<page>
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, 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 November 30, 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 Nine months ended October 31, 2002
and 2001 3
Condensed Consolidated Balance Sheets
October 31, 2002 and 2001
and January 31, 2002 4
Condensed Consolidated Statements of Cash Flows
Nine months ended October 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
Item 4. Controls and Procedures 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)
<table>
<caption>
Three Months Nine Months
Ended October 31, Ended October 31,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
<s> <c> <c> <c> <c>
Revenue:
Service charge income $25,118 $24,328 $74,705 $78,231
Other fees and charges 2,459 (49) 8,485 933
Rental income from affilates 510 510 1,530 1,530
-------- -------- -------- --------
Total revenue 28,087 24,789 84,720 80,694
Expenses:
Interest, net 5,477 5,352 17,153 18,002
Servicing and marketing fees
paid to Nordstrom fsb 4,065 7,686 10,643 26,747
Selling, general and
administrative 310 7,076 1,335 21,113
-------- -------- -------- --------
Total expenses 9,852 20,114 29,131 65,862
-------- -------- -------- --------
Earnings before income taxes 18,235 4,675 55,589 14,832
Income taxes 6,660 1,740 20,290 5,510
-------- -------- -------- --------
Net earnings $11,575 $ 2,935 $35,299 $ 9,322
======== ======== ======== ========
Ratio of earnings
available for fixed
charges to fixed charges 4.18 1.87 4.10 1.82
======== ======== ======== ========
<fn>
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
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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)
<table>
<caption>
October 31, January 31, October 31,
2002 2002 2001
----------- ----------- -----------
<s> <c> <c> <c>
ASSETS
- ------
Cash and cash equivalents $ 363 $ 3,368 $ 662
Customer accounts receivable, net
of allowance for doubtful accounts
of $22,381, $23,022 and $20,692 581,911 618,095 602,418
Receivable from affiliates and
other receivables 74,431 51,995 7,005
Land, buildings and
equipment, net 5,644 5,204 5,352
Other assets 2,655 2,316 439
-------- ----------- --------
$665,004 $680,978 $615,876
======== =========== ========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Note payable to Nordstrom, Inc. $ 44,885 $ - $260,630
Payable to affiliates 4,934 20,264 -
Accrued interest, taxes and other 3,002 7,080 7,019
Long-term debt 400,000 476,750 176,750
-------- ----------- --------
Total liabilities 452,821 504,094 444,399
Investment of Nordstrom, Inc. 212,183 176,884 171,477
-------- ----------- --------
$665,004 $680,978 $615,876
======== =========== ========
<fn>
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
</table>
page 4 of 11
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<table>
<caption>
Nine Months
Ended October 31,
----------------------
2002 2001
-------- --------
<s> <c> <c>
OPERATING ACTIVITIES:
Net earnings $35,299 $ 9,322
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization (215) 683
Change in:
Receivable from affiliates and other (22,436) 5,966
Other assets (587) (7)
Payable to affiliates (15,330) (414)
Accrued interest, taxes and other (4,078) (4,547)
-------- --------
Net cash (used in) provided by operating
activities (7,347) 11,003
-------- --------
INVESTING ACTIVITIES:
Decrease in customer accounts
receivable, net 36,184 42,706
Retirements (additions) to property and
equipment, net 23 (1,399)
-------- --------
Net cash provided by investing activities 36,207 41,307
-------- --------
FINANCING ACTIVITIES:
(Payments on) borrowings under note payable
to Nordstrom, Inc., net 44,885 (40,800)
Principal payments on long-term debt (76,750) (11,000)
-------- --------
Net cash used in financing activities (31,865) (51,800)
-------- --------
Net (decrease) increase in cash and cash
equivalents (3,005) 510
Cash and cash equivalents
at beginning of period 3,368 152
-------- --------
Cash and cash equivalents at end of period $ 363 $ 662
======== ========
<fn>
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
</table>
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. 2001 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:
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<caption>
October 31, January 31, October 31,
2002 2002 2001
----------- ----------- -----------
<s> <c> <c> <c>
Unrestricted accounts $ 2,757 $ 2,615 $ 612,979
Restricted accounts 601,535 628,271 -
Master trust certificates - 10,231 10,131
----------- ----------- -----------
604,292 641,117 623,110
Holdback allowance (22,381) (23,022) (20,692)
----------- ----------- -----------
Customer accounts receivable, net $ 581,911 $ 618,095 $ 602,418
=========== =========== ===========
</table>
Restricted accounts back the $300 million of Class A notes and the $200
million variable funding note issued in November 2001.
page 6 of 11
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income decreased for the nine-month period ended October 31,
2002, compared to the same period in 2001, primarily as a result of a
decline in interest rates and a slight decline in the outstanding balance of
receivables. For the quarter ended October 31, 2002, service charge income
was consistent with prior year results.
Other fees and charges increased for the quarter and the nine-month period
ended October 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 nine-month period ended October 31, 2002 was $2.2 million and $6.6
million, respectively.
Net interest expense remained consistent with the prior year for the quarter
and the nine-month period ended October 31, 2002.
Servicing and marketing fees paid to Nordstrom fsb decreased for the quarter
and the nine-month period ended October 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.
Selling, general and administrative expenses decreased for the quarter and
the nine-month period ended October 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 $6.7 million and $22.7 million for
the quarter and nine-month period ended October 31, 2002, respectively, if
the expenses had not been transferred to Nordstrom, Inc.
Item 4. Controls and Procedures
Within the last 90 days, our President and Vice President/Treasurer
evaluated our disclosure controls and procedures and believe that they are
effective in the timely recording, processing, summarizing and reporting of
material financial and non-financial information.
Additionally, during the quarter ended October 31, 2002, we did not make any
significant changes in, or take any corrective actions regarding, our
internal controls or other factors that could significantly affect these
controls. We review our internal controls for effectiveness on an ongoing
basis. We plan to continue our review process, including both internal and
external audit examinations, as part of the evaluation of our disclosure
controls and internal controls.
page 7 of 11
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PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(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: December 6, 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.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 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.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 6, 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
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<s> <c>
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>