Nordstrom 2006 Annual Report Download - page 35

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Nordstrom, Inc. and subsidiaries 17
Interest Expense, Net (Dollars in Millions)
Fiscal year
2006
2005
2004
Interest expense, net
$42.8
$45.3
$77.4
2006 VS 2005 INTEREST EXPENSE, NET
Interest expense, net decreased $2.5 in 2006 compared to 2005. The decrease is primarily due to increased interest income from higher average
cash investment balances.
2005 VS 2004 INTEREST EXPENSE, NET
Interest expense, net decreased $32.1 in 2005 compared to 2004. The decrease is primarily due to debt prepayment costs of $20.9 incurred in 2004
in connection with a $198.2 debt buyback. We did not incur similar costs in 2005.
2007 FORECAST OF INTEREST EXPENSE, NET
We expect interest expense, net to be flat in 2007 due to the upcoming securitization transaction (see Off-Balance Sheet Financing on page 21).
Other Income Including Finance Charges, Net (Dollars in Millions)
Fiscal year
2006
2005
2004
Other income including finance charges, net
$238.5
$196.4
$172.9
Other income including finance charges, net as a
percentage of net sales
2.8%
2.5%
2.4%
2006 VS 2005 OTHER INCOME INCLUDING FINANCE CHARGES, NET
Other income including finance charges, net increased $42.2, primarily due to growth in the co-branded VISA credit card program. The principal
balances of receivables in the VISA credit card, which are held by a separate trust in which we hold a certificated interest, increased 22.9% during
2006. The receivables growth increase produces an increase in the trust’s earnings and our income.
In addition, income from finance charges on our private label card has increased due to program growth.
In July 2006, we received $5.6 of proceeds from the VISA Check/Master Money Antitrust Litigation. These proceeds were recorded as a gain in the
second quarter of 2006 in other income including finance charges, net.
2005 VS 2004 OTHER INCOME INCLUDING FINANCE CHARGES, NET
Other income including finance charges, net increased $23.4, due to earnings growth in the Nordstrom fsb co-branded VISA credit card program and
our gift card breakage income of $8.0. The principal balances of receivables in the VISA credit card, which are held by a separate trust in which we
hold a certificated interest, increased 20.6% during 2005.
Gift card breakage income was a new component of income in 2005. Unclaimed property legislation changed in 2004 to allow us to retain unused
balances on gift cards. We analyzed the experience of our program since it was introduced in 1999, and we determined that balances remaining on
cards issued five years ago are unlikely to be redeemed. The breakage income recognized in 2005 includes $2.6 and $5.4 for cards issued in 1999 and
2000. Breakage income is approximately 3.5% of the amount of initially issued gift cards.
2007 FORECAST OF OTHER INCOME INCLUDING FINANCE CHARGES, NET
In 2007, other income including finance charges, net is expected to increase approximately $25.0 to $35.0. The co-branded VISA receivables will
be recorded on the balance sheet initially at fair value with no allowance for credit losses. Normal write-offs for uncollectible VISA receivables,
estimated at $19 along with other costs net at $4, will be recorded in other income including finance charges, net over the eight month period following
the transaction.