Nordstrom 2007 Annual Report Download - page 57

Nordstrom, Inc. and subsidiaries 49
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
During the fourth quarter of 2007, we issued $650 aggregate principal amount, net of discount of $4, of 6.25% senior unsecured notes due 2018 and
$350 aggregate principal amount, net of discount of $8, of 7.00% senior unsecured notes due 2038 before expenses.
During the first quarter of 2007, we entered into an agreement for a new variable funding facility (2007-A Variable Funding Note) backed by
substantially all of the Nordstrom private label card receivables and a 90% interest in the co-branded Nordstrom VISA credit card receivables with
a commitment of $300. Borrowings under the facility incur interest based upon the cost of commercial paper issued by the third-party bank conduit
plus specified fees. During the third quarter of 2007, we used this facility to issue $220 in Notes and paid the outstanding balance in the third and
fourth quarters of 2007. We pay a commitment fee for the note based on the size of the commitment and the amount of borrowings outstanding.
Commitment fee rates decrease if more than $50 is outstanding on the facility. The facility can be cancelled or not renewed if our debt ratings fall
below Standard and Poor’s BB+ rating or Moody’s Ba1 rating. Our current rating by Standard and Poor’s is A-, four grades above BB+, and by Moody’s
is Baa1, three grades above Ba1.
During the third quarter of 2007, we entered into an agreement for an additional new variable funding facility backed by the remaining 10% interest
in the co-branded Nordstrom VISA credit card receivables with a commitment of $100. As of February 2, 2008, no issuances have been made against
this facility. Borrowings under this facility incur interest based upon the cost of commercial paper issued by the third-party bank conduit plus
specified fees.
To manage our interest rate risk, we have an interest rate swap outstanding recorded in prepaid expenses and other. Our swap has a $250 notional
amount, expires in January 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 (5.32% at February 2, 2008).
We maintain a $500 unsecured line of credit, which is available as liquidity support for our commercial paper program described below. Under the
terms of the agreement, we pay a variable rate of interest and a commitment fee based on our debt rating. Based upon our current debt rating, we
pay a variable rate of interest of LIBOR plus a margin of 0.225% (3.24% at February 2, 2008) on the outstanding balance and an annual commitment
fee of 0.075% on the total capacity. The variable rate of interest increases to LIBOR plus a margin of 0.325% if more than $250 is outstanding on the
facility. The line of credit expires in November 2010, and contains restrictive covenants, which include maintaining a leverage ratio. We made no
borrowings under this line of credit during 2007 or 2006.
During the third quarter of 2007, we entered into a new commercial paper dealer agreement, supported by our unsecured line of credit. Under this
commercial paper program, we may issue commercial paper in an aggregate amount outstanding at any particular time not to exceed $500. This
agreement allows us to use the proceeds to fund share repurchases as well as operating cash requirements. Under the terms of the commercial
paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of
commercial paper has the effect, while it is outstanding, of reducing our borrowing capacity under the line of credit by an amount equal to the
principal amount of the commercial paper. As of February 2, 2008, we have no outstanding issuances of commercial paper.
The fair value of long-term debt, including current maturities, using quoted market prices of the same or similar issues, was $2,514 and $667
at the end of 2007 and 2006.
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
2008 $258
2009 22
2010 355
2011 5
2012 505
Thereafter 1,336
The components of interest expense, net are as follows:
Fiscal year 2007 2006 2005
Interest expense on long-term debt $102 $63 $63
Less:
Interest income (16) (15) (13)
Capitalized interest (12) (5) (5)
Interest expense, net $74 $43 $45