Nordstrom 2015 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
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
91-0515058
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1617 Sixth Avenue, Seattle, Washington
98101
(Address of principal executive offices)
(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
Name of each exchange on which registered
Common stock, without par value
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•þ•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•þ
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•þ•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•þ•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,ƒ ‚accelerated filerƒ and ‚smaller reporting companyƒ in Rule 12b-2 of the Exchange
Act.
Large•accelerated•filer þ
Accelerated•filer ¨
Non-accelerated•filer•¨•(Do•not•check•if•a•smaller•reporting•company)
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•þ
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.
DOCUMENTS INCORPORATED BY REFERENCE
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.
Table of Contents
Nordstrom, Inc. and subsidiaries 1

Table of contents

  • Page 1
    ...(State or other jurisdiction of incorporation or organization) 91-0515058 (I.R.S. Employer Identification No.) NORDSTROM, INC. 1617 Sixth Avenue, Seattle, Washington 98101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 206-628-2111 Securities...

  • Page 2
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  • Page 3
    ... 67 Directors, Executive Officers and Corporate Governance. Executive Compensation. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Certain Relationships and Related Transactions, and Director Independence. Principal Accounting Fees and Services. 67...

  • Page 4
    ... 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...

  • Page 5
    ... 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...

  • Page 6
    ... 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...

  • Page 7
    ... 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...

  • Page 8
    ... 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...

  • Page 9
    ... 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...

  • Page 10
    ...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...

  • Page 11
    ... acquired Stores closed Number of stores, end of year Nordstrom full-line stores - U.S. Nordstrom full-line stores - Canada Nordstrom Rack Other1 1 Other 2015 292 32 - (1) 323 118 3 194 8 2014 260 31 4 (3) 292 116 1 167 8 2013 240 22 - (2) 260 117 - 140 3 includes Trunk Club clubhouses, Jeffrey...

  • Page 12
    ... 501 143 244 101 181 1,958 373 1,128 1,668 80 217 142 231 158 28,610 includes five Trunk Club clubhouses, two Jeffrey boutiques and one Last Chance store. Texas and Florida had the highest square footage, with a combined 11,051 square feet, representing 39% of the total Company square footage. 12

  • Page 13
    ...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...

  • Page 14
    ... 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...

  • Page 15
    ... 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...

  • Page 16
    ... Statements and Supplementary Data of this Annual Report on Form 10-K. 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 Balance...

  • Page 17
    ... 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 Rewardsâ„¢ loyalty program along with a variety of payment products and services, including credit and debit cards. In 2015, we continued...

  • Page 18
    ... 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...

  • Page 19
    ... Trunk Club and Jeffrey boutiques. 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 fullline stores, including two in Canada, and 27 Nordstrom Rack stores. These additions increased our square...

  • Page 20
    ... 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...

  • Page 21
    ...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...

  • Page 22
    ... 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...

  • Page 23
    ...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...

  • Page 24
    ... 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 $4,143 51 1,443 34.8% (1,136) (27...

  • Page 25
    ... 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...

  • Page 26
    ... 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...

  • Page 27
    ..., 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...

  • Page 28
    ... 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...

  • Page 29
    ... 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...

  • Page 30
    ... 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: Credit Ratings Moody's Standard & Poor's Baa1 BBB+ Base Interest Rate Euro-Dollar Rate...

  • Page 31
    ... 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. Nordstrom, Inc...

  • Page 32
    ...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...

  • Page 33
    ... 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...

  • Page 34
    ... 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...

  • Page 35
    ... 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...

  • Page 36
    ...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...

  • Page 37
    ... 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...

  • Page 38
    ... 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...

  • Page 39
    ... 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...

  • Page 40
    ... 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...

  • Page 41
    ... 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...

  • Page 42
    ...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...

  • Page 43
    ...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...

  • Page 44
    ... 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...

  • Page 45
    ... 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...

  • Page 46
    ... 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...

  • Page 47
    ... 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...

  • Page 48
    Table of Contents 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 ...

  • Page 49
    ... 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. Nordstrom, Inc. and...

  • Page 50
    ... 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 3.70% 3.00% 4.60% 3.00% 4.30% 3.00% 4.55% 3.00% 3.70% 3.00% 4.60% 3.00% 2015 2014 2013 Future Benefit Payments...

  • Page 51
    ... Nordstrom, Inc. Notes to Consolidated Financial Statements Dollar and share amounts in millions except per share, per option and per unit amounts NOTE 9: DEBT AND CREDIT FACILITIES Debt A summary of our long-term debt, including capital leases, is as follows: January 30, 2016 Secured Series 2011...

  • Page 52
    ... 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...

  • Page 53
    ...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...

  • Page 54
    ... value of net minimum lease payments Capital leases $2 1 1 - - - $4 - $4 Operating leases $253 271 277 274 255 1,490 $2,820 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...

  • Page 55
    ... $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...

  • Page 56
    ... 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...

  • Page 57
    ... Club acquisition in 2014, is presented below: Fiscal year 2015 Weighted-average grant date fair value per unit $66 77 N/A 66 71 $71 Shares Outstanding, beginning of year Granted Special dividend adjustment Vested Forfeited Outstanding, end of year 0.9 0.5 0.1 (0.3) 0.0 1.2 The total fair value...

  • Page 58
    ... 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...

  • Page 59
    ...30, 2016 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...

  • Page 60
    ...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...

  • Page 61
    ...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...

  • Page 62
    ... 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: Retail Fiscal year 2015 Net sales Credit card revenues, net Earnings (loss) before interest and income taxes Interest...

  • Page 63
    ... 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...

  • Page 64
    ...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) 1st Quarter Fiscal year 2015 Net sales Comparable sales increase Credit card revenues, Gross profit Selling...

  • Page 65
    ... 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...

  • Page 66
    ... 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...

  • Page 67
    ... 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...

  • Page 68
    ... 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...

  • Page 69
    ...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...

  • Page 70
    ... 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...

  • Page 71
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  • Page 72
    ... December 3, 2007, between the Company and Wells Fargo Bank, National Association 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...

  • Page 73
    ... 2015-1 to the Nordstrom Executive Deferred Compensation Plan (2014 Restatement) Amendment 2013-1 to the Nordstrom Executive Compensation Plan (2007 Restatement) Nordstrom, Inc. Employee Stock Purchase Plan, amended and restated on August 27, 2008 Nordstrom, Inc. Employee Stock Purchase Plan (2011...

  • Page 74
    ... 2011 Performance Share Unit Award Agreement Form of 2012 Performance Share Unit Agreement Form of 2013 Performance Share Unit Award Agreement Form of 2014 Performance Share Unit Award Agreement Form of the 2015 Performance Share Unit Award Agreement Nordstrom Supplemental Executive Retirement Plan...

  • Page 75
    ... Director Indemnification Agreement The 2002 Nonemployee Director Stock Incentive Plan Method of Filing Incorporated by reference from the Registrant's Form 8-K filed on August 25, 2014, Exhibit 10.2 Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended...

  • Page 76
    ...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...

  • Page 77
    ... 10.83 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 Credit Card Program Agreement by and among Nordstrom, Inc., Nordstrom FSB and TD Bank USA, N.A. dated May 25, 2015 Significant subsidiaries of...