<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, 1997
[ ] 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 December 8, 1997 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 8
<PAGE>
NORDSTROM CREDIT, INC.
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Earnings
Three and nine months ended October 31, 1997
and 1996 3
Balance Sheets
October 31, 1997 and 1996
and January 31, 1997 4
Statements of Cash Flows
Nine months ended October 31, 1997
and 1996 5
Notes to 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 7
</TABLE>
page 2 of 8
<PAGE>
NORDSTROM CREDIT, INC.
STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
------------------ ------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------- -------- -------- --------
Service charge income $25,956 $28,510 $80,163 $ 99,447
Rental income from Nordstrom
National Credit Bank 321 322 964 904
-------- -------- -------- --------
Total revenue 26,277 28,832 81,127 100,351
Expenses:
Interest, net 9,136 9,354 27,081 31,288
Service fees paid to
Nordstrom National
Credit Bank 6,329 6,609 20,754 21,870
Bad debts - - - 7,520
Other general and
administrative 373 387 1,143 1,169
-------- -------- -------- --------
Total expenses 15,838 16,350 48,978 61,847
-------- -------- -------- --------
Earnings before income
taxes and extraordinary
item 10,439 12,482 32,149 38,504
Income taxes 3,900 4,300 11,900 13,900
-------- -------- -------- --------
Earnings before
extraordinary item 6,539 8,182 20,249 24,604
Extraordinary charge related
to the early extinguishment
of debt, net of income
taxes of $900 - - - 1,452
-------- -------- -------- --------
Net earnings $ 6,539 $ 8,182 $20,249 $ 23,152
======== ======== ======== ========
Ratio of earnings
available for fixed
charges to fixed charges 2.14 2.33 2.19 2.14
======== ======== ======== ========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein and in the Nordstrom Credit, Inc.
Annual Report on Form 10-K for the year ended January 31, 1997.
</TABLE>
page 3 of 8
<PAGE>
NORDSTROM CREDIT, INC.
BALANCE SHEETS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
October 31, January 31, October 31,
1997 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 3,167 $ 105 $ 639
Customer accounts receivable
net of holdback allowance
of $27,450, $26,793 and
$22,075 618,651 689,550 659,920
Other accounts receivable 1,074 13,874 2,668
Property and equipment, net 4,854 5,071 5,155
Other assets 1,773 1,506 1,611
---------- ---------- ----------
$629,519 $710,106 $669,993
========== ========== ==========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Note payable to bank $ 50,000 $ 50,000 $ 50,000
Commercial paper 22,918 113,770 95,890
Notes payable to
Nordstrom, Inc. - 54,000 14,000
Accrued interest, taxes
and other 10,219 8,553 9,292
Dividend payable to
Nordstrom, Inc. - 50,000 -
Long-term debt 403,350 311,000 335,000
---------- ---------- ----------
Total liabilities 486,487 587,323 504,182
Investment of
Nordstrom, Inc. 143,032 122,783 165,811
---------- ---------- ----------
$629,519 $710,106 $669,993
========== ========== ==========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein and in the Nordstrom Credit, Inc.
Annual Report on Form 10-K for the year ended January 31, 1997.
page 4 of 8
</TABLE>
<PAGE>
NORDSTROM CREDIT, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Earnings before extraordinary item $ 20,249 $ 24,604
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Extraordinary charge related to early
extinguishment of debt, net of
income taxes of $900 - (1,452)
Depreciation and amortization 659 995
Change in:
Other accounts receivable 12,800 4,549
Accrued interest, taxes and other 1,666 (132)
-------- --------
Net cash provided by operating activities 35,374 28,564
-------- --------
INVESTING ACTIVITIES:
Decrease in investment in
customer accounts receivable, net 70,899 12,050
Additions to property and equipment, net (6) (2)
-------- --------
Net cash provided by investing activities 70,893 12,048
-------- --------
FINANCING ACTIVITIES:
Decrease in commercial paper (90,852) (86,611)
Decrease in notes payable to
Nordstrom, Inc. (54,000) (72,000)
Sale of customer accounts
receivable to Nordstrom, Inc. - 202,888
Proceeds from issuance of long-term
debt, net 91,647 57,759
Principal payments on long-term debt - (92,100)
Cash dividend paid to Nordstrom, Inc. (50,000) (50,000)
-------- --------
Net cash used in financing activities (103,205) (40,064)
-------- --------
Net increase in cash and cash equivalents 3,062 548
Cash and cash equivalents
at beginning of period 105 91
-------- --------
Cash and cash equivalents at end of period $ 3,167 $ 639
======== ========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein and in the Nordstrom Credit, Inc.
Annual Report on Form 10-K for the year ended January 31, 1997.
</TABLE>
page 5 of 8
<PAGE>
NORDSTROM CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Note 1:
The balance sheets of Nordstrom Credit, Inc. (the "Company") as of October 31,
1997 and 1996, and the related statements of earnings and cash flows for the
periods then ended, have been prepared from the accounts without audit.
The financial information is applicable to interim periods and is not
necessarily indicative of the results to be expected for the year ending
January 31, 1998.
It is not considered necessary to include detailed footnote information
as of October 31, 1997 and 1996. The financial statements should be
read in conjunction with the Notes to Financial Statements contained in
the Nordstrom Credit, Inc. Annual Report on Form 10-K for the year ended
January 31, 1997.
In the opinion of management, the financial information includes all
adjustments (consisting only of normal, recurring adjustments) necessary
to present fairly the financial position of Nordstrom Credit, Inc. as of
October 31, 1997 and 1996, and the results of its operations and cash
flows for the periods then ended, in accordance with generally accepted
accounting principles applied on a consistent basis.
Note 2:
During the first quarter of 1996, the Company elected to prepay $43,100
of its 9.375% sinking fund debentures in order to take advantage of lower
short-term interest rates. This resulted in an extraordinary charge of
$1,452, net of applicable income taxes of $900. The premium paid has not
been included as a fixed charge for the calculation of the ratio of
earnings available for fixed charges to fixed charges.
page 6 of 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income decreased for the quarter and the nine month period when
compared to the same periods in 1996, primarily due to a reduction in
revenues from the Company's VISA card program as a result of the securitiza-
tion of these receivables in August 1996.
Interest expense decreased for the nine month period when compared to the
same period in 1996, due primarily to lower levels of short-term debt
outstanding.
Service fees paid to Nordstrom National Credit Bank ("the Bank") decreased
for the nine month period compared to the same period in 1996 due to the
securitization of the VISA receivables. The decrease was partially offset by
an increase in fees paid to the Bank for the Nordstrom Accounts due to an
increase in the service fee rate from 1.65% to 2%, effective August 1996.
Bad debt expense decreased for the nine month period when compared to the same
period in 1996, due to the securitization of the VISA receivables.
During the first quarter of 1997, the Company filed a shelf registration
statement on Form S-3 to register up to $250 million in debt securities, and
issued $92.4 million in medium-term notes under the registration.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(10.1) Loan Agreement dated July 17, 1997 between Registrant and
Nordstrom, Inc. is filed herein as an Exhibit.
(10.2) Amendment to the Loan Agreement dated July 17, 1997 between
Registrant and Nordstrom, Inc., dated September 3, 1997, is
filed herein as an Exhibit.
(10.3) Amendment to the Loan Agreement dated June 10, 1985, as
amended May 16, 1994, between Registrant and Morgan
Guaranty Trust Company of New York, dated September 3, 1997,
is filed herein as an Exhibit.
(27.1) Financial Data Schedule is filed herein as an Exhibit.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is filed.
page 7 of 8
<PAGE>
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/ John A. Goesling
__________________________________________
John A. Goesling
Executive Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: December 9, 1997
___________________
page 8 of 8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- --------------------------------- ------------------------------
<S> <C> <C>
10.1 Loan Agreement dated July 17, Filed herewith electronically.
1997, between Registrant and
Nordstrom, Inc.
10.2 Amendment to the Loan Agreement Filed herewith electronically.
dated July 17, 1997, between
Registrant and Nordstrom, Inc.,
dated September 3, 1997
10.3 Amendment to the Loan Agreement Filed herewith electronically.
dated June 10, 1985, as amended
May 16, 1994, between Registrant
and Morgan Guaranty Trust Company of
New York, dated September 3, 1997
27.1 Financial Data Schedule Filed herewith electronically.
</TABLE>
<PAGE>
July 17, 1997
Nordstrom, Inc.
1321 Second Avenue
Seattle, Washington 98101
Attn: John Goesling
RE: Master Note Agreement
Dear John:
Nordstrom Credit, Inc. ("we" or "us") hereby confirms borrowing arrangements
made with Nordstrom, Inc. ("you") as follows, to be effective as of the
opening of business on July 18, 1997.
You agree to lend to us for our general business purposes certain sums, which
you represent will be available for this purpose from time to time against our
master promissory note, payable upon demand (which if given verbally shall be
promptly confirmed in writing), in the form of Exhibit "A" to this letter,
properly completed, duly executed by an authorized officer of this Company
and delivered to you.
The principal amount of each loan shall be specified from time to time in the
manner hereinafter provided. The master note shall be dated as of the date of
its issue and shall bear interest from said date, payable on the first day of
each month on the daily principal amount from time to time outstanding during
the accrual period, at a rate or rates equivalent to the Commercial Paper 1
month Composite, according to the Federal Reserve Report H.15(519), less 13
basis points. Each change in such rate shall be effective with respect to all
loans outstanding hereunder on the same date as the change in the index rate
is effective. For purposes of computing interest, principal amounts loaned
hereunder shall be deemed to be outstanding on the date loaned but not
on the date repaid.
Upon request, we shall issue and deliver to you, without cost to you, in
exchange for the promissory note then held by you, a new promissory note in
the same principal amount as the note being surrendered in exchange, and dated
and bearing interest from the date to which interest has been paid on said
note being surrendered in exchange.
A duly authorized officer or duly authorized employee designated by you in
writing for such purpose, will from time to time notify our Treasurer (or such
person as may be designated by the Treasurer in writing) of the total amount
to be lent us hereunder and, on the authority of our Treasurer (or such person
as may be designated by the Treasurer in writing), shall enter said amount
under the column headed "Principal Amount Outstanding" either on our
promissory note
<PAGE>
Nordstrom, Inc.
July 17, 1997
Page 2
which you are then holding or on a computerized record kept for such purpose,
and such amount shall be deemed to be the amount then due on said note. Any
such entries so made shall constitute conclusive evidence of the principal
amount of said note then outstanding when you shall have received written
confirmation thereof from our Treasurer (or such person as may be designated
by the Treasurer in writing) in the manner hereinafter described. In the
event such notification to us results in an increase in the total amount to be
lent to us hereunder, you shall forthwith transfer the amount of said increase
to our account at Nations Bank of Texas numbered 3750710171. In the event
such notification to us results in a decrease in the total amount to be lent
us hereunder, we shall transfer the amount of said decrease to your account at
Wells Fargo Bank numbered 4159649714.
After the close of each month during which you have made any loan to us
hereunder or we have made any repayment on the principal balance of any loan
made hereunder or during which the interest rate on any loan shall have
changed, we shall send you a written confirmation of the transaction which
took place during such month dated the last business day of such month in
substantially the form attached hereto at Exhibit "B" with appropriate
insertions in the blank spaces therein.
It is understood and agreed that you shall have the right at any time to
demand payment of all or any part of the principal amount then outstanding on
the promissory note then held by you, together with interest to the date of
payment. We shall have the right at any time, upon advice to you by letter or
telephone, to pay all or any part of the principal amount then outstanding on
the promissory note then held by you, together with interest to the date of
payment, notwithstanding that you have not theretofore demanded such payment
in accordance with the foregoing and with the note.
It is further understood and agreed that you shall not sell, pledge, or assign
nor otherwise transfer any promissory note held by you pursuant to this
agreement without first having notified us at least ten days prior to the
intended sale of such sale, pledge, assignment or transfer of your intention
so to do, and in no event shall any such sale, pledge, assignment or transfer
be effected except upon compliance with all applicable federal and state
securities laws and regulations.
By entering into this agreement and the note, you covenant and agree that all
or our debt to you under this agreement or the note constitutes Affiliated
Debt and is subordinate and junior to all. Prior Debt of this Company
according to the terms and conditions of the Investment Agreement between us
dated October 8, 1984 as though such terms were fully set out in this
agreement.
<PAGE>
Nordstrom, Inc.
July 17, 1997
Page 3
This agreement supersedes and replaces that "Masternote Agreement" dated
November 24, 1992; from and after the date of this agreement, any debt
outstanding under that earlier agreement shall be deemed to be outstanding
under this agreement.
This agreement may be terminated by you or by us upon not less than ten day's
written notice to the other party.
If the foregoing satisfactorily sets forth the terms and conditions of the
borrowing arrangement made with you, we request that you indicate your
acceptance thereof by the signature of your duly authorized officer in the
space provided below.
Nordstrom Credit, Inc.
By /s/ John Walgamott, President
-------------------------------------------------
John Walgamott, President
ACCEPTED:
Nordstrom, Inc.
By /s/ John A. Goesling
------------------------------------------------
John A. Goesling, Chief Financial Officer
<PAGE>
July 17, 1997
Nordstrom Credit, Inc.
For value received, Nordstrom Credit, Inc., a corporation organized under the
laws of the State of Colorado, ("NCI") promises to pay to the order of
Nordstrom, Inc. ("Nordstrom") on Nordstrom's demand (which if given verbally
shall be promptly confirmed in writing), the principal sum set forth below as
"Principal Amount Outstanding", on the date of such demand, at the office of
Nordstrom and will likewise pay to the order of Nordstrom interest at the rate
or rates per annum provided for in the agreement mentioned below. Said
interest will be due and payable on the first day of each month after the date
of this note or upon payment in full of the principal amount from time to time
outstanding as indicated below. Interest will be calculated on the daily
principal amount outstanding as indicated below or in other books and records,
computerized or manual, kept for such purpose.
This note is issued pursuant to and is subject to the terms and conditions of
a certain letter agreement dated July 17, 1997, by and between Nordstrom
Credit, Inc. and Nordstrom, Inc.
NORDSTROM, CREDIT, INC.
By
----------------------
Its
----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Principal Effective
Amount Amount Amount Interest Authorized
Date Loaned Paid Outstanding Rate Initials
- -------- -------- -------- -------- -------- --------
- -------- -------- -------- -------- -------- --------
- -------- -------- -------- -------- -------- --------
- -------- -------- -------- -------- -------- --------
- -------- -------- -------- -------- -------- --------
- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
Exhibit "B" July 17, 1997
Nordstrom Credit, Inc.
13531 East Caley
Englewood, Colorado 80111
Attention:
Dated:
-----------------
Re: Master Note of Nordstrom Credit, Inc.
Gentlemen:
We confirm to you the following changes occurred in the loans outstanding
under the terms of the Agreement with you dated July 17, 1997, for the month
ended this date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Prior Current
Principal Principal Current
Amount Loan Amount Interest
Date Outstanding (Repayment) Outstanding Rate
</TABLE>
NORDSTROM CREDIT, INC.
By
----------------------
John Walgamott
President
<PAGE>
September 3, 1997
Nordstrom, Inc.
1321 Second Avenue
Seattle, Washington 98101
Attn: John A. Goesling
Re: Amendment to Master Note Agreement
Dear John:
This letter will serve to document the amendment to the Master Note Agreement
and Master Note dated as of July 17, 1997 (collectively, the "Agreement") by
and between Nordstrom Credit, Inc. and Nordstrom, Inc. and effective as of
September 3, 1997.
The parties wish to amend the Agreement as to the method by which the interest
rate is computed. Therefore, the parties agree as follows:
1. The third paragraph of the Agreement is deleted in its entirety and the
following is inserted in lieu thereof:
The principal amount of each loan shall be specified from time to time in the
manner hereinafter provided. The master note shall be dated as of the date of
its issue and shall bear interest from said date, payable on the first day of
each month on the daily principal amount from time to time outstanding during
the accrual period, at a rate or rates equivalent to the One Month LIBOR Rate
(as hereinafter defined) for such day, less fourteen (14) basis points, or, if
such day is not a business day, the rate for the immediately preceding
business day. For purposes of this Agreement, the term "One Month LIBOR Rate"
shall mean the one month USD LIBOR Rate (British Bankers Association) quoted
on page 3750 of Telerate. If the One Month LIBOR Rate is not available for
any business day, the applicable rate for such date shall be the one month
LIBOR rate for such day as determined by you, in a commercially reasonable
manner, on the basis of quotations received by you from one or more U.S. money
center banks of recognized standing used by you. Each change in such rate
shall be effective with respect to all loans outstanding hereunder on the same
date as the change in the index rate is effective. For purposes of computing
interest, principal amounts loaned hereunder shall be deemed to be outstanding
on the date loaned but not on the date repaid.
<PAGE>
2. Any and all sums outstanding pursuant to the Agreement as of the effective
date shall immediately begin to accrue interest under the Agreement as hereby
amended from and after the effective date.
3. Except as expressly amended by this letter amendment, the Agreement and all
the terms, conditions and provisions thereof shall continue in full force
and effect, and from and after the effective date of this amendment as set
out above, all references to the Agreement shall be to the Agreement as so
amended.
Nordstrom Credit, Inc.
By /s/ John Walgamott
-----------------------------------------
John Walgamott, President
Nordstrom, Inc.
By /s/ John A. Goesling
-----------------------------------------
John A. Goesling, Chief Financial Officer
<PAGE>
Amendment dated as of September 3, 1997, to Master Note Agreement,
dated June 10, 1985, as amended (the "Agreement") by and between
Nordstrom Credit, Inc. and Morgan Guaranty Trust Company of New York, as
custodian, fiduciary and advisor.
WHEREAS, the parties hereto wish to amend the Agreement so as to
change the rate at which interest under the Agreement is computed;
Now, Therefore, the parties hereto agree as follows:
1. The third paragraph of the Agreement is deleted in its entirety
and the following is inserted in lieu thereof:
The principal amount of each such note shall be specified from time to
time in the manner hereinafter provided. Each such note shall be dated
as of the date of its issue and shall bear interest from said date on
the principal amount from time to time outstanding, payable on the first
day of each month, at a rate per annum for each day equal to the One
Month LIBOR Rate (as hereinafter defined) for such day, less fourteen
(14) basis points, or, if such day is not a business day, the rate for
the immediately preceding business day. For the purposes of this
Agreement the term One Month LIBOR Rate shall mean the one month USD
LIBOR Rate (British Bankers Association) quoted on page 3750 of
Telerate. If the One Month LIBOR Rate is not available for any business
day, the applicable rate for such day shall be the one month LIBOR rate
for such day as determined by you, in a commercially reasonable manner,
on the basis of quotations received by you from three U.S. money center
banks of recognized standing. For purposes of computing interest,
principal amounts loaned hereunder shall be deemed to be outstanding on
the date loaned but not on the date repaid.
2. Except as hereby expressly amended, the Agreement and all the
terms, conditions and provisions thereof shall continue in full force
and effect.
IN WITNESS WHEREOF, the parties have hereto set their names as at the
date first above written.
MORGAN GUARANTY TRUST COMPANY NORDSTROM CREDIT, INC.
OF NEW YORK
By: /s/ Robert R. Johnson By: /s/John C. Walgamott
------------------------ ---------------------
Title: Vice President Title: President
------------------------ ---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 3167
<SECURITIES> 0
<RECEIVABLES> 646101
<ALLOWANCES> 27450
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4854
<DEPRECIATION> 0
<TOTAL-ASSETS> 629519
<CURRENT-LIABILITIES> 0
<BONDS> 403350
0
0
<COMMON> 0
<OTHER-SE> 143032
<TOTAL-LIABILITY-AND-EQUITY> 629519
<SALES> 0
<TOTAL-REVENUES> 81127
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 48978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27081
<INCOME-PRETAX> 32149
<INCOME-TAX> 11900
<INCOME-CONTINUING> 20249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20249
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
