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ACQUISITIONS AND DISPOSITIONS

12 Months Ended

Nov. 03, 2019

ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS AND DISPOSITIONS

4. ACQUISITIONS AND DISPOSITIONS

Acquisitions

PLA

On September 26, 2018, the company acquired PLA, a privately-held manufacturer of sprayers, planters, and specialty products for agriculture. PLA is based in Argentina, with manufacturing facilities in Las Rosas, Argentina and Canoas, Brazil. The total cash purchase price before the final adjustment, net of cash acquired of $1 million, was $69 million with $4 million retained by the company as escrow to secure indemnity obligations. In addition to the cash purchase price, the company assumed $30 million of liabilities. The asset and liability fair values at the acquisition date in millions of dollars follow:


		September 2018
Trade accounts and notes receivable		$	3
Other receivables			14
Inventories			15
Property and equipment			6
Goodwill			38
Other intangible assets			22
Other assets			1
Total assets		$	99

Short-term borrowings		$	8
Accounts payable and accrued expenses			17
Deferred income taxes			5
Total liabilities		$	30

The identified intangible assets were primarily related to technology, trademarks, and customer relationships, which have a weighted-average amortization period of five years. The goodwill is not expected to be deductible for tax purposes.

King Agro

In March 2018, the company acquired King Agro, a privately held manufacturer of carbon fiber technology products with headquarters in Valencia, Spain and a production facility in Campana, Argentina. The total cash purchase price, net of cash acquired of $3 million, was $40 million, excluding a loan to King Agro of $4 million that was forgiven on the acquisition date. In addition to the cash purchase price, the company assumed $11 million of liabilities. The asset and liability fair values at the acquisition date in millions of dollars follow:


		March 2018
Trade accounts and notes receivable		$	2
Other receivables			2
Inventories			5
Property and equipment			5
Goodwill			28
Other intangible assets			13
Total assets		$	55

Short-term borrowings		$	2
Accounts payable and accrued expenses			4
Deferred income taxes			4
Long-term borrowings			1
Total liabilities		$	11

The identifiable intangibles were primarily related to trade name and technology, which have a weighted-average amortization period of ten years. The goodwill is not expected to be deductible for tax purposes.

Wirtgen

In December 2017, the company acquired Wirtgen, which was a privately-held international company and is the leading manufacturer worldwide of road construction equipment. Headquartered in Germany, Wirtgen has six brands across the road building sector spanning processing, mixing, paving, compaction, and rehabilitation. Wirtgen sells products in more than 100 countries and had approximately 8,200 employees at the acquisition date.

The total cash purchase price, net of cash acquired of $191 million, was $5,136 million, a portion of which is held in escrow to secure certain indemnity obligations of Wirtgen. In addition to the cash purchase price, the company assumed $1,641 million in liabilities, which represented substantially all of Wirtgen’s liabilities. The company financed the acquisition and associated transaction expenses from a combination of cash and new debt financing, which consisted of medium-term notes, including €850 million issued in September 2017. The asset and liability fair values at the acquisition date in millions of dollars follow:


		December 2017
Receivables from unconsolidated affiliates		$	5
Trade accounts and notes receivable			449
Financing receivables			43
Financing receivables securitized			125
Other receivables			98
Inventories			1,536
Property and equipment			752
Investments in unconsolidated affiliates			19
Goodwill			2,068
Other intangible assets			1,442
Deferred income taxes			26
Other assets			215
Total assets		$	6,778

Short-term borrowings		$	285
Short-term securitization borrowings			127
Accounts payable and accrued expenses			719
Deferred income taxes			430
Long-term borrowings			50
Retirement benefits and other liabilities			30
Total liabilities		$	1,641
Noncontrolling interests		$	1

The identifiable intangible assets’ fair values in millions of dollars and weighted-average useful lives in years follows:


		Weighted-Average Useful Lives		Fair Values
Customer lists and relationships		16		$	519
Technology, patents, trademarks, and other		19		$	923

The goodwill is not deductible for tax purposes.

Wirtgen’s results are incorporated in the company’s consolidated financial statements using a one-month lag period and are included in the construction and forestry segment. The net sales and revenues and operating profit included in the company’s statement of consolidated income in 2018 was $3,181 million and $116 million, respectively. During 2018, the company recognized $56 million of acquisition related costs, which were recorded $30 million in selling, administrative and general expenses and $26 million in other operating expenses.

The unaudited pro forma consolidated net sales and revenues and net income were prepared as if the acquisition closed at the beginning of fiscal year 2017 and follow in millions of dollars:


		2018			2017
Net sales and revenues		$	37,822		$	32,946
Net income attributable to Deere & Company		$	2,637		$	2,272

The pro forma amounts were calculated using policies consistent with the company’s accounting policies and included the additional expense from the amortization from the allocated purchase price adjustments. The pro forma results excluded acquisition related costs incurred in both years and assumed the medium-term notes used to fund the acquisition were issued in fiscal year 2016 at the interest rate of the actual notes. In addition, the pro forma results for the year ended October 29, 2017 included nonrecurring pretax expenses of $291 million for the higher cost basis from the inventory fair value adjustment and $84 million for the amortization of identifiable intangible assets. Anticipated synergies or other expected benefits of the acquisition were not included in the pro forma results. As a result, the unaudited pro forma financial information may not have been indicative of the results for future operations or the results if the acquisition closed at the beginning of fiscal year 2017.

Blue River

In September 2017, the company acquired Blue River Technology (Blue River), which is based in Sunnyvale, California for an acquisition cost of approximately $284 million, net of cash acquired of $4 million and $21 million funded to escrow for post-acquisition expenses. Blue River has designed and integrated computer vision and machine learning technology to optimize the use of farm inputs. Machine learning technologies could eventually be applied to a wide range of the company’s products. The asset and liability fair values at the acquisition date in millions of dollars follow:


		September 2017
Trade accounts and notes receivable		$	1
Property and equipment			2
Goodwill			193
Other intangible assets			125
Total assets		$	321

Accounts payable and accrued expenses		$	1
Deferred income taxes			36
Total liabilities		$	37

The identifiable intangibles were primarily related to in-process research and development, which will not be amortized until the research and development efforts are complete or end.

The goodwill is not deductible for tax purposes. Blue River is included in the company’s agriculture and turf operating segment.

For the acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities. For the acquisitions other than Wirtgen, the results of these operations have been included in the company’s consolidated financial statements in the agriculture and turf operating segment and the pro forma results of operations as if these acquisitions had occurred at the beginning of the current or comparative fiscal year would not differ significantly from the reported results.

Dispositions

In October 2019, the company sold its construction and forestry retail locations in Canada. At the time of the sale, total assets were $187 million consisting of inventory of $138 million, property and equipment – net of $24 million, other assets of $3 million, and goodwill of $22 million. The liabilities consisted of $10 million of accounts payable and accrued expenses. In addition, the company accrued $15 million for transaction expenses and related costs. The total proceeds from the sale will be approximately $187 million, with $93 million received in the fourth quarter of 2019. The remaining sales price is due based on standard payment terms of new equipment sales to independent dealers and separately negotiated terms ranging from 12 months to five years. A pretax loss of approximately $5 million was recorded in other operating expenses in the construction and forestry segment.

In May 2018, the company sold construction and forestry retail locations in Michigan, Minnesota, and Wisconsin. At the time of the sale, total assets were $74 million and liabilities were approximately $2 million. The assets consisted of trade accounts and notes receivable – net of $3 million, inventory of $52 million, property and equipment – net of $11 million, and goodwill of $8 million. The liabilities consisted of $2 million of accounts payable and accrued expenses. The total proceeds from the sale were approximately $84 million, with $67 million received in 2018. The remaining sales price was due based on standard payment terms of new equipment sales to independent dealers or refinanced wholesale terms. A pretax gain of $12 million was recorded in other income in the construction and forestry segment.

In November 2017, the company sold its construction and forestry retail locations in Florida. At the time of the sale, total assets were $93 million and liabilities were $1 million. The assets consisted of inventory of $61 million, property and equipment – net of $21 million, goodwill of $10 million, and $1 million of other assets. The liabilities consisted of $1 million of accounts payable and accrued expenses. The total proceeds from the sale were approximately $105 million, with $89 million received in 2018. The remaining sales price was due based on standard payment terms of new equipment sales to independent dealers or refinanced wholesale terms. A pretax gain of $13 million was recorded in other income in the construction and forestry segment.

For the retail location dispositions, the company sells equipment, service parts, and provides other services to the purchasers as independent dealers.