
We recognize the importance of increasing our presence in top retail markets across the country. During 2009 we opened three Nordstrom full-line
stores, relocated another, and opened 13 Nordstrom Racks. In 2010 we will continue to open full-line and Rack stores while returning to a more regular
remodeling schedule of five-to-six in 2010, compared to one remodel in 2009, as we continue to pursue our long-term growth strategy.
We entered 2009 with considerable uncertainty, including an economic downturn and a volatile retail environment. Our continued focus on improving
service through our multi-channel offering, improved merchandising and disciplined inventory, expense and capital management, enabled us to adapt
as our trends improved, and as a result we are well positioned going into 2010. Following a year of improving performance and with a more efficient
business model, we are focused on improving execution and growing our market share. We believe that our response to the adversity of the past two
years has left us better positioned financially, competitively, and most important, with our customers.
RESULTS OF OPERATIONS
Retail Stores, Direct and Other Segments
Summary
Our Retail Stores segment includes our full-line, Rack and Jeffrey stores; our Direct segment includes our online store; and our Other segment includes
our product development group and corporate center operations (collectively the “Retail Business”). The following table summarizes the combined
sales and expenses of our Retail Business for the fiscal years ended January 30, 2010, January 31, 2009 and February 2, 2008:
Fiscal year
Net sales
Cost of sales and related buying and occupancy costs
Gross profit1
Selling, general and administrative expenses
2009
$8,258
(5,273)
2,985
(2,109)
2008
$8,272
(5,367)
2,905
(2,103)
2007
$8,828
(5,479)
3,349
(2,161)
% of net sales:
Cost of sales and related buying and occupancy costs
Gross profit
Selling, general and administrative expenses
63.9%
36.1%
25.5%
64.9%
35.1%
25.4%
62.1%
37.9%
24.5%
1Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs for our Retail Business.
16
Retail Business Net Sales
Fiscal year
Net sales
Net sales (decrease) increase
Same-store (decrease) increase by channel:
Full-line stores
Direct
Multi-channel
Rack
Total company
Percentage of net sales by merchandise category:
Women’s apparel
Shoes
Men’s apparel
Women’s accessories
Cosmetics
Children’s apparel
Other
Total
2009
$8,258
(0.2%)
2008
$8,272
(6.3%)
2007
$8,828
3.1%
(7.2%)
14.5%
(5.0%)
2.5%
(4.2%)
(12.4%)
8.4%
(10.6%)
3.1%
(9.0%)
34%
22%
15%
12%
11%
3%
3%
100%
34%
21%
16%
12%
11%
3%
3%
100%
2.5%
17.9%
3.5%
8.7%
3.9%
35%
20%
18%
11%
11%
3%
2%
100%
NET SALES – 2009 VS 2008
Net sales for 2009 were approximately flat compared to 2008. The decline in multi-channel same-store sales was mostly offset by new store openings
during 2009 and an increase in same-store sales for Rack.
Our multi-channel same-store sales declined 5.0% compared to 2008 as the decrease at our full-line stores was partially offset by the strong
performance of Direct. During 2009, we made continued progress on our multi-channel strategy, providing our customers with access to more of our
merchandise. In the fall of 2009, we updated our inventory platform to allow for shared inventory across all of our full-line stores and our Web site,
allowing us to fulfill online orders from any full-line store or from our fulfillment center. These enhancements increased sales and led to significant
improvements in our sell-through rates and inventory turnover, following their implementation in the second half of the year. Our merchandising
efforts also contributed to our improving multi-channel sales trends during the second half of the year. By managing our inventory levels effectively
during the downturn in sales over the past two years, we had the flexibility to increase purchases as sales improved and maintain current merchandise
in our stores without taking excessive markdowns. As a result, our percentage of regular price sales improved measurably over the course of the year.
Same-store sales for our full-line stores decreased 7.2% compared to the same period last year. Highlights for the year included both women’s shoes
and accessories. Women’s shoes benefited from sales of high-end shoes and boots, while fashion jewelry led accessories. Men’s clothing, particularly
young contemporary wear and men’s furnishings, remained challenging throughout the year. This continues the trend we experienced last year as
sales of men’s clothing declined in conjunction with economic deterioration. The South and Mid-Atlantic regions were the top performing geographic
areas for full-line stores. California and the Northwest had same-store sales below the full-line store average in 2009, although we saw improvements
in both regions during the latter part of the year.
Direct’s net sales increased 14.5% for the year, with results driven by the accessories, women’s apparel and women’s shoes categories. Accessories
benefited from the sales of handbags and fashion jewelry while women’s apparel was led by special occasion dresses. Junior footwear and high-end
shoes drove the improvement in women’s shoes. The growth in our Direct business was helped by our investments in technology and systems to better
align our merchandise offering and improve the online shopping experience.
Rack had its eighth consecutive year of positive sales growth with a same-store sales increase of 2.5% for the year. The shoes and women’s apparel
categories led the positive performance for the year. Junior and active footwear drove shoes while women’s apparel benefited from knitwear
and blouses.
During 2009 we opened three full-line and thirteen Rack stores. These stores represent 2.6% of our total net sales for 2009, and increased our gross
square footage by 4.1% during 2009.
NET SALES – 2008 VS 2007
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 in 2007 primarily as a result of the economic downturn. The
largest same-store sales decreases came in women’s apparel and men’s apparel. Women’s apparel continued to experience a market-wide deterioration
and we saw 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.
Nordstrom, Inc. and subsidiaries 17
Direct net sales increased 8.4% in 2008, 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 was launched in 2008 and proved to be a convenient and valued service for our customers. The accessories,
women’s apparel and kids’ merchandise categories led the growth in our Direct sales in 2008.
Rack same-store sales increased 3.1% for the year in 2008. The accessories category, led by designer handbags, and men’s apparel category, led by
premium denim, drove this growth. All regions contributed to the positive same-store sales results.
During 2008 we opened eight full-line and six Rack stores. These stores represented 3.3% of our total net sales for fiscal 2008, and increased our gross
square footage by 6.7% during 2008.
SAME-STORE SALES OUTLOOK – 2010
We expect 2010 same-store sales to increase approximately 2% to 4%. The same-store sales increase in the first half of 2010 is expected to be
approximately 300 basis points higher than in the second half of 2010.
As of March 19, 2010, we have opened three Rack stores. In total, we plan to open three full-line stores, relocate one full-line store and open fourteen
additional Rack stores during the remainder of 2010. This will increase retail square footage by approximately 4.5%.
Retail Business Gross Profit
Fiscal year
Gross profit1
Gross profit rate2
Average inventory per square foot
Inventory turnover rate3
2009
$2,985
36.1%
$43.96
5.41
2008
$2,905
35.1%
$49.00
5.20
2007
$3,349
37.9%
$52.70
5.16
1Gross profit is calculated as net sales less Retail Business 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 4-quarter average inventory.
GROSS PROFIT – 2009 VS 2008
Retail gross profit increased $80 from last year while our gross profit rate improved 101 basis points compared with the same period in 2008. Retail
gross profit consists of merchandise margin offset by buying and occupancy costs. The improvement for the year was driven by overall improvement in
our merchandise margin, particularly in the second half of the year. The latter half of 2008 was highly promotional among retailers, meaning many
competitors took steep markdowns and/or offered special events or incentives to attract customers, as sales declined. We were able to be less
promotional and reduce markdowns during 2009, particularly during the second half of the year, by aligning inventory with sales trends. All major
merchandise categories at our full-line stores contributed to this improvement over 2008. The improvement in our merchandise margin was offset by
an increase in our buying and occupancy costs. Buying and occupancy costs as a percentage of sales increased 51 basis points. This increase was
primarily driven by incentives that were a result of strong company performance relative to our plans for 2009.
Our inventory turnover rate increased 4.0% over last year while our average inventory per square foot decreased 10.3%. Our merchandising efforts
have enabled us to manage inventory levels consistent with sales trends and maintain fresh merchandise in our stores. Combined with the increased
sell-through resulting from our improved multi-channel inventory capabilities, these efforts led to a significant increase in our inventory turnover rate.
GROSS PROFIT – 2008 VS 2007
Retail gross profit in 2008 decreased $444 from 2007 while our gross profit rate declined 280 basis points. The deterioration in 2008 was driven
primarily by a decrease in our merchandise margin rate as we utilized markdowns to respond to slower sales and a more promotional 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 were fixed relative to the sales decline.
Our inventory turnover rate improved slightly in 2008 while our average inventory per square foot decreased 7.0%. 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
was 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.
GROSS PROFIT OUTLOOK – 2010
In 2010, we expect a 20 to 60 basis point improvement in our total company gross profit rate, which includes both our Retail gross profit and our cost of
loyalty points within our Credit segment. We expect greater improvement in the first half of the year when compared to 2009, when weaker sales trends in
the first and second quarters increased markdown pressure. The improvement will be partially offset by additional occupancy expense for the three new
full-line and seventeen new Rack stores in 2010.
Retailers do not uniformly record the costs of buying and occupancy and supply chain operations (freight, purchasing, receiving, distribution, etc.) between
gross profit and selling, general and administrative expense. As such, our gross profit and selling, general and administrative expenses and rates may not
be comparable to other retailers’ expenses and rates.
18
Retail Business Selling, General and Administrative Expenses
Fiscal year
Selling, general and administrative expenses
Selling, general and administrative rate1
2009
$2,109
25.5%
2008
$2,103
25.4%
2007
$2,161
24.5%
1Selling, general and administrative rate is calculated as selling, general and administrative expenses for our Retail Business as a percentage of net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES – 2009 VS 2008
Our Retail Business selling, general and administrative expenses (“Retail SG&A”) increased $6 due to increased performance-related incentives,
partially offset by lower variable expenses and cost savings resulting from controlling our fixed costs. We increased our provision for
performance-related expense as the year progressed to reflect the improved performance of our overall business relative to our plan. This reflects our
‘pay for performance’ approach to compensation. Our variable expenses decreased in conjunction with lower sales volume, and we worked diligently to
maintain our discipline in managing fixed costs. During 2009, we opened three full-line stores and thirteen Rack stores, which contributed $41 of
additional expenses. Although we opened more stores compared to 2008, the majority were Rack stores, which incur lower expenses than a full-line
store. These drivers led our Retail SG&A expenses as a percentage of net sales to be approximately flat versus last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES – 2008 VS 2007
Our SG&A expenses for our Retail Business decreased $58 due to lower variable expenses as well as cost 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 full-line stores and six Rack stores,
which contributed $72 of additional expenses. Our Retail SG&A expenses as a percentage of net sales increased 94 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES OUTLOOK – 2010
In 2010, our Retail SG&A dollars are expected to increase $125 to $175, while our Retail SG&A expenses as a percentage of net sales will decrease 10 to 20
basis points. The majority of this increase relates to our expectations for increased variable expenses consistent with the planned increase in sales, as
well as approximately $50 to $60 of additional selling, general and administrative expenses from new stores to be opened during 2010.
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 2007 was $0.09, net of tax of $13.
Nordstrom, Inc. and subsidiaries 19
Credit Segment
The Nordstrom credit card products are designed to strengthen customer relationships and grow retail sales by providing valuable services, loyalty
benefits and payment products. We believe that owning our credit card business allows us to fully integrate our rewards program with our retail stores
and provide better service to our customers, thus deepening our relationship with them and driving greater customer loyalty. Cardholders can
participate in the Nordstrom Fashion Rewards® program, through which customers accumulate points based on their level of spending (generally two
points per dollar spent at Nordstrom and one point per dollar spent outside of Nordstrom). 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. Our cardholders tend to visit our
stores more frequently and spend more with us than non-cardholders. We believe the Fashion Rewards program, including these additional rewards,
helps drive 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 economic contribution of our credit card program, the following items are also
included in the table below:
(cid:120)
(cid:120)
Intercompany merchant fees represent 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 intercompany interchange merchant fee. On a consolidated basis, we avoid costs that would be incurred if
our customers used third-party cards.
During 2007, we combined our Nordstrom private label credit card and Nordstrom VISA credit card programs into one securitization
program. At that 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, off-balance sheet income (expense), net (credit card revenues, net of bad debt and interest expense)
is shown for 2007.
Interest expense is assigned to the Credit segment in proportion to the amount of estimated capital needed 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 following table represents our best
estimate of the amount of capital for our credit card program that is financed by equity. As a means of assigning a 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, 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.
Fiscal year
Finance charge revenue
Interchange — third party
Late fees and other revenue
Total credit card revenues
Interest expense
Net credit card income
Cost of sales and related buying and occupancy costs — loyalty program
Selling, general and administrative expenses
Total expense
Earnings on investment in asset-backed securities, net
Credit segment loss before income taxes, as presented in segment
disclosure
Intercompany merchant fees
Off-balance sheet income, net1
Credit segment (loss) contribution, before income taxes
Average accounts receivable investment (assuming 80% of accounts
2009
$264
71
35
370
(41)
329
(55)
(356)
(411)
-
(82)
50
-
($32)
2008
$215
69
18
302
(50)
252
(50)
(274)
(324)
-
(72)
48
-
($24)
2007
$194
47
12
253
(64)
189
(47)
(198)
(245)
18
(38)
48
9
$19
receivable is funded with debt)
$420
$382
$332
Credit segment (loss) contribution, net of tax, as a percentage of average
accounts receivable investment
(4.7%)
(3.9%)
3.5%
1In 2007, this includes off-balance sheet finance charges and other income of $22, off-balance sheet interest expense of $6, and off-balance sheet bad debt expense of $7.
Net Credit Card Income
Credit card revenues include finance charges, interchange fees, late fees and other fees. Interchange fees are earned from the use of Nordstrom VISA
credit cards at merchants outside of Nordstrom.
Credit card revenues increased to $370 in 2009 compared with $302 in 2008 due to an increase in our annual percentage rate terms implemented in
the fourth quarter of 2008, growth in our accounts receivable balance and increased finance charges and late fees associated with increased
delinquencies during the economic downturn. The increase in credit card revenues from $253 in 2007 to $302 in 2008 was 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. The increase was also due to
portfolio growth and the change in our credit card pricing terms implemented in the fourth quarter of 2008, partially offset by a significant reduction in
the average prime rate.
20
In 2010, credit card revenues are expected to increase $35 to $45, due to moderate growth in our accounts receivable.
In May 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”) was passed. In January 2010, final rules
implementing portions of the Credit CARD Act were issued, including new restrictions on credit card pricing, finance charges and fees, customer billing
practices and payment application. These rules are requiring us to make changes to our credit card business practices and systems. We have
completed and implemented the necessary changes and new procedures to enable compliance with those rules that had a mandatory effective date of
February 22, 2010. However, the Credit CARD Act’s full impact on our business is unknown at this time. Additional proposed rules implementing other
portions of the Credit CARD Act, effective in August 2010, were published in early March, and interpretations of the new and proposed rules continue to
emerge. Depending on the nature and extent of the full impact from these rules, any interpretations or additional rules, the practices, revenues and
profitability of our credit business could be adversely affected.
Interest expense decreased to $41 in 2009 from $50 in 2008 and $64 in 2007. These year-over-year decreases were due to declining variable interest
rates, partially offset by higher average borrowings.
Credit Segment Cost of Sales and Related Buying and Occupancy Costs
Cost of sales and related buying and occupancy costs, which includes the estimated cost of Nordstrom Notes that will be issued and redeemed under
our Fashion Rewards program, increased to $55 in 2009 compared with $50 in 2008. The increase was primarily due to increased use of Nordstrom
credit cards, resulting in additional expense related to the Fashion Rewards program. Cost of sales and related buying and occupancy costs of $50 in
2008 increased slightly from $47 in 2007 due to growth in volume.
Credit Segment Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Credit segment are made up of operational and marketing expenses and bad debt. These expenses
are summarized in the following table:
Fiscal year
Operational and marketing expense
Bad debt expense
Total credit selling, general and administrative expense
2009
$105
251
$356
2008
$101
173
$274
2007
$91
107
$198
Operational and marketing expenses are incurred to support and service our credit card products and the related rewards programs, and are included
in selling, general and administrative expenses in the consolidated statement of earnings. Operational and marketing expense remained relatively
constant at $105 in 2009 compared with $101 in 2008. This reflects expenses that are relatively fixed when compared to portfolio growth and our
continued focus on controlling expenses. The increase to $101 in 2008 compared with $91 in 2007 was due to additional marketing expenses as a result
of an increase in promotions related to our loyalty program in 2008.
Bad debt expense increased to $251 in 2009 from $173 in 2008 due to increased write-offs reflecting consumer credit trends.
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 ending accounts receivable
Delinquent balances over thirty days as a percentage of
accounts receivable
Bad debt provision as a percentage of average on-balance sheet
accounts receivable
Net write-offs as a percentage of average receivables2
2009
$138
251
(199)
$190
8.8%
5.3%
11.9%
9.5%
2008
$73
173
(108)
$138
6.8%
3.7%
9.1%
5.6%
2007
$17
86
(30)
$73
4.1%
2.5%
5.8%
3.5%
1 In 2007, the one-time transitional charge-offs on the Nordstrom VISA receivables of $21 are included in bad debt expense 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 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 of $182.
Delinquency rates and write-offs ran at elevated levels throughout 2009. As of January 30, 2010, our delinquency rate was 5.3%, an increase from 3.7%
in 2008 and 2.5% in 2007. Write-offs increased $91 to $199, or 9.5% of average receivables in 2009 compared with $108, or 5.6% of average receivables
in 2008. Our write-offs have a strong long-term correlation with national unemployment rates, and this trend continued during 2009 as U.S.
unemployment increased from 7.6% to 9.7%. In California, unemployment rates in 2009 trended above the national unemployment rate. California
continues to experience particular weakness relative to our other geographic regions and accounts for approximately 50% of our total write-offs. We
are currently planning our business assuming an average unemployment rate of approximately 10.5% in 2010. In light of this economic environment
and based on our delinquency and write-off trends, we increased our allowance for doubtful accounts by $52 to $190 in 2009 compared with an
increase of $65 to $138 in 2008.
Nordstrom, Inc. and subsidiaries 21
We anticipate that 2010 selling, general and administrative expenses for our Credit segment will decrease by $10 to $25, primarily due to lower bad debt
expense relative to 2009 as growth in the unemployment rate and growth in our associated write-offs slows down.
Total Company Results
Interest Expense, Net
Fiscal year
Interest expense, net
2009
$138
2008
$131
2007
$74
Interest expense, net increased $7 in 2009 compared with 2008 due to higher average debt levels resulting from the $400 debt offering in the second
quarter of 2009, partially offset by the $250 senior notes which matured in January 2009 and the impact of declining variable interest rates.
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.
We anticipate interest expense, net to decrease by $15 to $25 in 2010 due to lower debt levels, reductions in interest rates and lower borrowing
facility fees.
Income Tax Expense
Fiscal year
Income tax expense
Effective tax rate
2009
$255
36.6%
2008
$247
38.1%
2007
$458
39.0%
The increase in our income tax expense in 2009 compared with 2008 was driven by the increase in our earnings before income taxes, while the decline
in income tax expense in 2008 compared with 2007 correlated with the decline in earnings before income taxes.
The following table illustrates the components of our effective tax rate for 2009, 2008 and 2007:
Fiscal year
Statutory rate
State and local income taxes, net of federal
income taxes
Deferred tax adjustment
Permanent differences
Other, net
Effective tax rate
2009
35.0%
3.5
(1.8)
(0.6)
0.5
36.6%
2008
35.0%
3.4
(3.2)
2.0
0.9
38.1%
2007
35.0%
3.4
-
-
0.6
39.0%
In 2009 and 2008, our effective tax rate was impacted by adjustments related to our deferred tax assets primarily driven by the closure of several tax
years under audit, as well as permanent items related to investment valuation. These adjustments reduced our effective tax rate by 2.4% and 1.2% in
2009 and 2008, respectively.
We anticipate our effective tax rate to be approximately 39.0% in 2010.
Net Earnings and Earnings per Diluted Share
Fiscal year
Net earnings
Net earnings as a percentage of total revenues
Earnings per diluted share
2009
$441
5.1%
$2.01
2008
$401
4.7%
$1.83
2007
$715
7.9%
$2.88
In 2009, net earnings increased 9.9% and earnings per diluted share increased $0.18 primarily as a result of improved gross profit and continued
expense performance, partially offset by increased performance-related expenses related to our strong operating results relative to our plan and
increased bad debt expense.
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 reductions 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.
We expect our earnings per diluted share to be in the range of $2.35 to $2.55 in 2010.
22
Fourth Quarter Results
Quarter Ended
Net sales
Cost of sales and related buying and occupancy costs
Gross profit
Selling, general and administrative expenses
Net earnings
Earnings per diluted share
January 30, 2010
$2,539
(1,593)
946
(737)
172
$0.77
January 31, 2009
$2,301
(1,565)
736
(665)
68
$0.31
% of net sales:
Cost of sales and related buying and occupancy costs
Gross profit
Selling, general and administrative expenses
62.7%
37.3%
29.0%
68.0%
32.0%
28.9%
Our fourth quarter performance reflected continued improvement in our sales and gross margin trends that we experienced throughout the year,
particularly in the second half. Earnings per diluted share were $0.77 for the quarter ended January 30, 2010 compared to $0.31 for the quarter ended
January 31, 2009. Net earnings for the fourth quarter of 2009 were $172 compared with $68 in 2008.
NET SALES
Total sales for the quarter increased 10.3% to $2,539 while same-store sales improved 6.9%. Multi-channel same-store sales increased 7.1%, with full-
line same-store sales increasing 3.9% and Direct sales increasing 32.1%. Our multi-channel results benefited this year from both the comparison to a
difficult period last year, as well as our shared inventory platform which enables online orders to be fulfilled from our full-line stores.
Results in full-line stores improved, as same-store sales increased 3.9% for the quarter. Our top performing categories were women’s better apparel,
women’s shoes, and accessories. Women’s better apparel benefited primarily from sweaters. Women’s shoes were led by high-end shoes and junior
shoes, while jewelry drove the increase in accessories. The Midwest, South and Northwest regions were the top performing geographic regions for
full-line stores relative to the fourth quarter of 2008.
Net sales for the Direct segment increased 32.1%, led by the performance of women’s shoes and apparel. Shoes was driven by junior shoes and
high-end footwear, while coats and dresses performed well in women’s apparel.
Rack same-store sales increased 4.6% for the fourth quarter. Shoes, driven by juniors and active footwear, and women’s clothing, driven by denim and
knit tops, were the leading categories for Rack.
GROSS PROFIT
Our gross profit rate increased 527 basis points to 37.3% from 32.0% last year. The improvement was mainly driven by merchandise margin as a
percentage of net sales, partially offset by the impact of higher performance-related expenses included in buying and occupancy. Markdowns improved
in the fourth quarter of 2009 when compared with the highly promotional fourth quarter experienced in 2008. We were effective in our management of
inventory and ended the year with an inventory turn of 5.4, the highest in recent company history. We also ended the quarter with inventory per square
foot down 4.1% from the fourth quarter of 2008.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative dollars for our Retail Business increased $56 compared to last year’s fourth quarter. The increase was largely driven
by increased performance-related expenses due to our strong performance relative to our plan and higher variable expenses as a result of the
improvement in sales. Our new store expenses in the fourth quarter of 2009 were $13, which partially offset fixed expense savings during the quarter.
These drivers contributed to the 11 basis point increase in Retail Business selling, general and administrative expenses.
In the fourth quarter, selling, general and administrative expenses for our credit segment were $106, up from $90 in 2008. A majority of the increase
was driven by higher bad debt expense from increased write-offs associated with higher unemployment.
For further information on our quarterly results in 2009 and 2008, refer to Note 15 in the Notes to Consolidated Financial Statements in Item 8.
Nordstrom, Inc. and subsidiaries 23
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
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. ROIC is one of our key financial metrics, and we also incorporate it into our executive
incentive measures. Our research has shown that, historically, overall performance as measured by ROIC correlates directly to shareholders’ return
over the long term. For the 12 fiscal months ended January 30, 2010, our ROIC increased to 12.1% compared to 11.6% for the 12 fiscal months ended
January 31, 2009. ROIC is not a measure of financial performance under GAAP, 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. The
closest GAAP measure is return on assets, which increased slightly to 7.1% from 7.0% for the 12 fiscal months ended January 30, 2010 compared to the
12 fiscal months ended January 31, 2009. The following is a reconciliation of return on assets to 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 expense2
Net operating profit after tax (NOPAT)
Average total assets3
Less: average non-interest-bearing current liabilities4
Less: average deferred property incentives3
Add: average estimated asset base of capitalized
operating leases5
Average invested capital
Return on assets
ROIC
12 fiscal months ended
January 30, 2010
$441
255
138
834
January 31, 2009
$401
247
131
779
43
(23)
854
(313)
$541
$6,197
(1,562)
(462)
311
$4,484
7.1%
12.1%
37
(19)
797
(303)
$494
$5,768
(1,447)
(400)
322
$4,243
7.0%
11.6%
1Depreciation based upon estimated asset base of capitalized operating leases as described in footnote 5 below.
2Based upon our effective tax rate multiplied by the net operating profit for the fiscal years ended January 30, 2010 and January 31, 2009.
3Based upon the trailing 12-month average.
4Based upon the trailing 12-month average for accounts payable, accrued salaries, wages and related benefits, and other current liabilities.
5Based 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 increased primarily due to an increase in our earnings before interest and income taxes compared to the prior year, offset by an increase in
our average invested capital attributable primarily to growth in cash and cash equivalents.
24
LIQUIDITY AND CAPITAL RESOURCES
We maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of 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 and beyond.
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, debt service payments, dividend
payouts, potential share repurchases and future investments or acquisitions. We believe our existing cash on-hand, operating cash flows, available
credit facilities and potential future borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives.
For the fiscal year ended January 30, 2010, cash and cash equivalents increased by $723 to $795, primarily due to cash provided by operations of $1,251,
partially offset by $360 of capital expenditures; and $182 of purchases, net of payments, made by our customers for third-party merchandise and
services using Nordstrom VISA credit cards. Additionally, we received proceeds from long-term borrowings of $399, repaid commercial paper
and long-term borrowings totaling $300, and paid cash dividends of $139.
Operating Activities
Net cash provided by operating activities was $1,251 in 2009 and $848 in 2008. 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.
The increase in cash provided by operating activities in 2009 compared with 2008 was due to working capital initiatives and improved earnings. The
positive impact from the change in accrued salaries, wages and related benefits primarily reflects the increase in performance-related expenses as our
overall results improved relative to our plans in 2009 that will be paid in the first quarter of fiscal year 2010.
In 2010, although we expect net earnings to increase, we expect our operating cash flows to decline. This is a result of increases in working capital to
support sales growth and payment of performance-related expenses that were included in accrued salaries, wages and related benefits at the
end of 2009.
Investing Activities
Net cash used in investing activities was $541 in 2009 and $792 in 2008. Our investing cash flows primarily consist of capital expenditures and, beginning in
the second quarter of 2007 (when we brought our Nordstrom VISA credit card receivables on-balance sheet), customer purchases (net of payments) for
goods and services outside of Nordstrom using the Nordstrom VISA credit cards.
CAPITAL EXPENDITURES
Our capital expenditures over the last three years totaled $1,424, with $360 in 2009, $563 in 2008 and $501 in 2007. Compared with 2008, capital
expenditures declined as we opened fewer full-line stores in 2009. While we opened more Rack stores in 2009 compared with 2008, the investment
to open a Rack store is significantly less than a full-line store. Additionally, we reduced the number of full-line store remodels in 2009 compared
with 2008.
Our capital expenditures included investments in new store openings and relocations, major and minor remodels, and information technology
improvements. We also received property incentives from our developers of $96 in 2009, $119 in 2008 and $58 in 2007. 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 expenditure percentage, net of property incentives, for the last three years by category are summarized in the
following table:
Fiscal year
Category and expenditure percentage:
New store openings and relocations
Remodels (major and minor)
Information technology
Other
Total
2009
59%
15%
13%
13%
100%
2008
55%
30%
8%
7%
100%
2007
51%
27%
8%
14%
100%
Nordstrom, Inc. and subsidiaries 25
The following table summarizes our store count and square footage activity during 2009:
Balance at January 31, 2009
New store openings
Store closings
Balance at January 30, 2010
Store Count
Full-line
Stores
109
3
—
112
Rack and
Other Stores
60
13
(1)
72
Total
169
16
(1)
184
Square Footage
Full-line
Stores
19.6
0.4
—
20.0
Rack and
Other Stores
2.3
0.5
—
2.8
Total
21.9
0.9
—
22.8
In 2009 we opened three full-line stores and opened thirteen Rack stores. Together these openings increased our gross square footage by 4.1%.
To date in 2010, we have opened three Rack stores. During the remainder of 2010, we anticipate opening three full-line stores, relocating one full-line
store and opening fourteen additional 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 to
$375 in 2010. Over these five years, we plan to use 37% of this investment to build new and relocated stores, 41% on remodels (major and minor), 11%
on information technology and 11% for other projects. Our current five-year plans include 28 new stores announced through 2012, and two announced
with dates to be determined, which represents a 9% increase in square footage. Almost one third of these stores will be in the South. We believe that
we have the capacity for additional capital investments should opportunities arise.
CHANGE IN CREDIT CARD RECEIVABLES ORIGINATED AT THIRD PARTIES
The Nordstrom VISA credit cards allow our customers to make purchases at merchants outside of Nordstrom and accumulate points for our Nordstrom
Fashion Rewards®. In 2009, we experienced a decrease in third party purchases made by our customers using their Nordstrom VISA credit cards. This
decrease was driven by reductions in general consumer spending in response to economic conditions during 2009. This caused a decrease in cash used
for accounts receivable originating at third parties, which was $182 in 2009 compared with $232 in 2008.
Financing Activities
Our net cash provided by financing activities was $13 in 2009 compared with $342 used in financing activities in 2008. Our financing activities include our
short-term and long-term borrowing activity, dividends paid, and repurchases of common stock.
SHORT-TERM AND LONG-TERM BORROWING ACTIVITY
During 2009, we issued $400 of senior unsecured notes at 6.75% due June 2014. After deducting the original issue discount, underwriting fees and
other expenses of $4, net proceeds from the offering were $396. These net borrowings were partially offset by the repayment of $275 in commercial
paper borrowings and regularly scheduled principal payments of $25 on other long term borrowings.
During the year, we entered into interest rate swap agreements (collectively, the “swap”) to manage the interest rate risk associated with our fixed-
rate borrowings. Our swap transaction has a $650 notional amount and matures in 2018. Under the swap, we receive a fixed rate of 6.25% and pay a
variable rate based on one month LIBOR plus a margin of 2.9% (3.1% at January 30, 2010).
DIVIDENDS
Fiscal year
Cash dividends paid per share
2009
$0.64
2008
$0.64
2007
$0.54
In 2009, we paid dividends of $0.64 per share, which was consistent with our dividend payments for 2008. This followed twelve consecutive years of annual
dividend increases. 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 2010, we declared a first quarter dividend of $0.16 per share, which is consistent with 2009.
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. We suspended our share repurchase program in
September 2008, with $1,126 of remaining capacity. During 2009 we did not repurchase shares. The share repurchase program expired in August 2009.
The actual amount and timing of any future share repurchases will be subject to market conditions, approval by our Board of Directors, and applicable
Securities and Exchange Commission rules.
26
Free Cash Flow (Non-GAAP financial measure)
We define Free Cash Flow as:
Free Cash Flow = Net Cash Provided By Operating Activities – Capital Expenditures – Change in Credit Card Receivables Originated at Third
Parties – Cash Dividends Paid + Increase in Cash Book Overdrafts
Free cash flow is one of our key liquidity measures, and we believe that our cash levels are more appropriately analyzed using this measure. Free cash
flow is not a measure of liquidity under GAAP and should not be considered a substitute for operating cash flows as determined in accordance with
GAAP. In addition, free cash flow does have limitations:
(cid:120)
(cid:120)
Free cash flow does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to
fund our cash needs; and
Other companies in our industry may calculate free cash flow differently than we do, limiting its usefulness as a comparative measure.
To compensate for these limitations, we analyze free cash flow in conjunction with other GAAP financial and performance measures impacting liquidity,
including operating cash flows. The closest GAAP measure is net cash provided by operating activities, which was $1,251 and $848 for the 12 months
ended January 30, 2010 and January 31, 2009. The following is a reconciliation of our net cash provided by operating activities and free cash flow:
Net cash provided by operating activities
Less: Capital expenditures
Change in credit card receivables originated at third parties
Cash dividends paid
Add: Increase in cash book overdrafts
Free Cash Flow
Fiscal year
2009
$1,251
(360)
(182)
(139)
9
$579
2008
$848
(563)
(232)
(138)
20
$(65)
Net cash used in investing activities
Net cash provided by (used in) financing activities
$(541)
$13
$(792)
$(342)
Credit Capacity and Commitments
As of January 30, 2010, we had total short-term borrowing capacity available for general corporate purposes of $950. Of the total capacity, we had
$650 under our commercial paper program, which is backed by our unsecured revolving credit facility and $300 under our Variable Funding Note
facility (“2007-A VFN”).
During 2009, we entered into a new unsecured revolving credit facility (the “revolver”) with a capacity of $650. This revolver replaced our previously
existing $650 unsecured line of credit, which was scheduled to expire in November 2010. The revolver, which expires in August 2012, is available for
working capital, capital expenditures and general corporate purposes. Under the terms of the agreement, we pay a variable rate of interest and a
facility fee based on our debt rating. Under the revolver we have the option to increase the revolving commitment by up to $100, to a total of $750,
provided that we obtain written consent from the lenders who choose to increase their commitment.
Our $650 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 borrowing capacity under our revolver by an amount equal to the
principal amount of commercial paper. As of January 30, 2010 we had no outstanding issuances under our $650 commercial paper program and no
outstanding borrowings under our revolver.
During 2009, we renewed our 2007-A VFN. The 2007-A VFN has a capacity of $300 and matures in January 2011. The 2007-A VFN is backed by
substantially all of the Nordstrom private label card receivables and a 90% interest in the co-branded Nordstrom VISA credit card receivables.
Borrowings under the 2007-A VFN incur interest based upon the cost of commercial paper issued by a third-party bank conduit plus specified fees.
We pay a commitment fee for the notes based on the size of the commitment. Under the renewed 2007-A VFN, we have the option to reduce the total
capacity or, provided that written consent is obtained from each of the parties to the Note Purchase Agreement, the facility contains the option to
increase the total capacity. As of January 30, 2010, we had no outstanding issuances against this facility.
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. At the end of 2009 and 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.
We maintain import and standby letters of credit to facilitate international payments. As of January 30, 2010, we have $10 available under an import
letter of credit, with $5 outstanding. We additionally hold a $15 standby letter of credit, with $12 outstanding under this facility at the end of the year.
Nordstrom, Inc. and subsidiaries 27
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.
Our next debt maturity is a $350 securitized note due in April 2010. Beginning in the first quarter of 2010, we will make monthly cash deposits into a
restricted account until the note is due in accordance with the debt agreement. We will continue to monitor the credit markets and our potential
financing needs in order to ensure we have adequate cash on hand to pay this debt when it becomes due. We expect to retire the $350 securitized note
with available cash when it matures.
Debt Covenants
Our $650 unsecured line of credit requires that we maintain a leverage ratio of not greater than four times Adjusted Debt to EBITDAR, and a fixed
charge coverage ratio of at least two times.
The fixed charge coverage ratio is defined as:
EBITDAR less gross capital expenditures
Interest expense, net + rent expense
As of January 30, 2010 and January 31, 2009 we were in compliance with these covenants. We will continue to monitor these covenants to ensure that
we make any necessary adjustments to our plans and believe that we will remain in compliance with these covenants during 2010. 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
Stable
Standard
and Poor’s
BBB+
A-2
Positive
These ratings could change depending on our performance and other factors. 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 three ratings above the minimum for our Standard and Poor’s covenant
requirements, and two ratings above the minimum for our Moody’s covenant requirements.
28
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
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 current goal
is to manage debt levels to 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 both
January 30, 2010 and January 31, 2009, our Adjusted Debt to EBITDAR was 2.5.
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:
(cid:120)
(cid:120)
(cid:120)
Adjusted Debt is not exact, but rather our best estimate of the total company debt we would hold if we had purchased the property
and issued debt 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; and
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. The closest GAAP measure is debt to net earnings, which was 5.9
and 6.3 for 2009 and 2008, 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 expense
EBITDAR
Debt to Net Earnings
Adjusted Debt to EBITDAR
20091
$2,613
341
$2,954
441
255
138
834
313
43
$1,190
5.9
2.5
20081
$2,513
298
$2,811
401
247
131
779
302
37
$1,118
6.3
2.5
1The components of adjusted debt are as of the end of 2009 and 2008, while the components of EBITDAR are for the 12 months ended January 30, 2010 and January 31, 2009.
2Debt included $275 of commercial paper borrowings outstanding as of January 31, 2009. There were no outstanding commercial paper borrowings as of January 30, 2010.
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 that are classified as operating if they had met the
criteria for a capital lease, or if we had purchased the property.
Nordstrom, Inc. and subsidiaries 29
Contractual Obligations
The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of January 30, 2010. 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
$4,141
17
195
854
1,221
$6,428
Less than
1 year
$478
2
3
98
1,139
$1,720
1–3 years
$746
4
38
190
80
$1,058
3–5 years
$625
4
25
160
2
$816
More than
5 years
$2,292
7
129
406
-
$2,834
Included in the required debt repayments disclosed above are estimated total interest payments of $1,539 as of January 30, 2010, payable over the
remaining life of the debts.
Other long-term liabilities consist of workers’ compensation and general liability insurance reserves and postretirement benefits. The repayment
amounts presented above were estimated based on historical payment trends. Other long-term liabilities not requiring cash payments, such as
deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are unrecognized tax
benefits of $48, as we are unable to reasonably estimate the timing of future cash payments for these liabilities.
Purchase obligations primarily consist of purchase orders for unreceived goods or services and capital expenditure commitments.
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 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 believe 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 our disclosures that follow.
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 collectability of our accounts receivable based on several factors, including historical
trends of aging of accounts, write-off experience and expectations of future performance, including trends in unemployment rates. We recognize
finance charges on delinquent accounts until the account is written off. We write off credit card loans when accounts are, at a minimum, 151 days
contractually delinquent. Accounts relating to cardholder bankruptcies, cardholder deaths and fraudulent transactions are written off earlier.
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. Recent increases in unemployment and associated delinquency and write-off trends have prompted us to record significant increases to
our allowance for doubtful accounts, which increased from $138 at January 31, 2009 to $190 at January 30, 2010. A 10% change in our allowance for
doubtful accounts would have affected net earnings by $12 for the fiscal year ended January 30, 2010.
Revenue Recognition
We record sales net of estimated returns and we exclude sales taxes. We recognize revenue from sales at our retail stores at the point of sale. Revenue
from our online and catalog sales includes shipping revenue and is recognized upon estimated receipt by the customer. We estimate customer
merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly.
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. In the past three years, we have made no material changes to our estimates included in the
calculations of our sales return reserve. A 10% change in the sales return reserve would have had a $5 impact on our net earnings for the year ended
January 30, 2010.
30
Inventory
Our merchandise inventories are stated at the lower of cost or market value 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. 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.
We do not believe that the assumptions used in these estimates will change significantly based on prior experience. In the past three years, we have
made no material changes to our estimates included in the calculations of the obsolescence and shrinkage reserves. A 10% change in the obsolescence
reserve or our shrink percentage would not have a material effect on our net earnings.
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.
We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available
evidence, we determine that some portion of the tax benefit will not be realized. In the past three years we have not recorded any valuation allowance
related to our deferred tax assets.
In addition, 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 to us. If we believe it is more likely than not that our position will be
sustained, we recognize a benefit at the largest amount which we believe is cumulatively greater than 50% likely to be realized. Our unrecognized tax
benefit was $43 as of January 30, 2010 and $28 as of January 31, 2009.
Deferred tax asset valuation allowances and unrecognized tax benefits require significant management judgment regarding applicable statutes and
their related interpretation, the status of various income tax audits, and our particular facts and circumstances. Also, as audits are completed or
statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred tax assets, tax reserves or income tax expense.
Such adjustments reduced our effective income tax rate by 1.8 percentage points in 2009 and 3.2 percentage points in 2008.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements. We do not expect any of these
pronouncements to have a material effect on our results of operations, liquidity or capital resources as they primarily address financial
statement disclosures.
Nordstrom, Inc. and subsidiaries 31
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. As of January 30, 2010, we have gross trade receivables of $2,162, which generate
finance charge income at a combination of fixed and variable rates, and long-term debt of $2,613, including $1,150 that bears interest at LIBOR-based rates.
Changing interest rates can therefore affect our credit card revenues and interest expense. The annualized effect of a one-percentage-point change in
interest rates would not materially affect our net earnings, cash flows, or the fair value of our fixed-rate debt.
We manage our net interest rate exposure through our mix of fixed and variable rate borrowings and associated current and long-term assets. From time to
time, we may also enter into interest rate swap transactions for purposes of hedging the exposure of changes in fair value of our long-term debt from
interest rate risk. We do not use financial instruments for trading or other speculative purposes and are not party to any leveraged financial instruments.
The table below presents information about our long-term debt obligations and interest rate swaps that are sensitive to changes in interest rates as of
January 30, 2010. For debt obligations, including our capital leases, the table presents principal amounts, at book value, by maturity date, and related
weighted average interest rates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are the predetermined dollar principal on which the exchanged interest payments are based.
Dollars in millions
Long-term debt
Fixed
Avg. int. rate
Variable
Avg. int. rate1
Interest rate swaps
Fixed to variable
Avg. pay rate1
Avg. receive rate
1Interest rates as of January 30, 2010.
2010
2011
2012
2013
2014
Thereafter
Total at
January 30,
2010
Fair value at
January 30,
2010
$356
5.0%
—
—
—
—
—
$6
8.8%
—
—
—
—
—
$6
8.5%
$500
0.3%
—
—
—
$7
8.4%
—
—
—
—
—
$406
6.8%
—
—
$1,333
6.7%
—
—
—
—
—
$650
3.1%
6.3%
$2,324
$486
$(1)
$2,114
6.5%
$500
0.3%
$650
3.1%
6.3%
FOREIGN CURRENCY EXCHANGE RISK
The majority of our revenues, expenses 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. The fair value of our outstanding forward contracts at January 30, 2010 is not material.
32
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 30, 2010.
Deloitte & 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 33
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 30, 2010, 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 generally accepted accounting principles. 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 30, 2010, 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 30, 2010 of the Company and our report dated March 19, 2010,
expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 19, 2010
34
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 30, 2010 and
January 31, 2009, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period
ended January 30, 2010. 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 30, 2010 and January 31, 2009, and the results of their operations and their cash flows for each of the three years in the
period ended January 30, 2010, 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 30, 2010, 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 19, 2010 expressed an unqualified opinion on the
Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 19, 2010
Nordstrom, Inc. and subsidiaries 35
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
Gain on sale of Façonnable
Earnings on investment in asset-backed securities, net
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
2009
$8,258
369
8,627
(5,328)
(2,109)
(356)
–
–
834
(138)
696
(255)
$441
$2.03
$2.01
216.8
219.7
2008
$8,272
301
8,573
(5,417)
(2,103)
(274)
-
-
779
(131)
648
(247)
$401
$1.85
$1.83
216.6
219.2
2007
$8,828
252
9,080
(5,526)
(2,161)
(198)
34
18
1,247
(74)
1,173
(458)
$715
$2.92
$2.88
244.8
248.8
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
36
Nordstrom, Inc.
Consolidated Balance Sheets
In millions
January 30, 2010
January 31, 2009
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;
217.7 and 215.4 shares issued and outstanding
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
$795
2,035
898
238
88
4,054
2,242
53
230
$6,579
–
$726
336
596
356
2,014
2,257
469
267
1,066
525
(19)
1,572
$6,579
$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
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Nordstrom, Inc. and subsidiaries 37
Nordstrom, Inc.
Consolidated Statements of Shareholders’ Equity
In millions except per share amounts
Balance at February 3, 2007
Cumulative effect of accounting change
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
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
Net earnings
Other comprehensive loss:
Postretirement plan adjustments, net of tax of $6
Comprehensive net earnings
Cash dividends paid ($0.64 per share)
Issuance of common stock for:
Stock option plans
Employee stock purchase plan
Other
Stock-based compensation
Balance at January 30, 2010
Common Stock
Shares
257.3
Amount
$827
Retained
Earnings
$1,351
—
257.3
—
—
—
—
—
2.2
0.4
0.1
—
(39.1)
220.9
—
—
—
—
0.8
0.6
—
—
(6.9)
215.4
—
—
—
1.5
0.7
0.1
—
217.7
—
827
—
—
—
—
—
61
17
5
26
—
$936
—
—
—
—
17
17
1
26
—
$997
—
—
—
(3)
1,348
715
—
—
—
(134)
—
—
—
—
(1,728)
$201
401
—
(138)
(3)
—
—
—
—
(238)
$223
441
—
(139)
27
13
1
28
$1,066
—
—
—
—
$525
Accumulated
Other
Comprehensive
Earnings (Loss)
$(9)
—
(9)
—
(15)
7
(5)
—
—
—
—
—
—
$(22)
—
12
—
—
—
—
—
—
—
$(10)
—
(9)
—
—
—
—
—
$(19)
Total
$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
441
(9)
432
(139)
27
13
1
28
$1,572
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
38
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, net
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
Gain on sale of Façonnable
Change in operating assets and liabilities:
Accounts receivable
Investment in asset-backed securities
Merchandise inventories
Prepaid expenses and 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 credit card receivables originated at third parties
Proceeds from sale of Façonnable
Other, net
Net cash used in investing activities
Financing Activities
(Repayments) proceeds from commercial paper borrowings, net
Proceeds from long-term borrowings, net of discounts
Principal payments on long-term borrowings
Increase in cash book overdrafts
Cash dividends paid
Repurchase of common stock
Proceeds from exercise of stock options
Proceeds from employee stock purchase plan
Excess tax benefit from stock-based payments
Other, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Cash Flow Information
Cash paid during the year for:
Interest (net of capitalized interest)
Income taxes
2009
$441
313
(42)
32
(58)
6
(7)
251
–
(159)
–
(1)
(38)
168
120
8
73
96
48
1,251
(360)
(182)
–
1
(541)
(275)
399
(25)
9
(139)
–
21
13
7
3
13
723
72
$795
$134
$240
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
2008
$401
302
(21)
28
(36)
3
(4)
173
—
(93)
—
53
38
16
(54)
28
(76)
119
(29)
848
(563)
(232)
—
3
(792)
275
150
(410)
20
(138)
(264)
13
17
4
(9)
(342)
(286)
358
$72
2007
$715
269
(36)
26
(42)
28
(26)
107
(34)
(1,083)
420
—
(36)
(19)
(64)
36
(6)
58
(1)
312
(501)
(151)
216
15
(421)
—
2,510
(680)
5
(134)
(1,702)
34
17
26
(12)
64
(45)
403
$358
$145
$340
$75
$478
Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit 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 apparel, shoes, cosmetics and accessories for men, women and children. This breadth of merchandise allows us to
serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer a wide selection of brand name and
private label merchandise through multiple retail channels: our ‘Nordstrom’ branded 112 full-line stores and online store at www.nordstrom.com
(collectively, “multi-channel”), 69 off-price ‘Nordstrom Rack’ stores, two ‘Jeffrey’ boutiques, and one clearance store. Our stores are located
throughout the United States.
Through our Credit segment, we offer our customers a variety of payment products and services, including a Nordstrom private label card,
two Nordstrom VISA credit cards and a debit card for Nordstrom purchases. These products also allow our customers to participate in our
loyalty program.
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31st. References to 2009, 2008 and 2007 relate to the 52-week fiscal years ended January 30,
2010, January 31, 2009 and February 2, 2008, respectively. References to 2010 relate to the 52-week fiscal year ending January 29, 2011.
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
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the reporting period. Uncertainties regarding such estimates and assumptions
are inherent in the preparation of financial statements and actual results may differ from those estimates and assumptions. Our significant
accounting judgments and estimates include allowance for doubtful accounts, sales return reserve, inventory obsolescence and shrinkage reserves,
deferred tax asset valuation and unrecognized tax benefits.
Reclassification
In 2009, we reclassified other income and expense, net in our consolidated statement of earnings to selling, general and administrative expenses
and earnings on investment in asset-backed securities, net. Results for 2008 and 2007 have been reclassified for consistency with the 2009
presentation. These reclassifications do not impact our reported net earnings, earnings per share or cash flows for these periods.
Net Sales
We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales
to customers shipped directly from our stores and our online and catalog sales includes shipping revenue, when applicable, and is recognized upon
estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of
sales accordingly. Our sales return reserves were $76 and $70 at the end of 2009 and 2008.
Credit Card Revenues
Credit card revenues include finance charges, late fees 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 fees are assessed
according to the terms of the related cardholder agreements and recognized as revenue when earned.
Cost of Sales
Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight, and certain costs of loyalty program benefits
related to our credit and debit cards.
Buying and Occupancy Costs
Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs
include rent, depreciation, property taxes and facility operating costs of our retail, corporate center and distribution operations.
40
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Rent
We recognize minimum rent expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time that we
control the leased property. 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. Contingent rental payments, typically
based on a percentage of sales, are recognized in rent expense when payment of the contingent rent is probable.
We receive incentives from landlords to construct stores in certain developments. These incentives are recorded as a deferred credit and recognized as
a reduction of rent expense on a straight-line basis over the lease term. At the end of 2009 and 2008, the deferred credit balance was $518 and $478.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefits costs (other than those included in buying and
occupancy costs), advertising, shipping and handling costs, bad debt expense related to our credit card operations, and other
miscellaneous expenses.
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 $85, $98 and $101 in 2009, 2008 and 2007, respectively, were included in selling, general and administrative expenses.
Vendor Allowances
We receive allowances from merchandise vendors for cosmetic selling expenses, purchase price adjustments, cooperative advertising programs and
various other expenses. Allowances for cosmetic selling expenses are recorded in selling, general and administrative expenses as a reduction of the
related costs 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 other expenses are recorded in cost of
sales and related buying and occupancy costs and selling, general and administrative expenses as a reduction of the related costs when incurred.
Any allowances in excess of actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of
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
Other
Total vendor allowances
2009
$106
91
63
2
$262
2008
$112
96
65
3
$276
2007
$120
86
61
2
$269
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.
These costs do not include inbound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling costs of
$103, $106 and $87 in 2009, 2008 and 2007, respectively, were included in selling, general and administrative expenses.
Loyalty Program
Customers who spend a certain amount with us using our Nordstrom private label cards or our Nordstrom VISA credit cards receive Nordstrom
Notes®, which 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 benefits such as free alterations based on their annual levels
of spending. 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 in selling, general and administrative expenses. These expenses are recorded based on estimates of benefits expected to be accumulated
and redeemed in relation to sales.
Stock-Based Compensation
We recognize stock-based compensation expense related to stock options at their estimated grant-date fair value, recorded 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. Stock-based compensation expense also includes
amounts related to performance share units and our Employee Stock Purchase Plan, based on their fair values as of the end of each reporting period.
Nordstrom, Inc. and subsidiaries 41
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
New Store Opening Costs
Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and temporary occupancy costs,
are charged to expense as incurred. These costs are included in both buying and occupancy costs and selling, general and administrative expenses
according to their nature as disclosed above.
Gift Cards
We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the
likelihood of redemption, based on historical experience, is deemed to be remote. Based on an analysis of our program since its inception in 1999,
we determined that balances remaining on cards issued beyond five years are unlikely to be redeemed and therefore may be recognized as income.
Breakage income was $8, $7 and $6 in 2009, 2008 and 2007. To date, our breakage rate is approximately 3.2% of the amount initially issued as gift cards.
Gift card breakage income is included in selling, general and administrative expenses in our consolidated statement of earnings. We had outstanding gift
card liabilities of $174 and $175 at the end of 2009 and 2008, which are included in other current liabilities.
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 the 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 routinely evaluate the likelihood of
realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some
portion of the tax benefit will not be realized.
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. If we believe it is more likely than not that our position will be sustained,
we recognize a benefit at the largest amount which we believe is cumulatively greater than 50% likely to be realized.
Interest and penalties related to income tax matters are classified as a component of income tax expense.
Comprehensive Net Earnings
Comprehensive net earnings include net earnings and other comprehensive earnings and losses. Other comprehensive loss of $9 in 2009 and other
comprehensive earnings of $12 in 2008 consisted of adjustments, net of tax, related to our postretirement benefit obligations. In 2007, other
comprehensive loss of $13 consisted primarily of a foreign currency translation adjustment and a fair value adjustment to our investment in asset-
backed securities, partially offset by postretirement plan adjustments.
The accumulated other comprehensive losses of $19 and $10 at the end of 2009 and 2008 consist entirely of unrecognized losses on postretirement
benefit obligations. During 2009 and 2008, we did not own any material foreign subsidiaries, and therefore, we did not recognize any foreign
currency translation in accumulated other comprehensive loss.
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 2009 and 2008 included $74 and $66 of checks not yet presented for payment drawn in excess of our bank
deposit balances.
Accounts Receivable
We record credit card accounts receivable on our consolidated balance sheets at the outstanding balance, net of an allowance for doubtful accounts.
We estimate the allowance for doubtful accounts based on our best estimate of the losses inherent in our receivables as of the balance sheet date.
We evaluate the collectability of our accounts receivable based on several factors, including historical trends of aging of accounts, write-off
experience and expectations of future performance, including trends in unemployment rates. We recognize finance charges on delinquent accounts
until the account is written off. Delinquent accounts, including fees, 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.
Our Nordstrom private label cards can be used only in Nordstrom stores, while the Nordstrom VISA cards allow our customers the option of using the
cards for purchases of Nordstrom merchandise and services, as well as for purchases outside of Nordstrom. Cash flows from the use of both the
private label cards and Nordstrom VISA credit cards for sales originating at our stores are treated as an operating activity in the consolidated
statements of cash flows as they relate to sales at Nordstrom. Cash flows arising from the use of Nordstrom VISA cards outside of our stores are
treated as an investing activity within the consolidated statements of cash flows, as they represent loans made to our customers for purchases at
third parties.
42
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Securitization of Accounts Receivable
Prior to May 2007, our 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 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’ prior to May 2007. 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 earnings on investment in asset-backed securities, 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. Nordstrom VISA credit card receivables are now recorded at the outstanding balance, net of an
allowance for doubtful accounts, on our consolidated balance sheet.
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
(457)
2
Net credit losses were $9 in 2007.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, using the retail method (weighted average cost).
Land, Buildings and Equipment
Land is recorded at historical cost, while buildings and equipment are recorded at cost less accumulated depreciation. Capitalized software includes
the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related
to the software project.
We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in
progress to prepare the asset for its intended use, and actual interest costs are being incurred.
Depreciation is computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows:
Asset
Buildings and improvements
Store fixtures and equipment
Leasehold improvements
Capitalized software
Life (in years)
5–40
3–15
Shorter of initial lease term or asset life
3–7
Leasehold improvements made at the inception of the lease are amortized over the shorter of the asset life or the initial lease term. Leasehold
improvements made during the lease term are amortized over the shorter of the asset life or the remaining lease term. Lease terms include the
fixed, non-cancelable term of a lease, plus any renewal periods determined to be reasonably assured.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired, and is not subject to amortization.
Nordstrom, Inc. and subsidiaries 43
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Impairment
When facts and circumstances indicate that the carrying values of long-lived tangible assets may be impaired, we perform an evaluation of
recoverability by comparing the carrying values of the net assets to their related 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 expected present value of future cash flows of the assets. Property, plant and
equipment assets are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail
store assets are identified at the individual store level.
We review our goodwill annually for impairment as of the first day of the first quarter or when circumstances indicate its carrying value may not be
recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail and Direct segments,
through the application of a two-step fair value test. The first step of the test compares the carrying value of the reporting unit to its estimated fair
value, which is based on the expected present value of future cash flows. If fair value does not exceed carrying value then a second step is
performed to quantify the amount of the impairment. Based on the results of our tests, fair value substantially exceeds carrying value, therefore we
had no goodwill impairment in 2009, 2008 or 2007.
Self Insurance
We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and general liability claims.
Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We
estimate our ultimate cost based on an actuarially based analysis of claims experience, regulatory changes and other relevant factors.
Derivatives
Our interest rate swap agreements (collectively, the “swap”) are designated as fully effective fair value hedges. As such, we recognize our swap as
either an asset or liability at fair value in our consolidated balance sheet, with an offsetting adjustment to the carrying value of our long-term debt.
See Note 7: Debt and Credit Facilities for additional information related to our swap.
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 $1 and $3 at the end of 2009 and 2008.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term
nature. The estimated fair value of long-term debt, including current maturities, based on quoted market prices of the same or similar issues, was
$2,809 and $1,743 at the end of 2009 and 2008, compared to carrying values of $2,613 and $2,238, respectively.
The fair value of our swap was a $1 liability as of January 30, 2010. This fair value is estimated based upon open-market quotes for identical or
comparable assets from reputable third-party brokers using market-based inputs, adjusted for credit risk, and as such is considered a Level 2 fair
value measurement.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting
Principles (ASC 105, Generally Accepted Accounting Principles), which established the FASB Accounting Standards Codification (“the Codification” or
“ASC”) as the official single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting standards were
superseded and all other accounting guidance not included in the Codification is now considered non-authoritative. The Codification is not intended
to change GAAP, but is meant to organize and simplify authoritative GAAP literature. The Codification became effective for interim and annual
periods ending after September 15, 2009.
Following the Codification, the FASB no longer issues new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. Instead, it issues Accounting Standards Updates (“ASU”) which serve to update the Codification, provide background information about
the guidance and the basis for conclusions on the changes to the Codification.
The impact on our consolidated financial statements is disclosure-only in nature as all references to authoritative accounting literature will be made
in accordance with the Codification. In order to ease the transition to the Codification, we are providing the Codification cross-reference alongside
the references to the standards issued and adopted prior to the effective date of the Codification.
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”) (contained within ASC 815, Derivatives and Hedging). SFAS 161 expanded the
disclosure requirements in SFAS 133 about an entity’s derivative instruments and hedging activities. This statement became effective for us as of the
beginning of fiscal year 2009 and did not impact our consolidated financial position or results of operations, as its requirements are disclosure-only
in nature.
44
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 2: ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
Trade receivables:
Restricted
Unrestricted
Allowance for doubtful accounts
Trade receivables, net
Other
Accounts receivable, net
January 30, 2010
January 31, 2009
$2,136
26
(190)
1,972
63
$2,035
$2,005
14
(138)
1,881
61
$1,942
The following table summarizes the restricted trade receivables:
Nordstrom VISA credit card receivables
Private label card receivables
Restricted trade receivables
January 30, 2010
$1,469
667
$2,136
January 31, 2009
$1,369
636
$2,005
The restricted trade receivables relate to substantially all of our Nordstrom private label card receivables and our Nordstrom VISA credit card
receivables. Under our securitization program, the restricted trade receivables are transferred to a third-party trust on a daily basis. The restricted
trade receivables secure our Series 2007-1 Notes, the Series 2007-2 Notes and our two variable funding notes. 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 30, 2010 and January 31, 2009, these maximums were not exceeded.
The unrestricted trade receivables consist primarily of the remaining portion of our Nordstrom private label card receivables and our 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.
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
Capitalized software
Construction in progress
Less: accumulated depreciation and amortization
Land, buildings and equipment, net
January 30, 2010
$70
924
1,735
2,267
382
180
5,558
(3,316)
$2,242
January 31, 2009
$67
847
1,631
2,214
347
222
5,328
(3,107)
$2,221
The total cost of buildings and equipment held under capital lease obligations was $28 at the end of both 2009 and 2008, with related accumulated
amortization of $22 in 2009 and $21 in 2008. The amortization of capitalized leased buildings and equipment of $1 in both 2009 and 2008 was
recorded in depreciation expense.
Nordstrom, Inc. and subsidiaries 45
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 4: SELF INSURANCE
Our self insurance reserves are summarized as follows:
Employee health and welfare
Workers’ compensation
General liability
Total
January 30, 2010
$20
50
10
$80
January 31, 2009
$16
53
11
$80
We are self-insured for the majority of our employee 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 workers’ compensation policies have a retention per claim of $1 or less and no policy limits. Our general liability policies, encompassing
employment practices liability and commercial general liability, have a retention per claim of $1 or less and a policy limit up to $25 and
$150, respectively.
NOTE 5: 401(k) AND PROFIT SHARING
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. In February 2009, the plan was amended to replace our fixed company
matching contribution with a discretionary contribution in an amount determined by our Board of Directors. Our expense related to the profit
sharing component and matching contributions to the 401(k) component totaled $74, $39 and $50 in 2009, 2008 and 2007.
NOTE 6: POSTRETIREMENT BENEFITS
We have an unfunded defined benefit 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. At the end of 2009 and 2008 there were
35 and 33 officers and select employees eligible for SERP benefits. This plan is non-qualified and does not have a minimum funding requirement.
Benefit Obligations and Funded Status
January 30, 2010
January 31, 2009
Change in benefit obligation:
Benefit obligation at beginning of year
Participant service cost
Interest cost
Benefits paid
Actuarial loss (gain)
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Underfunded status at end of year
$85
2
6
(4)
13
$102
—
$4
(4)
—
$(102)
$95
3
7
(4)
(16)
$85
—
$4
(4)
—
$(85)
The accumulated benefit obligation, which is the present value of benefits earned to date, assuming no salary growth, was $96 and $81 at the end of
2009 and 2008.
Amounts recognized as liabilities in the consolidated balance sheets consist of the following:
Current liabilities
Noncurrent liabilities
Net amount recognized
January 30, 2010
$5
97
$102
January 31, 2009
$5
80
$85
46
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Components of SERP Expense
The components of SERP expense recognized in the consolidated statements of earnings are as follows:
Fiscal year
Participant service cost
Interest cost
Amortization of net loss
Amortization of prior service cost
Total SERP expense
2009
$2
6
–
–
$8
2008
$2
6
2
1
$11
2007
$2
6
3
1
$12
Amounts not yet reflected in SERP expense and included in accumulated other comprehensive earnings (pre-tax) consist of the following:
Accumulated loss
Prior service cost
Total accumulated comprehensive loss
January 30, 2010
$(22)
(2)
$(24)
January 31, 2009
$(9)
(2)
$(11)
In 2010, we expect $2 of costs currently in accumulated other comprehensive earnings to be recognized as components of SERP expense.
Assumptions
Weighted-average assumptions used to determine benefit obligation and SERP expense are as follows:
Fiscal year
Assumptions used to determine benefit obligation:
Discount rate
Rate of compensation increase
Assumptions used to determine SERP expense:
Discount rate
Rate of compensation increase
2009
5.95%
3.00%
6.95%
3.00%
2008
6.95%
3.00%
6.35%
3.00%
2007
6.35%
3.00%
6.00%
4.00%
In accordance with ASC 715, Compensation-Retirement Benefits (formerly SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Benefit Plans), 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.
Future Benefit Payments and Contributions
As of January 30, 2010, the expected future benefit payments based upon the assumptions described above and including benefits attributable
to estimated future employee service are as follows:
Fiscal year
2010
2011
2012
2013
2014
2015-2019
In 2010, we expect to make contributions to the plan of $5.
$5
5
5
6
7
38
Nordstrom, Inc. and subsidiaries 47
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 7: DEBT AND CREDIT FACILITIES
Debt
A summary of our long-term debt is as follows:
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, 6.75%, due June 2014, net of unamortized discount
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
January 30, 2010
January 31, 2009
$326
24
454
46
60
15
925
399
647
300
343
(1)
1,688
2,613
(356)
$2,257
$326
24
454
46
63
17
930
-
646
300
343
19
1,308
2,238
(24)
$2,214
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 $78 at the end of 2009.
During 2009, we issued $400 of senior unsecured notes at 6.75%, due June 2014. After deducting the original issue discount of $1 and other fees and
expenses of $3, net proceeds from the offering were $396. We used a portion of the proceeds from the issuance to repay the $140 in outstanding
issuances of commercial paper as of May 26, 2009, the date the senior notes were issued. During 2009, we also repaid $19 in unsecured debt related
to the acquisition of Jeffrey.
Other secured debt as of January 30, 2010 consists primarily of capital lease obligations. Other unsecured debt as of January 30, 2010 consists
primarily of an adjustment to the carrying value of our long-term debt associated with the fair value of our interest rate swap.
During 2009, we entered into interest rate swap agreements (collectively, the “swap”) with a $650 notional amount maturing in 2018. Under the swap
we receive a fixed rate of 6.25% and pay a variable rate based on one month LIBOR plus a margin of 2.9% (3.1% at January 30, 2010).
Required principal payments on long-term debt, excluding capital lease obligations, are as follows:
Fiscal year
2010
2011
2012
2013
2014
Thereafter
48
$355
5
505
5
404
1,328
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Interest Expense
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
2009
$148
(3)
(7)
$138
2008
$145
(3)
(11)
$131
2007
$102
(16)
(12)
$74
Credit Facilities
As of January 30, 2010, we had total short-term borrowing capacity available for general corporate purposes of $950. Of the total capacity, we had
$650 under our commercial paper program, which is backed by our unsecured revolving credit facility and $300 under our Variable Funding Note
facility (“2007-A VFN”).
During 2009, we entered into a new unsecured revolving credit facility (the “revolver”) with a capacity of $650. This revolver replaced our previously
existing $650 unsecured line of credit, which was scheduled to expire in November 2010. The revolver, which expires in August 2012, is available for
working capital, capital expenditures and general corporate purposes. Under the terms of the agreement, we pay a variable rate of interest and a
facility fee based on our debt rating. Consistent with our previous unsecured revolving credit facility, the new revolver requires that we maintain a
leverage ratio of not greater than four times Adjusted Debt to EBITDAR. The revolver also requires that we maintain a fixed charge coverage ratio of
at least two times, defined as:
As of January 30, 2010 and January 31, 2009 we were in compliance with these covenants.
EBITDAR less gross capital expenditures
Interest expense, net + rent expense
Under the revolver we have the option to increase the revolving commitment by up to $100, to a total of $750, provided that we obtain written
consent from the lenders who choose to increase their commitment.
Our $650 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 borrowing capacity under our revolver by an
amount equal to the principal amount of commercial paper. As of January 30, 2010 we had no outstanding issuances under our $650 commercial
paper program and no outstanding borrowings under our revolver. As of January 31, 2009, we had $275 in outstanding issuances under our $650
commercial paper program and no outstanding borrowings under our revolver.
During 2009, we renewed our 2007-A VFN. The 2007-A VFN has a capacity of $300 and matures in January 2011. The 2007-A VFN is backed by
substantially all of the Nordstrom private label card receivables and a 90% interest in the co-branded Nordstrom VISA credit card receivables.
Borrowings under the 2007-A VFN incur interest based upon the cost of commercial paper issued by a third-party bank conduit plus specified fees.
We pay a commitment fee for the notes based on the size of the commitment. At the end of 2009 and 2008, we had no outstanding issuances against
this facility.
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. At the end of 2009 and 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.
Nordstrom, Inc. and subsidiaries 49
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 8: LEASES
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. Our fixed, non-cancelable lease terms are generally 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. Most of
our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs, and some
leases require additional payments based on sales.
Future minimum lease payments as of January 30, 2010 are as follows:
Fiscal year
2010
2011
2012
2013
2014
Thereafter
Total minimum lease payments
Less amount representing interest
Present value of net minimum lease payments
Capital Leases
$2
2
2
2
2
7
17
(5)
$12
Operating Leases
$98
101
89
82
78
406
$854
Rent expense for 2009, 2008 and 2007 was as follows:
Fiscal year
Minimum rent:
Store locations
Offices, warehouses and equipment
Percentage rent — store locations
Property incentives — store locations
Total rent expense
2009
2008
2007
$76
13
9
(55)
$43
$63
13
9
(48)
$37
$67
14
14
(47)
$48
The rent expense above does not include common area maintenance costs which were $19 in each of 2009, 2008 and 2007.
50
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES
Our estimated total purchase obligations, capital expenditure contractual commitments and inventory purchase orders were $1,221 as of January 30,
2010. In connection with the purchase of foreign merchandise, we have outstanding import letters of credit totaling $5 as of January 30, 2010.
We are subject from time to time to various claims and lawsuits arising in the ordinary course of business including lawsuits alleging violations by us
of state and/or federal wage and hour laws. Some of these suits purport or have been determined to be class actions and/or seek substantial
damages. While we cannot predict the outcome of these matters with certainty, 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.
NOTE 10: SHAREHOLDERS’ EQUITY
Share Repurchase Program
The following is a summary of the activity related to our share repurchase programs in 2007, 2008 and 2009:
Period
Capacity at February 4, 2007
August 2007 authorization
November 2007 authorization
Shares repurchased (2/4/07 to 2/2/08)
Capacity at February 2, 2008
Shares repurchased (2/3/08 to 1/31/09)
Capacity at January 31, 2009
Shares repurchased (2/1/09 to 1/30/10)
Unused capacity upon program expiration in August 2009
Capacity at January 30, 2010
Shares
Average Price
per Share
39.1
$44.17
6.9
$34.29
-
-
Amount
$592
1,500
1,000
(1,728)
$1,364
(238)
$1,126
-
(1,126)
-
Fiscal 2007 share repurchases included $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.
Dividends
We paid dividends of $0.64 per share in 2009 and 2008 and $0.54 per share in 2007.
Nordstrom, Inc. and subsidiaries 51
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 11: STOCK COMPENSATION PLANS
We currently have three stock-based compensation plans: the 2004 Equity Incentive Plan, the 2002 Nonemployee Director Stock Incentive Plan and
our Employee Stock Purchase Plan. Under our 2004 Equity Incentive plan, we grant non-qualified stock options, performance share units and common
shares to employees. As of January 30, 2010, we have 48.4 shares authorized, 25.4 shares issued and outstanding and 7.8 shares available for grant. 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, non-qualified stock options or stock appreciation rights. As of January 30, 2010, we had 0.9
shares authorized and 0.7 remaining shares available for issuance. In 2009, we deferred shares with a total expense of $1.
Under the Employee Stock Purchase Plan (“ESPP”), 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 apply their accumulated payroll deductions toward the purchase of
shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2010, we had 9.4 shares authorized
and 1.7 shares available for issuance under the ESPP. We issued 0.7 shares under the ESPP during 2009. At the end of 2009 and 2008, we had current
liabilities of $4 and $5, respectively, for future purchases of shares under the ESPP.
The following table summarizes our stock-based compensation expense:
Fiscal year
Stock options
Performance share units
Employee stock purchase plan
Other
Total stock-based compensation expense before income tax benefit
Income tax benefit
Total stock-based compensation expense, net of income tax benefit
2009
$26
3
1
2
32
(12)
$20
2008
$24
-
2
2
28
(10)
$18
2007
$23
(1)
2
2
26
(9)
$17
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
2009
$10
22
$32
2008
$10
18
$28
2007
$10
16
$26
The benefits of tax deductions in excess of the compensation cost recognized for stock-based awards are classified as financing cash inflows and
are reflected as “Excess tax benefit from stock-based payments” in the consolidated statements of cash flows.
Stock Options
We used the following assumptions to estimate the fair value for stock options at grant date:
Fiscal year
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.
2009
0.7% – 3.3%
2008
2.0% - 4.3%
2007
4.6% - 4.7%
Weighted average volatility: Based on a combination of the historical
volatility of our common stock and the implied volatility of exchange traded
options for our common stock.
61.0%
45.0%
35.0%
Weighted average expected dividend yield: Our forecasted dividend yield
for the next ten years.
1.3%
1.3%
1.0%
Expected life in years: 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.
5.3
5.5
5.7
52
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
The weighted average fair value per option at the grant date was $7, $15 and $20 in 2009, 2008 and 2007. In 2009, 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 $13.47, $38.02 and $53.63,
the closing price of our common stock on February 27, 2009, February 28, 2008 and March 1, 2007 (the dates of grant). 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 2009, we awarded stock options to 1,213 employees compared to 1,230 and 1,195
employees in 2008 and 2007.
As of January 30, 2010, we have 14.5 options outstanding under the 2004 Equity Incentive Plan. Options generally vest over four years, and expire ten
years after the date of grant. A summary of the stock option activity for 2009 is presented below:
Fiscal Year
Outstanding, beginning of year
Granted
Exercised
Cancelled
Expired
Outstanding, end of year
Options exercisable at end of year
Options vested or expected to vest at end of year
Shares
11.8
4.9
(1.5)
(0.5)
(0.2)
14.5
7.3
13.5
Weighted-
Average
Exercise Price
$27
13
14
29
20
$24
$25
$24
2009
Weighted-Average
Remaining Contractual
Life (Years)
Aggregate
Intrinsic
Value
6
4
6
$193
$93
$180
The total intrinsic value of options exercised during 2009, 2008 and 2007 was $23, $14 and $79. The total fair value of stock options vested during
2009 was $25 and for both 2008 and 2007 it was $24. As of January 30, 2010, the total unrecognized stock-based compensation expense related to
nonvested stock options was $38, which is expected to be recognized over a weighted average period of 29 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 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 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.
Performance share units are payable in either cash or stock as elected by the employee; therefore they are classified as a liability award. The
liability is remeasured, with a corresponding adjustment to earnings, at each fiscal quarter-end during the vesting period. The performance share
unit liability is remeasured using the estimated percentage of units earned 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.
Following is a summary of performance share unit activity:
Fiscal year
Outstanding, beginning of year
Granted
Vested but unearned
Vested and earned
Cancelled
Outstanding, end of year
Total fair value of performance share units earned
Total amount of performance share
units settled or to be settled in cash
2009
117,389
144,891
(44,827)
-
(8,007)
209,446
-
-
2008
113,743
79,504
(57,006)
-
(18,852)
117,389
-
-
2007
255,467
50,070
-
(191,794)
-
113,743
$12
$3
As of January 30, 2010, our other liabilities included $3 for performance share units. As of January 31, 2009, we had no liabilities related to
performance share units. As of January 30, 2010, the remaining unrecognized stock-based compensation expense for unvested performance share
units was $4, which is expected to be recognized over a weighted average period of 22 months.
Nordstrom, Inc. and subsidiaries 53
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 12: INCOME TAXES
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
2009
$275
38
313
(28)
(30)
(58)
$255
2008
$244
39
283
(29)
(7)
(36)
$247
2007
$435
65
500
(24)
(18)
(42)
$458
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
2009
35.0%
3.5
(1.8)
(0.6)
0.5
36.6%
2008
35.0%
3.4
(3.2)
2.0
0.9
38.1%
2007
35.0%
3.4
-
-
0.6
39.0%
In 2009 and 2008, the IRS completed its routine examination of our federal filings for the 2007 and 2002 through 2006 years, respectively.
As a result of adjustments identified in the IRS examinations and revisions of estimates, we increased our deferred tax assets, which resulted
in a reduction in our effective tax rate in 2009 and 2008.
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 for doubtful accounts
Federal benefit of state taxes
Other
Total deferred tax assets
Total deferred tax liabilities
Net deferred tax assets
January 30, 2010
$123
67
24
January 31, 2009
$99
63
26
13
18
12
74
11
11
353
–
$353
7
17
11
54
10
2
289
-
$289
54
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2009, 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
2009
$28
18
(3)
3
–
(3)
$43
2008
$27
2
(1)
4
(1)
(3)
$28
2007
$21
5
(1)
3
(1)
-
$27
At the end of 2009, 2008 and 2007, $25, $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.
During both 2009 and 2008, our income tax expense included $2 of tax-related interest and penalties. During 2007, our income tax expense included
$3 of tax-related interest and penalties. At the end of 2009, 2008 and 2007, our liability for interest and penalties was $7, $6 and $4.
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 2001.
The federal tax returns for 2008 and 2009 are under concurrent year processing (accelerated audits), which are expected to be completed in 2010
and 2011. We also currently have an open audit in France for the years 2001 through 2004, related to our Façonnable business which we sold in 2007.
Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $3 by January 29, 2011, subject to the completion of
examinations and the expiration of various statutes of limitations.
NOTE 13: 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
Basic shares
Dilutive effect of stock options and performance
share units
Diluted shares
Earnings per basic share
Earnings per diluted share
2009
$441
216.8
2.9
219.7
$2.03
$2.01
2008
$401
216.6
2.6
219.2
$1.85
$1.83
2007
$715
244.8
4.0
248.8
$2.92
$2.88
Options and other equity instruments totaling 7.2 shares in 2009, 4.9 shares in 2008 and 2.7 shares in 2007 were excluded from earnings per diluted
share because their impact was anti-dilutive.
Nordstrom, Inc. and subsidiaries 55
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 14: SEGMENT REPORTING
As of January 30, 2010, we have identified four reportable segments: Retail Stores, Direct, Credit and Other. Our Retail Stores segment includes our
Nordstrom full-line stores and our Nordstrom Rack off-price stores, which meet the aggregation criteria set forth in ASC 280, Segment Reporting.
Through our Direct segment, we operate our Nordstrom branded online store. With our multi-channel initiative, we are increasingly integrating our
Nordstrom full-line stores and online store. Our goal is to create a seamless, consistent merchandise offering and service experience for our
customers regardless of how they choose to shop.
Through our Credit segment, we offer our customers a variety of payment products and services, including a Nordstrom private label card, two
Nordstrom VISA credit cards and a debit card for Nordstrom purchases. Our card products also include a loyalty program that provides benefits to
our cardholders based on their level of spending.
The Other 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 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
2009
$2,845
1,787
1,262
970
895
283
216
$8,258
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
2009
34%
22%
15%
12%
11%
3%
3%
100%
2008
$2,812
1,721
1,362
963
921
269
224
$8,272
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%
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.
56
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
The following tables set forth information for our reportable segments:
Fiscal year 2009
Net sales1
Net sales (decrease) increase
Credit card revenue
Earnings (loss) before interest and income taxes
Interest expense, net2
Earnings (loss) before income taxes
Earnings (loss) before income taxes
as a % of net sales
Capital expenditures
Depreciation and amortization
Goodwill
Assets3
Fiscal year 2008
Net sales1
Net sales (decrease) increase
Credit card revenue
Earnings (loss) before interest and income taxes
Interest expense, net2
Earnings (loss) before income taxes
Earnings (loss) before income taxes
as a % of net sales
Capital expenditures
Depreciation and amortization
Goodwill
Assets3
Fiscal year 2007
Net sales1
Net sales increase
Credit card revenue
Earnings (loss) before interest and income taxes
Interest expense, net2
Earnings (loss) before income taxes
Earnings (loss) before income taxes
as a % of net sales
Capital expenditures
Depreciation and amortization
Goodwill
Assets3
Retail
Stores
$7,564
(1.4%)
—
935
—
935
12.4%
339
274
38
2,807
Retail
Stores
$7,674
(5.9%)
—
884
—
884
11.5%
529
259
38
2,740
Retail
Stores
$8,159
3.1%
—
1,256
—
1,256
15.4%
431
228
38
2,555
Direct
$799
14.5%
—
256
—
256
32.0%
2
7
15
122
Direct
$698
8.4%
—
187
—
187
26.8%
15
8
15
123
Direct
$644
17.9%
—
165
—
165
25.6%
35
3
15
133
Credit
—
N/A
$370
(41)
(41)
(82)
N/A
7
2
—
2,070
Credit
—
N/A
$302
(22)
(50)
(72)
N/A
2
1
—
1,963
Credit
—
N/A
$253
26
(64)
(38)
N/A
3
1
—
1,783
Other
$(105)
N/A
(1)
(316)
(97)
(413)
N/A
12
30
—
1,580
Other
$(100)
N/A
(1)
(270)
(81)
(351)
N/A
17
34
—
835
Other
$25
N/A
(1)
(200)
(10)
(210)
N/A
32
37
—
1,129
Total
$8,258
(0.2%)
369
834
(138)
696
8.4%
360
313
53
6,579
Total
$8,272
(6.3%)
301
779
(131)
648
7.8%
563
302
53
5,661
Total
$8,828
3.1%
252
1,247
(74)
1,173
13.3%
501
269
53
5,600
1Net sales in Other include foreign sales of $62 in 2007.
2Interest income of $1, $2 and $14 for 2009, 2008 and 2007 is recorded in our Other segment as an offset to interest expense, net.
3Assets in Other include unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment, and deferred tax assets.
Nordstrom, Inc. and subsidiaries 57
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
NOTE 15: SELECTED QUARTERLY DATA (UNAUDITED)
Fiscal year 2009
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
Earnings before income taxes
Net earnings
Net earnings as a percentage
of total revenues
Earnings per basic share
Earnings per diluted share
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
Earnings before income taxes
Net earnings
Net earnings as a percentage
of total revenues
Earnings per basic share
Earnings per diluted share
1st Quarter
$1,706
2nd Quarter
$2,145
3rd Quarter
$1,868
4th Quarter
$2,539
Total
$8,258
(13.2%)
86
599
447
92
115
81
4.5%
$0.38
$0.37
(9.8%)
87
727
531
77
170
105
4.7%
$0.49
$0.48
(1.2%)
95
658
500
81
134
83
4.2%
$0.38
$0.38
6.9%
101
946
631
106
277
172
6.5%
$0.79
$0.77
(4.2%)
369
2,930
2,109
356
696
441
5.1%
$2.03
$2.01
1st Quarter
$1,879
2nd Quarter
$2,287
3rd Quarter
$1,805
4th Quarter
$2,301
Total
$8,272
(6.5%)
70
700
493
50
196
119
6.1%
$0.54
$0.54
(6.0%)
72
799
545
57
235
143
6.1%
$0.66
$0.65
(11.1%)
74
620
490
77
94
71
3.8%
$0.33
$0.33
(12.5%)
85
736
575
90
123
68
2.8%
$0.32
$0.31
(9.0%)
301
2,855
2,103
274
648
401
4.7%
$1.85
$1.83
1Gross profit is calculated as net sales less cost of sales and related buying and occupancy costs.
NOTE 16: 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 provided
back office functions related to the Façonnable U.S. wholesale business. This agreement ended during 2009.
58
[This page intentionally left blank.]
Nordstrom, Inc. and subsidiaries 59
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
33
34
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 2010 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 8, 2009 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 2010 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 Discussion and Analysis
Director Compensation
Compensation Committee Interlocks and Insider Participation
60
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 2010 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, and Director Independence.
The information required under this item is included in the following sections of our Proxy Statement for our 2010 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 2010 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
33
34
35
36
37
38
39
Page
64
Exhibits are incorporated herein by reference or are filed with this report as set forth in the Index to Exhibits on pages 65 through 70 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.
Nordstrom, Inc. and subsidiaries 61
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 19, 2010
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
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
/s/
Directors:
/s/
/s/
/s/
/s/
/s/
Date: March 19, 2010
62
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 19, 2010, 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 30, 2010.
/s/ Deloitte & Touche LLP
Seattle, Washington
March 19, 2010
Nordstrom, Inc. and subsidiaries 63
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 30, 2010
January 31, 2009
February 2, 2008
Reserves
Allowance for sales return, net:
Year ended:
January 30, 2010
January 31, 2009
February 2, 2008
$138
73
17
$251
173
86 (A)
$199 (B)
108 (B)
30 (B)
$70 $1,030
1,051
1,023
56
55
$1,024 (C)
1,037 (C)
1,022 (C)
$190
138
73
$76
70
56
(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 are included in credit selling, general and
administrative expenses.
(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.
64
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
Form of 6.25% Note due January 2018
4.10 Form of 6.75% Note due June 2014
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 Form 8-K
filed on May 26, 2009, Exhibit 4.1
4.11 Amended and Restated Series 2007-A Indenture Supplement, dated as of
November 13, 2009, by and between Nordstrom Credit Card Master Note Trust
II, as issuer, and Wells Fargo Bank, National Association, as indenture trustee
Incorporated by reference from the Registrant’s Form 8-K
filed on November 18, 2009, Exhibit 4.1
4.12 Note Purchase Agreement, dated as of November 13, 2009, 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.
4.13
First Amendment to the Note Purchase Agreement dated November 13, 2009,
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., dated January 20, 2010
Incorporated by reference from the Registrant’s Form 8-K
filed on November 18, 2009, Exhibit 4.2
Incorporated by reference from the Registrant’s Form 8-K
filed on January 21, 2010, Exhibit 4.1
Nordstrom, Inc. and subsidiaries 65
10.7
10.8
10.1
Merchant Agreement dated August 30, 1991 between Registrant and Nordstrom
National Credit Bank
Exhibit
Method of Filing
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
10.3*
1997 Nordstrom Stock Option Plan, amended and restated on
February 16, 2000
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.
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
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
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
* This exhibit is a management contract, compensatory plan or arrangement
66
10.17 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
Exhibit
Method of Filing
10.18 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
10.19 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
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
* This exhibit is a management contract, compensatory plan or arrangement
Nordstrom, Inc. and subsidiaries 67
10.33* Forms of Notice of 2001 Stock Option Grant and Stock Option Agreement under
the Nordstrom, Inc. 1997 Equity Incentive Plan
Exhibit
Method of Filing
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.40
10.34 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
10.35* Forms of Notice of 1999 Stock Option Grant and Stock Option Agreements under
the Nordstrom, Inc. 1997 Equity Incentive Plan
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
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 10.41
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 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
10.42 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
10.43 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
10.44 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
10.45 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
10.46 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
10.47* Amendment 2006-1 to the Nordstrom, Inc. Leadership Separation Plan
Incorporated by reference from the Registrant’s Annual
Report on Form 10-K for the year ended February 2, 2008,
Exhibit 10.56
* This exhibit is a management contract, compensatory plan or arrangement
68
10.48
Notice of Exercise of Accordion on Revolving Credit Facility Agreement
dated May 13, 2008
Exhibit
10.49* Nordstrom 401(k) Plan & Profit Sharing, amended and restated on
August 27, 2008
10.50* Nordstrom, Inc. Employee Stock Purchase Plan, amended and restated
on August 27, 2008
10.51* Nordstrom, Inc. 2004 Equity Incentive Plan (2008 Amendment)
10.52* Amendment 2008-1 to the Nordstrom Executive Deferred Compensation
Plan (2007)
10.53* Amendment 2008-1, Nordstrom, Inc. Leadership Separation Plan
10.54* Nordstrom Supplemental Executive Retirement Plan (2008)
10.55* 2008 Stock Option Notice Award Agreement and Form of Notice
10.56* 2008 Performance Share Unit Agreement and Form of Notice
10.57* Form of Notice of 2000 Stock Option Grant and Stock Option Agreement
under the Nordstrom, Inc. 1997 Equity Incentive Plan
10.58
Form of Independent Director Indemnification Agreement
10.59* 2009 Nonqualified Stock Option Grant Agreement and Form of Notice
10.60* 2009 Performance Share Unit Award Agreement and Form of Notice
Method of Filing
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
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
Incorporated by reference from the Registrant’s Form 8-K
filed on March 3, 2009, Exhibit 10.1
Incorporated by reference from the Registrant’s Form 8-K
filed on March 3, 2009, Exhibit 10.2
Incorporated by reference from the Registrant’s Form 8-K
filed on March 3, 2009, Exhibit 10.3
10.61* Amendment 2009-1 to the Nordstrom Supplemental Executive
Retirement Plan
Incorporated by reference from the Registrant’s Form 8-K
filed on March 3, 2009, Exhibit 10.4
10.62* Amendment 2009-1 to the Nordstrom 401(k) Plan & Profit Sharing
10.63* Nordstrom, Inc. Executive Management Bonus Plan
Incorporated by reference from the Registrant’s Form 8-K
filed on March 3, 2009, Exhibit 10.5
Incorporated by reference from the Registrant’s Form 10-Q
for the quarter ended May 2, 2009, Exhibit 10.6
10.64* Amendment 2008-2 to the Nordstrom Executive Deferred
Compensation Plan
Incorporated by reference from the Registrant’s Form S-8
filed on September 9, 2009, Exhibit 10.4
10.65
Amendment 2009-1 to the Nordstrom Directors Deferred Compensation Plan Incorporated by reference from the Registrant’s Form S-8
filed on September 9, 2009, Exhibit 10.5
* This exhibit is a management contract, compensatory plan or arrangement
Nordstrom, Inc. and subsidiaries 69
10.66* 2010 Stock Option Award Agreement
Exhibit
10.67* 2010 Performance Share Unit Award Agreement
Method of Filing
Incorporated by reference from the Registrant’s Form 8-K
filed on November 24, 2009, Exhibit 10.1
Incorporated by reference from the Registrant’s Form 8-K
filed on November 24, 2009, Exhibit 10.2
10.68
Confirmation of transaction between The Royal Bank of Scotland plc and
Nordstrom Inc., dated as of December 22, 2009
Incorporated by reference from the Registrant’s Form 8-K
filed on December 23, 2009, Exhibit 10.1
10.69
Confirmation of transaction between Wachovia Bank N.A. and Nordstrom
Inc., dated as of December 22, 2009
Incorporated by reference from the Registrant’s Form 8-K
filed on December 23, 2009, 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 63 of this report
31.1
31.2
32.1
Certification of President required by Section 302(a) of the Sarbanes-
Oxley Act of 2002
Filed herewith electronically
Certification of Chief Financial Officer required by Section 302(a) of the
Sarbanes-Oxley Act of 2002
Filed herewith electronically
Certification of President and Chief Financial Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Furnished herewith electronically
101.INS XBRL Instance Document
Furnished herewith electronically
101.SCH XBRL Taxonomy Extension Schema Document
Furnished herewith electronically
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
Furnished herewith electronically
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
Furnished herewith electronically
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Furnished herewith electronically
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
Furnished herewith electronically
* This exhibit is a management contract, compensatory plan or arrangement
70
Insert Indesign file here (“Shareholder Information”)
Nordstrom, Inc. and subsidiaries 71
Blake W. Nordstrom, 49
President
Erik B. Nordstrom, 46
Executive Vice President,
President, Stores
James F. Nordstrom, Jr., 37
Executive Vice President,
President, Nordstrom Direct
Peter E. Nordstrom, 48
Executive Vice President,
President, Merchandising
Robert B. Sari, 54
Executive Vice President,
General Counsel and Secretary
Loretta Soffe, 43
Executive Vice President,
General Merchandise Manager,
Women’s Apparel Division
Delena M. Sunday, 49
Executive Vice President,
Human Resources and Diversity Affairs
Geevy S. K. Thomas, 45
Executive Vice President,
President, Nordstrom Rack
Mark J. Tritton, 46
Executive Vice President,
President, Nordstrom Product Group
David M. Witman, 51
Executive Vice President,
General Merchandise Manager,
Men’s and Kidswear Divisions
Executive Officers
Laurie M. Black, 51
Executive Vice President,
General Merchandise Manager,
Cosmetics Division
Robert E. Campbell, 54
Treasurer and Vice President,
Investor Relations
James A. Howell, 44
Vice President, Finance
Kevin T. Knight, 54
Executive Vice President,
Chairman and Chief Executive
Officer of Nordstrom fsb,
President, Nordstrom Credit, Inc.
Michael G. Koppel, 53
Executive Vice President and
Chief Financial Officer
Daniel F. Little, 48
Executive Vice President and
Chief Administrative Officer
Scott A. Meden, 47
Executive Vice President,
General Merchandise Manager,
Shoe Division
Margaret Myers, 63
Executive Vice President,
General Merchandise Manager,
Accessories and Women’s
Specialized Divisions
72
Audit Committee
Phyllis J. Campbell, Chair
Robert G. Miller
Philip G. Satre
Robert D. Walter
Alison A. Winter
Compensation Committee
Robert D. Walter, Chair
Enrique Hernandez, Jr.
Robert G. Miller
Alison A. Winter
Corporate Governance and
Nominating Committee
Philip G. Satre, Chair
Enrique Hernandez, Jr.
Alison A. Winter
Finance Committee
Robert G. Miller, Chair
Phyllis J. Campbell
Philip G. Satre
Board of Directors and Committees
Board of Directors
Phyllis J. Campbell, 58
Chairman of the Pacific Northwest
JPMorgan Chase
Seattle, Washington
Enrique Hernandez, Jr., 54
Nordstrom, Inc. Chairman of the Board
President and CEO,
Inter-Con Security Systems, Inc.
Pasadena, California
Robert G. Miller, 65
Chief Executive Officer,
Albertsons LLC
Boise, Idaho
Blake W. Nordstrom, 49
President
Nordstrom, Inc.
Seattle, Washington
Erik B. Nordstrom, 46
Executive Vice President and
President of Stores
Nordstrom, Inc.
Seattle, Washington
Peter E. Nordstrom, 48
Executive Vice President and
President of Merchandising
Nordstrom, Inc.
Seattle, Washington
Philip G. Satre, 60
Private Investor
Reno, Nevada
Robert D. Walter, 64
Private Investor
Columbus, OH
Alison A. Winter, 63
Founder
Braintree Holdings, LLC
Pasadena, California
Nordstrom, Inc. and subsidiaries 73
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 30, 2010 will be
provided to shareholders upon request to:
Counsel
Lane Powell PC
Seattle, Washington
Transfer Agent and Registrar
The Bank of New York Mellon
PO Box 358015
Pittsburgh, Pennsylvania 15252-8015
Telephone (800) 318-7045
TDD for Hearing Impaired (800) 231-5469
Foreign Shareholders (201) 680-6578
TDD Foreign Shareholders (201) 680-6610
General Offices
1617 Sixth Avenue
Seattle, Washington 98101-1707
Telephone (206) 628-2111
Annual Meeting
May 18, 2010 at 11:00 a.m.
Pacific Daylight Time
Nordstrom Downtown Seattle Store
John W. Nordstrom Room, fifth floor
1617 Sixth Avenue
Seattle, Washington 98101-1707
Nordstrom Investor Relations
PO 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 30, 2010.
After our 2010 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).
© 2010 Nordstrom, Inc.
74
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
2009
$8,258
696
441
2.03
2.01
0.64
2008
$8,272
648
401
1.85
1.83
0.64
% Change
(0.2)
7.4
9.9
9.7
9.8
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