Nordstrom 2007 Annual Report Download - page 53

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Nordstrom, Inc. and subsidiaries 45
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share and per option amounts
The following table summarizes the restricted trade receivables:
February 2, 2008 February 3, 2007
Private label card receivables $630 $582
Co-branded Nordstrom VISA credit card receivables 1,130 —
Restricted trade receivables $1,760 $582
As of February 2, 2008, the restricted trade receivables relate to substantially all of our Nordstrom private label and 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 8: Long-term debt. At February 3, 2007, the restricted trade receivables were our Nordstrom private label card receivables, which
backed our previously existing variable funding note.
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. As of February 3, 2007, the unrestricted trade receivables also
included receivables related to the Façonnable business.
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 February 2, 2008, our consolidated balance sheet does not include an investment in asset backed
securities. The following table represents the co-branded Nordstrom VISA credit card receivable balances and the estimated fair value of our
investment in asset backed securities prior to the transaction:
February 3, 2007
Total face value of co-branded Nordstrom VISA credit card
principal receivables $908
Securities issued by the VISA Trust:
Off-balance sheet (sold to third parties):
2002 Class A & B Notes $200
2004-2 Variable funding notes 350
$550
Amounts recorded on consolidated balance sheet:
Investment in asset backed securities at fair value $428
The following table presents the key assumptions we used to value the investment in asset backed securities prior to the transaction:
February 3, 2007
Assumptions used to estimate the fair value of the
investment in asset backed securities:
Weighted average remaining life (in months) 7.5
Average annual credit losses 5.7%
Average gross yield 16.8%
Weighted average coupon on issued securities 5.3%
Average monthly payment rates 8.0%
Discount rate on investment in asset backed securities 7.3% to 11.5%
The discount rate on asset backed securities represented the volatility and risk of the asset. Our discount rates considered both the current interest
rate environment and credit spreads.