Nordstrom 2011 Annual Report Download - page 47

Nordstrom, Inc. and subsidiaries 47
Nordstrom, Inc.
Notes to Consolidated Financial Statements
Dollar and share amounts in millions except per share, per option and unit amounts
Acquisition Purchase Price
Both the $180 upfront payment and the original $90 earn-out consideration include amounts attributable to HauteLook employees that are subject
to ongoing vesting requirements. These amounts are 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 remaining (non-compensation) consideration was measured at its
acquisition-date fair value to determine the purchase price, as summarized in the following table:
Upfront
Earn-out
Total
Maximum total consideration $180 $90
$270
Less: portion attributable to post–acquisition compensation (27) (15) (42)
Consideration attributable to purchase price
$153 $75
$228
Acquisition purchase price at fair value $153 $42
$195
The $153 upfront component of the purchase price primarily included 3.5 shares of Nordstrom common stock at a closing stock price of $42 per
share on the acquisition date. The $42 acquisition date fair value of the earn-out attributable to the purchase price was estimated using a valuation
model and recorded in other liabilities on our consolidated balance sheet.
Net Assets Acquired
We allocated the total purchase price of $195 to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair
values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. As a result of the purchase price allocation,
we recorded intangible assets of $62 and goodwill of $146, offset by other net liabilities of $13.
Intangible assets consist of $27 of trademarks/trade names, $20 of technology and $15 of customer relationships. 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 of two to seven years on a straight-line basis, which reasonably approximates
the pattern of expected economic benefit. The aggregate intangible amortization expense for the year ended January 28, 2012 was $16, which is also
equal to our total accumulated amortization expense. We expect to record total amortization expense of $42 associated with these intangible assets
over the next five years.
Goodwill of $146 is equal to the excess of the purchase price over the net assets recognized 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 all channels, HauteLook’s assembled workforce including its key management and the going-concern value of
acquiring HauteLook’s business as a whole. We include this goodwill, which is not deductible for tax purposes, in our Retail segment.
Earn-out Amendment and Impairment
On November 23, 2011, we amended our acquisition agreement with HauteLook to settle the earn-out provisions and reorganize the HauteLook
business. We settled the 2011 earn-out for $30 in Nordstrom common stock and eliminated the provision for potential future payments of $60 for
2012 and 2013. We reorganized HauteLook primarily by deconsolidating a portion of Sole Society, a HauteLook-launched shoe membership website
that offers a personalized selection of high-quality shoes.
Upon amendment of the acquisition agreement, we reduced the fair value of the earn-out liability to $30 and recorded income of $12. The 2011 earn-
out provision was ultimately settled for 0.6 shares of Nordstrom common stock at a closing price of $47 per share after taxes and forfeitures.
We also completed our annual impairment analysis for our HauteLook goodwill. Due to the reorganization of HauteLook, changes in expected
business results and market dynamics, we recognized a goodwill impairment charge of $25 during the fourth quarter of 2011, reducing the HauteLook
goodwill to $121. See Note 9: Fair Value Measurements for additional information relating to the valuation of the goodwill impairment charge.