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, 1999
[ ] 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 June 7, 1999 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
NORDSTROM CREDIT, INC.
----------------------
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Statements of Earnings
Three months ended April 30, 1999
and 1998 3
Balance Sheets
April 30, 1999 and 1998
and January 31, 1999 4
Statements of Cash Flows
Three months ended April 30, 1999
and 1998 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
page 2 of 9
NORDSTROM CREDIT, INC.
STATEMENTS OF EARNINGS
(Dollars in thousands)
(unaudited)
Three Months
Ended April 30,
------------------
1999 1998
-------- --------
Service charge income $24,864 $27,567
Rental income from affiliates 334 321
-------- --------
Total revenue 25,198 27,888
Expenses:
Interest, net 6,624 8,113
Servicing and marketing fees paid to
Nordstrom National Credit Bank 6,183 5,736
Other general and administrative 278 358
-------- --------
Total expenses 13,085 14,207
-------- --------
Earnings before income taxes 12,113 13,681
Income taxes 4,400 4,972
-------- --------
Net earnings $ 7,713 $ 8,709
======== ========
Ratio of earnings available for
fixed charges to fixed charges 2.83 2.68
======== ========
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
page 3 of 9
NORDSTROM CREDIT, INC.
BALANCE SHEETS
(Dollars in thousands)
April 30, January 31, April 30,
1999 1999 1998
(unaudited) (unaudited)
----------- ----------- -----------
ASSETS
- ------
Cash and cash equivalents $ 69 $ 91 $ 367
Customer accounts receivable
net of holdback allowance
of $21,753, $24,543 and
$27,522 516,298 566,443 574,741
Other accounts receivable 118 2,709 1,548
Land, buildings and
equipment, net (at cost) 4,465 4,530 4,724
Deferred taxes and
other assets 9,281 10,705 13,876
-------- ----------- --------
$530,231 $584,478 $595,256
======== =========== ========
LIABILITIES AND INVESTMENT OF NORDSTROM, INC.
- ---------------------------------------------
Notes payable to bank $ - $ - $ 50,000
Commercial paper - 78,784 37,273
Note payable to Nordstrom, Inc. 81,940 62,000 -
Accrued interest, taxes
and other 6,914 10,030 21,082
Long-term debt 303,350 303,350 353,350
-------- ----------- --------
Total liabilities 392,204 454,164 461,705
Investment of
Nordstrom, Inc. 138,027 130,314 133,551
-------- ----------- --------
$530,231 $584,478 $595,256
======== =========== ========
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
page 4 of 9
NORDSTROM CREDIT, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months
Ended April 30,
----------------------
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net earnings $ 7,713 $ 8,709
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 164 190
Change in:
Other accounts receivable 2,591 4,590
Other assets 1,325 (359)
Accrued interest, taxes and other (3,116) (3,848)
-------- --------
Net cash provided by operating activities 8,677 9,282
-------- --------
INVESTING ACTIVITIES:
Decrease in customer
accounts receivable, net 50,145 61,679
Additions to property and
equipment, net - (4)
-------- --------
Net cash provided by investing activities 50,145 61,675
-------- --------
FINANCING ACTIVITIES:
Borrowings under note payable
to Nordstrom, Inc., net 19,940 -
Payments of commercial paper, net (78,784) (70,747)
-------- --------
Net cash used in financing activities (58,844) (70,747)
-------- --------
Net (decrease) increase in cash
and cash equivalents (22) 210
Cash and cash equivalents
at beginning of period 91 157
-------- --------
Cash and cash equivalents at end of period $ 69 $ 367
======== ========
These statements should be read in conjunction with the Notes to
Financial Statements contained herein.
page 5 of 9
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
April 30, 1999 and 1998, 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, 2000.
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, 1999.
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
April 30, 1999 and 1998, 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 Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires an entity to
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The Company plans to
adopt SFAS 133 on February 1, 2001. Adoption of this standard is not
expected to have a material impact on the Company's financial statements.
Note 3 - Related Party Transactions
The Company owns an office building in Englewood, Colorado, and leases space
in the building to Nordstrom National Credit Bank ("the Bank") under a
month-to-month agreement. At April 30,1999, monthly rent is $107. The
Company also owns property adjacent to the office building, on which
Nordstrom, Inc. ("Nordstrom") has located its data center. Commencing
February 1, 1999, monthly rent received from Nordstrom is $4.
Effective February 1, 1999, the Company pays a monthly marketing fee to the
Bank for its marketing efforts to increase customer accounts receivable
balances upon which the Company earns service charge income. The fee is
based on the amount of revenue generated by the Company's customer accounts
receivable.
page 6 of 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Service charge income decreased for the quarter, compared to the same period
in 1998, primarily due 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 1998, due primarily to lower levels of debt outstanding and lower
interest rates.
Servicing and marketing fees paid to the Bank increased primarily due to an
increase in the servicing fee rate from 2.0% to 2.3%, effective February 1,
1999. Also effective February 1, 1999, the Company pays a monthly marketing
fee to the Bank for its marketing efforts to increase customer accounts
receivable balances.
The Company does not own any significant information technology systems or
related software. All significant systems utilized by the Company are owned
by its parent, Nordstrom and its affiliate, the Bank, which services the
customer accounts receivable of the Company. Therefore, the impact on the
Company of Year 2000 issues is primarily dependent on the Year 2000
compliance efforts of Nordstrom and the Bank.
Nordstrom and the Bank are taking steps to avoid potential negative
consequences of Year 2000 software non-compliance and presently believe 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 Nordstrom and the Bank have undertaken are not
completed in a timely manner, the Company recognizes that it may be
negatively impacted by Year 2000 issues.
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 around mid-1999. Testing is being
conducted based on criticality. Non-information technology systems, such as
microchips embedded in elevators, are also being evaluated, replaced or
upgraded as needed. Although Nordstrom's and the Bank's respective
assessments of Year 2000 compliance 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.
Nordstrom's cumulative Year 2000 expenses through April 30, 1999, were
approximately $14 million, including $1.2 million for the Bank. For the
quarter ended April 30, 1999, expenses incurred by Nordstrom were $1.0
million, including $0.1 million for the Bank. In order to meet Year 2000
compliance goals, Nordstrom and the Bank have redeployed existing resources.
While this reallocation of resources has resulted in the deferral of certain
information technology projects, the impact of those deferrals is not
Page 7 of 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont.)
material to the Company, Nordstrom or the Bank. The Company believes that
all necessary Year 2000 compliance work will be completed in a timely
fashion. However, 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 have been communicating with 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 have a material impact on the Company. However, the risk remains that
vendors or other third parties may not have accurately determined their
state of readiness, in which case such parties' lack of Year 2000 compliance
may have a material adverse effect on the Company's results of operations.
Nordstrom and the Bank will continue to monitor the Year 2000 compliance of
third parties with which they do business.
The Company believes the most likely worst-case scenarios that it might
confront with respect to 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 telecommunications services. Nordstrom and
the Bank each have business resumption contingency plans in place that
address recovery from various kinds of disasters, including recovery from
significant interruption in conveyance of data within their network
information systems. Nordstrom and the Bank are using these plans to assist
in development of more specific Year 2000 contingency plans, including plans
related to services they provide to the Company, which they expect to
complete around mid-1999.
PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(10.1) 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 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 8 of 9
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: June 10, 1999
- ------------------------
page 9 of 9
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- -------------------------------------- ---------------------------
10.1 Second Amendment to the Series Filed herewith electronically
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
27.1 Financial Data Schedule Filed herewith electronically
<PAGE>
SECOND AMENDMENT (this "Amendment"), dated as of February 28, 1999 to the
SERIES 1996-A SUPPLEMENT, by and among NORDSTROM NATIONAL CREDIT BANK, a
national banking association (the "Transferor" and "Servicer"), NORDSTROM
CREDIT, INC., a Colorado corporation, and NORWEST BANK COLORADO, NATIONAL
ASSOCIATION, as trustee (together with its successors in trust thereunder as
provided in the Agreement referred to below, the "Trustee").
WHEREAS, the Transferor, the Servicer and the Trustee have heretofore
executed and delivered a Series 1996-A Supplement, dated as of August 14,
1996 (the "Series Supplement") to the Master Pooling and Servicing Agreement
and as supplemented by the Series Supplement, (the "Agreement"), among the
Transferor, the Servicer, Nordstrom Credit, Inc., and the Trustee providing
for the issuance by the Nordstrom Credit Card Master Trust (the "Trust") of
two classes of certificates (collectively, the "Series 1996-A Certificates");
WHEREAS, this amendment is being entered into pursuant to Section 13.1 (b) of
the Agreement;
WHEREAS, each Series 1997-A Certificateholder, the Agent, the Administrative
Agent and each Bank Investor is consenting to this Amendment as evidenced by
their respective signatures on the signature pages hereto;
WHEREAS, all other conditions precedent to the execution of this Amendment
have been complied with;
NOW THEREFORE, the Transferor, the Servicer, Nordstrom Credit, Inc. and the
Trustee are executing and delivering this Amendment in order to amend the
provisions of the Series Supplement in the manner set forth below.
Capitalized terms used herein as defined terms but not defined herein shall
have the meaning assigned to them in the Series Supplement.
SECTION 1. Amendment to Section 2.0. Section 2.0 of the Series 1996-A
Supplement is hereby amended as follows:
(a) The definition of "Servicing Fee Percentage" shall be amended such that
the reference to "2.00%" shall read "4.00%" for Nordstrom National Credit
Bank or an Affiliate. For all other Servicers, the 2.00% will apply.
SECTION 2. Ratification of the Series Supplement. As amended by the
Amendment, the Series Supplement is in all respects ratified and confirmed,
and the Series Supplement, as so amended by this Amendment, shall be read,
taken, and construed as one and the same instrument. This Amendment has been
executed and delivered solely for the purpose of providing for the amendments
set forth in Section 1 hereof, and nothing herein expressed or implied shall
constitute: (i) an amendment, supplement or other modification to any other
term, provision or condition contained in the Agreement; (ii) a waiver of any
right, remedy, power or privilege of any Investor Certificateholder
thereunder; or (iii) a waiver of the performance, compliance or observance by
the Transferor or the Servicer of any of their respective covenants,
obligations or other agreements contained therein. By executing this
Amendment, each of the Transferor and the Servicer hereby confirms in all
page 1 of 4
<PAGE>
respects each term, condition, representation, warranty, covenant and
agreement set forth in the Agreement and agrees that the same shall continue
in full force and effect.
SECTION 3. Governing Law. This Amendment shall be construed in accordance
with laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
SECTION 4. Severability. If any one or more of the covenants, agreements,
provisions or terms of this Amendment shall for any reason whatsoever be held
invalid, then such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or terms of
this Amendment and in no way affect the validity or enforceability of the
other provisions of this Amendment.
SECTION 5. Counterparts. This amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement.
SECTION 7. Headings. The headings herein are for the purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
[THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK]
page 2 of 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the
date first above written.
NORDSTROM NATIONAL CREDIT BANK,
as Transferor
By: /s/ Kevin Knight
---------------------------------------
Name: Kevin Knight
Title: President
NORDSTROM CREDIT, INC.,
By: /s/ Kevin Knight
---------------------------------------
Name: Kevin Knight
Title: President
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION, as Trustee
By: /s/ Leigh M. Lutz
---------------------------------------
Name: Leigh M. Lutz
Title: Vice President
page 3 of 4
<PAGE>
The undersigned hereby consent to the foregoing amendment:
NATIONSBANK, N.A.,
as Agent, Administrative Agent and Bank Investor
By: /s/ Elliott Lemon
-----------------------------------------
Name: Elliott Lemon
Title: Vice President
ENTERPRISE FUNDING CORPORATION,
as holder of the Class A Certificates
By: /s/ Kevin P. Burns
-----------------------------------------
Name: Kevin P. Burns
Title: Vice President
NORDSTROM NATIONAL CREDIT BANK,
as holder of the Class B Certificates
By: /s/ Kevin Knight
-----------------------------------------
Name: Kevin Knight
Title: President
ABN AMRO BANK N.V., SEATTLE BRANCH
as Bank Investor
By: /s/ Susan Hendrixson/Ellen M. Coleman
-----------------------------------------
Name: Susan Hendrixson/Ellen M. Coleman
Title: Vice President/Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Bank Investor
By: /s/ Robert Bottamedi
-----------------------------------------
Name: Robert Bottamedi
Title: Vice President
page 4 of 4
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