Nordstrom 2003 Annual Report Download - page 22

Financing Activities
Financing activities primarily consist of proceeds from the exercise of stock
options, dividend payments and principal payments on debt.
Dividends
In 2003, we paid $0.41 per share in common stock dividends, the seventh
consecutive annual dividend increase. We paid $0.38 and $0.36 per share
of common stock in fiscal 2002 and 2001.
Debt Buyback
During 2003, we purchased $103.2 million of our 8.95% senior notes and
$2.5 million of our 6.7% medium-term notes for a total cash payment of
$120.8 million. Approximately $14.3 million of expense was recognized
during the year related to these purchases.
During the first quarter of 2004, we retired $196.8 million of our 8.95%
senior notes for a total cash payment of $218.6 million. Approximately
$20.8 million of expense has been recorded in first quarter of 2004. This
expense and the related interest savings is expected to reduce first
quarter earnings per share by approximately $0.08 per share.
Debt to Capital Ratio
At the end of 2003, our debt to capital ratio decreased to 43.0% from
49.6% in 2002 and a high of 52.1% in 2001. This was primarily due to the
repurchase of $105.7 million in debt during 2003. Our first quarter 2004
repurchase of $196.8 million in debt brings our debt to capital ratio to about
39%, exceeding our near-term debt to capital goal of 40% to 45%.
Off-Balance Sheet Financing
We have $200 million in outstanding term notes collateralized by our
Nordstrom VISA credit card receivables. On an ongoing basis, our
Nordstrom VISA receivables are transferred to a master note trust, which
has issued Class A and B notes to third party investors. We hold securities
that represent our retained interests in the trust. Based on SFAS No. 140
“Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” this debt and the related receivables are
not reflected in our consolidated balance sheets, however the carrying amount
of our retained interests is included on our balance sheet.
Our off-balance sheet financing allows us to obtain financing at rates lower
than our conventional unsecured debt, adding another option to diversify our
financing sources. Additionally, our exposure to credit losses on the underlying
VISA receivables is limited to our retained interests. The details of our off-balance
sheet financing are disclosed in Note 9: Off-balance Sheet Financing.
Class A and B notes total $200 million and were issued by the trust in May
2002. These are 5-year term notes backed by our VISA credit card
receivables. The proceeds from these notes were used to retire $200
million outstanding on a previous off-balance sheet securitization also backed
by our VISA credit card receivables.
Debt
In November 2001, we issued $300 million of Class A notes backed by
Nordstrom private label receivables. These notes bear a fixed interest rate
of 4.82% and have a maturity of five years. Both the debt and related
assets are included in our consolidated balance sheets. A portion of the
proceeds was used to pay-down approximately $77 million in medium-
term notes and the purchase of Nordstrom.com, Inc.'s preferred stock for
$70 million. The remaining proceeds will be used for general corporate
purposes and capital expansion.
Interest Rate Swaps
To manage our interest rate risk, we had interest rate swaps with a fair
value of ($8.1) million and $3.2 million outstanding at January 31, 2004
and 2003. Both interest rate swaps were designated as fully effective fair
value hedges. Our current swap has a $250 million notional amount, expiring
in 2009. Under the agreement, we received a fixed rate of 5.63% and paid
a variable rate based on LIBOR plus a margin of 2.3% set at six-month intervals
(3.945% at January 31, 2004).
In 2002 and 2003, we received $4.9 million and $2.3 million for the sale
of two interest rate swaps. The first swap converted our $300 million, 8.95%
fixed-rate debt to variable rate, while the second swap converted our
$250 million, 5.63% fixed-rate debt to variable rate. The cash proceeds
from each of the swap terminations will be recognized as interest income
evenly over the remaining life of the related debt.
Noncash Financing
We own 49% of a limited partnership which constructed a new corporate
office building in which we are the primary occupant. During the first quarter
of 2002, the limited partnership refinanced its construction loan obligation
with an $85 million mortgage secured by the property, of which $79.2 million
was included in our balance sheet at January 31, 2004. The obligation has
a fixed interest rate of 7.68% and a term of 18 years.
management’s discussion and analysis
NORDSTROM, INC. and SUBSIDIARIES
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