Analysis of Nordstrom 2004 Annual Report

Nearly all companies produce financial statements, including income statements, balance sheets and statements of cash flows. These financial statements help managers understand the company's position, and how the company might take advantage of market opportunities. When companies are privately held, these financial statements are likely to be produced in isolation without much attention to presentation. Since managers are often owners in private companies, there may be little incentive to distribute these financial statements outside the organization. However, federal law mandates that publicly traded companies publish their financial statements. These statements are filed with the Securities and Exchange Commission (SEC), but many companies use the requirement that these statements be distributed to shareholders as an opportunity to communicate directly with their existing as well as potential shareholders. The basic financial statement has now become surrounded by additional information about the company, including a description of its operations, the successes that management observes, and areas for future growth. Bad news is avoided as much as possible in corporate annual reports. Because of the tendency to focus on the positive rather than the negative, auditors now provide statements indicating that the financial component of the annual report meets the standards of the auditors. In addition, comprehens

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enses increased, but presents these as a variable cost directly correlated to the company's increased sales in general. The company maintains that it was able to hold down its fixed costs and thus improve its profitability (2004 Nordstrom Annual Report 19). Perhaps because of the emphasis on off-balance sheet financing arising from the Enron accounting scandal, Nordstrom is careful to report its off-balance sheet financing. The company transferred its co-branded credit card receivables to a third-party; that third-party then issued securities backed by the credit card receivables to yet other parties. The value of the credit card receivables exceeds the value of the securities, and Nordstrom holds securities that represent their interest. These securities are not included on the balance sheet, and management notes that the liability exposure is limited (2004 Nordstrom Annual Report 23). Management also explains an interest-rate swap in which Nordstrom participates. This is a hedging tool meant to protect the company from undue swings in interest rates and minimize the company's exposure to increased interest rates (2004 Nordstrom Annual Report 23). ANALYSIS OF AUDITOR'S REPORT Deloitte & Touche LLP performed the independe
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