Nordstrom 2004 Annual Report Download - page 23

notes to consolidated financial statements
In 2004, we prepaid $196,770 of our 8.95% senior notes and $1,473
of our 6.7% medium-term notes for a total cash payment of $220,106.
After considering deferred issuance costs related to these debt
retirements, we recorded a pre-tax charge for debt retirements in
interest expense, net of $20,862.
To manage our interest rate risk, we have an interest rate swap
outstanding recorded in other liabilities. Our swap has a $250,000
notional amount, expires in 2009 and is designated as a fully effective
fair value hedge. Under the agreement, we receive a fixed rate of
5.63% and pay a variable rate based on LIBOR plus a margin of 2.3%
set at six-month intervals (5.20% at January 29, 2005).
The fair value of long-term debt, including current maturities, using
quoted market prices of the same or similar issues, was approximately
$1,105,000 and $1,336,000 at the end of 2004 and 2003.
We own a 49% interest in a limited partnership which constructed
a corporate office building in which we are the primary occupant.
During 2002, the limited partnership refinanced its construction loan
obligation with a mortgage secured by the property. This mortgage,
which is included in our long-term debt, will be amortized as we make
rental payments to the limited partnership over the life of the mortgage.
Required principal payments on long-term debt, excluding capital
lease obligations and the fair market value of the interest rate swap,
are as follows:
Fiscal Year
2005 100,033
2006 303,669
2007 3,675
2008 253,650
2009 4,340
Thereafter 362,119
In May 2004, we replaced our existing $300,000 unsecured line of
credit with a $350,000 unsecured line of credit, which is available as
liquidity support for our commercial paper program. Under the terms
of the agreement, we pay a variable rate of interest based on LIBOR
plus a margin of 0.31%, or 2.90% at January 29, 2005. The variable
rate of interest increases to LIBOR plus a margin of 0.41% if more than
$175,000 is outstanding on the facility. The line of credit agreement
expires in May 2007 and contains restrictive covenants, which include
maintaining a leverage ratio. We also pay a commitment fee for the line
based on our debt rating. As of January 29, 2005, no borrowings have
been made against this revolving credit facility.
Also in May 2004, we renewed our variable funding note backed by
Nordstrom private label card receivables and reduced the capacity
by $50,000 to $150,000. This note is renewed annually and interest
is paid based on the actual cost of commercial paper plus specified
fees. We also pay a commitment fee for the note based on the amount
of the commitment. As of January 29, 2005, no borrowings have been
made against the variable funding note.
Note 12: Leases
Future minimum lease payments as of January 29, 2005 are as follows:
Capital Operating
Fiscal Year Leases Leases
2005 $2,314 $72,541
2006 1,946 70,756
2007 1,946 67,700
2008 1,946 65,247
2009 1,376 63,252
Thereafter 8,259 360,332
Total minimum lease payments $17,787 $699,828
Less amount representing interest (7,345)
Present value of net minimum lease payments $10,442
Rental expense for 2004, 2003 and 2002 was as follows:
Fiscal Year 2004 2003 2002
Minimum rent:
Store locations $79,285 $61,451 $54,061
Offices, warehouses
and equipment 21,104 23,158 23,026
Percentage rent:
Store locations 9,214 7,920 7,776
Property incentives: (46,737) (37,380) (29,868)
Total rent expense $62,866 $55,149 $54,995
Note 13: Stock-Based Compensation
Stock Option Plans
In 2004, our shareholders approved the 2004 Equity Incentive Plan.
We currently grant stock options, performance share units and common
shares under this new plan.
Stock Options: As of January 29, 2005, we have options outstanding
under three stock option plans, (collectively, the “Nordstrom, Inc.
Plans”) with total shares authorized of 24,185. At January 29, 2005,
approximately 9,100 shares are reserved for future stock grants
pursuant to the Nordstrom, Inc. Plans. Options vest over periods
ranging from four to eight years, and expire ten years after the date
of grant. Stock option activity for the Nordstrom, Inc. Plans were
as follows:
notes to consolidated financial statements
Fiscal Year 2004 2003 2002
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding, beginning of year 11,684 $24 11,886 $25 10,764 $24
Granted 1,415 39 2,715 18 2,424 25
Exercised (3,620) 24 (2,260) 22 (350) 19
Cancelled (319) 25 (656) 23 (949) 26
Expired —— (1) 14 (3) 18
Outstanding, end of year 9,160 $26 11,684 $24 11,886 $25
Options exercisable at end of year 3,938 $26 5,357 $27 5,725 $26
The following table summarizes information about stock options outstanding for the Nordstrom, Inc. Plans as of January 29, 2005:
Options Outstanding Options Exercisable
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
$15 – $22 4,177 7 $18 1,739 $19
$23 – $32 2,572 6 $26 1,307 $27
$33 – $40 2,411 7 $38 892 $36
9,160 7 $26 3,938 $26
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