Nordstrom 2015 Annual Report Download - page 35

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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.
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Nordstrom, Inc. and subsidiaries 35