10-Q 1 nci73103.txt 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, 2003 [ ] 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, Centennial, 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 _____ _____ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO X _____ _____ On August 31, 2003 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 10 NORDSTROM CREDIT, INC. AND SUBSIDIARY ------------------------------------- INDEX -----

Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Condensed Consolidated Statements of Earnings Three and Six months ended ~~April~~July 3031, 2003 and 2002 3 Condensed Consolidated Balance Sheets ~~April~~July 3031, 2003 and 2002 and January 31, 2003 4 Condensed Consolidated Statements of Cash Flows ~~Three~~Six months ended ~~April~~July 3031, 2003 and 2002 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 4. Controls and Procedures 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 ~~CERTIFICATIONS 11~~

page 2 of 10 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands) (unaudited)

Three Months Six Months Ended ~~April~~July 3031, Ended July 31, ------------------ ------------------ 2003 2002 2003 2002 -------- -------- -------- -------- Revenue: Service charge income $2423,~~757~~988 $2425,~~377~~210 $48,745 $49,587 Other fees and charges 2,~~103~~301 23,~~739~~287 4,404 6,026 Rental income from affiliates and other 281 510 562 1,020 -------- -------- -------- -------- Total revenue 2726,~~141~~570 2729,~~626~~007 53,711 56,633 Expenses: Interest, net 5,~~035~~023 65,~~366~~310 10,058 11,676 Servicing and marketing fees paid to Nordstrom fsb 3,360 4,176 27,~~402~~536 6,578 Selling, general and administrative ~~251~~388 ~~708~~317 639 1,025 -------- -------- -------- -------- Total expenses 98,~~462~~771 9,~~476~~803 18,233 19,279 -------- -------- -------- -------- Earnings before income taxes 17,~~679~~799 1819,~~150~~204 35,478 37,354 Income taxes 6,~~470~~479 67,~~620~~010 12,949 13,630 -------- -------- -------- -------- Net earnings $11,~~209~~320 $1112,~~530~~194 $22,529 $23,724 ======== ======== ======== ======== Ratio of earnings available for fixed charges to fixed charges 4.3129 34.7052 4.30 4.07 ======== ======== ======== ======== The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 3 of 10 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

~~April~~July 3031, January 31, ~~April~~July 3031, 2003 2003 2002 ----------- ----------- ----------- (Unaudited) (Audited) (Unaudited) ASSETS ------ Cash and cash equivalents $ ~~280~~397 $ 370 $ ~~156~~324 Customer accounts receivable, net of allowance for doubtful accounts of $2221,~~384~~146, $22,385 and $22,~~786~~131 ~~554~~619,~~430~~731 594,450 ~~582~~639,~~662~~302 Receivable from affiliates and other receivables, net 310,~~832~~165 29,936 1415,~~843~~515 Notes receivable from affiliates 91160,~~145~~495 84,395 1052,~~310~~145 Land, buildings and equipment, net ~~267~~281 264 5,~~068~~115 Deferred taxes and other assets 8,~~626~~482 8,701 2,~~301~~780 -------- --------- -------- $~~658~~799,~~580~~551 $718,116 $~~615~~715,~~340~~181 ======== ========= ======== LIABILITIES AND INVESTMENT OF NORDSTROM, INC. --------------------------------------------- Payable to affiliates, ~~net~~ $ 28,~~750~~000 $ 1,601 $ -8,788 Note payable to Nordstrom, Inc. 1130,~~410~~185 74,460 16101,~~110~~360 Accrued interest, taxes and other 21,~~903~~191 1,482 104,~~816~~425 Long-term debt ~~400~~397,~~000~~500 400,000 400,000 Other liabilities 15,~~605~~443 15,870 - -------- --------- -------- Total liabilities ~~422~~552,~~668~~319 493,413 ~~426~~514,~~926~~573 Investment of Nordstrom, Inc. ~~235~~247,~~912~~232 224,703 ~~188~~200,~~414~~608 -------- --------- -------- $~~658~~799,~~580~~551 $718,116 $~~615~~715,~~340~~181 ======== ========= ======== The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 4 of 10 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)

~~Three~~Six Months Ended ~~April~~July 3031, ---------------------- 2003 2002 -------- -------- OPERATING ACTIVITIES: Net earnings $ 1122,~~209~~529 $ 1123,~~530~~724 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2558 ~~191~~285 Change in: Receivable from affiliates and other receivables, net 2619,~~104~~771 (~~943~~1,615) Notes receivable from affiliates (676,~~750~~100) 27(14,~~785~~050) Deferred taxes and other assets 54168 (40579) Payable to affiliates, net 16,~~149~~399 (2011,~~264~~476) Accrued interest, taxes and other ~~1,421~~(291) 3(2,~~736~~655) Other liabilities (~~265~~427) - -------- -------- Net cash ~~provided~~used byin operating activities 32(27,~~947~~893) 21(6,~~995~~366) -------- -------- INVESTING ACTIVITIES: ~~Decrease~~Increase in customer accounts receivable, net 40(25,~~020~~281) 35(21,~~433~~207) Additions to property and equipment, net (724) -(81) -------- -------- Net cash ~~provided~~used byin investing activities 40(25,~~013~~305) 35(21,~~433~~288) -------- -------- FINANCING ACTIVITIES: ~~(Repayments)~~Borrowings ~~borrowings~~ under note payable to Nordstrom, Inc., net ~~(73~~55,~~050)~~725 16101,~~110~~360 Principal payments on long-term debt -(2,500) (76,750) -------- -------- Net cash ~~used~~provided inby financing activities ~~(73~~53,~~050)~~225 ~~(60~~24,~~640)~~610 -------- -------- Net increase (decrease) in cash and cash equivalents ~~(90)~~27 (3,~~212~~044) Cash and cash equivalents at beginning of period 370 3,368 -------- -------- Cash and cash equivalents at end of period $ ~~280~~397 $ ~~156~~324 ======== ======== The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 5 of 10 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. 2002 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. Recent Accounting Pronouncements -------------------------------- In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" for certain decisions made by the FASB as part of the Derivatives Implementation Group process. SFAS No. 149 also amends SFAS No. 133 to incorporate clarifications of the definition of a derivative. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively. The adoption of SFAS No. 149 did not have a material impact on our earnings or financial position. Note 2 - Customer Accounts Receivable Customer accounts receivable, net, consists of the following:

~~April~~July 3031, January 31, ~~April~~July 3031, 2003 2003 2002 ---------- ----------- ----------- Private label trade receivables: Unrestricted accounts $ 2,~~222~~305 $ 3,188 $ 2,~~201~~658 Restricted accounts ~~574~~638,~~592~~572 613,647 ~~592~~658,~~908~~775 Allowance for doubtful accounts (2221,~~384~~146) (22,385) (22,~~786~~131) ---------- ----------- ----------- Private label trade receivables, net ~~554,430 594,450 572,323 VISA securitization master trust certificates - - 10,339 ---------- ----------- ---------- Customer accounts receivable, net~~ $ ~~554~~619,~~430~~731 $ 594,450 $ ~~582~~639,~~662~~302 ========== =========== ===========

Restricted accounts back the $300 million of Class A notes and the $200 million variable funding note issued in November 2001. page 6 of 10 NORDSTROM CREDIT, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (unaudited) Note 2 - Customer Accounts Receivable (cont.) 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 Certificates were 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 Certificates, and was recognized in the quarter ended July 31, 2002. Note 3 - Long-Term Debt In the second quarter, we purchased $2,500 of our 6.7% medium-term notes for a total cash payment of $2,740. Approximately $245 of expense was recognized in the second quarter of 2003 related to this purchase. page 7 of 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Service charge income decreased modestly for the quarter ended July 31, 2003, compared to the same period in 2002, primarily due to a decrease in the average accounts receivable balances. Accounts receivable have declined approximately 3% over the past year due to lower sales on our private label cards. For the six-month period ended July 31, 2003, service charge income declined slightly from prior year results. Other fees and charges decreased for the quarter ended July 31, 2003, compared to the same period in 2002, primarily due to a decrease in late fee income, caused by a decline in the number of accounts being assessed a late fee. For the six-month period ended July 31, 2003, other fees and charges decreased, compared to the same period in 2002, primarily due to income received in the prior year from the VISA securitization master trust certificates. These certificates were repaid during the second quarter of 2002. The decrease for the six-month period is also due to a decrease in late fee income in the current year. Rental income from affiliates and other decreased for the quarter and six- month period ended July 31, 2003, compared to the same periods in 2002, due to the sale of our Credit facility in January 2003. Current quarter rental income and other consists primarily of the amortized portion of the deferred gain on sale of the facility. Net interest expense decreased for the quarter and six-month period ended July 31, 2003 due to a decrease in long-term debt outstanding and a decrease in interest rates, partially offset by an increase in the average balance outstanding on our note payable to Nordstrom, Inc. Servicing and marketing fees paid to Nordstrom fsb decreased for the quarter ended July 31, 2003, due to a decline in the receivable balances on which the servicing fees are based. Marketing fees also declined as promotion costs focused on opening new private label accounts declined. Servicing and marketing fees paid to Nordstrom fsb increased for the six-month period ended July 31, 2003, compared to the same period in 2002, primarily due to a change in method of accruing marketing expenses offset by the second quarter decreases in servicing and marketing fees. Selling, general and administrative expenses were consistent with prior year results for the quarter ended July 31, 2003, but decreased on a year to date basis, primarily due to a change in our expense structure. Effective during the second quarter of 2002, expenses related to returned checks are now charged to Nordstrom, Inc. The year to date decrease is also attributable to lower occupancy expenses resulting from the sale of our Credit facility in January 2003. 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 Chief Financial Officer, 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, the President and the Chief Financial Officer concluded that our disclosure controls and procedures are effective in the timely recording, processing, summarizing and reporting of material financial and non-financial information. page 8 of 10 Item 4. Controls and Procedures (cont.) There have been no changes 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. PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 31.1 Certification of Chief Executive Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer regarding periodic report containing financial statements as required by Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer regarding periodic report containing financial statements as required by Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter for which this report is filed. Page 9 of 10 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 9, 2003 -------------------------- page 10 of 10 NORDSTROM CREDIT INC. AND SUBSIDIARY Exhibit Index

Exhibit Method of Filing ------- ---------------- 9931.1 Certification of Chief Executive Filed herewith electronically Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Filed herewith electronically Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Filed herewith electronically Officer regarding periodic report containing financial statements 99as required by Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Filed herewith electronically Officer regarding periodic report containing financial statements as required by Section 906 of the Sarbanes-Oxley Act of 2002

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