Nordstrom 2003 Annual Report Download - page 19

Selling, general and administrative expenses as a percentage of net sales
decreased in 2002 to 30.2% from 30.6% in the prior year, excluding the
effect of the 2002 write-down. This decrease is the result of improvements
in bad debt and selling expense and reductions in sales promotion. These
costs were partially offset by higher distribution costs and higher information
systems expense. Bad debt expense decreased as both delinquency and
write-off trends stabilized. Selling expense decreased primarily due to
continued efficiencies in shipping costs at Nordstrom Direct. Sales
promotion decreased as Nordstrom Direct executed planned reductions
in catalog size and number of mailings consistent with sales trends.
Distribution costs increased primarily due to higher merchandise volumes
and temporary inefficiencies caused by the implementation of our perpetual
inventory system. The information systems expense increase resulted from
depreciation and rollout costs of our new perpetual inventory system.
In 2004, selling, general and administrative expenses as a percent of
sales are expected to continue to improve as we identify and pursue
expense reduction opportunities. Some of the key areas we are targeting
include Supply Chain and Information Technology. Our distribution centers
are beginning to reduce the merchandise ticketing needed and are focusing
on freight costs. We plan on streamlining our information technology,
eliminating old systems and leveraging off of new systems. In addition,
we continue to focus on maximizing productivity improvements resulting
from our new technologies.
Interest Expense, Net
Interest expense, net increased 11.0% in 2003 primarily due to the
repurchase of $105.7 million in debt and lower capitalized interest. The
debt repurchase resulted in additional expense of $14.3 million. These
expenses were partially offset by lower interest expense resulting from
the reduced debt balance outstanding. Capitalized interest decreased due
to lower average construction and software in progress balances resulting
primarily from the completion of several software projects.
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 for 2004 is expected to increase in the first quarter of
2004 as we repurchased $196.8 million in debt. The debt repurchase
resulted in $20.8 million of additional expense. Interest expense will
decline for the rest of the year due to our reduced debt balance
outstanding. We expect to see a year-over-year reduction in interest
expense of $11.0 - $13.0 million.
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 2002 effective tax rate to 47% before the
cumulative effect of accounting change.
Also in 2002, $10.4 million of expense was recognized related to the
purchase of the outstanding Nordstrom.com options and warrants.
Service Charge Income and Other, Net (in millions)
We continued to see improvements in our 2003 service charge income and
other, net primarily due to higher VISA securitization income. Our
securitization income benefited from substantial increases in our VISA credit
sales and receivables during the year, as well as a small improvement in
the cost of funds and bad debt write-offs. This increase was partially offset
by a decline in service charge and late fee income resulting from a decline
in our private label accounts receivable.
Service charge income and other, net increased in 2002 primarily due to
income recorded from our VISA securitization. Securitization income
increased this year as credit spreads improved, the cost of funds decreased
and bad debt write-offs stabilized. This increase was partially offset by
a decline in service charge and late fee income resulting from a decline
in our private label accounts receivable.
In 2004, service charge income and other, net is expected to increase
$7.0 - $9.0 million as we continue to see growth in our VISA credit sales
and corresponding securitization income, offset by a small decline in
service charge and late fee income from our private label credit card.
management’s discussion and analysis
NORDSTROM, INC. and SUBSIDIARIES
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99 00 01 02 03
$117
$131 $134
$141
$155