Trunk Club Acquisition

9 Months Ended

Nov. 01, 2014

Business Combinations [Abstract]

Trunk Club Acquisition

TRUNK CLUB ACQUISITION

On August 22, 2014, we acquired 100% of the outstanding equity of Trunk Club, a personalized clothing service for men. We believe the acquisition will enable us to provide a high-touch personalized shopping experience combined with the convenience of an online platform. This represents a natural extension of our core business, aligns with our strategic priorities around a relevant customer experience and accelerates entry into this fast-growing market.

The following bullets summarize of the accounting activity related to Trunk Club and provide reference to relevant disclosures throughout our 10-Q:

• Consideration – The purchase price fair value of $357 reflects the value of our stock as of the acquisition date. Purchase price consideration is discussed in further detail below.

• Net Assets Acquired – Of the $357 purchase price fair value, $46 is compensation expense and subject to future performance and vesting. The remaining net purchase price consideration of $311 is allocated to the tangible and intangible assets acquired and liabilities assumed. The net asset allocation is discussed in further detail below.

• Issuance of Nordstrom Common Stock – 3.6 shares of Nordstrom common stock were issued in the third quarter as part of the acquisition purchase price. Additional shares will be issued, either to be earned as future compensation or associated with adjustment and indemnity holdback releases. Stock issued is discussed in further detail below and also reflected in our Condensed Consolidated Statements of Shareholders' Equity.

• Issuance of Nordstrom Stock Awards – Trunk Club employees received Nordstrom stock awards in exchange for previously held Trunk Club awards and stock. Stock awards are discussed in further detail within Note 8: Stock-Based Compensation.

• Long-term Incentive Plan – A long-term incentive plan (the "Value Creation Plan") was created to incentivize certain Trunk Club employees to increase the value of the Trunk Club business. The accounting for this plan is discussed in further detail within Note 8: Stock-Based Compensation.

Trunk Club's financial results have been included in our consolidated statements from the date of acquisition forward, and were not material to our consolidated results for the quarter or nine months ended November 1, 2014. We have not presented pro forma results of operations for any periods prior to the acquisition, as Trunk Club's results of operations were not material to our consolidated results.

The components of the purchase price consideration and the net assets acquired as of the acquisition date are as follows:

	August 22, 2014
Purchase Price Consideration
Purchase price fair value	$	357
Less: post-combination compensation expense	(46		)
Net purchase price	$	311
Net Assets Acquired
Current assets	$	21
Intangible assets:
Trade names	47
Technology	7
Customer relationships	5
Goodwill	261
Other non-current assets	2
Total assets acquired	343
Less: total liabilities assumed	(32		)
Net assets acquired	$	311

Purchase Price Consideration

The $357 purchase price includes $46 attributable to Trunk Club employee stock awards that are subject to ongoing vesting requirements. The $46 will be recorded as compensation expense as the related service is performed over the respective employee vesting periods of up to four years after the acquisition date. The $311 net purchase price consisted primarily of 3.6 shares of Nordstrom common stock issued at a closing stock price of $69 per share as of August 22, 2014. The net purchase price also included 0.1 vested replacement Nordstrom stock options with a weighted-average grant date fair value of $61 per share. Of the purchase price consideration, $9 is attributable to an adjustment holdback settled primarily in Nordstrom stock in the fourth quarter of fiscal 2014 and $35 represents an indemnity holdback that will be settled primarily in Nordstrom stock over the next three years upon satisfaction of the representations, warranties and covenants subject to the indemnities.

Net Assets Acquired

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. We estimated the fair values of the acquired intangible assets based on discounted cash flow models using estimates and assumptions regarding future operations and cash flows. We will amortize the acquired intangible assets over their estimated lives on a straight-line basis, which approximates the pattern of expected economic benefit. The expected amortization periods for intangible assets acquired are seven years for trade names, two years for technology and 2.5 years for customer relationships. We expect to record total amortization expense of $59 associated with these intangible assets over the next seven years, including $2 in the third quarter of 2014.

Goodwill of $261 is equal to the excess of the net purchase price over the identifiable assets acquired and liabilities assumed and represents the acquisition's benefits that are not attributable to individually identified and separately recognized assets. These benefits include our expected ability to increase innovation and speed in the way we serve customers across channels, Trunk Club's assembled workforce, including its key management, and the going-concern value of acquiring Trunk Club's business as a whole. We assigned this goodwill, which is not deductible for tax purposes, to our Retail segment.