Advertising Costs Earnings per Share Accounts Receivable and Receivable-backed Securities Cash Equivalents Inventory Inventory 31 Advertising costs, included in selling, general and administrative expense, are expensed as incurred and were $1,249 million, $962 million and $924 million for 2003, 2002 and 2001, respectively. Advertising vendor income recorded within advertising expense was approximately $78 million, $251 million and $231 million for 2003, 2002 and 2001, respectively. Basic earnings per share (EPS) is net earnings divided by the average number of common shares outstanding during the period. Diluted EPS includes the incremental shares that are assumed to be issued on the exercise of stock options. Shares issuable upon exercise of approximately 4.5 million options outstanding at January 31, 2004 were not included in the dilutive earnings per share calculation because the effect would have been antidilutive. At February 1, 2003, 13.2 million shares were excluded from the dilutive earnings per share calculation. No such shares were excluded from the dilutive earnings per share calculation at February 2, 2002. Concurrent with our August 22, 2001 issuance of receivable- backed securities from the Trust, SFAS No. 140 (which replaced SFAS No. 125, GLYPH<210>Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,GLYPH<211> in its entirety) became the accounting guidance applicable to such transactions. While this accounting requires secured financing treatment of the securities issued by the Trust on our consolidated financial statements, the assets within the Trust are still considered sold to our wholly owned, bankruptcy remote subsidiary, TRC, and are not available to general creditors of the Corporation. than the TrustGLYPH<213>s assets securing the financing transactions entered into by the Trust and the 2 percent of Trust assets held by Retailers National Bank (RNB). RNB is a wholly owned subsidiary of the Corporation that also services receivables. The Trust assets and the related income and expenses are reflected in each operating segmentGLYPH<213>s assets and operating results based on the origin of the credit card giving rise to the receivable. Beginning on August 22, 2001, our consolidated financial statements reflected the obligation to holders of previously sold receivable-backed securities as debt of TRC and the receivables at fair value in place of the previously recorded retained interests related to the sold securities. This resulted in a pre-tax charge of $67 million ($.05 per share). On August 22, 2001, the TrustGLYPH<213>s entire portfolio of receivables was reflected on our consolidated financial statements at its fair value, which was based upon the expected performance of the underlying receivables portfolio. At that point in time, fair value was equivalent in amount to face value, net of an appropriate allowance. Prior to August 22, 2001, income on the receivable-backed securities was accrued based on the effective interest rate applied to its cost basis, adjusted for accrued interest and principal paydowns. We monitored impairment of receivable-backed securities based on fair value. Permanent impairments were charged to earnings through credit expense in the period in which it was determined that the receivable-backed securitiesGLYPH<213> carrying value was greater than their fair value. Permanent impairment charges on the receivables underlying the receivable-backed securities portfolio were $89 million in 2001. Permanent impairment charges in 2001 include only those losses prior to the consolidation of our special purpose entity on August 22, 2001. Other comprehensive income includes revenues, expenses, gains and losses that are excluded from net earnings under GAAP. In 2003 and 2002, it primarily included gains and losses on certain hedge transactions and the change in our minimum pension liability, net of related taxes. Other Comprehensive Income Cash equivalents represent short-term investments with a maturity of three months or less from the time of purchase and were  $244 million, $357 million and $84 million in 2003, 2002 and 2001, respectively. Substantially all of our inventory and the related cost of sales is accounted for under the retail inventory accounting method using the last-in, first-out (LIFO) basis. Inventory is stated at the lower of LIFO cost or market. The cumulative LIFO provision was $25 million and $52 million at year-end 2003 and 2002, respectively. Accounts receivable is recorded net of an allowance for expected losses. The allowance, recognized in an amount equal to the antici- pated future write-offs based on delinquencies, risk scores, aging trends, industry risk trends and our historical experience, was $419 million at January 31, 2004 and $399 million at February 1, 2003. Through our special purpose subsidiary, Target Receivables Corporation (TRC), we transfer, on an ongoing basis, substantially all of our receivables to the Target Credit Card Master Trust (the Trust) in return for certificates representing undivided interests in the TrustGLYPH<213>s assets. TRC owns the undivided interest in the TrustGLYPH<213>s assets, other January 31, February 1, (millions) 2004 2003 Target $4,282 $3,748 MervynGLYPH<213>s 486 486 Marshall FieldGLYPH<213>s 326 324 Other 249 202 Total inventory $5,343 $4,760 Basic EPS Diluted EPS (millions, except per share data) 2003 2002 2001 2003 2002 2001 Net earnings $1,841 $1,654 $1,368 $1,841 $1,654 $1,368 Basic weighted  average  common shares  outstanding 911.0 908.0 901.5 911.0 908.0 901.5 Stock options — — — 6.1 6.0 8.3 Weighted average  common shares outstanding 911.0 908.0 901.5 917.1 914.0 909.8 Earnings per share $ 2.02 $ 1.82 $ 1.52 $ 2.01 $ 1.81 $ 1.50