Nordstrom
Annual Report 2015

Plain-text annual report

AN NUAL REPORT 2015 A LOOK AT THE NUMBERS FISCAL YEAR Net sales Earnings before interest and income taxes (EBIT) Net earnings Earnings per diluted share Cash dividends paid per share Special cash dividend paid per share NET SALES ($) COMPARABLE SALES INCREASE (%) 2015 2014 % CHANGE $14,095 1,101 600 3.15 1.48 4.85 7.5 (16.8) (16.8) (15.3) 12.1 n/a $13,110 1,323 720 3.72 1.32 n/a EBIT ($) 14,095 14,095 13,110 13,110 14,095 14,095 13,110 13,110 14,095 14,095 13,110 13,110 12,166 12,166 11,762 11,762 12,166 12,166 11,762 11,762 10,497 10,497 12,166 12,166 11,762 11,762 10,497 10,497 10,497 10,497 1,345 1,345 1,249 1,249 1,249 1,249 1,350 1,323 1,350 1,323 1,350 1,323 1,350 1,323 1,345 1,345 1,345 1,345 1,350 1,323 1,350 1,323 1,249 1,249 7.2 7.2 7.3 7.3 7.2 7.2 7.3 7.3 7.2 7.2 7.3 7.3 1,101 1,101 1,101 1,101 1,101 1,101 4.0 4.0 4.0 4.0 4.0 4.0 2.5 2.5 2.5 2.5 2.7 2.7 2.5 2.5 2.7 2.7 2.7 2.7 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 NET SALES PERCENTAGE INCREASE ’11 12.7 ’12 ’13 12.1 3.4 ’14 7.8 ’15 7.5 INVENTORY TURN CASH FLOW FROM OPERATIONS ($) RETURN ON ASSETS AND RETURN ON INVESTED CAPITAL (ROIC) (%)* 5.56 5.56 5.56 5.56 5.56 5.56 5.37 5.37 5.37 5.37 5.07 5.07 5.37 5.37 5.07 5.07 5.07 5.07 13.3 13.3 13.9 13.9 13.3 13.3 13.9 13.9 13.6 13.6 13.3 13.3 2,451 2,451 2,451 2,451 2,451 2,451 4.67 4.67 4.67 4.67 4.54 4.54 4.67 4.67 4.54 4.54 4.54 4.54 1,177 1,177 1,177 1,177 1,110 1,110 1,320 1,320 1,110 1,110 1,320 1,320 1,110 1,110 1,220 1,220 1,177 1,177 1,320 1,320 1,220 1,220 1,220 1,220 8.7 8.7 8.9 8.9 8.7 8.7 8.7 8.7 8.9 8.9 8.7 8.7 8.9 8.9 8.7 8.7 8.1 8.1 8.7 8.7 8.1 8.1 6.6 6.6 8.1 8.1 6.6 6.6 6.6 6.6 13.9 13.9 13.6 13.6 12.6 12.6 13.6 13.6 12.6 12.6 12.6 12.6 10.7 10.7 10.7 10.7 10.7 10.7 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 Cash Flow from Operations Cash Flow from Operations attributable to proceeds from the sale of credit card receivables originated at Nordstrom. Return on Assets ROIC Dollars in millions except per share amounts. nordstrom.com/companyreview *See reconciliation of ROIC Non-GAAP financial measure on page 26. 2 DEAR CUSTOMERS EMPLOYEES AND SHAREHOLDERS At Nordstrom, our number one goal is to improve customer service. This approach has always guided our strategy and served our stakeholders well. 2015 was no exception though we faced a challenging retail environment in the second half of the year. We ended 2015 with record sales of $14.1 billion, an increase of approximately $1 billion from the prior year. We also increased our market share, with net sales growth of 7.5 percent and a comparable sales increase of 2.7 percent. For the first half of the year, we achieved results that exceeded our expectations. In the second half, we experienced a noticeable shift in consumer spending that has continued into the early months of 2016. With our team’s many years of experience successfully managing through challenging cycles, we worked to adjust our sales expectations, inventories and expenses as quickly as possible to reflect these trends. Even with these adjustments, higher markdowns taken as a result of lower-than-planned sales, combined with an elevated promotional environment during the holiday season, caused our earnings results to be below our expectations. We continue to monitor trends and make appropriate adjustments to ensure that we remain competitive, have the best product available for our customers and improve our overall results. 3 A RECORD $14.1 billion IN NET COMPANY SALES WITH SALES 47% INCREASE IN NET SALES GROWTH OF 7.5% AND COMPARABLE ON NORDSTROMRACK.COM SALES INCREASE OF 2.7% AND HAUTELOOK MORE THAN 5 million NEW CUSTOMERS SHOPPED AT NORDSTROM RACK—THAT’S MORE THAN AT ANY OTHER CHANNEL NEARLY $3 billion RETURNED $2.4 billion IN TOTAL COMPANY ECOMMERCE SALES— TO SHAREHOLDERS THROUGH SHARE A 21% INCREASE OVER LAST YEAR REPURCHASE AND DIVIDENDS OVER 30% OF ONLINE DEMAND CAME FROM MOBILE CUSTOMER STRATEGY We’ve made many strategic decisions over the years to evolve our business as our customers’ preferences have evolved. Nordstrom was among the first retailers to invest in ecommerce, new technologies and organizational alignment to support a seamless customer experience. While retail and customer expectations are changing at an even faster pace today than just a few years ago, we believe our attention to the customer keeps us focused on long-term success. Our customers desire a relevant experience no matter how they choose to shop—full-price, off-price, in stores or online. Each represents an opportunity for us to connect with customers on their terms, which means an experience that is increasingly relevant, convenient and personalized. Our goal is to build a seamless ‘One Nordstrom’ customer experience. We know the value of our strategy, in addition to driving sales, new customer acquisition and increased market share, is that customers who shop Nordstrom across multiple channels spend more than that 4 BIG SUCCESS IN B.C.: THE OPENING OF OUR FIRST INTERNATIONAL FLAGSHIP STORE IN VANCOUVER, BRITISH COLUMBIA, MARKED THE MOST SUCCESSFUL IN OUR HISTORY. LOCATED IN THE HEART OF DOWNTOWN VANCOUVER, THIS NEW STORE IS AN EXCITING STEP FORWARD IN ENRICHING OUR CUSTOMER EXPERIENCE, AND WILL PROVIDE GREAT LEARNINGS AS WE OPEN FLAGSHIP STORES IN TORONTO IN 2016 AND MANHATTAN IN 2019. of a single-channel customer. The total number of customers we serve, the number of new-to-Nordstrom customers and customer engagement (those who shop more than one channel) are all up. One highlight of this is that 5 million new customers shopped Nordstrom Rack in 2015—an important channel for us for acquisition and increased cross-shopping. We’ve made significant investments that enable customers to shop seamlessly across stores and online, as well as grow our business through new markets like Canada and expanded ecommerce capabilities—all of which have helped increase sales and market share. Our online business now represents more than 20 percent of our total net sales, a notable increase from eight percent just five years ago. With over $3 billion in capital invested over the last five years, we grew net sales by 50 percent, or nearly $5 billion during this time. We’ve always considered 2015 to be a peak investment year and that hasn’t changed. What has changed is the current environment, which requires us to adapt even more as we remain focused on improving profitability. FULL-PRICE: NORDSTROM AND NORDSTROM.COM As a full-price retailer, the constant pursuit of newness and fashion to increase relevance with customers is at the core of our business. We’ve also invested to enable a seamless customer experience across stores and online. When we execute well, we’re able to differentiate ourselves and offer customers a consistently great shopping experience on their terms. We’re continuously improving the experience we offer customers in our full-line stores with improved services such as Buy Online & Pick Up in Store, which we launched in 2008, and more recently, curbside delivery. Comparable sales of our full-price business—Nordstrom U.S. full-line stores and Nordstrom.com—increased 2.3 percent in 2015, and net sales for our full-price business, inclusive of Canada and Trunk Club, increased 5.1 percent. We opened five new full- line stores last year including our first international flagship store in Vancouver, British Columbia, which was the most successful opening in Nordstrom history. This store represents a major step forward and will help influence the level of service we envision as we execute our plans to expand our flagship presence to Toronto in 2016 and Manhattan in 2019. We continue to believe Canada represents a $1 billion opportunity and we’re pleased with our results to date. We also opened stores in Ottawa, Ontario; San Juan, Puerto Rico; and Milwaukee; a second full-line store in Minneapolis; and relocated one store in Los Angeles. Each new store reflects our latest store design, which is now featured in 10 locations, including significant remodels of our flagship stores in Seattle and on Michigan Avenue in Chicago. In 2016, we plan to open two full-line stores in Toronto, including our second flagship store in Canada, our second store in Austin, and we relocated our store in Honolulu, which opened on March 11, 2016. We believe that by 2020, one-third of our customer experiences will end with a package at their front door. As a result, when THE FACE OF THE FUTURE: OUR VANCOUVER STORE FEATURES MODERN DESIGN CONCEPTS, LIKE MORE NATURAL LIGHT AND FLEXIBLE FLOOR LAYOUTS THAT CAN EVOLVE TO MEET OUR CUSTOMERS’ NEEDS. NORDSTROM AT YOUR FINGERTIPS: OUR CUSTOMERS LOVE EXPLORING AND ORDERING—ANYTIME, ANYWHERE—WITH OUR EASY-TO-USE MOBILE APPS. 5 shopping online, how and when that package arrives helps shape how that customer views great service. To support the growth of Nordstrom.com in 2015 we opened a new fulfillment center in Elizabethtown, Pennsylvania that, combined with our existing facilities in Cedar Rapids and San Bernardino, greatly improves our ability to meet and exceed our customers’ rising expectations. Customers want to do business with retailers that are in step with how they choose to shop and mobile is an increasingly important link between the store and online experience. This year we made several improvements to our mobile app that enhance the customer experience, such as linking a customer’s Nordstrom Rewards account to their Nordstrom app and a ‘shop my store’ feature that allows customers to filter inventory that is specific to the store they’re shopping. Each improvement is designed to offer the customer more control of their own experience. As a result, we’ve seen strong growth in mobile sales, which now represents over one-third of online demand, up from less than five percent just five years ago. TRUNK CLUB In 2014 we acquired Trunk Club, a high-growth personalized clothing service that complements our own approach to customer service. In fall 2015 we collaborated to expand this concept with the launch of Trunk Club for women. Trunk Club is a great example of combining the online and offline worlds to deliver a personalized, differentiated shopping experience. OFF-PRICE: NORDSTROM RACK, NORDSTROMRACK.COM AND HAUTELOOK Nordstrom Rack is a wonderful source of new customers for the company. It’s provided access to new markets and a pipeline of new customers since the inception of our Rack business over 40 years ago. Nordstrom Rack, Nordstromrack.com and HauteLook comparable sales increased 4.3 percent and total net sales increased 14 percent in 2015, which was 29 percent of net company sales. Serving our customers in the ways they want to shop has driven the growth in our off-price online business. Last year we launched Nordstromrack.com and combined it with HauteLook so customers are able to shop both on a shared website. Those businesses together grew approximately 50 percent in 2015, generating a half-billion dollars in sales and surpassing our expectations. It took 15 years for Nordstrom.com to reach $1 billion in sales. We believe Nordstromrack.com and HauteLook combined have the potential to reach that milestone in half the time. Rack stores continue to be highly productive with solid returns for our investment. We opened 27 Rack stores in 2015, and we expect to open 21 stores and relocate two in 2016. INCREASING RELEVANCE More than any one thing, new and relevant merchandise and brands drive our business, keep customers coming back to Nordstrom and help attract new customers. Growing brands such as Topshop/ Topman, Madewell, Brandy Melville and Charlotte Tilbury are playing an important role in attracting new customers. This year 6 THE CASE FOR SPACE: THE LAUNCH OF SPACE, OUR NEWEST SHOP CURATED BY VP OF CREATIVE PROJECTS OLIVIA KIM, GIVES US A PLATFORM TO SHOWCASE EXCITING UP-AND-COMING BRANDS AND EMERGING DESIGNER TALENT. DEALS ON DEMAND: FINDING THE ULTIMATE SAVINGS IS EVEN EASIER NOW WITH NORDSTROMRACK.COM COMBINED WITH HAUTELOOK. we also launched SPACE, a shop for emerging and advanced designers created and curated by Nordstrom Vice President of Creative Projects Olivia Kim, in five stores as well as online. STRATEGIC PARTNERSHIP In 2015 we completed the sale of our credit card receivables to TD Bank. Our number one goal was to ensure we continue to have a one-to-one relationship with our valued cardholders, with Nordstrom retaining all aspects of customer-facing activities. We were also pleased to be able to return capital directly to our shareholders in the form of a special dividend and through continued share repurchase. We’re pleased with the outcome for shareholders and our partnership with TD. We found TD to be a strong cultural fit, sharing our customer-focused approach and providing capabilities to help us further enhance the customer experience. CONCLUSION The customer is in control now more than ever with access to increasingly more information and choices. The rapidly changing landscape challenges us to build on our culture of service in new and exciting ways that adapt to our customers’ expectations. Our customer-focused strategy is an important point of differentiation that guides every decision to better serve customers on their terms. We’re proud of the collective efforts of our team and we thank them, and you, our shareholders, for your continued support of Nordstrom. Finally, we would be remiss if we didn’t single out the strong leadership we have had from Rick Hernandez, our retiring Chairman of the Board of Directors. Rick joined our board in 1997, became Lead Director in 2000 and Chairman in 2006. His many contributions include helping us strengthen the governance of our company, partnering to create a world-class group of directors and providing a steady hand and expertise to our executive team on many matters including strategic direction, leadership development and succession planning as we have developed a position of leadership in the retail industry. We are grateful for his partnership. Rick will remain on the board and we’re delighted to welcome in Phil Satre, another terrific board member, as Chairman beginning in May. Blake W. Nordstrom Co-President, Nordstrom, Inc. Peter E. Nordstrom Peter E. Nordstrom Co-President, Nordstrom, Inc. Co-President, Nordstrom, Inc. Erik B. Nordstrom Erik B. Nordstrom Co-President, Nordstrom, Inc. Co-President, Nordstrom, Inc. WE HEART NY: WORLD-RENOWNED DESIGNER JAMES CARPENTER HAS ENVISIONED STUNNING GLASS FAÇADES FOR OUR FIRST MANHATTAN STORE. PROJECTED TO OPEN IN 2019, IT WILL BE LOCATED AT W. 57TH STREET AND BROADWAY. TRUNK CLUB GROWS: WITH PERSONAL STYLISTS READY TO SERVE BOTH MEN AND WOMEN, WE NOW OFFER WOMEN THIS UNIQUE AND CONVENIENT SHOPPING EXPERIENCE ONLINE, IN PERSON AND ON THE TRUNK CLUB APP. 7 A NOTE FROM OUR CHAIRMAN In 2015 Nordstrom gained market share despite the difficult retail environment that confronted all retailers during the second half of the year. The company accomplished this through continued focus on serving customers how, when and where they prefer to shop. Your Board of Directors and management remained committed to strong financial discipline and continued our efforts to achieve increased efficiency and productivity in all aspects of the business. Further, your Board and management honored our commitment to operate the business with the highest standards, principles, policies and people that are deserving of your trust and investment. added three new independent directors: Tanya Domier, CEO of Advantage Solutions; Gordon Smith, CEO of Consumer and Community Banking at JPMorgan Chase and Brad Tilden, CEO of Alaska Air Group. Our new directors bring with them vast and broad experience, and a fresh perspective that is aligned with Nordstrom values and customer focus. We are pleased to welcome them aboard and, as we evolve and transition new members onto the Board and thank those who depart, we remain committed to having a diverse board that represents our customers, employees and communities. Your Board acknowledges the rapid pace of change in retail today and firmly believes that focusing on the customer is the right strategy. As the Board looks back on 2015 and ahead to the future, we strongly support the executive management team led by Blake, Pete and Erik Nordstrom. Given their collective experience, knowledge of our industry and the management team they have assembled, the Board of Directors believes Nordstrom is evolving in-step with its customers to serve them better and positioning the company for long-term success. Each quarter the Board completes a rigorous evaluation of the business, reviewing subjects including strategies, expected returns and shareholder value. We were pleased that an outgrowth of those kinds of reviews resulted in the completion of the sale of our credit card receivables to TD Bank Group this past year. Upon the successful completion of the transaction, we were able to distribute proceeds of $1.8 billion to shareholders through a special cash dividend of $4.85 per share and an increase to the company’s share repurchases. We have a dedicated, independent Board that is deeply committed to the highest standards of corporate governance. Nordstrom shareholders are benefited by an exceptional group of directors who are engaged with management and support the long-term goals the Board has set. At our annual shareholder meeting, four directors will be retiring from service. On behalf of the Board and management, I want to thank Phyllis Campbell, Michelle Ebanks, Robert Miller and Alison Winter for their leadership and many, many contributions over the years. This past year we also Our company’s commitment to serving customers with quality products and services in the most efficient way possible is the foundation of our long-term growth strategy. As the Board looks to the future, we remain focused on opportunities to strategically position the business for long-term success and to hold ourselves and management accountable for bottom-line results. We know we must continue to evolve to meet rising customer expectations for service across all of our businesses, and we know that this will shape and define success in the near-term and for many years to come. On behalf of our entire Board of Directors, I thank you for your support of Nordstrom. On a personal note, I will be retiring as Chairman of the Board of Nordstrom, Inc. after the upcoming annual shareholder meeting. I have had the distinct honor and pleasure of serving Nordstrom shareholders in several capacities for approaching 20 years, including service as Lead Director for five years and Chairman for the last 10 years. This company has a long legacy of competing to better serve its customers and I am humbled that I was able to play some part in our past success. Should you, the shareholders, so choose, I will remain on the Board and will be pleased to transition the Chairman position to an extraordinarily qualified and capable Board member, Phil Satre. All of us on the Board are excited and confident in Phil’s leadership and look forward to a strong future under his Chairmanship. Thank you for the opportunity to serve you, our shareholders. Enrique Hernandez, Jr. Chairman 8 PUTTING THE CUSTOMER FIRST: AS OUR CUSTOMERS’ EXPECTATIONS EVOLVE, SO WILL WE. IT’S THIS KIND OF COMMITMENT TO SERVING OUR CUSTOMER THAT WILL CONTINUE TO SHAPE AND DEFINE OUR SUCCESS FOR MANY YEARS TO COME. NORDSTROM INNOVATIONS THROUGH OUR TEST AND LEARN PHILOSOPHY, WE’VE COME UP WITH EXCITING NEW WAYS OVER THE YEARS TO MAKE SHOPPING FASTER AND EASIER FOR OUR CUSTOMERS. 9 RACK + HAUTELOOK INTEGRATED APPINTERNATIONAL SHIPPINGMOBILE POINT OF SALE (RACK)FREE SHIPPING, FREE RETURNS, ALL THE TIMEIPHONE APPE-RECEIPTSMOBILE POINT OF SALE (FLS)ONE VIEW OF INVENTORYBUY ONLINE & PICK UP IN STORESTORE-TO-STORE FULFILLMENTNORDSTROMRACK.COMBUYABLE PINSSEARCH MY STOREMOBILE-OPTIMIZED SITEFREE WIFITRUE FITNORDSTROM APP PERSONAL HOMEPAGENEXT: CUSTOMER MMS TEXTING APPMULTI-CHANNEL FULFILLMENTMOBILE-INTEGRATED REWARDSDIGITAL MANNEQUINSHAUTELOOK RETURN TO RACKRTEXTSTYLENEAR-STORE NOTIFICATIONCURBSIDE DELIVERYCATALOG SCAN + SHOPLIKE2BUY ON INSTAGRAMNORDSTROM.COMNORDSTROM CARES: LEAVE IT BETTER THAN WE FOUND IT At Nordstrom, our commitment to being a socially responsible company is guided by a simple idea: leave it better than we found it. Our corporate social responsibility (CSR) strategy focuses on ensuring our efforts to take care of our communities and respect the environment also drive meaningful business results. Our customers and employees have told us transparency around our approach and results is increasingly important to them. To steer our work and hold ourselves accountable, we’ve established measurable targets and report annually on our environmental, human rights and giving programs—including what we’ve accomplished and opportunities to improve. HERE ARE A FEW OF OUR HIGHLIGHTS FROM 2015: GIVING — In response to feedback from our customers and employees, we evolved our giving program. Our new 1% Gift Card Give Back program allowed us to increase our giving to support nearly 500 local organizations in every market where we do business through cash grants, and launch our Employee Charitable Match program. HUMAN RIGHTS — 100% of Nordstrom Product Group (NPG) factories have been audited to our Partnership Guidelines (expectations for following local laws and providing safe and healthy workplaces). When issues were found, we worked with the factories to create corrective plans that will help them sustainably remediate the findings. In addition, together with our long-term manufacturers, we helped provide social development programs such as HERhealth and HERfinance. ENERGY — We reduced the energy we use per square foot by 7%, bringing our total amount reduced since 2009 to 19%. We’re committed to making an additional 15% reduction by 2020, ensuring we’re doing our part, based on science, to help reduce our contribution to climate change. WASTE — Thanks to recycling and composting programs in our stores and buildings, the hard work of our employees and the support of our customers, we were able to divert the majority of our waste away from landfills. PACKAGING AND PAPER — We continued to make changes to help reduce the amount of paper we use, such as finding opportunities to package orders from our Fulfillment Center more efficiently. Moving forward, we’ll be using different paper and fewer pages in our catalogs, which will save 2.1 million pounds of paper in 2016. Earlier this year, our company leaders established our 2020 CSR goals. These goals take into account our business needs, feedback from many stakeholders and our overall commitment to doing the right thing: reducing our carbon footprint, conserving resources, offering our customers sustainable and healthier products, giving back to our communities and supporting human rights in factories that make our private label products. We share details on those goals, and plans to reach them, in our annual Corporate Social Responsibility Sharing Our Progress Report, which will be posted online at NordstromCares.com. To receive a copy of the report via email, email us at csr@nordstrom.com. 10 UNITED WAY DAY OF CARING: THIS EVENT IS A GREAT EXAMPLE OF OUR EMPLOYEES GIVING BACK TO OUR COMMUNITY. HERE, THEY VOLUNTEERED TO REMOVE INVASIVE PLANTS AT SQUAK VALLEY PARK IN ISSAQUAH, WASHINGTON. FINANCIALS 2015 [This page intentionally left blank.] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 30, 2016 FORM 10-K or 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 001-15059 NORDSTROM, INC. (Exact name of registrant as specified in its charter) Washington (State or other jurisdiction of incorporation or organization) 1617 Sixth Avenue, Seattle, Washington (Address of principal executive offices) 91-0515058 (I.R.S. Employer Identification No.) 98101 (Zip Code) Registrant’s telephone number, including area code 206-628-2111 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common stock, without par value Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO 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 NO Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer were outstanding. Part III. Non-accelerated filer (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO Accelerated filer Smaller reporting company As of July 31, 2015 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was approximately $11.7 billion using the closing sales price on that day of $76.31. On March 11, 2016, 172,920,293 shares of common stock Portions of the Proxy Statement for the 2016 Annual Meeting of Shareholders scheduled to be held on May 19, 2016 are incorporated into DOCUMENTS INCORPORATED BY REFERENCE Nordstrom, Inc. and subsidiaries 1 [This page intentionally left blank.] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 30, 2016 or 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 001-15059 NORDSTROM, INC. (Exact name of registrant as specified in its charter) Washington (State or other jurisdiction of incorporation or organization) 1617 Sixth Avenue, Seattle, Washington (Address of principal executive offices) 91-0515058 (I.R.S. Employer Identification No.) 98101 (Zip Code) Registrant’s telephone number, including area code 206-628-2111 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common stock, without par value Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO 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 NO Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (Do not check if a smaller reporting company) Accelerated filer Smaller reporting company NO As of July 31, 2015 the aggregate market value of the Registrant’s voting and non-voting stock held by non-affiliates of the Registrant was approximately $11.7 billion using the closing sales price on that day of $76.31. On March 11, 2016, 172,920,293 shares of common stock were outstanding. Portions of the Proxy Statement for the 2016 Annual Meeting of Shareholders scheduled to be held on May 19, 2016 are incorporated into Part III. DOCUMENTS INCORPORATED BY REFERENCE Nordstrom, Inc. and subsidiaries 1 [This page intentionally left blank.] TABLE OF CONTENTS PART I Item 1. Business. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Item 3. Properties. Legal Proceedings. Item 4. Mine Safety Disclosures. Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Item 6. Selected Financial Data. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary Data. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Item 9A. Controls and Procedures. Item 9B. Other Information. Item 10. Directors, Executive Officers and Corporate Governance. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Item 13. Certain Relationships and Related Transactions, and Director Independence. Item 14. Principal Accounting Fees and Services. Item 15. Exhibits and Financial Statement Schedules. Consent of Independent Registered Public Accounting Firm PART II Item 8. Item 9. PART III PART IV Signatures Exhibit Index Page 4 6 10 11 13 13 14 16 17 35 36 65 65 67 67 67 67 67 67 68 69 70 72 Nordstrom, Inc. and subsidiaries  3 TABLE OF CONTENTS Business. PART I Item 1. Item 1A. Risk Factors. Item 1B. Unresolved Staff Comments. Item 2. Item 3. Item 4. Mine Safety Disclosures. Properties. Legal Proceedings. [This page intentionally left blank.] PART II Selected Financial Data. Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Financial Statements and Supplementary Data. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Item 9. Item 9A. Controls and Procedures. Item 9B. Other Information. PART III Item 10. Directors, Executive Officers and Corporate Governance. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Item 13. Certain Relationships and Related Transactions, and Director Independence. Item 14. Principal Accounting Fees and Services. PART IV Item 15. Exhibits and Financial Statement Schedules. Signatures Consent of Independent Registered Public Accounting Firm Exhibit Index Page 4 6 10 11 13 13 14 16 17 35 36 65 65 67 67 67 67 67 67 68 69 70 72 Nordstrom, Inc. and subsidiaries  3 PART I COMPETITIVE CONDITIONS Item 1. Business. DESCRIPTION OF BUSINESS Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington state in 1946 and went on to become one of the leading fashion specialty retailers based in the U.S. As of March 14, 2016, we operate 323 U.S. stores located in 39 states as well as a robust ecommerce business through Nordstrom.com, Nordstromrack.com/HauteLook and TrunkClub.com. We also operate three Nordstrom full-line stores in Canada. The west and east coasts of the U.S. are the areas in which we have the largest presence. We have two reportable segments, which include Retail and Credit. As of March 14, 2016, the Retail segment includes our 118 Nordstrom-branded full-line stores in the U.S. and Nordstrom.com, 197 off-price Nordstrom Rack stores, three Canada full-line stores, Nordstromrack.com/HauteLook, five Trunk Club clubhouses and TrunkClub.com, our two Jeffrey boutiques and one clearance store that operates under the name “Last Chance.” Through these multiple retail channels, we strive to deliver the best customer experience possible. We offer an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, cosmetics and accessories. Our integrated Nordstrom full-line stores and online store allow us to provide our customers with a seamless shopping experience. In-store purchases are primarily fulfilled from that store’s inventory, but when inventory is unavailable at that store it may also be shipped to our customers from our fulfillment centers in Cedar Rapids, Iowa and Elizabethtown, Pennsylvania, or from other Nordstrom full-line stores. Online purchases are primarily shipped to our customers from our Cedar Rapids and East Coast fulfillment centers, but may also be shipped from our Nordstrom full-line stores. Our customers can also pick up online orders in our Nordstrom full-line stores if inventory is available at one of our locations. These capabilities allow us to better serve customers across various channels and improve sales. Nordstrom Rack stores purchase merchandise primarily from the same vendors carried in Nordstrom full-line stores and also serve as outlets for clearance merchandise from our Nordstrom stores and other retail channels. Nordstromrack.com/ HauteLook offers a persistent selection of off-price merchandise, as well as limited-time sale events on fashion and lifestyle brands and are integrated with a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of HauteLook with the merchant expertise of Nordstrom Rack. Online purchases are primarily shipped to our customers from our San Bernardino fulfillment center. Furthermore, we can accommodate returns from these sites by mail or at any Nordstrom Rack location. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom-branded private label card, two Nordstrom-branded Visa credit cards and a debit card for Nordstrom purchases. The credit and debit cards feature a loyalty program designed to increase customer visits and spending. Although the primary purposes of our Credit segment are to foster greater customer loyalty and drive more sales, through our program agreement with TD Bank, N.A. (“TD”) (see Note 2: Credit Card Receivable Transaction in Item 8), we also receive credit card revenue. In addition, we save on interchange fees that the Retail segment would incur if our customers used non-Nordstrom-branded cards. For more information about our business and our reportable segments, see Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17: Segment Reporting in Item 8. FISCAL YEAR We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2015 and all years within this document are based on a 52-week fiscal year, except 2012, which is based on a 53-week fiscal year. TRADEMARKS We have 147 trademarks, each of which is the subject of one or more trademark registrations and/or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Zella, 14th & Union, Tucker+Tate and Caslon. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce at the time of the renewal. RETURN POLICY We have a fair and liberal approach to returns as part of our objective to provide high-quality customer service. We do not have a formal return policy at our Nordstrom full-line stores or online at Nordstrom.com. Our goal is to take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on purchases and returns. Our Nordstrom Rack stores generally accept returns up to 90 days from the date of purchase with the original price tag and sales receipt, and also accept returns of Nordstromrack.com/HauteLook merchandise. Nordstromrack.com/HauteLook generally accept returns of apparel, footwear and accessories within 90 days from the date of shipment. SEASONALITY Our business, like that of other retailers, is subject to seasonal fluctuations. Due to our Anniversary Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. In 2016, our Anniversary Sale will shift to the last week of July and the first week of August, which will move one week of event sales to the third quarter. We operate in a highly competitive business environment. We compete with other national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. Our specific competitors vary from market to market. We believe the keys to competing in our industry are providing great customer service and customer experiences in stores and online, which includes compelling price and value, fashion newness, quality of products, selection, convenience, technology, product fulfillment, personalization and appealing, relevant store environments in top locations. INVENTORY We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December). At Nordstrom Rack we invest in pack and hold inventory which involves the strategic purchase of merchandise from some of our full-line stores’ top brands in advance of the upcoming selling seasons to take advantage of favorable buying opportunities. This inventory is typically held for six months on average and has been an important component of Nordstrom Rack’s inventory strategy. We pay for our merchandise purchases under the terms established with our vendors. In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality suppliers, including domestic and foreign businesses. We also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory compliance, labor, health and safety and the environment, and are available on our website at Nordstrom.com. EMPLOYEES During 2015, we employed approximately 72,500 employees on a full- or part-time basis. Due to the seasonal nature of our business, employment increased to approximately 74,000 employees in July 2015 and 78,000 in December 2015. All of our employees are non-union. We believe our relationship with our employees is good. CAUTIONARY STATEMENT Certain statements in this Annual Report on Form 10-K contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 28, 2017, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: Strategic and Operational • successful execution of our customer strategy, including expansion into new domestic and international markets, acquisitions, investments in our stores and online, our ability to realize the anticipated benefits from growth initiatives and our ability to provide a seamless experience across all channels, with this evolving business model, the financial health of third parties, ability to control costs, timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by • our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders, • effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our • the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident, • successful execution of our information technology strategy, • our ability to effectively utilize data in strategic planning and decision making, • efficient and proper allocation of our capital resources, program agreement with TD, • our ability to safeguard our reputation and maintain our vendor relationships, • our ability to realize the expected benefits, respond to potential risks and appropriately manage potential costs associated with our • our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of service and experience in stores and online, the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry, the timing, price, manner and amounts of share repurchases by the Company, if any, or any share issuances by the Company, including issuances associated with option exercises, acquisitions or other matters, • • • • 4 Nordstrom, Inc. and subsidiaries 5 Item 1. Business. DESCRIPTION OF BUSINESS PART I Founded in 1901 as a retail shoe business in Seattle, Nordstrom later incorporated in Washington state in 1946 and went on to become one of the leading fashion specialty retailers based in the U.S. As of March 14, 2016, we operate 323 U.S. stores located in 39 states as well as a robust ecommerce business through Nordstrom.com, Nordstromrack.com/HauteLook and TrunkClub.com. We also operate three Nordstrom full-line stores in Canada. The west and east coasts of the U.S. are the areas in which we have the largest presence. We have two reportable segments, which include Retail and Credit. As of March 14, 2016, the Retail segment includes our 118 Nordstrom-branded full-line stores in the U.S. and Nordstrom.com, 197 off-price Nordstrom Rack stores, three Canada full-line stores, Nordstromrack.com/HauteLook, five Trunk Club clubhouses and TrunkClub.com, our two Jeffrey boutiques and one clearance store that operates under the name “Last Chance.” Through these multiple retail channels, we strive to deliver the best customer experience possible. We offer an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, cosmetics and accessories. Our integrated Nordstrom full-line stores and online store allow us to provide our customers with a seamless shopping experience. In-store purchases are primarily fulfilled from that store’s inventory, but when inventory is unavailable at that store it may also be shipped to our customers from our fulfillment centers in Cedar Rapids, Iowa and Elizabethtown, Pennsylvania, or from other Nordstrom full-line stores. Online purchases are primarily shipped to our customers from our Cedar Rapids and East Coast fulfillment centers, but may also be shipped from our Nordstrom full-line stores. Our customers can also pick up online orders in our Nordstrom full-line stores if inventory is available at one of our locations. These capabilities allow us to better serve customers across various channels and improve sales. Nordstrom Rack stores purchase merchandise primarily from the same vendors carried in Nordstrom full-line stores and also serve as outlets for clearance merchandise from our Nordstrom stores and other retail channels. Nordstromrack.com/ HauteLook offers a persistent selection of off-price merchandise, as well as limited-time sale events on fashion and lifestyle brands and are integrated with a single customer log-in, shared shopping cart and streamlined checkout process. Nordstromrack.com combines the technology expertise of HauteLook with the merchant expertise of Nordstrom Rack. Online purchases are primarily shipped to our customers from our San Bernardino fulfillment center. Furthermore, we can accommodate returns from these sites by mail or at any Nordstrom Rack location. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom-branded private label card, two Nordstrom-branded Visa credit cards and a debit card for Nordstrom purchases. The credit and debit cards feature a loyalty program designed to increase customer visits and spending. Although the primary purposes of our Credit segment are to foster greater customer loyalty and drive more sales, through our program agreement with TD Bank, N.A. (“TD”) (see Note 2: Credit Card Receivable Transaction in Item 8), we also receive credit card revenue. In addition, we save on interchange fees that the Retail segment would incur if our customers used non-Nordstrom-branded cards. For more information about our business and our reportable segments, see Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17: Segment Reporting in Item 8. We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2015 and all years within this document are based on a 52-week fiscal year, except 2012, which is based on a 53-week fiscal year. We have 147 trademarks, each of which is the subject of one or more trademark registrations and/or trademark applications. Our most notable trademarks include Nordstrom, Nordstrom Rack, HauteLook, Trunk Club, Halogen, BP., Zella, 14th & Union, Tucker+Tate and Caslon. Each of our trademarks is renewable indefinitely, provided that it is still used in commerce at the time of the renewal. FISCAL YEAR TRADEMARKS RETURN POLICY We have a fair and liberal approach to returns as part of our objective to provide high-quality customer service. We do not have a formal return policy at our Nordstrom full-line stores or online at Nordstrom.com. Our goal is to take care of our customers, which includes making returns and exchanges easy, whether in stores or online, where we offer free shipping on purchases and returns. Our Nordstrom Rack stores generally accept returns up to 90 days from the date of purchase with the original price tag and sales receipt, and also accept returns of Nordstromrack.com/HauteLook merchandise. Nordstromrack.com/HauteLook generally accept returns of apparel, footwear and accessories Our business, like that of other retailers, is subject to seasonal fluctuations. Due to our Anniversary Sale in July and the holidays in the fourth quarter, our sales are typically higher in the second and fourth quarters than in the first and third quarters of the fiscal year. In 2016, our Anniversary Sale will shift to the last week of July and the first week of August, which will move one week of event sales to the third quarter. within 90 days from the date of shipment. SEASONALITY 4 COMPETITIVE CONDITIONS We operate in a highly competitive business environment. We compete with other national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. Our specific competitors vary from market to market. We believe the keys to competing in our industry are providing great customer service and customer experiences in stores and online, which includes compelling price and value, fashion newness, quality of products, selection, convenience, technology, product fulfillment, personalization and appealing, relevant store environments in top locations. INVENTORY We plan our merchandise purchases and receipts to coincide with expected sales trends. For instance, our merchandise purchases and receipts increase prior to our Anniversary Sale, which has historically extended over the last two weeks of July. We also purchase and receive a larger amount of merchandise in the fall as we prepare for the holiday shopping season (from late November through December). At Nordstrom Rack we invest in pack and hold inventory which involves the strategic purchase of merchandise from some of our full-line stores’ top brands in advance of the upcoming selling seasons to take advantage of favorable buying opportunities. This inventory is typically held for six months on average and has been an important component of Nordstrom Rack’s inventory strategy. We pay for our merchandise purchases under the terms established with our vendors. In order to offer merchandise that our customers want, we purchase from a wide variety of high-quality suppliers, including domestic and foreign businesses. We also have arrangements with agents and contract manufacturers to produce our private label merchandise. We expect our suppliers to meet our “Nordstrom Partnership Guidelines,” which address our corporate social responsibility standards for matters such as legal and regulatory compliance, labor, health and safety and the environment, and are available on our website at Nordstrom.com. EMPLOYEES During 2015, we employed approximately 72,500 employees on a full- or part-time basis. Due to the seasonal nature of our business, employment increased to approximately 74,000 employees in July 2015 and 78,000 in December 2015. All of our employees are non-union. We believe our relationship with our employees is good. CAUTIONARY STATEMENT Certain statements in this Annual Report on Form 10-K contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties, including, but not limited to, anticipated financial outlook for the fiscal year ending January 28, 2017, anticipated annual total and comparable sales rates, anticipated new store openings in existing, new and international markets, anticipated Return on Invested Capital and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: Strategic and Operational • successful execution of our customer strategy, including expansion into new domestic and international markets, acquisitions, investments in our stores and online, our ability to realize the anticipated benefits from growth initiatives and our ability to provide a seamless experience across all channels, timely and effective execution of our ecommerce initiatives and ability to manage the costs and organizational changes associated with this evolving business model, timely completion of construction associated with newly planned stores, relocations and remodels, all of which may be impacted by the financial health of third parties, • • • our ability to maintain relationships with our employees and to effectively attract, develop and retain our future leaders, • effective inventory management processes and systems, fulfillment processes and systems, disruptions in our supply chain and our • ability to control costs, the impact of any systems failures, cybersecurity and/or security breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident, • successful execution of our information technology strategy, • our ability to effectively utilize data in strategic planning and decision making, • efficient and proper allocation of our capital resources, • our ability to realize the expected benefits, respond to potential risks and appropriately manage potential costs associated with our program agreement with TD, • our ability to safeguard our reputation and maintain our vendor relationships, • our ability to respond to the business environment, fashion trends and consumer preferences, including changing expectations of • • service and experience in stores and online, the effectiveness of planned advertising, marketing and promotional campaigns in the highly competitive retail industry, the timing, price, manner and amounts of share repurchases by the Company, if any, or any share issuances by the Company, including issuances associated with option exercises, acquisitions or other matters, Nordstrom, Inc. and subsidiaries 5 Economic and External the impact of economic and market conditions and the resultant impact on consumer spending patterns, • • weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns, Legal and Regulatory • our compliance with applicable domestic and international laws, regulations, and ethical standards, including those related to banking, employment and tax and the outcome of claims and litigation and resolution of such matters, impact of the current regulatory environment and financial system and health care reforms, and • • compliance with debt covenants, availability and cost of credit, changes in our credit rating, changes in interest rates, debt repayment patterns, and personal bankruptcies. These and other factors, including those factors described in Item 1A: Risk Factors, could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances. SEC FILINGS We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All the materials we file with the SEC are publicly available at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. WEBSITE ACCESS Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of quarterly earnings conference calls and other financial events through our website. CORPORATE GOVERNANCE We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees, officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines and Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, Finance and Technology Committees are posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our website. For printed versions of these items or any other inquiries, please contact: Nordstrom Investor Relations PO Box 2737 Seattle, Washington 98111 (206) 303-3200 invrelations@nordstrom.com Item 1A. Risk Factors. Our business faces many risks. We believe the risks described below outline the items of most concern to us. RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS Our customer strategy focuses on providing a seamless and high-quality experience across all Nordstrom channels and failure to successfully execute our plans could negatively impact our current business and future profitability. We are enhancing our customer shopping experience in our stores, online, and in mobile and social channels by pursuing a heightened focus on technology and ecommerce to fuel our growth. With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations in how they shop in stores or through ecommerce. If we target the wrong opportunities, fail to make investments at the right time or pace, fail to make the best investments in the right channels or make an investment commitment significantly above or below our needs, it may harm our competitive position. If these technologies and investments do not perform as expected, are not seamlessly integrated, or are not maintained properly, our profitability and growth could be adversely affected. We are continuing our plan to accelerate the number of new Nordstrom Rack store openings. New store openings both at Nordstrom Rack and in our full-line stores involve certain risks, including the availability of suitable locations, constructing, furnishing and supplying a store in a timely and cost-effective manner and properly balancing our capital investments between new stores, remodels, technology and ecommerce. In addition, we may not accurately assess the demographic or retail environment for a particular location and sales at new, relocated or remodeled stores may not meet our projections, particularly in light of the changing trends between online and brick-and-mortar shopping channels, which could adversely affect our return on investment. We also intend to open stores in new and international markets, such as Canada and Manhattan, and expansion will require additional management attention and resources and may distract us from executing our core operations. In addition, competition from strong local competitors, compliance with foreign and local laws and regulatory requirements and potentially unfavorable tax consequences may cause our business to be adversely impacted. As we execute our plans and continue to evolve and transform our strategy, we may not adequately manage the related organizational changes to align with our strategy or appropriately monitor, report or communicate the changes in an effective manner. In addition, we may not gather accurate and relevant data or effectively utilize that data, which may impact our strategic planning and decision making. Our growth strategy as it relates to ecommerce could have adverse impacts on our results of operations if not successfully executed. We are continuing our investment in ecommerce as advancements in technology have impacted shopping behaviors of consumers. Computers, mobile phones, tablets and other devices allow customers to browse and transact anywhere or anytime. Our growth strategies in this area span the development of applications for electronic devices, improvement of customer-facing technology, timely delivery of products purchased online, enhancement of inventory management systems, greater and more fluid inventory availability between online and retail locations, and greater consistency in marketing and pricing strategies. This business model has a high variable cost structure driven by fulfillment, marketing and technology costs and will continue to require investment in cross-channel operations and supporting technologies. If we do not implement and expand our ecommerce initiatives successfully or we do not realize our anticipated return on these investments, our profitability and growth could be adversely affected. In addition, if customers shift to ecommerce more quickly than we anticipate, we may need to accelerate our ecommerce initiatives and investments and may experience higher costs adversely impacting our profitability. Our stores located in shopping malls may be adversely affected if the consumer traffic of malls decline. Many of our stores are located in desirable locations within shopping malls and benefit from the abilities that we and other anchor tenants have to generate consumer traffic. A substantial decline in mall traffic, the development of new shopping malls, the availability of locations within existing or new shopping malls, the success of individual shopping malls and the success of other anchor tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which could have an adverse effect on our financial condition or results of operations. Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not successfully executed. We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or adoption of new processes, our ability to continue to successfully execute our strategy or evolve our strategy as the retail environment changes could be adversely affected. As a result, we may not derive the expected benefits to our sales and profitability, or we may incur increased costs relative to our current expectations. If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop talent and future leaders, our business may suffer. We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace, and the talents of our workforce to execute our business strategies and objectives. If unexpected turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our business. 6 Nordstrom, Inc. and subsidiaries 7 • the impact of economic and market conditions and the resultant impact on consumer spending patterns, • weather conditions, natural disasters, health hazards, national security or other market disruptions, or the prospects of these events and the resulting impact on consumer spending patterns, Economic and External Legal and Regulatory • our compliance with applicable domestic and international laws, regulations, and ethical standards, including those related to banking, employment and tax and the outcome of claims and litigation and resolution of such matters, • impact of the current regulatory environment and financial system and health care reforms, and • compliance with debt covenants, availability and cost of credit, changes in our credit rating, changes in interest rates, debt repayment patterns, and personal bankruptcies. These and other factors, including those factors described in Item 1A: Risk Factors, could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances. We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”). All the materials we file with the SEC are publicly available at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file SEC FILINGS electronically with the SEC. WEBSITE ACCESS Our website address is Nordstrom.com. Our annual and quarterly reports on Form 10-K and Form 10-Q (including related filings in eXtensible Business Reporting Language (“XBRL”) format), current reports on Form 8-K, proxy statements, our executives’ statements of changes in beneficial ownership of securities on Form 4 and amendments to those reports filed or furnished pursuant to Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are available for free on or through our website as soon as reasonably practicable after we electronically file the report with or furnish it to the SEC. Interested parties may also access a webcast of quarterly earnings conference calls and other financial events through our website. CORPORATE GOVERNANCE We have a long-standing commitment to upholding a high level of ethical standards. In addition, as the listing standards of the New York Stock Exchange (“NYSE”) and the rules of the SEC require, we have adopted Codes of Business Conduct and Ethics for our employees, officers and directors (“Codes of Ethics”) and Corporate Governance Guidelines. Our Codes of Ethics, Corporate Governance Guidelines and Committee Charters for the Audit, Compensation, Corporate Governance and Nominating, Finance and Technology Committees are posted on our website. Any amendments to these documents, or waivers of the requirements they contain, will also be available on our For printed versions of these items or any other inquiries, please contact: website. Nordstrom Investor Relations PO Box 2737 Seattle, Washington 98111 (206) 303-3200 invrelations@nordstrom.com Item 1A. Risk Factors. Our business faces many risks. We believe the risks described below outline the items of most concern to us. RISKS DUE TO STRATEGIC AND OPERATIONAL FACTORS Our customer strategy focuses on providing a seamless and high-quality experience across all Nordstrom channels and failure to successfully execute our plans could negatively impact our current business and future profitability. We are enhancing our customer shopping experience in our stores, online, and in mobile and social channels by pursuing a heightened focus on technology and ecommerce to fuel our growth. With the accelerated pace of change in the retail environment, we may not be able to meet our customers’ changing expectations in how they shop in stores or through ecommerce. If we target the wrong opportunities, fail to make investments at the right time or pace, fail to make the best investments in the right channels or make an investment commitment significantly above or below our needs, it may harm our competitive position. If these technologies and investments do not perform as expected, are not seamlessly integrated, or are not maintained properly, our profitability and growth could be adversely affected. We are continuing our plan to accelerate the number of new Nordstrom Rack store openings. New store openings both at Nordstrom Rack and in our full-line stores involve certain risks, including the availability of suitable locations, constructing, furnishing and supplying a store in a timely and cost-effective manner and properly balancing our capital investments between new stores, remodels, technology and ecommerce. In addition, we may not accurately assess the demographic or retail environment for a particular location and sales at new, relocated or remodeled stores may not meet our projections, particularly in light of the changing trends between online and brick-and-mortar shopping channels, which could adversely affect our return on investment. We also intend to open stores in new and international markets, such as Canada and Manhattan, and expansion will require additional management attention and resources and may distract us from executing our core operations. In addition, competition from strong local competitors, compliance with foreign and local laws and regulatory requirements and potentially unfavorable tax consequences may cause our business to be adversely impacted. As we execute our plans and continue to evolve and transform our strategy, we may not adequately manage the related organizational changes to align with our strategy or appropriately monitor, report or communicate the changes in an effective manner. In addition, we may not gather accurate and relevant data or effectively utilize that data, which may impact our strategic planning and decision making. Our growth strategy as it relates to ecommerce could have adverse impacts on our results of operations if not successfully executed. We are continuing our investment in ecommerce as advancements in technology have impacted shopping behaviors of consumers. Computers, mobile phones, tablets and other devices allow customers to browse and transact anywhere or anytime. Our growth strategies in this area span the development of applications for electronic devices, improvement of customer-facing technology, timely delivery of products purchased online, enhancement of inventory management systems, greater and more fluid inventory availability between online and retail locations, and greater consistency in marketing and pricing strategies. This business model has a high variable cost structure driven by fulfillment, marketing and technology costs and will continue to require investment in cross-channel operations and supporting technologies. If we do not implement and expand our ecommerce initiatives successfully or we do not realize our anticipated return on these investments, our profitability and growth could be adversely affected. In addition, if customers shift to ecommerce more quickly than we anticipate, we may need to accelerate our ecommerce initiatives and investments and may experience higher costs adversely impacting our profitability. Our stores located in shopping malls may be adversely affected if the consumer traffic of malls decline. Many of our stores are located in desirable locations within shopping malls and benefit from the abilities that we and other anchor tenants have to generate consumer traffic. A substantial decline in mall traffic, the development of new shopping malls, the availability of locations within existing or new shopping malls, the success of individual shopping malls and the success of other anchor tenants may negatively impact our ability to maintain or grow our sales in existing stores, as well as our ability to open new stores, which could have an adverse effect on our financial condition or results of operations. Improvements to our merchandise buying and fulfillment processes and systems could adversely affect our business if not successfully executed. We are making investments to improve our merchandise planning, procurement, allocation and fulfillment capabilities through changes in personnel, processes, location logistics and technology over a period of several years. If we encounter challenges associated with change management, the ability to hire and retain key personnel involved in these efforts, implementation of associated information technology or adoption of new processes, our ability to continue to successfully execute our strategy or evolve our strategy as the retail environment changes could be adversely affected. As a result, we may not derive the expected benefits to our sales and profitability, or we may incur increased costs relative to our current expectations. If we do not effectively design and implement our strategic and business planning processes to attract, retain, train and develop talent and future leaders, our business may suffer. We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that is difficult to replace, and the talents of our workforce to execute our business strategies and objectives. If unexpected turnover occurs without adequate succession plans, the loss of the services of any of these individuals, or any resulting negative perceptions of our business, could damage our reputation and our business. 6 Nordstrom, Inc. and subsidiaries 7 Even if we take appropriate measures to safeguard our information security and privacy environment from security breaches, our customers and our business could still be exposed to risk. Our Retail and Credit segments involve the collection, storage and transmission of customers’ personal information, consumer preferences and credit card information. In addition, our operations involve the collection, storage and transmission of employee information and Company financial and strategic data. Any measures we implement to prevent a security or cybersecurity threat may not be totally effective and may have the potential to harm relations with our customers or decrease activity on our websites by making them more difficult to use. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly demanding, with new and constantly changing requirements. Security breaches and cyber incidents and their remediation, whether at our Company, our third-party providers or other retailers, could expose us to a risk of loss or misappropriation of this information, litigation, potential liability, reputation damage and loss of customers’ trust and business, which could adversely impact our sales. Any such breaches or incidents could subject us to investigation, notification and remediation costs, and if there is additional information that is later discovered related to such security breach or incident, there could be further loss of customers’ trust and business based upon their reactions to this additional information. Additionally, we could be subject to credit card fraud losses due to external credit card fraud. If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return. We utilize capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to our shareholders through dividends and share repurchases. If our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our operations, cash flows and returns to shareholders could be adversely affected. Ownership and leasing real estate exposes us to possible liabilities and losses. We own or lease the land and/or building for all of our stores and are therefore subject to all of the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease and their operating costs could increase, due to changes in the real estate market, demographic trends, site competition and overall economic trends. Additionally, we are potentially subject to liability for environmental conditions, exit costs associated with disposal of a store, commitments to pay base rent for the entire lease term or operate a store for the duration of an operating covenant. Our customer and employee relationships could be negatively affected if we fail to maintain our corporate culture and reputation. We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant damage to our reputation could negatively impact sales, diminish customer trust, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified employees. The transaction related to the sale of our credit card receivables and resulting program agreement with TD could adversely impact our business. In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. While this transaction was consummated on terms that allow us to maintain customer-facing activities, if we fail to meet certain service levels under the program agreement with TD, TD has the right to assume certain individual servicing functions. If we lose control of such activities and functions, if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with TD, or if this transaction negatively impacts the customer service associated with our cards, our operations, cash flows and returns to shareholders could be adversely affected, which could also harm our business reputation and competitive positioning. The concentration of stock ownership in a small number of our shareholders could limit your ability to influence corporate matters. We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom, our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive Team. In our proxy statement as of March 11, 2016, for the 2016 Annual Meeting of Shareholders, these individuals beneficially owned an aggregate of approximately 30% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable influence over matters requiring shareholder approval. As reported in our periodic filings, our Board of Directors has from time to time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent a significant corporate transaction because the consummation of any such transaction would likely require the approval of these shareholders. As a result, the market price of our common stock could be affected. Investment and partnerships in new business strategies and acquisitions could disrupt our core business. We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses, as well as new technologies or other investments to provide a superior customer shopping experience in our stores and online. Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment charges and our profitability and growth could be adversely affected. RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS A downturn in economic conditions could have a significant adverse effect on our business. During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites as they may be seen as discretionary and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales, higher markdowns, an overly promotional environment and increased marketing and promotional spending. Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer behavior. We compete with other international, national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. The retail environment is rapidly evolving with customer shopping preferences continuing to shift online and we expect competition in the ecommerce market to intensify in the future as the Internet facilitates competitive entry and comparison shopping. We may lose market share to our competitors and our sales and profitability could suffer if we are unable to remain competitive. Our financial model is changing to match customer shopping preferences, but if we do not properly allocate our capital between the store and online environment, or adjust the effectiveness and efficiency of our stores and online channels, our overall sales and profitability could suffer. Our Credit segment faces competition from other retailers who also offer credit card products with associated loyalty programs, large banks and other credit card companies, some of which have substantial financial resources. If we do not effectively anticipate or respond to the competitive banking and credit card environments, we could lose market share to our competitors. Our sales and customer relationships may be negatively impacted if we do not anticipate and respond to consumer preferences and fashion trends appropriately. Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we may harm our ability to retain our existing customers or attract new customers. If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business. Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with our customers. The results of our Credit operations could be adversely affected by changes in market conditions. Our credit card revenues, net and profitability are subject in large part to economic and market conditions that are beyond our control, including, but not limited to, interest rates, consumer credit availability, consumer debt levels, unemployment trends and other factors. These economic and market conditions could impair our revenues and the profitability of our Credit segment due to factors such as lower demand for credit, unfavorable payment patterns and higher delinquency rates. Additionally, our results may be negatively impacted if there are changes to the credit card risk management policies implemented under our program agreement with TD. Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions. We derive a significant amount of our total sales from stores located on the west and east coasts of the United States, particularly in California, which increases our exposure to market-disrupting conditions in these regions. These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing shortages in our stores, distribution centers or corporate offices, interruptions in the flow of merchandise to our stores, disruptions in the operations of our merchandise vendors or property developers, increased costs, and a negative impact on our reputation and long-term growth plans. 8 Nordstrom, Inc. and subsidiaries 9 Even if we take appropriate measures to safeguard our information security and privacy environment from security breaches, our customers and our business could still be exposed to risk. Our Retail and Credit segments involve the collection, storage and transmission of customers’ personal information, consumer preferences and credit card information. In addition, our operations involve the collection, storage and transmission of employee information and Company financial and strategic data. Any measures we implement to prevent a security or cybersecurity threat may not be totally effective and may have the potential to harm relations with our customers or decrease activity on our websites by making them more difficult to use. In addition, the regulatory environment surrounding information security, cybersecurity and privacy is increasingly demanding, with new and constantly changing requirements. Security breaches and cyber incidents and their remediation, whether at our Company, our third-party providers or other retailers, could expose us to a risk of loss or misappropriation of this information, litigation, potential liability, reputation damage and loss of customers’ trust and business, which could adversely impact our sales. Any such breaches or incidents could subject us to investigation, notification and remediation costs, and if there is additional information that is later discovered related to such security breach or incident, there could be further loss of customers’ trust and business based upon their reactions to this additional information. Additionally, we could be subject to credit card fraud losses due to external credit card fraud. If we fail to appropriately manage our capital, we may negatively impact our operations and shareholder return. We utilize capital to finance our operations, make capital expenditures and acquisitions, manage our debt levels and return value to our shareholders through dividends and share repurchases. If our access to capital is restricted or our borrowing costs increase, our operations and financial condition could be adversely impacted. Further, if we do not properly allocate our capital to maximize returns, our operations, cash flows and returns to shareholders could be adversely affected. Ownership and leasing real estate exposes us to possible liabilities and losses. We own or lease the land and/or building for all of our stores and are therefore subject to all of the risks associated with owning and leasing real estate. In particular, the value of the assets could decrease and their operating costs could increase, due to changes in the real estate market, demographic trends, site competition and overall economic trends. Additionally, we are potentially subject to liability for environmental conditions, exit costs associated with disposal of a store, commitments to pay base rent for the entire lease term or operate a store for the duration of an operating covenant. Our customer and employee relationships could be negatively affected if we fail to maintain our corporate culture and reputation. We have a well-recognized culture and reputation that consumers may associate with a high level of integrity, customer service and quality merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant damage to our reputation could negatively impact sales, diminish customer trust, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified employees. The transaction related to the sale of our credit card receivables and resulting program agreement with TD could adversely impact our business. In October 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. While this transaction was consummated on terms that allow us to maintain customer-facing activities, if we fail to meet certain service levels under the program agreement with TD, TD has the right to assume certain individual servicing functions. If we lose control of such activities and functions, if we do not successfully respond to potential risks and appropriately manage potential costs associated with the program agreement with TD, or if this transaction negatively impacts the customer service associated with our cards, our operations, cash flows and returns to shareholders could be adversely affected, which could also harm our business reputation and competitive positioning. The concentration of stock ownership in a small number of our shareholders could limit your ability to influence corporate matters. We have regularly reported in our annual proxy statements the holdings of members of the Nordstrom family, including Bruce A. Nordstrom, our former Co-President and Chairman of the Board, his sister Anne E. Gittinger and members of the Nordstrom family within our Executive Team. In our proxy statement as of March 11, 2016, for the 2016 Annual Meeting of Shareholders, these individuals beneficially owned an aggregate of approximately 30% of our common stock. As a result, either individually or acting together, they may be able to exercise considerable influence over matters requiring shareholder approval. As reported in our periodic filings, our Board of Directors has from time to time authorized share repurchases. While these share repurchases may be offset in part by share issuances under our equity incentive plans and as consideration for acquisitions, the repurchases may nevertheless have the effect of increasing the overall percentage ownership held by these shareholders. The corporate law of the State of Washington, where the Company is incorporated, provides that approval of a merger or similar significant corporate transaction requires the affirmative vote of two-thirds of a company’s outstanding shares. The beneficial ownership of these shareholders may have the effect of discouraging offers to acquire us, delay or otherwise prevent a significant corporate transaction because the consummation of any such transaction would likely require the approval of these shareholders. As a result, the market price of our common stock could be affected. Investment and partnerships in new business strategies and acquisitions could disrupt our core business. We have invested in or are pursuing strategic growth opportunities, which may include acquisitions of, or investments in, other businesses, as well as new technologies or other investments to provide a superior customer shopping experience in our stores and online. Additionally, our business model will continue to rely more on partnerships with third parties for certain strategic initiatives and technologies. If these investments, acquisitions or partnerships do not perform as expected or create operational difficulties, we may record impairment charges and our profitability and growth could be adversely affected. RISKS DUE TO ECONOMIC AND EXTERNAL MARKET FACTORS A downturn in economic conditions could have a significant adverse effect on our business. During economic downturns, fewer customers may shop for the high-quality items in our stores and on our websites as they may be seen as discretionary and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales, higher markdowns, an overly promotional environment and increased marketing and promotional spending. Our business could suffer if we do not appropriately assess and react to competitive market forces and changes in customer behavior. We compete with other international, national, regional, local and online retailers that may carry similar lines of merchandise, including department stores, specialty stores, off-price stores, boutiques and Internet businesses. The retail environment is rapidly evolving with customer shopping preferences continuing to shift online and we expect competition in the ecommerce market to intensify in the future as the Internet facilitates competitive entry and comparison shopping. We may lose market share to our competitors and our sales and profitability could suffer if we are unable to remain competitive. Our financial model is changing to match customer shopping preferences, but if we do not properly allocate our capital between the store and online environment, or adjust the effectiveness and efficiency of our stores and online channels, our overall sales and profitability could suffer. Our Credit segment faces competition from other retailers who also offer credit card products with associated loyalty programs, large banks and other credit card companies, some of which have substantial financial resources. If we do not effectively anticipate or respond to the competitive banking and credit card environments, we could lose market share to our competitors. Our sales and customer relationships may be negatively impacted if we do not anticipate and respond to consumer preferences and fashion trends appropriately. Our ability to predict or respond to constantly changing fashion trends, consumer preferences and spending patterns significantly impacts our sales and operating results. If we do not identify and respond to emerging trends in consumer spending and preferences quickly enough, we may harm our ability to retain our existing customers or attract new customers. If we purchase too much inventory, we may be forced to sell our merchandise at lower average margins, which could harm our business. Conversely, if we fail to purchase enough merchandise, we may lose opportunities for additional sales and potentially harm relationships with our customers. The results of our Credit operations could be adversely affected by changes in market conditions. Our credit card revenues, net and profitability are subject in large part to economic and market conditions that are beyond our control, including, but not limited to, interest rates, consumer credit availability, consumer debt levels, unemployment trends and other factors. These economic and market conditions could impair our revenues and the profitability of our Credit segment due to factors such as lower demand for credit, unfavorable payment patterns and higher delinquency rates. Additionally, our results may be negatively impacted if there are changes to the credit card risk management policies implemented under our program agreement with TD. Our business and operations could be materially and adversely affected by supply chain disruptions, port disruptions, severe weather patterns, natural disasters, widespread pandemics and other natural or man-made disruptions. We derive a significant amount of our total sales from stores located on the west and east coasts of the United States, particularly in California, which increases our exposure to market-disrupting conditions in these regions. These disruptions could cause, among other things, a decrease in consumer spending that would negatively impact our sales, staffing shortages in our stores, distribution centers or corporate offices, interruptions in the flow of merchandise to our stores, disruptions in the operations of our merchandise vendors or property developers, increased costs, and a negative impact on our reputation and long-term growth plans. 8 Nordstrom, Inc. and subsidiaries 9 RISKS DUE TO LEGAL AND REGULATORY FACTORS We are subject to certain laws, litigation, regulatory matters and ethical standards, and our failure to comply with or adequately address developments as they arise could adversely affect our reputation and operations. Our policies, procedures and practices and the technology we implement are designed to comply with federal, state, local and foreign laws, rules and regulations, including those imposed by the SEC and other regulatory agencies, the marketplace, the banking industry and foreign countries, as well as responsible business, social and environmental practices, all of which may change from time to time. Significant legislative changes, including those that relate to employment matters and health care reform, could impact our relationship with our workforce, which could increase our expenses and adversely affect our operations. In addition, if we fail to comply with applicable laws and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, civil and criminal liability, increased cost of regulatory compliance, restatements of our financial statements, disruption of our business and loss of customers. Any required changes to our employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and foreign tax laws, which may increase our tax liabilities. An increase in our tax liabilities could adversely affect our results of operations. We are also regularly involved in various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our business and financial condition. We continue to face uncertainties due to financial services industry regulation and supervision that could have an adverse affect on our operations. Federal and state regulation and supervision of the financial industry has increased in recent years due to implementation of consumer protection and financial reform legislation such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Financial Reform Act”). The Financial Reform Act significantly restructured regulatory oversight and other aspects of the financial industry, created the Consumer Financial Protection Bureau (“CFPB”) to supervise and enforce consumer lending laws and regulations, and expanded state authority over consumer lending. The CARD Act included new and revised rules and restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. We anticipate more regulation and interpretations of the new rules to continue, and we may be required to make changes, or TD may be required to make changes in connection with the program agreement, to credit card practices and systems which could adversely impact the revenues and profitability of our Credit segment. Compliance with applicable laws and regulations could limit or restrict the activities of our business, whether conducted by us or TD, and any potential enforcement actions by those agencies for failure to comply could have an adverse impact on us. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. each listed category as of January 30, 2016: The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. The following table summarizes our store activity during the last three years: Leased stores on leased land Owned stores on leased land Owned stores on owned land Partly owned and partly leased store Total Number of stores, beginning of year Fiscal year Stores opened Stores acquired Stores closed Number of stores, end of year Nordstrom full-line stores - U.S. Nordstrom full-line stores - Canada Nordstrom Rack Other1 Number of stores Nordstrom Full-Line Stores - U.S. and Canada Nordstrom Rack and Other1 % of total store square footage 22 62 36 1 121 2015 292 32 — (1) 323 118 194 3 8 201 — 1 — 202 2014 260 31 4 (3) 292 116 167 1 8 40% 39% 20% 1% 100% 2013 240 22 — (2) 260 117 — 140 3 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. In 2015, we opened five Nordstrom full-line stores (Ottawa, Ontario; San Juan, Puerto Rico; Vancouver, British Columbia; Minneapolis, Minnesota; and Wauwatosa, Wisconsin) and 27 Nordstrom Rack stores (Bakersfield, California; Redlands, California; Reno, Nevada; Princeton, New Jersey; Westwood, Massachusetts; Webster, Texas; Laguna Niguel, California; Miami, Florida; Springfield, Virginia; St. Louis Park, Minnesota; Dublin, California; Albany, New York; Anchorage, Alaska; Buffalo, New York; Clearwater, Florida; Mount Pleasant, South Carolina; Baton Rouge, Louisiana; Long Beach, California; Newark, Delaware; Rockaway, New Jersey; Thousand Oaks, California; Cerritos, California; Eatontown, New Jersey; Emeryville, California; Fort Collins, Colorado; Syracuse, New York; and Wayne, New Jersey). Additionally, in 2015, we closed one Nordstrom full-line store in Buford, Georgia. To date in 2016, we have opened three Nordstrom Rack stores (Lafayette, Louisiana; Orem, Utah; and Virginia Beach, Virginia). During the remainder of 2016, we have announced the opening of three additional Nordstrom full-line stores (two in Toronto, Ontario and one in Austin, Texas) and the opening of 18 additional Nordstrom Rack stores (Colorado Springs, Colorado; Folsom, California; Tucson, Arizona; Albuquerque, New Mexico; Allentown, Pennsylvania; Fort Lauderdale, Florida; Honolulu, Hawaii; La Jolla, California; Novi, Michigan; Pittsburgh, Pennsylvania; Santa Rosa, California; Staten Island, New York; Rosemont, Illinois; Tustin, California; New Orleans, Louisiana; Braintree, Massachusetts; Algonquin, Illinois; and Langhorne, Pennsylvania). We also own six merchandise distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland; and Gainesville, Florida) and we own two fulfillment centers, one on leased land (Cedar Rapids, Iowa) and one on owned land (Elizabethtown, Pennsylvania), all of which are utilized by our Retail segment. Trunk Club and Nordstromrack.com/HauteLook, which are included in our Retail segment, lease three administrative offices (Chicago, Illinois; Los Angeles, California and New York City, New York) and one fulfillment center (San Bernardino, California). We lease two office buildings (Centennial, Colorado and Scottsdale, Arizona) for use by our Credit segment. Our administrative offices in Seattle, Washington are a combination of leased and owned space. We also lease a data center in Centennial, Colorado. 10 Nordstrom, Inc. and subsidiaries 11 We are subject to certain laws, litigation, regulatory matters and ethical standards, and our failure to comply with or adequately address developments as they arise could adversely affect our reputation and operations. Our policies, procedures and practices and the technology we implement are designed to comply with federal, state, local and foreign laws, rules and regulations, including those imposed by the SEC and other regulatory agencies, the marketplace, the banking industry and foreign countries, as well as responsible business, social and environmental practices, all of which may change from time to time. Significant legislative changes, including those that relate to employment matters and health care reform, could impact our relationship with our workforce, which could increase our expenses and adversely affect our operations. In addition, if we fail to comply with applicable laws and regulations or implement responsible business, social, environmental and supply chain practices, we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, civil and criminal liability, increased cost of regulatory compliance, restatements of our financial statements, disruption of our business and loss of customers. Any required changes to our employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal, state and foreign tax laws, which may increase our tax liabilities. An increase in our tax liabilities could adversely affect our results of operations. We are also regularly involved in various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our business and financial condition. on our operations. Federal and state regulation and supervision of the financial industry has increased in recent years due to implementation of consumer protection and financial reform legislation such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Financial Reform Act”). The Financial Reform Act significantly restructured regulatory oversight and other aspects of the financial industry, created the Consumer Financial Protection Bureau (“CFPB”) to supervise and enforce consumer lending laws and regulations, and expanded state authority over consumer lending. The CARD Act included new and revised rules and restrictions on credit card pricing, finance charges and fees, customer billing practices and payment application. We anticipate more regulation and interpretations of the new rules to continue, and we may be required to make changes, or TD may be required to make changes in connection with the program agreement, to credit card practices and systems which could adversely impact the revenues and profitability of our Credit segment. Compliance with applicable laws and regulations could limit or restrict the activities of our business, whether conducted by us or TD, and any potential enforcement actions by those agencies for failure to comply could have an adverse impact on us. Item 1B. Unresolved Staff Comments. None. RISKS DUE TO LEGAL AND REGULATORY FACTORS Item 2. Properties. The following table summarizes the number of retail stores we own or lease, and the percentage of total store square footage represented by each listed category as of January 30, 2016: We continue to face uncertainties due to financial services industry regulation and supervision that could have an adverse affect Fiscal year Leased stores on leased land Owned stores on leased land Owned stores on owned land Partly owned and partly leased store Total 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. The following table summarizes our store activity during the last three years: Number of stores, beginning of year Stores opened Stores acquired Stores closed Number of stores, end of year Nordstrom full-line stores - U.S. Nordstrom full-line stores - Canada Nordstrom Rack Other1 Number of stores Nordstrom Full-Line Stores - U.S. and Canada Nordstrom Rack and Other1 % of total store square footage 22 62 36 1 121 2015 292 32 — (1) 323 118 3 194 8 201 — 1 — 202 2014 260 31 4 (3) 292 116 1 167 8 40% 39% 20% 1% 100% 2013 240 22 — (2) 260 117 — 140 3 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. In 2015, we opened five Nordstrom full-line stores (Ottawa, Ontario; San Juan, Puerto Rico; Vancouver, British Columbia; Minneapolis, Minnesota; and Wauwatosa, Wisconsin) and 27 Nordstrom Rack stores (Bakersfield, California; Redlands, California; Reno, Nevada; Princeton, New Jersey; Westwood, Massachusetts; Webster, Texas; Laguna Niguel, California; Miami, Florida; Springfield, Virginia; St. Louis Park, Minnesota; Dublin, California; Albany, New York; Anchorage, Alaska; Buffalo, New York; Clearwater, Florida; Mount Pleasant, South Carolina; Baton Rouge, Louisiana; Long Beach, California; Newark, Delaware; Rockaway, New Jersey; Thousand Oaks, California; Cerritos, California; Eatontown, New Jersey; Emeryville, California; Fort Collins, Colorado; Syracuse, New York; and Wayne, New Jersey). Additionally, in 2015, we closed one Nordstrom full-line store in Buford, Georgia. To date in 2016, we have opened three Nordstrom Rack stores (Lafayette, Louisiana; Orem, Utah; and Virginia Beach, Virginia). During the remainder of 2016, we have announced the opening of three additional Nordstrom full-line stores (two in Toronto, Ontario and one in Austin, Texas) and the opening of 18 additional Nordstrom Rack stores (Colorado Springs, Colorado; Folsom, California; Tucson, Arizona; Albuquerque, New Mexico; Allentown, Pennsylvania; Fort Lauderdale, Florida; Honolulu, Hawaii; La Jolla, California; Novi, Michigan; Pittsburgh, Pennsylvania; Santa Rosa, California; Staten Island, New York; Rosemont, Illinois; Tustin, California; New Orleans, Louisiana; Braintree, Massachusetts; Algonquin, Illinois; and Langhorne, Pennsylvania). We also own six merchandise distribution centers (Portland, Oregon; Dubuque, Iowa; Ontario, California; Newark, California; Upper Marlboro, Maryland; and Gainesville, Florida) and we own two fulfillment centers, one on leased land (Cedar Rapids, Iowa) and one on owned land (Elizabethtown, Pennsylvania), all of which are utilized by our Retail segment. Trunk Club and Nordstromrack.com/HauteLook, which are included in our Retail segment, lease three administrative offices (Chicago, Illinois; Los Angeles, California and New York City, New York) and one fulfillment center (San Bernardino, California). We lease two office buildings (Centennial, Colorado and Scottsdale, Arizona) for use by our Credit segment. Our administrative offices in Seattle, Washington are a combination of leased and owned space. We also lease a data center in Centennial, Colorado. 10 Nordstrom, Inc. and subsidiaries 11 We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded reserves in our Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future. Item 4. Mine Safety Disclosures. None. The following table lists our U.S. and Canada retail store count and facility square footage by state/province as of January 30, 2016: Item 3. Legal Proceedings. Retail stores by channel Nordstrom Full-Line Stores - U.S. and Canada Nordstrom Rack and Other1 Total State/Province U.S. Alabama Alaska Arizona California2 Colorado Connecticut Delaware Florida2 Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Missouri Nevada New Jersey New York North Carolina Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina Tennessee Texas2 Utah Virginia Washington Washington D.C. Wisconsin Canada Alberta British Columbia Ontario Total Count Square Footage (000’s) Count Square Footage (000’s) Count Square Footage (000’s) — 1 2 32 3 1 1 9 2 1 — 4 1 — 1 — — — 4 4 3 2 2 1 5 2 2 3 — 4 2 1 1 — 1 8 2 5 7 — 1 1 1 1 121 — 97 384 5,477 559 189 127 1,389 383 211 — 947 134 — 219 — — — 765 595 552 380 342 207 991 460 300 549 — 555 381 143 206 — 145 1,431 277 894 1,392 — 150 1 1 7 46 5 1 1 14 5 1 1 11 1 1 1 1 1 1 4 6 4 3 2 3 7 13 2 6 2 5 3 — 1 3 1 16 3 6 7 3 2 142 231 158 21,362 — — — 202 35 35 262 1,743 182 36 32 484 165 44 37 402 35 35 35 33 30 30 156 229 145 108 69 101 248 407 74 224 67 190 120 — 38 101 36 527 96 234 276 80 67 — — — 7,248 1 2 9 78 8 2 2 23 7 2 1 15 2 1 2 1 1 1 8 10 7 5 4 4 12 15 4 9 2 9 5 1 2 3 2 24 5 11 14 3 3 1 1 1 323 35 132 646 7,220 741 225 159 1,873 548 255 37 1,349 169 35 254 33 30 30 921 824 697 488 411 308 1,239 867 374 773 67 745 501 143 244 101 181 1,958 373 1,128 1,668 80 217 142 231 158 28,610 1 Other includes five Trunk Club clubhouses, two Jeffrey boutiques and one Last Chance store. 2 California, Texas and Florida had the highest square footage, with a combined 11,051 square feet, representing 39% of the total Company square footage. 12 Nordstrom, Inc. and subsidiaries 13 The following table lists our U.S. and Canada retail store count and facility square footage by state/province as of January 30, 2016: Item 3. Legal Proceedings. Retail stores by channel Nordstrom Rack and Other1 Total Nordstrom Full-Line Stores - U.S. and Canada Square Footage Square Footage Count (000’s) Count (000’s) Count Square Footage (000’s) We are subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits alleging violations of state and/or federal wage and hour and other employment laws, privacy and other consumer-based claims. Some of these lawsuits include certified classes of litigants, or purport or may be determined to be class or collective actions and seek substantial damages or injunctive relief, or both, and some may remain unresolved for several years. We believe the recorded reserves in our Consolidated Financial Statements are adequate in light of the probable and estimable liabilities. As of the date of this report, we do not believe any currently identified claim, proceeding or litigation, either alone or in the aggregate, will have a material impact on our results of operations, financial position or cash flows. Since these matters are subject to inherent uncertainties, our view of them may change in the future. Item 4. Mine Safety Disclosures. None. 1 Other includes five Trunk Club clubhouses, two Jeffrey boutiques and one Last Chance store. 2 California, Texas and Florida had the highest square footage, with a combined 11,051 square feet, representing 39% of the total Company square footage. 121 7,248 323 Nordstrom, Inc. and subsidiaries 13 State/Province U.S. Alabama Alaska Arizona California2 Colorado Connecticut Delaware Florida2 Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Missouri Nevada New Jersey New York North Carolina Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina Tennessee Texas2 Utah Virginia Washington Washington D.C. Wisconsin Canada Alberta Ontario Total British Columbia 12 32 — 1 2 3 1 1 9 2 1 4 1 — — 1 — — — 4 4 3 2 2 1 5 2 2 3 4 2 1 1 1 8 2 5 7 1 1 1 — — — 1 — 97 384 5,477 1,389 559 189 127 383 211 — 947 134 — 219 — — — 765 595 552 380 342 207 991 460 300 549 — 555 381 143 206 — 145 1,431 277 894 1,392 — 150 142 231 158 21,362 46 14 11 1 1 7 5 1 1 5 1 1 1 1 1 1 1 1 4 6 4 3 2 3 7 2 6 2 5 3 1 3 1 3 6 7 3 2 13 — 16 — — — 202 35 35 262 1,743 182 36 32 484 165 44 37 402 35 35 35 33 30 30 156 229 145 108 69 101 248 407 74 224 67 190 120 — 38 101 36 527 96 234 276 80 67 — — — 78 23 15 10 12 15 1 2 9 8 2 2 7 2 1 2 1 2 1 1 1 8 7 5 4 4 4 9 2 9 5 1 2 3 2 3 3 1 1 1 24 5 11 14 7,220 1,873 1,349 35 132 646 741 225 159 548 255 37 169 35 254 33 30 30 921 824 697 488 411 308 867 374 773 67 745 501 143 244 101 181 1,239 1,958 373 1,128 1,668 80 217 142 231 158 28,610 The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending January 30, 2016. The Retail Index is composed of 31 retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of $100 each in Nordstrom common stock, the S&P Retail and the S&P 500 on January 29, 2011 and assumes reinvestment of dividends on the Nordstrom common stock as well as the S&P Retail and S&P 500 Indexes. PART II STOCK PRICE PERFORMANCE Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. MARKET, SHAREHOLDER AND DIVIDEND INFORMATION Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders of common stock as of March 11, 2016 was 260,000 based upon the number of registered and beneficial shareholders and the number of employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 172,920,293 shares of common stock outstanding. The high and low prices of our common stock and dividends declared for each quarter of 2015 and 2014 are presented in the table below: Common Stock Price 2015 2014 Dividends per Share High $83.16 $80.23 $79.98 $67.27 $83.16 Low $74.51 $72.01 $63.73 $44.49 $44.49 High $64.19 $70.71 $73.74 $80.54 $80.54 Low $54.90 $60.20 $64.92 $70.21 $54.90 2015 $0.37 $0.37 $5.22 $0.37 $6.33 2014 $0.33 $0.33 $0.33 $0.33 $1.32 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year SHARE REPURCHASES Dollar and share amounts in millions, except per share amounts The following is a summary of our fourth quarter share repurchases: November 2015 (November 1, 2015 to November 28, 2015) December 2015 (November 29, 2015 to January 2, 2016) January 2016 (January 3, 2016 to January 30, 2016) Total Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 1.8 $57.44 10.2 — 12.0 $55.86 $— $56.10 1.8 10.2 — 12.0 $1,381 $811 $811 1 In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. End of fiscal year Nordstrom common stock Standard & Poor’s Retail Index Standard & Poor’s 500 Index 2010 100 100 100 2011 120 113 105 2012 139 144 124 2013 147 181 149 2014 198 223 174 2015 140 258 171 14 Nordstrom, Inc. and subsidiaries 15 STOCK PRICE PERFORMANCE The following graph compares the cumulative total return of Nordstrom common stock, Standard & Poor’s Retail Index (“S&P Retail”) and Standard & Poor’s 500 Index (“S&P 500”) for each of the last five fiscal years, ending January 30, 2016. The Retail Index is composed of 31 retail companies, including Nordstrom, representing an industry group of the S&P 500. The following graph assumes an initial investment of $100 each in Nordstrom common stock, the S&P Retail and the S&P 500 on January 29, 2011 and assumes reinvestment of dividends on the Nordstrom common stock as well as the S&P Retail and S&P 500 Indexes. PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. MARKET, SHAREHOLDER AND DIVIDEND INFORMATION Our common stock, without par value, is traded on the New York Stock Exchange under the symbol “JWN.” The approximate number of holders of common stock as of March 11, 2016 was 260,000 based upon the number of registered and beneficial shareholders and the number of employee shareholders in the Nordstrom 401(k) Plan and Profit Sharing Plan. On this date we had 172,920,293 shares of common stock outstanding. The high and low prices of our common stock and dividends declared for each quarter of 2015 and 2014 are presented in the table below: 2015 2014 Dividends per Share Common Stock Price Low $74.51 $72.01 $63.73 $44.49 $44.49 High $64.19 $70.71 $73.74 $80.54 $80.54 High $83.16 $80.23 $79.98 $67.27 $83.16 Low $54.90 $60.20 $64.92 $70.21 $54.90 2015 $0.37 $0.37 $5.22 $0.37 $6.33 2014 $0.33 $0.33 $0.33 $0.33 $1.32 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Full Year SHARE REPURCHASES Dollar and share amounts in millions, except per share amounts The following is a summary of our fourth quarter share repurchases: November 2015 (November 1, 2015 to November 28, 2015) December 2015 (November 29, 2015 to January 2, 2016) January 2016 (January 3, 2016 to January 30, 2016) Total Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 1.8 $57.44 10.2 — 12.0 $55.86 $— $56.10 1.8 10.2 — 12.0 $1,381 $811 $811 1 In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. End of fiscal year Nordstrom common stock Standard & Poor’s Retail Index Standard & Poor’s 500 Index 2010 100 100 100 2011 120 113 105 2012 139 144 124 2013 147 181 149 2014 198 223 174 2015 140 258 171 14 Nordstrom, Inc. and subsidiaries 15 Item 6. Selected Financial Data. Dollars in millions except per square foot and per share amounts Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial Statements and Supplementary Data of this Annual Report on Form 10-K. OVERVIEW Fiscal year Earnings Results Net sales Credit card revenues, net (see Note 2 in Item 8) Gross profit Selling, general and administrative (“SG&A”) expenses Earnings before interest and income taxes (“EBIT”) Net earnings 2015 2014 2013 2012 2011 $14,095 342 4,927 (4,168) 1,101 600 $13,110 396 4,704 (3,777) 1,323 720 $12,166 374 4,429 (3,453) 1,350 734 $11,762 372 4,330 (3,357) 1,345 735 $10,497 363 3,905 (3,019) 1,249 683 Balance Sheet and Cash Flow Data Cash and cash equivalents Merchandise inventories Land, property and equipment, net Total assets (see Note 2 in Item 8) Total long-term debt (see Note 9 in Item 8) Cash flow from operations (see Note 2 in Item 8) Capital expenditures Performance Metrics Comparable sales increase Gross profit % of net sales Total SG&A % of net sales EBIT % of net sales Capital expenditures % of net sales Return on assets Return on invested capital (“ROIC”)1 Sales per square foot 4-wall sales per square foot Inventory turnover rate Per Share Information Earnings per diluted share Dividends declared per share (see Note 13 in Item 8) Store Information (at year-end) Nordstrom full-line stores - U.S. and Canada Nordstrom Rack and other2 Total square footage $595 1,945 3,735 7,698 2,805 2,451 1,082 2.7% 35.0% 29.6% 7.8% 7.7% 6.6% 10.7% $507 $410 4.54 $3.15 6.33 $827 1,733 3,340 9,245 3,131 1,220 861 4.0% 35.9% 28.8% 10.1% 6.6% 8.1% 12.6% $493 $413 4.67 $3.72 1.32 $1,194 1,531 2,949 8,574 3,113 1,320 803 2.5% 36.4% 28.4% 11.1% 6.6% 8.7% 13.6% $474 $408 5.07 $3.71 1.20 $1,285 1,360 2,579 8,089 3,131 1,110 513 7.3% 36.8% 28.5% 11.4% 4.4% 8.9% 13.9% $470 $417 5.37 $3.56 1.08 $1,877 1,148 2,469 8,491 3,647 1,177 511 7.2% 37.2% 28.8% 11.9% 4.9% 8.7% 13.3% $431 $394 5.56 $3.14 0.92 121 202 28,610,000 117 175 27,061,000 117 143 26,017,000 117 123 25,290,000 117 108 24,745,000 1 See ROIC (Non-GAAP financial measure) on page 26 for additional information and reconciliation to the most directly comparable GAAP financial measure. 2 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. Nordstrom is a leading fashion specialty retailer offering apparel, shoes, cosmetics and accessories for women, men, young adults and children. We offer an extensive selection of high-quality brand-name and private label merchandise through our various channels, including Nordstrom U.S. and Canada full-line stores, Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club clubhouses and TrunkClub.com, our Jeffrey boutiques and our Last Chance clearance store. As of January 30, 2016, our stores are located in 39 states throughout the United States and in three provinces in Canada. In addition, we offer our customers a Nordstrom Rewards™ loyalty program along with a variety of payment products and services, including credit and debit cards. In 2015, we continued to grow our business despite a more challenging retail environment in the second half of the year. We added nearly $1 billion to our top line, delivering total net sales growth of 7.5% and a comparable sales increase of 2.7%. During the year, we achieved the following milestones in executing our customer strategy: opened our first international flagship store in Vancouver, British Columbia, the most successful opening in our Company history grew Nordstromrack.com/HauteLook by 47%, reaching over $500 in sales expanded our fulfillment network with our third fulfillment center in Elizabethtown, Pennsylvania, located within two-day delivery of • • • • approximately half the U.S. population credit card receivables returned $2.4 billion to shareholders through share repurchase and dividends, of which $1.8 billion resulted from the sale of our From a merchandising perspective, we’re constantly pursuing newness and fashion to increase our relevance with customers. Brands like Topshop, Madewell, Brandy Melville and Charlotte Tilbury have contributed to the strength of our younger customer-focused departments and attracted new customers to Nordstrom. Additionally, we saw continued momentum in Beauty, which has been among our top-performing categories for the fourth straight year. On October 1st, we completed the sale of our credit card portfolio to TD. Our mutual commitment to having Nordstrom employees serve our customers directly was paramount to this partnership. We are able to retain all aspects of customer-facing activities, aligning with our strategy of enhancing the customer experience while allowing for improvement in capital efficiency. In addition, we consider our loyalty program as an enabler of growth to increase our engagement with customers and attract new customers. With sales to Rewards members representing 40% of our sales volume, we look forward to expanding our program with a tender-neutral offer in 2016. Over the past several years, we’ve made significant investments to enable customers to shop seamlessly across stores and online as well as to grow our business through new markets. Our investments in HauteLook, Canada and Trunk Club added over $400 to our top-line growth in 2015, while Nordstrom Rack’s expansion of 27 new stores contributed nearly $230 to our top-line growth. These investments have resulted in market share gains, but also represent an evolution of our business resulting in expenses growing faster than sales in recent years. As we look ahead to 2016, we continue to view 2015 as our peak investment year. While we have successfully increased market share, we are also committed to increasing efficiency, lowering costs while increasing effectiveness and gaining profitability. With our investments moderating, we expect 2016 to represent an inflection point of earnings growth improvement. As our business evolves, our focus continues to be guided by customer expectations around speed, convenience and personalization. We believe that we are well positioned with the right strategies in place to successfully serve our customers, which will in turn lead to long-term profitable growth and top-quartile total shareholder return. 16 Nordstrom, Inc. and subsidiaries 17 Item 6. Selected Financial Data. Dollars in millions except per square foot and per share amounts The following selected financial data are derived from the audited Consolidated Financial Statements and should be read in conjunction with Item 1A: Risk Factors, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8: Financial Statements and Supplementary Data of this Annual Report on Form 10-K. 2015 2014 2013 2012 2011 $14,095 $13,110 $12,166 $11,762 $10,497 Fiscal year Earnings Results Net sales Gross profit Credit card revenues, net (see Note 2 in Item 8) Selling, general and administrative (“SG&A”) expenses Earnings before interest and income taxes (“EBIT”) Net earnings Balance Sheet and Cash Flow Data Cash and cash equivalents Merchandise inventories Land, property and equipment, net Total assets (see Note 2 in Item 8) Total long-term debt (see Note 9 in Item 8) Cash flow from operations (see Note 2 in Item 8) Capital expenditures Performance Metrics Comparable sales increase Gross profit % of net sales Total SG&A % of net sales EBIT % of net sales Capital expenditures % of net sales Return on assets Return on invested capital (“ROIC”)1 Sales per square foot 4-wall sales per square foot Inventory turnover rate Per Share Information Earnings per diluted share Dividends declared per share (see Note 13 in Item 8) Store Information (at year-end) Nordstrom full-line stores - U.S. and Canada Nordstrom Rack and other2 Total square footage 342 4,927 (4,168) 1,101 600 $595 1,945 3,735 7,698 2,805 2,451 1,082 2.7% 35.0% 29.6% 7.8% 7.7% 6.6% 10.7% $507 $410 4.54 $3.15 6.33 121 202 396 4,704 (3,777) 1,323 720 $827 1,733 3,340 9,245 3,131 1,220 861 4.0% 35.9% 28.8% 10.1% 6.6% 8.1% 12.6% $493 $413 4.67 $3.72 1.32 117 175 374 4,429 (3,453) 1,350 734 $1,194 1,531 2,949 8,574 3,113 1,320 803 2.5% 36.4% 28.4% 11.1% 6.6% 8.7% 13.6% $474 $408 5.07 $3.71 1.20 117 143 372 4,330 (3,357) 1,345 735 $1,285 1,360 2,579 8,089 3,131 1,110 513 7.3% 36.8% 28.5% 11.4% 4.4% 8.9% 13.9% $470 $417 5.37 $3.56 1.08 117 123 363 3,905 (3,019) 1,249 683 $1,877 1,148 2,469 8,491 3,647 1,177 511 7.2% 37.2% 28.8% 11.9% 4.9% 8.7% 13.3% $431 $394 5.56 $3.14 0.92 117 108 1 See ROIC (Non-GAAP financial measure) on page 26 for additional information and reconciliation to the most directly comparable GAAP financial measure. 2 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. 28,610,000 27,061,000 26,017,000 25,290,000 24,745,000 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Dollar, share and square footage amounts in millions except percentages, per share and per square foot amounts OVERVIEW Nordstrom is a leading fashion specialty retailer offering apparel, shoes, cosmetics and accessories for women, men, young adults and children. We offer an extensive selection of high-quality brand-name and private label merchandise through our various channels, including Nordstrom U.S. and Canada full-line stores, Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club clubhouses and TrunkClub.com, our Jeffrey boutiques and our Last Chance clearance store. As of January 30, 2016, our stores are located in 39 states throughout the United States and in three provinces in Canada. In addition, we offer our customers a Nordstrom Rewards™ loyalty program along with a variety of payment products and services, including credit and debit cards. In 2015, we continued to grow our business despite a more challenging retail environment in the second half of the year. We added nearly $1 billion to our top line, delivering total net sales growth of 7.5% and a comparable sales increase of 2.7%. During the year, we achieved the following milestones in executing our customer strategy: • • • • opened our first international flagship store in Vancouver, British Columbia, the most successful opening in our Company history grew Nordstromrack.com/HauteLook by 47%, reaching over $500 in sales expanded our fulfillment network with our third fulfillment center in Elizabethtown, Pennsylvania, located within two-day delivery of approximately half the U.S. population returned $2.4 billion to shareholders through share repurchase and dividends, of which $1.8 billion resulted from the sale of our credit card receivables From a merchandising perspective, we’re constantly pursuing newness and fashion to increase our relevance with customers. Brands like Topshop, Madewell, Brandy Melville and Charlotte Tilbury have contributed to the strength of our younger customer-focused departments and attracted new customers to Nordstrom. Additionally, we saw continued momentum in Beauty, which has been among our top-performing categories for the fourth straight year. On October 1st, we completed the sale of our credit card portfolio to TD. Our mutual commitment to having Nordstrom employees serve our customers directly was paramount to this partnership. We are able to retain all aspects of customer-facing activities, aligning with our strategy of enhancing the customer experience while allowing for improvement in capital efficiency. In addition, we consider our loyalty program as an enabler of growth to increase our engagement with customers and attract new customers. With sales to Rewards members representing 40% of our sales volume, we look forward to expanding our program with a tender-neutral offer in 2016. Over the past several years, we’ve made significant investments to enable customers to shop seamlessly across stores and online as well as to grow our business through new markets. Our investments in HauteLook, Canada and Trunk Club added over $400 to our top-line growth in 2015, while Nordstrom Rack’s expansion of 27 new stores contributed nearly $230 to our top-line growth. These investments have resulted in market share gains, but also represent an evolution of our business resulting in expenses growing faster than sales in recent years. As we look ahead to 2016, we continue to view 2015 as our peak investment year. While we have successfully increased market share, we are also committed to increasing efficiency, lowering costs while increasing effectiveness and gaining profitability. With our investments moderating, we expect 2016 to represent an inflection point of earnings growth improvement. As our business evolves, our focus continues to be guided by customer expectations around speed, convenience and personalization. We believe that we are well positioned with the right strategies in place to successfully serve our customers, which will in turn lead to long-term profitable growth and top-quartile total shareholder return. 16 Nordstrom, Inc. and subsidiaries 17 RESULTS OF OPERATIONS Our reportable segments are Retail and Credit. We analyze our results of operations through earnings before interest and income taxes for our Retail Business and Credit, while interest expense, income taxes, earnings per share and return on invested capital are discussed on a total Company basis. RETAIL BUSINESS Our Retail Business includes our Nordstrom-branded U.S. and Canada full-line stores and Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club, Jeffrey and our Last Chance clearance store. For purposes of discussion and analysis of our results of operations of our Retail Business, we combine our Retail segment results with revenues and expenses in the “Corporate/Other” column of Note 17: Segment Reporting in Item 8 (collectively, the “Retail Business”). Certain metrics we use to evaluate the Retail Business may not be calculated in a consistent manner among industry peers. Provided below are definitions of metrics we present within our analysis of the Retail Business: • • • • • Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. Total Company comparable sales include sales from our online channels (Nordstrom.com and Nordstromrack.com/HauteLook) because of the integration with our stores. Gross Profit – net sales less cost of sales and related buying and occupancy costs. Inventory Turnover Rate – annual cost of sales and related buying and occupancy costs (for all segments) divided by the trailing 4- quarter average inventory. Total Sales Per Square Foot – net sales divided by weighted-average square footage. 4-wall Sales Per Square Foot – sales for Nordstrom U.S. and Canada full-line stores, Nordstrom Rack stores, Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store divided by their weighted-average square footage. Summary The following table summarizes the results of our Retail Business for the past three years: Fiscal year Net sales Cost of sales and related buying and occupancy costs Gross profit Selling, general and administrative expenses Earnings before interest and income taxes 1 Subtotals and totals may not foot due to rounding. 2015 2014 2013 Amount $14,095 (9,161) 4,934 (4,016) $918 % of net sales1 100.0% (65.0%) 35.0% (28.5%) 6.5% Amount $13,110 (8,401) 4,709 (3,588) $1,121 % of net sales1 100.0% (64.1%) 35.9% (27.4%) 8.6% Amount $12,166 (7,732) 4,434 (3,272) $1,162 % of net sales1 100.0% (63.6%) 36.4% (26.9%) 9.6% Retail Business Net Sales In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. While our customers may engage with us through multiple channels, we know they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. To provide additional transparency into our net sales by channel, we present the following information for our Retail Business: Fiscal year Net sales by channel: Nordstrom full-line stores - U.S. Nordstrom.com Full-price Nordstrom Rack Nordstromrack.com/HauteLook Off-price Other retail1 Retail segment Corporate/Other Total net sales Net sales increase Comparable sales increase (decrease) by channel: Nordstrom full-line stores - U.S. Nordstrom.com Full-price Nordstrom Rack Off-price Total Company Nordstromrack.com/HauteLook Sales per square foot: Total sales per square foot 4-wall sales per square foot Full-line sales per square foot - U.S. Nordstrom Rack sales per square foot Net Sales (2015 vs. 2014) 2.8% of our total net sales for 2015. 2015 $7,633 2,300 9,933 3,533 532 4,065 378 14,376 (281) $14,095 (1.1%) 15.2% 2.3% (1.0%) 47.4% 4.3% 2.7% $507 410 370 523 2014 $7,682 1,996 9,678 3,215 360 3,575 116 13,369 (259) $13,110 (0.5%) 23.1% 3.6% 3.8% 22.1% 5.7% 4.0% $493 413 371 552 2013 $7,705 1,622 9,327 2,738 295 3,033 35 12,395 (229) $12,166 (2.1%) 29.5% 2.3% 2.7% 27.3% 4.9% 2.5% $474 408 372 553 7.5% 7.8% 3.4% 1 Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques. In 2015, total Company net sales increased 7.5%, while comparable sales increased 2.7%. During the year, we opened five Nordstrom full- line stores, including two in Canada, and 27 Nordstrom Rack stores. These additions increased our square footage by 6.4% and represented Our full-price net sales, which consist of the U.S. full-line and Nordstrom.com channels, increased 2.6% compared with 2014, with comparable sales up 2.3%. These increases reflected continued momentum in our Nordstrom.com channel, which increased 15%, while U.S. full-line store net sales decreased 0.6% in 2015 compared with 2014. On a comparable basis, we experienced an increased volume of transactions partially offset by a decrease in the average number of items sold per transaction. Category leaders included Beauty and Women’s Apparel. U.S. full-line store comparable sales decreased by 1.1%. The Northwest and Southwest were the top-performing full-line geographic regions. 18 Nordstrom, Inc. and subsidiaries 19 Our reportable segments are Retail and Credit. We analyze our results of operations through earnings before interest and income taxes for our Retail Business and Credit, while interest expense, income taxes, earnings per share and return on invested capital are discussed on a RESULTS OF OPERATIONS total Company basis. RETAIL BUSINESS Our Retail Business includes our Nordstrom-branded U.S. and Canada full-line stores and Nordstrom.com, Nordstrom Rack stores, Nordstromrack.com/HauteLook, Trunk Club, Jeffrey and our Last Chance clearance store. For purposes of discussion and analysis of our results of operations of our Retail Business, we combine our Retail segment results with revenues and expenses in the “Corporate/Other” column of Note 17: Segment Reporting in Item 8 (collectively, the “Retail Business”). Certain metrics we use to evaluate the Retail Business may not be calculated in a consistent manner among industry peers. Provided below are definitions of metrics we present within our analysis of the Retail Business: Comparable Sales – sales from stores that have been open at least one full year at the beginning of the year. Total Company comparable sales include sales from our online channels (Nordstrom.com and Nordstromrack.com/HauteLook) because of the integration with our stores. quarter average inventory. Gross Profit – net sales less cost of sales and related buying and occupancy costs. Inventory Turnover Rate – annual cost of sales and related buying and occupancy costs (for all segments) divided by the trailing 4- Total Sales Per Square Foot – net sales divided by weighted-average square footage. 4-wall Sales Per Square Foot – sales for Nordstrom U.S. and Canada full-line stores, Nordstrom Rack stores, Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store divided by their weighted-average square footage. The following table summarizes the results of our Retail Business for the past three years: Summary Fiscal year Net sales Gross profit Cost of sales and related buying and occupancy costs Selling, general and administrative expenses Earnings before interest and income taxes 1 Subtotals and totals may not foot due to rounding. 2015 2014 2013 Amount $14,095 (9,161) 4,934 (4,016) $918 % of net sales1 100.0% (65.0%) 35.0% (28.5%) 6.5% Amount $13,110 (8,401) 4,709 (3,588) $1,121 % of net sales1 100.0% (64.1%) 35.9% (27.4%) 8.6% Amount $12,166 (7,732) 4,434 (3,272) $1,162 % of net sales1 100.0% (63.6%) 36.4% (26.9%) 9.6% • • • • • 18 Retail Business Net Sales In our ongoing effort to enhance the customer experience, we are focused on providing customers with a seamless experience across our channels. While our customers may engage with us through multiple channels, we know they value the overall Nordstrom brand experience and view us simply as Nordstrom, which is ultimately how we view our business. To provide additional transparency into our net sales by channel, we present the following information for our Retail Business: Fiscal year Net sales by channel: Nordstrom full-line stores - U.S. Nordstrom.com Full-price Nordstrom Rack Nordstromrack.com/HauteLook Off-price Other retail1 Retail segment Corporate/Other Total net sales Net sales increase Comparable sales increase (decrease) by channel: Nordstrom full-line stores - U.S. Nordstrom.com Full-price Nordstrom Rack Nordstromrack.com/HauteLook Off-price Total Company Sales per square foot: Total sales per square foot 4-wall sales per square foot Full-line sales per square foot - U.S. Nordstrom Rack sales per square foot 1 Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques. 2015 $7,633 2,300 9,933 3,533 532 4,065 378 14,376 (281) $14,095 2014 $7,682 1,996 9,678 3,215 360 3,575 116 13,369 (259) $13,110 2013 $7,705 1,622 9,327 2,738 295 3,033 35 12,395 (229) $12,166 7.5% 7.8% 3.4% (1.1%) 15.2% 2.3% (1.0%) 47.4% 4.3% 2.7% $507 410 370 523 (0.5%) 23.1% 3.6% 3.8% 22.1% 5.7% 4.0% $493 413 371 552 (2.1%) 29.5% 2.3% 2.7% 27.3% 4.9% 2.5% $474 408 372 553 Net Sales (2015 vs. 2014) In 2015, total Company net sales increased 7.5%, while comparable sales increased 2.7%. During the year, we opened five Nordstrom full- line stores, including two in Canada, and 27 Nordstrom Rack stores. These additions increased our square footage by 6.4% and represented 2.8% of our total net sales for 2015. Our full-price net sales, which consist of the U.S. full-line and Nordstrom.com channels, increased 2.6% compared with 2014, with comparable sales up 2.3%. These increases reflected continued momentum in our Nordstrom.com channel, which increased 15%, while U.S. full-line store net sales decreased 0.6% in 2015 compared with 2014. On a comparable basis, we experienced an increased volume of transactions partially offset by a decrease in the average number of items sold per transaction. Category leaders included Beauty and Women’s Apparel. U.S. full-line store comparable sales decreased by 1.1%. The Northwest and Southwest were the top-performing full-line geographic regions. Nordstrom, Inc. and subsidiaries 19 Within our off-price offering, Nordstrom Rack net sales increased 9.9%, compared with 2014, reflecting the accelerated expansion of new stores. Comparable sales decreased 1.0% for the year. Shoes and Cosmetics were the top-performing categories, while the South was the top-performing geographic region. Nordstrom Rack experienced an increase in the average retail price per item sold offset by a decrease in the total number of items sold. Sales per square foot of Nordstrom Rack decreased due to store expansion. Selling, General and Administrative Expenses (2015 vs. 2014) Our Retail SG&A rate increased 112 basis points in 2015 compared with 2014 due to growth initiatives related to Trunk Club and Canada, higher fulfillment costs supporting online growth and asset impairment charges (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Our Retail SG&A increased $428 in 2015 due primarily to increased sales and growth initiatives Nordstromrack.com/HauteLook experienced outsized growth, with a net sales increase of 47%. Net Sales (2014 vs. 2013) Total Company net sales for 2014 increased 7.8% compared with 2013, which was attributable to a comparable sales increase of 4.0%. During 2014, we opened three Nordstrom full-line stores, including our first store in Canada, 27 Nordstrom Rack stores and acquired Trunk Club. These additions represented 2.8% of our total net sales for 2014 and increased our square footage by 5.5%. Full-price net sales for 2014 increased 3.8% compared with 2013, with comparable sales up 3.6%. These increases were largely due to the performance of our Nordstrom.com channel. Both the number of items sold and the average selling price increased on a comparable basis in 2014 compared with 2013. Category leaders included Accessories, Cosmetics and Men’s Apparel. U.S. full-line store net sales for 2014 decreased 0.3% compared with 2013, which was primarily driven by a decrease in comparable sales. The top-performing geographic regions for 2014 were the Southeast and Southwest. Our Nordstrom.com and Nordstromrack.com/HauteLook channels experienced outsized growth, with a net sales increase of 23% at Nordstrom.com and 22% at Nordstromrack.com/HauteLook compared with 2013. These increases were driven by both expanded merchandise selection and ongoing technology investments to enhance the customer experience. Nordstrom Rack net sales increased 17% compared with 2013, reflecting incremental volume from existing stores and the impact of new store openings. On a comparable basis, the average selling price of Nordstrom Rack merchandise increased while the number of items sold was flat. Shoes and Accessories were the strongest-performing categories for 2014. Retail Business Gross Profit The following table summarizes the Retail Business gross profit: Fiscal year Retail gross profit Retail gross profit as a % of net sales Ending inventory per square foot Inventory turnover rate 2015 $4,934 35.0% $67.97 4.54 2014 $4,709 35.9% $64.05 4.67 2013 $4,434 36.4% $58.84 5.07 Gross Profit (2015 vs. 2014) Our Retail gross profit rate decreased 92 basis points compared with 2014 primarily due to higher cost of sales driven by increased markdowns from lower than planned sales and in response to an elevated promotional environment during the second half of the year. Retail gross profit increased $225 in 2015 due to an increase in net sales, partially offset by increased markdowns. Our inventory turnover rate decreased to 4.54 in 2015, from 4.67 in 2014, due to softer sales trends experienced during the second half of the year. Our ending inventory per square foot increased 6.1% in 2015, which outpaced our sales per square foot increase of 2.9%. As we continue to grow our online channels, we expect increases in inventory without corresponding increases in square footage. Gross Profit (2014 vs. 2013) Our Retail gross profit rate decreased 52 basis points compared with 2013 primarily due to increased markdowns and Nordstrom Rack’s accelerated store expansion. Retail gross profit increased $275 in 2014 compared with 2013 due to an increase in net sales, partially offset by increased markdowns. Our inventory turnover rate decreased in 2014 and our ending inventory per square foot increased 8.8%. This increase in ending inventory per square foot outpaced our increase in sales per square foot of 3.9% primarily due to planned inventory growth related to Nordstrom Rack and Nordstromrack.com/HauteLook. Retail Business Selling, General and Administrative Expenses Retail Business selling, general and administrative expenses (“Retail SG&A”) are summarized in the following table: Fiscal year Selling, general and administrative expenses Selling, general and administrative expenses as a % of net sales 2015 $4,016 28.5% 2014 $3,588 27.4% 2013 $3,272 26.9% related to Canada and Trunk Club. Selling, General and Administrative Expenses (2014 vs. 2013) growth-related investments in fulfillment and technology. CREDIT SEGMENT Our Retail SG&A rate increased 48 basis points in 2014 compared with 2013 due to expenses related to the acquisition of Trunk Club and ongoing fulfillment and technology investments. Our Retail SG&A expenses increased $316 in 2014 compared with 2013 due primarily to The Nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits, valuable services and payment products. We believe our credit business allows us to build deeper relationships with our customers by fully integrating the Nordstrom Rewards program with our retail stores and providing better service, which in turn fosters greater customer loyalty. Nordstrom cardholders tend to visit our stores more frequently and spend more with us than non-cardholders. Nordstrom private label credit and debit cards can be used only at our Nordstrom full-line stores in the U.S., Nordstrom Rack stores and online at Nordstrom.com and Nordstromrack.com/HauteLook (“inside volume”), while Nordstrom Visa credit cards also may be used for purchases outside of Nordstrom (“outside volume”). Cardholders participate in the Nordstrom Rewards program through which cardholders accumulate points based on their level of spending. Upon reaching a certain points threshold, cardholders receive Nordstrom Notes®, which can be redeemed for goods or services at Nordstrom full-line stores in the U.S. and Canada, Nordstrom Rack stores and at Nordstrom.com. Nordstrom Rewards customers receive reimbursements for alterations, get Personal Triple Points days and have early access to sales events. With increased spending, they can receive additional amounts of these benefits as well as access to exclusive fashion and shopping events. On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8). Summary The table below provides a detailed view of the operational results of our Credit segment, consistent with Note 17: Segment Reporting in Item 8. In order to better reflect the economic contribution of our credit and debit card program, intercompany merchant fees are also included in the table below, which represent the estimated costs that would be incurred if cardholders used non-Nordstrom-branded cards instead of our cards in store and online. Prior to October 1, 2015, interest expense at the Credit segment was equal to the amount of interest related to securitized debt plus an amount assigned to the Credit segment in proportion to the estimated debt and equity needed to fund our credit card receivables. Based on our research, debt as a percentage of credit card receivables for other credit card companies ranges from 70% to 90%. As such, we considered a mix of 80% debt and 20% equity to be appropriate, and therefore assigned interest expense to the Credit segment as if it carried debt of up to 80% of the credit card receivables. Subsequent to the sale, we no longer allocate interest expense to the Credit segment as we do not fund the accounts receivable now owned by TD. Fiscal year Credit card revenues, net Credit expenses Earnings before interest and income taxes Interest expense Intercompany merchant fees Credit segment contribution, before income taxes Credit and debit card volume1: Outside Inside Total volume 1 Volume represents sales plus applicable taxes. 2015 $342 (159) 183 (13) 118 $288 $4,309 5,953 $10,262 2014 $396 (194) 202 (18) 108 $292 $4,331 5,475 $9,806 2013 $374 (186) 188 (24) 97 $261 $4,273 4,935 $9,208 20 Nordstrom, Inc. and subsidiaries 21 Within our off-price offering, Nordstrom Rack net sales increased 9.9%, compared with 2014, reflecting the accelerated expansion of new stores. Comparable sales decreased 1.0% for the year. Shoes and Cosmetics were the top-performing categories, while the South was the top-performing geographic region. Nordstrom Rack experienced an increase in the average retail price per item sold offset by a decrease in the total number of items sold. Sales per square foot of Nordstrom Rack decreased due to store expansion. Nordstromrack.com/HauteLook experienced outsized growth, with a net sales increase of 47%. Net Sales (2014 vs. 2013) Total Company net sales for 2014 increased 7.8% compared with 2013, which was attributable to a comparable sales increase of 4.0%. During 2014, we opened three Nordstrom full-line stores, including our first store in Canada, 27 Nordstrom Rack stores and acquired Trunk Club. These additions represented 2.8% of our total net sales for 2014 and increased our square footage by 5.5%. Full-price net sales for 2014 increased 3.8% compared with 2013, with comparable sales up 3.6%. These increases were largely due to the performance of our Nordstrom.com channel. Both the number of items sold and the average selling price increased on a comparable basis in 2014 compared with 2013. Category leaders included Accessories, Cosmetics and Men’s Apparel. U.S. full-line store net sales for 2014 decreased 0.3% compared with 2013, which was primarily driven by a decrease in comparable sales. The top-performing geographic regions for 2014 were the Southeast and Southwest. Our Nordstrom.com and Nordstromrack.com/HauteLook channels experienced outsized growth, with a net sales increase of 23% at Nordstrom.com and 22% at Nordstromrack.com/HauteLook compared with 2013. These increases were driven by both expanded merchandise selection and ongoing technology investments to enhance the customer experience. Nordstrom Rack net sales increased 17% compared with 2013, reflecting incremental volume from existing stores and the impact of new store openings. On a comparable basis, the average selling price of Nordstrom Rack merchandise increased while the number of items sold was flat. Shoes and Accessories were the strongest-performing categories for 2014. Retail Business Gross Profit The following table summarizes the Retail Business gross profit: Fiscal year Retail gross profit Retail gross profit as a % of net sales Ending inventory per square foot Inventory turnover rate Gross Profit (2015 vs. 2014) 2015 $4,934 35.0% $67.97 4.54 2014 $4,709 35.9% $64.05 4.67 2013 $4,434 36.4% $58.84 5.07 Our Retail gross profit rate decreased 92 basis points compared with 2014 primarily due to higher cost of sales driven by increased markdowns from lower than planned sales and in response to an elevated promotional environment during the second half of the year. Retail gross profit increased $225 in 2015 due to an increase in net sales, partially offset by increased markdowns. Our inventory turnover rate decreased to 4.54 in 2015, from 4.67 in 2014, due to softer sales trends experienced during the second half of the year. Our ending inventory per square foot increased 6.1% in 2015, which outpaced our sales per square foot increase of 2.9%. As we continue to grow our online channels, we expect increases in inventory without corresponding increases in square footage. Gross Profit (2014 vs. 2013) by increased markdowns. Our Retail gross profit rate decreased 52 basis points compared with 2013 primarily due to increased markdowns and Nordstrom Rack’s accelerated store expansion. Retail gross profit increased $275 in 2014 compared with 2013 due to an increase in net sales, partially offset Our inventory turnover rate decreased in 2014 and our ending inventory per square foot increased 8.8%. This increase in ending inventory per square foot outpaced our increase in sales per square foot of 3.9% primarily due to planned inventory growth related to Nordstrom Rack and Nordstromrack.com/HauteLook. Retail Business Selling, General and Administrative Expenses Retail Business selling, general and administrative expenses (“Retail SG&A”) are summarized in the following table: Fiscal year Selling, general and administrative expenses Selling, general and administrative expenses as a % of net sales 2015 $4,016 28.5% 2014 $3,588 27.4% 2013 $3,272 26.9% Selling, General and Administrative Expenses (2015 vs. 2014) Our Retail SG&A rate increased 112 basis points in 2015 compared with 2014 due to growth initiatives related to Trunk Club and Canada, higher fulfillment costs supporting online growth and asset impairment charges (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8). Our Retail SG&A increased $428 in 2015 due primarily to increased sales and growth initiatives related to Canada and Trunk Club. Selling, General and Administrative Expenses (2014 vs. 2013) Our Retail SG&A rate increased 48 basis points in 2014 compared with 2013 due to expenses related to the acquisition of Trunk Club and ongoing fulfillment and technology investments. Our Retail SG&A expenses increased $316 in 2014 compared with 2013 due primarily to growth-related investments in fulfillment and technology. CREDIT SEGMENT The Nordstrom credit and debit card products are designed to strengthen customer relationships and grow retail sales by providing loyalty benefits, valuable services and payment products. We believe our credit business allows us to build deeper relationships with our customers by fully integrating the Nordstrom Rewards program with our retail stores and providing better service, which in turn fosters greater customer loyalty. Nordstrom cardholders tend to visit our stores more frequently and spend more with us than non-cardholders. Nordstrom private label credit and debit cards can be used only at our Nordstrom full-line stores in the U.S., Nordstrom Rack stores and online at Nordstrom.com and Nordstromrack.com/HauteLook (“inside volume”), while Nordstrom Visa credit cards also may be used for purchases outside of Nordstrom (“outside volume”). Cardholders participate in the Nordstrom Rewards program through which cardholders accumulate points based on their level of spending. Upon reaching a certain points threshold, cardholders receive Nordstrom Notes®, which can be redeemed for goods or services at Nordstrom full-line stores in the U.S. and Canada, Nordstrom Rack stores and at Nordstrom.com. Nordstrom Rewards customers receive reimbursements for alterations, get Personal Triple Points days and have early access to sales events. With increased spending, they can receive additional amounts of these benefits as well as access to exclusive fashion and shopping events. On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8). Summary The table below provides a detailed view of the operational results of our Credit segment, consistent with Note 17: Segment Reporting in Item 8. In order to better reflect the economic contribution of our credit and debit card program, intercompany merchant fees are also included in the table below, which represent the estimated costs that would be incurred if cardholders used non-Nordstrom-branded cards instead of our cards in store and online. Prior to October 1, 2015, interest expense at the Credit segment was equal to the amount of interest related to securitized debt plus an amount assigned to the Credit segment in proportion to the estimated debt and equity needed to fund our credit card receivables. Based on our research, debt as a percentage of credit card receivables for other credit card companies ranges from 70% to 90%. As such, we considered a mix of 80% debt and 20% equity to be appropriate, and therefore assigned interest expense to the Credit segment as if it carried debt of up to 80% of the credit card receivables. Subsequent to the sale, we no longer allocate interest expense to the Credit segment as we do not fund the accounts receivable now owned by TD. Fiscal year Credit card revenues, net Credit expenses Earnings before interest and income taxes Interest expense Intercompany merchant fees Credit segment contribution, before income taxes Credit and debit card volume1: Outside Inside Total volume 1 Volume represents sales plus applicable taxes. 2015 $342 (159) 183 (13) 118 $288 $4,309 5,953 $10,262 2014 $396 (194) 202 (18) 108 $292 $4,331 5,475 $9,806 2013 $374 (186) 188 (24) 97 $261 $4,273 4,935 $9,208 20 Nordstrom, Inc. and subsidiaries 21 Credit Card Revenues, net The following is a summary of our credit card revenues, net: Fiscal year Finance charge revenue Interchange Late fees and other revenue Credit program revenues, net Total credit card revenues, net 2015 $173 61 44 64 $342 2014 $253 89 54 — $396 2013 $244 86 44 — $374 Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, interchange fees, late fees and other revenue, recorded net of estimated uncollectible finance charges and fees. Finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of Nordstrom Visa credit cards at merchants outside of Nordstrom. Late fees are assessed when a credit card account becomes past due. We continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the credit card receivable transaction. Following the close of the transaction and pursuant to the program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables, which is recorded in credit program revenues, net. Revenue earned under the program agreement is impacted by the credit quality of receivables, both owned and serviced, and factors such as deteriorating economic conditions, declining creditworthiness of cardholders and the success of account management and collection activities may heighten the risk of credit losses. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also recorded in credit program revenues, net. Intercompany Merchant Fees Credit Card Revenues, net (2015 vs. 2014) Credit card revenues, net decreased $54 in 2015 compared with 2014 due to the credit card receivable transaction. Credit Card Revenues, net (2014 vs. 2013) Credit card revenues, net increased $22 in 2014 compared with 2013 primarily due to an increase in the average accounts receivable balance, slightly decreased payment rates and a 6.5% increase in total volume during 2014. Credit Expenses Credit expenses are summarized in the following table: Fiscal year Operational expenses Bad debt expense Occupancy expenses Credit transaction, net Total credit expenses 2015 $155 26 7 (29) $159 2014 $148 41 5 — $194 2013 $129 52 5 — $186 Credit Expenses (2015 vs. 2014) Total credit expenses decreased $35 in 2015 compared with 2014, primarily due to the reversal of our allowance for credit losses, partially offset by costs related to the credit card receivable transaction, recorded in credit transaction, net. Credit Expenses (2014 vs. 2013) Total credit expenses increased $8 in 2014 compared with 2013, due to higher operational expenses resulting from increased volume in 2014 and lower operational expenses in 2013 from the conversion of our Nordstrom Rewards travel benefits into Nordstrom Notes during that year. Allowance for Credit Losses and Credit Trends the allowance for credit losses of $64 on those receivables. A substantial majority of our receivables were reclassified as “held for sale” during the second quarter of 2015, and resulted in the reversal of For our owned credit card receivables, we consider a credit card account delinquent if the minimum payment is not received by the payment due date. Our aging method is based on the number of completed billing cycles during which the customer failed to make a minimum payment. During the third quarter of 2014, we modified our write-off policy from 150 days past due to 180 days past due to better align with industry practice. Activity in the allowance for credit losses is as follows: Fiscal year Allowance at beginning of year Bad debt expense Write-offs Recoveries Reversal of allowance for credit losses Allowance at end of year Credit Trends Nordstrom credit and debit cards in store and online. TOTAL COMPANY RESULTS Interest Expense, Net Interest expense is summarized in the following table: Interest on long-term debt and short-term borrowings Fiscal year Less: Interest income Capitalized interest Interest expense, net 2015 $75 26 (49) 13 (64) $1 2015 $153 — (28) $125 2014 $80 41 (70) 24 — $75 2014 $156 (1) (17) $138 2013 $85 52 (80) 23 — $80 2013 $176 (1) (14) $161 Net write-offs in 2015 were $36, compared with $46 in 2014 and $57 in 2013. Net write-offs decreased in 2015 from 2014 due to the credit card receivable transaction. In 2015 and 2014, we reduced our allowance for credit losses as delinquencies and net write-offs improved. Intercompany merchant fees represent the estimated costs that would be incurred if Nordstrom cardholders used non-Nordstrom-branded cards in our stores and online. In 2015, this estimate increased to $118 from $108 in 2014. This was primarily driven by the increased use of Interest Expense, Net (2015 vs. 2014) Interest expense, net decreased $13 in 2015 compared with 2014 due to an increase in capitalized interest resulting from planned capital investments related to technology, our Manhattan store and Nordstrom Rack and Canada store openings in 2015. Interest Expense, Net (2014 vs. 2013) Interest expense, net decreased $23 in 2014 compared with 2013 due to a non-recurring charge of $14 in 2013 related to our debt refinancing, as well as lower average interest rates on our notes in 2014 driven by our fourth quarter 2013 debt transactions. Income Tax Expense Income tax expense is summarized in the following table: Fiscal year Income tax expense Effective tax rate 2015 $376 38.6% 2014 $465 39.2% 2013 $455 38.3% 22 Nordstrom, Inc. and subsidiaries 23 Credit Card Revenues, net The following is a summary of our credit card revenues, net: Fiscal year Interchange Finance charge revenue Late fees and other revenue Credit program revenues, net Total credit card revenues, net Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, interchange fees, late fees and other revenue, recorded net of estimated uncollectible finance charges and fees. Finance charges represent interest earned on unpaid balances while interchange fees are earned from the use of Nordstrom Visa credit cards at merchants outside of Nordstrom. Late fees are assessed when a credit card account becomes past due. We continue to recognize revenue in this manner for the credit card receivables retained subsequent to the close of the credit card receivable transaction. Following the close of the transaction and pursuant to the program agreement with TD, we receive our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables, which is recorded in credit program revenues, net. Revenue earned under the program agreement is impacted by the credit quality of receivables, both owned and serviced, and factors such as deteriorating economic conditions, declining creditworthiness of cardholders and the success of account management and collection activities may heighten the risk of credit losses. Asset amortization and deferred revenue recognition associated with the assets and liabilities recorded as part of the transaction are also Credit card revenues, net decreased $54 in 2015 compared with 2014 due to the credit card receivable transaction. Credit card revenues, net increased $22 in 2014 compared with 2013 primarily due to an increase in the average accounts receivable balance, slightly decreased payment rates and a 6.5% increase in total volume during 2014. recorded in credit program revenues, net. Credit Card Revenues, net (2015 vs. 2014) Credit Card Revenues, net (2014 vs. 2013) Credit Expenses Credit expenses are summarized in the following table: 2015 $173 61 44 64 $342 2015 $155 26 7 (29) $159 2014 $253 89 54 — $396 2014 $148 41 5 — $194 2013 $244 86 44 — $374 2013 $129 52 5 — $186 Total credit expenses decreased $35 in 2015 compared with 2014, primarily due to the reversal of our allowance for credit losses, partially offset by costs related to the credit card receivable transaction, recorded in credit transaction, net. Total credit expenses increased $8 in 2014 compared with 2013, due to higher operational expenses resulting from increased volume in 2014 and lower operational expenses in 2013 from the conversion of our Nordstrom Rewards travel benefits into Nordstrom Notes during that year. Fiscal year Operational expenses Bad debt expense Occupancy expenses Credit transaction, net Total credit expenses Credit Expenses (2015 vs. 2014) Credit Expenses (2014 vs. 2013) Allowance for Credit Losses and Credit Trends A substantial majority of our receivables were reclassified as “held for sale” during the second quarter of 2015, and resulted in the reversal of the allowance for credit losses of $64 on those receivables. For our owned credit card receivables, we consider a credit card account delinquent if the minimum payment is not received by the payment due date. Our aging method is based on the number of completed billing cycles during which the customer failed to make a minimum payment. During the third quarter of 2014, we modified our write-off policy from 150 days past due to 180 days past due to better align with industry practice. Activity in the allowance for credit losses is as follows: Fiscal year Allowance at beginning of year Bad debt expense Write-offs Recoveries Reversal of allowance for credit losses Allowance at end of year 2015 $75 26 (49) 13 (64) $1 2014 $80 41 (70) 24 — $75 2013 $85 52 (80) 23 — $80 Credit Trends Net write-offs in 2015 were $36, compared with $46 in 2014 and $57 in 2013. Net write-offs decreased in 2015 from 2014 due to the credit card receivable transaction. In 2015 and 2014, we reduced our allowance for credit losses as delinquencies and net write-offs improved. Intercompany Merchant Fees Intercompany merchant fees represent the estimated costs that would be incurred if Nordstrom cardholders used non-Nordstrom-branded cards in our stores and online. In 2015, this estimate increased to $118 from $108 in 2014. This was primarily driven by the increased use of Nordstrom credit and debit cards in store and online. TOTAL COMPANY RESULTS Interest Expense, Net Interest expense is summarized in the following table: Fiscal year Interest on long-term debt and short-term borrowings Less: Interest income Capitalized interest Interest expense, net 2015 $153 — (28) $125 2014 $156 (1) (17) $138 2013 $176 (1) (14) $161 Interest Expense, Net (2015 vs. 2014) Interest expense, net decreased $13 in 2015 compared with 2014 due to an increase in capitalized interest resulting from planned capital investments related to technology, our Manhattan store and Nordstrom Rack and Canada store openings in 2015. Interest Expense, Net (2014 vs. 2013) Interest expense, net decreased $23 in 2014 compared with 2013 due to a non-recurring charge of $14 in 2013 related to our debt refinancing, as well as lower average interest rates on our notes in 2014 driven by our fourth quarter 2013 debt transactions. Income Tax Expense Income tax expense is summarized in the following table: Fiscal year Income tax expense Effective tax rate 2015 $376 38.6% 2014 $465 39.2% 2013 $455 38.3% 22 Nordstrom, Inc. and subsidiaries 23 The following table illustrates the components of our effective tax rate: Fiscal year Statutory rate State and local income taxes, net of federal income taxes Non-deductible acquisition-related items Federal credits Other, net Effective tax rate 2015 35.0% 4.1% 0.4% (0.6%) (0.3%) 38.6% 2014 35.0% 3.8% 0.9% (0.2%) (0.3%) 39.2% 2013 35.0% 3.6% —% (0.1%) (0.2%) 38.3% Income Tax Expense (2015 vs. 2014) The decrease in the effective tax rate for 2015 compared with 2014 was primarily due to a decrease in non-deductible acquisition-related items and the benefit of income tax credits in 2015. Income Tax Expense (2014 vs. 2013) The increase in the effective tax rate for 2014 compared with 2013 was primarily due to tax adjustments associated with a reassessment of our deferred tax assets related to acquisitions. Earnings Per Share Earnings per share is as follows: Fiscal year Basic Diluted 2015 $3.22 $3.15 2014 $3.79 $3.72 2013 $3.77 $3.71 Earnings Per Diluted Share (2015 vs. 2014) The decrease in diluted earnings per share (“EPS”) for 2015 compared with 2014 was primarily due to lower Retail Business earnings before interest and income taxes. This decrease was partially offset by a decrease in weighted average shares outstanding resulting from an increase in share repurchases. Earnings Per Diluted Share (2014 vs. 2013) The slight increase in EPS for 2014 compared with 2013 is primarily due to a decrease in weighted average shares outstanding from increased share repurchase activity. Fourth Quarter Results The following are our results for the fourth quarters of 2015 and 2014: Quarter ended Net sales Credit card revenues, net Gross profit Gross profit (% of net sales) Retail SG&A expenses Retail SG&A (% of net sales) Credit expenses Net earnings EPS January 30, 2016 January 31, 2015 $4,143 51 1,443 34.8% (1,136) (27.4%) (36) 180 $1.00 $3,938 105 1,444 36.7% (1,032) (26.2%) (54) 255 $1.32 Net earnings for the fourth quarter of 2015 were $180, or $1.00 per diluted share, compared with $255, or $1.32 per diluted share, in 2014. Net Sales Total net sales increased in the fourth quarter by 5.2%, driven by a comparable sales increase of 1.0% and sales from 32 new stores opened in 2015. Nordstrom net sales, which consist of U.S. full-line stores and Nordstrom.com, increased $21, or 0.7%, compared with 2014, while comparable sales increased 0.2%. These increases were primarily driven by an increase from Nordstrom.com of $77, or 11%, while U.S. full- line net sales for the quarter decreased $56, or 2.5%. On a comparable basis, we experienced an increased volume of transactions partially offset by a decrease in the average number of items sold per transaction. Category leaders for the quarter were Beauty and Shoes. U.S. full-line comparable sales for the quarter decreased 3.2%. Southern California was the top-performing U.S. full-line geographic region. Nordstrom Rack net sales increased $61, or 7%, primarily driven by 27 Nordstrom Rack new store openings since the fourth quarter of 2014, while comparable sales decreased 3.0%. On a comparable basis, the average retail price per item sold increased, partially offset by a decrease in the total number of items sold. Shoes and Cosmetics were the category leaders, while the South was the top-performing Nordstromrack.com/HauteLook experienced outsized growth, with a net sales increase of $57, or 50%, compared with the same period in geographic region. 2014. Credit Card Revenues, net Credit card revenues, net decreased $54 for the quarter, compared with the same period in the prior year, primarily due to the impact of the program agreement with TD (see Note 2: Credit Card Receivable Transaction in Item 8) and amortization of the beneficial interest asset recorded as part of the credit card receivable transaction. Gross Profit Our total Company gross profit rate decreased 184 basis points compared with the same period in the prior year, primarily due to increased markdowns from lower than planned sales and in response to an elevated promotional environment during the holiday season. Retail Selling, General and Administrative Expenses Our Retail SG&A rate increased 120 basis points primarily due to asset impairment charges related to our full-line store in San Juan, Puerto Rico, in addition to other retail and technology assets (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8), and higher fulfillment costs supporting online growth. Credit Expenses In the fourth quarter of 2015, total credit expenses decreased $18 compared with the fourth quarter of 2014, primarily driven by decreases in bad debt expense as a result of the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction in Item 8). For further information on our quarterly results in 2015 and 2014, refer to Note 18: Selected Quarterly Data in Item 8. 2016 Outlook Our expectations for 2016 are as follows: Net sales increase (percent) Comparable sales increase (percent) Retail EBIT increase (percent)1 Credit EBIT repurchases) Earnings per diluted share (excluding the impact of any future share 3.5 to 5.5 0 to 2 3 to 10 $70 to $80 million $3.10 to $3.35 1 Excluding impairment charges of $59 million in 2015, Retail EBIT is expected to have a decrease of 3 percent to an increase of 3 percent relative to last year. In the first half of fiscal 2016, the Company expects earnings per diluted share to decrease by approximately 30% relative to the same period last year due to the impact of the sale of the credit card receivables, growth initiatives and the shift of the Anniversary Sale event from the second quarter in 2015 to the second and third quarters in 2016. 24 Nordstrom, Inc. and subsidiaries 25 2015 35.0% 4.1% 0.4% (0.6%) (0.3%) 38.6% 2014 35.0% 3.8% 0.9% (0.2%) (0.3%) 39.2% 2013 35.0% 3.6% —% (0.1%) (0.2%) 38.3% The following table illustrates the components of our effective tax rate: State and local income taxes, net of federal income taxes Non-deductible acquisition-related items Fiscal year Statutory rate Federal credits Other, net Effective tax rate Income Tax Expense (2015 vs. 2014) items and the benefit of income tax credits in 2015. Income Tax Expense (2014 vs. 2013) our deferred tax assets related to acquisitions. Earnings Per Share Earnings per share is as follows: Fiscal year Basic Diluted Earnings Per Diluted Share (2015 vs. 2014) increase in share repurchases. Earnings Per Diluted Share (2014 vs. 2013) increased share repurchase activity. Fourth Quarter Results The following are our results for the fourth quarters of 2015 and 2014: The decrease in the effective tax rate for 2015 compared with 2014 was primarily due to a decrease in non-deductible acquisition-related The increase in the effective tax rate for 2014 compared with 2013 was primarily due to tax adjustments associated with a reassessment of 2015 $3.22 $3.15 2014 $3.79 $3.72 2013 $3.77 $3.71 The decrease in diluted earnings per share (“EPS”) for 2015 compared with 2014 was primarily due to lower Retail Business earnings before interest and income taxes. This decrease was partially offset by a decrease in weighted average shares outstanding resulting from an Nordstrom net sales, which consist of U.S. full-line stores and Nordstrom.com, increased $21, or 0.7%, compared with 2014, while comparable sales increased 0.2%. These increases were primarily driven by an increase from Nordstrom.com of $77, or 11%, while U.S. full- line net sales for the quarter decreased $56, or 2.5%. On a comparable basis, we experienced an increased volume of transactions partially offset by a decrease in the average number of items sold per transaction. Category leaders for the quarter were Beauty and Shoes. U.S. full-line comparable sales for the quarter decreased 3.2%. Southern California was the top-performing U.S. full-line geographic region. Nordstrom Rack net sales increased $61, or 7%, primarily driven by 27 Nordstrom Rack new store openings since the fourth quarter of 2014, while comparable sales decreased 3.0%. On a comparable basis, the average retail price per item sold increased, partially offset by a decrease in the total number of items sold. Shoes and Cosmetics were the category leaders, while the South was the top-performing geographic region. Nordstromrack.com/HauteLook experienced outsized growth, with a net sales increase of $57, or 50%, compared with the same period in 2014. Credit Card Revenues, net Credit card revenues, net decreased $54 for the quarter, compared with the same period in the prior year, primarily due to the impact of the program agreement with TD (see Note 2: Credit Card Receivable Transaction in Item 8) and amortization of the beneficial interest asset recorded as part of the credit card receivable transaction. Gross Profit Our total Company gross profit rate decreased 184 basis points compared with the same period in the prior year, primarily due to increased markdowns from lower than planned sales and in response to an elevated promotional environment during the holiday season. Retail Selling, General and Administrative Expenses Our Retail SG&A rate increased 120 basis points primarily due to asset impairment charges related to our full-line store in San Juan, Puerto Rico, in addition to other retail and technology assets (see Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8), and higher fulfillment costs supporting online growth. Credit Expenses In the fourth quarter of 2015, total credit expenses decreased $18 compared with the fourth quarter of 2014, primarily driven by decreases in bad debt expense as a result of the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction in Item 8). The slight increase in EPS for 2014 compared with 2013 is primarily due to a decrease in weighted average shares outstanding from For further information on our quarterly results in 2015 and 2014, refer to Note 18: Selected Quarterly Data in Item 8. January 30, 2016 January 31, 2015 $4,143 51 1,443 34.8% (1,136) (27.4%) (36) 180 $1.00 $3,938 105 1,444 36.7% (1,032) (26.2%) (54) 255 $1.32 2016 Outlook Our expectations for 2016 are as follows: Net sales increase (percent) Comparable sales increase (percent) Retail EBIT increase (percent)1 Credit EBIT Earnings per diluted share (excluding the impact of any future share repurchases) 3.5 to 5.5 0 to 2 3 to 10 $70 to $80 million $3.10 to $3.35 1 Excluding impairment charges of $59 million in 2015, Retail EBIT is expected to have a decrease of 3 percent to an increase of 3 percent relative to last year. In the first half of fiscal 2016, the Company expects earnings per diluted share to decrease by approximately 30% relative to the same period last year due to the impact of the sale of the credit card receivables, growth initiatives and the shift of the Anniversary Sale event from the second quarter in 2015 to the second and third quarters in 2016. Net earnings for the fourth quarter of 2015 were $180, or $1.00 per diluted share, compared with $255, or $1.32 per diluted share, in 2014. Total net sales increased in the fourth quarter by 5.2%, driven by a comparable sales increase of 1.0% and sales from 32 new stores opened Nordstrom, Inc. and subsidiaries 25 Quarter ended Net sales Credit card revenues, net Gross profit Gross profit (% of net sales) Retail SG&A expenses Retail SG&A (% of net sales) Credit expenses Net earnings EPS Net Sales in 2015. 24 Return on Invested Capital (“ROIC”) (Non-GAAP financial measure) We believe that ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders’ return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended January 30, 2016, our ROIC decreased to 10.7% compared with 12.6% for the 12 fiscal months ended January 31, 2015. This decrease reflected reduced earnings in addition to increased investments supporting growth initiatives. We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets: January 30, 2016 January 31, 2015 February 1, 2014 February 2, 2013 January 28, 2012 12 Fiscal Months Ended Net earnings Add: income tax expense Add: interest expense Earnings before interest and income tax expense Add: rent expense Less: estimated depreciation on capitalized operating leases1 Net operating profit Less: estimated income tax expense Net operating profit after tax Average total assets Less: average non-interest-bearing current liabilities Less: average deferred property incentives Add: average estimated asset base of capitalized operating leases2 Average invested capital Return on assets ROIC $600 376 125 1,101 176 (94) 1,183 (456) $727 $9,076 (2,993) (548) 1,236 $6,771 6.6% 10.7% $720 465 139 1,324 137 (74) 1,387 (544) $843 $8,860 (2,730) (502) 1,058 $6,686 8.1% 12.6% $734 455 162 1,351 125 (67) 1,409 (539) $870 $8,398 (2,430) (489) 929 $6,408 8.7% 13.6% $735 450 162 1,347 105 (56) 1,396 (530) $866 $8,274 (2,262) (494) 724 $6,242 8.9% 13.9% $683 436 132 1,251 78 (42) 1,287 (501) $786 $7,890 (2,041) (504) 555 $5,900 8.7% 13.3% 1 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property. Asset base is calculated as described in footnote 2 below. 2 Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1. LIQUIDITY AND CAPITAL RESOURCES We strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of short- term borrowings. We believe that our operating cash flows, available credit facilities and potential future borrowings are sufficient to finance our cash requirements for the next 12 months and beyond. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial position, manage refinancing risk and allow flexibility for strategic initiatives. We regularly assess our debt and leverage levels, capital expenditure requirements, debt service payments, dividend payouts, potential share repurchases and other future investments. We believe that as of January 30, 2016, our existing cash and cash equivalents on-hand of $595, available credit facilities of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives. Operating Activities Net cash provided by operating activities was $2,451 in 2015, $1,220 in 2014 and $1,320 in 2013. The majority of our operating cash inflows are derived from sales. We also receive cash payments for property incentives from developers. Our operating cash outflows generally consist of payments to our merchandise vendors (net of vendor allowances), payments to our employees for wages, salaries and other employee benefits and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest payments on our short-term and long-term borrowings. Cash provided by operating activities increased by $1,231 between 2015 and 2014, primarily due to $1,297 of net proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction in Item 8). Also within operating activities, deferred income taxes, net and prepaid expenses and other assets were impacted by a change in an IRS rule regarding repairs of real property. Cash provided by operating activities decreased in 2014 compared with 2013, which was primarily due to higher state tax payments made in 2014 compared with 2013, as well as changes in working capital in 2014. Investing Activities Capital Expenditures Net cash used in investing activities was $144 in 2015, $889 in 2014 and $822 in 2013. The decrease in cash used in 2015 compared with 2014 is primarily due to $890 of net proceeds from the sale of our credit card receivables originated at third parties. Our capital expenditures over the last three years totaled $2,746, with $1,082 in 2015, $861 in 2014 and $803 in 2013. Capital expenditures increased year over year primarily due to ongoing store expansion and increased technology investments. The following table summarizes our store count and square footage activity: Fiscal year Total, beginning of year Store openings: Stores acquired Stores closed Total, end of year Nordstrom full-line stores - U.S. and Canada Nordstrom Rack and other stores1 Store count Square footage 2015 292 5 27 — (1) 323 2014 260 3 28 4 (3) 292 2013 240 — 22 — (2) 260 2015 27.1 0.8 0.9 — (0.2) 28.6 2014 26.0 0.4 1.1 — (0.4) 27.1 2013 25.3 — 0.7 — — 26.0 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. We had one store relocation in 2015, compared with no relocations in 2014 and three relocations in 2013. Our 2015 new store openings increased our square footage by 6.4%. To date in 2016, we have opened three Nordstrom Rack stores and plan to open an additional 18 Nordstrom Rack stores, two full-line stores in Canada and one full-line store in the U.S. during the remainder of 2016. Planned net store openings are expected to increase our retail square footage by approximately 4%. 26 Nordstrom, Inc. and subsidiaries 27 Return on Invested Capital (“ROIC”) (Non-GAAP financial measure) We believe that ROIC is a useful financial measure for investors in evaluating the efficiency and effectiveness of our use of capital and believe ROIC is an important component of shareholders’ return over the long term. In addition, we incorporate ROIC in our executive incentive compensation measures. For the 12 fiscal months ended January 30, 2016, our ROIC decreased to 10.7% compared with 12.6% for the 12 fiscal months ended January 31, 2015. This decrease reflected reduced earnings in addition to increased investments supporting growth initiatives. We define ROIC as our net operating profit after tax divided by our average invested capital using the trailing 12-month average. ROIC is not a measure of financial performance under generally accepted accounting principles (“GAAP”) and should be considered in addition to, and not as a substitute for, return on assets, net earnings, total assets or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to ROIC is return on assets. The following is a reconciliation of the components of ROIC and return on assets: January 30, 2016 January 31, 2015 February 1, 2014 February 2, 2013 January 28, 2012 12 Fiscal Months Ended Net earnings Add: income tax expense Add: interest expense Earnings before interest and income tax expense Add: rent expense Less: estimated depreciation on capitalized operating leases1 Net operating profit Less: estimated income tax expense Net operating profit after tax Average total assets Less: average non-interest-bearing current liabilities Less: average deferred property incentives Add: average estimated asset base of capitalized operating leases2 Average invested capital Return on assets ROIC $600 376 125 1,101 176 (94) 1,183 (456) $727 $9,076 (2,993) (548) 1,236 $6,771 6.6% 10.7% $720 465 139 1,324 137 (74) 1,387 (544) $843 $8,860 (2,730) (502) 1,058 $6,686 8.1% 12.6% $734 455 162 1,351 125 (67) 1,409 (539) $870 $8,398 (2,430) (489) 929 $6,408 8.7% 13.6% $735 450 162 1,347 105 (56) 1,396 (530) $866 $8,274 (2,262) (494) 724 $6,242 8.9% 13.9% $683 436 132 1,251 78 (42) 1,287 (501) $786 $7,890 (2,041) (504) 555 $5,900 8.7% 13.3% or we had purchased the property. Asset base is calculated as described in footnote 2 below. 2 Based upon the trailing 12-month average of the monthly asset base. The asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases described in footnote 1. LIQUIDITY AND CAPITAL RESOURCES We strive to maintain a level of liquidity sufficient to allow us to cover our seasonal cash needs and to maintain appropriate levels of short- term borrowings. We believe that our operating cash flows, available credit facilities and potential future borrowings are sufficient to finance our cash requirements for the next 12 months and beyond. Over the long term, we manage our cash and capital structure to maximize shareholder return, maintain our financial position, manage refinancing risk and allow flexibility for strategic initiatives. We regularly assess our debt and leverage levels, capital expenditure requirements, debt service payments, dividend payouts, potential share repurchases and other future investments. We believe that as of January 30, 2016, our existing cash and cash equivalents on-hand of $595, available credit facilities of $800 and potential future operating cash flows and borrowings will be sufficient to fund these scheduled future payments and potential long-term initiatives. Operating Activities Net cash provided by operating activities was $2,451 in 2015, $1,220 in 2014 and $1,320 in 2013. The majority of our operating cash inflows are derived from sales. We also receive cash payments for property incentives from developers. Our operating cash outflows generally consist of payments to our merchandise vendors (net of vendor allowances), payments to our employees for wages, salaries and other employee benefits and payments to our landlords for rent. Operating cash outflows also include payments for income taxes and interest payments on our short-term and long-term borrowings. Cash provided by operating activities increased by $1,231 between 2015 and 2014, primarily due to $1,297 of net proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction in Item 8). Also within operating activities, deferred income taxes, net and prepaid expenses and other assets were impacted by a change in an IRS rule regarding repairs of real property. Cash provided by operating activities decreased in 2014 compared with 2013, which was primarily due to higher state tax payments made in 2014 compared with 2013, as well as changes in working capital in 2014. Investing Activities Net cash used in investing activities was $144 in 2015, $889 in 2014 and $822 in 2013. The decrease in cash used in 2015 compared with 2014 is primarily due to $890 of net proceeds from the sale of our credit card receivables originated at third parties. Capital Expenditures Our capital expenditures over the last three years totaled $2,746, with $1,082 in 2015, $861 in 2014 and $803 in 2013. Capital expenditures increased year over year primarily due to ongoing store expansion and increased technology investments. The following table summarizes our store count and square footage activity: Fiscal year Total, beginning of year Store openings: Nordstrom full-line stores - U.S. and Canada Nordstrom Rack and other stores1 Stores acquired Stores closed Total, end of year Store count Square footage 2015 292 5 27 — (1) 323 2014 260 3 28 4 (3) 292 2013 240 — 22 — (2) 260 2015 27.1 0.8 0.9 — (0.2) 28.6 2014 26.0 0.4 1.1 — (0.4) 27.1 2013 25.3 — 0.7 — — 26.0 1 Capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease 1 Other includes Trunk Club clubhouses, Jeffrey boutiques and our Last Chance store. We had one store relocation in 2015, compared with no relocations in 2014 and three relocations in 2013. Our 2015 new store openings increased our square footage by 6.4%. To date in 2016, we have opened three Nordstrom Rack stores and plan to open an additional 18 Nordstrom Rack stores, two full-line stores in Canada and one full-line store in the U.S. during the remainder of 2016. Planned net store openings are expected to increase our retail square footage by approximately 4%. 26 Nordstrom, Inc. and subsidiaries 27 We received property incentives from our developers of $156 in 2015, $110 in 2014 and $89 in 2013. These incentives are included in our cash provided by operations in our Consolidated Statements of Cash Flows in Item 8. However, operationally we view these as an offset to our capital expenditures. Our capital expenditure percentages, net of property incentives, by category are summarized as follows: Fiscal year Category and expenditure allocation: New store openings, relocations and remodels Information technology Other Total 2015 61% 33% 6% 100% 2014 62% 35% 3% 100% 2013 62% 27% 11% 100% Other capital expenditures consist of ongoing improvements to our stores in the ordinary course of business and expenditures related to various growth initiatives. Our capital expenditures, net of property incentives, over the next five years is expected to be approximately $4,000, compared with $3,300 over the previous five years. We plan our spending in 2016 to be down slightly compared with 2015. Our capital expenditures, net of property incentives, over the next five years is primarily focused in the areas of continued expansion into new markets such as Canada and Manhattan, investment in new stores and remodels of existing full-line stores. Over these next five years, we expect that 60% of our net capital expenditures will be for new store openings, remodels and relocations, and 40% for ecommerce and information technology. We believe that we have the capacity for additional capital investments should opportunities arise. Proceeds from the Sale of Credit Card Receivables Originated at Third Parties The Nordstrom Visa credit cards allow our customers to make purchases at merchants outside of our stores and accumulate points for our Nordstrom Rewards program. In 2015, we completed the sale of a substantial majority of our credit card receivables resulting in $890 of proceeds related to the receivables sold which were originated at third parties. Financing Activities Net cash used in financing activities was $2,539 in 2015 compared with $698 in 2014 and $589 in 2013. Our financing activities include repurchases of common stock, our short-term and long-term borrowing activity, and payment of dividends. Short-term and Long-term Borrowing Activity In 2015, as a condition of closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction in Item 8), we defeased $325 in secured Series 2011-1 Class A Notes in order to provide the receivables to TD free and clear. In 2013, we exchanged $201 senior unsecured notes due in January 2038 for $265 senior unsecured notes due in January 2044. The $201 of debt that was exchanged is reflected as a non-cash financing activity in our Consolidated Statements of Cash Flows in Item 8 while the $64 excess of outstanding principal was recorded as a discount to be amortized over the term of the notes due in 2044. Dividends In 2015, we paid dividends of $1,185, or $6.33 per share, compared with $251, or $1.32 per share, in 2014 and $234, or $1.20 per share, in 2013. Dividends paid in 2015 included a special cash dividend of $905, or $4.85 per share of outstanding common stock, in addition to our recurring quarterly dividend of $0.37 per share. The special dividend was authorized by our Board of Directors on October 1, 2015 and was paid using proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction in Item 8). During the first quarter of 2015, we increased our quarterly dividend from $0.33 per share to $0.37 per share. In determining the amount of dividends to pay, we analyze our dividend payout ratio and dividend yield, while taking into consideration our current and projected operating performance and liquidity. Our dividend payout ratio target range is 30% to 35% and is calculated as our dividend payments divided by net earnings. In February 2016, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 22, 2016. Share Repurchases In February 2013, our Board of Directors authorized a program to repurchase up to $800 of our outstanding common stock, through March 1, 2015. There was $73 of unused capacity upon program expiration. In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. During 2015, we repurchased 19.1 shares of our common stock for an aggregate purchase price of $1,191 and had $811 remaining in share repurchase capacity as of January 30, 2016. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. Free Cash Flow (Non-GAAP financial measure) Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the year ended January 30, 2016, Free Cash Flow increased to $1,131 compared with $96 for the year ended January 31, 2015, primarily due to proceeds received from the sale of our credit card receivables, partially offset by cash dividends paid. Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow: Add: proceeds from sale of credit card receivables originated at third parties Add (Less): change in credit card receivables originated at third parties Fiscal year Net cash provided by operating activities Less: capital expenditures Less: cash dividends paid Add (Less): change in cash book overdrafts Free Cash Flow Net cash used in investing activities Net cash used in financing activities Credit Capacity and Commitments 2015 $2,451 (1,082) (1,185) 890 34 23 $1,131 ($144) ($2,539) 2014 $1,220 (861) (251) — (8) (4) $96 ($889) ($698) As of January 30, 2016, we had total short-term borrowing capacity of $800, which is our five-year $800 senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. In April 2015, we terminated our previous $800 senior unsecured revolving credit facility that was scheduled to expire March 2018. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolver by an amount equal to the principal amount of commercial paper. revolver. As of January 30, 2016, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our Our wholly owned subsidiary in Puerto Rico maintains a $52 unsecured borrowing facility to support our expansion into that market. The facility expires in November 2018 and borrowings on this facility incur interest based upon the LIBOR plus 1.275% per annum and also incurs a fee based on our unused commitment. As of January 30, 2016, we had $52 outstanding on this facility. We have a registration statement on file with the SEC using a “shelf” registration process. Under this shelf registration process, we may offer and sell, from time to time, any combination of the securities described in a prospectus to the registration statement, including registered debt, provided we maintain Well-known Seasoned Issuer (“WKSI”) status. We maintain trade and standby letters of credit to facilitate international payments. As of January 30, 2016, we have $8 available under the trade letter of credit, with $1 outstanding, and $15 available under the standby letter of credit, with $2 outstanding. Plans for our Manhattan full-line store, which we currently expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of January 30, 2016, we had approximately $176 of fee interest in land, which is expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the unlikely event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our previous investments in the land. 28 Nordstrom, Inc. and subsidiaries 29 We received property incentives from our developers of $156 in 2015, $110 in 2014 and $89 in 2013. These incentives are included in our cash provided by operations in our Consolidated Statements of Cash Flows in Item 8. However, operationally we view these as an offset to our capital expenditures. Our capital expenditure percentages, net of property incentives, by category are summarized as follows: Fiscal year Category and expenditure allocation: New store openings, relocations and remodels Information technology Other Total 2015 61% 33% 6% 100% 2014 62% 35% 3% 100% 2013 62% 27% 11% 100% Free Cash Flow (Non-GAAP financial measure) Free Cash Flow is one of our key liquidity measures, and when used in conjunction with GAAP measures, provides investors with a meaningful analysis of our ability to generate cash from our business. For the year ended January 30, 2016, Free Cash Flow increased to $1,131 compared with $96 for the year ended January 31, 2015, primarily due to proceeds received from the sale of our credit card receivables, partially offset by cash dividends paid. Free Cash Flow is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, operating cash flows or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Free Cash Flow is net cash provided by operating activities. The following is a reconciliation of net cash provided by operating activities to Free Cash Flow: Other capital expenditures consist of ongoing improvements to our stores in the ordinary course of business and expenditures related to various growth initiatives. Our capital expenditures, net of property incentives, over the next five years is expected to be approximately $4,000, compared with $3,300 over the previous five years. We plan our spending in 2016 to be down slightly compared with 2015. Our capital expenditures, net of property incentives, over the next five years is primarily focused in the areas of continued expansion into new markets such as Canada and Manhattan, investment in new stores and remodels of existing full-line stores. Over these next five years, we expect that 60% of our net capital expenditures will be for new store openings, remodels and relocations, and 40% for ecommerce and information technology. We believe that we have the capacity for additional capital investments should opportunities arise. Fiscal year Net cash provided by operating activities Less: capital expenditures Less: cash dividends paid Add: proceeds from sale of credit card receivables originated at third parties Add (Less): change in credit card receivables originated at third parties Add (Less): change in cash book overdrafts Free Cash Flow Proceeds from the Sale of Credit Card Receivables Originated at Third Parties The Nordstrom Visa credit cards allow our customers to make purchases at merchants outside of our stores and accumulate points for our Nordstrom Rewards program. In 2015, we completed the sale of a substantial majority of our credit card receivables resulting in $890 of Net cash used in investing activities Net cash used in financing activities proceeds related to the receivables sold which were originated at third parties. 2015 $2,451 (1,082) (1,185) 890 34 23 $1,131 ($144) ($2,539) 2014 $1,220 (861) (251) — (8) (4) $96 ($889) ($698) Financing Activities Net cash used in financing activities was $2,539 in 2015 compared with $698 in 2014 and $589 in 2013. Our financing activities include repurchases of common stock, our short-term and long-term borrowing activity, and payment of dividends. Short-term and Long-term Borrowing Activity In 2015, as a condition of closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction in Item 8), we defeased $325 in secured Series 2011-1 Class A Notes in order to provide the receivables to TD free and clear. In 2013, we exchanged $201 senior unsecured notes due in January 2038 for $265 senior unsecured notes due in January 2044. The $201 of debt that was exchanged is reflected as a non-cash financing activity in our Consolidated Statements of Cash Flows in Item 8 while the $64 excess of outstanding principal was recorded as a discount to be amortized over the term of the notes due in 2044. Dividends In 2015, we paid dividends of $1,185, or $6.33 per share, compared with $251, or $1.32 per share, in 2014 and $234, or $1.20 per share, in 2013. Dividends paid in 2015 included a special cash dividend of $905, or $4.85 per share of outstanding common stock, in addition to our recurring quarterly dividend of $0.37 per share. The special dividend was authorized by our Board of Directors on October 1, 2015 and was paid using proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction in Item 8). During the first quarter of 2015, we increased our quarterly dividend from $0.33 per share to $0.37 per share. In determining the amount of dividends to pay, we analyze our dividend payout ratio and dividend yield, while taking into consideration our current and projected operating performance and liquidity. Our dividend payout ratio target range is 30% to 35% and is calculated as our dividend payments divided by net earnings. In February 2016, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 22, 2016. Share Repurchases In February 2013, our Board of Directors authorized a program to repurchase up to $800 of our outstanding common stock, through March 1, 2015. There was $73 of unused capacity upon program expiration. In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. During 2015, we repurchased 19.1 shares of our common stock for an aggregate purchase price of $1,191 and had $811 remaining in share repurchase capacity as of January 30, 2016. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. Credit Capacity and Commitments As of January 30, 2016, we had total short-term borrowing capacity of $800, which is our five-year $800 senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. In April 2015, we terminated our previous $800 senior unsecured revolving credit facility that was scheduled to expire March 2018. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolver by an amount equal to the principal amount of commercial paper. As of January 30, 2016, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver. Our wholly owned subsidiary in Puerto Rico maintains a $52 unsecured borrowing facility to support our expansion into that market. The facility expires in November 2018 and borrowings on this facility incur interest based upon the LIBOR plus 1.275% per annum and also incurs a fee based on our unused commitment. As of January 30, 2016, we had $52 outstanding on this facility. We have a registration statement on file with the SEC using a “shelf” registration process. Under this shelf registration process, we may offer and sell, from time to time, any combination of the securities described in a prospectus to the registration statement, including registered debt, provided we maintain Well-known Seasoned Issuer (“WKSI”) status. We maintain trade and standby letters of credit to facilitate international payments. As of January 30, 2016, we have $8 available under the trade letter of credit, with $1 outstanding, and $15 available under the standby letter of credit, with $2 outstanding. Plans for our Manhattan full-line store, which we currently expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of January 30, 2016, we had approximately $176 of fee interest in land, which is expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the unlikely event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our previous investments in the land. 28 Nordstrom, Inc. and subsidiaries 29 Impact of Credit Ratings Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro- Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate. The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook and resulting applicable margin were as follows: and income taxes. Moody’s Standard & Poor’s Euro-Dollar Rate Loan Canadian Dealer Offer Rate Loan Base Rate Loan Credit Ratings Baa1 BBB+ Base Interest Rate LIBOR CDOR various Outlook Stable Stable Applicable Margin 1.02% 1.02% — Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may decrease, resulting in a slightly lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the applicable margin associated with our borrowings may increase, resulting in a slightly higher borrowing cost under this facility. Debt Covenants The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times (see the following additional discussion of Adjusted Debt to EBITDAR). As of January 30, 2016, we were in compliance with this covenant. Adjusted Debt to EBITDAR (Non-GAAP financial measure) Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of January 30, 2016, our Adjusted Debt to EBITDAR was 2.2, compared with 2.1 as of January 31, 2015. This increase was primarily driven by a reduction in earnings before interest Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings: 20151 $2,805 1,405 (24) $4,186 600 376 125 1,101 576 176 9 4.7 2.2 20141 $3,131 1,095 (36) $4,190 720 465 138 1,323 508 137 12 4.3 2.1 $1,862 $1,980 Debt Add: estimated capitalized operating lease liability2 Less: fair value hedge adjustment included in long-term debt Adjusted Debt Net earnings Add: income tax expense Add: interest expense, net Earnings before interest and income taxes Add: depreciation and amortization expenses Add: rent expense EBITDAR Add: non-cash acquisition-related charges Debt to Net Earnings Adjusted Debt to EBITDAR January 31, 2015. had purchased the property. 1 The components of Adjusted Debt are as of January 30, 2016 and January 31, 2015, while the components of EBITDAR are for the 12 months ended January 30, 2016 and 2 Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we 30 Nordstrom, Inc. and subsidiaries 31 Impact of Credit Ratings Under the terms of our revolver, any borrowings we may enter into will accrue interest for Euro-Dollar Rate Loans at a floating base rate tied to LIBOR, for Canadian Dealer Offer Rate Loans at a floating rate tied to CDOR, and for Base Rate Loans at the highest of: (i) the Euro- Dollar rate plus 100 basis points, (ii) the federal funds rate plus 50 basis points and (iii) the prime rate. The rate depends upon the type of borrowing incurred, plus in each case an applicable margin. This applicable margin varies depending upon the credit ratings assigned to our long-term unsecured debt. At the time of this report, our long-term unsecured debt ratings, outlook and resulting applicable margin were as follows: Moody’s Standard & Poor’s Euro-Dollar Rate Loan Canadian Dealer Offer Rate Loan Base Rate Loan Credit Ratings Base Interest Baa1 BBB+ Rate LIBOR CDOR various Outlook Stable Stable Applicable Margin 1.02% 1.02% — Should the ratings assigned to our long-term unsecured debt improve, the applicable margin associated with any such borrowings may decrease, resulting in a slightly lower borrowing cost under this facility. Should the ratings assigned to our long-term unsecured debt worsen, the applicable margin associated with our borrowings may increase, resulting in a slightly higher borrowing cost under this facility. Debt Covenants The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times (see the following additional discussion of Adjusted Debt to EBITDAR). As of January 30, 2016, we were in compliance with this covenant. Adjusted Debt to EBITDAR (Non-GAAP financial measure) Adjusted Debt to EBITDAR is one of our key financial metrics, and we believe that our debt levels are best analyzed using this measure. Our goal is to manage debt levels to maintain an investment-grade credit rating and operate with an efficient capital structure. In evaluating our debt levels, this measure provides a reflection of our credit worthiness that could impact our credit rating and borrowing costs. We also have a debt covenant that requires an adjusted debt to EBITDAR leverage ratio of less than four times. As of January 30, 2016, our Adjusted Debt to EBITDAR was 2.2, compared with 2.1 as of January 31, 2015. This increase was primarily driven by a reduction in earnings before interest and income taxes. Adjusted Debt to EBITDAR is not a measure of financial performance under GAAP and should be considered in addition to, and not as a substitute for, debt to net earnings, net earnings, debt or other financial measures prepared in accordance with GAAP. Our method of determining non-GAAP financial measures may differ from other companies’ methods and therefore may not be comparable to those used by other companies. The financial measure calculated under GAAP which is most directly comparable to Adjusted Debt to EBITDAR is debt to net earnings. The following is a reconciliation of the components of Adjusted Debt to EBITDAR and debt to net earnings: Debt Add: estimated capitalized operating lease liability2 Less: fair value hedge adjustment included in long-term debt Adjusted Debt Net earnings Add: income tax expense Add: interest expense, net Earnings before interest and income taxes Add: depreciation and amortization expenses Add: rent expense Add: non-cash acquisition-related charges EBITDAR Debt to Net Earnings Adjusted Debt to EBITDAR 20151 $2,805 1,405 (24) $4,186 600 376 125 1,101 576 176 9 $1,862 4.7 2.2 20141 $3,131 1,095 (36) $4,190 720 465 138 1,323 508 137 12 $1,980 4.3 2.1 1 The components of Adjusted Debt are as of January 30, 2016 and January 31, 2015, while the components of EBITDAR are for the 12 months ended January 30, 2016 and January 31, 2015. 2 Based upon the estimated lease liability as of the end of the period, calculated as the trailing 12 months of rent expense multiplied by eight. The multiple of eight times rent expense is a commonly used method of estimating the debt we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property. 30 Nordstrom, Inc. and subsidiaries 31 Contractual Obligations The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of January 30, 2016. We expect to fund these commitments primarily with operating cash flows generated in the normal course of business and credit available to us under existing and potential future facilities. Revenue Recognition We recognize revenue net of estimated sales returns and excluding sales taxes. Revenue from sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. Long-term debt Capital lease obligations Operating leases Purchase obligations Other long-term liabilities Total Total $4,569 4 2,820 2,010 302 $9,705 Less than 1 year $161 2 253 1,691 — $2,107 1 – 3 years 3 – 5 years $978 2 548 305 56 $711 — 529 13 37 $1,889 $1,290 More than 5 years $2,719 — 1,490 1 209 $4,419 Included in the required debt repayments disclosed above are estimated total interest payments of $1,721 as of January 30, 2016, payable over the remaining life of the debt. The capital and operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $97 in 2015, $88 in 2014 and $81 in 2013. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $13 in 2015 and $14 in 2014 and 2013. Purchase obligations primarily consist of purchase orders for unreceived goods or services and capital expenditure commitments, including our Manhattan store. Other long-term liabilities consist of workers’ compensation and other liability insurance reserves and postretirement benefits. The payment amounts presented above were estimated based on historical payment trends and the amounts due within one year are omitted as these are included within current liabilities on the Consolidated Balance Sheet. Other long-term liabilities not requiring cash payments, such as deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are unrecognized tax benefits of $13, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities. Off-Balance Sheet Arrangements On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8). This transaction represents an off-balance sheet arrangement and credit card receivables serviced under this contract are $2,222 as of January 30, 2016. The unused credit card capacity available for the accounts retained represents an off-balance sheet commitment. As of January 30, 2016, this unfunded commitment was $97. Other than operating leases entered into in the normal course of business, the development of our Manhattan full-line store and our credit card receivable transaction, we had no material off-balance sheet arrangements during 2015. CRITICAL ACCOUNTING ESTIMATES The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The following discussion highlights the estimates we believe are critical and should be read in conjunction with the Notes to Consolidated Financial Statements in Item 8. Our management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures that follow. Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, there is a possibility that actual returns could differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no material changes to our estimates included in the calculations of our sales return reserve. A 10% change in the sales return reserve would have had a $10 impact on our net earnings for the year ended January 30, 2016. Inventory Our merchandise inventories are generally stated at the lower of cost or market value using the retail inventory method. Under the retail method, the valuation of inventories are determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of our inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling floor. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. Inherent in the retail inventory method are certain management judgments that may affect the ending inventory valuation as well as gross profit. We reserve for obsolescence based on historical trends and specific identification. Our obsolescence reserve contains uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We do not believe that the assumptions used in these estimates will change significantly based on prior experience. In the past three years, we have made no material changes to our estimates included in the calculations of the obsolescence reserve. A 10% change in the obsolescence reserve would have had a $2 impact on our net earnings for the year ended January 30, 2016. Goodwill We review our goodwill annually for impairment or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two- step fair value test. The first step compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows (income approach), comparable public companies and acquisitions (market approach) or a combination of both. If fair value is lower than the carrying value, then a second step is performed to quantify the amount of the impairment. As part of our impairment testing, we utilize certain assumptions and apply judgment regarding a number of factors. Significant estimates in the market approach include identifying similar companies and acquisitions with comparable business factors such as size, growth, profitability, risk and return of investment, and assessing comparable earnings or revenue multiples in estimating the fair value of the reporting unit. Assumptions in the income approach include future cash flows for the business, future growth rates and discount rates. Estimates of cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance. For Nordstrom.com, Jeffrey, Trunk Club and HauteLook, the fair values substantially exceeded carrying values and therefore we had no material goodwill impairment in 2015, 2014 or 2013. A 10% change in the fair value of any of these reporting units would not have had an impact on our net earnings for the year ended January 30, 2016. Impairment of Long-Lived Assets When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk Club are identified at their respective reporting unit levels. The assets recorded in connection with the credit card receivable transaction are individually evaluated against the anticipated cash flows under the program agreement (see Note 2: Credit Card Receivable Transaction in Item 8). Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or circumstances may change which could cause us to revise these estimates. 32 Nordstrom, Inc. and subsidiaries 33 Contractual Obligations The following table summarizes our contractual obligations and the expected effect on our liquidity and cash flows as of January 30, 2016. We expect to fund these commitments primarily with operating cash flows generated in the normal course of business and credit available to us under existing and potential future facilities. Revenue Recognition We recognize revenue net of estimated sales returns and excluding sales taxes. Revenue from sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. Long-term debt Capital lease obligations Operating leases Purchase obligations Other long-term liabilities Total 2014 and 2013. our Manhattan store. Total $4,569 4 2,820 2,010 302 $9,705 Less than 1 year $161 2 253 1,691 — $2,107 1 – 3 years 3 – 5 years $978 2 548 305 56 $711 — 529 13 37 $1,889 $1,290 More than 5 years $2,719 — 1,490 1 209 $4,419 Included in the required debt repayments disclosed above are estimated total interest payments of $1,721 as of January 30, 2016, payable over the remaining life of the debt. The capital and operating lease obligations in the table above do not include payments for operating expenses that are required by most of our lease agreements. Such expenses, which include common area charges, real estate taxes and other executory costs, totaled $97 in 2015, $88 in 2014 and $81 in 2013. In addition, some of our leases require additional rental payments based on a percentage of our sales, referred to as “percentage rent.” Percentage rent, which is also excluded from the obligations in the table above, was $13 in 2015 and $14 in Purchase obligations primarily consist of purchase orders for unreceived goods or services and capital expenditure commitments, including Other long-term liabilities consist of workers’ compensation and other liability insurance reserves and postretirement benefits. The payment amounts presented above were estimated based on historical payment trends and the amounts due within one year are omitted as these are included within current liabilities on the Consolidated Balance Sheet. Other long-term liabilities not requiring cash payments, such as deferred property incentives and deferred revenue, were excluded from the table above. Also excluded from the table above are unrecognized tax benefits of $13, as we are unable to reasonably estimate the timing of future cash payments, if any, for these liabilities. Off-Balance Sheet Arrangements On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8). This transaction represents an off-balance sheet arrangement and credit card receivables serviced under this contract are $2,222 as of January 30, 2016. The unused credit card capacity available for the accounts retained represents an off-balance sheet commitment. As of January 30, 2016, this unfunded commitment was $97. Other than operating leases entered into in the normal course of business, the development of our Manhattan full-line store and our credit card receivable transaction, we had no material off-balance sheet arrangements during 2015. CRITICAL ACCOUNTING ESTIMATES The preparation of our financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. The following discussion highlights the estimates we believe are critical and should be read in conjunction with the Notes to Consolidated Financial Statements in Item 8. Our management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures that follow. Although we believe we have sufficient current and historical knowledge to record reasonable estimates of sales returns, there is a possibility that actual returns could differ from recorded amounts. In the past three years, there were no significant changes in customer return behavior and we have made no material changes to our estimates included in the calculations of our sales return reserve. A 10% change in the sales return reserve would have had a $10 impact on our net earnings for the year ended January 30, 2016. Inventory Our merchandise inventories are generally stated at the lower of cost or market value using the retail inventory method. Under the retail method, the valuation of inventories are determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of our inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling floor. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. Inherent in the retail inventory method are certain management judgments that may affect the ending inventory valuation as well as gross profit. We reserve for obsolescence based on historical trends and specific identification. Our obsolescence reserve contains uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. We do not believe that the assumptions used in these estimates will change significantly based on prior experience. In the past three years, we have made no material changes to our estimates included in the calculations of the obsolescence reserve. A 10% change in the obsolescence reserve would have had a $2 impact on our net earnings for the year ended January 30, 2016. Goodwill We review our goodwill annually for impairment or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two- step fair value test. The first step compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows (income approach), comparable public companies and acquisitions (market approach) or a combination of both. If fair value is lower than the carrying value, then a second step is performed to quantify the amount of the impairment. As part of our impairment testing, we utilize certain assumptions and apply judgment regarding a number of factors. Significant estimates in the market approach include identifying similar companies and acquisitions with comparable business factors such as size, growth, profitability, risk and return of investment, and assessing comparable earnings or revenue multiples in estimating the fair value of the reporting unit. Assumptions in the income approach include future cash flows for the business, future growth rates and discount rates. Estimates of cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance. For Nordstrom.com, Jeffrey, Trunk Club and HauteLook, the fair values substantially exceeded carrying values and therefore we had no material goodwill impairment in 2015, 2014 or 2013. A 10% change in the fair value of any of these reporting units would not have had an impact on our net earnings for the year ended January 30, 2016. Impairment of Long-Lived Assets When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk Club are identified at their respective reporting unit levels. The assets recorded in connection with the credit card receivable transaction are individually evaluated against the anticipated cash flows under the program agreement (see Note 2: Credit Card Receivable Transaction in Item 8). Our estimates are subject to uncertainties and may be impacted by various external factors such as economic conditions and market competition. While we believe the inputs and assumptions utilized in our analyses of future cash flows are reasonable, events or circumstances may change which could cause us to revise these estimates. 32 Nordstrom, Inc. and subsidiaries 33 Stock-Based Compensation Expense We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”), 2002 Nonemployee Director Stock Incentive Plan (“2002 Plan”) and Trunk Club Value Creation Plan (“VCP”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“ESPP”). We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is accelerated based upon achievement of age and years of service. The total compensation expense is reduced by estimated forfeitures expected to occur over the vesting period of the awards. We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. Stock-based compensation expense related to the VCP is based on the grant date fair value of the payout scenario we believe is probable using the Black-Scholes valuation model and is recognized on an accelerated basis due to performance criteria and graded vesting features of the plan. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. Calculating the grant date fair value of stock-based awards is based on certain assumptions and requires judgment, including estimating stock price volatility, forfeiture rates, expected life and performance criteria. A 10% change in stock-based compensation expense would have a $4 impact on our net earnings for the year ended January 30, 2016. Income Taxes We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized. We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount that we believe is cumulatively greater than 50% likely to be realized. Our unrecognized tax benefit was $19 as of January 30, 2016 and $15 as of January 31, 2015. Interest and penalties related to income tax matters are classified as a component of income tax expense. Income taxes require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred taxes, tax reserves or income tax expense. Such adjustments did not materially impact our effective income tax rate in 2015 or 2014. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8 for a discussion of recent accounting pronouncements and the impact these standards are anticipated to have on our results of operations, liquidity or capital resources. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Dollars in millions INTEREST RATE RISK We are exposed to interest rate risk primarily from changes in short-term interest rates. On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8), and following the close, the interest rate risk on our retained receivables is insignificant. For our long-term debt of $2,805, our exposure to interest rate risk is limited to changes in fair value. As our debt is primarily fixed-rate, changes in interest rates do not significantly impact our cash flows. However, changes in interest rates increase or decrease the fair value of our debt, depending on whether market rates are lower or higher than our fixed-rates. As of January 30, 2016, the fair value of our long-term debt was $3,077. See Note 9: Debt and Credit Facilities and Note 10: Fair Value Measurements in Item 8 for additional information. FOREIGN CURRENCY EXCHANGE RISK The majority of our revenues, expenses and capital expenditures are transacted in U.S. Dollars. Our U.S. operation periodically enters into merchandise purchase orders denominated in British Pounds or Euros. From time to time, we may use forward contracts to hedge against fluctuations in foreign currency prices. As of January 30, 2016, our outstanding forward contracts did not have a material impact on our Consolidated Financial Statements. We have three full-line stores in Canada and have announced plans to open four additional stores in Canada over the next few years. The functional currency of our Canadian operations is the Canadian Dollar. We translate assets and liabilities into U.S. Dollars using the exchange rate in effect at the balance sheet date, while we translate revenues and expenses using a weighted-average exchange rate for the period. We record these translation adjustments as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets in Item 8. Our Canadian operations enter into merchandise purchase orders denominated in U.S. Dollars for approximately half of its inventory. As sales in Canada are denominated in the Canadian Dollar, gross profit for our Canadian operations can be impacted by foreign currency fluctuations. In addition, our U.S. operations incur certain expenditures denominated in Canadian Dollars and our Canadian operations incur certain expenditures denominated in U.S. Dollars. This activity results in transaction gains and losses that arise from exchange rate fluctuations and are recorded as gains or losses in the Consolidated Statements of Earnings in Item 8. As of January 30, 2016, activities associated with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements. 34 Nordstrom, Inc. and subsidiaries 35 Stock-Based Compensation Expense We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”), 2002 Nonemployee Director Stock Incentive Plan (“2002 Plan”) and Trunk Club Value Creation Plan (“VCP”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“ESPP”). We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is accelerated based upon achievement of age and years of service. The total compensation expense is reduced by estimated forfeitures expected to occur over the vesting period of the awards. We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. Stock-based compensation expense related to the VCP is based on the grant date fair value of the payout scenario we believe is probable using the Black-Scholes valuation model and is recognized on an accelerated basis due to performance criteria and graded vesting features of the plan. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. Calculating the grant date fair value of stock-based awards is based on certain assumptions and requires judgment, including estimating stock price volatility, forfeiture rates, expected life and performance criteria. A 10% change in stock-based compensation expense would have a $4 impact on our net earnings for the year ended January 30, 2016. Income Taxes We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized. We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount that we believe is cumulatively greater than 50% likely to be realized. Our unrecognized tax benefit was $19 as of January 30, 2016 and $15 as of January 31, 2015. Interest and penalties related to income tax matters are classified as a component of income tax expense. Income taxes require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred taxes, tax reserves or income tax expense. Such adjustments did not materially impact our effective income tax rate in 2015 or 2014. RECENT ACCOUNTING PRONOUNCEMENTS See Note 1: Nature of Operations and Summary of Significant Accounting Policies in Item 8 for a discussion of recent accounting pronouncements and the impact these standards are anticipated to have on our results of operations, liquidity or capital resources. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Dollars in millions INTEREST RATE RISK We are exposed to interest rate risk primarily from changes in short-term interest rates. On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction in Item 8), and following the close, the interest rate risk on our retained receivables is insignificant. For our long-term debt of $2,805, our exposure to interest rate risk is limited to changes in fair value. As our debt is primarily fixed-rate, changes in interest rates do not significantly impact our cash flows. However, changes in interest rates increase or decrease the fair value of our debt, depending on whether market rates are lower or higher than our fixed-rates. As of January 30, 2016, the fair value of our long-term debt was $3,077. See Note 9: Debt and Credit Facilities and Note 10: Fair Value Measurements in Item 8 for additional information. FOREIGN CURRENCY EXCHANGE RISK The majority of our revenues, expenses and capital expenditures are transacted in U.S. Dollars. Our U.S. operation periodically enters into merchandise purchase orders denominated in British Pounds or Euros. From time to time, we may use forward contracts to hedge against fluctuations in foreign currency prices. As of January 30, 2016, our outstanding forward contracts did not have a material impact on our Consolidated Financial Statements. We have three full-line stores in Canada and have announced plans to open four additional stores in Canada over the next few years. The functional currency of our Canadian operations is the Canadian Dollar. We translate assets and liabilities into U.S. Dollars using the exchange rate in effect at the balance sheet date, while we translate revenues and expenses using a weighted-average exchange rate for the period. We record these translation adjustments as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets in Item 8. Our Canadian operations enter into merchandise purchase orders denominated in U.S. Dollars for approximately half of its inventory. As sales in Canada are denominated in the Canadian Dollar, gross profit for our Canadian operations can be impacted by foreign currency fluctuations. In addition, our U.S. operations incur certain expenditures denominated in Canadian Dollars and our Canadian operations incur certain expenditures denominated in U.S. Dollars. This activity results in transaction gains and losses that arise from exchange rate fluctuations and are recorded as gains or losses in the Consolidated Statements of Earnings in Item 8. As of January 30, 2016, activities associated with foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements. 34 Nordstrom, Inc. and subsidiaries 35 Item 8. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 30, 2016 and January 31, 2015, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended January 30, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and subsidiaries as of January 30, 2016 and January 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 2016, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 30, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting. Nordstrom, Inc. Consolidated Statements of Earnings In millions except per share amounts Fiscal year Net sales Credit card revenues, net Total revenues Cost of sales and related buying and occupancy costs Selling, general and administrative expenses Earnings before interest and income taxes Interest expense, net Earnings before income taxes Income tax expense Net earnings Earnings per share: Basic Diluted Basic Diluted Weighted-average shares outstanding: /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 2015 $14,095 342 14,437 (9,168) (4,168) 1,101 (125) 976 (376) $600 $3.22 $3.15 186.3 190.1 2015 $600 24 (18) $606 2014 $13,110 396 13,506 (8,406) (3,777) 1,323 (138) 1,185 (465) $720 $3.79 $3.72 190.0 193.6 2014 $720 (11) (14) $695 2013 $12,166 374 12,540 (7,737) (3,453) 1,350 (161) 1,189 (455) $734 $3.77 $3.71 194.5 197.7 2013 $734 10 (2) $742 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. Consolidated Statements of Comprehensive Earnings Nordstrom, Inc. In millions Fiscal year Net earnings Postretirement plan adjustments, net of tax of ($15), $7 and ($6) Foreign currency translation adjustment Comprehensive net earnings The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 36 Nordstrom, Inc. and subsidiaries 37 Item 8. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington We have audited the accompanying consolidated balance sheets of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 30, 2016 and January 31, 2015, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended January 30, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. Nordstrom, Inc. Consolidated Statements of Earnings In millions except per share amounts Fiscal year Net sales Credit card revenues, net Total revenues Cost of sales and related buying and occupancy costs Selling, general and administrative expenses Earnings before interest and income taxes Interest expense, net Earnings before income taxes Income tax expense Net earnings In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Nordstrom, Inc. and subsidiaries as of January 30, 2016 and January 31, 2015, and the results of their operations and their cash flows for each of the three years Earnings per share: in the period ended January 30, 2016, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 30, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting. Basic Diluted Weighted-average shares outstanding: Basic Diluted 2015 $14,095 342 14,437 (9,168) (4,168) 1,101 (125) 976 (376) $600 $3.22 $3.15 186.3 190.1 /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. Nordstrom, Inc. Consolidated Statements of Comprehensive Earnings In millions Fiscal year Net earnings Postretirement plan adjustments, net of tax of ($15), $7 and ($6) Foreign currency translation adjustment Comprehensive net earnings 2015 $600 24 (18) $606 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 2014 $13,110 396 13,506 (8,406) (3,777) 1,323 (138) 1,185 (465) $720 $3.79 $3.72 190.0 193.6 2014 $720 (11) (14) $695 2013 $12,166 374 12,540 (7,737) (3,453) 1,350 (161) 1,189 (455) $734 $3.77 $3.71 194.5 197.7 2013 $734 10 (2) $742 36 Nordstrom, Inc. and subsidiaries 37 Nordstrom, Inc. Consolidated Balance Sheets In millions Assets Current assets: Cash and cash equivalents Accounts receivable, net Merchandise inventories Current deferred tax assets, net Prepaid expenses and other Total current assets Land, property and equipment, net Goodwill Other assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable Accrued salaries, wages and related benefits Other current liabilities Current portion of long-term debt Total current liabilities Long-term debt, net Deferred property incentives, net Other liabilities Commitments and contingencies (Note 12) Shareholders’ equity: Common stock, no par value: 1,000 shares authorized; 173.5 and 190.1 shares issued and outstanding (Accumulated deficit) Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. January 30, 2016 January 31, 2015 Nordstrom, Inc. Consolidated Statements of Shareholders’ Equity In millions except per share amounts Issuance of common stock under stock compensation plans Issuance of common stock for Trunk Club acquisition Issuance of common stock under stock compensation plans Balance at February 2, 2013 Net earnings Other comprehensive earnings Dividends ($1.20 per share) Stock-based compensation Repurchase of common stock Balance at February 1, 2014 Net earnings Other comprehensive loss Dividends ($1.32 per share) Stock-based compensation Repurchase of common stock Balance at January 31, 2015 Net earnings Other comprehensive earnings Dividends ($1.48 per share) Common Stock (Accumulated Comprehensive Shares 197.0 Amount $1,645 Loss ($47) Total $1,913 Accumulated Other Retained Earnings Deficit) $315 (9.1) 191.2 1,827 (8.9) 190.1 2,338 — — — 3.2 0.1 — — — 3.7 3.6 0.5 — — — — 0.3 2.0 0.2 — — — 124 58 — — — — 280 161 70 — — — — — 23 108 70 — 734 — (234) — — (523) 292 720 — (251) — — — (595) 166 600 — (280) (905) — — — (39) — (25) (64) — 8 — — — — — — — — — — 6 — — — — — — ($58) 734 8 (234) 124 58 (523) 2,080 720 (25) (251) 280 161 70 (595) 2,440 600 6 (280) (905) 23 108 70 (1,191) $871 Special dividend related to the sale of credit card receivables ($4.85 per share) Issuance of common stock for Trunk Club acquisition Issuance of common stock under stock compensation plans Stock-based compensation Repurchase of common stock Balance at January 30, 2016 The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. (19.1) 173.5 $2,539 (1,191) ($1,610) $595 196 1,945 — 278 3,014 3,735 435 514 $7,698 $1,324 416 1,161 10 2,911 2,795 540 581 2,539 (1,610) (58) 871 $7,698 $827 2,306 1,733 256 102 5,224 3,340 435 246 $9,245 $1,328 416 1,048 8 2,800 3,123 510 372 2,338 166 (64) 2,440 $9,245 38 Nordstrom, Inc. and subsidiaries 39 Nordstrom, Inc. Consolidated Balance Sheets In millions Assets Current assets: Cash and cash equivalents Accounts receivable, net Merchandise inventories Current deferred tax assets, net Prepaid expenses and other Total current assets Land, property and equipment, net Goodwill Other assets Total assets Liabilities and Shareholders’ Equity Current liabilities: Accounts payable Accrued salaries, wages and related benefits Other current liabilities Current portion of long-term debt Total current liabilities Long-term debt, net Deferred property incentives, net Other liabilities Commitments and contingencies (Note 12) Shareholders’ equity: outstanding (Accumulated deficit) Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity January 30, 2016 January 31, 2015 $595 196 1,945 — 278 3,014 3,735 435 514 $7,698 $1,324 416 1,161 10 2,911 2,795 540 581 2,539 (1,610) (58) 871 $7,698 $827 2,306 1,733 256 102 5,224 3,340 435 246 $9,245 $1,328 416 1,048 8 2,800 3,123 510 372 2,338 166 (64) 2,440 $9,245 Nordstrom, Inc. Consolidated Statements of Shareholders’ Equity In millions except per share amounts Balance at February 2, 2013 Net earnings Other comprehensive earnings Dividends ($1.20 per share) Issuance of common stock under stock compensation plans Stock-based compensation Repurchase of common stock Balance at February 1, 2014 Net earnings Other comprehensive loss Dividends ($1.32 per share) Issuance of common stock for Trunk Club acquisition Issuance of common stock under stock compensation plans Stock-based compensation Repurchase of common stock Balance at January 31, 2015 Net earnings Other comprehensive earnings Dividends ($1.48 per share) Special dividend related to the sale of credit card receivables ($4.85 per share) Issuance of common stock for Trunk Club acquisition Issuance of common stock under stock compensation plans Stock-based compensation Repurchase of common stock Balance at January 30, 2016 Common Stock Shares 197.0 Amount $1,645 Retained Earnings (Accumulated Deficit) $315 Accumulated Other Comprehensive Loss ($47) — — — 3.2 0.1 (9.1) 191.2 — — — 3.7 3.6 0.5 (8.9) 190.1 — — — — 0.3 2.0 0.2 (19.1) 173.5 — — — 124 58 — 1,827 — — — 280 161 70 — 2,338 — — — — 23 108 70 — $2,539 734 — (234) — — (523) 292 720 — (251) — — — (595) 166 600 — (280) (905) — — — (1,191) ($1,610) — 8 — — — — (39) — (25) — — — — — (64) — 6 — — — — — — ($58) Total $1,913 734 8 (234) 124 58 (523) 2,080 720 (25) (251) 280 161 70 (595) 2,440 600 6 (280) (905) 23 108 70 (1,191) $871 Common stock, no par value: 1,000 shares authorized; 173.5 and 190.1 shares issued and The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 38 Nordstrom, Inc. and subsidiaries 39 Nordstrom, Inc. Consolidated Statements of Cash Flows In millions Fiscal year Operating Activities Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization expenses Amortization of deferred property incentives and other, net Deferred income taxes, net Stock-based compensation expense Tax benefit from stock-based compensation Excess tax benefit from stock-based compensation Bad debt expense Change in operating assets and liabilities: Accounts receivable Proceeds from sale of credit card receivables originated at Nordstrom Merchandise inventories Prepaid expenses and other assets Accounts payable Accrued salaries, wages and related benefits Other current liabilities Deferred property incentives Other liabilities Net cash provided by operating activities Investing Activities Capital expenditures Change in credit card receivables originated at third parties Proceeds from sale of credit card receivables originated at third parties Other, net Net cash used in investing activities Financing Activities Proceeds from long-term borrowings, net of discounts Principal payments on long-term borrowings Defeasance of long-term debt Increase (decrease) in cash book overdrafts Cash dividends paid Payments for repurchase of common stock Proceeds from issuances under stock compensation plans Excess tax benefit from stock-based compensation Other, net Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental Cash Flow Information Cash paid during the year for: Income taxes, net of refunds Interest, net of capitalized interest Non-cash investing and financing activities: Beneficial interest asset acquired from the sale of credit card receivables Issuance of common stock for Trunk Club acquisition Debt exchange 2015 $600 576 (79) 142 70 15 (15) 26 (56) 1,297 (203) (126) (2) (2) 50 156 2 2,451 (1,082) 34 890 14 (144) 16 (8) (339) 23 (1,185) (1,192) 94 15 37 (2,539) (232) 827 $595 $383 136 62 23 — 2014 $720 508 (76) 7 68 20 (22) 41 (161) — (176) (4) 15 18 155 110 (3) 1,220 (861) (8) — (20) (889) 34 (7) — (4) (251) (610) 141 22 (23) (698) (367) 1,194 $827 $391 152 — 280 — 2013 $734 454 (58) 12 58 21 (23) 52 (93) — (157) (6) 167 (12) 60 89 22 1,320 (803) (6) — (13) (822) 399 (407) — 47 (234) (515) 103 23 (5) (589) (91) 1,285 $1,194 $445 170 — — 201 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Founded in 1901 as a shoe store in Seattle, Washington, Nordstrom, Inc. is now a leading fashion specialty retailer that offers customers a well-edited selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories for women, men, young adults and children. This breadth of merchandise allows us to serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer an extensive selection of high-quality brand-name and private label merchandise through multiple retail channels, including 118 Nordstrom U.S. full-line stores and at Nordstrom.com, three Canada full-line stores, 194 off-price Nordstrom Rack stores, Nordstromrack.com/HauteLook, five Trunk Club clubhouses and TrunkClub.com, two Jeffrey boutiques and one Last Chance clearance store. Our stores are located in 39 states throughout the U.S and in three provinces in Canada. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom-branded private label card, two Nordstrom-branded Visa credit cards and a debit card for Nordstrom purchases. These credit and debit cards also allow our customers to participate in our loyalty program designed to increase customer visits and spending. Although the primary purposes of our Credit segment are to foster greater customer loyalty and drive more sales, through our program agreement with TD Bank, N.A. (“TD”) (see Note 2: Credit Card Receivable Transaction), we also receive credit card revenue, net in accordance with the program agreement. In addition, we save on interchange fees that the Retail segment would incur if our customers used non-Nordstrom-branded cards. Fiscal Year We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2015 and all years within this document are based on a 52-week fiscal year, except 2012, which is based on a 53-week fiscal year. The Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and Principles of Consolidation balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions. Our most significant accounting judgments and estimates include revenue recognition, inventory, long-lived assets, goodwill, stock-based compensation and income taxes. Net Sales We recognize revenue net of estimated returns and excluding sales taxes. Revenue from sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. Activity in the allowance for sales returns, net, for the past three fiscal years is as follows: Allowance at beginning of year Fiscal year Additions Returns, net1 Allowance at end of year Credit Card Revenues, net 2015 $160 2,720 (2,710) $170 2014 $128 2,129 (2,097) $160 2013 $116 1,880 (1,868) $128 1 Returns, net consist of actual returns offset by the value of the merchandise returned and any related sales commission. On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction). Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, late fees and other revenue generated by our combined Nordstrom private label card and Nordstrom Visa credit card programs, and interchange fees generated by the use of Nordstrom Visa credit cards at third-party merchants. Finance charges and late fees were assessed according to the terms of the related cardholder agreements and recognized as revenue when earned. Credit card revenues were recorded The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. net of estimated uncollectible finance charges and fees. 40 Nordstrom, Inc. and subsidiaries 41 Consolidated Statements of Cash Flows Nordstrom, Inc. In millions Fiscal year Operating Activities Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization expenses Amortization of deferred property incentives and other, net Deferred income taxes, net Stock-based compensation expense Tax benefit from stock-based compensation Excess tax benefit from stock-based compensation Bad debt expense Change in operating assets and liabilities: Accounts receivable Merchandise inventories Prepaid expenses and other assets Accounts payable Accrued salaries, wages and related benefits Proceeds from sale of credit card receivables originated at Nordstrom Change in credit card receivables originated at third parties Proceeds from sale of credit card receivables originated at third parties Other current liabilities Deferred property incentives Other liabilities Net cash provided by operating activities Investing Activities Capital expenditures Other, net Net cash used in investing activities Financing Activities Proceeds from long-term borrowings, net of discounts Principal payments on long-term borrowings Defeasance of long-term debt Increase (decrease) in cash book overdrafts Cash dividends paid Payments for repurchase of common stock Proceeds from issuances under stock compensation plans Excess tax benefit from stock-based compensation Other, net Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental Cash Flow Information Cash paid during the year for: Income taxes, net of refunds Interest, net of capitalized interest Non-cash investing and financing activities: Beneficial interest asset acquired from the sale of credit card receivables Issuance of common stock for Trunk Club acquisition Debt exchange The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. 2015 $600 576 (79) 142 70 15 (15) 26 (56) 1,297 (203) (126) (2) (2) 50 156 2 2,451 (1,082) 34 890 14 (144) 16 (8) (339) 23 (1,185) (1,192) 94 15 37 (2,539) (232) 827 $595 $383 136 62 23 — 1,220 1,320 2014 $720 508 (76) 7 68 20 (22) 41 (161) — (176) (4) 15 18 155 110 (3) (861) (8) — (20) (889) 34 (7) — (4) (251) (610) 141 22 (23) (698) (367) 1,194 $827 $391 152 — 280 — 2013 $734 454 (58) 12 58 21 (23) 52 (93) — (157) (6) 167 (12) 60 89 22 (803) (6) — (13) (822) 399 (407) — 47 (234) (515) 103 23 (5) (589) (91) 1,285 $1,194 $445 170 — — 201 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Founded in 1901 as a shoe store in Seattle, Washington, Nordstrom, Inc. is now a leading fashion specialty retailer that offers customers a well-edited selection of high-quality fashion brands focused on apparel, shoes, cosmetics and accessories for women, men, young adults and children. This breadth of merchandise allows us to serve a wide range of customers who appreciate quality fashion and a superior shopping experience. We offer an extensive selection of high-quality brand-name and private label merchandise through multiple retail channels, including 118 Nordstrom U.S. full-line stores and at Nordstrom.com, three Canada full-line stores, 194 off-price Nordstrom Rack stores, Nordstromrack.com/HauteLook, five Trunk Club clubhouses and TrunkClub.com, two Jeffrey boutiques and one Last Chance clearance store. Our stores are located in 39 states throughout the U.S and in three provinces in Canada. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom-branded private label card, two Nordstrom-branded Visa credit cards and a debit card for Nordstrom purchases. These credit and debit cards also allow our customers to participate in our loyalty program designed to increase customer visits and spending. Although the primary purposes of our Credit segment are to foster greater customer loyalty and drive more sales, through our program agreement with TD Bank, N.A. (“TD”) (see Note 2: Credit Card Receivable Transaction), we also receive credit card revenue, net in accordance with the program agreement. In addition, we save on interchange fees that the Retail segment would incur if our customers used non-Nordstrom-branded cards. Fiscal Year We operate on a 52/53-week fiscal year ending on the Saturday closest to January 31st. References to 2015 and all years within this document are based on a 52-week fiscal year, except 2012, which is based on a 53-week fiscal year. Principles of Consolidation The Consolidated Financial Statements include the balances of Nordstrom, Inc. and its subsidiaries. All intercompany transactions and balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions. Our most significant accounting judgments and estimates include revenue recognition, inventory, long-lived assets, goodwill, stock-based compensation and income taxes. Net Sales We recognize revenue net of estimated returns and excluding sales taxes. Revenue from sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. Activity in the allowance for sales returns, net, for the past three fiscal years is as follows: Fiscal year Allowance at beginning of year Additions Returns, net1 Allowance at end of year 2015 $160 2,720 (2,710) $170 2014 $128 2,129 (2,097) $160 2013 $116 1,880 (1,868) $128 1 Returns, net consist of actual returns offset by the value of the merchandise returned and any related sales commission. Credit Card Revenues, net On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD (see Note 2: Credit Card Receivable Transaction). Prior to the close of the credit card receivable transaction, credit card revenues included finance charges, late fees and other revenue generated by our combined Nordstrom private label card and Nordstrom Visa credit card programs, and interchange fees generated by the use of Nordstrom Visa credit cards at third-party merchants. Finance charges and late fees were assessed according to the terms of the related cardholder agreements and recognized as revenue when earned. Credit card revenues were recorded net of estimated uncollectible finance charges and fees. 40 Nordstrom, Inc. and subsidiaries 41 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Following the close of the transaction and pursuant to the program agreement with TD, credit card revenues, net includes our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables. Asset amortization and deferred revenue recognition associated with assets and liabilities recorded as part of the transaction are also recorded in credit card revenues, net. Cost of Sales Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight and certain costs of our loyalty program benefits. Loyalty Program Customers who use Nordstrom private label credit or debit cards or Nordstrom Visa credit cards can participate in the Nordstrom Rewards program through which customers accumulate points based on their level of spending. Upon reaching a certain points threshold, customers receive Nordstrom Notes, which can be redeemed for goods or services and can translate into benefits such as reimbursements for alterations. Other benefits include Personal Triple Points days and early access to sales events. We estimate the net cost of Nordstrom Notes that will be issued and redeemed and record this cost as rewards points are accumulated. These costs, as well as reimbursed alterations, are recorded in cost of sales given that we provide customers with products and services for these rewards. Other costs of the loyalty program, including shopping and fashion events, are recorded in selling, general and administrative expenses. Buying and Occupancy Costs Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs include rent, depreciation, property taxes and facility operating costs of our retail, corporate center, fulfillment facilities and distribution operations. Rent We recognize minimum rent expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time that we control the leased property. For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent expense on a straight-line basis and record the difference between the rent expense and the rent payable as a deferred credit. Contingent rental payments, typically based on a percentage of sales, are recognized in rent expense when payment of the contingent rent is probable. We receive incentives from landlords to construct stores in certain developments. These property incentives are recorded as a deferred credit and recognized as a reduction of rent expense on a straight-line basis over the lease term. At the end of 2015 and 2014, the deferred credit balance was $526 and $570. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of compensation and benefit costs, advertising, shipping and handling costs, other miscellaneous expenses and, prior to our credit card receivable transaction in October 2015, bad debt expense related to our credit card operations. Advertising Advertising production costs for Internet, magazines, store events and other media are expensed the first time the advertisement is run. Online marketing costs are expensed when incurred. Total advertising expenses, net of vendor allowances, of $227, $195 and $167 in 2015, 2014 and 2013 were included in selling, general and administrative expenses. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Vendor Allowances We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Purchase price adjustments are recorded as a reduction of cost of sales at the point they have been earned and the related merchandise has been marked down or sold. Allowances for cooperative advertising programs and other expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Any allowances in excess of actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of cost of sales. Vendor allowances earned are as follows: Fiscal year Cosmetic expenses Purchase price adjustments Cooperative advertising Other Total vendor allowances Shipping and Handling Costs 2015 $161 178 109 7 $455 2014 $140 164 102 7 $413 2013 $137 143 103 6 $389 Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment. These costs do not include in-bound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling costs of $428, $348 and $267 in 2015, 2014 and 2013 were included in selling, general and administrative expenses. Stock-Based Compensation We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”), 2002 Nonemployee Director Stock Incentive Plan (“2002 Plan”) and Trunk Club Value Creation Plan (“VCP”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“ESPP”). We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is accelerated based upon achievement of age and years of service. The total compensation expense is reduced by estimated forfeitures expected to occur over the vesting period of the awards. We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. Stock-based compensation expense related to the VCP is based on the grant date fair value of the payout scenario we believe is probable using the Black-Scholes valuation model and is recognized on an accelerated basis due to performance criteria and graded vesting features of the plan. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. New Store Opening Costs Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and temporary occupancy costs, are charged to expense as incurred. These costs are included in both buying and occupancy costs and selling, general and administrative expenses according to their nature as disclosed above. We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. Based on an analysis of our program since its inception in 1999, we determined that balances remaining on cards issued beyond five years are unlikely to be redeemed and therefore is recognized as income. Breakage income was $11, $8 and $9 in 2015, 2014 and 2013. To date, our breakage rate is approximately 3% of the amount initially issued as gift cards. Gift card breakage income is included in selling, general and administrative expenses. We had outstanding gift card liabilities of $327 and $286 at the end of 2015 and 2014, which are included in other current liabilities. Gift Cards Income Taxes We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized. 42 Nordstrom, Inc. and subsidiaries 43 revenues, net. Cost of Sales program benefits. Loyalty Program expenses. operations. Rent Customers who use Nordstrom private label credit or debit cards or Nordstrom Visa credit cards can participate in the Nordstrom Rewards program through which customers accumulate points based on their level of spending. Upon reaching a certain points threshold, customers receive Nordstrom Notes, which can be redeemed for goods or services and can translate into benefits such as reimbursements for alterations. Other benefits include Personal Triple Points days and early access to sales events. We estimate the net cost of Nordstrom Notes that will be issued and redeemed and record this cost as rewards points are accumulated. These costs, as well as reimbursed alterations, are recorded in cost of sales given that we provide customers with products and services for these rewards. Other costs of the loyalty program, including shopping and fashion events, are recorded in selling, general and administrative Buying and Occupancy Costs Buying costs consist primarily of compensation and other costs incurred by our merchandising and product development groups. Occupancy costs include rent, depreciation, property taxes and facility operating costs of our retail, corporate center, fulfillment facilities and distribution We recognize minimum rent expense, net of landlord reimbursements, on a straight-line basis over the minimum lease term from the time that we control the leased property. For leases that contain predetermined, fixed escalations of the minimum rent, we recognize the rent expense on a straight-line basis and record the difference between the rent expense and the rent payable as a deferred credit. Contingent rental payments, typically based on a percentage of sales, are recognized in rent expense when payment of the contingent rent is probable. We receive incentives from landlords to construct stores in certain developments. These property incentives are recorded as a deferred credit and recognized as a reduction of rent expense on a straight-line basis over the lease term. At the end of 2015 and 2014, the deferred credit balance was $526 and $570. Selling, General and Administrative Expenses card operations. Advertising Selling, general and administrative expenses consist primarily of compensation and benefit costs, advertising, shipping and handling costs, other miscellaneous expenses and, prior to our credit card receivable transaction in October 2015, bad debt expense related to our credit Advertising production costs for Internet, magazines, store events and other media are expensed the first time the advertisement is run. Online marketing costs are expensed when incurred. Total advertising expenses, net of vendor allowances, of $227, $195 and $167 in 2015, 2014 and 2013 were included in selling, general and administrative expenses. Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Following the close of the transaction and pursuant to the program agreement with TD, credit card revenues, net includes our portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables. Asset amortization and deferred revenue recognition associated with assets and liabilities recorded as part of the transaction are also recorded in credit card Cost of sales includes the purchase cost of inventory sold (net of vendor allowances), in-bound freight and certain costs of our loyalty Vendor Allowances We receive allowances from merchandise vendors for cosmetic expenses, purchase price adjustments, cooperative advertising programs and various other expenses. Allowances for cosmetic expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Purchase price adjustments are recorded as a reduction of cost of sales at the point they have been earned and the related merchandise has been marked down or sold. Allowances for cooperative advertising programs and other expenses are recorded in selling, general and administrative expenses as a reduction of the related costs when incurred. Any allowances in excess of actual costs incurred that are included in selling, general and administrative expenses are recorded as a reduction of cost of sales. Vendor allowances earned are as follows: Fiscal year Cosmetic expenses Purchase price adjustments Cooperative advertising Other Total vendor allowances 2015 $161 178 109 7 $455 2014 $140 164 102 7 $413 2013 $137 143 103 6 $389 Shipping and Handling Costs Our shipping and handling costs include payments to third-party shippers and costs to hold, move and prepare merchandise for shipment. These costs do not include in-bound freight to our distribution centers, which we include in the cost of our inventory. Shipping and handling costs of $428, $348 and $267 in 2015, 2014 and 2013 were included in selling, general and administrative expenses. Stock-Based Compensation We grant stock-based awards under our 2010 Equity Incentive Plan (“2010 Plan”), 2002 Nonemployee Director Stock Incentive Plan (“2002 Plan”) and Trunk Club Value Creation Plan (“VCP”), and employees may purchase our stock at a discount under our Employee Stock Purchase Plan (“ESPP”). We predominantly recognize stock-based compensation expense related to stock-based awards at their estimated grant date fair value, recorded on a straight-line basis over the requisite service period. Compensation expense for certain award holders is accelerated based upon achievement of age and years of service. The total compensation expense is reduced by estimated forfeitures expected to occur over the vesting period of the awards. We estimate the grant date fair value of stock options using the Binomial Lattice option valuation model. Stock-based compensation expense related to the VCP is based on the grant date fair value of the payout scenario we believe is probable using the Black-Scholes valuation model and is recognized on an accelerated basis due to performance criteria and graded vesting features of the plan. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. New Store Opening Costs Non-capital expenditures associated with opening new stores, including marketing expenses, relocation expenses and temporary occupancy costs, are charged to expense as incurred. These costs are included in both buying and occupancy costs and selling, general and administrative expenses according to their nature as disclosed above. Gift Cards We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. Based on an analysis of our program since its inception in 1999, we determined that balances remaining on cards issued beyond five years are unlikely to be redeemed and therefore is recognized as income. Breakage income was $11, $8 and $9 in 2015, 2014 and 2013. To date, our breakage rate is approximately 3% of the amount initially issued as gift cards. Gift card breakage income is included in selling, general and administrative expenses. We had outstanding gift card liabilities of $327 and $286 at the end of 2015 and 2014, which are included in other current liabilities. Income Taxes We use the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on differences between the financial reporting and tax basis of assets and liabilities and for operating loss and tax credit carryforwards. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that some portion of the tax benefit will not be realized. 42 Nordstrom, Inc. and subsidiaries 43 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount that we believe is cumulatively greater than 50% likely to be realized. Interest and penalties related to income tax matters are classified as a component of income tax expense. Income taxes require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred taxes, tax reserves or income tax expense. Comprehensive Net Earnings Comprehensive net earnings consist of net earnings and other gains and losses affecting equity that are excluded from net earnings. These consist of postretirement plan adjustments, net of related income tax effects and foreign currency translation adjustments. Cash Equivalents Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at the end of 2015 and 2014 included $152 and $129 of checks not yet presented for payment drawn in excess of our bank deposit balances. Accounts Receivable Prior to the close of the credit card receivable transaction, accounts receivable included credit card receivables from our Nordstrom private label and U.S. Visa credit cards, as well as credit and debit card receivables due from third parties. Following the close of the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), our remaining accounts receivable, net includes employee credit card receivables and receivables from non-Nordstrom-branded cards. asset category as follows: Asset Buildings and improvements Store fixtures and equipment Leasehold improvements Capitalized software expenditures. Goodwill We continue to record accounts receivable on our Consolidated Balance Sheets, net of an allowance for credit losses. The allowance for credit losses reflects our best estimate of the losses inherent in our receivables as of the balance sheet date. Long-Lived Assets Nordstrom private label credit and debit cards can be used only at our Nordstrom full-line stores in the U.S., Nordstrom Rack stores, Nordstrom.com and Nordstromrack.com/HauteLook, while Nordstrom Visa credit cards also may be used for purchases outside of Nordstrom. Cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our website are treated as an operating activity within the Consolidated Statements of Cash Flows, as they relate to sales at Nordstrom. Prior to the credit card receivable transaction, we treated cash flows arising from the use of Nordstrom Visa credit cards outside of our stores as an investing activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties. Merchandise Inventories Merchandise inventories are generally stated at the lower of cost or market value using the retail inventory method (weighted-average cost). Under the retail method, the valuation of inventories are determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of our inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling floor. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. We reserve for obsolescence based on historical trends and specific identification. Land, Property and Equipment Land is recorded at historical cost, while property and equipment are recorded at cost less accumulated depreciation and amortization. Capitalized software includes the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related to the software project. We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in progress to prepare the asset for its intended use and actual interest costs are being incurred. Depreciation and amortization are computed using the straight-line method over the asset’s estimated useful life, which is determined by Life (in years) 5 – 40 3 – 15 5 – 40 3 – 7 Leasehold improvements and leased property and equipment that are purchased at the inception of the lease, or during the lease term, are amortized over the shorter of the lease term or the asset life. Lease terms include the fixed, non-cancellable term of a lease, plus any renewal periods determined to be reasonably assured. We receive contributions from vendors for the construction of certain fixtures in our stores. These contributions offset the related capital Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired and is not subject to amortization. As of January 30, 2016, we had Trunk Club goodwill of $261, HauteLook goodwill of $121 and Nordstrom.com and Jeffrey goodwill of $53. We review our goodwill annually for impairment or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-step fair value test. The first step compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows (income approach), comparable public companies and acquisitions (market approach) or a combination of both. If fair value is lower than the carrying value, then a second step is performed to quantify the amount of the impairment. When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk Club are identified at their respective reporting unit levels. The assets recorded in connection with the credit card receivable transaction are individually evaluated against the anticipated cash flows under the program agreement (see Note 2: Credit Card Receivable Transaction). In 2015, our cash flow analyses resulted in retail store impairment charges of $24 and other various impairment losses of $23. The retail store impairment of $24 relates to our full-line store in Puerto Rico and was primarily driven by a challenging retail market in this territory. We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2014 or 2013. Amortization expense for acquired intangibles was $16, $10 and $10 in 2015, 2014 and 2013. Future amortization expense of acquired intangible assets as of January 30, 2016 are expected to be $15 in 2016, $11 in 2017, $7 in 2018, $7 in 2019, and $7 in 2020. We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and other liability claims. Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost using an actuarially-based analysis of claims experience, regulatory changes and other relevant factors. Self-Insurance Foreign Currency We have three full-line stores in Canada and have announced plans to open four additional stores in Canada over the next few years. The functional currency of our Canadian operations is the Canadian Dollar. We translate assets and liabilities into U.S. Dollars using the exchange rate in effect at the balance sheet date, while we translate revenues and expenses using a weighted-average exchange rate for the period. We record these translation adjustments as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets. In addition, our U.S. operations incur certain expenditures denominated in Canadian Dollars and our Canadian operations incur certain expenditures denominated in U.S. Dollars. This activity results in transaction gains and losses that arise from exchange rate fluctuations and are recorded as gains or losses in the Consolidated Statements of Earnings. As of January 30, 2016, activities associated with the foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements. 44 Nordstrom, Inc. and subsidiaries 45 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts We regularly evaluate the likelihood of realizing the benefit for income tax positions we have taken in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest amount that we believe is cumulatively greater than 50% likely to be realized. Interest and penalties related to income tax matters are classified as a component of income tax expense. Income taxes require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Also, as audits are completed or statutes of limitations lapse, it may be necessary to record adjustments to our taxes payable, deferred taxes, tax reserves or income tax expense. Comprehensive net earnings consist of net earnings and other gains and losses affecting equity that are excluded from net earnings. These consist of postretirement plan adjustments, net of related income tax effects and foreign currency translation adjustments. Cash equivalents are short-term investments with a maturity of three months or less from the date of purchase and are carried at amortized cost, which approximates fair value. Our cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Accounts payable at the end of 2015 and 2014 included $152 and $129 of checks not yet presented for payment drawn in Comprehensive Net Earnings Cash Equivalents excess of our bank deposit balances. Accounts Receivable Prior to the close of the credit card receivable transaction, accounts receivable included credit card receivables from our Nordstrom private label and U.S. Visa credit cards, as well as credit and debit card receivables due from third parties. Following the close of the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), our remaining accounts receivable, net includes employee credit card receivables and receivables from non-Nordstrom-branded cards. We continue to record accounts receivable on our Consolidated Balance Sheets, net of an allowance for credit losses. The allowance for credit losses reflects our best estimate of the losses inherent in our receivables as of the balance sheet date. Nordstrom private label credit and debit cards can be used only at our Nordstrom full-line stores in the U.S., Nordstrom Rack stores, Nordstrom.com and Nordstromrack.com/HauteLook, while Nordstrom Visa credit cards also may be used for purchases outside of Nordstrom. Cash flows from the use of both the private label and Nordstrom Visa credit cards for sales originating at our stores and our website are treated as an operating activity within the Consolidated Statements of Cash Flows, as they relate to sales at Nordstrom. Prior to the credit card receivable transaction, we treated cash flows arising from the use of Nordstrom Visa credit cards outside of our stores as an investing activity within the Consolidated Statements of Cash Flows, as they represented loans made to our customers for purchases at third parties. Merchandise Inventories identification. Land, Property and Equipment Merchandise inventories are generally stated at the lower of cost or market value using the retail inventory method (weighted-average cost). Under the retail method, the valuation of inventories are determined by applying a calculated cost-to-retail ratio to the retail value of ending inventory. The value of our inventory on the balance sheet is then reduced by a charge to cost of sales for retail inventory markdowns taken on the selling floor. To determine if the retail value of our inventory should be marked down, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. We reserve for obsolescence based on historical trends and specific Land is recorded at historical cost, while property and equipment are recorded at cost less accumulated depreciation and amortization. Capitalized software includes the costs of developing or obtaining internal-use software, including external direct costs of materials and services and internal payroll costs related to the software project. We capitalize interest on construction in progress and software projects during the period in which expenditures have been made, activities are in progress to prepare the asset for its intended use and actual interest costs are being incurred. Depreciation and amortization are computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows: Asset Buildings and improvements Store fixtures and equipment Leasehold improvements Capitalized software Life (in years) 5 – 40 3 – 15 5 – 40 3 – 7 Leasehold improvements and leased property and equipment that are purchased at the inception of the lease, or during the lease term, are amortized over the shorter of the lease term or the asset life. Lease terms include the fixed, non-cancellable term of a lease, plus any renewal periods determined to be reasonably assured. We receive contributions from vendors for the construction of certain fixtures in our stores. These contributions offset the related capital expenditures. Goodwill Goodwill represents the excess of acquisition cost over the fair value of the related net assets acquired and is not subject to amortization. As of January 30, 2016, we had Trunk Club goodwill of $261, HauteLook goodwill of $121 and Nordstrom.com and Jeffrey goodwill of $53. We review our goodwill annually for impairment or when circumstances indicate its carrying value may not be recoverable. We perform this evaluation at the reporting unit level, comprised of the principal business units within our Retail segment, through the application of a two-step fair value test. The first step compares the carrying value of the reporting unit to its estimated fair value, which is based on the expected present value of future cash flows (income approach), comparable public companies and acquisitions (market approach) or a combination of both. If fair value is lower than the carrying value, then a second step is performed to quantify the amount of the impairment. Long-Lived Assets When facts and circumstances indicate that the carrying values of long-lived assets, including buildings, equipment and amortizable intangible assets, may be impaired, we perform an evaluation of recoverability by comparing the carrying values of the net assets to their related projected undiscounted future cash flows, in addition to other quantitative and qualitative analyses. Land, property and equipment are grouped at the lowest level at which there are identifiable cash flows when assessing impairment. Cash flows for our retail store assets are identified at the individual store level, while our intangible assets associated with HauteLook and Trunk Club are identified at their respective reporting unit levels. The assets recorded in connection with the credit card receivable transaction are individually evaluated against the anticipated cash flows under the program agreement (see Note 2: Credit Card Receivable Transaction). In 2015, our cash flow analyses resulted in retail store impairment charges of $24 and other various impairment losses of $23. The retail store impairment of $24 relates to our full-line store in Puerto Rico and was primarily driven by a challenging retail market in this territory. We did not record any material impairment losses for long-lived tangible or amortizable intangible assets in 2014 or 2013. Amortization expense for acquired intangibles was $16, $10 and $10 in 2015, 2014 and 2013. Future amortization expense of acquired intangible assets as of January 30, 2016 are expected to be $15 in 2016, $11 in 2017, $7 in 2018, $7 in 2019, and $7 in 2020. Self-Insurance We retain a portion of the risk for certain losses related to employee health and welfare, workers’ compensation and other liability claims. Liabilities associated with these losses include undiscounted estimates of both losses reported and losses incurred but not yet reported. We estimate our ultimate cost using an actuarially-based analysis of claims experience, regulatory changes and other relevant factors. Foreign Currency We have three full-line stores in Canada and have announced plans to open four additional stores in Canada over the next few years. The functional currency of our Canadian operations is the Canadian Dollar. We translate assets and liabilities into U.S. Dollars using the exchange rate in effect at the balance sheet date, while we translate revenues and expenses using a weighted-average exchange rate for the period. We record these translation adjustments as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets. In addition, our U.S. operations incur certain expenditures denominated in Canadian Dollars and our Canadian operations incur certain expenditures denominated in U.S. Dollars. This activity results in transaction gains and losses that arise from exchange rate fluctuations and are recorded as gains or losses in the Consolidated Statements of Earnings. As of January 30, 2016, activities associated with the foreign currency exchange risk have not had a material impact on our Consolidated Financial Statements. 44 Nordstrom, Inc. and subsidiaries 45 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. This guidance is now effective for us beginning in the first quarter of 2018. We are currently evaluating the impact the provisions would have on our Consolidated Financial Statements. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes. This ASU requires deferred tax liabilities and assets to be classified as noncurrent in the statement of financial position. The change simplifies classification and reporting by eliminating the identification of net current and net noncurrent deferred tax assets or liabilities. We elected to early adopt this ASU resulting in a reclassification of our current deferred tax assets, net to long-term deferred tax assets, net, included within other non- current assets in our Consolidated Balance Sheet as of January 30, 2016. We have implemented the guidance on a prospective basis, therefore prior periods were not retrospectively adjusted. In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for us beginning with the first quarter of 2019. Though we are currently evaluating the impact of these provisions, we expect it will have a material impact on our Consolidated Financial Statements. NOTE 2: CREDIT CARD RECEIVABLE TRANSACTION On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In connection with the sale, we entered into a long-term program agreement under which TD is the exclusive issuer of our U.S. consumer credit cards. The following events summarize our credit card receivable transaction: • • • • Receivables Reclassification – In the second quarter of 2015, we reclassified substantially all of our U.S. Visa and private label credit card receivables from “held for investment” to “held for sale” and, as such, recorded these receivables at the lower of cost (par) or fair value, resulting in the reversal of an allowance for credit losses of $64. Secured Notes Defeasance – In September 2015, we completed the defeasance of our $325 Series 2011-1 Class A Notes in order to provide the credit card receivables to TD free and clear. Transaction Close – At close we received $2.2 billion in cash consideration reflecting the par value of the receivables sold, and incurred $32 in transaction-related expenses during the third quarter. Program Agreement – Pursuant to the agreement, we are obligated to offer and administer our loyalty program and perform other account servicing functions. In return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables. Transaction Accounting The Purchase and Sale and Program agreements constitute a multiple element arrangement. These agreements were accounted for in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 860, Transfers and Servicing. We allocated the upfront cash consideration to each of the contract elements, including but not limited to receivables, accounts and loyalty obligations based upon relative selling price or fair value. We then recognized revenue on each of the contract elements that were delivered or earned, including receivables sold and accounts delivered, and deferred revenue on each of the elements that remained undelivered or unearned, including loyalty obligations. We recorded the following assets and liabilities associated with the arrangement: • • • Beneficial interest asset of $62 – represents the present value of the expected profits on the receivables sold. Deferred revenue of $289 – primarily related to our obligation to offer and administer our loyalty program over the term of the agreement. Investment in contract asset of $210 – represents the future economic benefit associated with the arrangement and is equal to the difference between the carrying value of the delivered elements and the upfront cash consideration allocated to those elements. • We did not record a servicing asset or liability as our servicing fee approximates that of a market participant and represents adequate compensation. 46 The beneficial interest asset is carried at fair value (see Note 10: Fair Value Measurements) and is amortized over approximately four years based primarily on the payment rate of the associated receivables. The deferred revenue and investment in contract asset are recognized/ amortized over seven years on a straight line basis, following the delivery of the contract obligations and expected life of the agreement. We record each of these items in credit card revenue, net in our Consolidated Statements of Earnings. NOTE 3: TRUNK CLUB ACQUISITION On August 22, 2014, we acquired 100% of the outstanding equity of Trunk Club, a personalized clothing service for men and women. The purchase price of $357 was partially offset by $46 attributable to Trunk Club employee stock awards that are subject to ongoing vesting requirements and are recorded as compensation expense. Of the purchase price consideration, $35 represented an indemnity holdback related to representations, warranties and covenants. We allocated the net purchase price of $311 to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated net purchase price recorded as goodwill. In connection with the acquisition, we recorded current assets of $21, intangible assets of $59, goodwill of $261, and other non-current assets of $2, offset by net liabilities of $32. On the acquisition date, $280 of the net purchase price was settled in Nordstrom common stock, and during the third quarter of 2015 we settled most of an indemnity holdback, $23 of which was settled in Nordstrom common stock. Credit card receivables and other, net as of January 30, 2016 consists of employee credit card receivables, and receivables from non- Nordstrom-branded cards. As of January 31, 2015, credit card receivables and other, net also included U.S. Visa and private label receivables sold to TD on October 1, 2015. There have been no material changes to the delinquency status or net credit losses of the NOTE 4: ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: Credit card receivables and other, net Allowance for credit losses Accounts receivable, net receivables sold. Activity in the allowance for credit losses is as follows: Fiscal year Allowance at beginning of year Bad debt expense Write-offs Recoveries Reversal of allowance for credit losses Allowance at end of year January 30, 2016 January 31, 2015 197 (1) $196 2014 $80 41 (70) 24 — $75 2,381 (75) $2,306 2013 $85 52 (80) 23 — $80 2015 $75 26 (49) 13 (64) $1 Nordstrom, Inc. and subsidiaries 47 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. This guidance is now effective for us beginning in the first quarter of 2018. We are currently evaluating the impact the provisions would have on our Consolidated Financial Statements. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes. This ASU requires deferred tax liabilities and assets to be classified as noncurrent in the statement of financial position. The change simplifies classification and reporting by eliminating the identification of net current and net noncurrent deferred tax assets or liabilities. We elected to early adopt this ASU resulting in a reclassification of our current deferred tax assets, net to long-term deferred tax assets, net, included within other non- current assets in our Consolidated Balance Sheet as of January 30, 2016. We have implemented the guidance on a prospective basis, therefore prior periods were not retrospectively adjusted. In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for us beginning with the first quarter of 2019. Though we are currently evaluating the impact of these provisions, we expect it will have a material impact on our Consolidated Financial Statements. NOTE 2: CREDIT CARD RECEIVABLE TRANSACTION On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio to TD. In connection with the sale, we entered into a long-term program agreement under which TD is the exclusive issuer of our U.S. consumer credit cards. The following events summarize our credit card receivable transaction: • • • • • • • Receivables Reclassification – In the second quarter of 2015, we reclassified substantially all of our U.S. Visa and private label credit card receivables from “held for investment” to “held for sale” and, as such, recorded these receivables at the lower of cost (par) or fair value, resulting in the reversal of an allowance for credit losses of $64. Secured Notes Defeasance – In September 2015, we completed the defeasance of our $325 Series 2011-1 Class A Notes in order to provide the credit card receivables to TD free and clear. Transaction Close – At close we received $2.2 billion in cash consideration reflecting the par value of the receivables sold, and incurred $32 in transaction-related expenses during the third quarter. Program Agreement – Pursuant to the agreement, we are obligated to offer and administer our loyalty program and perform other account servicing functions. In return, we receive a portion of the ongoing credit card revenue, net of credit losses, from both the sold and newly generated credit card receivables. Transaction Accounting The Purchase and Sale and Program agreements constitute a multiple element arrangement. These agreements were accounted for in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition and ASC 860, Transfers and Servicing. We allocated the upfront cash consideration to each of the contract elements, including but not limited to receivables, accounts and loyalty obligations based upon relative selling price or fair value. We then recognized revenue on each of the contract elements that were delivered or earned, including receivables sold and accounts delivered, and deferred revenue on each of the elements that remained undelivered or unearned, including loyalty obligations. We recorded the following assets and liabilities associated with the arrangement: Beneficial interest asset of $62 – represents the present value of the expected profits on the receivables sold. Deferred revenue of $289 – primarily related to our obligation to offer and administer our loyalty program over the term of the Investment in contract asset of $210 – represents the future economic benefit associated with the arrangement and is equal to the difference between the carrying value of the delivered elements and the upfront cash consideration allocated to those elements. • We did not record a servicing asset or liability as our servicing fee approximates that of a market participant and represents agreement. adequate compensation. 46 The beneficial interest asset is carried at fair value (see Note 10: Fair Value Measurements) and is amortized over approximately four years based primarily on the payment rate of the associated receivables. The deferred revenue and investment in contract asset are recognized/ amortized over seven years on a straight line basis, following the delivery of the contract obligations and expected life of the agreement. We record each of these items in credit card revenue, net in our Consolidated Statements of Earnings. NOTE 3: TRUNK CLUB ACQUISITION On August 22, 2014, we acquired 100% of the outstanding equity of Trunk Club, a personalized clothing service for men and women. The purchase price of $357 was partially offset by $46 attributable to Trunk Club employee stock awards that are subject to ongoing vesting requirements and are recorded as compensation expense. Of the purchase price consideration, $35 represented an indemnity holdback related to representations, warranties and covenants. We allocated the net purchase price of $311 to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated net purchase price recorded as goodwill. In connection with the acquisition, we recorded current assets of $21, intangible assets of $59, goodwill of $261, and other non-current assets of $2, offset by net liabilities of $32. On the acquisition date, $280 of the net purchase price was settled in Nordstrom common stock, and during the third quarter of 2015 we settled most of an indemnity holdback, $23 of which was settled in Nordstrom common stock. NOTE 4: ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: Credit card receivables and other, net Allowance for credit losses Accounts receivable, net January 30, 2016 January 31, 2015 197 (1) $196 2,381 (75) $2,306 Credit card receivables and other, net as of January 30, 2016 consists of employee credit card receivables, and receivables from non- Nordstrom-branded cards. As of January 31, 2015, credit card receivables and other, net also included U.S. Visa and private label receivables sold to TD on October 1, 2015. There have been no material changes to the delinquency status or net credit losses of the receivables sold. Activity in the allowance for credit losses is as follows: Fiscal year Allowance at beginning of year Bad debt expense Write-offs Recoveries Reversal of allowance for credit losses Allowance at end of year 2015 $75 26 (49) 13 (64) $1 2014 $80 41 (70) 24 — $75 2013 $85 52 (80) 23 — $80 Nordstrom, Inc. and subsidiaries 47 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Previously we provided various balances, statistics and measures for accounts receivable, net. However, given the balance of our remaining accounts receivable, net, the below information is no longer meaningful for January 30, 2016 and only January 31, 2015 is presented. NOTE 6: SELF-INSURANCE Our self-insurance reserves are summarized as follows: Current 1 – 29 days delinquent 30 days or more delinquent: 30 – 59 days delinquent 60 – 89 days delinquent 90 days or more delinquent Total 30 days or more delinquent Total credit card receivables Receivables not accruing finance charges Receivables 90 days or more delinquent and accruing finance charges FICO Score Range 801+ 660 – 800 001 – 659 Other1 Total credit card receivables January 31, 2015 Balance $2,134 103 16 10 21 47 % of total 93.4% 4.5% 0.7% 0.5% 0.9% 2.1% $2,284 100.0% deductibles. $13 $13 January 31, 2015 Balance % of total $369 1,435 392 88 $2,284 16.2% 62.8% 17.1% 3.9% 100.0% 1 The FICO score range Other consists of amounts not yet posted to customers’ accounts and receivables from customers for whom FICO scores were temporarily unavailable. NOTE 5: LAND, PROPERTY AND EQUIPMENT Land, property and equipment consist of the following: Land and land improvements Buildings and building improvements Leasehold improvements Store fixtures and equipment Capitalized software Construction in progress Land, property and equipment Less: accumulated depreciation and amortization Land, property and equipment, net January 30, 2016 January 31, 2015 $104 1,187 2,686 3,339 928 599 8,843 (5,108) $3,735 $99 1,040 2,510 3,055 739 595 8,038 (4,698) $3,340 The total cost of property and equipment held under capital lease obligations was $26 at the end of 2015 and $28 at the end of 2014, with related accumulated amortization of $24 in 2015 and $26 in 2014. Depreciation and amortization expense was $560, $498 and $444 in 2015, 2014 and 2013. 48 Workers’ compensation Employee health and welfare Other liability Total self-insurance reserve January 30, 2016 January 31, 2015 $68 28 16 $112 $70 23 16 $109 Our workers’ compensation policies have a retention per claim of $1 or less and no policy limits. We are self-insured for the majority of our employee health and welfare coverage and we do not use stop-loss coverage. Participants contribute to the cost of their coverage through both premiums and out-of-pocket expenses and are subject to certain plan limits and Our liability policies, encompassing employment practices liability and commercial general liability, have a retention per claim of $3 or less We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions. Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an amount determined by our Board of Directors each year. Our expense related to Company contributions totaled $62, $77 and $77 in 2015, We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2015, we had 59 participants in the plan, including 26 officers and select employees eligible for SERP benefits, 32 retirees and one beneficiary. This plan is non-qualified and does not have a minimum funding requirement. and a policy limit up to $30 and $150, respectively. NOTE 7: 401(k) PLAN 2014 and 2013. NOTE 8: POSTRETIREMENT BENEFITS Benefit Obligations and Funded Status Our benefit obligation and funded status is as follows: Change in benefit obligation: Benefit obligation at beginning of year Participant service cost Interest cost Benefits paid Actuarial (gain) loss Plan amendment Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Employer contribution Benefits paid Fair value of plan assets at end of year Underfunded status at end of year January 30, 2016 January 31, 2015 $203 3 7 (6) (26) — 181 — 6 (6) — $168 3 8 (6) 36 (6) 203 — 6 (6) — ($181) ($203) Nordstrom, Inc. and subsidiaries 49 The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $177 and $197 at the end of 2015 and 2014. The actuarial gain of $26 in 2015 was driven primarily by increased interest rates, and will be amortized over the average remaining future service years. Current 1 – 29 days delinquent 30 days or more delinquent: 30 – 59 days delinquent 60 – 89 days delinquent 90 days or more delinquent Total 30 days or more delinquent Total credit card receivables FICO Score Range 801+ 660 – 800 001 – 659 Other1 Total credit card receivables NOTE 5: LAND, PROPERTY AND EQUIPMENT Land, property and equipment consist of the following: Land and land improvements Buildings and building improvements Leasehold improvements Store fixtures and equipment Capitalized software Construction in progress Land, property and equipment Less: accumulated depreciation and amortization Land, property and equipment, net Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Previously we provided various balances, statistics and measures for accounts receivable, net. However, given the balance of our remaining accounts receivable, net, the below information is no longer meaningful for January 30, 2016 and only January 31, 2015 is presented. NOTE 6: SELF-INSURANCE Our self-insurance reserves are summarized as follows: January 31, 2015 Balance $2,134 103 Workers’ compensation Employee health and welfare Other liability Total self-insurance reserve January 30, 2016 January 31, 2015 $68 28 16 $112 $70 23 16 $109 $2,284 100.0% We are self-insured for the majority of our employee health and welfare coverage and we do not use stop-loss coverage. Participants contribute to the cost of their coverage through both premiums and out-of-pocket expenses and are subject to certain plan limits and deductibles. Our workers’ compensation policies have a retention per claim of $1 or less and no policy limits. Receivables not accruing finance charges Receivables 90 days or more delinquent and accruing finance charges January 31, 2015 Balance % of total 1 The FICO score range Other consists of amounts not yet posted to customers’ accounts and receivables from customers for whom FICO scores were temporarily unavailable. Our liability policies, encompassing employment practices liability and commercial general liability, have a retention per claim of $3 or less and a policy limit up to $30 and $150, respectively. NOTE 7: 401(k) PLAN We provide a 401(k) plan for our employees that allows for employee elective contributions and discretionary Company contributions. Employee elective contributions are funded through voluntary payroll deductions. Our discretionary Company contribution is funded in an amount determined by our Board of Directors each year. Our expense related to Company contributions totaled $62, $77 and $77 in 2015, 2014 and 2013. NOTE 8: POSTRETIREMENT BENEFITS We have an unfunded defined benefit Supplemental Executive Retirement Plan (“SERP”), which provides retirement benefits to certain officers and select employees. The SERP has different benefit levels depending on the participant’s role in the Company. At the end of 2015, we had 59 participants in the plan, including 26 officers and select employees eligible for SERP benefits, 32 retirees and one beneficiary. This plan is non-qualified and does not have a minimum funding requirement. The total cost of property and equipment held under capital lease obligations was $26 at the end of 2015 and $28 at the end of 2014, with related accumulated amortization of $24 in 2015 and $26 in 2014. Depreciation and amortization expense was $560, $498 and $444 in 2015, 2014 and 2013. January 30, 2016 January 31, 2015 Benefit Obligations and Funded Status Our benefit obligation and funded status is as follows: Change in benefit obligation: Benefit obligation at beginning of year Participant service cost Interest cost Benefits paid Actuarial (gain) loss Plan amendment Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Employer contribution Benefits paid Fair value of plan assets at end of year Underfunded status at end of year January 30, 2016 January 31, 2015 $203 3 7 (6) (26) — 181 — 6 (6) — $168 3 8 (6) 36 (6) 203 — 6 (6) — ($181) ($203) The accumulated benefit obligation, which is the present value of benefits, assuming no future compensation changes, was $177 and $197 at the end of 2015 and 2014. The actuarial gain of $26 in 2015 was driven primarily by increased interest rates, and will be amortized over the average remaining future service years. % of total 93.4% 4.5% 0.7% 0.5% 0.9% 2.1% 16.2% 62.8% 17.1% 3.9% 100.0% $99 1,040 2,510 3,055 739 595 8,038 (4,698) $3,340 16 10 21 47 $13 $13 $369 1,435 392 88 $2,284 $104 1,187 2,686 3,339 928 599 8,843 (5,108) $3,735 48 Nordstrom, Inc. and subsidiaries 49 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following: NOTE 9: DEBT AND CREDIT FACILITIES January 30, 2016 January 31, 2015 Debt Accrued salaries, wages and related benefits Other noncurrent liabilities Net amount recognized Components of SERP Expense The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows: Fiscal year Participant service cost Interest cost Amortization of net loss Total SERP expense 2015 $3 7 11 $21 $8 173 $181 2014 $3 7 6 $16 $8 195 $203 2013 $4 7 8 $19 Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following: January 30, 2016 January 31, 2015 A summary of our long-term debt, including capital leases, is as follows: January 30, 2016 January 31, 2015 Accumulated loss Prior service credit Total accumulated other comprehensive loss ($41) 5 ($36) In 2016, we expect $3 of costs currently in accumulated other comprehensive loss to be recognized as components of SERP expense. Assumptions Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows: Fiscal year Assumptions used to determine benefit obligation: Discount rate Rate of compensation increase Assumptions used to determine SERP expense: Discount rate Rate of compensation increase 2015 4.55% 3.00% 3.70% 3.00% 2014 3.70% 3.00% 4.60% 3.00% Future Benefit Payments and Contributions As of January 30, 2016, the expected future benefit payments based upon the assumptions described above and including benefits attributable to estimated future employee service are as follows: Fiscal year 2016 2017 2018 2019 2020 2021 – 2025 50 ($78) 6 ($72) 2013 4.60% 3.00% 4.30% 3.00% $8 8 9 10 11 59 Secured Series 2011-1 Class A Notes, 2.28%, due October 2016 Mortgage payable, 7.68%, due April 2020 Other Total secured debt Unsecured Net of unamortized discount: Senior notes, 6.25%, due January 2018 Senior notes, 4.75%, due May 2020 Senior notes, 4.00%, due October 2021 Senior debentures, 6.95%, due March 2028 Senior notes, 7.00%, due January 2038 Senior notes, 5.00%, due January 2044 Other Total unsecured debt Total long-term debt Less: current portion Total due beyond one year Fiscal year 2016 2017 2018 2019 2020 Thereafter As a condition of closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), we defeased $325 in secured Series 2011-1 Class A Notes in order to provide the receivables to TD free and clear. Prior to the close of our credit card receivable transaction, all of our Nordstrom private label card receivables and a 90% interest in our Nordstrom Visa credit card receivables served as collateral for our Series 2011-1 Class A Notes. Our mortgage payable is secured by an office building that had a net book value of $62 at the end of 2015. Other secured debt as of January 30, 2016 and January 31, 2015 consisted primarily of capital lease obligations. Required principal payments on long-term debt, excluding capital lease obligations, are as follows: $— 30 5 35 649 499 500 300 146 600 76 2,770 2,805 (10) $2,795 $325 36 7 368 649 499 499 300 146 598 72 2,763 3,131 (8) $3,123 $8 660 56 8 502 1,614 Nordstrom, Inc. and subsidiaries 51 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Amounts recognized as liabilities in the Consolidated Balance Sheets consist of the following: NOTE 9: DEBT AND CREDIT FACILITIES January 30, 2016 January 31, 2015 Debt A summary of our long-term debt, including capital leases, is as follows: The components of SERP expense recognized in the Consolidated Statements of Earnings are as follows: Amounts not yet reflected in SERP expense and included in accumulated other comprehensive loss (pre-tax) consist of the following: January 30, 2016 January 31, 2015 In 2016, we expect $3 of costs currently in accumulated other comprehensive loss to be recognized as components of SERP expense. Weighted-average assumptions used to determine our benefit obligation and SERP expense are as follows: Secured Series 2011-1 Class A Notes, 2.28%, due October 2016 Mortgage payable, 7.68%, due April 2020 Other Total secured debt Unsecured Net of unamortized discount: Senior notes, 6.25%, due January 2018 Senior notes, 4.75%, due May 2020 Senior notes, 4.00%, due October 2021 Senior debentures, 6.95%, due March 2028 Senior notes, 7.00%, due January 2038 Senior notes, 5.00%, due January 2044 Other Total unsecured debt Total long-term debt Less: current portion Total due beyond one year January 30, 2016 January 31, 2015 $— 30 5 35 649 499 500 300 146 600 76 2,770 2,805 (10) $2,795 $325 36 7 368 649 499 499 300 146 598 72 2,763 3,131 (8) $3,123 As a condition of closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), we defeased $325 in secured Series 2011-1 Class A Notes in order to provide the receivables to TD free and clear. Prior to the close of our credit card receivable transaction, all of our Nordstrom private label card receivables and a 90% interest in our Nordstrom Visa credit card receivables served as collateral for our Series 2011-1 Class A Notes. Our mortgage payable is secured by an office building that had a net book value of $62 at the end of 2015. Other secured debt as of January 30, 2016 and January 31, 2015 consisted primarily of capital lease obligations. Required principal payments on long-term debt, excluding capital lease obligations, are as follows: As of January 30, 2016, the expected future benefit payments based upon the assumptions described above and including benefits attributable to estimated future employee service are as follows: Fiscal year 2016 2017 2018 2019 2020 Thereafter $8 660 56 8 502 1,614 Nordstrom, Inc. and subsidiaries 51 Accrued salaries, wages and related benefits Other noncurrent liabilities Net amount recognized Components of SERP Expense Fiscal year Participant service cost Interest cost Amortization of net loss Total SERP expense Accumulated loss Prior service credit Total accumulated other comprehensive loss Assumptions Fiscal year Assumptions used to determine benefit obligation: Assumptions used to determine SERP expense: Discount rate Rate of compensation increase Discount rate Rate of compensation increase Future Benefit Payments and Contributions Fiscal year 2016 2017 2018 2019 2020 2021 – 2025 50 $8 173 $181 2014 $3 7 6 $16 ($41) 5 ($36) 2014 3.70% 3.00% 4.60% 3.00% 2015 $3 7 11 $21 2015 4.55% 3.00% 3.70% 3.00% $8 195 $203 2013 $4 7 8 $19 ($78) 6 ($72) 2013 4.60% 3.00% 4.30% 3.00% $8 8 9 10 11 59 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Interest Expense The components of interest expense, net are as follows: Fiscal year Interest on long-term debt and short-term borrowings Less: Interest income Capitalized interest Interest expense, net 2015 $153 — (28) $125 2014 $156 (1) (17) $138 2013 $176 (1) (14) $161 Credit Facilities As of January 30, 2016, we had total short-term borrowing capacity of $800, which is our five-year $800 senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. In April 2015, we terminated our previous $800 senior unsecured revolving credit facility that was scheduled to expire March 2018. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times. As of January 30, 2016 and January 31, 2015, we were in compliance with this covenant. Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolver by an amount equal to the principal amount of commercial paper. As of January 30, 2016 and January 31, 2015, we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver. Our wholly owned subsidiary in Puerto Rico maintains a $52 unsecured borrowing facility to support our expansion into that market. The facility expires in November 2018 and borrowings on this facility incur interest based upon the LIBOR plus 1.275% per annum and also incurs a fee based on our unused commitment. As of January 30, 2016 and January 31, 2015, we had $52 and $37 outstanding on this facility which is included as a component in other unsecured debt. NOTE 10: FAIR VALUE MEASUREMENTS We disclose our financial assets and liabilities that are measured at fair value in our Consolidated Balance Sheets by level within the fair value hierarchy as defined by applicable accounting standards: Level 1: Quoted market prices in active markets for identical assets or liabilities Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions Financial Instruments Measured at Fair Value on a Recurring Basis We recorded a beneficial interest asset when we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio (see Note 2: Credit Card Receivable Transaction). We determined the fair value of the beneficial interest asset based on a discounted cash flow model using Level 3 inputs of the fair value hierarchy. Inputs and assumptions include the discount rate, payment rate, credit loss rate and revenues and expenses associated with the program agreement. Given our review of market participant capital structures in the banking and credit card industries and our historical and expected portfolio performance, we used the following ranges of input assumptions to determine the fair value at year end: Discount rate Monthly payment rate Annual credit loss rate Annual revenues as a percent to credit card receivables Annual expenses as a percent to credit card receivables Minimum Maximum 12% 6% 2% 10% 4% 12% 18% 4% 18% 9% We recognized $25 of amortization expense in 2015 on the beneficial interest asset which had a fair value of $37 at January 30, 2016. Amortization primarily reflects payments received on the receivables sold and is recorded in credit card revenues, net. We did not have any financial assets or liabilities that were measured at fair value on a recurring basis as of January 31, 2015. Financial Instruments Not Measured at Fair Value Financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable and accounts payable and approximate fair value due to their short-term nature. We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level 2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current maturities: Carrying value of long-term debt Fair value of long-term debt January 30, 2016 January 31, 2015 $2,805 3,077 $3,131 3,693 Non-financial Assets Measured at Fair Value on a Nonrecurring Basis We also measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, investment in contract asset and other long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. In 2015, we recorded asset impairment charges of $59, which are included in our Retail Business selling, general and administrative expenses (see Note 17: Segment Reporting). For additional information related to goodwill, intangible assets, long-lived assets and impairments, see Note 1: Nature of Operations and Summary of Significant Accounting Policies. We did not record any material impairment losses in 2014 and 2013. We estimate the fair value of goodwill and long-lived tangible and intangible assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. 52 Nordstrom, Inc. and subsidiaries 53 Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The components of interest expense, net are as follows: Interest on long-term debt and short-term borrowings Nordstrom, Inc. Interest Expense Fiscal year Less: Interest income Capitalized interest Interest expense, net Credit Facilities 2015 $153 — (28) $125 2014 $156 (1) (17) $138 2013 $176 (1) (14) $161 As of January 30, 2016, we had total short-term borrowing capacity of $800, which is our five-year $800 senior unsecured revolving credit facility (“revolver”) that expires in April 2020, with an option to extend for an additional year. In April 2015, we terminated our previous $800 senior unsecured revolving credit facility that was scheduled to expire March 2018. Under the terms of our revolver, we pay a variable rate of interest and a commitment fee based on our debt rating. The revolver is available for working capital, capital expenditures and general corporate purposes. We have the option to increase the revolving commitment by up to $200, to a total of $1,000, provided that we obtain written consent from the lenders. The revolver requires that we maintain an adjusted debt to earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) leverage ratio of less than four times. As of January 30, 2016 and January 31, 2015, we were in compliance with this covenant. Our $800 commercial paper program allows us to use the proceeds to fund operating cash requirements. Under the terms of the commercial paper agreement, we pay a rate of interest based on, among other factors, the maturity of the issuance and market conditions. The issuance of commercial paper has the effect, while it is outstanding, of reducing available liquidity under the revolver by an amount equal to the principal amount of commercial paper. outstanding under our revolver. As of January 30, 2016 and January 31, 2015, we had no issuances outstanding under our commercial paper program and no borrowings is included as a component in other unsecured debt. Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 10: FAIR VALUE MEASUREMENTS We disclose our financial assets and liabilities that are measured at fair value in our Consolidated Balance Sheets by level within the fair value hierarchy as defined by applicable accounting standards: Level 1: Quoted market prices in active markets for identical assets or liabilities Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions Financial Instruments Measured at Fair Value on a Recurring Basis We recorded a beneficial interest asset when we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio (see Note 2: Credit Card Receivable Transaction). We determined the fair value of the beneficial interest asset based on a discounted cash flow model using Level 3 inputs of the fair value hierarchy. Inputs and assumptions include the discount rate, payment rate, credit loss rate and revenues and expenses associated with the program agreement. Given our review of market participant capital structures in the banking and credit card industries and our historical and expected portfolio performance, we used the following ranges of input assumptions to determine the fair value at year end: Discount rate Monthly payment rate Annual credit loss rate Annual revenues as a percent to credit card receivables Annual expenses as a percent to credit card receivables Minimum Maximum 12% 6% 2% 10% 4% 12% 18% 4% 18% 9% We recognized $25 of amortization expense in 2015 on the beneficial interest asset which had a fair value of $37 at January 30, 2016. Amortization primarily reflects payments received on the receivables sold and is recorded in credit card revenues, net. We did not have any financial assets or liabilities that were measured at fair value on a recurring basis as of January 31, 2015. Our wholly owned subsidiary in Puerto Rico maintains a $52 unsecured borrowing facility to support our expansion into that market. The facility expires in November 2018 and borrowings on this facility incur interest based upon the LIBOR plus 1.275% per annum and also incurs a fee based on our unused commitment. As of January 30, 2016 and January 31, 2015, we had $52 and $37 outstanding on this facility which Financial Instruments Not Measured at Fair Value Financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable and accounts payable and approximate fair value due to their short-term nature. We estimate the fair value of long-term debt using quoted market prices of the same or similar issues and, as such, this is considered a Level 2 fair value measurement. The following table summarizes the carrying value and fair value estimate of our long-term debt, including current maturities: Carrying value of long-term debt Fair value of long-term debt January 30, 2016 January 31, 2015 $2,805 3,077 $3,131 3,693 Non-financial Assets Measured at Fair Value on a Nonrecurring Basis We also measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, investment in contract asset and other long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. In 2015, we recorded asset impairment charges of $59, which are included in our Retail Business selling, general and administrative expenses (see Note 17: Segment Reporting). For additional information related to goodwill, intangible assets, long-lived assets and impairments, see Note 1: Nature of Operations and Summary of Significant Accounting Policies. We did not record any material impairment losses in 2014 and 2013. We estimate the fair value of goodwill and long-lived tangible and intangible assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. 52 Nordstrom, Inc. and subsidiaries 53 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 11: LEASES We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, warehouses and equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores and 10 to 15 years for Nordstrom Rack stores. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs, and some leases require additional payments based on sales, referred to as “percentage rent.” NOTE 13: SHAREHOLDERS’ EQUITY In February 2013, our Board of Directors authorized a program to repurchase up to $800 of our outstanding common stock, through March 1, 2015. There was $73 of unused capacity upon program expiration. In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. The following is a summary of the activity related to our share repurchase programs in 2013, 2014 and 2015: Future minimum lease payments as of January 30, 2016 are as follows: Shares Average price per share Amount Fiscal year 2016 2017 2018 2019 2020 Thereafter Total minimum lease payments Less: amount representing interest Present value of net minimum lease payments Rent expense for 2015, 2014 and 2013 was as follows: Fiscal year Minimum rent: Store locations Offices, warehouses and equipment Percentage rent Property incentives Total rent expense Capital leases Operating leases $2 1 1 — — — $4 — $4 2014 $170 36 14 (83) $137 $253 271 277 274 255 1,490 $2,820 2013 $145 35 14 (69) $125 2015 $204 41 13 (82) $176 The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $97 in 2015, $88 in 2014 and $81 in 2013. NOTE 12: COMMITMENTS AND CONTINGENCIES Our estimated total purchase obligations, capital expenditure contractual commitments and inventory purchase orders were $2,010 as of January 30, 2016. In connection with the purchase of foreign merchandise, we have outstanding trade letters of credit totaling $1 as of January 30, 2016. Plans for our Manhattan full-line store, which we currently expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of January 30, 2016, we had approximately $176 of fee interest in land, which is expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the unlikely event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our previous investments in the land. Capacity at February 2, 2013 February 2013 authorization (ended March 1, 2015) Shares repurchased Capacity at February 1, 2014 Shares repurchased Capacity at January 31, 2015 September 2014 authorization (ends March 1, 2016) October 2015 authorization (ends March 1, 2017) Shares repurchased Expiration of unused capacity in March 2015 Capacity at January 30, 2016 9.1 8.9 19.1 $57 $66 $63 $393 800 (523) 670 1,000 (595) 1,075 1,000 (1,191) (73) $811 The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. We paid dividends of $6.33 per share in 2015, $1.32 per share in 2014 and $1.20 per share in 2013. Dividends paid in 2015 included a special cash dividend of $905, or $4.85 per share of outstanding common stock, in addition to our recurring quarterly dividend of $0.37 per share. The special dividend was authorized by our Board of Directors on October 1, 2015 and was paid using proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction). In February 2016, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 22, 2016. NOTE 14: STOCK-BASED COMPENSATION We currently grant stock-based awards under our 2010 Equity Incentive Plan, 2002 Nonemployee Director Stock Incentive Plan and Trunk Club Value Creation Plan, and employees may purchase our stock at a discount under our Employee Stock Purchase Plan. In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan authorizes the grant of stock options, performance share units, restricted stock units, stock appreciation rights and both restricted and unrestricted shares of common stock to employees. The aggregate number of shares to be issued under the 2010 Plan may not exceed 27.6 plus any shares currently outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004 Plan. As of January 30, 2016, we have 70.4 shares authorized, 42.6 shares issued and outstanding and 13.5 shares remaining available for future grants under the 2010 Plan. The 2002 Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of January 30, 2016, we had 0.9 shares authorized and 0.5 shares available for issuance under this plan. In 2015, total expense on deferred shares was less than $1. issuance under the ESPP. Under the ESPP, employees may make payroll deductions of up to 10% of their base and bonus compensation. At the end of each six-month offering period, participants may apply their accumulated payroll deductions toward the purchase of shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2016, we had 12.6 shares authorized and 3.0 shares available for 54 Nordstrom, Inc. and subsidiaries 55 Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. NOTE 11: LEASES We lease the land or the land and buildings at many of our stores. Additionally, we lease office facilities, warehouses and equipment. Most of these leases are classified as operating leases and they expire at various dates through 2080. The majority of our fixed, non-cancellable lease terms are 15 to 30 years for Nordstrom full-line stores and 10 to 15 years for Nordstrom Rack stores. Many of our leases include options that allow us to extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Most of our leases also provide for payment of operating expenses, such as common area charges, real estate taxes and other executory costs, and some leases require additional payments based on sales, referred to as “percentage rent.” Future minimum lease payments as of January 30, 2016 are as follows: Capital leases Operating leases Fiscal year 2016 2017 2018 2019 2020 Thereafter Total minimum lease payments Less: amount representing interest Present value of net minimum lease payments Rent expense for 2015, 2014 and 2013 was as follows: Fiscal year Minimum rent: Store locations Percentage rent Property incentives Total rent expense Offices, warehouses and equipment 2014 and $81 in 2013. NOTE 12: COMMITMENTS AND CONTINGENCIES $2 1 1 — — — $4 — $4 2014 $170 36 14 (83) $137 $253 271 277 274 255 1,490 $2,820 2013 $145 35 14 (69) $125 2015 $204 41 13 (82) $176 The rent expense above does not include common area charges, real estate taxes and other executory costs, which were $97 in 2015, $88 in Our estimated total purchase obligations, capital expenditure contractual commitments and inventory purchase orders were $2,010 as of January 30, 2016. In connection with the purchase of foreign merchandise, we have outstanding trade letters of credit totaling $1 as of January 30, 2016. Plans for our Manhattan full-line store, which we currently expect to open in 2019, ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of January 30, 2016, we had approximately $176 of fee interest in land, which is expected to convert to the condominium interest once the store is constructed. We have committed to make future installment payments based on the developer meeting pre-established construction and development milestones. In the unlikely event that this project is not completed, the opening may be delayed and we may be subject to future losses or capital commitments in order to complete construction or to monetize our previous investments in the land. Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 13: SHAREHOLDERS’ EQUITY In February 2013, our Board of Directors authorized a program to repurchase up to $800 of our outstanding common stock, through March 1, 2015. There was $73 of unused capacity upon program expiration. In September 2014, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2016. As of January 30, 2016, there is no capacity remaining on the September 2014 authorization. On October 1, 2015, our Board of Directors authorized a program to repurchase up to $1,000 of our outstanding common stock, through March 1, 2017. The following is a summary of the activity related to our share repurchase programs in 2013, 2014 and 2015: Shares Average price per share Amount Capacity at February 2, 2013 February 2013 authorization (ended March 1, 2015) Shares repurchased Capacity at February 1, 2014 September 2014 authorization (ends March 1, 2016) Shares repurchased Capacity at January 31, 2015 October 2015 authorization (ends March 1, 2017) Shares repurchased Expiration of unused capacity in March 2015 Capacity at January 30, 2016 9.1 8.9 19.1 $57 $66 $63 $393 800 (523) 670 1,000 (595) 1,075 1,000 (1,191) (73) $811 The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable SEC rules. We paid dividends of $6.33 per share in 2015, $1.32 per share in 2014 and $1.20 per share in 2013. Dividends paid in 2015 included a special cash dividend of $905, or $4.85 per share of outstanding common stock, in addition to our recurring quarterly dividend of $0.37 per share. The special dividend was authorized by our Board of Directors on October 1, 2015 and was paid using proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction). In February 2016, subsequent to year end, we declared a quarterly dividend of $0.37 per share, which will be paid on March 22, 2016. NOTE 14: STOCK-BASED COMPENSATION We currently grant stock-based awards under our 2010 Equity Incentive Plan, 2002 Nonemployee Director Stock Incentive Plan and Trunk Club Value Creation Plan, and employees may purchase our stock at a discount under our Employee Stock Purchase Plan. In 2010, our shareholders approved the adoption of the 2010 Plan, which replaced the 2004 Equity Incentive Plan (“2004 Plan”). The 2010 Plan authorizes the grant of stock options, performance share units, restricted stock units, stock appreciation rights and both restricted and unrestricted shares of common stock to employees. The aggregate number of shares to be issued under the 2010 Plan may not exceed 27.6 plus any shares currently outstanding under the 2004 Plan that are forfeited or expire during the term of the 2010 Plan. No future grants will be made under the 2004 Plan. As of January 30, 2016, we have 70.4 shares authorized, 42.6 shares issued and outstanding and 13.5 shares remaining available for future grants under the 2010 Plan. The 2002 Nonemployee Director Stock Incentive Plan authorizes the grant of stock awards to our nonemployee directors. These awards may be deferred or issued in the form of restricted or unrestricted stock, non-qualified stock options or stock appreciation rights. As of January 30, 2016, we had 0.9 shares authorized and 0.5 shares available for issuance under this plan. In 2015, total expense on deferred shares was less than $1. Under the ESPP, employees may make payroll deductions of up to 10% of their base and bonus compensation. At the end of each six-month offering period, participants may apply their accumulated payroll deductions toward the purchase of shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2016, we had 12.6 shares authorized and 3.0 shares available for issuance under the ESPP. 54 Nordstrom, Inc. and subsidiaries 55 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following table summarizes our stock-based compensation expense: A summary of stock option activity for 2015, which includes awards issued as part of the Trunk Club acquisition in 2014, is presented below: Fiscal year Stock options Restricted stock units Acquisition-related stock compensation Performance share units Other Total stock-based compensation expense, before income tax benefit Income tax benefit Total stock-based compensation expense, net of income tax benefit 2015 $33 18 17 (3) 5 70 (21) $49 2014 $37 10 11 6 4 68 (23) $45 2013 $44 — 8 — 6 58 (19) $39 The stock-based compensation expense before income tax benefit was recorded in our Consolidated Statements of Earnings as follows: Fiscal year Cost of sales and related buying and occupancy costs Selling, general and administrative expenses Total stock-based compensation expense, before income tax benefit 2015 $20 50 $70 2014 $17 51 $68 2013 $15 43 $58 The benefit of tax deductions in excess of the compensation cost recognized for stock-based awards is classified as financing cash inflows and is reflected as excess tax benefit from stock-based compensation in the Consolidated Statements of Cash Flows. Restricted Stock Units Special Dividend Adjustment In connection with the closing of our credit card receivable transaction on October 1, 2015, our Board of Directors authorized a special cash dividend of $4.85 per share (see Note 13: Shareholders’ Equity). As required by our equity incentive plans, an adjustment was made to outstanding awards to prevent dilution of their value resulting from the special cash dividend. These adjustments did not result in incremental stock-based compensation expense as the anti-dilutive adjustments were required by our equity incentive plans. The adjustments to awards included increasing the number of outstanding restricted stock units, stock options and performance shares, as well as reducing the exercise prices of outstanding stock options. The impact of these adjustments are reflected in the disclosures below. Stock Options We used the following assumptions to estimate the fair value for stock options at grant date (excluding options granted in connection with the Trunk Club acquisition): Fiscal year Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life of the stock options. Weighted-average volatility: Based on a combination of the historical volatility of our common stock and the implied volatility of exchange-traded options for our common stock. Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. Expected life in years: Represents the estimated period of time until option exercise. The expected term of options granted was derived from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior, taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior. 2015 2014 2013 0.2% – 2.1% 0.2% – 2.6% 0.2% – 1.8% 29.4% 1.8% 30.1% 2.2% 31.8% 2.0% 6.7 6.8 6.7 The weighted-average fair value per option at the grant date was $21, $16 and $14 in 2015, 2014 and 2013. As part of the Trunk Club acquisition in 2014, the weighted-average fair value per option at the grant date was $59. In 2015, 2014 and 2013, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise price was set at $81, $61 and $54, the closing price of our common stock on February 24, 2015, March 3, 2014 and March 4, 2013 (the dates of grant). In 2015, we began granting additional stock options on a quarterly basis, which were insignificant in aggregate. The number of awards granted to an individual are determined based upon a percentage of the recipients’ base salaries and the fair value of the stock options. Options vest over four years, and expire 10 years after the date of grant. In 2015, we awarded stock options to 2,495 employees, compared with 1,799 and 1,625 employees in 2014 and 2013. Fiscal year 2015 Outstanding, beginning of year Granted Exercised Special dividend adjustment Forfeited or cancelled Outstanding, end of year Exercisable, end of year Vested or expected to vest, end of year Shares 12.7 1.8 0.9 (1.8) (0.4) 13.2 7.5 12.8 $46 75 N/A 41 58 $47 $39 $47 Weighted- average exercise price Weighted-average remaining contractual life (years) Aggregate intrinsic value The aggregate intrinsic value of options exercised during 2015, 2014 and 2013 was $62, $97 and $89. The total fair value of stock options vested during 2015, 2014 and 2013 was $44, $41 and $34. As of January 30, 2016, the total unrecognized stock-based compensation expense related to nonvested stock options was $57, which is expected to be recognized over a weighted-average period of 27 months. In 2014 and 2015, we granted our employees restricted stock units that were approved by the Compensation Committee of our Board of Directors, and determined based upon a percentage of the recipients’ base salaries and the fair value of the restricted stock units. Restricted stock units typically vest over four years. A summary of restricted stock unit activity for 2015, which includes awards issued as part of the Trunk Club acquisition in 2014, is presented 6 5 6 $88 $81 $88 2015 Weighted-average grant date fair value per unit Shares 0.9 0.5 0.1 (0.3) 0.0 1.2 $66 77 N/A 66 71 $71 The total fair value of restricted stock units vested during 2015 was $24. As of January 30, 2016, the total unrecognized stock-based compensation expense related to nonvested restricted stock units was $56, which is expected to be recognized over a weighted-average We generally grant performance share units to executive officers as one of the ways to align compensation with shareholder interests. Performance share units are earned after a three-year performance cycle only when our total shareholder return (reflecting daily stock price appreciation and compounded reinvestment of dividends) outperforms companies in a defined group of competitors determined by the Compensation Committee of our Board of Directors. Performance share units granted in 2013 also require the total shareholder return to be positive for any payout. The percentage of units that are earned depends on our relative position at the end of the performance cycle and can range from 0% to 175% of the number of units granted.Because performance share units are payable in either cash or stock as elected by the employee, they are classified as a liability award. The liability is remeasured, with a corresponding adjustment to earnings, at each fiscal quarter-end during the performance cycle. The performance share unit liability is remeasured using the estimated percentage of units earned multiplied by the closing market price of our common stock on the current period-end date and is pro-rated based on the amount of time that has passed in the vesting period. The price used to determine the amount of cash or stock settled for the performance share units upon vesting is the closing market price of our common stock on the last day of the performance cycle. below: Fiscal year Outstanding, beginning of year Special dividend adjustment Granted Vested Forfeited Outstanding, end of year period of 29 months. Performance Share Units 56 Nordstrom, Inc. and subsidiaries 57 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following table summarizes our stock-based compensation expense: A summary of stock option activity for 2015, which includes awards issued as part of the Trunk Club acquisition in 2014, is presented below: Acquisition-related stock compensation Fiscal year Stock options Restricted stock units Performance share units Other Income tax benefit Total stock-based compensation expense, before income tax benefit Total stock-based compensation expense, net of income tax benefit Fiscal year Cost of sales and related buying and occupancy costs Selling, general and administrative expenses Total stock-based compensation expense, before income tax benefit 2015 $33 18 17 (3) 5 70 (21) $49 2015 $20 50 $70 2014 $37 10 11 6 4 68 (23) $45 2014 $17 51 $68 2013 $44 — 8 — 6 58 (19) $39 2013 $15 43 $58 The stock-based compensation expense before income tax benefit was recorded in our Consolidated Statements of Earnings as follows: The benefit of tax deductions in excess of the compensation cost recognized for stock-based awards is classified as financing cash inflows and is reflected as excess tax benefit from stock-based compensation in the Consolidated Statements of Cash Flows. Special Dividend Adjustment In connection with the closing of our credit card receivable transaction on October 1, 2015, our Board of Directors authorized a special cash dividend of $4.85 per share (see Note 13: Shareholders’ Equity). As required by our equity incentive plans, an adjustment was made to outstanding awards to prevent dilution of their value resulting from the special cash dividend. These adjustments did not result in incremental stock-based compensation expense as the anti-dilutive adjustments were required by our equity incentive plans. The adjustments to awards included increasing the number of outstanding restricted stock units, stock options and performance shares, as well as reducing the exercise prices of outstanding stock options. The impact of these adjustments are reflected in the disclosures below. Stock Options Trunk Club acquisition): Fiscal year We used the following assumptions to estimate the fair value for stock options at grant date (excluding options granted in connection with the Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life of the stock options. Weighted-average volatility: Based on a combination of the historical volatility of our common stock and the implied volatility of exchange-traded options for our common stock. Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years. Expected life in years: Represents the estimated period of time until option exercise. The expected term of options granted was derived from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior, taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior. 2015 2014 2013 0.2% – 2.1% 0.2% – 2.6% 0.2% – 1.8% 29.4% 1.8% 30.1% 2.2% 31.8% 2.0% 6.7 6.8 6.7 The weighted-average fair value per option at the grant date was $21, $16 and $14 in 2015, 2014 and 2013. As part of the Trunk Club acquisition in 2014, the weighted-average fair value per option at the grant date was $59. In 2015, 2014 and 2013, stock option awards to employees were approved by the Compensation Committee of our Board of Directors and their exercise price was set at $81, $61 and $54, the closing price of our common stock on February 24, 2015, March 3, 2014 and March 4, 2013 (the dates of grant). In 2015, we began granting additional stock options on a quarterly basis, which were insignificant in aggregate. The number of awards granted to an individual are determined based upon a percentage of the recipients’ base salaries and the fair value of the stock options. Options vest over four years, and expire 10 years after the date of grant. In 2015, we awarded stock options to 2,495 employees, compared with 1,799 and 1,625 employees in 2014 and 2013. 56 Fiscal year 2015 Outstanding, beginning of year Granted Special dividend adjustment Exercised Forfeited or cancelled Outstanding, end of year Exercisable, end of year Vested or expected to vest, end of year Shares 12.7 1.8 0.9 (1.8) (0.4) 13.2 7.5 12.8 Weighted- average exercise price Weighted-average remaining contractual life (years) Aggregate intrinsic value $46 75 N/A 41 58 $47 $39 $47 6 5 6 $88 $81 $88 The aggregate intrinsic value of options exercised during 2015, 2014 and 2013 was $62, $97 and $89. The total fair value of stock options vested during 2015, 2014 and 2013 was $44, $41 and $34. As of January 30, 2016, the total unrecognized stock-based compensation expense related to nonvested stock options was $57, which is expected to be recognized over a weighted-average period of 27 months. Restricted Stock Units In 2014 and 2015, we granted our employees restricted stock units that were approved by the Compensation Committee of our Board of Directors, and determined based upon a percentage of the recipients’ base salaries and the fair value of the restricted stock units. Restricted stock units typically vest over four years. A summary of restricted stock unit activity for 2015, which includes awards issued as part of the Trunk Club acquisition in 2014, is presented below: Fiscal year Outstanding, beginning of year Granted Special dividend adjustment Vested Forfeited Outstanding, end of year 2015 Weighted-average grant date fair value per unit Shares 0.9 0.5 0.1 (0.3) 0.0 1.2 $66 77 N/A 66 71 $71 The total fair value of restricted stock units vested during 2015 was $24. As of January 30, 2016, the total unrecognized stock-based compensation expense related to nonvested restricted stock units was $56, which is expected to be recognized over a weighted-average period of 29 months. Performance Share Units We generally grant performance share units to executive officers as one of the ways to align compensation with shareholder interests. Performance share units are earned after a three-year performance cycle only when our total shareholder return (reflecting daily stock price appreciation and compounded reinvestment of dividends) outperforms companies in a defined group of competitors determined by the Compensation Committee of our Board of Directors. Performance share units granted in 2013 also require the total shareholder return to be positive for any payout. The percentage of units that are earned depends on our relative position at the end of the performance cycle and can range from 0% to 175% of the number of units granted.Because performance share units are payable in either cash or stock as elected by the employee, they are classified as a liability award. The liability is remeasured, with a corresponding adjustment to earnings, at each fiscal quarter-end during the performance cycle. The performance share unit liability is remeasured using the estimated percentage of units earned multiplied by the closing market price of our common stock on the current period-end date and is pro-rated based on the amount of time that has passed in the vesting period. The price used to determine the amount of cash or stock settled for the performance share units upon vesting is the closing market price of our common stock on the last day of the performance cycle. Nordstrom, Inc. and subsidiaries 57 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following is a summary of performance share unit activity which assumes performance share units vest at 100% of the number of units granted: Income tax expense consists of the following: Fiscal year Outstanding units, beginning of year Granted Special dividend adjustment Vested Forfeited or cancelled Outstanding units, end of year 2015 0.2 0.1 — — — 0.3 In 2015, the 2012 performance share units earned and vested at 75% was less than 0.1 units and had a total stock and cash settlement of $3. As of January 30, 2016, our current and non-current other liabilities included a total of $3 for performance share units, and there was no remaining unrecognized stock-based compensation expense for unvested performance share units. Employee Stock Purchase Plan We issued 0.3 shares under the ESPP during 2015 and 2014. At the end of 2015 we had current liabilities of $7 for future purchases of shares under the ESPP compared with $6 at the end of 2014. Trunk Club Value Creation Plan As part of the acquisition, we created a Value Creation Plan (“VCP”) to incentivize Trunk Club employees to increase the value of the Trunk Club business. The VCP has three payout scenarios that are determined based on the Trunk Club business meeting minimum or exceeding maximum 2018 sales and earnings metrics. If the minimum is not met, the payout is $0 (“Outcome A”); if the maximum is met, the payout is $100 (“Outcome B”). If the sales and earnings metrics surpass the minimum but do not reach the maximum, the payout is based on the incremental value growth of the Trunk Club business since acquisition, and will be between $0 and $100 (“Outcome C”). We estimate the grant date fair value for each outcome and recognize expense based upon Outcome C, deemed most probable. If at any time it becomes probable that another outcome will be achieved, compensation expense will be cumulatively adjusted based on the grant date fair value associated with that outcome. The final payout amount will be determined at the end of 2018 and settled in 2019 at our discretion in either cash or stock. We intend to settle the VCP in stock. As of the year ended January 30, 2016, based on the payout scenario we believe is probable, we estimated the grant date fair value of $10 per unit using the Black-Scholes valuation model. Stock-based compensation expense is recognized on an accelerated basis due to the performance criteria and graded vesting features of the VCP. In 2015, we recognized $3 in stock-based compensation expense associated with the VCP. As of January 30, 2016, we granted 0.9 of the 1.0 units available for grant. Total unrecognized stock-based compensation expense related to nonvested VCP units was $4, which we expect to recognize over the next 31 months. NOTE 15: INCOME TAXES U.S. and foreign components of earnings before income taxes were as follows: Fiscal year U.S. Foreign Earnings before income taxes 2015 $996 (20) $976 2014 $1,196 (11) $1,185 2013 $1,189 — $1,189 A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows: Fiscal year Current income taxes: Federal State and local Total current income tax expense Deferred income taxes: Federal State and local Foreign Total deferred income tax expense Total income tax expense State and local income taxes, net of federal income taxes Non-deductible acquisition-related items Fiscal year Statutory rate Federal credits Other, net Effective tax rate Compensation and benefits accruals Allowance for sales returns Credit card receivable transaction Accrued expenses Allowance for credit losses Merchandise inventories Gift cards Gain on sale of interest rate swap Nordstrom Notes Federal benefit of state taxes Other Total deferred tax assets Valuation allowance Total net deferred tax assets Debt exchange premium Total deferred tax liabilities Net deferred tax assets Land, property and equipment basis and depreciation differences 2015 $202 32 234 123 23 (4) 142 $376 2015 35.0% 4.1% 0.4% (0.6%) (0.3%) 38.6% 2014 $397 61 458 9 2 7 (4) $465 2014 35.0% 3.8% 0.9% (0.2%) (0.3%) 39.2% 73 28 48 1 35 29 9 24 4 13 458 (1) 457 (301) (23) (324) $133 2013 $379 64 443 9 3 — 12 $455 2013 35.0% 3.6% —% (0.1%) (0.2%) 38.3% 62 — 51 29 31 23 12 22 3 4 428 — 428 (116) (22) (138) $290 Tax adjustments related to a reassessment of our deferred tax assets related to acquisitions resulted in a higher effective tax rate in 2014. The components of deferred tax assets and liabilities are as follows: January 30, 2016 January 31, 2015 $194 $191 58 Nordstrom, Inc. and subsidiaries 59 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following is a summary of performance share unit activity which assumes performance share units vest at 100% of the number of units Income tax expense consists of the following: 2015 0.2 0.1 — — — 0.3 Fiscal year Current income taxes: Federal State and local Total current income tax expense Deferred income taxes: Federal State and local Foreign Total deferred income tax expense Total income tax expense 2015 $202 32 234 123 23 (4) 142 $376 2014 $397 61 458 9 2 (4) 7 $465 As of January 30, 2016, our current and non-current other liabilities included a total of $3 for performance share units, and there was no remaining unrecognized stock-based compensation expense for unvested performance share units. A reconciliation of the statutory federal income tax rate to the effective tax rate on earnings before income taxes is as follows: Fiscal year Statutory rate State and local income taxes, net of federal income taxes Non-deductible acquisition-related items Federal credits Other, net Effective tax rate 2015 35.0% 4.1% 0.4% (0.6%) (0.3%) 38.6% 2014 35.0% 3.8% 0.9% (0.2%) (0.3%) 39.2% 2013 $379 64 443 9 3 — 12 $455 2013 35.0% 3.6% —% (0.1%) (0.2%) 38.3% Tax adjustments related to a reassessment of our deferred tax assets related to acquisitions resulted in a higher effective tax rate in 2014. The components of deferred tax assets and liabilities are as follows: Compensation and benefits accruals Allowance for sales returns Credit card receivable transaction Accrued expenses Allowance for credit losses Merchandise inventories Gift cards Gain on sale of interest rate swap Nordstrom Notes Federal benefit of state taxes Other Total deferred tax assets Valuation allowance Total net deferred tax assets Land, property and equipment basis and depreciation differences Debt exchange premium Total deferred tax liabilities Net deferred tax assets January 30, 2016 January 31, 2015 $194 $191 73 28 48 1 35 29 9 24 4 13 458 (1) 457 (301) (23) (324) $133 62 — 51 29 31 23 12 22 3 4 428 — 428 (116) (22) (138) $290 Outstanding units, beginning of year Special dividend adjustment Forfeited or cancelled Outstanding units, end of year granted: Fiscal year Granted Vested $3. In 2015, the 2012 performance share units earned and vested at 75% was less than 0.1 units and had a total stock and cash settlement of We issued 0.3 shares under the ESPP during 2015 and 2014. At the end of 2015 we had current liabilities of $7 for future purchases of Employee Stock Purchase Plan shares under the ESPP compared with $6 at the end of 2014. Trunk Club Value Creation Plan As part of the acquisition, we created a Value Creation Plan (“VCP”) to incentivize Trunk Club employees to increase the value of the Trunk Club business. The VCP has three payout scenarios that are determined based on the Trunk Club business meeting minimum or exceeding maximum 2018 sales and earnings metrics. If the minimum is not met, the payout is $0 (“Outcome A”); if the maximum is met, the payout is $100 (“Outcome B”). If the sales and earnings metrics surpass the minimum but do not reach the maximum, the payout is based on the incremental value growth of the Trunk Club business since acquisition, and will be between $0 and $100 (“Outcome C”). We estimate the grant date fair value for each outcome and recognize expense based upon Outcome C, deemed most probable. If at any time it becomes probable that another outcome will be achieved, compensation expense will be cumulatively adjusted based on the grant date fair value associated with that outcome. The final payout amount will be determined at the end of 2018 and settled in 2019 at our discretion in either cash or stock. We intend to settle the VCP in stock. As of the year ended January 30, 2016, based on the payout scenario we believe is probable, we estimated the grant date fair value of $10 per unit using the Black-Scholes valuation model. Stock-based compensation expense is recognized on an accelerated basis due to the performance criteria and graded vesting features of the VCP. In 2015, we recognized $3 in stock-based compensation expense associated with the VCP. As of January 30, 2016, we granted 0.9 of the 1.0 units available for grant. Total unrecognized stock-based compensation expense related to nonvested VCP units was $4, which we expect to recognize over the next 31 months. NOTE 15: INCOME TAXES U.S. and foreign components of earnings before income taxes were as follows: Fiscal year U.S. Foreign Earnings before income taxes 2015 $996 (20) $976 2014 $1,196 (11) $1,185 2013 $1,189 — $1,189 58 Nordstrom, Inc. and subsidiaries 59 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts As of January 30, 2016, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $23, respectively. As of January 31, 2015, our state and foreign net operating loss carryforwards for income tax purposes were approximately $3 and $11, respectively. The net operating loss carryforwards are subject to certain statutory limitations of the Internal Revenue Code, applicable state laws and applicable foreign laws. If not utilized, a portion of our state and foreign net operating loss carryforwards will begin to expire in 2031 and 2033, respectively. Management believes it is more likely than not that certain state and foreign net operating loss carryforwards will not be used in the foreseeable future. As such, a valuation allowance of $1 has been recorded on the deferred tax assets related to certain state and foreign net operating loss carryforwards. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Fiscal year Unrecognized tax benefit at beginning of year Gross increase to tax positions in prior periods Gross decrease to tax positions in prior periods Gross increase to tax positions in current period Lapses in statute Settlements Unrecognized tax benefit at end of year 2015 $15 6 (2) 2 (2) — $19 2014 $14 9 (2) 2 (3) (5) $15 2013 $15 3 (1) 1 — (4) $14 At the end of 2015 and 2014, $15 and $13 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the effective tax rate. There were no significant changes to expense in 2015, 2014 and 2013 for tax-related interest and penalties. At the end of 2015 and 2014, our liability for interest and penalties was $2. We file income tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2011. Unrecognized tax benefits related to federal, state and local tax positions may decrease by $7 by January 28, 2017, due to the completion of examinations and the expiration of various statutes of limitations. NOTE 16: EARNINGS PER SHARE Earnings per basic share is computed using the weighted-average number of common shares outstanding during the year. Earnings per diluted share uses the weighted-average number of common shares outstanding during the year plus dilutive common stock equivalents, primarily stock options. Dilutive common stock reflects the issuance of stock for all outstanding options that could be exercised and would also reduce the amount of earnings for which each share is entitled. Anti-dilutive shares (including stock options and other shares) are excluded from the calculation of diluted shares and earnings per diluted share because their impact could increase earnings per diluted share. The computation of earnings per share is as follows: Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 17: SEGMENT REPORTING Segments We have two reportable segments, which include Retail and Credit. Our Retail segment includes our Nordstrom operating segment, which is composed of our Nordstrom U.S. full-line stores and Nordstrom.com. Both of these divisions earn revenue by offering customers a wide range of apparel, shoes, cosmetics and accessories for women, men, young adults and children. Through our multi-channel initiatives, we have integrated the operations, merchandising and technology of our Nordstrom full-line and online stores, consistent with our customers’ expectations of a seamless shopping experience regardless of channel. Our internal reporting to our principal executive officer, who is our chief operating decision maker, is consistent with these multi-channel initiatives. Our Nordstrom Rack, Nordstromrack.com/HauteLook, Jeffrey, Canadian operations and Trunk Club operating segments have similar economic and qualitative characteristics, including nature of products, method of distribution and type of customer or the segment results are not significant to the operating results of Nordstrom. Therefore, the results of these operating segments have been aggregated with our Nordstrom operating segment into the Retail reportable segment. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom private label card, two Nordstrom Visa credit cards and a debit card for Nordstrom purchases. These credit and debit cards also allow our customers to participate in our loyalty program which provides benefits to cardholders based on their level of spending. Amounts in the Corporate/Other column include unallocated corporate expenses and assets (including unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment and deferred tax assets), sales return reserve, inter-segment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with generally accepted accounting principles. Total Retail Business represents a subtotal of the Retail segment and Corporate/Other, and is consistent with our presentation in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations. Total Retail Business is not a reportable segment. Accounting Policy In general, we use the same measurements to compute earnings before income taxes for reportable segments as we do for the consolidated Company. However, redemptions of our Nordstrom Notes are included in net sales for our Retail segment. The sales amount in our Corporate/Other column includes an entry to eliminate these transactions from our consolidated net sales. The related Nordstrom Notes expenses are included in our Retail segment at face value. Our Corporate/Other column includes an adjustment to reduce the Nordstrom Notes expense from face value to their estimated cost. In addition, our sales return reserve and other corporate adjustments are recorded in the Corporate/Other column. Other than as described above, the accounting policies of the operating segments are the same as those described in Note 1: Nature of Operations and Summary of Significant Accounting Policies. Reclassification reflect the current period presentation. Reclassifications were made to our segment reporting to better reflect the way we view and measure our business. We reclassified certain expenses related to our entry into Canada from our Corporate/Other column to our Retail segment. Historical results were also reclassified to Fiscal year Net earnings Basic shares Dilutive effect of stock options and other Diluted shares Earnings per basic share Earnings per diluted share Anti-dilutive stock options and other 60 2015 $600 186.3 3.8 190.1 $3.22 $3.15 2.3 2014 $720 190.0 3.6 193.6 $3.79 $3.72 2.1 2013 $734 194.5 3.2 197.7 $3.77 $3.71 4.1 Nordstrom, Inc. and subsidiaries 61 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts As of January 30, 2016, our state and foreign net operating loss carryforwards for income tax purposes were approximately $12 and $23, NOTE 17: SEGMENT REPORTING respectively. As of January 31, 2015, our state and foreign net operating loss carryforwards for income tax purposes were approximately $3 and $11, respectively. The net operating loss carryforwards are subject to certain statutory limitations of the Internal Revenue Code, applicable state laws and applicable foreign laws. If not utilized, a portion of our state and foreign net operating loss carryforwards will begin to expire in 2031 and 2033, respectively. Management believes it is more likely than not that certain state and foreign net operating loss carryforwards will not be used in the foreseeable future. As such, a valuation allowance of $1 has been recorded on the deferred tax assets related to certain state and foreign net operating loss carryforwards. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: At the end of 2015 and 2014, $15 and $13 of the ending gross unrecognized tax benefit related to items which, if recognized, would affect the There were no significant changes to expense in 2015, 2014 and 2013 for tax-related interest and penalties. At the end of 2015 and 2014, our We file income tax returns in the U.S. and a limited number of foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations for years before 2011. Unrecognized tax benefits related to federal, state and local tax positions may decrease by $7 by January 28, 2017, due to the completion of examinations and the expiration of various statutes of Earnings per basic share is computed using the weighted-average number of common shares outstanding during the year. Earnings per diluted share uses the weighted-average number of common shares outstanding during the year plus dilutive common stock equivalents, primarily stock options. Dilutive common stock reflects the issuance of stock for all outstanding options that could be exercised and would also reduce the amount of earnings for which each share is entitled. Anti-dilutive shares (including stock options and other shares) are excluded from the calculation of diluted shares and earnings per diluted share because their impact could increase earnings per diluted 2015 $15 (2) 6 2 (2) — $19 2015 $600 186.3 3.8 190.1 $3.22 $3.15 2.3 2014 $14 (2) 9 2 (3) (5) $15 2014 $720 190.0 3.6 193.6 $3.79 $3.72 2.1 2013 $15 3 (1) 1 — (4) $14 2013 $734 194.5 3.2 197.7 $3.77 $3.71 4.1 Fiscal year Unrecognized tax benefit at beginning of year Gross increase to tax positions in prior periods Gross decrease to tax positions in prior periods Gross increase to tax positions in current period Lapses in statute Settlements Unrecognized tax benefit at end of year effective tax rate. liability for interest and penalties was $2. limitations. NOTE 16: EARNINGS PER SHARE The computation of earnings per share is as follows: share. Fiscal year Net earnings Basic shares Diluted shares 60 Dilutive effect of stock options and other Earnings per basic share Earnings per diluted share Anti-dilutive stock options and other Segments We have two reportable segments, which include Retail and Credit. Our Retail segment includes our Nordstrom operating segment, which is composed of our Nordstrom U.S. full-line stores and Nordstrom.com. Both of these divisions earn revenue by offering customers a wide range of apparel, shoes, cosmetics and accessories for women, men, young adults and children. Through our multi-channel initiatives, we have integrated the operations, merchandising and technology of our Nordstrom full-line and online stores, consistent with our customers’ expectations of a seamless shopping experience regardless of channel. Our internal reporting to our principal executive officer, who is our chief operating decision maker, is consistent with these multi-channel initiatives. Our Nordstrom Rack, Nordstromrack.com/HauteLook, Jeffrey, Canadian operations and Trunk Club operating segments have similar economic and qualitative characteristics, including nature of products, method of distribution and type of customer or the segment results are not significant to the operating results of Nordstrom. Therefore, the results of these operating segments have been aggregated with our Nordstrom operating segment into the Retail reportable segment. Through our Credit segment, our customers can access a variety of payment products and services, including a Nordstrom private label card, two Nordstrom Visa credit cards and a debit card for Nordstrom purchases. These credit and debit cards also allow our customers to participate in our loyalty program which provides benefits to cardholders based on their level of spending. Amounts in the Corporate/Other column include unallocated corporate expenses and assets (including unallocated assets in corporate headquarters, consisting primarily of cash, land, buildings and equipment and deferred tax assets), sales return reserve, inter-segment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with generally accepted accounting principles. Total Retail Business represents a subtotal of the Retail segment and Corporate/Other, and is consistent with our presentation in Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations. Total Retail Business is not a reportable segment. Accounting Policy In general, we use the same measurements to compute earnings before income taxes for reportable segments as we do for the consolidated Company. However, redemptions of our Nordstrom Notes are included in net sales for our Retail segment. The sales amount in our Corporate/Other column includes an entry to eliminate these transactions from our consolidated net sales. The related Nordstrom Notes expenses are included in our Retail segment at face value. Our Corporate/Other column includes an adjustment to reduce the Nordstrom Notes expense from face value to their estimated cost. In addition, our sales return reserve and other corporate adjustments are recorded in the Corporate/Other column. Other than as described above, the accounting policies of the operating segments are the same as those described in Note 1: Nature of Operations and Summary of Significant Accounting Policies. Reclassification Reclassifications were made to our segment reporting to better reflect the way we view and measure our business. We reclassified certain expenses related to our entry into Canada from our Corporate/Other column to our Retail segment. Historical results were also reclassified to reflect the current period presentation. Nordstrom, Inc. and subsidiaries 61 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following table sets forth information for our reportable segments: The following table summarizes net sales within our reportable segments: Fiscal year 2015 Net sales Credit card revenues, net Earnings (loss) before interest and income taxes Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Fiscal year 2014 Net sales Credit card revenues, net Earnings (loss) before interest and income taxes Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Fiscal year 2013 Net sales Credit card revenues, net Earnings (loss) before interest and income taxes Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Retail Corporate/ Other Total Retail Business Credit Total $14,376 ($281) $14,095 — 1,220 — 1,220 837 428 435 5,460 — (302) (112) (414) 241 143 — 1,720 — 918 (112) 806 1,078 571 435 7,180 $13,369 ($259) $13,110 — 1,382 — 1,382 683 393 435 5,103 — (261) (120) (381) 172 112 — 1,781 — 1,121 (120) 1,001 855 505 435 6,884 $12,395 ($229) $12,166 — 1,406 — 1,406 636 364 175 4,191 — (244) (137) (381) 161 88 — 2,118 — 1,162 (137) 1,025 797 452 175 6,309 $— 342 183 (13) 170 4 5 — 518 $— 396 202 (18) 184 6 3 — 2,361 $— 374 188 (24) 164 6 2 — 2,265 $14,095 342 1,101 (125) 976 1,082 576 435 7,698 $13,110 396 1,323 (138) 1,185 861 508 435 9,245 $12,166 374 1,350 (161) 1,189 803 454 175 8,574 Nordstrom full-line stores - U.S. Fiscal year Nordstrom.com Nordstrom Nordstrom Rack Nordstromrack.com/HauteLook Off-price Other retail1 Total Retail segment Corporate/Other Total net sales Fiscal year Women’s Apparel Shoes Men’s Apparel Women’s Accessories Cosmetics Kids’ Apparel Other Total net sales 1 Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques. The following table summarizes the percent of total net sales by merchandise category: 2015 $7,633 2,300 9,933 3,533 532 4,065 378 14,376 (281) $14,095 2015 31% 23% 17% 12% 11% 3% 3% 100% 2014 $7,682 1,996 9,678 3,215 360 3,575 116 13,369 (259) $13,110 2014 30% 23% 16% 14% 11% 4% 2% 100% 2013 $7,705 1,622 9,327 2,738 295 3,033 35 12,395 (229) $12,166 2013 31% 23% 16% 14% 11% 3% 2% 100% 62 Nordstrom, Inc. and subsidiaries 63 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts The following table sets forth information for our reportable segments: The following table summarizes net sales within our reportable segments: Fiscal year Nordstrom full-line stores - U.S. Nordstrom.com Nordstrom Nordstrom Rack Nordstromrack.com/HauteLook Off-price Other retail1 Total Retail segment Corporate/Other Total net sales 2015 $7,633 2,300 9,933 3,533 532 4,065 378 14,376 (281) $14,095 $13,369 ($259) $13,110 $13,110 1 Other retail includes Nordstrom Canada full-line stores, Trunk Club and Jeffrey boutiques. The following table summarizes the percent of total net sales by merchandise category: Fiscal year Women’s Apparel Shoes Men’s Apparel Women’s Accessories Cosmetics Kids’ Apparel Other Total net sales 2015 31% 23% 17% 12% 11% 3% 3% 100% Earnings (loss) before interest and income taxes Earnings (loss) before interest and income taxes Fiscal year 2015 Net sales Credit card revenues, net Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Fiscal year 2014 Net sales Credit card revenues, net Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Fiscal year 2013 Net sales Credit card revenues, net Interest expense, net Earnings (loss) before income taxes Capital expenditures Depreciation and amortization Goodwill Assets Retail Corporate/ Other Total Retail Business Credit Total $14,376 ($281) $14,095 $14,095 1,220 — — 1,220 837 428 435 5,460 1,382 — — 1,382 683 393 435 5,103 1,406 — — 1,406 636 364 175 4,191 — (302) (112) (414) 241 143 — 1,720 — (261) (120) (381) 172 112 — 1,781 — (244) (137) (381) 161 88 — 2,118 — 918 (112) 806 1,078 571 435 7,180 — 1,121 (120) 1,001 855 505 435 6,884 — 1,162 (137) 1,025 797 452 175 6,309 $— 342 183 (13) 170 4 5 — 518 $— 396 202 (18) 184 6 3 — $— 374 188 (24) 164 6 2 — 2,361 2,265 342 1,101 (125) 976 1,082 576 435 7,698 396 1,323 (138) 1,185 861 508 435 9,245 374 1,350 (161) 1,189 803 454 175 8,574 Earnings (loss) before interest and income taxes $12,395 ($229) $12,166 $12,166 2014 $7,682 1,996 9,678 3,215 360 3,575 116 13,369 (259) $13,110 2014 30% 23% 16% 14% 11% 4% 2% 100% 2013 $7,705 1,622 9,327 2,738 295 3,033 35 12,395 (229) $12,166 2013 31% 23% 16% 14% 11% 3% 2% 100% 62 Nordstrom, Inc. and subsidiaries 63 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 18: SELECTED QUARTERLY DATA1 (UNAUDITED) Fiscal year 2015 Net sales Comparable sales increase Credit card revenues, net2 Gross profit Selling, general and administrative expenses3 Earnings before interest and income taxes Net earnings Earnings per basic share Earnings per diluted share Fiscal year 2014 Net sales Comparable sales increase Credit card revenues, net Gross profit Selling, general and administrative expenses Earnings before interest and income taxes Net earnings Earnings per basic share Earnings per diluted share 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total $3,115 4.4% 100 1,116 (971) 245 128 $0.67 $0.66 $3,598 4.9% 103 1,271 (997) 377 211 $1.11 $1.09 $2,837 $3,296 3.9% 94 1,015 (844) 265 140 $0.74 $0.72 3.3% 96 1,166 (931) 331 183 $0.97 $0.95 $3,239 0.9% 89 1,097 (1,031) 155 81 $0.43 $0.42 $3,040 3.9% 100 1,079 (917) 262 142 $0.74 $0.73 $4,143 1.0% 51 1,443 (1,170) 324 180 $1.01 $1.00 $3,938 4.7% 105 1,444 (1,084) 465 255 $1.35 $1.32 $14,095 2.7% 342 4,927 (4,168) 1,101 600 $3.22 $3.15 $13,110 4.0% 396 4,704 (3,777) 1,323 720 $3.79 $3.72 1 Quarterly totals may not foot across due to rounding. 2 On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio (see Note 2: Credit Card Receivable Transaction). 3 Amounts reported for the second and third quarters include $51 and $(32) of credit transaction and other, net which was presented separately in the 2015 Form10-Q’s. These amounts are reflected here net for consistency and comparability with total selling, general and administrative expenses on the Consolidated Statement of Earnings. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. DISCLOSURE CONTROLS AND PROCEDURES On May 4, 2015, the Company filed a Form 8-K announcing the appointment of Blake Nordstrom, Pete Nordstrom and Erik Nordstrom as co- presidents of Nordstrom, Inc. The three executives retained their current roles and responsibilities following that appointment. In light of those individual responsibilities, Blake Nordstrom continues to serve as the Company’s principal executive officer for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s Executive Vice President and Chief Financial Officer is the Company’s principal financial officer for purposes of the Exchange Act. As of the end of the period covered by this Annual Report on Form 10-K, the Company performed an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the design and effectiveness of our disclosure controls and procedures (as defined in rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 30, 2016. Deloitte & Touche LLP, an independent registered public accounting firm, is retained to audit Nordstrom’s Consolidated Financial Statements and the effectiveness of the Company’s internal control over financial reporting. They have issued an attestation report on the Company’s internal control over financial reporting as of January 30, 2016, which is included herein. 64 Nordstrom, Inc. and subsidiaries 65 Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 18: SELECTED QUARTERLY DATA1 (UNAUDITED) Selling, general and administrative expenses3 Earnings before interest and income taxes Fiscal year 2015 Net sales Comparable sales increase Credit card revenues, net2 Gross profit Net earnings Earnings per basic share Earnings per diluted share Fiscal year 2014 Net sales Comparable sales increase Credit card revenues, net Gross profit Selling, general and administrative expenses Earnings before interest and income taxes Net earnings Earnings per basic share Earnings per diluted share 1 Quarterly totals may not foot across due to rounding. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total $3,115 4.4% 100 1,116 (971) 245 128 $0.67 $0.66 3.9% 94 1,015 (844) 265 140 $0.74 $0.72 $3,598 4.9% 103 1,271 (997) 377 211 $1.11 $1.09 3.3% 96 1,166 (931) 331 183 $0.97 $0.95 $3,239 0.9% 89 1,097 (1,031) 155 81 $0.43 $0.42 $3,040 3.9% 100 1,079 (917) 262 142 $0.74 $0.73 $4,143 1.0% 51 1,443 (1,170) 324 180 $1.01 $1.00 $3,938 4.7% 105 1,444 (1,084) 465 255 $1.35 $1.32 $14,095 2.7% 342 4,927 (4,168) 1,101 600 $3.22 $3.15 $13,110 4.0% 396 4,704 (3,777) 1,323 720 $3.79 $3.72 $2,837 $3,296 2 On October 1, 2015, we completed the sale of a substantial majority of our U.S. Visa and private label credit card portfolio (see Note 2: Credit Card Receivable Transaction). 3 Amounts reported for the second and third quarters include $51 and $(32) of credit transaction and other, net which was presented separately in the 2015 Form10-Q’s. These amounts are reflected here net for consistency and comparability with total selling, general and administrative expenses on the Consolidated Statement of Earnings. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. DISCLOSURE CONTROLS AND PROCEDURES On May 4, 2015, the Company filed a Form 8-K announcing the appointment of Blake Nordstrom, Pete Nordstrom and Erik Nordstrom as co- presidents of Nordstrom, Inc. The three executives retained their current roles and responsibilities following that appointment. In light of those individual responsibilities, Blake Nordstrom continues to serve as the Company’s principal executive officer for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s Executive Vice President and Chief Financial Officer is the Company’s principal financial officer for purposes of the Exchange Act. As of the end of the period covered by this Annual Report on Form 10-K, the Company performed an evaluation under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the design and effectiveness of our disclosure controls and procedures (as defined in rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the Commission’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information. Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of January 30, 2016. Deloitte & Touche LLP, an independent registered public accounting firm, is retained to audit Nordstrom’s Consolidated Financial Statements and the effectiveness of the Company’s internal control over financial reporting. They have issued an attestation report on the Company’s internal control over financial reporting as of January 30, 2016, which is included herein. 64 Nordstrom, Inc. and subsidiaries 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington Item 9B. Other Information. None. We have audited the internal control over financial reporting of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 30, 2016 of the Company and our report dated March 14, 2016 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 Item 10. Directors, Executive Officers and Corporate Governance. PART III The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Executive Officers Director Elections Board Committees and Charters Director Nominating Process Website Access to Corporate Governance Documents Section 16(a) Beneficial Ownership Reporting Compliance Corporate Governance The certifications of our Co-President and Chief Financial Officer required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits to this Annual Report on Form 10-K and were included as exhibits to each of our quarterly reports on Form 10- Q. Our Co-President certified to the New York Stock Exchange (“NYSE”) on May 20, 2015 pursuant to Section 303A.12(a) of the NYSE’s listing standards, that he was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of that date. Item 11. Executive Compensation. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Compensation of Executive Officers Compensation Discussion and Analysis Director Compensation Compensation Committee Interlocks and Insider Participation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Security Ownership of Certain Beneficial Owners and Management Equity Compensation Plans Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Election of Directors Certain Relationships and Related Transactions Item 14. Principal Accounting Fees and Services. The information required under this item is included in the following section of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the section of which is incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Ratification of the Appointment of Independent Registered Public Accounting Firm 66 Nordstrom, Inc. and subsidiaries 67 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Nordstrom, Inc. Seattle, Washington Item 9B. Other Information. None. We have audited the internal control over financial reporting of Nordstrom, Inc. and subsidiaries (the “Company”) as of January 30, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 30, 2016 of the Company and our report dated March 14, 2016 expressed an unqualified opinion on those financial statements. /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 Item 10. Directors, Executive Officers and Corporate Governance. PART III The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Executive Officers Director Elections Board Committees and Charters Director Nominating Process Website Access to Corporate Governance Documents Section 16(a) Beneficial Ownership Reporting Compliance Corporate Governance The certifications of our Co-President and Chief Financial Officer required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits to this Annual Report on Form 10-K and were included as exhibits to each of our quarterly reports on Form 10- Q. Our Co-President certified to the New York Stock Exchange (“NYSE”) on May 20, 2015 pursuant to Section 303A.12(a) of the NYSE’s listing standards, that he was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of that date. Item 11. Executive Compensation. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Compensation of Executive Officers Compensation Discussion and Analysis Director Compensation Compensation Committee Interlocks and Insider Participation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Security Ownership of Certain Beneficial Owners and Management Equity Compensation Plans Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required under this item is included in the following sections of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the sections of which are incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Election of Directors Certain Relationships and Related Transactions Item 14. Principal Accounting Fees and Services. The information required under this item is included in the following section of our Proxy Statement for our 2016 Annual Meeting of Shareholders, the section of which is incorporated by reference herein and will be filed within 120 days after the end of our fiscal year: Ratification of the Appointment of Independent Registered Public Accounting Firm 66 Nordstrom, Inc. and subsidiaries 67 PART IV Item 15. Exhibits and Financial Statement Schedules. The following information required under this item is filed as part of this report: (a)1. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Statements of Earnings Consolidated Statements of Comprehensive Earnings Consolidated Balance Sheets Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm (a)3. EXHIBITS Page 36 37 37 38 39 40 65 66 Exhibits are incorporated herein by reference or are filed with this report as set forth in the Index to Exhibits on pages 72 through 77 hereof. All other schedules and exhibits are omitted because they are not applicable, not required or because the information required has been given as part of this report. SIGNATURES NORDSTROM, INC. (Registrant) /s/ 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. Michael G. Koppel Michael G. Koppel Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 14, 2016 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. Principal Financial Officer: Principal Executive Officer: /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ Executive Vice President and Chief Financial Officer Principal Accounting Officer: Michael G. Koppel Michael G. Koppel James A. Howell James A. Howell Executive Vice President, Finance and Treasurer Directors: /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ Shellye L. Archambeau Shellye L. Archambeau Director Tanya L. Domier Tanya L. Domier Director Enrique Hernandez, Jr. Enrique Hernandez, Jr. Chairman of the Board of Directors Blake W. Nordstrom Blake W. Nordstrom Director Peter E. Nordstrom Peter E. Nordstrom Director Brad D. Smith Brad D. Smith Director Bradley D. Tilden Bradley D. Tilden Director Robert D. Walter Robert D. Walter Director Date: March 14, 2016 Blake W. Nordstrom Blake W. Nordstrom Co-President Phyllis J. Campbell Phyllis J. Campbell Director Michelle M. Ebanks Michelle M. Ebanks Director Robert G. Miller Robert G. Miller Director Erik B. Nordstrom Erik B. Nordstrom Director Philip G. Satre Philip G. Satre Director Gordon A. Smith Gordon A. Smith Director B. Kevin Turner B. Kevin Turner Director Alison A. Winter Alison A. Winter Director 68 Nordstrom, Inc. and subsidiaries 69 PART IV Item 15. Exhibits and Financial Statement Schedules. The following information required under this item is filed as part of this report: (a)1. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Statements of Earnings Consolidated Statements of Comprehensive Earnings Consolidated Balance Sheets Consolidated Statements of Shareholders’ Equity Consolidated Statements of Cash Flows Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Page 36 37 37 38 39 40 65 66 (a)3. EXHIBITS given as part of this report. Exhibits are incorporated herein by reference or are filed with this report as set forth in the Index to Exhibits on pages 72 through 77 hereof. All other schedules and exhibits are omitted because they are not applicable, not required or because the information required has been 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. SIGNATURES NORDSTROM, INC. (Registrant) /s/ Michael G. Koppel Michael G. Koppel Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 14, 2016 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. Principal Financial Officer: Principal Executive Officer: /s/ Michael G. Koppel Michael G. Koppel Executive Vice President and Chief Financial Officer Principal Accounting Officer: /s/ Directors: James A. Howell James A. Howell Executive Vice President, Finance and Treasurer /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ Date: March 14, 2016 Shellye L. Archambeau Shellye L. Archambeau Director Tanya L. Domier Tanya L. Domier Director Enrique Hernandez, Jr. Enrique Hernandez, Jr. Chairman of the Board of Directors Blake W. Nordstrom Blake W. Nordstrom Director Peter E. Nordstrom Peter E. Nordstrom Director Brad D. Smith Brad D. Smith Director Bradley D. Tilden Bradley D. Tilden Director Robert D. Walter Robert D. Walter Director /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ /s/ Blake W. Nordstrom Blake W. Nordstrom Co-President Phyllis J. Campbell Phyllis J. Campbell Director Michelle M. Ebanks Michelle M. Ebanks Director Robert G. Miller Robert G. Miller Director Erik B. Nordstrom Erik B. Nordstrom Director Philip G. Satre Philip G. Satre Director Gordon A. Smith Gordon A. Smith Director B. Kevin Turner B. Kevin Turner Director Alison A. Winter Alison A. Winter Director 68 Nordstrom, Inc. and subsidiaries 69 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-166961, 333-161803, 333-63403, 333-40064, 333-40066, 333-79791, 333-101110, 333-118756, 333-146049, 333-174336, 333-173020, 333-189301, 333-198413, No. 333-207396 on Form S-8 and 333-198408 on Form S-3 of our reports dated March 14, 2016, relating to the financial statements of Nordstrom Inc. and subsidiaries, and the effectiveness of Nordstrom, Inc. and subsidiaries’ internal control over financial reporting, appearing in the Annual Report on Form 10-K of Nordstrom, Inc. for the year ended January 30, 2016. /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 [This page intentionally left blank.] 70 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-166961, 333-161803, 333-63403, 333-40064, 333-40066, 333-79791, 333-101110, 333-118756, 333-146049, 333-174336, 333-173020, 333-189301, 333-198413, No. 333-207396 on Form S-8 and 333-198408 on Form S-3 of our reports dated March 14, 2016, relating to the financial statements of Nordstrom Inc. and subsidiaries, and the effectiveness of Nordstrom, Inc. and subsidiaries’ internal control over financial reporting, appearing in the Annual Report on Form 10-K of Nordstrom, Inc. for the year ended January 30, 2016. /s/ Deloitte & Touche LLP Seattle, Washington March 14, 2016 [This page intentionally left blank.] 70 Nordstrom, Inc. and Subsidiaries Exhibit Index 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Exhibit Articles of Incorporation as amended and restated on May 25, 2005 Method of Filing Incorporated by reference from the Registrant’s Form 8-K filed on May 31, 2005, Exhibit 3.1 Bylaws, as amended and restated on February 24, 2016 Incorporated by reference from the Registrant’s Form 8-K filed on February 26, 2016, Exhibit 3.1 Indenture between Registrant and Norwest Bank Colorado, N.A., as trustee, dated March 11, 1998 Incorporated by reference from Registration No. 333-47035, Exhibit 4.1 Amended and Restated Master Indenture, dated as of May 1, 2007, by and between Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National Association, as indenture trustee Series 2011-1 Indenture Supplement, dated as of November 22, 2011, by and between Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National Association, as indenture trustee Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 4.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 28, 2011, Exhibit 4.2 10.5* Nordstrom, Inc. Executive Management Group Bonus Plan Incorporated by reference from the Registrant’s definitive proxy Exhibit Method of Filing 10.6* Nordstrom, Inc. Executive Management Bonus Plan statement filed with the Commission on April 15, 2004 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2009, Exhibit 10.6 10.7* Amended and Restated Nordstrom, Inc. Executive Incorporated by reference from the Registrant’s Form DEF 14A Management Bonus Plan filed on March 30, 2012 10.8* Nordstrom Executive Deferred Compensation Plan (2007) Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.40 10.9* Amendment 2008-1 to the Nordstrom Executive Deferred Incorporated by reference from the Registrant’s Form 8-K filed Compensation Plan (2007) on November 24, 2008, Exhibit 10.2 10.10* Amendment 2008-2 to the Nordstrom Executive Deferred Incorporated by reference from the Registrant’s Form S-8 filed Compensation Plan on September 9, 2009, Exhibit 10.4 Indenture dated December 3, 2007, between the Company and Wells Fargo Bank, National Association Incorporated by reference from the Registrant’s Form S-4/A filed on April 29, 2014, Exhibit 4.1 10.11* Amendment 2010-2 to the Nordstrom Executive Deferred Incorporated by reference from the Registrant’s Form 8-K filed Compensation Plan (2007 Restatement) on December 23, 2010, Exhibit 10.1 4.10 Form of 5.00% Rule 144A Global Note due 2044 4.11 Form of 5.00% Regulation S Global Note due 2044 Note Purchase Agreement, dated as of November 16, 2011, by and between Nordstrom Credit Card Receivables II LLC, Nordstrom fsb, Nordstrom Credit, Inc., RBS Securities Inc. and J.P. Morgan Securities LLC Form of 6.25% Note due January 2018 Form of 4.75% Note due May 1, 2020 Form of 4.00% Note due 2021 Form of 5.00% Global Note due 2044 Incorporated by reference from the Registrant’s Form 8-K filed on November 28, 2011, Exhibit 4.1 10.12* Amendment 2015-1 to the Nordstrom Executive Deferred Compensation Plan (2014 Restatement) Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2015, Exhibit Incorporated by reference from the Registrant’s Form 8-K filed on December 3, 2007, Exhibit 4.1 Incorporated by reference from the Registrant’s Form 8-K filed on April 23, 2010, Exhibit 4.1 Incorporated by reference from the Registrant’s Form 8-K filed on October 11, 2011, Exhibit 4.1 Incorporated by reference from the Registrant’s Form S-4 filed on March 28, 2014, Exhibit 4.2 Incorporated by reference from the Registrant’s Form S-4 filed on March 28, 2014, Exhibit 4.3 Incorporated by reference from the Registrant’s Form S-4 filed on March 28, 2014, Exhibit 4.4 10.13* Amendment 2013-1 to the Nordstrom Executive Incorporated by reference from the Registrant’s Form 8-K/A Compensation Plan (2007 Restatement) filed on November 26, 2013, Exhibit 10.1 10.14* Nordstrom, Inc. Employee Stock Purchase Plan, amended and restated on August 27, 2008 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2008, 10.15* Nordstrom, Inc. Employee Stock Purchase Plan (2011 Incorporated by reference to Appendix A to the Registrant’s Restatement) Form DEF 14A filed on March 31, 2011 10.16* Form of Notice of 2005 Stock Option Grant and Stock Option Agreement under the Nordstrom, Inc. 2004 Equity Incentive Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 10.1 10.27 Exhibit 10.2 Plan Plan Notice Notice Notice 10.17* Form of Notice of 2006 Stock Option Grant and Stock Option Agreement under the Nordstrom, Inc. 2004 Equity Incentive Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2008, Exhibit 10.18* 2007 Stock Option Notice Award Agreement and Form of Incorporated by reference from the Registrant’s Form 8-K filed 10.19* 2008 Stock Option Notice Award Agreement and Form of Incorporated by reference from the Registrant’s Form 8-K filed 10.20* 2009 Nonqualified Stock Option Grant Agreement and Form of Incorporated by reference from the Registrant’s Form 8-K filed 10.21* 2010 Stock Option Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2009, Exhibit 10.1 10.22* Form of 2011 Stock Option Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.23* Form of 2012 Nonqualified Stock Option Grant Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.24* Form of 2013 Nonqualified Stock Option Grant Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.25* Form of 2014 Nonqualified Stock Option Grant Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.45 on February 26, 2007, Exhibit 10.1 on February 22, 2008, Exhibit 10.1 on March 3, 2009, Exhibit 10.2 on November 19, 2010, Exhibit 10.1 on November 18, 2011, Exhibit 10.1 on November 14, 2012, Exhibit 10.1 on March 4, 2014, Exhibit 10.1 4.12 Registration Rights Agreement, dated as of December 12, 2013 Incorporated by reference from the Registrant’s Form S-4 filed on March 28, 2014, Exhibit 4.5 4.13* Trunk Club Newco, Inc. 2010 Equity Incentive Plan 10.1* 10.2* 10.3* 10.4* Nordstrom 401(k) Plan & Profit Sharing, amended and restated on August 6, 2014 Amendment 2014-4 to the Nordstrom 401(k) Plan & Profit Sharing Amendment 2014-5 to the Nordstrom 401(k) Plan & Profit Sharing Amendment 2014-6 to the Nordstrom 401(k) Plan & Profit Sharing Incorporated by reference from the Registrant’s Form S-8 filed on August 27, 2014, Exhibit 4.1 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2015, Exhibit 10.2 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 2, 2014, Exhibit 10.6 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2014, Exhibit 10.2 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2014, Exhibit 10.3 *This exhibit is a management contract, compensatory plan or arrangement *This exhibit is a management contract, compensatory plan or arrangement 72 Nordstrom, Inc. and subsidiaries 73 Nordstrom, Inc. and Subsidiaries Exhibit Index Exhibit Method of Filing Exhibit Articles of Incorporation as amended and restated on May 25, Incorporated by reference from the Registrant’s Form 8-K filed 10.5* Nordstrom, Inc. Executive Management Group Bonus Plan 2005 on May 31, 2005, Exhibit 3.1 Bylaws, as amended and restated on February 24, 2016 Incorporated by reference from the Registrant’s Form 8-K filed 10.6* Nordstrom, Inc. Executive Management Bonus Plan on February 26, 2016, Exhibit 3.1 Method of Filing Incorporated by reference from the Registrant’s definitive proxy statement filed with the Commission on April 15, 2004 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2009, Exhibit 10.6 10.7* Amended and Restated Nordstrom, Inc. Executive Management Bonus Plan Incorporated by reference from the Registrant’s Form DEF 14A filed on March 30, 2012 10.8* Nordstrom Executive Deferred Compensation Plan (2007) Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.40 10.9* 10.10* 10.11* 10.12* 10.13* 10.14* 10.15* 10.16* 10.17* 10.18* 10.19* 10.20* Amendment 2008-1 to the Nordstrom Executive Deferred Compensation Plan (2007) Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2008, Exhibit 10.2 Amendment 2008-2 to the Nordstrom Executive Deferred Compensation Plan Incorporated by reference from the Registrant’s Form S-8 filed on September 9, 2009, Exhibit 10.4 Amendment 2010-2 to the Nordstrom Executive Deferred Compensation Plan (2007 Restatement) Incorporated by reference from the Registrant’s Form 8-K filed on December 23, 2010, Exhibit 10.1 Amendment 2015-1 to the Nordstrom Executive Deferred Compensation Plan (2014 Restatement) Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2015, Exhibit 10.27 Amendment 2013-1 to the Nordstrom Executive Compensation Plan (2007 Restatement) Incorporated by reference from the Registrant’s Form 8-K/A filed on November 26, 2013, Exhibit 10.1 Nordstrom, Inc. Employee Stock Purchase Plan, amended and restated on August 27, 2008 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2008, Exhibit 10.2 Nordstrom, Inc. Employee Stock Purchase Plan (2011 Restatement) Incorporated by reference to Appendix A to the Registrant’s Form DEF 14A filed on March 31, 2011 Form of Notice of 2005 Stock Option Grant and Stock Option Agreement under the Nordstrom, Inc. 2004 Equity Incentive Plan Incorporated by reference from the Registrant’s Form 8-K filed on March 1, 2005, Exhibit 10.1 Form of Notice of 2006 Stock Option Grant and Stock Option Agreement under the Nordstrom, Inc. 2004 Equity Incentive Plan Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2008, Exhibit 10.45 2007 Stock Option Notice Award Agreement and Form of Notice Incorporated by reference from the Registrant’s Form 8-K filed on February 26, 2007, Exhibit 10.1 2008 Stock Option Notice Award Agreement and Form of Notice Incorporated by reference from the Registrant’s Form 8-K filed on February 22, 2008, Exhibit 10.1 2009 Nonqualified Stock Option Grant Agreement and Form of Notice Incorporated by reference from the Registrant’s Form 8-K filed on March 3, 2009, Exhibit 10.2 10.3* Amendment 2014-5 to the Nordstrom 401(k) Plan & Profit Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2014, 10.23* Form of 2012 Nonqualified Stock Option Grant Agreement 10.4* Amendment 2014-6 to the Nordstrom 401(k) Plan & Profit Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2014, 10.24* Form of 2013 Nonqualified Stock Option Grant Agreement 10.25* Form of 2014 Nonqualified Stock Option Grant Agreement *This exhibit is a management contract, compensatory plan or arrangement *This exhibit is a management contract, compensatory plan or arrangement 10.21* 2010 Stock Option Award Agreement 10.22* Form of 2011 Stock Option Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2009, Exhibit 10.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2010, Exhibit 10.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 18, 2011, Exhibit 10.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 14, 2012, Exhibit 10.1 Incorporated by reference from the Registrant’s Form 8-K filed on March 4, 2014, Exhibit 10.1 Nordstrom, Inc. and subsidiaries 73 Indenture between Registrant and Norwest Bank Colorado, Incorporated by reference from Registration No. 333-47035, N.A., as trustee, dated March 11, 1998 Exhibit 4.1 Amended and Restated Master Indenture, dated as of May 1, 2007, by and between Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National Association, as indenture trustee Series 2011-1 Indenture Supplement, dated as of November 22, 2011, by and between Nordstrom Credit Card Master Note Trust II and Wells Fargo Bank, National Association, as indenture trustee Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 4.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 28, 2011, Exhibit 4.2 Indenture dated December 3, 2007, between the Company Incorporated by reference from the Registrant’s Form S-4/A and Wells Fargo Bank, National Association filed on April 29, 2014, Exhibit 4.1 Note Purchase Agreement, dated as of November 16, 2011, by and between Nordstrom Credit Card Receivables II LLC, Nordstrom fsb, Nordstrom Credit, Inc., RBS Securities Inc. and J.P. Morgan Securities LLC Incorporated by reference from the Registrant’s Form 8-K filed on November 28, 2011, Exhibit 4.1 Form of 6.25% Note due January 2018 Incorporated by reference from the Registrant’s Form 8-K filed Form of 4.75% Note due May 1, 2020 Incorporated by reference from the Registrant’s Form 8-K filed Form of 4.00% Note due 2021 Incorporated by reference from the Registrant’s Form 8-K filed on October 11, 2011, Exhibit 4.1 Form of 5.00% Global Note due 2044 Incorporated by reference from the Registrant’s Form S-4 filed 4.10 Form of 5.00% Rule 144A Global Note due 2044 Incorporated by reference from the Registrant’s Form S-4 filed 4.11 Form of 5.00% Regulation S Global Note due 2044 Incorporated by reference from the Registrant’s Form S-4 filed 4.12 Registration Rights Agreement, dated as of December 12, Incorporated by reference from the Registrant’s Form S-4 filed 4.13* Trunk Club Newco, Inc. 2010 Equity Incentive Plan Incorporated by reference from the Registrant’s Form S-8 filed 10.1* Nordstrom 401(k) Plan & Profit Sharing, amended and restated on August 6, 2014 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2015, 10.2* Amendment 2014-4 to the Nordstrom 401(k) Plan & Profit Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 2, 2014, on December 3, 2007, Exhibit 4.1 on April 23, 2010, Exhibit 4.1 on March 28, 2014, Exhibit 4.2 on March 28, 2014, Exhibit 4.3 on March 28, 2014, Exhibit 4.4 on March 28, 2014, Exhibit 4.5 on August 27, 2014, Exhibit 4.1 Exhibit 10.2 Exhibit 10.6 Exhibit 10.2 Exhibit 10.3 2013 Sharing Sharing Sharing 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 72 10.31* 10.32* 10.33* Nordstrom, Inc. Leadership Separation Plan (Effective March 1, 2005) 10.34* Amendment 2006-1 to the Nordstrom, Inc. Leadership Separation Plan Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005, Exhibit 10.43 Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2008, Exhibit 10.56 Nordstrom, Inc. 2010 Equity Incentive Plan as amended February 27, 2013 Incorporated by reference to Appendix A to the Registrant’s Form DEF 14A filed on April 1, 2013 Nordstrom, Inc. 2010 Equity Incentive Plan as amended and restated February 26, 2014 Incorporated by reference from the Registrant’s Form 8-K filed on March 4, 2014, Exhibit 10.4 Nordstrom, Inc. and Subsidiaries Exhibit Index Exhibit Form of the 2015 Nonqualified Stock Option Grant Agreement 10.26* 10.27* 2004 Equity Incentive Plan Method of Filing Incorporated by reference from the Registrant’s Form 8-K filed on February 19, 2015, Exhibit 10.1 Incorporated by reference from the Registrant’s definitive proxy statement filed with the Commission on April 15, 2004 10.28* 10.29* Nordstrom, Inc. 2004 Equity Incentive Plan (2007 Amendment) Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.44 Nordstrom, Inc. 2004 Equity Incentive Plan (2008 Amendment) Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2008, Exhibit 10.1 10.30* Nordstrom, Inc. 2010 Equity Incentive Plan Incorporated by reference to Appendix A to the Registrant’s Form DEF 14A filed on April 8, 2010 10.48* Amendment 2014-2 to the Nordstrom Supplemental Executive Incorporated by reference from the Registrant’s Form 8-K filed Exhibit Method of Filing 10.49 Nordstrom Directors Deferred Compensation Plan (2002 Retirement Plan Restatement) on August 25, 2014, Exhibit 10.2 Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2004, Exhibit 10.55 10.50 Nordstrom Directors Deferred Compensation Plan (2007) Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.41 10.51 Amendment 2009-1 to the Nordstrom Directors Deferred Incorporated by reference from the Registrant’s Form S-8 filed Compensation Plan on September 9, 2009, Exhibit 10.5 10.52 2009 Form of Independent Director Indemnification Incorporated by reference from the Registrant’s Form 8-K filed 10.53 2010 Form of Independent Director Indemnification Agreement Agreement on March 3, 2009, Exhibit 10.1 Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2011, Exhibit 10.54 The 2002 Nonemployee Director Stock Incentive Plan Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002, 10.55 Nordstrom, Inc. 2002 Nonemployee Director Stock Incentive Incorporated by reference from the Registrant’s Form 8-K filed Plan (2007 Amendment) on November 19, 2007, Exhibit 10.39 10.56 Form of Restricted Stock Award under the 2002 Nonemployee Incorporated by reference from the Registrant’s Quarterly Director Stock Incentive Plan Report on Form 10-Q for the quarter ended November 3, 2007, 10.78 Exhibit 10.1 Exhibit 10.1 10.57 Form of 2012 Restricted Stock Unit Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.58 Form of 2013 Restricted Stock Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.59 Form of 2014 Restricted Stock Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.60 Form of the 2015 Restricted Stock Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed on November 18, 2011, Exhibit 10.3 on November 14, 2012, Exhibit 10.3 on March 4, 2014, Exhibit 10.2 on February 19, 2015, Exhibit 10.2 10.61 Commitment of Nordstrom, Inc. to Nordstrom fsb dated June 17, 2004 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.4 10.62 Nordstrom fsb Segregated Earmarked Deposit Agreement and Security Agreement by and between Nordstrom fsb and Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Nordstrom, Inc. dated July 1, 2004 Exhibit 10.5 10.63 Revolving Credit Agreement dated April 1, 2015, between Registrant and each of the initial lenders named therein as lenders; Bank of America, N.A. as administrative agent; Wells Fargo Bank, National Association and U.S. Bank, National Association as co-syndication agents; and Fifth Third Bank as managing agent. Incorporated by reference from the Registrant’s Form 8-K filed on April 6, 2015, Exhibit 10.1 10.64 Performance Undertaking dated December 4, 2001 between Registrant and Bank One, N.A. Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.38 10.65 Servicing Agreement, dated as of May 1, 2007, by and between Nordstrom fsb, and Nordstrom Credit, Inc. Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.2 10.35* 10.36* 10.37* 10.38* Amendment 2008-1, Nordstrom, Inc. Leadership Separation Plan Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2008, Exhibit 10.3 Amendment 2011-1 to the Nordstrom Leadership Separation Plan Incorporated by reference from the Registrant’s Form 8-K filed on August 25, 2011, Exhibit 10.1 Amendment 2013-1 to the Nordstrom Leadership Separation Plan Incorporated by reference from the Registrant’s Form 8-K filed on March 5, 2013, Exhibit 10.1 2009 Performance Share Unit Award Agreement and Form of Notice Incorporated by reference from the Registrant’s Form 8-K filed on March 3, 2009, Exhibit 10.3 10.39* 2010 Performance Share Unit Award Agreement 10.40* Form of 2011 Performance Share Unit Award Agreement 10.41* Form of 2012 Performance Share Unit Agreement 10.42* Form of 2013 Performance Share Unit Award Agreement 10.43* Form of 2014 Performance Share Unit Award Agreement 10.44* Form of the 2015 Performance Share Unit Award Agreement 10.45* Nordstrom Supplemental Executive Retirement Plan (2008) Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2009, Exhibit 10.2 Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2010, Exhibit 10.2 Incorporated by reference from the Registrant’s Form 8-K filed on November 18, 2011, Exhibit 10.2 Incorporated by reference from the Registrant’s Form 8-K filed on November 14, 2012, Exhibit 10.2 Incorporated by reference from the Registrant’s Form 8-K filed on March 4, 2014, Exhibit 10.3 Incorporated by reference from the Registrant’s Form 8-K filed on February 19, 2015, Exhibit 10.3 Incorporated by reference from the Registrant’s Form 8-K filed on November 24, 2008, Exhibit 10.4 10.46* 10.47* Amendment 2009-1 to the Nordstrom Supplemental Executive Retirement Plan Incorporated by reference from the Registrant’s Form 8-K filed on March 3, 2009, Exhibit 10.4 Amendment 2014-1 to the Nordstrom Supplemental Executive Retirement Plan Incorporated by reference from the Registrant’s Form 8-K filed on August 25, 2014, Exhibit 10.1 *This exhibit is a management contract, compensatory plan or arrangement *This exhibit is a management contract, compensatory plan or arrangement 74 Nordstrom, Inc. and subsidiaries 75 Nordstrom Directors Deferred Compensation Plan (2002 Restatement) Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2004, Exhibit 10.55 Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.41 Exhibit Amendment 2014-2 to the Nordstrom Supplemental Executive Retirement Plan Method of Filing Incorporated by reference from the Registrant’s Form 8-K filed on August 25, 2014, Exhibit 10.2 10.28* Nordstrom, Inc. 2004 Equity Incentive Plan (2007 Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.44 10.50 Nordstrom Directors Deferred Compensation Plan (2007) 10.26* Form of the 2015 Nonqualified Stock Option Grant Agreement Incorporated by reference from the Registrant’s Form 8-K filed Exhibit Method of Filing on February 19, 2015, Exhibit 10.1 Incorporated by reference from the Registrant’s definitive proxy statement filed with the Commission on April 15, 2004 10.48* 10.49 Nordstrom, Inc. and Subsidiaries Exhibit Index 10.27* 2004 Equity Incentive Plan Amendment) Amendment) 10.29* Nordstrom, Inc. 2004 Equity Incentive Plan (2008 Incorporated by reference from the Registrant’s Form 8-K filed 10.30* Nordstrom, Inc. 2010 Equity Incentive Plan Incorporated by reference to Appendix A to the Registrant’s on November 24, 2008, Exhibit 10.1 Form DEF 14A filed on April 8, 2010 10.31* Nordstrom, Inc. 2010 Equity Incentive Plan as amended Incorporated by reference to Appendix A to the Registrant’s February 27, 2013 Form DEF 14A filed on April 1, 2013 10.32* Nordstrom, Inc. 2010 Equity Incentive Plan as amended and Incorporated by reference from the Registrant’s Form 8-K filed restated February 26, 2014 on March 4, 2014, Exhibit 10.4 10.33* Nordstrom, Inc. Leadership Separation Plan (Effective March 1, 2005) Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005, Exhibit 10.34* Amendment 2006-1 to the Nordstrom, Inc. Leadership Separation Plan Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended February 2, 2008, Exhibit 10.35* Amendment 2008-1, Nordstrom, Inc. Leadership Separation Incorporated by reference from the Registrant’s Form 8-K filed 10.36* Amendment 2011-1 to the Nordstrom Leadership Separation Incorporated by reference from the Registrant’s Form 8-K filed 10.37* Amendment 2013-1 to the Nordstrom Leadership Separation Incorporated by reference from the Registrant’s Form 8-K filed 10.38* 2009 Performance Share Unit Award Agreement and Form of Incorporated by reference from the Registrant’s Form 8-K filed 10.39* 2010 Performance Share Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed Plan Plan Plan Notice 10.40* Form of 2011 Performance Share Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.41* Form of 2012 Performance Share Unit Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.42* Form of 2013 Performance Share Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.43* Form of 2014 Performance Share Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.44* Form of the 2015 Performance Share Unit Award Agreement Incorporated by reference from the Registrant’s Form 8-K filed 10.45* Nordstrom Supplemental Executive Retirement Plan (2008) Incorporated by reference from the Registrant’s Form 8-K filed 10.46* Amendment 2009-1 to the Nordstrom Supplemental Executive Incorporated by reference from the Registrant’s Form 8-K filed 10.47* Amendment 2014-1 to the Nordstrom Supplemental Executive Incorporated by reference from the Registrant’s Form 8-K filed 10.43 10.56 on November 24, 2008, Exhibit 10.3 on August 25, 2011, Exhibit 10.1 on March 5, 2013, Exhibit 10.1 on March 3, 2009, Exhibit 10.3 on November 24, 2009, Exhibit 10.2 on November 19, 2010, Exhibit 10.2 on November 18, 2011, Exhibit 10.2 on November 14, 2012, Exhibit 10.2 on March 4, 2014, Exhibit 10.3 on February 19, 2015, Exhibit 10.3 on November 24, 2008, Exhibit 10.4 on March 3, 2009, Exhibit 10.4 on August 25, 2014, Exhibit 10.1 Retirement Plan Retirement Plan 74 10.51 10.52 10.53 10.55 10.56 10.61 10.62 10.63 Amendment 2009-1 to the Nordstrom Directors Deferred Compensation Plan Incorporated by reference from the Registrant’s Form S-8 filed on September 9, 2009, Exhibit 10.5 2009 Form of Independent Director Indemnification Agreement Incorporated by reference from the Registrant’s Form 8-K filed on March 3, 2009, Exhibit 10.1 2010 Form of Independent Director Indemnification Agreement 10.54 The 2002 Nonemployee Director Stock Incentive Plan Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 29, 2011, Exhibit 10.78 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002, Exhibit 10.1 Nordstrom, Inc. 2002 Nonemployee Director Stock Incentive Plan (2007 Amendment) Incorporated by reference from the Registrant’s Form 8-K filed on November 19, 2007, Exhibit 10.39 Form of Restricted Stock Award under the 2002 Nonemployee Director Stock Incentive Plan 10.57 Form of 2012 Restricted Stock Unit Agreement 10.58 Form of 2013 Restricted Stock Unit Award Agreement 10.59 Form of 2014 Restricted Stock Unit Award Agreement 10.60 Form of the 2015 Restricted Stock Unit Award Agreement Commitment of Nordstrom, Inc. to Nordstrom fsb dated June 17, 2004 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 3, 2007, Exhibit 10.1 Incorporated by reference from the Registrant’s Form 8-K filed on November 18, 2011, Exhibit 10.3 Incorporated by reference from the Registrant’s Form 8-K filed on November 14, 2012, Exhibit 10.3 Incorporated by reference from the Registrant’s Form 8-K filed on March 4, 2014, Exhibit 10.2 Incorporated by reference from the Registrant’s Form 8-K filed on February 19, 2015, Exhibit 10.2 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.4 Nordstrom fsb Segregated Earmarked Deposit Agreement and Security Agreement by and between Nordstrom fsb and Nordstrom, Inc. dated July 1, 2004 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2004, Exhibit 10.5 Revolving Credit Agreement dated April 1, 2015, between Registrant and each of the initial lenders named therein as lenders; Bank of America, N.A. as administrative agent; Wells Fargo Bank, National Association and U.S. Bank, National Association as co-syndication agents; and Fifth Third Bank as managing agent. Incorporated by reference from the Registrant’s Form 8-K filed on April 6, 2015, Exhibit 10.1 *This exhibit is a management contract, compensatory plan or arrangement *This exhibit is a management contract, compensatory plan or arrangement Nordstrom, Inc. and subsidiaries 75 10.64 Performance Undertaking dated December 4, 2001 between Registrant and Bank One, N.A. Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended January 31, 2002, Exhibit 10.38 10.65 Servicing Agreement, dated as of May 1, 2007, by and between Nordstrom fsb, and Nordstrom Credit, Inc. Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.2 Nordstrom, Inc. and Subsidiaries Exhibit Index Exhibit Amended and Restated Transfer and Servicing Agreement, dated as of May 1, 2007, by and between Nordstrom Credit Card Receivables II LLC, as transferor, Nordstrom fsb, as servicer, Wells Fargo Bank, National Association, as indenture trustee, and Nordstrom Credit Card Master Note Trust II, as issuer Second Amended and Restated Trust Agreement, dated as of May 1, 2007, by and between Nordstrom Credit Card Receivables II LLC, as transferor, and Wilmington Trust Company, as owner trustee Amended and Restated Administration Agreement, dated as of May 1, 2007, by and between Nordstrom Credit Card Master Note Trust II, as issuer, and Nordstrom fsb, as administrator Amended and Restated Receivables Purchase Agreement, dated as of May 1, 2007, by and between Nordstrom Credit, Inc., as seller and Nordstrom Credit Card Receivables II LLC, as purchaser Participation Agreement, dated as of May 1, 2007, by and between Nordstrom fsb, as seller and Nordstrom Credit, Inc., as purchaser Confirmation of transaction between The Royal Bank of Scotland plc and Nordstrom Inc., dated as of December 22, 2009 Method of Filing Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.4 Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.5 Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.6 Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.3 Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.1 Incorporated by reference from the Registrant’s Form 8-K filed on December 23, 2009, Exhibit 10.1 Confirmation of transaction between Wachovia Bank N.A. and Nordstrom Inc., dated as of December 22, 2009 Incorporated by reference from the Registrant’s Form 8-K filed on December 23, 2009, Exhibit 10.2 Press release dated February 27, 2013 announcing that its Board of Directors authorized an $800 million share repurchase program Press release dated September 4, 2014 announcing that its Board of Directors authorized a $1,000 million share repurchase program Press release dated October 1, 2015 announcing that its Board of Directors authorized a $1,000 million share repurchase program Incorporated by reference from the Registrant’s Form 8-K filed on February 28, 2013, Exhibit 99.1 Incorporated by reference from the Registrant’s Form 8-K filed on September 4, 2014, Exhibit 99.1 Incorporated by reference from the Registrant’s Form 8-K filed on October 2, 2015, Exhibit 99.1 Historical Statement of Earnings and segment data for fiscal year 2012 reclassified for consistency with our current view of business performance Incorporated by reference from the Registrant’s Form 8-K filed on May 16, 2013, Exhibit 99.2 Historical Statement of Earnings and Operating Results for fiscal year 2012 by quarter reclassified for consistency with our current view of business performance Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 4, 2013, Exhibit 99.2 Press release dated December 3, 2013 announcing the pricing of a private offering of 2044 Notes Incorporated by reference from the Registrant’s Form 8-K filed on December 4, 2013, Exhibit 99.1 Press release dated December 3, 2013 announcing the commencement of a private exchange offering Incorporated by reference from the Registrant’s Form 8-K filed on December 4, 2013, Exhibit 99.2 Press release dated December 12, 2013 announcing the closing of the private offering of 2044 Notes Incorporated by reference from the Registrant’s Form 8-K filed on December 12, 2013, Exhibit 99.1 Press release dated December 17, 2013 relating to the expiration of the early participation period Incorporated by reference from the Registrant’s Form 8-K filed on December 17, 2013, Exhibit 99.1 Press release dated January 2, 2014 relating to the closing of the private exchange offer Incorporated by reference from the Registrant’s Form 8-K filed on January 2, 2014, Exhibit 99.1 10.66 10.67 10.68 10.69 10.70 10.71 10.72 10.73 10.74 10.75 10.76 10.77 10.78 10.79 10.80 10.81 10.82 76 Exhibit Method of Filing 10.83 Purchase and Sale Agreement by and among Nordstrom, Inc., Nordstrom Credit, Inc., Nordstrom FSB and TD Bank USA, Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2015, N.A. dated May 25, 2015 10.84 Credit Card Program Agreement by and among Nordstrom, Inc., Nordstrom FSB and TD Bank USA, N.A. dated May 25, Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2015, Exhibit 10.1 Exhibit 10.1 2015 21.1 23.1 31.1 Significant subsidiaries of the Registrant Filed herewith electronically Consent of Independent Registered Public Accounting Firm Filed as page 70 of this report Certification of Co-President required by Section 302(a) of the Filed herewith electronically Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer required by Section Filed herewith electronically 302(a) of the Sarbanes-Oxley Act of 2002 32.1 Certification of Co-President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith electronically 101.INS XBRL Instance Document Filed herewith electronically 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith electronically 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith electronically 101.LAB XBRL Taxonomy Extension Labels Linkbase Document Filed herewith electronically 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith electronically 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith electronically Nordstrom, Inc. and subsidiaries 77 10.83 10.84 21.1 23.1 31.1 31.2 32.1 Exhibit Purchase and Sale Agreement by and among Nordstrom, Inc., Nordstrom Credit, Inc., Nordstrom FSB and TD Bank USA, N.A. dated May 25, 2015 Method of Filing Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2015, Exhibit 10.1 Credit Card Program Agreement by and among Nordstrom, Inc., Nordstrom FSB and TD Bank USA, N.A. dated May 25, 2015 Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2015, Exhibit 10.1 Significant subsidiaries of the Registrant Filed herewith electronically Consent of Independent Registered Public Accounting Firm Filed as page 70 of this report Certification of Co-President required by Section 302(a) of the Sarbanes-Oxley Act of 2002 Filed herewith electronically Certification of Chief Financial Officer required by Section 302(a) of the Sarbanes-Oxley Act of 2002 Filed herewith electronically Certification of Co-President and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith electronically 101.INS XBRL Instance Document Filed herewith electronically 101.SCH XBRL Taxonomy Extension Schema Document Filed herewith electronically 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith electronically 101.LAB XBRL Taxonomy Extension Labels Linkbase Document Filed herewith electronically 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith electronically 101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed herewith electronically Nordstrom, Inc. and Subsidiaries Exhibit Index 10.69 10.70 10.71 as purchaser as purchaser 2009 Exhibit Method of Filing Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.4 10.66 Amended and Restated Transfer and Servicing Agreement, dated as of May 1, 2007, by and between Nordstrom Credit Card Receivables II LLC, as transferor, Nordstrom fsb, as servicer, Wells Fargo Bank, National Association, as indenture trustee, and Nordstrom Credit Card Master Note Trust II, as issuer 10.67 Second Amended and Restated Trust Agreement, dated as of Incorporated by reference from the Registrant’s Form 8-K filed May 1, 2007, by and between Nordstrom Credit Card Receivables II LLC, as transferor, and Wilmington Trust Company, as owner trustee on May 8, 2007, Exhibit 99.5 10.68 Amended and Restated Administration Agreement, dated as Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.6 of May 1, 2007, by and between Nordstrom Credit Card Master Note Trust II, as issuer, and Nordstrom fsb, as administrator Amended and Restated Receivables Purchase Agreement, dated as of May 1, 2007, by and between Nordstrom Credit, Inc., as seller and Nordstrom Credit Card Receivables II LLC, Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.3 Participation Agreement, dated as of May 1, 2007, by and between Nordstrom fsb, as seller and Nordstrom Credit, Inc., Incorporated by reference from the Registrant’s Form 8-K filed on May 8, 2007, Exhibit 99.1 Confirmation of transaction between The Royal Bank of Scotland plc and Nordstrom Inc., dated as of December 22, Incorporated by reference from the Registrant’s Form 8-K filed on December 23, 2009, Exhibit 10.1 10.72 Confirmation of transaction between Wachovia Bank N.A. and Incorporated by reference from the Registrant’s Form 8-K filed Nordstrom Inc., dated as of December 22, 2009 on December 23, 2009, Exhibit 10.2 10.73 Press release dated February 27, 2013 announcing that its Incorporated by reference from the Registrant’s Form 8-K filed Board of Directors authorized an $800 million share on February 28, 2013, Exhibit 99.1 10.74 Press release dated September 4, 2014 announcing that its Incorporated by reference from the Registrant’s Form 8-K filed Board of Directors authorized a $1,000 million share on September 4, 2014, Exhibit 99.1 10.75 Press release dated October 1, 2015 announcing that its Board of Directors authorized a $1,000 million share Incorporated by reference from the Registrant’s Form 8-K filed on October 2, 2015, Exhibit 99.1 10.76 Historical Statement of Earnings and segment data for fiscal year 2012 reclassified for consistency with our current view of Incorporated by reference from the Registrant’s Form 8-K filed on May 16, 2013, Exhibit 99.2 repurchase program repurchase program repurchase program business performance 10.77 Historical Statement of Earnings and Operating Results for fiscal year 2012 by quarter reclassified for consistency with Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 4, 2013, our current view of business performance Exhibit 99.2 10.78 Press release dated December 3, 2013 announcing the Incorporated by reference from the Registrant’s Form 8-K filed pricing of a private offering of 2044 Notes on December 4, 2013, Exhibit 99.1 10.79 Press release dated December 3, 2013 announcing the Incorporated by reference from the Registrant’s Form 8-K filed commencement of a private exchange offering on December 4, 2013, Exhibit 99.2 10.80 Press release dated December 12, 2013 announcing the Incorporated by reference from the Registrant’s Form 8-K filed closing of the private offering of 2044 Notes on December 12, 2013, Exhibit 99.1 10.81 Press release dated December 17, 2013 relating to the Incorporated by reference from the Registrant’s Form 8-K filed expiration of the early participation period on December 17, 2013, Exhibit 99.1 10.82 Press release dated January 2, 2014 relating to the closing of Incorporated by reference from the Registrant’s Form 8-K filed the private exchange offer on January 2, 2014, Exhibit 99.1 76 Nordstrom, Inc. and subsidiaries 77 [This page intentionally left blank.] [This page intentionally left blank.] SHAREHOLDER INFORMATION Executive Officers Board of Directors and Committees Teri Bariquit, 50 Executive Vice President, Nordstrom Merchandising Group Lisa C. Luther, 47 Executive Vice President, Strategy Kirk M. Beardsley, 47 Executive Vice President, Information Technology Terrence Boyle, 43 Executive Vice President and President, Nordstromrack.com|HauteLook Brian K. Dennehy, 50 Executive Vice President and Chief Marketing Officer Christine F. Deputy, 50 Executive Vice President, Human Resources James A. Howell, 50 Executive Vice President, Finance and Treasurer Michael G. Koppel, 59 Executive Vice President and Chief Financial Officer Gemma Lionello, 50 Executive Vice President and General Merchandise Manager, Cosmetics Division Daniel F. Little, 54 Executive Vice President and Chief Information Officer Steven C. Mattics, 47 Executive Vice President; Chairman and Chief Executive Officer of Nordstrom fsb, President of Nordstrom Credit, Inc. Scott A. Meden, 53 Executive Vice President and General Merchandise Manager, Shoe Division Margaret Myers, 69 Executive Vice President and General Merchandise Manager, Accessories and Women’s Specialized Divisions Blake W. Nordstrom, 55 Co-President Erik B. Nordstrom, 52 Co-President James F. Nordstrom, Jr., 43 Executive Vice President and President, Stores Peter E. Nordstrom, 54 Co-President Brian J. Saltzman, 48 Executive Vice President, User Experience and Optimization Robert B. Sari, 60 Executive Vice President, General Counsel and Secretary Michael Sato, 49 Executive Vice President, Supply Chain Tricia D. Smith, 44 Executive Vice President and General Merchandise Manager, Designer, Women’s and Kids Apparel Geevy S. K. Thomas, 51 Executive Vice President and President, Nordstrom Rack Paige L. Thomas, 44 Executive Vice President and General Merchandise Manager, Nordstrom Rack Mark J. Tritton, 52 Executive Vice President and President, Nordstrom Product Group David M. Witman, 57 Executive Vice President and General Merchandise Manager, Men’s Apparel Kenneth J. Worzel, 51 Executive Vice President, Strategy and Development Phyllis J. Campbell, 64 Chairman of the Pacific Northwest Region Shellye L. Archambeau, 53 Chief Executive Officer MetricStream, Inc. Palo Alto, California JPMorgan Chase & Co. Seattle, Washington Tanya L. Domier, 50 Chief Executive Officer Advantage Solutions Irvine, California Michelle M. Ebanks, 54 President & Group Publisher Essence Communications New York, New York Enrique Hernandez, Jr., 60 Nordstrom, Inc. Chairman of the Board President and Chief Executive Officer Inter-Con Security Systems, Inc. Pasadena, California Robert G. Miller, 71 Chief Executive Officer Albertsons LLC Boise, Idaho Blake W. Nordstrom, 55 Co-President Nordstrom, Inc. Seattle, Washington Erik B. Nordstrom, 52 Co-President Nordstrom, Inc. Seattle, Washington Peter E. Nordstrom, 54 Co-President Nordstrom, Inc. Seattle, Washington Philip G. Satre, 66 Private Investor Retired Chairman and Chief Executive Officer Harrah’s Entertainment, Inc. Reno, Nevada Brad D. Smith, 52 President and Chief Executive Officer Intuit Inc. Mountain View, California Gordon A. Smith, 57 Chief Executive Officer Consumer and Community Banking JPMorgan Chase & Co. New York, New York Bradley D. Tilden, 55 Chairman and Chief Executive Officer Alaska Air Group Seattle, Washington B. Kevin Turner, 51 Chief Operating Officer Microsoft Corporation Redmond, Washington Robert D. Walter, 70 Private Investor Chief Executive Officer Cardinal Health, Inc. Columbus, Ohio Founder and Retired Chairman and Alison A. Winter, 69 Chief Executive Officer and Founder Braintree Holdings, LLC Pasadena, California Audit Committee Brad D. Smith, Chair Shellye L. Archambeau Phyllis J. Campbell Tanya L. Domier Bradley D. Tilden Alison A. Winter Compensation Committee Robert D. Walter, Chair Tanya L. Domier Enrique Hernandez, Jr. Gordon A. Smith Corporate Governance and Nominating Committee Philip G. Satre, Chair Enrique Hernandez, Jr. Gordon A. Smith Robert D. Walter Alison A. Winter Finance Committee Robert G. Miller, Chair Phyllis J. Campbell Michelle M. Ebanks Philip G. Satre Bradley D. Tilden B. Kevin Turner Technology Committee B. Kevin Turner, Chair Shellye L. Archambeau Michelle M. Ebanks Brad D. Smith 80 Nordstrom, Inc. and subsidiaries 81 Executive Officers Kirk M. Beardsley, 47 Executive Vice President, Information Technology Terrence Boyle, 43 Executive Vice President and President, Nordstromrack.com|HauteLook Brian K. Dennehy, 50 Executive Vice President and Chief Marketing Officer Christine F. Deputy, 50 Executive Vice President, Human Resources James A. Howell, 50 Executive Vice President, Finance and Treasurer Michael G. Koppel, 59 Executive Vice President and Chief Financial Officer Gemma Lionello, 50 Executive Vice President and General Merchandise Manager, Cosmetics Division Daniel F. Little, 54 Executive Vice President and Chief Information Officer Teri Bariquit, 50 Executive Vice President, Lisa C. Luther, 47 Executive Vice President, Nordstrom Merchandising Group Strategy Brian J. Saltzman, 48 Executive Vice President, User Experience and Optimization Steven C. Mattics, 47 Executive Vice President; Robert B. Sari, 60 Executive Vice President, Chairman and Chief Executive Officer of General Counsel and Secretary Nordstrom fsb, President of Nordstrom Credit, Inc. Scott A. Meden, 53 Executive Vice President and General Merchandise Manager, Shoe Division Margaret Myers, 69 Executive Vice President and General Merchandise Manager, Accessories and Women’s Specialized Divisions Blake W. Nordstrom, 55 Co-President Erik B. Nordstrom, 52 Co-President James F. Nordstrom, Jr., 43 Executive Vice President and President, Stores Peter E. Nordstrom, 54 Co-President Michael Sato, 49 Executive Vice President, Supply Chain Tricia D. Smith, 44 Executive Vice President and General Merchandise Manager, Designer, Women’s and Kids Apparel Geevy S. K. Thomas, 51 Executive Vice President and President, Nordstrom Rack Paige L. Thomas, 44 Executive Vice President and General Merchandise Manager, Nordstrom Rack Mark J. Tritton, 52 Executive Vice President and President, Nordstrom Product Group David M. Witman, 57 Executive Vice President and General Merchandise Manager, Men’s Apparel Kenneth J. Worzel, 51 Executive Vice President, Strategy and Development Board of Directors and Committees Shellye L. Archambeau, 53 Chief Executive Officer MetricStream, Inc. Palo Alto, California Phyllis J. Campbell, 64 Chairman of the Pacific Northwest Region JPMorgan Chase & Co. Seattle, Washington Tanya L. Domier, 50 Chief Executive Officer Advantage Solutions Irvine, California Michelle M. Ebanks, 54 President & Group Publisher Essence Communications New York, New York Enrique Hernandez, Jr., 60 Nordstrom, Inc. Chairman of the Board President and Chief Executive Officer Inter-Con Security Systems, Inc. Pasadena, California Robert G. Miller, 71 Chief Executive Officer Albertsons LLC Boise, Idaho Blake W. Nordstrom, 55 Co-President Nordstrom, Inc. Seattle, Washington Erik B. Nordstrom, 52 Co-President Nordstrom, Inc. Seattle, Washington Peter E. Nordstrom, 54 Co-President Nordstrom, Inc. Seattle, Washington Philip G. Satre, 66 Private Investor Retired Chairman and Chief Executive Officer Harrah’s Entertainment, Inc. Reno, Nevada Brad D. Smith, 52 President and Chief Executive Officer Intuit Inc. Mountain View, California Gordon A. Smith, 57 Chief Executive Officer Consumer and Community Banking JPMorgan Chase & Co. New York, New York Bradley D. Tilden, 55 Chairman and Chief Executive Officer Alaska Air Group Seattle, Washington B. Kevin Turner, 51 Chief Operating Officer Microsoft Corporation Redmond, Washington Robert D. Walter, 70 Private Investor Founder and Retired Chairman and Chief Executive Officer Cardinal Health, Inc. Columbus, Ohio Alison A. Winter, 69 Chief Executive Officer and Founder Braintree Holdings, LLC Pasadena, California Audit Committee Brad D. Smith, Chair Shellye L. Archambeau Phyllis J. Campbell Tanya L. Domier Bradley D. Tilden Alison A. Winter Compensation Committee Robert D. Walter, Chair Tanya L. Domier Enrique Hernandez, Jr. Gordon A. Smith Corporate Governance and Nominating Committee Philip G. Satre, Chair Enrique Hernandez, Jr. Gordon A. Smith Robert D. Walter Alison A. Winter Finance Committee Robert G. Miller, Chair Phyllis J. Campbell Michelle M. Ebanks Philip G. Satre Bradley D. Tilden B. Kevin Turner Technology Committee B. Kevin Turner, Chair Shellye L. Archambeau Michelle M. Ebanks Brad D. Smith 80 Nordstrom, Inc. and subsidiaries 81 Form 10-K The Company’s Annual Report on Form 10-K for the year ended January 30, 2016 will be provided to shareholders upon request to: Nordstrom Investor Relations PO Box 2737 Seattle, Washington 98111 (206) 303-3200 invrelations@nordstrom.com Shareholder Information Additional shareholder information, including Nordstrom’s Corporate Governance Guidelines and Code of Business Conduct and Ethics, is available online at investor.nordstrom.com (Investor Relations, Corporate Governance). The Company intends to provide disclosure of any amendments or waivers to its Code of Business Conduct and Ethics online within four business days following the date of amendment or waiver. In addition, the Company is always willing to discuss matters of concern to shareholders. Shareholders may contact the Company at: (206) 303-3200 invrelations@nordstrom.com Certifications We have filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of our public disclosures as Exhibits 31.1 and 31.2 to our annual report on Form 10-K for the year ended January 30, 2016. After our 2016 Annual Meeting of Shareholders, we intend to file with the New York Stock Exchange the CEO certification regarding our compliance with the NYSE’s corporate governance listing standards as required by NYSE Rule 303A.12(a). © 2016 Nordstrom, Inc. Shareholder Information Independent Registered Public Accounting Firm Deloitte & Touche LLP Seattle, Washington Counsel Lane Powell PC Seattle, Washington Transfer Agent and Registrar Computershare PO Box 30170 College Station, Texas 77842 Telephone (800) 318-7045 TDD for Hearing Impaired (800) 952-9245 Foreign Shareholders (201) 680-6578 TDD Foreign Shareholders (781) 575-4592 computershare.com/investor General Offices 1617 Sixth Avenue Seattle, Washington 98101 Telephone (206) 628-2111 Annual Meeting May 19, 2016 at 9:00 a.m. Pacific Standard Time Nordstrom Downtown Seattle Store John W. Nordstrom Room, fifth floor 1617 Sixth Avenue Seattle, Washington 98101 82 R E C Y C L I N G I S A L W A Y S I N S T Y L E . L e a r n m o r e a b o u t o u r s u s t a i n a b i l i t y e ff o r t s a t n o r d s t r o m c a r e s . c o m . © 2 0 1 6 N o r d s t r o m , I n c . A l l r i g h t s r e s e r v e d . 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