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Business Combinations | 3 Months Ended
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Jan. 31, 2020
Business Combinations [Abstract] |
Business Combinations |
2 | Business Combinations
The Charles Machine Works, Inc. ("CMW") On April 1, 2019 ("closing date"), pursuant to the Agreement and Plan of Merger dated February 14, 2019 ("merger agreement"), the company completed the acquisition of CMW, a privately held Oklahoma corporation. CMW designs, manufactures, and markets a range of professional products to serve the underground construction market, including horizontal directional drills, walk and ride trenchers, compact utility loaders/skid steers, vacuum excavators, asset locators, pipe rehabilitation solutions, and after-market tools. CMW provides innovative product offerings that broadened and strengthened the company's Professional segment product portfolio and expanded its dealer network, while also providing a complementary geographic manufacturing footprint. The transaction was structured as a merger, pursuant to which a wholly-owned subsidiary of the company merged with and into CMW, with CMW continuing as the surviving entity and a wholly-owned subsidiary of the company. As a result of the merger, all of the outstanding equity securities of CMW were canceled and now only represent the right to receive the applicable consideration as described in the merger agreement. At the closing date, the company paid preliminary merger consideration of $679.3 million that was subject to customary adjustments based on, among other things, the amount of actual cash, debt and working capital in the business of CMW at the closing date. During the fourth quarter of fiscal 2019, the company finalized such cash, debt and working capital adjustments and these adjustments resulted in an aggregate merger consideration of $685.0 million ("purchase price"). The company funded the purchase price for the acquisition by using a combination of cash proceeds from the issuance of borrowings under the company's unsecured senior term loan credit agreement and borrowings under the company's unsecured senior revolving credit facility. For additional information regarding the financing agreements utilized to fund the purchase price, refer to Note 6, Indebtedness. As a result of the acquisition, the company incurred approximately $10.2 million of acquisition-related transaction costs, all of which were incurred during the fiscal year ended October 31, 2019 and recorded within selling, general and administrative expense within the Consolidated Statements of Earnings for such fiscal period. Purchase Price Allocation The company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of CMW based on their fair values as of the closing date. As of January 31, 2020, the company has substantially completed its process for measuring the fair values of the assets acquired and liabilities assumed based on information available as of the closing date, with the exception of the company's valuation of income taxes as the company requires additional information to finalize its valuation of income taxes. Thus, the preliminary measurements of fair value reflected for income taxes are subject to change as additional information becomes available and as additional analysis is performed. The company expects to finalize its preliminary valuation of income taxes and complete the allocation of the purchase price during its fiscal 2020 second quarter, but no later than one year from the closing date of the acquisition, as required. The following table summarizes the allocation of the purchase price to the fair values assigned to the CMW assets acquired and liabilities assumed. These fair values are based on internal company and independent external third-party valuations:
(Dollars in thousands) |  | April 1, 2019
Cash and cash equivalents |  | $ | 16,341 |
Receivables |  | 65,674 |
Inventories |  | 241,429 |
Prepaid expenses and other current assets |  | 9,218 |
Property, plant and equipment |  | 142,779 |
Goodwill |  | 135,521 |
Other intangible assets |  | 264,190 |
Other long-term assets |  | 7,971 |
Accounts payable |  | (36,655 | )
Accrued liabilities |  | (52,258 | )
Deferred income tax liabilities |  | (86,231 | )
Other long-term liabilities |  | (6,665 | )
Total fair value of net assets acquired |  | 701,314 |
Less: cash and cash equivalents acquired |  | (16,341 | )
Total purchase price |  | $ | 684,973 |
The goodwill recognized is primarily attributable to the value of the workforce, the reputation of CMW and its family of brands, customer and dealer growth opportunities, and expected synergies. Key areas of expected cost synergies include increased purchasing power for commodities, components, parts, accessories, supply chain consolidation, and administrative efficiencies. The goodwill resulting from the acquisition of CMW was recognized within the company's Professional segment and is the primary driver for the increase in the company's Professional segment goodwill to $350.1 million as of January 31, 2020 from $215.0 million as of February 1, 2019. No changes were made to the carrying amount of goodwill related to the company's acquisition of CMW from the amounts reported within the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2019. Goodwill is mostly non-deductible for tax purposes. Other Intangible Assets Acquired The allocation of the purchase price to the net assets acquired resulted in the recognition of $264.2 million of other intangible assets as of the closing date. The fair values of the acquired trade name, customer-related, developed technology and backlog intangible assets were determined using the income approach. Under the income approach, an intangible asset's fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The fair values of the trade names were determined using the relief from royalty method, which is based on the hypothetical royalty stream that would be received if the company were to license the trade name and was based on expected future revenues. The fair values of the customer-related, developed technology, and backlog intangible assets were determined using the excess earnings method and were based on the expected operating cash flows attributable to the respective other intangible asset, which were determined by deducting expected economic costs, including operating expenses and contributory asset charges, from revenue expected to be generated from the respective other intangible asset. The useful lives of the other intangible assets were determined based on the period of expected cash flows used to measure the fair value of the intangible assets adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors that may limit the useful life of the respective intangible asset. The fair values of the other intangible assets acquired on the closing date, related accumulated amortization from the closing date through January 31, 2020, and weighted-average useful lives were as follows:
(Dollars in thousands) |  | Weighted-Average Useful Life |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net
Customer-related |  | 18.3 |  | $ | 130,800 |  |  | $ | (7,193 | ) |  | $ | 123,607 |
Developed technology |  | 7.8 |  | 20,900 |  |  | (2,885 | ) |  | 18,015 |
Trade names |  | 20.0 |  | 5,200 |  |  | (216 | ) |  | 4,984 |
Backlog |  | 0.5 |  | 3,590 |  |  | (3,590 | ) |  | — |
Total definite-lived |  | 16.6 |  | 160,490 |  |  | (13,884 | ) |  | 146,606 |
Indefinite-lived - trade names |  |  |  | 103,700 |  |  | — |  |  | 103,700 |
Total other intangible assets, net |  |  |  | $ | 264,190 |  |  | $ | (13,884 | ) |  | $ | 250,306 |
Amortization expense for the definite-lived intangible assets resulting from the acquisition of CMW for the three months ended January 31, 2020 was $3.1 million. Estimated amortization expense for the remainder of fiscal 2020 and succeeding fiscal years is as follows: fiscal 2020 (remainder), $9.4 million; fiscal 2021, $12.6 million; fiscal 2022, $11.5 million; fiscal 2023, $10.1 million; fiscal 2024, $9.4 million; fiscal 2025, $7.7 million; and after fiscal 2025, $85.9 million. Results of Operations CMW's results of operations are included within the company's Professional reportable segment in the company's Condensed Consolidated Financial Statements. During the three month period ended January 31, 2020, the company recognized $160.9 million of net sales and $9.4 million of segment earnings from CMW's operations, respectively. Unaudited Pro Forma Financial Information Unaudited pro forma financial information has been prepared as if the acquisition had taken place on November 1, 2017 and has been prepared for comparative purposes only. The unaudited pro forma financial information is not necessarily indicative of the results that would have been achieved had the acquisition actually taken place on November 1, 2017 and the unaudited pro forma financial information does not purport to be indicative of future Consolidated Results of Operations. The unaudited pro forma financial information does not reflect any synergies, operating efficiencies, and/or cost savings that may be realized from the integration of the acquisition. The unaudited pro forma results for the three month periods ended January 31, 2020 and February 1, 2019 have been adjusted to exclude the pro forma impact of the take-down of the inventory fair value step-up amount and amortization of the backlog intangible asset; include the pro forma impact of amortization of other intangible assets, excluding backlog, based on the purchase price allocations and useful lives; include the pro forma impact of the depreciation of property, plant, and equipment based on the purchase price allocations and useful lives; include the pro forma impact of additional interest expense relating to the acquisition; exclude the pro forma impact of transaction costs incurred by the company directly attributable to the acquisition; and include the pro forma tax effect of both earnings before income taxes and the pro forma adjustments. The following table presents unaudited pro forma financial information related to the company's acquisition of CMW:
|  | Three Months Ended
(Dollars in thousands, except per share data) |  | January 31, 2020 |  | February 1, 2019
Net sales |  | $ | 767,483 |  |  | $ | 777,537 |
Net earnings |  | 70,561 |  |  | 56,515 |
Basic net earnings per share of common stock |  | 0.66 |  |  | 0.53 |
Diluted net earnings per share of common stock |  | $ | 0.65 |  |  | $ | 0.52 |
Northeastern U.S. Distribution Company Effective November 30, 2018, during the first quarter of fiscal 2019, the company completed the acquisition of substantially all of the assets of, and assumed certain liabilities of, a Northeastern U.S. distribution company. The purchase price of this acquisition was allocated to the identifiable assets acquired and liabilities assumed based on estimates of their fair value, with the excess purchase price recorded as goodwill. This acquisition was immaterial based on the company's Consolidated Financial Condition and Results of Operations. Additional purchase accounting disclosures have been omitted given the immateriality of this acquisition in relation to the company's Consolidated Financial Condition and Results of Operations.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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