Nordstrom 2002 Annual Report Download - page 16

management’s discussion
and analysis
14 NORDSTROM INC. AND SUBSIDIARIES
systems expense increase resulted from depreciation and rollout
costs of our new perpetual inventory system.
In 2000, we recognized a charge of $13.0 million for certain
severance and other costs related to a change in management.
Also in 2000, we recorded an impairment charge of $10.2 million.
Due to changes in business strategy, we determined that several
software projects under development were either impaired
or obsolete.
Excluding the effect of the severance and impairment charge,
selling, general and administrative expenses as a percentage of net
sales decreased in 2001 to 30.6% versus 31.2% in the prior year.
This improvement in selling, general and administrative expenses
as a percentage of net sales is due to reductions in sales promotion
and improvements in selling expenses. Sales promotion expenses
decreased due to the discontinuation of a company-wide brand
advertising program. Selling expenses decreased as Nordstrom Direct
improved the efficiency of their shipping and call center activities.
These improvements were partially offset by an increase in bad debt
on our credit cards due to increased delinquencies and write-offs.
In 2003, selling, general and administrative expenses as a percent
of net sales are expected to improve slightly as we continue our
focus on expense management.
Interest Expense, Net
Interest expense, net increased 9.2% in 2002 primarily due to
lower capitalized interest. Capitalized interest decreased due to
lower average balances during the year for construction and
software in progress.
Interest expense, net increased 19.7% in 2001 due to higher
average borrowings, partially offset by a decrease in interest rates.
Interest expense, net for 2003 is expected to be flat with 2002.
Write-down of Streamline.com, Inc.
We held an investment in Streamline.com, Inc., an Internet grocery
and consumer goods delivery company. Streamline ceased its
operations effective November 2000. During 2000 we wrote off our
entire investment in Streamline, for a total expense of $32.9 million.
Minority Interest Purchase and Reintegration Costs
During 2002, we purchased the outstanding shares of
Nordstrom.com, Inc. series C preferred stock for $70.0 million.
The excess of the purchase price over the fair market value of the
preferred stock and professional fees resulted in a one-time charge
of $42.7 million. No tax benefit was recognized on the share
purchase, as we do not believe it is probable that this benefit will
be realized. The impact of not recognizing this income tax benefit
increased our effective tax rate to 47% before the cumulative effect
of accounting change.
Also in 2002, $10.4 million of expense was recognized related
to the purchase of the outstanding Nordstrom.com options and
warrants.
Service Charge Income and Other, Net (in millions)
Service charge income and other, net increased in 2002 primarily
due to gains recorded from our VISA securitization. Securitization
gains increased this year as credit spreads improved, the cost
of funds decreased and bad debt write-offs stabilized. This
increase was partially offset by a decline in service charge
and late fee income resulting from a decline in our private
label accounts receivable.
Service charge income declined slightly in 2001 due to
lower interest rates, flat credit sales and a steady number of
credit accounts.
In 2003, service charge income is expected to be higher due
to a small increase in credit sales and credit accounts, and
adjustments to interest rates charged.
98 99 00 01 02
$150
$140
$130
$120
$110
$100
$90
$110 $117 $131 $134 $141
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