Item 1. Business. - ------------------
The information required under this item is included in Note 1 to the Financial Statements on page 14 of this report, which is incorporated herein by reference.
Item 2.
Item 2. Properties. - --------------------
The Company owns an office building in Englewood, Colorado where it locates its principal offices.
Item 3.
Item 3. Legal Proceedings. - ---------------------------
The Company is not a party to any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. - -------------------------------------------------------------
Not required under reduced disclosure format.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. - -------------------------------------------------------------------------------
The class of securities registered is the Company's Common Stock, $.50 par value per share. There are 100,000 shares of authorized Common Stock, of which 10,000 shares were issued and outstanding as of March 31, 1998. The Company's common stock is owned entirely by Nordstrom, Inc. ("Nordstrom"). The stock has not been traded and, accordingly, no market value has been established. A dividend of $50,000,000 was paid on August 30, 1996 to the holder of record of common stock at the close of business on August 15, 1996. A dividend of $50,000,000 was paid on February 3, 1997 to the holder of record of common stock at the close of business on January 31, 1997. In addition, a dividend of $25,000,000 was paid on January 30, 1998 to the holder of record of common stock at the close of business on January 15, 1998.
Item 6.
Item 6. Selected Financial Data. - ---------------------------------
Not required under reduced disclosure format.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - -------------------------------------------------------------------------
Service charge income decreased in 1997 due primarily to a reduction in revenues from the Company's VISA card program as a result of the securitization of these receivables in August 1996, which is described in Note 1 and Note 5 to the financial statements.
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Interest expense decreased in 1997 due primarily to lower levels of short-term debt outstanding.
Service fees paid to Nordstrom National Credit Bank (the "Bank") decreased for 1997 due primarily to the securitization of the VISA receivables. The decrease was partially offset by an increase in fees paid to the Bank for servicing the Nordstrom customer accounts receivable due to an increase in the service fee rate from 1.65% to 2%, effective August, 1996.
Bad debt expense decreased in 1997 due to the securitization of the VISA receivables.
The Company recognizes that its operations may be negatively affected by Year 2000 software issues, primarily from its interactions with the Bank, which services all customer accounts receivable for the Company. The Bank is addressing the Year 2000 impact by replacing or upgrading its computer systems to make them Year 2000 compliant. The Company believes all necessary work will be completed by the Bank in a timely fashion.
Certain other information required under this item is included in Note 1 and Note 5 to the Financial Statements on pages 14 and 15 respectively, of this report, which are incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------
A) Financial Statements and Supplementary Data
The financial statements listed in the Index to Financial Statements and Schedule on page 8 of this report are incorporated herein by reference.
B) Other Financial Statements and Schedule
The schedule required under Regulation S-X is filed pursuant to Item 14 of this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. - ------------------------------------------------------------------------
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------
Not required under reduced disclosure format.
Item 11.
Item 11. Executive Compensation. - --------------------------------
Not required under reduced disclosure format.
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------
Not required under reduced disclosure format.
Item 13.
Item 13. Certain Relationships and Related Transactions. - --------------------------------------------------------
Not required under reduced disclosure format.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - --------------------------------------------------------------------------
(a)1. Financial Statements --------------------
The following financial statements of the Company and the Independent Auditors' Report are incorporated by reference in Part II, Item 8:
Independent Auditors' Report Statements of Earnings Balance Sheets Statements of Investment of Nordstrom, Inc. Statements of Cash Flows Notes to Financial Statements
(a)2. Financial Statement Schedules ----------------------------- The financial statement schedule listed in the Index to Financial Statements and Schedule on page 8 of this report is incorporated herein by reference.
(a)3. Exhibits -------- (3.1) Articles of Incorporation of the Registrant are hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1991, Exhibit 3.1.
(3.2) By-laws of the Registrant are hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1991, Exhibit 3.2.
(3.3) Amendment to the Bylaws of the Registrant dated December 19, 1995, are hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1996, Exhibit 3.3.
(4.1) Indenture between Registrant and Norwest Bank Colorado, N.A., as successor trustee, dated November 15, 1984, the First Supplement thereto dated January 15, 1988, the Second Supplement thereto dated June 1, 1989, and the Third Supplement thereto dated October 19, 1990 are hereby incorporated by reference from Registration No. 33-3765, Exhibit 4.2; Registration No. 33-19743, Exhibit 4.2; Registration No. 33-29193, Exhibit 4.3; and Registrant's Annual Report on Form 10-K for the year ended January 31, 1991, Exhibit 4.2, respectively.
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(4.2) Trustee Resignation of Wells Fargo Bank (Colorado), N.A., (as success- or to First Interstate Bank of Denver, N.A.), dated March 20, 1997 is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1997, Exhibit 4.2.
(4.3) Trustee Acceptance of Norwest Bank Colorado, N.A., dated March 20, 1997 is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1997, Exhibit 4.3.
(4.4) Indenture between Registrant and Norwest Bank Colorado, N.A., as trustee, dated April 22, 1997 is hereby incorporated by reference from Registration No. 333-24757, Exhibit 4.1.
(10.1) Investment Agreement dated October 8, 1984 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant's Form 10, Exhibit 10.1.
(10.2) Operating Agreement dated August 30, 1991 between Registrant and Nordstrom National Credit Bank is hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended July 31, 1991, Exhibit 10.1, as amended.
(10.3) Operating Agreement for VISA Accounts and Receivables dated May 1, 1994 between Registrant and Nordstrom National Credit Bank is hereby incorporated by reference from Registration No. 33-55905, Exhibit 10.1.
(10.4) Credit Agreement dated July 24, 1997 between Registrant and a group of commercial banks is hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended July 31,1997, Exhibit 10.1.
(10.5) Loan Agreement dated July 17, 1997 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.1.
(10.6) Amendment to the Loan Agreement dated July 17, 1997 between Registrant and Nordstrom, Inc., dated September 3, 1997 is hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.2.
(10.7) Loan Agreement dated June 10, 1985, as amended May 16, 1994, between Registrant and Morgan Guaranty Trust Company of New York is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1995, Exhibit 10.10.
(10.8) Second 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 hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended October 31, 1997, Exhibit 10.3.
(10.9) 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, is incorporated by reference from the Registrant's Form 10-Q for the quarter ended October 31, 1996, Exhibit 10.3.
(10.10) Agreement to terminate the Operating Agreement for VISA Accounts and Receivables dated May 1, 1994 between Registrant and Nordstrom National Credit Bank, dated August 14, 1996 is hereby incorporated by reference from the Registrant's Form 10-Q for the quarter ended October 31, 1996, Exhibit 10.1.
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(10.11) Receivables Purchase Agreement dated August 14, 1996 between Registrant and Nordstrom, Inc. is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1997, Exhibit 10.10.
(10.12) Participation Agreement dated August 14, 1996 between Registrant and Nordstrom National Credit Bank is hereby incorporated by reference from the Registrant's Form 10-K for the year ended January 31, 1997, Exhibit 10.11.
(10.13) 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 December 10, 1997 is filed herein as an Exhibit.
(12.1) Computation of Ratio of Earnings Available for Fixed Charges to Fixed Charges is filed herein as an Exhibit.
(23.1) Independent Auditors' Consent is filed herein as an Exhibit.
(27.1) Financial Data Schedule is filed herein as an Exhibit.
All other exhibits are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.
(b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the last quarter of the period for which this report is filed.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date March 31, 1998 by /s/ John A. Goesling __________________ ____________________________________________ John A. Goesling Executive Vice President and Treasurer (Principal Accounting and Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ John A. Goesling /s/ John J. Whitacre _____________________________________ _____________________________________ John A. Goesling John J. Whitacre Director, Executive Vice President Director and Treasurer (Principal Accounting and Financial Officer)
/s/ J. Daniel Nordstrom _____________________________________ J. Daniel Nordstrom Director
Date March 31, 1998 ______________________
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NORDSTROM CREDIT, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
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INDEPENDENT AUDITORS' REPORT
Board of Directors Nordstrom Credit, Inc. Englewood, Colorado
We have audited the accompanying balance sheets of Nordstrom Credit, Inc. as of January 31, 1998 and 1997, and the related statements of earnings, investment of Nordstrom, Inc. and cash flows for each of the three years in the period ended January 31, 1998. Our audits also included the financial statement schedule listed in the accompanying Index to Financial Statements and Schedule. These financial statments and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of Nordstrom Credit, Inc. as of January 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP Seattle, Washington March 9, 1998
9 of 19 NORDSTROM CREDIT, INC. STATEMENTS OF EARNINGS (Dollars in thousands)
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NORDSTROM CREDIT, INC. BALANCE SHEETS (Dollars in thousands)
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NORDSTROM CREDIT, INC. STATEMENTS OF INVESTMENT OF NORDSTROM, INC. (Dollars in thousands except per share amount)
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NORDSTROM CREDIT, INC. STATEMENTS OF CASH FLOWS (Dollars in thousands)
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NORDSTROM CREDIT, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands)
NOTE 1 - DESCRIPTION OF BUSINESS
Nordstrom Credit, Inc. (the "Company"), a wholly-owned subsidiary of Nordstrom, Inc. ("Nordstrom") was incorporated in the State of Washington in 1982 and reincorporated in the State of Colorado in 1990. The primary business of the Company is to finance customer accounts receivable generated under revolving charge accounts through sales of merchandise in Nordstrom stores ("Accounts") and until August 15, 1996, through purchases by customers using the Nordstrom National Credit Bank (the "Bank") VISA cards ("VISA Accounts"). The Accounts and the VISA Accounts are originated through the use of credit cards issued by the Bank, a national banking association organized as a wholly-owned subsidiary of Nordstrom, effective August 30, 1991.
The Company and the Bank are parties to an Operating Agreement dated August 30, 1991 (the "Operating Agreement") pursuant to which the Company purchases Accounts from the Bank for a price equal to the amount of Accounts originated less an allowance for amounts to be written off (the "holdback allowance"). Under the terms of the Operating Agreement, the Bank performs the servicing functions for the Accounts and the Company pays the Bank a servicing fee based on the amount of such Accounts originated. The servicing fee rate averaged 1.66% in 1995, 1.83% in 1996, and has been 2% since August, 1996.
Prior to August 15, 1996, the Company and the Bank were also parties to an Operating Agreement for VISA Accounts and Receivables dated May 1, 1994 (the "VISA Operating Agreement"), under which the Company purchased VISA Accounts from the Bank under the same terms and conditions as the Operating Agreement except for the allowance for the amounts to be written off. Amounts written off were charged to the Company, except amounts written off with respect to sales occurring at Nordstrom stores, which were indemnified by Nordstrom. Pursuant to the terms of the VISA Operating Agreement, the Bank performed the servicing functions for the VISA Accounts and the Company paid the Bank a servicing fee which was determined on the same basis as the servicing fee for the Accounts.
As described more fully in Note 5, on August 15, 1996, the Company sold substantially all of its outstanding VISA receivables to Nordstrom in connection with a securitization of the receivables. As a result of this transaction, the VISA Operating Agreement was terminated. The Company no longer purchases and finances receivables generated through the use of the Bank's VISA card, and the Bank securitizes all new VISA receivables through a trust.
The Company and Nordstrom are parties to an Investment Agreement dated October 8, 1984 (the "Investment Agreement") which, among other things, governs ownership of Company stock and the financial relationships between Nordstrom and the Company. The Investment Agreement requires that Nordstrom maintain the Company's ratio of earnings available for fixed charges to fixed charges at not less than 1.25:1 and further requires that Nordstrom retain ownership of all the outstanding shares of stock of the Company. This agreement does not, however, represent a guarantee by Nordstrom of the payment of any obligation of the Company.
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses in the accompanying financial statements. Actual results could differ from those estimates.
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NOTE 2 - RENTAL INCOME
The Company owns an office building in Englewood, Colorado, and leases space in the building to the Bank under a month-to-month agreement. Monthly rent was $87 in 1995, and increased to $107 per month in May, 1996.
NOTE 3 - INTEREST EXPENSE
The components of net interest expense are as follows:
NOTE 4 - INCOME TAXES
The Company files consolidated income tax returns with Nordstrom. Income taxes have been provided on a separate return basis, and the difference between the effective tax rate and the statutory Federal income tax rate is due to the provision for state and local income taxes. At January 31, 1998 and 1997, amounts due to Nordstrom for income taxes totaled $4,500 and $1,900 and are included in Accrued interest, taxes and other. The Company has no significant deferred taxes.
NOTE 5 -CUSTOMER ACCOUNTS RECEIVABLE
Customer accounts receivable, net, consists of the following:
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NOTE 5 (continued)
On August 15, 1996, the Company sold substantially all of its outstanding VISA receivables to Nordstrom in connection with a securitization of the receivables. Nordstrom then sold the receivables to the Bank, which transferred the receivables to the Nordstrom Credit Card Master Trust (the "Trust") in return for certificates representing undivided interests in the Trust. A Class A certificate with a market value of $186,600 was sold to a third party, and a Class B certificate was purchased by the Company at an approximate market value of $9,000. The Class B certificate has a stated principal amount of $9,900, bears interest at 6.5%, and is subordinated to the Class A certificate. The Company also purchased from the Bank a portion of its investment in the Trust (the "Seller's Interest") at an approximate market value of $4,100. The Bank retains the remaining Seller's Interest, and will continue to service all of the receivables on behalf of the Trust.
As a result of the securitization of the receivables, the Company no longer purchases and finances VISA receivables generated through the use of the Bank's VISA card, except to the extent of its investment in the Class B certificate and the Seller's Interest. The Bank securitizes all new VISA receivables through the Trust, and from time to time sells to the Company additional portions of the Seller's Interest, depending on its cash flow needs. The Company's investment in the Class B certificate and the Seller's Interest (the "Master Trust Certificates") is included in customer accounts receivable.
Pursuant to the terms of operative documents of the Trust, in certain events the Company may be required to fund certain amounts pursuant to a recourse obligation for credit losses. Based on current cash flow projections, the Company does not believe any additional funding will be required.
NOTE 6 - OTHER RECEIVABLES
Other receivables consists of amounts due from the Bank for net activity in Accounts, less service fees due the Bank. These amounts are settled on a second business day basis. At January 31, 1998 and 1997, the amount also includes funds advanced to the Bank totaling $2,500 and $8,684 respectively. Such amounts were subject to interest rates of 5.5% and 5.4%, and were repaid on February 20, 1998 and February 5, 1997, respectively.
NOTE 7 - NOTES PAYABLE AND COMMERCIAL PAPER
The notes payable to bank represents amounts borrowed from a commercial bank as fiduciary under a master note agreement which provides for borrowings up to $50,000. Until September 3, 1997, borrowings under the Agreement bore interest at floating rates based on a published short-term interest rate composite index (5.3% at January 31, 1997). Thereafter, borrowings under the Agreement bear interest at floating rates based on a published LIBOR rate (5.5% at January 31, 1998). The borrowings mature up to six months from the date of borrowing or on demand.
The notes payable to Nordstrom, Inc. represents amounts borrowed from Nordstrom under an Agreement dated July 17, 1997. The Agreement provides for borrowings from time to time, depending on seasonal cash flow requirements. Until September 3, 1997, borrowings under the Agreement bore interest at floating rates based on a published short-term interest rate composite index (5.3% at January 31, 1997). Thereafter, borrowings under the Agreement bear interest at floating rates based on a published LIBOR rate (5.5% at January 31, 1998) and are due upon demand.
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NOTE 7 (continued)
Commercial paper outstanding at January 31, 1998 bears interest at 5.4% to 5.8%, and matures from February 2, 1998 to March 25, 1998.
A summary of notes payable and commercial paper is as follows:
The Company has a $300,000 unsecured line of credit with a group of commercial banks which is available as liquidity support for notes payable to bank and commercial paper issued by the Company, and expires July 23, 2002. Under the terms of the line of credit agreement, the Company must, among other things, comply with the terms of the Investment Agreement between the Company and Nordstrom and maintain a ratio of total debt to tangible net worth no greater than 7 to 1. Amounts due to Nordstrom, the Bank and other affiliates are subordinated to borrowings under the line of credit agreement. The Company pays commitment fees for the line in lieu of compensating balance requirements.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following:
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NOTE 8 (continued)
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.
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.
Aggregate principal payments on long-term debt for the next five fiscal years are as follows: 1998 - $50,000, 1999 - $58,000, 2000 - $57,600, 2001 - $11,000, and 2002 - $76,750.
NOTE 9 - SUPPLEMENTARY CASH FLOW INFORMATION
For purposes of the Statements of Cash Flows, the Company considers all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments.
Supplementary cash flow information is as follows:
NOTE 10-FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the notes payable and commercial paper approximates fair value because of the short maturity of these instruments.
The fair value of long-term debt at January 31, 1998 and 1997, estimated using quoted market prices of the same or similar issues with the same remaining maturity, was approximately $363,000 and $317,000, respectively.
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NORDSTROM CREDIT, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
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