Nordstrom 2006 Annual Report Download - page 57

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Nordstrom, Inc. and subsidiaries 39
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in thousands except per share and per option amounts
NOTE 2: ACCOUNTS RECEIVABLE
The components of accounts receivable are as follows:
February 3, 2007
January 28, 2006
Trade receivables:
Unrestricted
$43,793
$32,070
Restricted
582,281
552,671
Allowance for doubtful accounts
(17,475)
(17,926)
Trade receivables, net
608,599
566,815
Other
75,777
72,743
Accounts receivable, net
$684,376
$639,558
The restricted trade receivables relate to our Nordstrom private label card and back an unused variable funding note that is discussed in Note 7:
Long-term Debt. The unrestricted trade receivables consist primarily of our Façonnable wholesale receivables and accrued private label card 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, which are
believed to be fully realizable as they are collected soon after they are earned.
NOTE 3: INVESTMENT IN ASSET BACKED SECURITIES – CO-BRANDED NORDSTROM VISA CREDIT CARD RECEIVABLES
The following table presents the co-branded Nordstrom VISA credit card balances and the estimated fair values of our investment in asset
backed securities.
February 3, 2007
January 28, 2006
Total face value of co-branded Nordstrom VISA credit card
principal receivables
$907,983
$738,947
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
—
$550,000
$200,000
Amounts recorded on balance sheet:
Investment in asset backed securities at fair value
$428,175
$561,136
The following table presents the key assumptions we use to value the investment in asset backed securities:
February 3, 2007
January 28, 2006
Assumptions used to estimate the fair value of the
investment in asset backed securities:
Weighted average remaining life (in months)
7.5
7.6
Average annual credit losses
5.7%
4.7%
Average gross yield
16.8%
17.1%
Weighted average coupon on issued securities
5.3%
5.2%
Average monthly payment rates
8.0%
8.2%
Discount rate on investment in asset backed securities
7.3% to 11.5%
5.9% to 11.1%
The discount rate on asset backed securities represents the volatility and risk of the asset. Our discount rates consider both the current interest rate
environment and credit spreads.
The following table illustrates the sensitivity of fair market value estimates of the investment in asset backed securities given independent
changes in assumptions as of February 3, 2007:
+10%
+20%
-10%
-20%
Gross yield
$8,558
$17,139
$(8,534)
$(17,045)
Interest expense on issued classes
(1,748)
(3,496)
1,748
3,496
Card holders’ payment rate
(239)
(689)
(130)
(894)
Charge offs
(2,970)
(5,904)
3,007
6,051
Discount rate
(1,850)
(3,681)
1,868
3,756