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SPECIAL ITEMS | 9 Months Ended
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Jul. 31, 2022
SPECIAL ITEMS |
SPECIAL ITEMS | (20)S pecial Items ​ 2022 Special Items Impact of Events in Russia / Ukraine The events in Russia / Ukraine have resulted in the Company suspending shipments of machines and service parts to Russia. The Company manufactures and markets equipment in Russia / Ukraine, and provides financial services in Russia. As of July 31, 2022, the Company’s net exposure in Russia / Ukraine was approximately $436 million. Net sales from the Company’s Russian operations represented 2 percent of consolidated annual Net sales from 2017 to 2021. The Ukraine operations were not material to the consolidated financial statements. The suspension of shipments to Russia will reduce forecasted revenue for the region, which makes it probable future cash flows will not cover the carrying value of certain assets. The accounting consequences during the second quarter of 2022 were impairments of most long-lived assets, an increase in reserves of certain financial assets, and an accrual for various contractual uncertainties. No significant reserves were established on trade receivables or complete goods inventory, as the Company continues to experience strong payment performance and requires prepayment of existing inventories. During the third quarter of 2022, the Company initiated a voluntary employee-separation program, updated reserves on assets, and reassessed accruals for contractual uncertainties. The Russian government has imposed certain restrictions on companies’ abilities to repatriate or remit cash from their Russian-based operations to locations outside of Russia. Cash in excess of what is required to fund operations in Russia has been reclassified as restricted and recorded in Other assets. The Company continues to closely monitor all financial risks to its operations in the region. A summary of the reserves, impairments, voluntary-separation costs, and contingent liabilities recorded in the first nine months of 2022 follows in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Nine Months Ended July 31, 2022 | ​
​ | ​ | PPA |  | SAT |  | CF |  | FS |  | Total | ​
2022 Expense: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Inventory reserve – Cost of sales | ​ | $ | 8 | ​ | ​ | ​ | ​ | $ | 4 | ​ | ​ | ​ | ​ | $ | 12 | ​
Fixed asset impairment – Cost of sales | ​ | ​ | 30 | ​ | ​ | ​ | ​ | ​ | 11 | ​ | ​ | ​ | ​ | ​ | 41 | ​
Intangible asset impairment – Cost of sales | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 28 | ​ | ​ | ​ | ​ | ​ | 28 | ​
Allowance for credit losses – Financing receivables – SA&G expenses | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 32 | ​ | ​ | 32 | ​
Voluntary-separation program – Cost of sales | ​ | ​ | 1 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 1 | ​
Voluntary-separation program – SA&G expenses | ​ | ​ | 3 | ​ | ​ | ​ | ​ | ​ | 4 | ​ | ​ | 1 | ​ | ​ | 8 | ​
Contingent liabilities – Other operating expenses | ​ | ​ | 3 | ​ | $ | 1 | ​ | ​ | 1 | ​ | ​ | ​ | ​ | ​ | 5 | ​
Total Russia/Ukraine events pretax expense | ​ | $ | 45 | ​ | $ | 1 | ​ | $ | 48 | ​ | $ | 33 | ​ | ​ | 127 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net tax impact | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (8) | ​
Total Russia/Ukraine events after-tax expense | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 119 | ​
​ Gain on Previously Held Equity Investment On February 28, 2022, the Company acquired full ownership of three former Deere-Hitachi joint venture factories and began new license and supply agreements with Hitachi. The fair value of the previous equity investment resulted in a non-cash gain of $326 million (pretax and after-tax; see Note 19). UAW Collective Bargaining Agreement On November 17, 2021, employees represented by the UAW approved a new collective bargaining agreement. The agreement, which has a term of six years, covers the wages, hours, benefits, and other terms and conditions of employment for the Company’s UAW-represented employees at 14 U.S. facilities. The labor agreement includes a lump sum ratification bonus payment of $8,500 per eligible employee, totaling $90 million, and an immediate wage increase of 10 percent plus further wage increases over the term of the contract. The lump sum payment was expensed in the first quarter of 2022. The Company remeasured the U.S. hourly pension plan as of November 30, 2021 due to the new collective bargaining agreement. See Note 6 for more information on the U.S. hourly plan remeasurement. 2021 Special Items In the third quarter of 2021, the Company sold a closed factory that previously produced small agricultural equipment in China, resulting in a $27 million pretax gain. During the first quarter of 2021, the fixed assets in an asphalt plant factory in Germany were impaired by $38 million, pretax and after-tax. The Company also continued to assess its manufacturing locations, resulting in additional long-lived asset impairments of $12 million pretax. The impairments were the result of a decline in forecasted financial performance that indicated it was probable future cash flows would not cover the carrying amount of the net assets. These impairments were offset by a favorable indirect tax ruling in Brazil of $58 million pretax. See Note 16 for fair value measurement information. The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded for the three months and nine months ended July 31, 2022 and August 1, 2021:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months | ​ | Nine Months | ​
​ | ​ | PPA |  | SAT |  | CF |  | FS |  | Total | ​ | PPA |  | SAT |  | CF |  | FS |  | Total | ​
2022 Expense (benefit): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gain on remeasurement of equity investment – Other income (see Note 19) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | (326) | ​ | ​ | ​ | ​ | $ | (326) | ​
Total Russia/Ukraine events pretax expense | ​ | $ | (1) | ​ | ​ | ​ | ​ | $ | 1 | ​ | $ | 7 | ​ | $ | 7 | ​ | $ | 45 | ​ | $ | 1 | ​ | ​ | 48 | ​ | $ | 33 | ​ | ​ | 127 | ​
UAW ratification bonus – Cost of sales | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 53 | ​ | ​ | 9 | ​ | ​ | 28 | ​ | ​ | ​ | ​ | ​ | 90 | ​
Total expense (benefit) | ​ | ​ | (1) | ​ | ​ | ​ | ​ | ​ | 1 | ​ | ​ | 7 | ​ | ​ | 7 | ​ | ​ | 98 | ​ | ​ | 10 | ​ | ​ | (250) | ​ | ​ | 33 | ​ | ​ | (109) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
2021 Expense (benefit): | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gain on sale – Other income | ​ | ​ | ​ | ​ | $ | (27) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (27) | ​ | ​ | ​ | ​ | ​ | (27) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (27) | ​
Long-lived asset impairments – Cost of sales | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 5 | ​ | ​ | 3 | ​ | ​ | 42 | ​ | ​ | ​ | ​ | ​ | 50 | ​
Brazil indirect tax – Cost of sales | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (53) | ​ | ​ | ​ | ​ | ​ | (5) | ​ | ​ | ​ | ​ | ​ | (58) | ​
Total expense (benefit) | ​ | ​ | ​ | ​ | ​ | (27) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (27) | ​ | ​ | (48) | ​ | ​ | (24) | ​ | ​ | 37 | ​ | ​ | ​ | ​ | ​ | (35) | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Period over period change | ​ | $ | (1) | ​ | $ | 27 | ​ | $ | 1 | ​ | $ | 7 | ​ | $ | 34 | ​ | $ | 146 | ​ | $ | 34 | ​ | $ | (287) | ​ | $ | 33 | ​ | $ | (74) | ​
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