UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 3, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

NORDSTROM, INC.

(Exact name of Registrant as specified in its charter)

Washington (State or other jurisdiction of incorporation or organization)		91-0515058 (IRS employer Identification No.)
1617 Sixth Avenue, Seattle, Washington (Address of principal executive offices)		98101 (Zip code)

206-628-2111
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO þ

Common stock outstanding as of December 1, 2007: 232,084,622 shares of common stock.

 

 

NORDSTROM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

								Page
PART I – FINANCIAL INFORMATION
		Item 1.		Financial Statements (Unaudited).
						Condensed Consolidated Statements of Earnings Quarter and Nine Months Ended November 3, 2007 and October 28, 2006			3
						Condensed Consolidated Balance Sheets November 3, 2007, February 3, 2007 and October 28, 2006			4
						Condensed Consolidated Statements of Shareholders’ Equity Nine Months Ended November 3, 2007 and October 28, 2006			5
						Condensed Consolidated Statements of Cash Flows Nine Months Ended November 3, 2007 and October 28, 2006			6
						Notes to Condensed Consolidated Financial Statements			7
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations					17
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk					25
		Item 4.		Controls and Procedures					25
PART II – OTHER INFORMATION
		Item 1.		Legal Proceedings					26
		Item 1A.		Risk Factors					26
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds					27
		Item 3.		Defaults Upon Senior Securities					27
		Item 4.		Submission of Matters to a Vote of Security Holders					27
		Item 5.		Other Information					27
		Item 6.		Exhibits					27
SIGNATURES									28
INDEX TO EXHIBITS									29
EXHIBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

NORDSTROM, INC. AND SUBSIDIARIES

(Amounts in thousands except per share amounts and percentages)

(Unaudited)

		Quarter Ended								Nine Months Ended
		November 3,				October 28,				November 3,				October 28,
		2007				2006				2007				2006
Net sales		$	1,970,444			$	1,872,103			$	6,313,814			$	5,929,794
Cost of sales and related buying and occupancy costs			(1,228,506	)			(1,160,123	)			(3,957,178	)			(3,729,759	)
Gross profit			741,938				711,980				2,356,636				2,200,035
Selling, general and administrative expenses			(552,632	)			(538,210	)			(1,722,780	)			(1,611,982	)
Gain on sale of Façonnable			33,925				—				33,925				—
Operating income			223,231				173,770				667,781				588,053
Interest expense, net			(20,408	)			(11,419	)			(44,431	)			(34,953	)
Other income, net			68,779				58,819				194,946				173,508
Earnings before income tax expense			271,602				221,170				818,296				726,608
Income tax expense			(105,878	)			(85,497	)			(315,345	)			(280,950	)
Net earnings		$	165,724			$	135,673			$	502,951			$	445,658
Earnings per basic share		$	0.69			$	0.53			$	2.01			$	1.70
Earnings per diluted share		$	0.68			$	0.52			$	1.98			$	1.67
Basic shares			241,521				256,757				250,164				261,920
Diluted shares			245,344				261,616				254,475				266,893

(% of Net Sales)		Quarter Ended								Nine Months Ended
		November 3,				October 28,				November 3,				October 28,
		2007				2006				2007				2006
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Cost of sales and related buying and occupancy costs			(62.3	%)			(62.0	%)			(62.7	%)			(62.9	%)
Gross profit			37.7	%			38.0	%			37.3	%			37.1	%
Selling, general and administrative expenses			(28.0	%)			(28.7	%)			(27.3	%)			(27.2	%)
Gain on sale of Façonnable			1.7	%			—				0.5	%			—
Operating income			11.3	%			9.3	%			10.6	%			9.9	%
Interest expense, net			(1.0	%)			(0.6	%)			(0.7	%)			(0.6	%)
Other income, net			3.5	%			3.1	%			3.1	%			2.9	%
Earnings before income tax expense			13.8	%			11.8	%			13.0	%			12.3	%
Income tax expense (as a percentage of earnings before income tax expense)			(39.0	%)			(38.7	%)			(38.5	%)			(38.7	%)
Net earnings			8.4	%			7.2	%			8.0	%			7.5	%

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC. AND SUBSIDIARIES

(Amounts in thousands)

(Unaudited)

		November 3, 2007				February 3, 2007				October 28, 2006
Assets
Current assets:
Cash and cash equivalents		$	107,913			$	402,559			$	208,715
Accounts receivable, net			1,734,043				684,376				667,748
Investment in asset backed securities			—				428,175				313,656
Merchandise inventories			1,242,163				997,289				1,228,230
Current deferred tax assets, net			190,264				169,320				169,858
Prepaid expenses and other			68,409				60,474				65,711
Total current assets			3,342,792				2,742,193				2,653,918
Land, buildings and equipment, net			1,910,193				1,757,215				1,748,395
Goodwill			53,613				51,714				51,714
Acquired tradename			—				84,000				84,000
Other assets			180,854				186,456				170,355
Total assets		$	5,487,452			$	4,821,578			$	4,708,382
Liabilities and Shareholders’ Equity
Current liabilities:
Commercial paper		$	90,500			$	—			$	—
Accounts payable			738,037				576,796				758,402
Accrued salaries, wages and related benefits			265,657				339,965				253,440
Other current liabilities			437,884				433,487				385,767
Income taxes payable			42,422				76,095				42,970
Current portion of long-term debt			209,019				6,800				106,572
Total current liabilities			1,783,519				1,433,143				1,547,151
Long-term debt, net			1,791,416				623,652				624,631
Deferred property incentives, net			354,814				356,062				351,733
Other liabilities			249,666				240,200				223,262
Commitments and contingent liabilities
Shareholders’ equity:
Common stock, no par value: 1,000,000 shares authorized; 232,034, 257,313 and 256,904 shares issued and outstanding			927,527				826,421				791,678
Retained earnings			407,758				1,350,680				1,171,364
Accumulated other comprehensive loss			(27,248	)			(8,580	)			(1,437	)
Total shareholders’ equity			1,308,037				2,168,521				1,961,605
Total liabilities and shareholders’ equity		$	5,487,452			$	4,821,578			$	4,708,382

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC. AND SUBSIDIARIES

(Amounts in thousands except per share amounts)

(Unaudited)

																		Accumulated
																		Other
										Unearned								Comprehensive
		Common Stock								Stock				Retained				(Loss)
		Shares				Amount				Compensation				Earnings				Earnings				Total
Balance at February 3, 2007			257,313			$	826,421				—			$	1,350,680			$	(8,580	)		$	2,168,521
Cumulative effect adjustment to adopt FIN 48			—				—				—				(2,962	)			—				(2,962	)
Adjusted Beginning Balance			257,313				826,421				—				1,347,718				(8,580	)			2,165,559
Net earnings			—				—				—				502,951								502,951
Other comprehensive (loss) earnings:
Foreign currency translation			—				—				—				—				(15,770	)			(15,770	)
Amounts amortized into net periodic benefit cost, net of tax of ($1,406)			—				—				—				—				2,084				2,084
Fair value adjustment to investment in asset backed securities, net of tax of $2,806			—				—				—				—				(4,982	)			(4,982	)
Comprehensive net earnings			—				—				—				—				—				484,283
Cash dividends paid ($0.405 per share)			—				—				—				(102,912	)			—				(102,912	)
Issuance of common stock for:
Stock option plans			2,089				59,281				—				—				—				59,281
Employee stock purchase plan			393				17,614				—				—				—				17,614
Other			70				3,930				—				—				—				3,930
Stock-based compensation			7				20,281				—				—				—				20,281
Repurchase of common stock			(27,838	)			—				—				(1,339,999	)			—				(1,339,999	)
Balance at November 3, 2007			232,034			$	927,527				—			$	407,758			$	(27,248	)		$	1,308,037
																		Accumulated
																		Other
										Unearned								Comprehensive
		Common Stock								Stock				Retained				(Loss)
		Shares				Amount				Compensation				Earnings				Earnings				Total
Balance at January 28, 2006			269,549			$	685,934			$	(327	)		$	1,404,366			$	2,708			$	2,092,681
Net earnings			—				—				—				445,658				—				445,658
Other comprehensive (loss) earnings:
Foreign currency translation			—				—				—				—				1,131				1,131
Fair value adjustment to investment in asset backed securities, net of tax of $3,253			—				—				—				—				(5,276	)			(5,276	)
Comprehensive net earnings			—				—				—				—				—				441,513
Cash dividends paid ($0.315 per share)			—				—				—				(83,139	)			—				(83,139	)
Issuance of common stock for:
Stock option plans			2,909				68,272				—				—				—				68,272
Employee stock purchase plan			446				16,635				—				—				—				16,635
Other			17				257				327				—				—				584
Stock-based compensation			—				20,580				—				—				—				20,580
Repurchase of common stock			(16,017	)			—				—				(595,521	)			—				(595,521	)
Balance at October 28, 2006			256,904			$	791,678				—			$	1,171,364			$	(1,437	)		$	1,961,605

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC. AND SUBSIDIARIES

(Amounts in thousands)

(Unaudited)

		Nine Months Ended
		November 3, 2007				October 28, 2006
Operating Activities
Net earnings		$	502,951			$	445,658
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization of buildings and equipment			202,523				205,816
Gain on sale of Façonnable			(33,925	)			—
Amortization of deferred property incentives and other, net			(30,190	)			(25,255	)
Stock-based compensation expense			20,875				25,075
Deferred income taxes, net			(33,443	)			(49,755	)
Tax benefit from stock-based payments			27,203				29,691
Excess tax benefit from stock-based payments			(25,228	)			(25,384	)
Provision for bad debt expense			71,334				10,715
Change in operating assets and liabilities:
Accounts receivable			(1,143,339	)			(38,652	)
Investment in asset backed securities			420,387				242,204
Merchandise inventories			(282,554	)			(235,623	)
Prepaid expenses			(10,084	)			(10,092	)
Other assets			(28,481	)			(4,203	)
Accounts payable			131,625				213,294
Accrued salaries, wages and related benefits			(66,536	)			(34,861	)
Other current liabilities			(60	)			(22,559	)
Income taxes payable			(21,902	)			(38,647	)
Deferred property incentives			41,839				13,779
Other liabilities			2,487				11,328
Net cash (used in) provided by operating activities			(254,518	)			712,529
Investing Activities
Capital expenditures			(358,119	)			(187,748	)
Proceeds from sale of Façonnable			215,761				—
Proceeds from sale of assets			12,205				—
Purchases of short-term investments			—				(109,550	)
Sales of short-term investments			—				163,550
Other, net			3,471				(6,380	)
Net cash used in investing activities			(126,682	)			(140,128	)
Financing Activities
Proceeds from commercial paper			90,500				—
Proceeds from long-term borrowing			1,521,500				100,000
Principal payments on long-term debt			(176,838	)			(306,465	)
Increase (decrease) in cash book overdrafts			23,036				(21,511	)
Proceeds from exercise of stock options			32,102				38,917
Proceeds from employee stock purchase plan			17,591				16,300
Excess tax benefit from stock-based payments			25,228				25,384
Cash dividends paid			(102,912	)			(83,139	)
Repurchase of common stock			(1,339,999	)			(595,521	)
Other, net			(3,654	)			(307	)
Net cash provided by (used in) financing activities			86,554				(826,342	)
Net decrease in cash and cash equivalents			(294,646	)			(253,941	)
Cash and cash equivalents at beginning of period			402,559				462,656
Cash and cash equivalents at end of period		$	107,913			$	208,715

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NORDSTROM, INC. AND SUBSIDIARIES

(Dollar and share amounts in thousands except per share and per option amounts)

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in our 2006 Annual Report on Form 10-K. The same accounting policies are followed for preparing quarterly and annual financial information. All adjustments necessary for the fair presentation of the results of operations, financial position and cash flows have been included and are of a normal, recurring nature.

In May 2007, we increased our ownership in Jeffrey. As a result of the additional purchase, Jeffrey is now consolidated and included in our retail segment. This additional purchase included $29,436 of goodwill.

Our business, like that of other retailers, is subject to seasonal fluctuations. Our Anniversary Sale in July and the holidays in December typically result in higher sales in the second and fourth quarters of our fiscal years. Accordingly, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Accounting Policies
The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Our accounting policies in 2007 are consistent with those discussed in our 2006 Annual Report on Form 10-K, with the exception of our adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) in the beginning of the first quarter of 2007. Additionally, in the first quarter of 2007, we converted our Nordstrom private label card and co-branded Nordstrom VISA credit card receivables into one on-balance sheet securitization program, which is accounted for as a secured borrowing (on-balance sheet).

Other Income
On May 1, 2007, we converted our Nordstrom private label card and co-branded Nordstrom VISA credit card programs into one securitization program. Prior to the transaction, other income consisted primarily of finance charges and late fees generated by our Nordstrom private label cards and earnings from our investment in asset backed securities and securitization gains and losses, which were both generated from the co-branded Nordstrom VISA credit card program. After the transaction, other income consists primarily of finance charges and late fees generated by our combined Nordstrom private label card and co-branded Nordstrom VISA credit card programs.

Securitization of Accounts Receivable and Accounts Receivable
We offer Nordstrom private label cards and co-branded Nordstrom VISA credit cards to our customers. As described above, on May 1, 2007 we converted the Nordstrom private label card and co-branded Nordstrom VISA credit card programs into one securitization program, which is accounted for as a secured borrowing (on-balance sheet). When we combined the securitization programs, our investment in asset backed securities was converted from available-for-sale securities to receivables. As of May 5, 2007, the majority of co-branded Nordstrom VISA credit card receivables were recorded at estimated fair value. As of November 3, 2007, approximately 16% of those receivables remain recorded at estimated fair value. Based on past payment patterns, we expect that this receivable portfolio will be repaid within approximately eight months of the transaction date. During that time, we expect to transition the co-branded Nordstrom VISA credit card receivable portfolio to historical cost, net of allowance for doubtful accounts, on our balance sheet.

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands except per share and per option amounts)

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

We report our Nordstrom private label card receivables and new co-branded Nordstrom VISA credit card receivables generated after May 1, 2007 at cost, net of an allowance for doubtful accounts. Our allowance for doubtful accounts represents our best estimate of the losses inherent in our customer accounts receivable based on several factors, including historical trends of aging of accounts, write-off experience and expectations of future performance.

Going forward, we expect that both our Nordstrom private label cards and co-branded Nordstrom VISA credit cards will be accounted for using the same on-balance sheet, historical cost method.

Substantially all of the Nordstrom private label receivables and 90% of the co-branded Nordstrom VISA credit card receivables are securitized. Under the securitization, the receivables are transferred to a third-party trust on a daily basis. The balance of the receivables transferred to the trust fluctuates as new receivables are generated and old receivables are retired (through payments received, charge-offs, or credits for merchandise returns). On May 1, 2007, the trust issued securities that are backed by the receivables. These combined receivables back the Series 2007-1 Notes, the Series 2007-2 Notes, and variable funding notes that are discussed in Note 5: Long-term debt.

Under the terms of the trust agreement, we may be required to fund certain amounts upon the occurrence of specific events. Our credit card securitization agreements set a maximum percentage of receivables that can be associated with various receivable categories, such as employee or foreign receivables. As of November 3, 2007, these maximums were not exceeded.

Income Taxes
Effective February 4, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The cumulative effect of adopting FIN 48 has resulted in an increase to our liability for uncertain tax positions of $2,962, which reduced the beginning balance of retained earnings. Upon adoption we had approximately $20,899 of gross unrecognized tax benefits, of which $6,522 relates to deferred items which, if recognized, would not impact the effective tax rate. Interest and penalties related to income tax matters are classified as a component of income tax expense. The estimate for accrued interest and penalties upon adoption was $1,467. There were no material changes to these balances during the nine months ended November 3, 2007.

We file income tax returns in the U.S. federal and various state jurisdictions. We also file returns in France and several other foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2002. Our U.S. federal filings for the years 2002 through 2005 are under routine examination and that process is anticipated to be completed before the end of 2008. Additionally, the U.S. federal tax returns for 2006 and 2007 are under concurrent year processing, and are expected to be complete in 2008. We currently have an active examination in France for the years 2001 through 2004. Certain state jurisdictions have active income tax examinations that include earlier years. These audits are not considered material.

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands except per share and per option amounts)
(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 will be effective at the beginning of our 2008 fiscal year. We are assessing the impact of the adoption of SFAS 157 and believe there will be no material impact on our results of operations, financial position or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 will be effective at the beginning of our 2008 fiscal year. We are assessing the impact of the adoption of SFAS 159 and believe there will be no material impact on our results of operations, financial position or cash flows.

NOTE 2: SALE OF FAÇONNABLE

During the third quarter, we completed the sale of our Façonnable business to M1 Group in exchange for cash of $215,761, net of transaction costs. As part of this transaction, goodwill of $27,537 and acquired tradename of $84,000 were removed from our balance sheet and we recorded a gain of $33,925. Upon the closing of this transaction, we entered into a Transition Services Agreement with M1, whereby we will continue to provide certain back office functions related to the Façonnable U.S. wholesale business for a limited amount of time as part of a transition period. We additionally entered into a Minimum Purchase Agreement with the Façonnable U.S. wholesale business whereby we committed to purchase $246,000 of Façonnable inventory over the next three years.

NOTE 3: ACCOUNTS RECEIVABLE

The components of accounts receivable are as follows:

		November 3, 2007				February 3, 2007				October 28, 2006
Trade receivables:
Restricted trade receivables		$	1,558,192			$	582,281			$	558,354
Unrestricted trade receivables			137,074				43,793				39,208
Allowance for doubtful accounts			(54,064	)			(17,475	)			(15,704	)
Trade receivables, net			1,641,202				608,599				581,858
Other			92,841				75,777				85,890
Accounts receivable, net		$	1,734,043			$	684,376			$	667,748

The following table summarizes the restricted trade receivables:

		November 3, 2007				February 3, 2007				October 28, 2006
Private label card receivables		$	604,639			$	582,281			$	558,354
Co-branded Nordstrom VISA credit card receivables			953,553				—				—
Restricted trade receivables		$	1,558,192			$	582,281			$	558,354

As of November 3, 2007, the restricted trade receivables relate to substantially all of our Nordstrom private label card receivables and 90% of the co-branded Nordstrom VISA credit card receivables. These restricted trade receivables back the Series 2007-1 Notes, the Series 2007-2 Notes, and the variable funding notes discussed in Note 5: Long-term debt. At February 3, 2007 and October 28, 2006, the restricted trade receivables related to our Nordstrom private label card backed our previously existing variable funding note.

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands except per share and per option amounts)

(Unaudited)

NOTE 3: ACCOUNTS RECEIVABLE (CONTINUED)

The unrestricted trade receivables consist primarily of the remaining portion of our Nordstrom private label and co-branded Nordstrom VISA credit card receivables and accrued finance charges not yet allocated to customer accounts.

Other accounts receivable consist primarily of credit card receivables due from third-party financial institutions and vendor rebates.

NOTE 4:		INVESTMENT IN ASSET BACKED SECURITIES – CO-BRANDED NORDSTROM VISA CREDIT CARD RECEIVABLES

Prior to the securitization transaction discussed in Note 1, our co-branded Nordstrom VISA credit card program was treated as an investment in asset backed securities. As previously discussed, as of November 3, 2007, our balance sheet does not include an investment in asset backed securities. The following table represents the components prior to the transaction:

		February 3, 2007				October 28, 2006
Total face value of co-branded Nordstrom VISA credit card principal receivables		$	907,983			$	844,634
Debt securities issued by the VISA Trust:
Off-balance sheet (sold to third parties):
2002 Class A & B Notes		$	200,000			$	200,000
2004-2 Variable funding notes			350,000				350,000
		$	550,000			$	550,000
Transferor interest amount recorded on Nordstrom, Inc.’s balance sheet:
Investment in asset backed securities at fair value		$	428,175			$	313,656

The following table presents the key assumptions we used to value the investment in asset backed securities prior to the securitization transaction:

		February 3, 2007				October 28, 2006
Weighted average remaining life (in months)			7.5				7.0
Average annual credit losses			5.7	%			6.0	%
Average gross yield			16.8	%			16.9	%
Weighted average coupon on issued securities			5.3	%			5.2	%
Average monthly payment rates			8.0	%			8.4	%
Discount rate on investment in asset backed securities		7.3% to 11.5		%		7.7% to 11.4		%

The following table summarizes the income earned by the investment in asset backed securities that is included in other income on the condensed consolidated statements of earnings prior to the transaction on May 1, 2007:

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Interest income			—			$	20,899			$	21,266			$	65,599
Gain on sales of receivables and other income			—				7,744				4,745				23,775
			—			$	28,643			$	26,011			$	89,374

Our investment in asset backed securities and the off-balance sheet financing are described in Notes 1 and 3 of our 2006 Annual Report on Form 10-K.

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands except per share and per option amounts)

(Unaudited)

NOTE 5: LONG-TERM DEBT

We hold both secured and unsecured debt. The secured debts’ primary collateral are our Nordstrom private label cards and co-branded Nordstrom VISA credit card receivables. A summary of long-term debt is as follows:

		November 3, 2007				February 3, 2007				October 28, 2006
Secured
2001-1 Variable Funding Note		$	—			$	—			$	100,000
2007-A Variable Funding Note			200,000				—				—
Series 2007-1 Class A Notes, 4.92%, due April 2010			325,500				—				—
Series 2007-1 Class B Notes, 5.02%, due April 2010			24,500				—				—
Series 2007-2 Class A Notes, one-month LIBOR plus 0.06% per year, due April 2012			453,800				—				—
Series 2007-2 Class B Notes, one-month LIBOR plus 0.18% per year, due April 2012			46,200				—				—
Mortgage payable, 7.68%, due April 2020			67,366				69,710				70,462
Other			12,511				13,630				13,797
			1,129,877				83,340				184,259
Unsecured
Commercial paper			301,500				—				—
Senior notes, 5.625%, due January 2009			250,000				250,000				250,000
Senior debentures, 6.95%, due March 2028			300,000				300,000				300,000
Other			21,746				5,970				5,896
Fair market value of interest rate swap			(2,688	)			(8,858	)			(8,952	)
			870,558				547,112				546,944
Total long–term debt			2,000,435				630,452				731,203
Less current portion			(209,019	)			(6,800	)			(106,572	)
Total due beyond one year		$	1,791,416			$	623,652			$	624,631

In the first quarter of 2007, the Private Label Trust used our previously existing variable funding facility (2001-1 Variable Funding Note) to issue a total of $150,000 in Notes. On May 1, 2007, in connection with the issuance of the new Notes discussed below, we paid the outstanding balance and terminated this facility.

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 $300,000. 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 $220,000 in Notes. As of November 3, 2007, $200,000 in Notes were outstanding and the cost of commercial paper issued by the third party bank conduit was 5.71%. 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 $50,000 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.

Both the Series 2007-1 Class A & B Notes and the Series 2007-2 Class A & B Notes are secured by substantially all of the Nordstrom private label card receivables and a 90% interest in the co-branded Nordstrom VISA credit card receivables.

Other debt consists primarily of capital lease obligations and liabilities related to the acquisition of Jeffrey.

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 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 (7.09% at November 3, 2007).

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands except per share and per option amounts)

(Unaudited)

NOTE 5: LONG-TERM DEBT (CONTINUED)

The Series 2007-1 Class A & B Notes increased our required principal payments due in fiscal 2010 by their combined notional amount of $350,000. The Series 2007-2 Class A & B Notes increased our required principal payments due after five years by their combined notional amount of $500,000.

During the third quarter of 2007, we entered into an agreement for a new variable funding facility backed by the remaining 10% interest in the co-branded Nordstrom VISA credit card receivables with a commitment of $100,000. As of November 3, 2007, no issuances have been made against this facility. Borrowings under the facility will incur interest based upon the cost of commercial paper issued by the third party bank conduit plus specified fees.

We maintain a $500,000 unsecured line of credit, which is available as liquidity support for our commercial paper program described below. We made no borrowings under this line of credit during the nine months ended November 3, 2007.

In October 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 $500,000. 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 November 3, 2007, we had $392,000 in outstanding issuances of commercial paper.

In December 2007, we issued $650,000 aggregate principal amount of 6.25% senior unsecured notes due 2018 and $350,000 aggregate principal amount of 7.00% senior unsecured notes due 2038. We have reclassified $301,500 of the commercial paper facility, which has been repaid by the proceeds of the debt offering. The remaining $90,500 of the commercial paper recorded in short-term debt was paid using operating cash flows.

NOTE 6: POST-RETIREMENT BENEFITS

The expense components of our Supplemental Executive Retirement Plan, which provides retirement benefits to certain officers and select employees, are as follows:

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Participant service cost		$	652			$	557			$	1,957			$	1,671
Interest cost			1,433				1,308				4,299				3,924
Amortization of net loss			772				724				2,315				2,172
Amortization of prior service cost			263				257				787				771
Total expense		$	3,120			$	2,846			$	9,358			$	8,538
NOTE 7: STOCK COMPENSATION PLANS
Stock-based compensation expense before income tax benefit was recorded in our condensed consolidated statements of earnings as follows:
		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Cost of sales and related buying and occupancy costs		$	2,961			$	2,908			$	8,051			$	8,259
Selling, general and administrative expenses			3,751				8,084				12,824				16,816
Total stock-based compensation expense before income tax benefit		$	6,712			$	10,992			$	20,875			$	25,075

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands except per share and per option amounts)
(Unaudited)

NOTE 7: STOCK COMPENSATION PLANS (CONTINUED)

Stock Options

As of November 3, 2007, we have options outstanding under two stock option plans. Options vest over periods ranging from four to eight years, and expire 10 years after the date of grant. During the nine months ended November 3, 2007, 1,597 options were granted, 2,089 options were exercised, and 318 options were cancelled. During the nine months ended October 28, 2006, 1,940 options were granted, 2,909 options were exercised, and 518 options were cancelled.

In the first quarter of fiscal 2007, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise price was set at the closing price of our common stock on March 1, 2007. The stock option awards provide recipients with the opportunity for financial rewards when our stock price increases. The awards are determined based upon a percentage of the recipients’ base salary and the estimated fair value of the stock options, which was estimated using a Binomial Lattice option valuation model. During the nine months ended November 3, 2007, we awarded stock options to 1,195 employees compared to 1,235 employees in the same period in 2006.

We used the following assumptions to estimate the fair value of stock options at grant date:

		November 3, 2007				October 28, 2006
Risk-free interest rate			4.6% - 4.7%				4.9% - 5.1%
Weighted average expected volatility			35.0%				37.0%
Weighted average expected dividend yield			1.0%				1.0%
Weighted average expected life in years			5.7				5.4

The weighted average estimated fair value per option at the grant date was $20 and $16 in 2007 and 2006, respectively. The following describes the significant assumptions used to estimate the fair value of options granted:

•		Risk-free interest rate: The rate represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life of the stock options.
•		Expected volatility: The expected volatility is based on a combination of the historical volatility of our common stock and the implied volatility of exchange traded options for our common stock.
•		Expected dividend yield: The yield is our forecasted dividend yield for the next 10 years.
•		Expected life in years: The expected life represents the estimated period of time until option exercise. Based on our historical exercise behavior and taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior, the expected term of options granted was derived from the output of the Binomial Lattice option valuation model.

Performance Share Units
We grant performance share units to align certain elements of our senior management compensation with our shareholder returns. Performance share units are payable in either cash or stock as elected by the employee; therefore they are classified as a liability award in accordance with Statement No. 123(R), Share-Based Payment (“SFAS 123(R)”). Performance share units vest after a three-year performance period only when our total shareholder return (reflecting daily stock price appreciation and compound reinvestment of dividends) is positive and outperforms companies in a defined peer group of direct competitors determined by the Compensation Committee of our Board of Directors. The percentage of units that vest depends on our relative position at the end of the performance period and can range from 0% to 125% of the number of units granted.

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands except per share and per option amounts)
(Unaudited)

NOTE 7: STOCK COMPENSATION PLANS (CONTINUED)

We record the performance share unit liability based on the vesting factors described above. The liability is remeasured and the appropriate earnings adjustment is taken at each fiscal quarter-end during the vesting period. The price we use to remeasure the performance share units granted in 2005 is the closing market price of our common stock on the current quarter-end date. To remeasure the performance share units granted in 2006 and following, we use the 30-day average closing market price of our common stock leading up to the current quarter-end date. The price used to issue stock or cash for the performance share units upon vesting is the closing market price of our common stock on the vest date.

As of November 3, 2007, February 3, 2007 and October 28, 2006, our liabilities included $4,288, $12,653 and $9,314 for the performance share units. As of November 3, 2007, the remaining unrecognized stock-based compensation expense related to non-vested performance share units was approximately $1,000, which is expected to be recognized over a weighted average period of 12 months. At February 3, 2007, 255,467 units were unvested. During the nine months ended November 3, 2007, 50,070 units were granted, 112,496 units vested and no units cancelled, resulting in an ending balance of 193,041 unvested units as of November 3, 2007.

The following table summarizes the information for performance share units that vested during the period:

		Nine Months Ended
		November 3, 2007				October 28, 2006
Number of performance share units vested			112,496				216,865
Total fair value of performance share units vested		$	7,970			$	11,310
Total amount of performance share units settled for cash		$	729			$	5,982

NOTE 8: EARNINGS PER SHARE

The computation of earnings per share, using the respective weighted average shares, is as follows:

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Net earnings		$	165,724			$	135,673			$	502,951			$	445,658
Basic shares			241,521				256,757				250,164				261,920
Dilutive effect of stock options, performance share units and other			3,823				4,859				4,311				4,973
Diluted shares			245,344				261,616				254,475				266,893
Earnings per basic share		$	0.69			$	0.53			$	2.01			$	1.70
Earnings per diluted share		$	0.68			$	0.52			$	1.98			$	1.67
Antidilutive stock options and other			2,793				1,825				1,559				1,788

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands except per share and per option amounts)
(Unaudited)

NOTE 9: SEGMENT REPORTING

The following tables set forth the information for our reportable segments and a reconciliation to the consolidated totals:

Quarter ended		Retail
November 3, 2007		Stores				Credit				Direct				Other				Eliminations				Total
Net sales		$	1,788,207			$	—			$	151,068			$	31,169			$	—			$	1,970,444
Net sales increase			4.4%				N/A				15.0%				N/A				N/A				5.3%
Intersegment revenues			—				185				—				—				(185	)			—
Interest expense, net			76				(12,724	)			—				(7,760	)			—				(20,408	)
Other income, net			(176	)			65,957				(4	)			3,002				—				68,779
Earnings before income tax expense			269,842				372				41,076				(39,688	)			—				271,602
Earnings before income tax expense as a percentage of net sales			15.1%				N/A				27.2%				N/A				N/A				13.8%

Quarter ended		Retail
October 28, 2006		Stores				Credit				Direct				Other				Eliminations				Total
Net sales		$	1,712,061			$	—			$	131,367			$	28,675			$	—			$	1,872,103
Net sales increase			11.0%				N/A				28.2%				N/A				N/A				12.4%
Intersegment revenues			—				157				—				—				(157	)			—
Interest expense, net			—				(3,170	)			—				(8,249	)			—				(11,419	)
Other income, net			744				54,535				(6	)			3,546				—				58,819
Earnings before income tax expense			256,346				19,947				32,429				(87,552	)			—				221,170
Earnings before income tax expense as a percentage of net sales			15.0%				N/A				24.7%				N/A				N/A				11.8%

Nine months ended		Retail
November 3, 2007		Stores				Credit				Direct				Other				Eliminations				Total
Net sales		$	5,838,040			$	—			$	437,678			$	38,096			$	—			$	6,313,814
Net sales increase			6.2%				N/A				19.0%				N/A				N/A				6.5%
Intersegment revenues			—				463				—				—				(463	)			—
Interest expense, net			(68	)			(25,329	)			—				(19,034	)			—				(44,431	)
Other income, net			367				180,267				25				14,287				—				194,946
Earnings before income tax expense			897,869				(4,446	)			110,397				(185,524	)			—				818,296
Earnings before income tax expense as a percentage of net sales			15.4%				N/A				25.2%				N/A				N/A				13.0%
Total assets			2,723,579				1,712,910				157,890				893,073				—				5,487,452

Nine months ended		Retail
October 28, 2006		Stores				Credit				Direct				Other				Eliminations				Total
Net sales		$	5,494,677			$	—			$	367,867			$	67,250			$	—			$	5,929,794
Net sales increase			8.8%				N/A				16.6%				N/A				N/A				9.3%
Intersegment revenues			—				356				—				—				(356	)			—
Interest expense, net			—				(10,662	)			—				(24,291	)			—				(34,953	)
Other income, net			138				158,409				(3	)			14,964				—				173,508
Earnings before income tax expense			799,153				56,168				88,847				(217,560	)			—				726,608
Earnings before income tax expense as a percentage of net sales			14.5%				N/A				24.2%				N/A				N/A				12.3%
Total assets			2,466,157				932,699				126,939				1,182,587				—				4,708,382

NORDSTROM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands except per share and per option amounts)
(Unaudited)

NOTE 9: SEGMENT REPORTING (CONTINUED)

The segment information for the quarter and nine months ended November 3, 2007 has been adjusted from our 2006 Form 10-Q disclosures to reflect the 2007 view of certain costs between our Credit, Other, and Retail Stores segments, but do not impact the condensed consolidated statement of earnings. These changes include expense related to our merchandise rewards certificate programs, intercompany merchant fee income and intercompany borrowings.

Additionally, in the second quarter of 2007, we increased our ownership in Jeffrey. As a result of the additional purchase, Jeffrey is now consolidated and included in our Retail segment.

NOTE 10: SUPPLEMENTARY CASH FLOW INFORMATION

		Nine Months Ended
		November 3, 2007				October 28, 2006
Cash paid during the year for:
Interest		$	51,702			$	44,593
Income taxes		$	339,905			$	336,357

NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES

We are involved in routine claims, proceedings and litigation arising from the normal course of our business. The results of these claims, proceedings and litigation cannot be predicted with certainty. However, we do not believe any such claim, proceeding or litigation, either alone or in aggregate, will have a material impact on our results of operations, financial position, or cash flows.

NOTE 12: SUBSEQUENT EVENT

In November 2007, our Board of Directors authorized an increase of $1,000,000 to our existing $1,500,000 share repurchase program. The existing share repurchase program, which was authorized by our Board of Directors in August 2007, had $751,400 of unused capacity as of November 3, 2007. Repurchases under the program may be made through the end of 2009. The actual amount and timing of share repurchases will be subject to market conditions and applicable Securities and Exchange Commission rules.

In December 2007, we issued $650,000 aggregate principal amount of 6.25% senior unsecured notes due 2018 and $350,000 aggregate principal amount of 7.00% senior unsecured notes due 2038. We have reclassified $301,500 of the commercial paper facility, which has been repaid by the proceeds of the debt offering. The remaining $90,500 of the commercial paper recorded in short-term debt was paid using operating cash flows.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations (Dollar and share amounts in millions except per share and per square foot amounts).

The following discussion should be read in conjunction with the Management’s Discussion and Analysis section of our 2006 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Overview

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Net earnings		$	165.7			$	135.7			$	503.0			$	445.7
Net earnings as a percentage of net sales			8.4%				7.2%				8.0%				7.5%
Earnings per diluted share		$	0.68			$	0.52			$	1.98			$	1.67

Earnings per diluted share improved $0.16 for the quarter and $0.31 for the nine months ended November 3, 2007 due primarily to sales growth. Key highlights include:

•		Total net sales for the third quarter increased 5.3% for the quarter and 6.5% for the nine months ended November 3, 2007. For the quarter, same-store sales increased 2.2%, on top of 10.7% in the same period last year. Same-store sales increased 5.8% for the nine months ended November 3, 2007 on top of 7.2% last year. For both periods, full-line, Rack and Direct delivered positive same-store sales increases. Additionally, all full-line and Rack regions showed same-store sales increases year-to-date.
•		Gross profit as a percentage of net sales (gross profit rate) decreased 38 basis points for the quarter, driven primarily by increases in full-line store markdowns. The gross profit rate improved 22 basis points for the nine months ended November 3, 2007, driven by a decrease in performance based incentives, partially offset by increased markdowns in our full-line stores.
•		Selling, general and administrative expenses as a percentage of net sales (SG&A rate) decreased 70 basis points for the quarter and increased 10 basis points for the nine months ended November 3, 2007. The decrease for the quarter was primarily driven by a reduction in performance based incentives, partially offset by higher bad debt expense. The increase for the nine months ended November 3, 2007, was due to the higher bad debt expense which was partially offset by a decrease in performance-based incentives. The impact of bringing the co-branded Nordstrom VISA credit card receivables on-balance sheet increased our SG&A rate by 57 basis points for the quarter and 48 basis points for the nine months ended November 3, 2007.
•		We closed the sale of the Façonnable business during the third quarter, and realized a gain on the sale of $33.9. The impact to reported earnings per diluted share was $0.09, net of tax of $13.1.

Net Sales

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Net sales		$	1,970.0			$	1,872.1			$	6,313.8			$	5,929.8
Net sales increase			5.3%				12.4%				6.5%				9.3%
Total company same-store sales increase			2.2%				10.7%				5.8%				7.2%

Total net sales for the third quarter increased 5.3% for the quarter and 6.5% for the nine months ended November 3, 2007, compared to the same periods in the prior year due to same-store sales increases. All channels (full-line stores, Rack, and Direct) achieved positive same-store sales increases.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations (Continued) (Dollar and share amounts in millions except per share and per square foot amounts).

Designer apparel, women’s accessories, and men’s apparel were our merchandise categories with the largest full-line same-store sales increases for both the quarter and nine months ended November 3, 2007. Designer apparel offers fashion-forward and aspirational products, which drove the increase. Women’s accessories benefited from increases in sales of handbags and fashion jewelry. Additionally, the increase in men’s apparel was in part due to sales within our younger contemporary products.

Our Rack channel delivered 11.3% and 12.3% net sales increases in the quarter and nine months ended November 3, 2007, respectively. These results were driven by growth in accessories, men’s, women’s, and shoes merchandise categories.

Our Direct channel delivered 15.0% and 19.0% net sales increases in the quarter and nine months ended November 3, 2007, respectively. These results were led by growth in cosmetics, women’s accessories and men’s apparel.

In looking forward to the fourth quarter of 2007, we expect our same-store sales to be approximately flat.

Gross Profit

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Gross profit		$	741.9			$	712.0			$	2,356.6			$	2,200.0
Gross profit rate			37.7%				38.0%				37.3%				37.1%
										Four Quarters Ended
										November 3, 2007				October 28, 2006
Inventory per square foot										$	60.47			$	60.57
Inventory turnover rate (for the most recent four quarters)											4.92				4.73

Compared to the same period last year, our gross profit rate declined 38 basis points for the quarter and improved 22 basis points for the nine months ended November 3, 2007. For the quarter, our merchandise margin rate was unfavorably impacted by an increase in markdowns at our full-line stores. We entered the third quarter with inventory levels above plan and experienced higher markdowns during the quarter as we moved to re-align inventory levels with slower sales trends. Our merchandise margin rate decreased slightly in the nine months ended November 3, 2007. For both periods, merchandise margin performance was offset by a decrease in buying and occupancy expenses, partially from lower performance based incentives. Additionally, our buying and occupancy costs are mostly fixed, which created rate improvement when compared to the increased sales growth during the nine months ended November 3, 2007.

Our four-quarter average inventory turnover rate was 4.92 at the third quarter of 2007 compared to 4.73 at the third quarter of 2006, indicating continuous progress in improving merchandise planning and execution.

Total ending inventory per square foot at November 3, 2007 was flat compared to October 28, 2006. The current quarter end does not include inventory of Façonnable, which reduced our inventory per square foot by 2% and offset the remaining inventory increase. Part of the increase in our inventory supports the growth of our designer business in apparel, accessories and shoes. The remaining increase is due to merchandise levels in select divisions above our expectations. We believe inventory will be in line with plan by year-end.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations (Continued) (Dollar and share amounts in millions except per share and per square foot amounts).

Selling, General and Administrative Expenses (SG&A)

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Selling, general and administrative expenses		$	552.6			$	538.2			$	1,722.8			$	1,612.0
SG&A rate			28.0%				28.7%				27.3%				27.2%

The selling, general and administrative expense dollars increased for the quarter and nine months ended November 3, 2007 due to increased labor driven by our new stores and additional bad debt expense partially offset by incentive costs tied to company performance. The impact from bringing the co-branded Nordstrom VISA credit card receivables on-balance sheet increased our SG&A dollars by approximately $11 and $30 for the quarter and nine months ended November 3, 2007. In addition to the incremental bad debt expense related to accounting for the securitization transaction, we observed an increase in delinquency rates. Our write-off rates are consistent with where they were prior to the 2005 change in bankruptcy legislation. We anticipate bad debt to remain higher than last year due to the increase in our portfolio and delinquencies.

Our SG&A rate decreased by 70 basis points for the quarter. The rate improvement was driven by our expense growing at a slower rate than sales. Expenses decreased due to a reduction in performance based incentives, partially offset by higher bad debt expense.

For the nine months ended November 3, 2007, our SG&A rate increased 10 basis points. Bad debt expense was the primary driver of the rate deterioration, which was only partially offset by the reduction on our performance based incentives.

Gain on sale of Façonnable

We closed the sale of the Façonnable business during the third quarter, and realized a gain on the sale of $33.9. The impact to reported earnings per diluted share was $0.09, net of tax of $13.1.

Interest Expense, net

Net interest expense increased by $9.0 to $20.4 for the quarter primarily due to higher average debt levels resulting from the securitization transaction that occurred at the end of the first quarter (see Note 1). For the nine month period ended November 3, 2007, interest expense, net increased $9.5 to $44.4. Higher interest expense due to increased debt was partially offset by interest income on invested cash balances and a larger amount of capitalized interest in conjunction with our increased capital expenditures.

Other Income, net

		Quarter Ended								Nine Months Ended
		November 3, 2007				October 28, 2006				November 3, 2007				October 28, 2006
Other income, net		$	68.8			$	58.8			$	194.9			$	173.5
Other income, net as a percentage of net sales			3.5%				3.1%				3.1%				2.9%