UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2015

or

o  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

(Exact name of registrant as specified in its charter)

206-628-2111

(Registrant's telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☑ NO o

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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO ☑

Common stock outstanding as of November 25, 2015 : 183,867,962 shares

(Amounts in millions except per share amounts)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(Amounts in millions)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(Amounts in millions)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(Amounts in millions except per share amounts)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

(Amounts in millions)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

NOTE 1: BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the balances of Nordstrom, Inc. and its subsidiaries (the "Company"). All intercompany transactions and balances are eliminated in consolidation. The interim condensed consolidated financial statements have been prepared on a basis consistent in all material respects with the accounting policies described and applied in our 2014 Annual Report on Form 10-K ("Annual Report"), and reflect all adjustments of a normal recurring nature that are, in management's opinion, necessary for the fair presentation of the results of operations, financial position and cash flows for the periods presented.

The condensed consolidated financial statements as of and for the periods ended October 31, 2015 and November 1, 2014 are unaudited. The condensed consolidated balance sheet as of January 31, 2015 has been derived from the audited consolidated financial statements included in our 2014 Annual Report. The interim condensed consolidated financial statements should be read together with the consolidated financial statements and related footnote disclosures contained in our 2014 Annual Report.

The preparation of our financial statements 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. 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 and assumptions.

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. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Credit Card Revenues, net

On October 1, 2015 , we completed the sale of substantially all of our U.S. Visa and private label credit card portfolio in an agreement with TD Bank, N.A. ("TD") (see Note 2: Credit Card Receivable Transaction). Prior to this agreement, 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.

Following the close of the credit card receivable transaction and pursuant to the new 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. In addition, credit card revenues, net includes asset amortization and deferred revenue recognition of the assets and liabilities recorded as part of the transaction.

Accounts Receivable, net

Prior to the close of the credit card receivable transaction, accounts receivable included credit card receivables from our Nordstrom private label and 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, third-party credit receivables and debit card receivables. We continue to record credit card receivables on our Consolidated Balance Sheets at the outstanding balance, net of an allowance for credit losses.

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.

NOTE 2: CREDIT CARD RECEIVABLE TRANSACTION

On October 1, 2015 , we completed the sale of substantially all 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:

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 relative to 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:

The beneficial interest asset is carried at fair value (see Note 6: 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 Condensed 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. 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 represents an indemnity holdback, most of which was settled primarily in Nordstrom stock during the third quarter of fiscal 2015, upon satisfaction of the representations, warranties and covenants subject to the indemnities. 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. On the acquisition date, 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 .

NOTE 4: ACCOUNTS RECEIVABLE

1 Credit card receivables consist of employee credit card receivables as of October 31, 2015 .

2 Other accounts receivable consists primarily of third-party credit receivables and debit card receivables.

1 We no longer present the current period balances as our remaining credit card receivables are insignificant and are no longer meaningful.

Credit Quality

1 We no longer present the current period balances as our remaining credit card receivables are insignificant and are no longer meaningful.

1 We no longer present the current period balances as our remaining credit card receivables are insignificant and are no longer meaningful.

2 Amounts listed in the table reflect the most recently obtained credit scores as of the dates indicated.

3 Other consists of amounts not yet posted to customers' accounts and receivables from customers for whom FICO scores were temporarily unavailable.

NOTE 5: DEBT AND CREDIT FACILITIES

Debt

A summary of our long-term debt is as follows:

Credit Facilities

As of October 31, 2015 , we had total short-term borrowing capacity available for general corporate purposes of $800 . In April 2015, we terminated our $800 senior unsecured revolving credit facility that was scheduled to expire in March 2018 . We replaced this with a five-year $800 senior unsecured revolving credit facility ("revolver") that expires in April 2020 , with an option to extend for an additional two years. 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 other general corporate purposes. As of October 31, 2015 , we had no issuances outstanding under our commercial paper program and no borrowings outstanding under our revolver.

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 October 31, 2015 , we were in compliance with this covenant.

As a condition of closing the credit card receivable transaction (see Note 2: Credit Card Receivable Transaction), we defeased the $325 secured Series 2011-1 Class A Notes in order to provide the receivables to TD free and clear.

NOTE 6: FAIR VALUE MEASUREMENTS

We disclose our financial assets and liabilities that are measured at fair value in our Condensed 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 substantially all 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 in the fair value hierarchy regarding future credit card portfolio performance. Inputs and assumptions include the discount rate, payment rate, credit losses, revenues and expenses. Based on comparable market participant capital structures in the banking and credit card industries, we used a 12% discount rate. Based on historical and expected portfolio performance, we used a monthly payment rate ranging from approximately 6% to 33% , an annual credit loss rate ranging from approximately 1% to 4% , annual revenues ranging from approximately 6% to 18% of credit card receivables and annual expenses ranging from approximately 2% to 9% of credit card receivables. Amortization was the only significant change in value during the quarter and primarily reflects payments received on the receivables sold.

We did not have any financial assets or liabilities that were measured at fair value on a recurring basis as of January 31, 2015 and November 1, 2014 .

Financial Instruments Not Measured at Fair Value

Financial instruments not measured at fair value include cash and cash equivalents, accounts payable and long-term debt. Cash and cash equivalents and accounts payable approximate fair value due to their short-term nature.

1 The carrying value of long-term debt includes the remaining unamortized adjustment from our previous effective fair value hedge.

Non-financial Assets Measured at Fair Value on a Nonrecurring Basis

We measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill, investment in contract asset and long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. There were no material impairment charges for these assets for the nine months ended October 31, 2015 and November 1, 2014 . We estimate the fair value of goodwill, investment in contract asset and long-lived tangible and intangible assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements.

NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES

Plans for our Manhattan full-line store ultimately include owning a condominium interest in a mixed-use tower and leasing certain nearby properties. As of October 31, 2015 , we had approximately $176 of fee interest in land, which is expected to convert to a 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 potentially be subject to future losses or capital commitments in order to complete construction or to monetize our investment in the land.

NOTE 8: 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. 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 the nine months ended October 31, 2015 , we repurchased 7.0 shares of our common stock for an aggregate purchase price of $517 and had $1,486 remaining in share repurchase capacity as of October 31, 2015 . The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission ("Commission") rules.

On October 1, 2015 , our Board of Directors authorized a special cash dividend of $4.85 per share of outstanding common stock, using proceeds from the sale of our credit card receivables (see Note 2: Credit Card Receivable Transaction), payable to shareholders of record at the close of business on October 12, 2015. The special cash dividend was in addition to our recurring quarterly dividend of $0.37 per share, paid in September 2015.

Our accumulated deficit was $1,047 as of October 31, 2015 , compared with retained earnings of $29 as of November 1, 2014 , primarily resulting from the special cash dividend, our recurring quarterly dividends and increased share repurchases.

In November 2015 , subsequent to quarter end, we declared a quarterly dividend of $0.37 per share, payable in December 2015 .

NOTE 9: STOCK-BASED COMPENSATION

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 8: 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. The adjustments to awards included increasing the number of outstanding restricted shares, stock options and performance shares, as well as reducing the exercise prices of outstanding stock options. These adjustments did not result in incremental stock-based compensation expense as the anti-dilutive adjustments are required by our equity incentive plans.

NOTE 10: EARNINGS PER SHARE

The computation of earnings per share is as follows:

NOTE 11: SEGMENT REPORTING

The following tables set forth information for our reportable segments:

1 Retail Business is not a reportable segment, but represents a subtotal of the Retail segment and Corporate/Other, and is consistent with our presentation in Management's Discussion and Analysis of Financial Condition and Results of Operations.

2 Assets in Corporate/Other include unallocated assets in corporate headquarters, consisting primarily of cash, land, property and equipment and deferred tax assets.

The following table summarizes net sales within our reportable segments: