10-Q 1 nci043003.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 April 30, 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, 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 _____ _____ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act 12b-2). YES NO X _____ _____ On May 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 12 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 Nine~~ months ended ~~October~~April 3130, ~~2002~~2003 and ~~2001~~2002 3 Condensed Consolidated Balance Sheets ~~October~~April 3130, ~~2002~~2003 and ~~2001~~2002 and January 31, ~~2002~~2003 4 Condensed Consolidated Statements of Cash Flows ~~Nine~~Three months ended ~~October~~April 3130, ~~2002~~2003 and ~~2001~~2002 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 78 Item 4. Controls and Procedures 78 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 89 SIGNATURES 910 CERTIFICATIONS 1011

page 2 of 12 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands) (unaudited)

Three Months ~~Nine Months~~ Ended ~~October~~April 3130, ~~Ended October 31,~~ ------------------ ~~------------------~~2003 2002 ~~2001 2002 2001~~ -------- -------- ~~-------- --------~~ Revenue: Service charge income $2524,~~118~~757 $24,~~328~~377 ~~$74,705 $78,231~~ Other fees and charges 2,~~459~~103 ~~(49) 8~~2,~~485~~739 ~~933~~ Rental income from ~~affilates~~affiliates ~~510~~281 510 ~~1,530 1,530~~ -------- -------- ~~-------- --------~~ Total revenue 2827,~~087~~141 2427,~~789~~626 ~~84,720 80,694~~ Expenses: Interest, net 5,~~477~~035 56,~~352~~366 ~~17,153 18,002~~ Servicing and marketing fees paid to Nordstrom fsb 4,~~065~~176 72,~~686~~402 ~~10,643 26,747~~ Selling, general and administrative ~~310~~251 ~~7,076~~708 ~~1,335 21,113~~ -------- -------- ~~-------- --------~~ Total expenses 9,~~852~~462 209,~~114~~476 ~~29,131 65,862~~ -------- -------- ~~-------- --------~~ Earnings before income taxes 1817,~~235~~679 418,~~675~~150 ~~55,589 14,832~~ Income taxes 6,~~660~~470 16,~~740~~620 ~~20,290 5,510~~ -------- -------- ~~-------- --------~~ Net earnings $11,~~575~~209 $ 211,~~935~~530 ~~$35,299 $ 9,322~~ ======== ======== ~~======== ========~~ Ratio of earnings available for fixed charges to fixed charges 4.1831 13.8770 ~~4.10 1.82~~ ======== ======== ~~======== ========~~ The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 3 of 12 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

~~October~~April 3130, January 31, ~~October~~April 3130, ~~2002~~2003 2003 2002 ~~2001~~ ----------- ----------- ----------- (Unaudited) (Audited) (Unaudited) ASSETS ------ Cash and cash equivalents $ ~~363~~280 $ ~~3,368~~370 $ ~~662~~156 Customer accounts receivable, net of allowance for doubtful accounts of $22,~~381~~384, $2322,~~022~~385 and $2022,~~692~~786 ~~581~~554,~~911~~430 ~~618~~594,~~095~~450 ~~602~~582,~~418~~662 Receivable from affiliates and other receivables, 74net 3,~~431~~832 5129,~~995~~936 714,~~005~~843 Notes receivable from affiliates 91,145 84,395 10,310 Land, buildings and equipment, net ~~5,644~~267 ~~5,204~~264 5,~~352~~068 ~~Other~~Deferred taxes and other assets 28,~~655~~626 8,701 2,~~316~~301 ~~439~~ -------- --------~~---~~ -------- $~~665~~658,~~004~~580 $~~680~~718,~~978~~116 $615,~~876~~340 ======== ========~~===~~ ======== LIABILITIES AND INVESTMENT OF NORDSTROM, INC. --------------------------------------------- ~~Note~~Payable ~~payable~~ to ~~Nordstrom~~affiliates, ~~Inc.~~net $ 442,~~885~~750 $ -1,601 $~~260,630~~ ~~Payable~~- Note payable to ~~affiliates~~Nordstrom, 4Inc. 1,~~934~~410 2074,~~264~~460 -16,110 Accrued interest, taxes and other 32,~~002~~903 71,~~080~~482 710,~~019~~816 Long-term debt 400,000 ~~476~~400,~~750~~000 ~~176~~400,~~750~~000 Other liabilities 15,605 15,870 - -------- --------~~---~~ -------- Total liabilities ~~452~~422,~~821~~668 ~~504~~493,~~094~~413 ~~444~~426,~~399~~926 Investment of Nordstrom, Inc. ~~212~~235,~~183~~912 ~~176~~224,~~884~~703 ~~171~~188,~~477~~414 -------- --------~~---~~ -------- $~~665~~658,~~004~~580 $~~680~~718,~~978~~116 $615,~~876~~340 ======== ========~~===~~ ======== The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 4 of 12 NORDSTROM CREDIT, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)

~~Nine~~Three Months Ended ~~October~~April 3130, ---------------------- 2003 2002 ~~2001~~ -------- -------- OPERATING ACTIVITIES: Net earnings $35 11,~~299~~209 $ 911,~~322~~530 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ~~(215)~~25 ~~683~~191 Change in: Receivable from affiliates and other receivables, net 26,104 (22943) Notes receivable from affiliates (6,~~436~~750) 527,~~966~~785 ~~Other~~Deferred taxes and other assets ~~(587)~~54 (740) Payable to affiliates, ~~(15~~net 1,~~330)~~149 (~~414~~20,264) Accrued interest, taxes and other (41,~~078)~~421 (43,~~547~~736 Other liabilities (265) - -------- -------- Net cash ~~(used in)~~ provided by operating activities (732,~~347)~~947 1121,~~003~~995 -------- -------- INVESTING ACTIVITIES: Decrease in customer accounts receivable, net 3640,~~184~~020 4235,~~706~~433 ~~Retirements~~Additions ~~(additions)~~ to property and equipment, net 23 (~~1,399~~7) - -------- -------- Net cash provided by investing activities 3640,~~207~~013 4135,~~307~~433 -------- -------- FINANCING ACTIVITIES: (~~Payments on~~Repayments) borrowings under note payable to Nordstrom, Inc., net ~~44,885~~ (4073,~~800~~050) 16,110 Principal payments on long-term debt - (76,750) ~~(11,000)~~ -------- -------- Net cash used in financing activities (3173,~~865~~050) (5160,~~800~~640) -------- -------- Net (decrease) ~~increase~~ in cash and cash equivalents (90) (3,~~005~~212) ~~510~~ Cash and cash equivalents at beginning of period 370 3,368 ~~152~~ -------- -------- Cash and cash equivalents at end of period $ ~~363~~280 $ ~~662~~156 ======== ======== The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

page 5 of 12 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 reclass 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. We do not believe the adoption of SFAS No. 149 will have a material impact on our earnings and financial position. NOTE 2 - CUSTOMER ACCOUNTS RECEIVABLE Customer accounts receivable, net, consists of the following:

~~October~~April 3130, January 31, ~~October~~April 3130, ~~2002~~2003 2003 2002 ~~2001~~ ----------- ----------- ----------- Private label trade receivables: Unrestricted accounts $ 2,~~757~~222 $ 23,~~615~~188 $ ~~612~~2,~~979~~201 Restricted accounts ~~601~~574,~~535~~592 ~~628~~613,~~271~~647 -592,908 ~~Master~~Allowance ~~trust~~for ~~certificates~~doubtful -accounts 10(22,~~231~~384) 10(22,~~131~~385) (22,786) ----------- ----------- ----------- ~~604,292~~Private ~~641,117~~label ~~623~~trade receivables,~~110~~ ~~Holdback~~net ~~allowance (22~~554,~~381)~~430 ~~(23~~594,~~022)~~450 ~~(20~~572,~~692)~~323 VISA securitization master trust certificates - - 10,339 ---------- ----------- ----------- Customer accounts receivable, net $ ~~581~~554,~~911~~430 $ ~~618~~594,~~095~~450 $ ~~602~~582,~~418~~662 =========== =========== ===========

Restricted accounts receivable back the $300 million of Class A notes and the $200 million variable funding note issued in November 2001. page 6 of 12 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. page 7 of 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Service charge income was essentially flat for the quarter ended April 30, 2003, compared to the same period in 2002, due to a slight decrease in the average accounts receivable balances offset by a slight increase in the weighted average service charge rate. Other fees and charges decreased for the quarter ended April 30, 2003, 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. We no longer hold an ownership interest in the VISA securitization. The decrease in other fees and charges is also attributed to a decrease in late fee income, caused by a decline in number of accounts being assessed a late fee. Rental income from affiliates decreased for the quarter ended April 30, 2003, compared to the same period in 2002, due to the sale of our Credit facility in January 2003. Current quarter rental income consists primarily of the amortized portion of the deferred gain on sale of the facility. Net interest expense decreased for the quarter ended April 30, 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 increased for the quarter ended April 30, 2003, compared to the same period in 2002, primarily due to a change in method of accruing monthly marketing expenses. Selling, general and administrative expenses decreased for the quarter ended April 30, 2003, compared to the same period in 2002 due primarily to a change in our expense structure. Effective in the second quarter of 2002, bad debt expense related to returned checks is now charged to Nordstrom, Inc. In addition, the decrease is also attributed to lower occupancy expenses due to the sale of our Credit facility in January 2003. Item 4. Controls and Procedures "Disclosure controls" are controls and other procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. "Internal controls" are procedures that are designed to provide reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. Within the 90-day period prior to the filing of this report, 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. 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 12 Item 4. Controls and Procedures (cont.) We reviewed our internal controls for effectiveness periodically during the period covered by this report. No significant changes were made in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their last evaluation. 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 9 of 12 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 Accounting and Financial Officer) Date: June 9, 2003 -------------------------- page 10 of 12 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: June 9, 2003 /s/ Kevin T. Knight ------------------ ----------------------- Kevin T. Knight President page 11 of 12 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: June 9, 2003 /s/ Michael G. Koppel ------------------ ----------------------- Michael G. Koppel Vice President and Treasurer page 12 of 12 NORDSTROM CREDIT INC. AND SUBSIDIARY Exhibit Index

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