ACQUISITIONS

9 Months Ended

Jul. 31, 2022

ACQUISITIONS

ACQUISITIONS

(19)  Acquisitions

Kreisel Acquisition

On February 7, 2022, the Company acquired majority ownership in Kreisel Electric Inc. (Kreisel), a pioneer in the development of immersion-cooled battery technology. The Austrian company manufactures high-density, high-durability electric battery modules and packs for high-performance and off-highway applications and has created a battery-buffered, high-powered charging infrastructure platform.

The transaction includes a call option to purchase the remaining ownership interest in Kreisel in 2027. The minority interest holders also have a put option that would require the Company to purchase the holder’s ownership interest in 2027. The put and call options cannot be separated from the noncontrolling interest. Due to the redemption features, the minority interest is classified as redeemable noncontrolling interest in the Company’s consolidated balance sheets.

The total cash purchase price was $276 million, consisting of $253 million for the acquired equity interests, $21 million to reduce the option price, and customary working capital adjustments, net of cash acquired. The preliminary fair values assigned

to the assets and liabilities of the acquired entity in millions of dollars, which is based on information as of the acquisition date and available at July 31, 2022 follows:

	February 7
	2022
Trade accounts and notes receivable	$	2
Other receivables		11
Inventories		11
Property and equipment		11
Goodwill		218
Other intangible assets		178
Other assets		6
Total assets	$	437
Accounts payable and accrued expenses	$	27
Deferred income taxes		38
Redeemable noncontrolling interest	$	96

The identifiable intangible assets were related to technology, trade name, and customer relationships with a weighted average amortization period of 12 years. The goodwill is not deductible for income tax purposes. Kreisel will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments.

Acquisition of Excavator Factories

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 Construction Machinery (Hitachi). The two companies also ended their joint venture manufacturing and marketing agreements. The former joint venture factories will continue to manufacture Deere-branded construction excavators and forestry equipment. Through a new supply agreement with Hitachi, Deere will continue to offer a full portfolio of excavators. Deere’s marketing arrangement for Hitachi-branded construction excavators and mining equipment in the Americas has ended with Hitachi assuming distribution and support of these products. John Deere dealers may continue to support their existing field population of Hitachi-branded excavators.

With the completion of this acquisition, the Company now has complete control over its excavator design, product, and feature updates, making it possible to more rapidly respond to customer requirements and integrate excavators with other construction products in the John Deere product portfolio. The Company can leverage technology developed for other product lines and production systems across the enterprise and extend those advanced solutions to Deere-designed excavators, strengthening the entire product portfolio.

The total invested capital follows:

	February 28
	2022
Cash consideration for factories	$	205
Cash consideration for license agreement		70
Deferred consideration		271
Total purchase price consideration		546
Less: Cash obtained		(187)
Less: Settlement of intercompany balances		(113)
Net purchase price consideration		246
Fair value of previously held equity investment		444
Total invested capital	$	690

The total purchase price consideration includes deferred consideration that will be paid as the Company purchases Deere-branded excavators, components, and service parts from Hitachi under the new supply agreement with a duration that ranges from 5 to 30 years. The deferred consideration represents the price increases under the new supply arrangement. Excluding inflation adjustments, the price increases for products to be acquired by the Company from Hitachi are as much as 27 percent higher than the prior supply arrangement. At July 31, 2022, the net present value of the deferred consideration was approximately $252 million, subject to changes in market conditions, developments in the Company’s product offerings, and sourcing changes. The Company financed the acquisition and associated transaction expenses from cash on hand. The fair value of the previously held equity investment created a non-cash gain of $326 million (pretax and after-tax), which was recorded in Other income and included in the construction and forestry segment’s operating profit.

Prior to the acquisition, the Company purchased Deere and Hitachi-branded excavators, components, and parts from the Deere-Hitachi joint venture factories for sale to John Deere dealers. These purchases were included in Cost of sales, while the sales to John Deere dealers were included in Net sales. Cost of sales also included profit-sharing payments to Hitachi in accordance with the previous marketing agreements. Following the acquisition, Net sales will only include the sale of Deere-branded excavators to John Deere dealers, while Cost of sales will reflect market pricing to purchase and manufacture excavators, as well as the related components and service parts.

The preliminary fair values assigned to the assets and liabilities of the acquired factories in millions of dollars, which are based on information as of the acquisition date and available at July 31, 2022, follows:

	February 28
	2022
Other receivables	$	29
Inventories		286
Property and equipment		182
Goodwill		527
Other intangible assets		70
Deferred income taxes		56
Total assets	$	1,150
Accounts payable and accrued expenses	$	297
Long-term borrowings		163
Total liabilities	$	460

The identifiable intangible assets were related to technology with a 10-year amortization period. The goodwill is not deductible for income tax purposes. The excavator factories will be reported in the Company’s construction and forestry segment.

Other Acquisitions

In the first nine months of the year, the Company acquired AgriSync Inc. (AgriSync), a technology service provider; an 80 percent stake in both SureFire Ag Systems, Inc. and SureFire Electronics, LLC (together SureFire), which design and manufacture liquid fertilizer application and spray tendering systems; a 40 percent equity method investment in GUSS Automation LLC (GUSS Automation), a pioneer in semi-autonomous orchard and vineyard sprayers; and LGT, LLC (Light), which specializes in depth sensing and camera-based perception for autonomous vehicles. The combined cost of the acquisitions was $124 million, net of cash acquired of $3 million. The preliminary asset and liability fair values at the respective acquisition dates follow in millions of dollars:

	July 31
	2022
Trade accounts and notes receivable	$	8
Inventories		8
Property and equipment		4
Goodwill		53
Other intangible assets		21
Other assets		50
Total assets	$	144
Accounts payable and accrued expenses	$	6
Deferred income taxes		5
Total liabilities	$	11
Redeemable noncontrolling interest	$	9

The identifiable intangible assets were related to trade name, technology, and customer relationships with a weighted average amortization period of 7 years. AgriSync will be allocated amongst the Company’s production and precision agriculture, small agriculture and turf, and construction and forestry segments, while SureFire and Light will be allocated to the production and precision agriculture segment. GUSS Automation will be assigned to the small agriculture and turf segment.

For all acquisitions, the goodwill was the result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities. Presenting 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.