UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______ to _________
Commission File Number 0-12994
Nordstrom Credit, Inc.
______________________________________________________
(Exact name of Registrant as specified in its charter)
Colorado 91-1181301
_______________________________ __________________
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
13531 East Caley, Centennial, Colorado 80111
____________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 303-397-4700
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 X NO
_____ _____
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
_____ _____
On November 30, 2003 Registrant had 10,000 shares of Common stock
($.50 par value) outstanding; all such shares are owned by Registrant's
parent, Nordstrom, Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING
THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
page 1 of 9
NORDSTROM CREDIT, INC. AND SUBSIDIARY
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INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Three and Nine months ended October 31, 2003
and 2002 3
Condensed Consolidated Balance Sheets
October 31, 2003 and 2002
and January 31, 2003 4
Condensed Consolidated Statements of Cash Flows
Nine months ended October 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
page 2 of 9
NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
(unaudited)
Three Months Nine Months
Ended October 31, Ended October 31,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenue:
Service charge income $24,263 $25,118 $73,008 $74,705
Other fees and charges 2,074 2,459 6,478 8,485
Rental income from
affiliates and other 281 510 843 1,530
-------- -------- -------- --------
Total revenue 26,618 28,087 80,329 84,720
Expenses:
Interest, net 5,001 5,477 15,059 17,153
Servicing and marketing fees
paid to Nordstrom fsb 3,321 4,065 10,857 10,643
Selling, general and
administrative 257 310 896 1,335
-------- -------- -------- --------
Total expenses 8,579 9,852 26,812 29,131
-------- -------- -------- --------
Earnings before income taxes 18,039 18,235 53,517 55,589
Income taxes 6,585 6,660 19,534 20,290
-------- -------- -------- --------
Net earnings $11,454 $11,575 $33,983 $35,299
======== ======== ======== ========
Ratio of earnings
available for fixed
charges to fixed charges 4.27 4.18 4.29 4.10
======== ======== ======== ========
The accompanying Notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
page 3 of 9
NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
October 31, January 31, October 31,
2003 2003 2002
----------- ----------- -----------
(Unaudited) (Audited) (Unaudited)
ASSETS
- ------
Cash and cash equivalents $ 320 $ 370 $ 363
Customer accounts receivable, net
of allowance for doubtful accounts
of $20,746, $22,385 and $22,381 552,672 594,450 581,911
Receivable from affiliates and
other receivables, net 14,163 29,936 18,786
Notes receivable from affiliates 177,835 84,395 55,645
Land, buildings and
equipment, net 284 264 5,644
Deferred taxes and other assets 7,704 8,701 2,655
-------- --------- --------
$752,978 $718,116 $665,004
======== ========= ========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Payable to affiliates $ 11,943 $ 1,601 $ 4,934
Note payable to Nordstrom, Inc. 66,825 74,460 44,885
Accrued interest, taxes and other 2,846 1,482 3,002
Long-term debt 397,500 400,000 400,000
Other liabilities 15,178 15,870 -
-------- --------- --------
Total liabilities 494,292 493,413 452,821
Investment of Nordstrom, Inc. 258,686 224,703 212,183
-------- --------- --------
$752,978 $718,116 $665,004
======== ========= ========
The accompanying Notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
page 4 of 9
NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Nine Months
Ended October 31,
----------------------
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net earnings $ 33,983 $ 35,299
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 87 494
Change in operating assets and liabilities:
Receivable from affiliates and other
receivables, net 15,773 (4,886)
Notes receivable from affiliates (93,440) (17,550)
Deferred taxes and other assets 921 (587)
Payable to affiliates, net 10,342 (15,820)
Accrued interest, taxes and other 1,364 (4,078)
Other liabilities (692) -
-------- --------
Net cash used in operating activities (31,662) (7,128)
-------- --------
INVESTING ACTIVITIES:
Decrease in customer accounts
receivable, net 41,778 36,184
Additions to property and equipment, net (31) (196)
-------- --------
Net cash provided by investing activities 41,747 35,988
-------- --------
FINANCING ACTIVITIES:
(Repayments) borrowings under note payable
to Nordstrom, Inc., net (7,635) 44,885
Principal payments on long-term debt (2,500) (76,750)
-------- --------
Net cash used in financing activities (10,135) (31,865)
-------- --------
Net decrease in cash and cash
equivalents (50) (3,005)
Cash and cash equivalents
at beginning of period 370 3,368
-------- --------
Cash and cash equivalents at end of period $ 320 $ 363
======== ========
The accompanying Notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
page 5 of 9
NORDSTROM CREDIT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(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 the Nordstrom Credit, Inc. 2002 Annual Report on Form 10-K. The same
accounting policies are followed in preparing quarterly financial data as
are followed in preparing annual data. In our opinion, all adjustments
necessary for a fair presentation of the results of operations, financial
position and cash flows have been included and are of a normal, recurring
nature.
We reclassified certain prior year amounts to conform to the current year
presentation.
The interim financial information presented here is not necessarily
indicative of the results to be expected for the fiscal year.
Note 2 - Customer Accounts Receivable
Customer accounts receivable, net, consists of the following:
October 31, January 31, October 31,
2003 2003 2002
---------- ----------- -----------
Private label trade receivables:
Unrestricted accounts $ 6,022 $ 3,188 $ 2,757
Restricted accounts 567,396 613,647 601,535
Allowance for doubtful accounts (20,746) (22,385) (22,381)
--------- ----------- -----------
Private label trade receivables, net $ 552,672 $ 594,450 $ 581,911
========= =========== ===========
Restricted accounts back the $300 million of Class A notes and the $200
million variable funding note issued in November 2001.
Note 3 - Long Term Debt
Year to date we purchased $2,500 of our 6.7% medium-term notes for a total
cash payment of $2,740. Approximately $245 of expense was recognized during
the year related to this purchase.
page 6 of 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income decreased modestly for the quarter and nine-month
period ended October 31, 2003, compared to the same periods in 2002,
primarily due to a decrease in the average accounts receivable balances.
Accounts receivable have declined approximately 5% over the past year due to
lower sales on our private label cards.
Other fees and charges decreased for the quarter ended October 31, 2003,
compared to the same period in 2002, primarily due to a decrease in late fee
income, caused by a decline in the number of accounts being assessed a late
fee. For the nine-month period ended October 31, 2003, other fees and
charges decreased, compared to the same period in 2002, primarily due to
income received in the prior year from the VISA securitization master trust
certificates. These certificates were repaid during the second quarter of
2002. The decrease for the nine-month period is also due to a decrease in
late fee income in the current year.
Rental income from affiliates and other decreased for the quarter and nine-
month period ended October 31, 2003, compared to the same periods in 2002,
due to the sale of our Credit facility in January 2003. Current quarter
rental income and other consists primarily of the amortized portion of the
deferred gain on sale of the facility.
Net interest expense decreased for the quarter and nine-month period ended
October 31, 2003 due to a decrease in long-term debt outstanding and a
decrease in interest rates, partially offset by an increase in the average
balance outstanding on our note payable to Nordstrom, Inc.
Servicing and marketing fees paid to Nordstrom fsb decreased for the quarter
ended October 31, 2003, due to a decline in the receivable balances on which
the servicing fees are based. Marketing fees also declined as promotion
costs focused on opening new private label accounts declined. Servicing and
marketing fees paid to Nordstrom fsb were consistent for the nine-month
period ended October 31, 2003, compared to the same period in 2002,
primarily due to a first quarter change in our method of accruing marketing
expenses offset by second and third quarter decreases in servicing and
marketing fees.
Selling, general and administrative expenses were consistent with prior year
results for the quarter ended October 31, 2003, but decreased on a year to
date basis, primarily due to a change in our expense structure. Effective
during the second quarter of 2002, expenses related to returned checks are
now charged to Nordstrom, Inc. The year to date decrease is also
attributable to lower occupancy expenses resulting from the sale of our
Credit facility in January 2003.
page 7 of 9
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q,
we performed an evaluation under the supervision and with the participation
of management, including our President and Vice President and Treasurer, of
our disclosure controls and procedures (as defined in Rules 13a-15(e) or
15d-15(e) under the Securities and Exchange Act of 1934 (the "Exchange
Act")). Based upon that evaluation, the President and the Vice President and
Treasurer concluded that our disclosure controls and procedures are
effective in the timely recording, processing, summarizing and reporting of
material financial and non-financial information.
There have been no changes in our internal control over financial reporting
(as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our
most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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31.1 Certification of President required by Section
302(a) of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Vice President and Treasurer required
by Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1 Certification of President regarding periodic
report containing financial statements as required by Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Vice President and Treasurer regarding
periodic report containing financial statements as required
by Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
We filed a Form 8-K on September 23, 2003 to announce the change of
our fiscal year under Item 8 of Form 8-K. Beginning February 1,
2004, our fiscal year will change from January 31 to the Saturday
closest to January 31.
page 8 of 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORDSTROM CREDIT, INC.
(Registrant)
/s/ Michael G. Koppel
----------------------------------------------------
Michael G. Koppel
Vice President and Treasurer
(Principal Accounting and Financial Officer)
Date: December 8, 2003
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page 9 of 9
NORDSTROM CREDIT INC. AND SUBSIDIARY
Exhibit Index
Exhibit Method of Filing
- ------- ----------------
31.1 Certification of President Filed herewith electronically
required by Section 302(a)
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Vice President and Filed herewith electronically
Treasurer required by Section 302(a)
of the Sarbanes-Oxley Act of 2002
32.1 Certification of President Filed herewith electronically
regarding periodic report
containing financial statements
as required by Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Vice President and Filed herewith electronically
Treasurer regarding periodic report
containing financial statements
as required by Section 906 of the
Sarbanes-Oxley Act of 2002