Nordstrom 2009 Annual Report Download - page 40

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32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
(Dollars in millions)
INTEREST RATE RISK
Our primary exposure to market risk is through changes in interest rates. As of January 30, 2010, we have gross trade receivables of $2,162, which generate
finance charge income at a combination of fixed and variable rates, and long-term debt of $2,613, including $1,150 that bears interest at LIBOR-based rates.
Changing interest rates can therefore affect our credit card revenues and interest expense. The annualized effect of a one-percentage-point change in
interest rates would not materially affect our net earnings, cash flows, or the fair value of our fixed-rate debt.
We manage our net interest rate exposure through our mix of fixed and variable rate borrowings and associated current and long-term assets. From time to
time, we may also enter into interest rate swap transactions for purposes of hedging the exposure of changes in fair value of our long-term debt from
interest rate risk. We do not use financial instruments for trading or other speculative purposes and are not party to any leveraged financial instruments.
The table below presents information about our long-term debt obligations and interest rate swaps that are sensitive to changes in interest rates as of
January 30, 2010. For debt obligations, including our capital leases, the table presents principal amounts, at book value, by maturity date, and related
weighted average interest rates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are the predetermined dollar principal on which the exchanged interest payments are based.
Dollars in millions
2010
2011
2012
2013
2014
Thereafter
Total at
January 30,
2010
Fair value at
January 30,
2010
Long-term debt
Fixed $356 $6 $6 $7 $406 $1,333 $2,114 $2,324
Avg. int. rate 5.0% 8.8% 8.5% 8.4% 6.8% 6.7% 6.5%
Variable — — $500 — — — $500 $486
Avg. int. rate1 — — 0.3% — — — 0.3%
Interest rate swaps
Fixed to variable — — — — — $650 $650 $(1)
Avg. pay rate1 — — — — — 3.1% 3.1%
Avg. receive rate — — — — — 6.3% 6.3%
1Interest rates as of January 30, 2010.
FOREIGN CURRENCY EXCHANGE RISK
The majority of our revenues, expenses and capital expenditures are transacted in U.S. dollars. However, we periodically enter into foreign currency
purchase orders denominated in Euros for apparel, accessories and shoes. We use forward contracts to hedge against fluctuations in foreign currency
prices. The fair value of our outstanding forward contracts at January 30, 2010 is not material.