Business Combination

3 Months Ended

Jan. 29, 2021


2			Business Combination

Venture Products, Inc. ("Venture Products")

On March 2, 2020, the company completed its acquisition of Venture Products, the manufacturer of Ventrac-branded products. Venture Products designs, manufactures, and markets articulating turf, landscape, and snow and ice management equipment for grounds, landscape contractor, golf, municipal, and rural acreage customers and provides innovative product offerings that broadened and strengthened the company's Professional segment and expanded its dealer network. On the closing date of the acquisition, the company paid preliminary merger consideration of $165.9 million, which consisted of a cash payment of $136.4 million and a $29.5 million holdback to satisfy any indemnification or certain other obligations of Venture Products to the company. The preliminary merger consideration was subject to certain customary adjustments, which were finalized during the third quarter of fiscal 2020 and resulted in an aggregate merger consideration of $163.2 million. As a result, $4.5 million of the holdback set aside for such customary adjustments was released accordingly and the remaining holdback of $25.0 million is expected to expire throughout fiscal 2021. The company funded the cash payment with borrowings under its existing unsecured senior revolving credit facility. For additional information regarding the company's unsecured senior revolving credit facility, refer to Note 6, Indebtedness.

The company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the purchase price was allocated to the acquired net tangible and intangible assets of Venture Products based on their fair values as of the closing date of the acquisition. Such fair values are based on internal company and independent external third-party valuations. As of January 29, 2021, the company completed its process for measuring the fair values of the acquired assets and liabilities assumed based on information available as of the closing date of the acquisition. The following table summarizes the allocation of the purchase price to the fair values assigned to the Venture Products assets acquired and liabilities assumed:


(Dollars in thousands)	March 2, 2020
Cash and cash equivalents	$	3,476
Receivables	6,342
Inventories	23,000
Prepaid expenses and other current assets	239
Property, plant and equipment	26,976
Goodwill	61,225
Other intangible assets:
Finite-lived customer-related	19,100
Indefinite-lived trade name	56,200
Accounts payable	(4,075)
Accrued liabilities	(5,196)
Deferred income tax liabilities	(20,586)
Total fair value of net assets acquired	166,701
Less: cash and cash equivalents acquired	(3,476)
Total purchase price	$	163,225

The goodwill recognized is primarily attributable to the value of the workforce, the reputation of Venture Products, expected future cash flows, and expected synergies, including customer and dealer growth opportunities and integrating and expanding existing product lines. Key areas of expected cost synergies include increased purchasing power for commodities, components, parts, and accessories, and supply chain consolidation. The goodwill resulting from the Venture Products acquisition was recognized within the company's Professional segment and is non-deductible for tax purposes. During the first quarter of fiscal 2021, the company completed its valuation of income taxes to finalize the purchase price allocation, which resulted in a decrease to the carrying amount of goodwill of $1.0 million from the amounts reporting within the company's Annual Report on Form 10-K for the fiscal year ended October 31, 2020. Such purchase accounting adjustment did not impact the company's Condensed Consolidated Statements of Earnings for the three month period ended January 29, 2021.

The allocation of the purchase price to the net assets acquired resulted in the recognition of $75.3 million of other intangible assets as of the closing date of the acquisition. The fair values of the acquired trade name and customer-related intangible assets were determined using the income approach whereby 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 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 value of the indefinite-lived trade name was 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 value of the customer-related intangible asset was determined using the excess earnings method and was based on the expected operating cash flows attributable to the customer-related intangible asset, which was determined by deducting expected economic costs, including operating expenses and contributory asset charges, from the revenue expected to be generated from the customer-related intangible asset. As of the closing date of the acquisition, the weighted-average useful life of the customer-related intangible asset was determined to be 16.0 years.