<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, 1998
[ ] 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 7, 1998 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 9
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NORDSTROM CREDIT, INC.
----------------------
INDEX
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<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, 1998
and 1997 3
Balance Sheets
October 31, 1998 and 1997
and January 31, 1998 4
Statements of Cash Flows
Nine months ended October 31, 1998
and 1997 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 8
</TABLE>
page 2 of 9
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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>
1998 1997 1998 1997
-------- -------- -------- --------
Service charge income $26,540 $25,956 $80,310 $80,163
Rental income from Nordstrom
National Credit Bank 321 321 964 964
-------- -------- -------- --------
Total revenue 26,861 26,277 81,274 81,127
Expenses:
Interest, net 7,522 9,136 23,767 27,081
Service fees paid to
Nordstrom National
Credit Bank 5,782 6,329 19,791 20,754
Other general and
administrative 356 373 1,085 1,143
-------- -------- -------- --------
Total expenses 13,660 15,838 44,643 48,978
-------- -------- -------- --------
Earnings before income taxes 13,201 10,439 36,631 32,149
Income taxes 4,586 3,900 13,100 11,900
-------- -------- -------- --------
Net earnings $ 8,615 $ 6,539 $23,531 $20,249
======== ======== ======== ========
Ratio of earnings
available for fixed
charges to fixed charges 2.75 2.14 2.54 2.19
======== ======== ======== ========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
</TABLE>
page 3 of 9
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NORDSTROM CREDIT, INC.
BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
October 31, January 31, October 31,
1998 1998 1997
(unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 99 $ 157 $ 3,167
Customer accounts receivable
net of holdback allowance
of $29,626, $30,384 and
$27,450 555,105 636,420 618,651
Other accounts receivable 638 6,138 1,074
Property and equipment, net 4,595 4,786 4,854
Other assets 14,180 13,641 12,317
-------- ----------- --------
$574,617 $661,142 $640,063
======== =========== ========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Note payable to bank $ - $ 50,000 $ 50,000
Commercial paper 140,427 108,020 22,918
Accrued interest, taxes
and other 7,467 24,930 20,763
Long-term debt 303,350 353,350 403,350
-------- ----------- --------
Total liabilities 451,244 536,300 497,031
Investment of
Nordstrom, Inc. 123,373 124,842 143,032
-------- ----------- --------
$574,617 $661,142 $640,063
======== =========== ========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
</TABLE>
page 4 of 9
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NORDSTROM CREDIT, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended October 31,
----------------------
<S> <C> <C>
1998 1997
-------- --------
OPERATING ACTIVITIES:
Net earnings $ 23,531 $ 20,249
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 547 659
Change in:
Other accounts receivable 5,500 12,800
Other assets (886) 11
Accrued interest, taxes and other (17,463) 1,655
-------- --------
Net cash provided by operating activities 11,229 35,374
-------- --------
INVESTING ACTIVITIES:
Decrease in customer
accounts receivable, net 81,315 70,899
Additions to property and
equipment, net (9) (6)
-------- --------
Net cash provided by investing activities 81,306 70,893
-------- --------
FINANCING ACTIVITIES:
Payments under notes payable
to Nordstrom, Inc., net - (54,000)
Payments under notes payable to bank (50,000) -
Borrowings (payments) of
commercial paper, net 32,407 (90,852)
Proceeds from issuance of
long-term debt, net - 91,647
Principal payments on long-term debt (50,000) -
Cash dividend paid to Nordstrom, Inc. (25,000) (50,000)
-------- --------
Net cash used in financing activities (92,593) (103,205)
-------- --------
Net (decrease) increase in cash
and cash equivalents (58) 3,062
Cash and cash equivalents
at beginning of period 157 105
-------- --------
Cash and cash equivalents at end of period $ 99 $ 3,167
======== ========
<FN>
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
</TABLE>
page 5 of 9
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NORDSTROM CREDIT, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
Note 1 - Basis of Presentation
The balance sheets of Nordstrom Credit, Inc. (the "Company") as of
October 31, 1998 and 1997, 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, 1999.
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, 1998.
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, 1998 and 1997, 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.
Certain reclassifications of prior period balances have been made for
presentation consistent with the current period.
Note 2 - New Accounting Rules
The Company adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,"
during the first quarter of 1998. The effect of adopting SOP 98-1 was not
material.
As of February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which did
not have any impact on the Company's financial position, results of
operations or cash flows.
page 6 of 9
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income increased for the nine-month period due primarily to
an increase in income related to securitized receivables in 1998 compared to
1997. The increase was partially offset by a decrease in service charges
earned on the Company's proprietary credit card due primarily to a reduction
in the accounts receivable balances on which the Company earns service fees.
Interest expense decreased for the quarter, compared to the same period
in 1997, due primarily to lower interest rates and lower levels of debt
outstanding.
Interest expense decreased for the nine-month period, compared to the
same period in 1997, due primarily to lower levels of debt outstanding.
The Company is taking steps to avoid negative consequences of Year 2000
software non-compliance and presently believes that any such non-compliance
will not have a material effect on the Company's business, results of
operations, or financial condition. However, if unforeseen difficulties arise
or the modification, conversion and replacement activities that the Company
has undertaken are not completed in a timely manner, the Company recognizes
that it may be negatively affected by Year 2000 issues. The impact on the
Company is primarily dependent on the Year 2000 readiness efforts of its
parent, Nordstrom, Inc. ("Nordstrom") and its affiliate Nordstrom National
Credit Bank (the "Bank"), which services the consumer accounts receivable of
the Company.
Nordstrom and the Bank are currently evaluating, replacing or upgrading the
computer systems they use to provide services to the Company in an effort to
make them Year 2000 compliant, and expect to have remediation efforts
completed for critical computer systems by the end of the first quarter in
1999. Testing is being conducted based on criticality and is scheduled to be
completed in June 1999. Non-IT systems, such as microchips embedded in
systems such as elevators, are also being evaluated, replaced or upgraded as
needed. Although Nordstrom's and the Bank's respective assessments of Year
2000 issues have been completed, reassessments are conducted on an ongoing
basis to provide reasonable assurance that all critical risks have been
identified and will be mitigated.
The total costs of this effort is presently estimated to be $24 million for
Nordstrom including $2 million for the Bank, of which approximately $12
million for Nordstrom, Inc., which includes $1 million for the Bank, has
been incurred through October 31, 1998. While the Company believes all
necessary work will be completed in a timely fashion, there can be no
guarantee that all systems will be compliant by the year 2000, that the
estimated cost of remediation will not increase or that the systems of
other companies and government agencies on which the Company relies will be
compliant.
Since 1996, Nordstrom and the Bank, respectively, have been communicating
with outside vendors to determine their state of readiness with regard to
the Year 2000 issue. Based on its assessment to date, the Company has no
indication that any third party is likely to experience Year 2000 non-
compliance of a nature which would cause a material impact on the Company.
However, the risk remains that outside vendors or other third parties may
not have accurately determined their state of readiness, in which case
page 7 of 9
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
such parties' lack of Year 2000 compliance may have a material adverse
effect on the Company's business. Nordstrom and the Bank will continue
to monitor the Year 2000 compliance of third parties with which it does
business.
The Company believes the most likely worst-case scenarios that it might
confront with respect to the Year 2000 issues have to do with the possible
failure of third party systems over which the Company has no control, such
as, but not limited to, power and telephone service. Nordstrom and the Bank
each have business continuity plans in place that address recovery from
various kinds of disasters, including recovery from significant interruption
in conveyance of data within the Company's network information systems.
Nordstrom and the Bank are using these plans to assist in the development of
more specific Year 2000 contingency plans, including plans related to
services they provide to the Company, which they expect to complete during
the first half of 1999.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(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 8 of 9
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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 A. Stein
------------------------------------------
Michael A. Stein
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: December 14, 1998
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page 9 of 9
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- --------------------------------------- ---------------------------
27.1 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 584,731
<ALLOWANCES> 29,626
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,595
<DEPRECIATION> 0
<TOTAL-ASSETS> 574,617
<CURRENT-LIABILITIES> 0
<BONDS> 303,350
0
0
<COMMON> 0
<OTHER-SE> 123,373
<TOTAL-LIABILITY-AND-EQUITY> 574,617
<SALES> 0
<TOTAL-REVENUES> 81,274
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,767
<INCOME-PRETAX> 36,631
<INCOME-TAX> 13,100
<INCOME-CONTINUING> 23,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,531
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
