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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 July 31, 2002
[ ] 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, Englewood, 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
_____ _____
On August 31, 2002 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 11
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
-------------------------------------
INDEX
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Page
Number
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<s> <c>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Statements of Earnings
Three and Six months ended July 31, 2002
and 2001 3
Condensed Consolidated Balance Sheets
July 31, 2002 and 2001
and January 31, 2002 4
Condensed Consolidated Statements of Cash Flows
Six months ended July 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
CERTIFICATIONS 10
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page 2 of 11
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
(unaudited)
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<caption>
Three Months Six Months
Ended July 31, Ended July 31,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Revenue:
Service charge income $25,210 $25,803 $49,587 $53,903
Other fees and charges 3,287 275 6,026 982
Rental income from affilates 510 510 1,020 1,020
-------- -------- -------- --------
Total revenue 29,007 26,588 56,633 55,905
Expenses:
Interest, net 5,310 6,024 11,676 12,650
Servicing and marketing fees
paid to Nordstrom fsb 4,176 10,885 6,578 19,061
Selling, general and
administrative 317 8,132 1,025 14,037
-------- -------- -------- --------
Total expenses 9,803 25,041 19,279 45,748
-------- -------- -------- --------
Earnings before income taxes 19,204 1,547 37,354 10,157
Income taxes 7,010 570 13,630 3,770
-------- -------- -------- --------
Net earnings $12,194 $ 977 $23,724 $ 6,387
======== ======== ======== ========
Ratio of earnings
available for fixed
charges to fixed charges 4.52 1.26 4.07 1.80
======== ======== ======== ========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
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page 3 of 11
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
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<caption>
July 31, January 31, July 31,
2002 2002 2001
----------- ----------- -----------
<s> <c> <c> <c>
ASSETS
- ------
Cash and cash equivalents $ 324 $ 3,368 $ 792
Customer accounts receivable, net
of allowance for doubtful accounts
of $22,131, $23,022 and $20,858 639,302 618,095 676,976
Receivable from affiliates and
other receivables 67,660 51,995 11,642
Land, buildings and
equipment, net 5,115 5,204 5,402
Other assets 2,780 2,316 495
-------- ----------- --------
$715,181 $680,978 $695,307
======== =========== ========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Note payable to Nordstrom, Inc. $101,360 $ - $328,030
Payable to affiliates 8,788 20,264 1,911
Accrued interest, taxes and other 4,425 7,080 9,074
Long-term debt 400,000 476,750 187,750
-------- ----------- --------
Total liabilities 514,573 504,094 526,765
Investment of Nordstrom, Inc. 200,608 176,884 168,542
-------- ----------- --------
$715,181 $680,978 $695,307
======== =========== ========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
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page 4 of 11
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
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<caption>
Six Months
Ended July 31,
----------------------
2002 2001
-------- --------
<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $ 23,724 $ 6,387
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 285 505
Change in:
Receivable from affiliates and other (15,665) 1,329
Other assets (579) (8)
Payable to affiliates (11,476) 1,497
Accrued interest, taxes and other (2,655) (2,492)
-------- --------
Net cash (used in) provided by operating
activities (6,366) 7,218
-------- --------
INVESTING ACTIVITIES:
Increase in customer
accounts receivable, net (21,207) (31,852)
Additions to property and equipment, net (81) (1,326)
-------- --------
Net cash used in investing activities (21,288) (33,178)
-------- --------
FINANCING ACTIVITIES:
Borrowings under note payable
to Nordstrom, Inc., net 101,360 26,600
Principal payments on long-term debt (76,750) -
-------- --------
Net cash provided by financing activities 24,610 26,600
-------- --------
Net (decrease) increase in cash and cash
equivalents (3,044) 640
Cash and cash equivalents
at beginning of period 3,368 152
-------- --------
Cash and cash equivalents at end of period $ 324 $ 792
======== ========
<fn>
These statements should be read in conjunction with the Notes to
Condensed Consolidated Financial Statements contained herein.
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page 5 of 11
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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. Annual Report on Form 10-K for the year ended
January 31, 2002. The same accounting policies are followed in preparing
quarterly financial data as are followed in preparing annual data. In the
opinion of management, 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.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
The financial information is applicable to interim periods and is not
necessarily indicative of the results to be expected for the fiscal year.
Recent Accounting Pronouncements
- --------------------------------
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 updates, clarifies and simplifies existing
accounting pronouncements related to extinguishments of debt, provisions of
the Motor Carrier Act of 1980 and lease transactions. Generally, SFAS No.
145 is effective for fiscal years beginning after May 15, 2002. We elected
to adopt SFAS No. 145 during the second quarter of 2002. The adoption of
this statement did not have a material impact on our financial statements.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 nullifies EITF 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)" by
requiring that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred versus when an entity
is committed to an exit plan. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. We elected to adopt
SFAS No. 146 during the second quarter of 2002. The adoption of this
statement did not have a material impact on our financial statements.
page 6 of 11
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NOTE 2 - CUSTOMER ACCOUNTS RECEIVABLE
Customer accounts receivable, net, consists of the following:
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<caption>
July 31, 2002 2001
- ----------- -------- --------
<s> <c> <c>
Unrestricted accounts $2,658 $668,466
Restricted accounts 658,775 -
Master trust certificates - 29,368
-------- --------
661,433 697,834
Holdback allowance (22,131) (20,858)
-------- --------
Customer accounts receivable, net $639,302 $676,976
======== ========
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Restricted accounts back the $300 million of Class A notes and the $200
million variable funding note that we issued in November 2001.
Through April 30, 2002, we owned an undivided, subordinate interest (Class B
Certificate) in a pool of VISA credit card receivables. External investors
held the Class A Certificates and Nordstrom fsb owned the Seller Retained
Certificate and Interest Only Strip.
On May 1, 2002, the Class B Certificate was repaid. We received cash in the
amount of $11,060 representing the face value of the note plus accrued
interest and recognized a gain on redemption of $661. The gain is the
excess of cash received over the carrying amount of the Class B Certificate,
and was recognized in the quarter ended July 31, 2002.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income decreased for the quarter and the six-month period
ended July 31, 2002, compared to the same periods in 2001, as a result of a
slight decline in the outstanding balance of receivables as well as a
decrease in the service charge rate, caused by a decline in interest rates.
Other fees and charges increased for the quarter and the six-month period
ended July 31, 2002, compared to the same periods in 2001, primarily due to
late fee income on delinquent retail accounts now being recorded by
Nordstrom Credit, Inc. as a result of the securitization of private label
receivables in the fourth quarter of 2001. Late fee income for the quarter
and the six-month period ended July 31, 2002 was $2.3 million and $4.4
million, respectively.
Net interest expense decreased for the quarter and the six-month period
ended July 31, 2002, compared to the same periods in 2001, as a result of a
decrease in volume of short-term debt outstanding as well as the decline in
interest rates. This was partially offset by an increase in long-term debt
outstanding.
Servicing and marketing fees paid to Nordstrom fsb decreased for the quarter
and the six-month period ended July 31, 2002, primarily due to a change in
the servicing fee structure between Nordstrom Credit, Inc. and Nordstrom
fsb, which became effective during the fourth quarter of 2001. This change
was made to reflect the competitive market rate for portfolio servicing.
page 7 of 11
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
Selling, general and administrative expenses decreased for the quarter and
the six-month period ended July 31, 2002, compared to the same periods in
2001, primarily as a result of a change in the expense structure, effective
February 1, 2002. Charges related to purchase incentives associated with
the Nordstrom credit cards, bad debt expense related to returned checks, and
gift card expenses are now taken by Nordstrom, Inc. and not by Nordstrom
Credit, Inc. The total of selling, general and administrative expenses
would have been $9.8 million and $16.1 million for the quarter and six-month
period ended July 31, 2002, respectively, if the expenses had not been
transferred to Nordstrom, Inc.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(10.1) Loan agreement dated May 1, 2002 between Nordstrom fsb and
Registrant is filed herein as an exhibit.
(99.1) Certification of Chief Executive Officer regarding periodic
report containing financial statements.
(99.2) Certification of Chief Financial Officer regarding periodic
report containing financial statements.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
Page 8 of 11
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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.
(Registrant)
/s/ Michael G. Koppel
----------------------------------------------------
Michael G. Koppel
Vice President and Treasurer
(Principal Accounting and Financial Officer)
Date: September 12, 2002
- --------------------------
page 9 of 11
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Certification required by Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Kevin T. Knight, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nordstrom Credit,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 12, 2002 /s/ Kevin T. Knight
------------------ -----------------------
Kevin T. Knight
President
page 10 of 11
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Certification required by Section 302(a) of the Sarbanes-Oxley Act of 2002
I, Michael G. Koppel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nordstrom Credit, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 12, 2002 /s/ Michael G. Koppel
------------------ -----------------------
Michael G. Koppel
Vice President and Treasurer
page 11 of 11
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NORDSTROM CREDIT INC. AND SUBSIDIARY
Exhibit Index
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<caption>
Exhibit Method of Filing
- ------- ----------------
<s> <c>
10.1 Loan Agreement dated May 1, Filed herewith electronically
2002 between Nordstrom fsb
and Registrant
99.1 Certification of Chief Executive Filed herewith electronically
Officer regarding periodic
report containing financial
statements
99.2 Certification of Chief Financial Filed herewith electronically
Officer regarding periodic
report containing financial
statements
</table>