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SPECIAL ITEMS

12 Months Ended

Nov. 01, 2020

5. SPECIAL ITEMS

Impairments and Other Charges

In 2020, the company recorded impairments and other charges as follows:


	Agriculture		Construction		Financial		Total
	and Turf		and Forestry		Services		Pretax
Factory closure
China - agricultural equipment
Non-cash impairments
Other receivables, property, and intangible assets *	$	15					$	15
Severance payments *		5						5
Factory closure		20						20

Non-cash fixed asset and lease impairments
German asphalt plant factory * ¹			$	62				62
Brazil construction equipment factory * ¹				16				16
Other international fixed assets * ¹		13		2				15
Other international fixed assets **¹		4						4
Equipment on operating leases *** ²					$	22		22
Operating lease inventory *** ²						10		10
Fixed asset and lease - non-cash impairments		17		80		32		129

Non-cash affiliate company impairments
Minority investment in construction equipment company headquartered in South Africa **** ³				43				43
Construction equipment joint venture located in Brazil **** ³				7				7
Affiliate impairments				50				50
Total impairments and closure costs ^{4, 5}	$	37	$	130	$	32	$	199

* Recorded in "Cost of sales"

** Recorded in "Selling, administrative, and general expenses"

*** Recorded in "Other operating expenses"

****Recorded in "Equity in income (loss) of unconsolidated affiliate"

1 The impairment was the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of net assets.

2 The impairments were the result of a higher expected equipment return rates and lower estimated values of used construction equipment than originally estimated with the probable effect that future cash flows would not cover the carrying amount of the asset.

3 The impairment was the result of an other-than-temporary decline in value.

4 The after-tax effect was $180 million.

5 See Note 26 for a description of the valuation methodologies used to measure these impairments.

In the fourth quarter of 2019, the company recorded non-cash charges in “Other operating expenses” of approximately $59 million pretax for the impairment of equipment on operating leases and approximately $18 million pretax on matured operating lease inventory recorded in “Other assets.” The impairment was the result of lower estimated values of used agriculture and construction equipment than originally estimated with the probable effect that the future cash flows would not cover the carrying amount of the net assets. The assets are part of the financial services operations (see Note 26).

Employee-Separation Programs

During 2020, the company implemented employee-separation programs for the company’s salaried workforce in several geographic areas, including the United States, Europe, Asia, and Latin America. The programs’ main purpose was to improve efficiency through a leaner, more flexible organization. The programs were largely voluntary in nature with the expense recorded primarily in the period in which the employees irrevocably accepted a separation offer. For the limited involuntary employee-separation programs, the expense was recorded when management committed to a plan, the plan was communicated to the employees, and the employees were not required to provide service beyond the legal notification period. The programs provided for cash payments based on years of service, and in some countries subsidized healthcare for a limited period and outplacement services.

The programs’ total pretax expenses in 2020 were as follows:


	Agriculture		Construction		Financial
	and Turf		and Forestry		Services		Total
Cost of sales	$	82	$	22			$	104
Research and development expenses		47		8				55
Selling, administrative and general expenses		96		24	$	15		135
Other operating expenses*								41
Total	$	225	$	54	$	15	$	335

* Relates primarily to non-cash charges of $34 million from curtailments in certain OPEB plans (see Note 8) and other corporate expenses, both of which were recorded outside of operating profit. Approximately $6 million of the curtailment charge was recorded by financial services.

Total program payments will be $301 million with $166 million paid in 2020 and $135 million to be disbursed over two years. Annual savings from these programs are estimated to be approximately $250 million, of which $85 million was realized in 2020.

During 2019, the company also completed certain employee-separation programs designed for specific functions and geographic areas as part of its on-going efforts to create a more efficient organizational structure. These programs provided for cash payments based on years of service. The expenses were

recorded in the period the employees irrevocably accepted the separation offer with the following total pretax expenses:


	Agriculture		Construction		Financial
	and Turf		and Forestry		Services		Total
Cost of sales	$	5					$	5
Research and development expenses		1						1
Selling, administrative and general expenses		13	$	2	$	9		24
Total	$	19	$	2	$	9	$	30

Redeemable Noncontrolling Interest

In 2020, the minority interest holder in Hagie Manufacturing Company, LLC exercised its right to sell the remaining 20 percent interest to the company for $14 million. The arrangement was accounted for as an equity transaction with no gain or loss recorded in the statement of consolidated income. This operation is included in the company’s agriculture and turf segment.