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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 April 30, 2005
[ ] 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
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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 May 27, 2005 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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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. Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Quarter ended April 30, 2005 and May 1, 2004 3
Condensed Consolidated Balance Sheets
April 30, 2005, January 29, 2005 and May 1, 2004 4
Condensed Consolidated Statements of Cash Flows
Quarter ended April 30, 2005 and May 1, 2004 (Restated) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4. Controls and Procedures 9
PART II. OTHER INFORMATION
Item 6. Exhibits 10
SIGNATURES 11
EXHIBIT INDEX 12
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
Quarter Ended
-----------------------
April 30, May 1
2005 2004
---------- ----------
Revenue:
Finance charge income $22,042 $23,515
Other fees and charges 1,683 1,875
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Total revenue 23,725 25,390
Expenses:
Interest expense (6,248) (5,561)
Servicing and marketing
fees paid to
Nordstrom fsb (3,090) (3,162)
Selling, general
and administrative (279) (181)
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Total expenses (9,617) (8,904)
Interest income 2,413 435
------- -------
Operating income 16,521 16,921
Other income 282 286
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Earnings before income taxes 16,803 17,207
Income taxes (6,133) (6,281)
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Net earnings $10,670 $10,926
======= =======
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)
April 30, January 29, May 1,
2005 2005 2004
----------- ----------- ----------
ASSETS
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Cash and cash equivalents $ 332 $ 363 $ 297
Retail charge card receivables, net 524,774 560,102 542,325
Investment in master trust
certificates 300,000 275,000 200,000
Receivable from parent and affiliates
and other receivables, net 32,123 30,086 14,689
Notes receivable from affiliates 22,525 35,335 15,960
Land, leasehold improvements
and equipment, net 477 441 273
Deferred taxes and other assets 6,299 6,687 7,088
-------- -------- --------
$886,530 $908,014 $780,632
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
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Payable to affiliates, net $ 3,530 $ 3,695 $ 2,358
Note payable to Nordstrom, Inc. 139,650 171,800 79,250
Accrued interest, taxes and other 6,882 6,455 6,680
Debt 396,027 396,027 396,527
Other liabilities 13,570 13,836 14,634
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Total liabilities 559,659 591,813 499,449
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 271,812 261,142 226,124
-------- -------- --------
Total shareholder's equity 326,871 316,201 281,183
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$886,530 $908,014 $780,632
======== ======== ========
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)
Quarter Ended
-----------------------
April 30, May 1,
2005 2004
(As Restated,
See Note 7)
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OPERATING ACTIVITIES:
Net earnings $10,670 $10,926
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 36 32
Deferred income taxes 97 99
Change in operating assets and liabilities:
Receivable from parent and affiliates and other
receivables, net (2,037) 5,869
Other assets 156 204
Payable to affiliates, net (55) 41
Accrued interest, taxes and other 427 663
Other liabilities (266) (271)
-------- --------
Net cash provided by operating activities 9,028 17,563
-------- --------
INVESTING ACTIVITIES:
Decrease in retail charge card
receivables, net 35,328 33,467
Increase in notes receivable from affiliates (12,190) (10,498)
Additions to property and equipment, net (47) -
-------- --------
Net cash provided by investing activities 23,091 22,969
-------- --------
FINANCING ACTIVITIES:
Repayments under note payable to
Nordstrom, Inc., net (32,150) (39,600)
Principal payments on long-term debt - (973)
-------- --------
Net cash used in financing activities (32,150) (40,573)
-------- --------
Net decrease in cash and cash equivalents (31) (41)
Cash and cash equivalents at beginning of period 363 338
-------- --------
Cash and cash equivalents at end of period $ 332 $ 297
======== ========
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 Consolidated Financial Statements contained in
the Nordstrom Credit, Inc. 2004 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 period amounts to conform to the current period
presentation.
The condensed consolidated statement of cash flow for the quarter ended May 1,
2004 has been restated. See Note 7 for a reconciliation of the amounts
previously reported.
The interim financial information presented here is not necessarily indicative
of the results to be expected for the fiscal year.
Note 2 - Related Party Transactions
Interest expense includes $892 and $235 of affiliate interest expense for
the first quarter of 2005 and 2004, respectively. Interest income includes
$163 and $428 of affiliate interest income for the first quarter of 2005
and 2004, respectively.
April 30, January 29, May 1,
Receivable From Parent and Affiliates 2005 2005 2004
- ----------------------------------------------------------------------------------
Due from Nordstrom, Inc., net $19,867 $12,767 $2,781
Due from Nordstrom fsb 8,405 14,351 9,229
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$28,272 $27,118 $12,010
The amounts above are included in the balance of receivable from parent and
affiliates and other receivables, net.
April 30, January 29, May 1,
Payables to Affiliates 2005 2005 2004
- ----------------------------------------------------------------------------------
Due to Nordstrom Credit Card
Receivables LLC, net $3,530 $3,695 $2,358
Note 3 - Retail Charge Card Receivables
Retail charge card receivables, net, consists of the following:
April 30, January 29, May 1,
2005 2005 2004
---------- ----------- ----------
Retail charge card receivables:
Unrestricted receivables $ 9,292 $ 11,105 $ 5,612
Restricted receivables 533,977 568,062 556,647
Allowance for doubtful accounts (18,495) (19,065) (19,934)
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Retail charge card receivables, net $524,774 $560,102 $542,325
========== =========== ==========
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 3 - Retail Charge Card Receivables (Cont.)
Our restricted receivables relate to the Nordstrom, Inc. retail charge card
which support the $300,000 receivable-backed securities and the $50,000
variable funding note. The unrestricted trade receivables consist primarily
of certain receivables that are not eligible to support the $300,000
receivable backed securities such as foreign and employee receivables
exceeding a contractual threshold.
Note 4 - Investment in Master Trust Certificates
In 2004, we exchanged affiliate receivables from Nordstrom fsb (the "Bank")
for an investment in master trust certificates ("2004 Notes") issued by a
trust (the "Trust") that owns Nordstrom co-branded VISA credit card
receivables. The 2004 Notes were purchased at par. Interest earned is based
on one month LIBOR and a credit spread index (3.4% at April 30, 2005).
Maturity is subject to annual renewal by the Bank and us. The principal
balances can change subject to agreement and other approvals required by the
governing transaction documents. Under these terms, we increased the face
value of the 2004 Notes on March 31, 2005 by $25,000 to $300,000 by exchanging
additional affiliate receivables. 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." The coupon is structured to equal the yield on the valuation
date. Consequently, we believe fair value approximates par value on the
balance sheet date.
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
April 30, 2005.
We did not make any borrowings under our variable funding note backed by
restricted retail charge card receivables during 2005 and 2004.
Note 6 - Supplementary Cash Flow Information
As described above in Note 4, we exchanged notes receivable from affiliates
for the 2004 Notes that represent undivided interests in a pool of VISA credit
card receivables. The 2004 Notes have a face amount of $300,000 and were
priced at par.
Initial expenses of $2,206 related to the securitization of retail charge card
receivables were capitalized in other assets in November 2001. On a monthly
basis, the amortized costs are recorded by Nordstrom, Inc. using the straight-
line method over the 60-month life of the trust agreement. Quarter to date
amortization of $110 for both 2005 and 2004 was offset in receivable from
parent and affiliates and other receivables, net.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 7 - Restatement
Subsequent to issuance of our 2004 quarterly financial statements, we have
corrected an error in our condensed consolidated statement of cash flows for
the quarter ended May 1, 2004. We historically recognized amounts loaned to
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 statement
of cash flows for the quarter ended May 1, 2004.
The following table summarizes the impact of the restatement:
AS ORIGINALLY RESTATEMENT
QUARTER ENDED MAY 1, 2004 REPORTED ADJUSTMENT AS RESTATED
- ---------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS:
Net cash provided by operating activities $7,065 $10,498 $17,563
Net cash provided by investing activities 33,467 (10,498) 22,969
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
All dollar amounts are in millions.
Total revenue decreased $1.7 in the quarter ended April 30, 2005 compared to
the same period in 2004 primarily due to a $1.5 decrease in finance charge
income. We earn finance charge income on retail charge card receivables,
which we purchase from an affiliate that is also a wholly-owned subsidiary of
our parent, Nordstrom, Inc. Finance charge income decreased due to a $18.0
reduction in the average outstanding retail charge card receivable balance and
from card holders repaying their outstanding balances more quickly. The
additional decrease in total revenues of $0.2 relates to other fees, which
consist primarily of late fees. Late fee income was $1.4 and $1.6 for the
first quarter in 2005 and 2004, respectively.
Total expenses increased $0.7 in the first quarter of 2005 compared to the
same period in 2004 due to an increase in interest expense. Interest expense
has increased due to a $44.8 increase in on our average short-term debt
outstanding payable to our parent, Nordstrom, Inc. The increase in total
assets due to our investment in master trust certificates requires us to make
additional borrowings to fund those assets.
Interest income increased $2.0 for the quarter ended April 30, 2005 compared
to the same period in 2004, primarily due to an increase in interest income
earned on the 2004 Notes. The current year interest rate on the 2004 Notes is
higher than the prior year rate on the receivables due from Nordstrom fsb (the
"Bank"), which we exchanged for the 2004 Notes. Also, the interest earning
receivable balance is higher in the current quarter than the prior quarter.
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 due from the Bank during 2004 compared to the prior year.
Net earnings remained relatively flat for the quarter ended April 30, 2005
compared to the same quarter in the prior year. The increase in interest
income was offset by the decrease in total revenue and an increase in
expenses.
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
on Form 10-Q, 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
Exhibits are incorporated herein by reference or are filed with this
report as set forth in the Index to Exhibits on page 12 hereof.
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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: June 14, 2005
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NORDSTROM CREDIT INC. AND SUBSIDIARY
Exhibit Index
Exhibit Method of Filing
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10.1 Principal Balance Increase Request Filed herewith electronically
dated December 28, 2004 between
Nordstrom Credit Card Receivables,
LLC, Nordstrom fsb, Wells Fargo Bank
and Registrant
10.2 Principal Balance Increase Request Filed herewith electronically
dated March 28, 2005 between
Nordstrom Credit Card Receivables,
LLC, Nordstrom fsb, Wells Fargo Bank
and Registrant
10.3 Principal Balance Increase Filed herewith electronically
Confirmation dated March 31, 2005
Between Registrant and Wells Fargo
Bank
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 and Vice Furnished herewith electronically
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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