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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 30, 2004
[ ] 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.
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(Exact name of Registrant as specified in its charter)
Colorado 91-1181301
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(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
13531 East Caley, Centennial, Colorado 80111
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(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
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act 12b-2).
YES NO X
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On November 30, 2004 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.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
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INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Quarter and Year to Date ended October 30, 2004
and October 31, 2003 3
Condensed Consolidated Balance Sheets
October 30, 2004, January 31, 2004 and October 31, 2003 4
Condensed Consolidated Statements of Cash Flows
Year to Date ended October 30, 2004 and October 31, 2003 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 4. Controls and Procedures 8
PART II. OTHER INFORMATION
Item 6. Exhibits 9
SIGNATURES 10
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
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<caption>
Quarter Ended Year to Date Ended
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October 30, October 31, October 30, October 31,
2004 2003 2004 2003
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<s> <c> <c> <c> <c>
Revenue:
Service charge income $23,539 $24,263 $70,566 $73,008
Other fees and charges 1,843 2,074 5,740 6,478
------- ------- ------- -------
Total revenue $25,382 26,337 76,306 79,486
Expenses:
Interest expense (5,819) (5,516) (16,980) (16,298)
Servicing and marketing
fees paid to
Nordstrom fsb (3,055) (3,321) (9,204) (10,857)
Selling, general
and administrative (251) (257) (684) (896)
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Total expenses (9,125) (9,094) (26,868) (28,051)
Interest income 1,575 515 3,362 1,239
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Operating income 17,832 17,758 52,800 52,674
Other income 279 281 847 843
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Earnings before income
taxes 18,111 18,039 53,647 53,517
Income tax expense (6,610) (6,585) (19,581) (19,534)
------- ------- ------- -------
Net earnings $11,501 $11,454 $34,066 $33,983
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The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
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<caption>
October 30, January 31, October 31,
2004 2004 2003
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<s> <c> <c> <c>
ASSETS
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Cash and cash equivalents $ 432 $ 338 $ 320
Customer accounts receivable, net
of allowance for doubtful accounts
of $19,534, $20,320 and $20,746 535,597 575,792 552,672
Investment in master trust
certificates 250,000 - -
Receivable from affiliates and
other receivables, net 22,836 27,581 14,163
Notes receivable from affiliates 29,185 205,435 177,835
Land, buildings and
equipment, net 438 279 284
Deferred taxes and other assets 6,827 7,554 7,704
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$845,315 $816,979 $752,978
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LIABILITIES AND SHAREHOLDER'S EQUITY
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Payable to affiliates, net $ 2,905 $ 9,450 $ 12,472
Note payable to Nordstrom, Inc. 120,975 118,850 66,825
Accrued interest, taxes and other 6,981 6,017 2,317
Current portion of long-term debt 96,027 - -
Long-term debt 300,000 397,500 397,500
Other liabilities 14,104 14,905 15,178
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Total liabilities 540,992 546,722 494,292
Common stock and additional paid in
capital 55,059 55,059 55,059
Retained earnings 249,264 215,198 203,627
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Total shareholder's equity 304,323 270,257 258,686
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$845,315 $816,979 $752,978
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The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
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Year to Date Ended
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October 30, October 31,
2004 2003
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<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $34,066 $33,983
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 104 87
Deferred income taxes 310 634
Change in operating assets and liabilities:
Receivable from affiliates and other
receivables, net (713) 21,962
Notes receivable from affiliates (73,750) (93,440)
Other assets 10 287
Payable to affiliates, net (756) 4,153
Accrued interest, taxes and other 964 1,364
Other liabilities (801) (692)
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Net cash used in operating activities (40,566) (31,662)
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INVESTING ACTIVITIES:
Increase in customer accounts receivable, net 40,195 41,778
Additions to property and equipment, net (187) (31)
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Net cash provided by investing activities 40,008 41,747
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FINANCING ACTIVITIES:
Borrowings (repayments) under note payable to
Nordstrom, Inc., net 2,125 (7,635)
Principal payments on long-term debt (1,473) (2,500)
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Net cash provided by (used in) financing activities 652 (10,135)
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Net increase (decrease) in cash and cash
equivalents 94 (50)
Cash and cash equivalents at beginning of period 338 370
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Cash and cash equivalents at end of period $ 432 $ 320
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</table>
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
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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
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The accompanying condensed consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements contained in
the Nordstrom Credit, Inc. 2003 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 management's 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.
Change in Fiscal Year
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On February 1, 2004, our fiscal year-end changed from January 31 to the
Saturday closest to January 31. Future fiscal years will consist of four 13
week quarters, with an extra week added onto the fourth quarter every five to
six years.
Note 2 - Intercompany Interest
Interest expense includes $631 and $243 of intercompany interest expense for
the third quarter of 2004 and 2003, respectively. For the year to date
periods ended October 30, 2004 and October 31, 2003, intercompany interest
expense was $1,259 and $404, respectively.
Interest income includes $122 and $508 of intercompany interest income for the
third quarter of 2004 and 2003, respectively. For the year to date periods
ended October 30, 2004 and October 31, 2003, intercompany interest income was
$642 and $1,213, respectively.
Note 3 - Customer Accounts Receivable
Customer accounts receivable, net, consists of the following:
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October 30, January 31, October 31,
2004 2004 2003
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<s> <c> <c> <c>
Private label trade receivables:
Unrestricted accounts $ 10,155 $ 6,120 $ 6,022
Restricted accounts 544,976 589,992 567,396
Allowance for doubtful accounts (19,534) (20,320) (20,746)
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Private label trade receivables, net $535,597 $575,792 $552,672
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Restricted accounts receivable secure the $300,000 term note due 2006, and the
variable funding note facility, which had no balance outstanding in 2004.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 4 - Investment in Master Trust Certificates
On March 31, 2004, we exchanged $200,000 of intercompany receivables from
Nordstrom fsb for an investment in master trust certificates ("2004 Notes")
issued by a trust (the "Trust") that is comprised of Nordstrom co-branded VISA
credit card receivables. Nordstrom fsb caused a portion of its interest in
the Trust to be exchanged for the newly issued 2004 Notes. The 2004 Notes
were purchased by us at par for a combined face amount of $200,000. Interest
earned is based on one month LIBOR and a credit spread index. Maturity is
subject to annual renewal by Nordstrom fsb and us. The principal balances can
change subject to agreement and other approvals required by the governing
transaction documents. On June 30, 2004, we mutually agreed with Nordstrom
fsb to increase the face value of the 2004 Notes by $50,000 to $250,000. The
2004 Notes are accounted for as available-for-sale securities under Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities."
Note 5 - Debt
The agreement for our 6.7% medium-term notes contains restrictive covenants,
which include maintaining a ratio of Earnings to Fixed Charges of at least
1.25 to 1.00. We are in full compliance with these restrictive covenants at
October 30, 2004.
During the third quarter of 2004, we retired $500 of our 6.7% medium-term
notes for a total cash payment of $519. During the first quarter of 2004, we
retired $973 of our 6.7% medium-term notes for a total cash payment of $1,033.
In May 2004, we renewed our variable funding note backed by Nordstrom private
label trade receivables and lowered the capacity by $50,000 to $150,000. This
note is renewed annually and interest is paid based on the actual cost of
commercial paper plus specified fees. We also pay a commitment fee for the
note based on the amount of the facility. We did not make any borrowings
under this note during the year to date period ended October 30, 2004.
Note 6 - Supplementary Cash Flow Information
As described above in Note 4, we exchanged the 2004 Notes that represent
undivided interests in a pool of VISA credit card receivables for notes
receivable from affiliates. The 2004 Notes have a combined face amount of
$250,000 and were priced at par.
Initial expenses of $2,206 related to the securitization of private label
receivables were capitalized in November 2001 and are amortized using the
straight-line method over the 60-month life of the trust agreement. Amortized
costs are reimbursed by Nordstrom, Inc. monthly. Year to date amortization
was $331 and $345 in 2004 and 2003, respectively.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
We earn service charge income on customer accounts receivable, which we
purchase from an affiliate that is also a wholly-owned subsidiary of our
parent, Nordstrom, Inc. Service charge income decreased for the quarter and
year to date periods ended October 30, 2004 compared to the same periods in
2003, primarily due to a decrease in the average customer accounts receivable
balances. Customer accounts receivable have declined approximately 3% over
the past year for the quarter and year to date periods ended October 30, 2004
due to lower volume and accelerated customer repayments.
Other fees and charges consist primarily of late fees. Late fee income was
$1.5 million and $1.8 million for the third quarter of 2004 and 2003,
respectively. For the year to date periods in 2004 and 2003, late fee income
was $4.8 million and $5.6 million, respectively.
Interest income increased for the quarter and year to date periods ended
October 30, 2004 compared to the same periods in 2003, primarily due to an
increase in interest income earned on the investment in master trust
certificates ("2004 Notes"). The interest rate on the 2004 Notes is higher
than the rate on the receivables due from Nordstrom fsb, which we exchanged
for the 2004 Notes. The increase in interest income related to the 2004 Notes
was partially offset by a decrease in intercompany interest income. The
decrease in intercompany interest income is due to the lower average
outstanding note receivable balance from Nordstrom fsb during 2004 compared to
the prior year.
Servicing and marketing fees paid to Nordstrom fsb decreased for the quarter
and year to date periods ended October 30, 2004 compared to the same periods
in 2003, primarily due to a restructure of the marketing fees. The decrease
is also due to a decline in the outstanding balances of the private label card
portfolio.
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, our President and our Vice President and Treasurer
concluded that, as of the end of the period covered by this Quarterly Report,
our disclosure controls and procedures are effective in the timely recording,
processing, summarizing and reporting of material financial and non-financial
information.
There has been no change 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.
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PART II - OTHER INFORMATION
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Item 6. Exhibits
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 pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Vice President and Treasurer regarding
periodic report containing financial statements pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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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. AND SUBSIDIARY
(Registrant)
/s/ Michael G. Koppel
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Michael G. Koppel
Vice President and Treasurer
(Principal Financial Officer)
Date: December 3, 2004
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NORDSTROM CREDIT INC. AND SUBSIDIARY
Exhibit Index
Exhibit Method of Filing
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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 Furnished herewith electronically
regarding periodic report
containing financial statements
pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32.2 Certification of Vice President and Furnished herewith electronically
Treasurer regarding periodic report
containing financial statements
pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002