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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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 Avenue, 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
_____ _____
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act 12b-2).
YES NO X
_____ _____
On August 31, 2004 Registrant had 10,000 shares of common stock
($0.50 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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Explanatory Note
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This Amendment to the Quarterly Report on Form 10-Q for Nordstrom Credit, Inc.
for the fiscal quarter ended July 31, 2004, is being filed to correct an error
in our condensed consolidated statements of cash flows for the year to date
ended July 31, 2004 and 2003. We historically recognized amounts loaned to
our affiliate, Nordstrom fsb (the "Bank") in our condensed consolidated
statements of cash flows as a separate line item in operating activities.
However, we determined that the amounts loaned to the Bank should be
classified in investing activities and, accordingly, have restated the
accompanying condensed consolidated statements of cash flows for the year to
date ended July 31, 2004 and 2003. See Note 6 in our Notes to Condensed
Consolidated Financial Statements for a discussion of this correction and a
reconciliation of amounts previously reported to those shown herein. Our
previously reported net earnings and shareholder's equity are not impacted by
this correction.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
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INDEX
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<caption>
Page
Number
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<s> <c>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Quarter and Year to Date ended July 31, 2004
and July 31, 2003 4
Condensed Consolidated Balance Sheets
July 31, 2004, January 31, 2004 and July 31, 2003 5
Condensed Consolidated Statements of Cash Flows
Year to Date ended July 31, 2004 and July 31, 2003 6
(Restated)
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
Item 6. Exhibits 12
SIGNATURES 13
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
<table>
<caption>
Quarter Ended Year to Date Ended
------------------ ------------------
July 31, July 31, July 31, July 31,
2004 2003 2004 2003
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Revenue:
Finance charge income $23,512 $23,988 $47,027 $48,745
Other fees and charges 2,022 2,301 3,897 4,404
-------- -------- -------- --------
Total revenue 25,534 26,289 50,924 53,149
Expenses:
Interest expense (5,599) (5,424) (11,163) (10,782)
Servicing and marketing fees
paid to Nordstrom fsb (2,987) (3,360) (6,149) (7,536)
Selling, general and administrative (252) (388) (433) (639)
-------- -------- -------- --------
Total expenses (8,838) (9,172) (17,745) (18,957)
Interest income 1,351 401 1,789 724
-------- -------- -------- --------
Operating income 18,047 17,518 34,968 34,916
Other income 282 281 568 562
-------- -------- -------- --------
Earnings before income taxes 18,329 17,799 35,536 35,478
Income tax expense (6,690) (6,479) (12,971) (12,949)
-------- -------- -------- --------
Net earnings $11,639 $11,320 $22,565 $22,529
======== ======== ======== ========
</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
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<table>
<caption>
July 31, January 31, July 31,
2004 2004 2003
----------- ----------- -----------
<s> <c> <c> <c>
ASSETS
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Cash and cash equivalents $ 315 $ 338 $ 397
Retail charge card receivables, net
of allowance for doubtful accounts
of $19,934, $20,320 and $21,146 604,388 575,792 619,731
Investment in master trust
certificates 250,000 - -
Receivable from parent and affiliates
and other receivables, net 30,347 20,558 3,475
Notes receivable from affiliates 38,560 205,435 160,495
Land, leasehold improvements and
equipment, net 443 279 281
Deferred taxes and other assets 6,969 7,554 8,482
-------- -------- --------
$931,022 $809,956 $792,861
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Payable to parent and affiliates, net 2,505 $ 2,427 $ 1,839
Note payable to Nordstrom, Inc. 220,125 118,850 130,185
Accrued interest, taxes and other 4,676 6,017 662
Debt 396,527 397,500 397,500
Other liabilities 14,367 14,905 15,443
-------- -------- --------
Total liabilities 638,200 539,699 545,629
Common stock, $0.50 par value
100,000 shares authorized;
10,000 shares issued and outstanding 5 5 5
Additional paid in capital 55,054 55,054 55,054
Retained earnings 237,763 215,198 192,173
-------- -------- --------
Total shareholder's equity 292,822 270,257 247,232
-------- -------- --------
$931,022 $809,956 $792,861
======== ======== ========
</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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<table>
<caption>
Year to Date Ended
----------------------
July 31, July 31,
2004 2003
-------- --------
As Restated, see Note 6
------------------------
<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $22,565 $22,529
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 68 58
Deferred income taxes 214 -
Change in operating assets and liabilities:
Receivable from parent and affiliates and
other receivables, net (15,247) 26,461
Other assets 99 168
Payable to parent and affiliates, net 5,757 (291)
Accrued interest, taxes and other (1,341) (291)
Other liabilities (538) (427)
-------- --------
Net cash provided by operating activities 11,577 48,207
-------- --------
INVESTING ACTIVITIES:
Increase in retail charge card receivables, net (28,596) (25,281)
Increase in notes receivable from affiliates (83,125) (76,100)
Additions to property and equipment, net (181) (24)
-------- --------
Net cash used in investing activities (111,902) (101,405)
-------- --------
FINANCING ACTIVITIES:
Borrowings under note payable to
Nordstrom, Inc., net 101,275 55,725
Principal payments on long-term debt (973) (2,500)
-------- --------
Net cash provided by financing activities 100,302 53,225
-------- --------
Net (decrease) increase in cash and cash
equivalents (23) 27
Cash and cash equivalents at beginning of period 338 370
-------- --------
Cash and cash equivalents at end of period $ 315 $ 397
======== ========
</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
- ---------------------
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 condensed consolidated statements of cash flows for the year to date ended
July 31, 2004 and 2003 have been restated. See Note 6 for a reconciliation of
amounts previously reported to those shown herein.
The interim financial information presented here is not necessarily indicative
of the results to be expected for the fiscal year.
Change in Fiscal Year
- ---------------------
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 - RETAIL CHARGE CARD RECEIVABLES
Retail charge card receivables, net, consists of the following:
<table>
<caption>
July 31, January 31, July 31,
2004 2004 2003
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<s> <c> <c> <c>
Retail charge card receivables:
Unrestricted receivables $ 6,213 $ 6,120 $ 2,305
Restricted receivables 618,109 589,992 638,572
Allowance for doubtful accounts (19,934) (20,320) (21,146)
---------- ----------- ----------
Retail charge card receivables, net $604,388 $575,792 $619,731
========== =========== ==========
</table>
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 3 - INVESTMENT IN MASTER TRUST CERTIFICATES
On March 31, 2004, we exchanged affiliate receivables due from Nordstrom fsb
for two notes that represent undivided interests in a pool of Nordstrom co-
branded VISA credit card receivables. The notes were purchased by us at par
for a combined face amount of $200,000. Interest earned on the notes is based
on one month LIBOR and a credit spread index. The maturity of the notes is
subject to annual renewal by both parties. The principal balances of the
notes can change subject to agreement between the parties and other approvals
required by the governing transaction documents. On June 30, 2004, we
increased the face value of the notes by $50,000 to $250,000, by exchanging
additional affiliate receivables. The notes are accounted for as available-
for-sale securities under SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Nordstrom fsb holds the related Seller Retained
Interest and Interest Only Strip associated with the notes.
NOTE 4 - 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
July 31, 2004.
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 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.
NOTE 5 - SUPPLEMENTARY CASH FLOW INFORMATION
We purchased two notes that represent undivided interests in a pool of VISA
credit card receivables. The notes have a combined face amount of $250,000
and were purchased by us at par. The notes were purchased by exchanging our
notes receivable from affiliates.
Initial expenses related to the securitization of private-label receivables
were capitalized and are amortized straight-line over the 60-month life of the
trust agreement. Amortized costs are transferred to Nordstrom, Inc. monthly.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
NOTE 6 - RESTATEMENT
Subsequent to issuance of our 2004 quarterly financial statements, we have
corrected an error in our condensed consolidated statements of cash flows for
the year to date ended July 31, 2004 and 2003. We historically recognized
amounts loaned to our affiliate, Nordstrom fsb (the "Bank") in our condensed
consolidated statements of cash flows as a separate line item in operating
activities. However, we determined that the amounts loaned to the Bank should
be classified in investing activities and, accordingly, have restated the
accompanying condensed consolidated statements of cash flows for the year to
date ended July 31, 2004 and 2003.
The following table summarizes the impact of the restatement on the previously
issued financial statements:
<table>
<caption>
Year to Date Ended July 31, 2004
------------------------------------------
As
Originally Restatement
Reported Adjustment As Restated
---------- ----------- -----------
<s> <c> <c> <c>
Condensed Consolidated Statement of
Cash Flows
Net cash (used in) provided by
operating activities $ (71,548) $ 83,125 $ 11,577
Net cash used in investing
activities (28,777) (83,125) (111,902)
---------- ---------- ----------
Year to Date Ended July 31, 2003
------------------------------------------
As
Originally Restatement
Reported Adjustment As Restated
---------- ----------- -----------
Condensed Consolidated Statement of
Cash Flows
Net cash (used in) provided by
operating activities $ (27,893) $ 76,100 $ 48,207
Net cash used in investing
activities (25,305) (76,100) (101,405)
---------- ---------- ----------
</table>
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
We earn finance charge income on customer accounts receivable, which we
purchase from an affiliate that is also a wholly-owned subsidiary of our
parent, Nordstrom, Inc. Finance charge income decreased for the quarter and
year to date periods ended July 31, 2004 compared to the same periods in 2003,
primarily due to a decrease in the average customer accounts receivable
balances. Retail charge card receivables have declined approximately 3% over
the past year for the quarter and year to date periods ended July 31, 2004 due
to accelerated customer repayments.
Other fees and charges consist primarily of late fees. Late fee income
decreased for the quarter and year to date periods ended July 31, 2004
compared to the same periods in 2003, primarily due to decreases in the number
of past due accounts. Late fee income was $1.7 million and $2.0 million for
the second quarter in 2004 and 2003, respectively. For the year to date
periods ended July 31, 2004 and 2003 late fee income was $3.3 million and $3.8
million, respectively.
Interest income increased for the quarter and year to date periods ended July
31, 2004 compared to the same periods in 2003, primarily due to an increase in
interest income earned on the Master Trust certificates. The interest rate on
the Master Trust certificates is higher than the rate on the receivables due
from Nordstrom fsb, which we exchanged for the Master Trust certificates. The
increase in Master Trust interest income 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 July 31, 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.
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Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q/A,
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.
In May 2004, our parent, Nordstrom, Inc. implemented a new human resources
management system to replace all of the mainframe legacy systems relating to
human resources. This system will enhance the integration with our existing
financial systems and provide us with improved management and information on
our labor and benefits. Many processes have been automated and the system
lays the foundation for additional improvements in the future. This
implementation has resulted in certain changes to business processes and
internal controls impacting financial reporting. Management is taking the
necessary steps to monitor and maintain appropriate internal controls during
this period of change. These steps include testing before the implementation,
deploying resources to mitigate internal control risks, implementing reviews
to ensure the accuracy of our data and processes, and performing multiple
levels of reconciliations and analysis.
Other than as described above, 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.
In coming to the conclusion that our disclosure controls and procedures were
effective as of July 31, 2004, our management considered, among other things,
the control deficiencies related to the cash flow statement classification of
notes receivable from affiliates, which resulted in a restatement of our
accompanying condensed consolidated financial statements, as disclosed in Note
6 to the condensed consolidated financial statements for the quarter ended
July 31, 2004. After reviewing and analyzing the Securities and Exchange
Commission's Staff Accounting Bulletin ("SAB") No. 99, "Materiality", and
Accounting Principles Board Opinion No. 20, "Accounting Changes" and taking
into consideration that the restatement adjustment did not impact our total
revenue, net earnings, total cash flows or shareholder's equity for any prior
period, our management concluded that our disclosure controls and procedures
were effective. Following our identification of these control deficiencies,
we have corrected our process for preparing our statements of cash flows by
performing a more thorough review of the classifications of our cash flows to
comply with SFAS No. 95 "Statement of Cash Flows" and SFAS No. 102 "Statement
of Cash Flows - Exemption of Certain Enterprises and Classification of Cash
Flows from Certain Securities Acquired for Resale - An Amendment of FASB
Statement No. 95." In addition, we will continue to monitor GAAP developments
and changes in our business to reduce the risk of classification errors in our
statements of cash flows.
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PART II - OTHER INFORMATION
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<caption>
Item 6. Exhibits
<s> <c>
10.1 Omnibus Amendment Agreement dated June 30, 2004 between
Nordstrom Credit Card Receivables, LLC and Registrant.
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.
</table>
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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
---------------------------------------
Michael G. Koppel
Vice President and Treasurer
(Principal Financial Officer)
Date: August 8, 2005
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NORDSTROM CREDIT INC. AND SUBSIDIARY
Exhibit Index
<s> <c>
Exhibit Method of Filing
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10.1 Omnibus Amendment Agreement dated Incorporated by reference from
June 30, 2004 between Nordstrom Registrant's Form 10-Q for the
Credit Card Receivables, LLC and quarter ended July 31, 2004,
Registrant Exhibit 10.1
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
</table>