Nordstrom 2002 Annual Report Download - page 34

notes to consolidated
financial statements
32 NORDSTROM INC. AND SUBSIDIARIES
Note 9: Earnings Per Share
Basic earnings per share is computed using the weighted average
number of common shares outstanding during the year. Diluted
earnings per share uses the weighted average number of common
shares outstanding during the year plus dilutive common stock
equivalents, primarily stock options and performance share units.
Options with an exercise price greater than the average market price
were not included in diluted earnings per share. These options
totaled 7,259,273, 8,563,996 and 7,409,387 shares in 2002,
2001 and 2000.
Year ended January 31, 2003 2002 2001
Net earnings $90,224 $124,688 $101,918
Basic shares 135,106,772 134,104,582 131,012,412
Basic earnings per share $0.67 $0.93 $0.78
Dilutive effect of stock
options and performance
share units 617,468 234,587 100,673
Diluted shares 135,724,240 134,339,169 131,113,085
Diluted earnings per share $0.66 $0.93 $0.78
Note 10: Accounts Receivable
The components of accounts receivable are as follows:
January 31, 2003 2002
Private label trade receivables:
Unrestricted $15,599 $16,242
Restricted 613,647 628,271
Allowance for doubtful accounts (22,385) (23,022)
Private label trade receivables, net 606,861 621,491
VISA securitization master trust certificates 123,220 55,659
Other 29,181 21,325
Accounts receivable, net $759,262 $698,475
The restricted private label receivables back the $300 million
of Class A notes and the $200 million variable funding note
issued by us in November 2001. Other accounts receivable consist
primarily of vendor receivables and cosmetic rebates receivable.
Bad debt expense totaled $29,080, $34,750 and $20,368
in 2002, 2001 and 2000.
Note 11: Off-balance Sheet Financing
In May 2002, we replaced our $200 million variable funding note
backed by VISA credit card receivables (“VISA VFN”) with 5-year
term notes also backed by the VISA credit card receivables.
Class A and B notes with a combined face value of $200 million
were issued to third party investors. These proceeds were used
to retire the $200 million outstanding on the VISA VFN. We hold
securities that represent our retained interests in a master note
trust. The carrying amounts of the retained interests approximate
fair value and are included in accounts receivable.
In accordance with SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,”
our consolidated balance sheets do not include this debt and the
related receivables. These related VISA credit card receivables
are sold to the trust on an ongoing basis.
We recognize gains or losses on the sale of VISA receivables to
the trust based on the difference between the face value of the
receivables sold and the fair value of the assets created in the
securitization process. The receivables sold to the trust are then
allocated between the various interests in the trust based on those
interests’ relative fair market values. The fair values of the assets
are calculated as the present value of their expected future cash
flows. The following table summarizes the estimated fair values
of our retained interests as well as the assumptions used:
January 31, 2003
Fair value of retained interests: $124,791
Assumptions:
Weighted average remaining life (in months) 2.8
Average credit losses 6.38%
Average gross yield 17.81%
Average interest expense on issued securities 1.70%
Average payment rate 20.94%
Discount rates of retained interests:
Class C Certificate 16.79%
Seller Retained Interest 10.51%
Interest Only Strip 19.92%
These discount rates represent the volatility and risk of the assets
and are calculated using an established formula that considers both
the current interest rate environment and credit spreads.