UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 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.
Colorado |
91-1181301 |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer 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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.50 par value
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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On March 31, 2002 Registrant had 10,000 shares of common stock ($.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 I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.
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PART I
Item 1. Business.
The information required under this item is included in Note 1 to the Financial Statements on page 17 of this report, which is incorporated herein by reference.
Item 2. Properties.
The Company owns an office building in Englewood, Colorado where its principal offices are located.
Item 3. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not required under reduced disclosure format.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
The class of securities registered is the Company’s common stock, $.50 par value per share. There are 100,000 shares of authorized common stock, of which 10,000 shares were issued and outstanding as of March 31, 2002. The Company’s common stock is owned entirely by its parent, Nordstrom, Inc. (“Nordstrom”). The stock has not been traded and, accordingly, no market value has been established. No dividends were paid in the fiscal years ended January 31, 2002 and 2001.
Item 6. Selected Financial Data.
Not required under reduced disclosure format.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Service charge income decreased slightly in 2001 as compared to 2000 primarily as a result of a decline in the service charge rate, caused by a decline in interest rates. The decrease in service charge income was offset by a slight increase in the average accounts receivable balances on which the Company earns service fees.
Net interest expense decreased in 2001 as compared to 2000 due primarily to a decrease in short-term interest rates, offset by an increase in the volume of long-term debt outstanding.
Servicing and marketing fees paid to Nordstrom fsb decreased in 2001 as compared to 2000 due to higher marketing costs in 2000 associated with the company-wide program, the “Reinvent” campaign. The decrease can also be attributed to a change in the servicing fee structure between the Company and Nordstrom fsb.
Selling, general and administrative expenses increased in 2001 as compared to 2000 in part as a result of charges associated with the Nordstrom credit card rewards program wherein customers earn points from purchases at Nordstrom which are redeemable for merchandise at Nordstrom stores upon the accumulation of a specified number of points. The increase is also attributed to a change in the Company’s policy effective February 1, 2001, pursuant to which the Company now incurs bad debt expense related to returned checks instead of Nordstrom, provided the store followed proper check acceptance procedures.
Certain other information required under this item is included in Notes 1, 2 and 6 to the Financial Statements on pages 17, 18, 20 and 21 respectively, of this report, which are incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk from changes in interest rates. In seeking to minimize risk, the Company manages exposure through its regular operating and financing activities. The Company does not use financial instruments for trading or other speculative purposes and is not party to any leveraged financial instruments.
The Company manages interest rate exposure through its mix of fixed and variable rate borrowings which finance customer accounts receivable. Short-term borrowings generally bear interest at variable rates but, because they have maturities of three months or less, the Company believes that the risk of material loss is low.
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The table below presents principal amounts and related weighted average interest rates by year of maturity. All items described in the table are non-trading and are stated in U.S. dollars.
| Fair Value | |||||||||||||||||||||||||||||||||||||
| January 31, | |||||||||||||||||||||||||||||||||||||
| Dollars in thousands | 2002 | 2003 | 2004 | 2005 | 2006 | Thereafter | Total | 2002 | 2001 | ||||||||||||||||||||||||||||
INTEREST RATE RISK |
|||||||||||||||||||||||||||||||||||||
ASSETS |
|||||||||||||||||||||||||||||||||||||
Customer accounts receivable |
$ | 643,943 | $ | 643,943 | $ | 643,943 | $ | 661,655 | |||||||||||||||||||||||||||||
Variable interest rate* |
16.5 | % | 16.5 | % | |||||||||||||||||||||||||||||||||
Note receivable from
Nordstrom, Inc. |
$ | 17,215 | $ | 17,215 | $ | 17,215 | — | ||||||||||||||||||||||||||||||
Year end Interest rate |
1.7 | % | 1.7 | % | |||||||||||||||||||||||||||||||||
Note receivable from Nordstrom
federal savings bank |
$ | 20,880 | $ | 20,880 | $ | 20,880 | — | ||||||||||||||||||||||||||||||
Year end Interest rate |
1.7 | % | 1.7 | % | |||||||||||||||||||||||||||||||||
LIABILITIES |
|||||||||||||||||||||||||||||||||||||
Note payable to Nordstrom, Inc. |
— | — | — | $ | 301,430 | ||||||||||||||||||||||||||||||||
Year end interest rate |
— | — | |||||||||||||||||||||||||||||||||||
Long-term debt |
$ | 76,750 | — | — | $ | 100,000 | $ | 300,000 | — | $ | 476,750 | $ | 471,251 | $ | 183,666 | ||||||||||||||||||||||
Fixed average
interest rate |
7.3 | % | — | — | 6.7 | % | 4.8 | % | — | 5.6 | % | ||||||||||||||||||||||||||
* This is the Company’s weighted average interest rate on customer accounts receivable, which is primarily a floating rate based on prime. The actual effective interest rate is lower due to accounts which are paid off within 30 days and defaults.
Item 8. Financial Statements and Supplementary Data.
| A) | Financial Statements and Supplementary Data | ||
| The consolidated financial statements and notes to the consolidated financial statements listed in the Index to Consolidated Financial Statements and Schedule on page 11 of this report are incorporated herein by reference. | |||
| B) | Other Financial Statements and Schedule | ||
| The schedule required under Regulation S-X is filed pursuant to Item 14 of this report. |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Not required under reduced disclosure format.
Item 11. Executive Compensation.
Not required under reduced disclosure format.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Not required under reduced disclosure format.
Item 13. Certain Relationships and Related Transactions.
Not required under reduced disclosure format.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
| (a) | 1. Financial Statements | |
| The following consolidated financial statements of the Company and the Independent Auditors’ Report are incorporated by reference in Part II, Item 8: | ||
| Independent Auditors’ Report Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Investment of Nordstrom, Inc. Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements |
||
| (a) | 2. Financial Statement Schedules | |
| The financial statement schedule listed in the Index to Consolidated Financial Statements and Schedule on page 11 of this report is incorporated herein by reference. |
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| (a)3. |
Exhibits |
|
| (3.1) | Articles of Incorporation of the Registrant are hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 1991, Exhibit 3.1. | |
| (3.2) | By-laws of the Registrant, as amended and restated on December 19, 1995, are hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 1996, Exhibit 3.3. | |
| (10.1) | Investment Agreement dated October 8, 1984 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant’s Form 10, Exhibit 10.1. | |
| (10.2) | Operating Agreement dated August 30, 1991 between Registrant and Nordstrom National Credit Bank is hereby incorporated by reference from the Registrant’s Form 10-Q for the quarter ended July 31, 1991, Exhibit 10.1, as amended. | |
| (10.3) | First Amendment to the Operating Agreement dated August 30, 1991 between Registrant and Nordstrom National Credit Bank, dated March 1, 2000 is hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 2001, Exhibit 10.3. | |
| (10.4) | Second Amendment to the Operating Agreement dated August 30, 1991 between Registrant and Nordstrom National Credit Bank, dated October 1, 2001 is filed herein as an Exhibit. | |
| (10.5) | Corporate Services Agreement dated February 1, 2001 between Registrant and Nordstrom federal savings bank (fsb) is hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 2001, Exhibit 10.4. | |
| (10.6) | Loan Agreement dated July 17, 1997 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant’s Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.1. | |
| (10.7) | Amendment to the Loan Agreement dated July 17, 1997 between Registrant and Nordstrom, Inc., dated September 3, 1997 is hereby incorporated by reference from the Registrant’s Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.2. | |
| (10.8) | Series 1996-A Supplement to Master Pooling and Servicing Agreement dated August 14, 1996 between Registrant, Nordstrom National Credit Bank, and Norwest Bank Colorado, N.A., as trustee, is incorporated by reference from the Registrant’s Form 10-Q for the quarter ended October 31, 1996, Exhibit 10.3. | |
| (10.9) | Amendment to the Series 1996-A Supplement to Master Pooling and Servicing Agreement dated August 14, 1996 between Registrant, Nordstrom National Credit Bank and Norwest Bank Colorado, N.A., as trustee, dated December 10, 1997, is hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 1998, Exhibit 10.13. | |
| (10.10) | Second Amendment to the Series 1996-A Supplement to Master Pooling and Servicing Agreement dated August 14, 1996 between Registrant, Nordstrom National Credit Bank and Norwest Bank Colorado, N.A., as trustee, dated February 28, 1999, is hereby incorporated by reference from the Registrant’s Form 10-Q for the quarter ended April 30, 1999, Exhibit 10.1. |
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| (10.11) | Third Amendment to the Series 1996-A Supplement to Master Pooling and Servicing Agreement dated August 14, 1996 between Registrant, Nordstrom National Credit Bank and Norwest Bank Colorado, N.A., as trustee, dated October 1, 2001 is filed herein as an Exhibit. | |
| (10.12) | Receivables Purchase Agreement dated August 14, 1996 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 1997, Exhibit 10.10. | |
| (10.13) | Participation Agreement dated August 14, 1996 between Registrant and Nordstrom National Credit Bank is hereby incorporated by reference from the Registrant’s Form 10-K for the year ended January 31, 1997, Exhibit 10.11. | |
| (10.14) | Loan Agreement dated November 1, 2001 between Nordstrom, Inc. and Registrant is filed herein as an exhibit | |
| (10.15) | Loan Agreement dated March 1, 2000 between Nordstrom fsb and Registrant is filed herein as an exhibit. | |
| (10.16) | Business Account Operating Agreement dated February 1, 1997 between Registrant and Nordstrom, Inc. is filed herein as an Exhibit. | |
| (10.17) | Amendment to the Business Account Operating Agreement dated February 1, 1997 between Registrant and Nordstrom, Inc., dated October 1, 2001 is filed herein as an Exhibit. | |
| (10.18) | Second Amendment to the Business Account Operating Agreement dated February 1, 1997 between Registrant and Nordstrom, Inc., dated November 30, 2001 is filed herein as an Exhibit. | |
| (10.19) | Recourse Agreement dated March 1, 2001 between Registrant and Nordstrom, Inc. is filed herein as an Exhibit. | |
| (10.20) | Amendment to the Recourse Agreement dated March 1, 2001 between Registrant and Nordstrom, Inc., dated October 1, 2001 is filed herein as an Exhibit. | |
| (10.21) | Receivables Purchase Agreement dated October 1, 2001 between Registrant and Nordstrom Private Label Receivables, LLC is filed herein as an Exhibit. | |
| (10.22) | Transfer and Servicing Agreement dated October 1, 2001 between Nordstrom Private Label Receivables, LLC, Nordstrom fsb, Wells Fargo Bank Minnesota, N.A., and Nordstrom Private Label Credit Card Master Note Trust is filed herein as an Exhibit. | |
| (10.23) | Master Indenture dated October 1, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee, is filed herein as an Exhibit. | |
| (10.24) | Series 2001-1 Indenture Supplement dated October 1, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee, is filed herein as an Exhibit. | |
| (10.25) | Series 2001-2 Indenture Supplement dated December 4, 2001 between Nordstrom Private Label Credit Card Master Note Trust and Wells Fargo Bank Minnesota, N.A., as trustee, is filed herein as an Exhibit. |
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| (10.26) | Amended and Restated Trust Agreement dated October 1, 2001 between Nordstrom Private Label Receivables, LLC, and Wilmington Trust Company, as trustee, is filed herein as an Exhibit. | |
| (12.1) | Computation of Ratio of Earnings Available for Fixed Charges to Fixed Charges is filed herein as an Exhibit. | |
| (23.1) | Independent Auditors’ Consent is filed herein as an Exhibit. |
All other exhibits are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.
| (b) | Reports on Form 8-K | ||
| No reports on Form 8-K were filed during the last quarter of the period for which this report is filed. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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) |
||||
| Date: April 18, 2002 | /s/ | Michael G. Koppel | ||
| by: | Michael G. Koppel Executive Vice President and Chief Financial Officer |
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
| /s/ | Kevin T. Knight | /s/ | Blake W. Nordstrom | |||
|
|
||||||
|
Kevin T. Knight Director and President (Principal Executive Officer) |
Blake W. Nordstrom Director |
|||||
| /s/ | Michael G. Koppel | /s/ | Carol S. Powell | |||
|
|
||||||
|
Michael G. Koppel Executive Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) |
Carol S. Powell Director |
|||||
Date: April 18, 2002
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| Page | |||||
| Number | |||||
| Independent Auditors’ Report | 12 | ||||
| Consolidated Statements of Earnings | 13 | ||||
| Consolidated Balance Sheets | 14 | ||||
| Consolidated Statements of Investment of Nordstrom, Inc. | 15 | ||||
| Consolidated Statements of Cash Flows | 16 | ||||
| Notes to Consolidated Financial Statements | 17 | ||||
| Additional financial information required to be furnished - | |||||
| Financial Statement Schedule: | |||||
| Schedule II — Valuation and Qualifying Accounts | 24 | ||||
All other schedules have been omitted because they are inapplicable, not required or the information is included elsewhere in the financial statements or notes thereto.
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INDEPENDENT AUDITORS’ REPORT
Board of Directors
Nordstrom Credit, Inc.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Nordstrom Credit, Inc. and subsidiary (the “Company”) as of January 31, 2002 and 2001, and the related consolidated statements of earnings, investment of Nordstrom, Inc. and cash flows for each of the three years in the period ended January 31, 2002. Our audits also included the financial statement schedule listed in the accompanying Index to Consolidated Financial Statements and Schedule. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom Credit, Inc. and subsidiary as of January 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Seattle, Washington
April 18, 2002
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands)
| Year Ended January 31, | 2002 | 2001 | 2000 | |||||||||||
Revenue: |
||||||||||||||
Service charge income |
$ | 106,097 | 106,440 | $ | 98,479 | |||||||||
Rental income from affiliates |
2,041 | 1,346 | 1,335 | |||||||||||
Total revenue |
108,138 | 107,786 | 99,814 | |||||||||||
Expenses: |
||||||||||||||
Interest, net |
24,707 | 29,322 | 27,203 | |||||||||||
Servicing and marketing fees paid to Nordstrom fsb |
32,496 | 42,452 | 36,206 | |||||||||||
Selling, general and administrative |
27,506 | 20,747 | 1,729 | |||||||||||
Total expenses |
84,709 | 92,521 | 65,138 | |||||||||||
Earnings before income taxes |
23,429 | 15,265 | 34,676 | |||||||||||
Income taxes |
8,700 | 5,700 | 12,400 | |||||||||||
Net earnings |
$ | 14,729 | $ | 9,565 | $ | 22,276 | ||||||||
Ratio of earnings available for
fixed charges to fixed charges |
1.94 | 1.52 | 2.27 | |||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| January 31, | 2002 | 2001 | |||||||
ASSETS |
|||||||||
Cash and cash equivalents |
$ | 3,368 | $ | 152 | |||||
Customer accounts receivable, net of
allowance for doubtful accounts of
$23,022 and $16,531 |
620,921 | 645,124 | |||||||
Receivable from Affiliates and other |
43,849 | 7,650 | |||||||
Land, buildings and equipment, net (at cost) |
5,204 | 4,471 | |||||||
Deferred taxes and other assets |
10,168 | 5,918 | |||||||
| $ | 683,510 | $ | 663,315 | ||||||
LIABILITIES AND INVESTMENT OF NORDSTROM, INC |
|||||||||
Note payable to Nordstrom, Inc. |
$ | — | $ | 301,430 | |||||
Payable to affiliates |
22,796 | 414 | |||||||
Accrued interest, taxes and other |
7,080 | 11,566 | |||||||
Long-term debt |
476,750 | 187,750 | |||||||
Total liabilities |
506,626 | 501,160 | |||||||
Investment of Nordstrom, Inc. |
176,884 | 162,155 | |||||||
| $ | 683,510 | $ | 663,315 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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NORDSTROM CREDIT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INVESTMENT OF NORDSTROM, INC.
(Dollars in thousands, except per share amounts)
| Common Stock, $.50 par value, | ||||||||||||||||
| 100,000 shares authorized | ||||||||||||||||
| Retained | ||||||||||||||||
| Shares | Amount | Earnings | Total | |||||||||||||
Balance at February 1, 1999 |
10,000 | $ | 55,058 | $ | 75,256 | $ | 130,314 | |||||||||
Net earnings |
22,276 | 22,276 | ||||||||||||||
Balance at January 31, 2000 |
10,000 | 55,058 | 97,532 | 152,590 | ||||||||||||
Net earnings |
9,565 | 9,565 | ||||||||||||||
Balance at January 31, 2001 |
10,000 | $ | 55,058 | 107,097 | 162,155 | |||||||||||
Net earnings |
14,729 | 14,729 | ||||||||||||||
Balance at January 31, 2002 |
10,000 | $ | 55,058 | $ | 121,826 | $ | 176,884 | |||||||||