Acquisitions

Acquisition of IMM

On December 29, 2011, we completed the purchase of 534.8 million shares of IMM. IMM is a leading designer and manufacturer of underground coal mining equipment in China. The shares, which represented approximately 41.1% of IMM’s outstanding common stock, were purchased pursuant to a stock purchase agreement, dated July 11, 2011, as amended and restated on July 14, 2011. The shares were purchased for HKD8.50 per share, or approximately $584.6 million. As a result of this purchase and prior open market purchases, we acquired a controlling interest on such date of approximately 69.2% of IMM’s outstanding common stock and were required by Rule 26.1 of the Hong Kong Takeovers Code to commence a tender offer to purchase all of the outstanding shares of IMM common stock and options to purchase IMM common stock that we did not already own. The tender offer commenced on January 6, 2012 and we completed the tender offer on February 10, 2012. As a result of the tender offer, we beneficially owned approximately 98.9% of IMM’s outstanding common stock. On July 25, 2012, we effected the compulsory acquisition of the remaining shares under applicable provisions of the Cayman Island Companies Law, under which IMM is incorporated. We paid consideration of approximately $16.2 million to complete the compulsory acquisition. The combined effect of these transactions resulted in our beneficial ownership of 100% of the common stock of IMM.

Prior to obtaining control on December 29, 2011, our investment in IMM had been accounted for under the equity method. Upon obtaining control, we applied the acquisition method of accounting, re-measured the preexisting interest at fair value and recorded a gain of $19.4 million. The gain is reported in the Consolidated Statement of Income under the heading Other income for the period ended October 26, 2012. The results of operations for IMM have been included in the accompanying financial statements from December 29, 2011 forward as part of the Underground Mining Machinery segment. Prior to obtaining control, our share of income from IMM was reported in the Consolidated Statements of Income under the heading Other income and included in Corporate.

The determination of the fair value of the net assets acquired was finalized in the first quarter of fiscal 2013. The allocation of the purchase price to the assets acquired and liabilities assumed is based on the estimated fair values at the date of acquisition. The excess of the purchase price over the net tangible and identifiable intangible assets is reflected as goodwill. Adjustments have been made in the current year to reflect updated fair value estimates for intangible assets and to adjust for receivables and other liabilities. The following table summarizes the estimates of fair value of the assets acquired and the liabilities assumed as of the acquisition date:



(in thousands)
Assets Acquired:
Cash and cash equivalents	$	72,912
Accounts receivable	227,825
Inventories	91,176
Other current assets	15,622
Property, plant and equipment	125,600
Other intangible assets and goodwill	1,160,211
Other non-current assets	34,078
Total assets acquired	1,727,424
Liabilities Assumed:
Short-term notes payable	(14,666		)
Accounts payable	(87,305		)
Employee compensation and benefits	(6,458		)
Advance payments and progress billings	(6,122		)
Other accrued liabilities	(64,916		)
Other non-current liabilities	(124,519		)
Total liabilities assumed	(303,986		)
	$	1,423,438

The fair value for identified intangible assets was primarily determined based upon discounted expected cash flows. Of the $1.2 billion of intangible assets and goodwill, $72.5 million was assigned to indefinite-lived intangible assets. In addition, $80.0 million of the $1.2 billion of intangible assets and goodwill had been assigned to finite-lived intangible assets, which are being amortized over a weighted average life of 13.8 years. The determination of the useful life was based upon historical experience, economic factors and future cash flows of the assets acquired.

The intangible assets have been assigned to the following categories:



(In thousands)
Customer relationships	$	77,300
Backlog	2,700
	$	80,000

The inventory fair value adjustment of $20.9 million associated with the acquisition was expensed in fiscal 2012 through Cost of sales on the Consolidated Statement of Income as the corresponding inventory was sold. We incurred total acquisition costs of $24.8 million related to IMM, of which $0.6 million was recognized in fiscal 2013 and $15.6 million was recognized in fiscal 2012. All other acquisition costs were recognized prior to fiscal 2012.

The following unaudited pro forma financial information for the years ended October 26, 2012 and October 28, 2011 reflect the results of continuing operations of the Company as if the acquisition of IMM had been completed on October 29, 2011 and October 30, 2010, respectively. Pro forma adjustments have been made for changes in depreciation and amortization expenses related to the valuation of the acquired tangible and intangible assets at fair value, the elimination of non-recurring items and the addition of incremental costs related to debt used to finance the acquisition.



	Years Ended
(in thousands, except per share data)	October 26, 2012		October 28, 2011
Net sales	$	5,729,097	$	4,723,808
Income from continuing operations	$	770,921	$	621,894
Basic earnings per share from continuing operations	$	7.28	$	5.93
Diluted earnings per share from continuing operations	$	7.21	$	5.84

The unaudited pro forma financial information is presented for informational purposes only. It is not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisition at the date indicated, nor does it purport to project the future financial position or operating results of the combined company.

Acquisition of LeTourneau

On June 22, 2011, we purchased all of the outstanding capital stock of LeTourneau for approximately $1.1 billion. LeTourneau designs, builds and supports equipment for the mining industry and has been a leader in the earthmoving equipment industry since the 1920s. LeTourneau historically operated in three business segments: mining equipment, steel products and drilling products. Through its mining equipment business, LeTourneau is the world's leading manufacturer of large wheel loaders for surface mining, providing the industry's largest model sizes and payload capacities.

Subsequent to the acquisition, we entered into a definitive agreement to sell the drilling products business of LeTourneau and that transaction closed on October 24, 2011. The results of operations for LeTourneau have been included in the accompanying financial statements from the acquisition date forward, with results of the drilling products business being included as results of discontinued operations. Results for the mining equipment and steel products business are included in continuing operations as part of the Surface Mining Equipment segment.

The purchase price for the acquisition was as follows:



(in thousands)
Cash consideration	$	1,100,000
Working capital purchase price adjustments	(46,323		)
	$	1,053,677

The determination of the fair value of the net assets acquired was finalized in fiscal 2012. The allocation of the purchase price to the assets acquired and liabilities assumed is based upon the estimated fair values at the date of acquisition. The excess of the purchase price over the net tangible and identifiable intangible assets is reflected as goodwill. The amount allocated to intangible assets and goodwill for tax purposes is expected to be tax deductible as a result of our election under Section 338(h)(10) of the Internal Revenue Code. The following table summarizes the fair value of the assets acquired and the liabilities assumed as of the acquisition date:



(in thousands)
Assets Acquired:
Cash and cash equivalents	$	4,769
Accounts receivable	52,910
Inventories	200,050
Other current assets	187
Current assets of discontinued operations	331,412
Property, plant and equipment	106,394
Other intangible assets and goodwill	565,388
Other non-current assets	14,459
Non-current assets of discontinued operations	226,844
Total assets acquired	1,502,413
Liabilities Assumed:
Accounts payable	(37,217		)
Employee compensation and benefits	(10,576		)
Advance payments and progress billings	(97,228		)
Other accrued liabilities	(120,459		)
Current liabilities of discontinued operations	(183,256		)
Total liabilities assumed	(448,736		)
	$	1,053,677

The fair value for identified intangible assets was primarily determined based upon discounted expected cash flows. Of the $565.4 million of intangible assets and goodwill related to continuing operations, $37.2 million was assigned to indefinite-lived intangible assets. In addition, $181.2 million of the $565.4 million of intangible assets and goodwill has been assigned to finite-lived intangible assets, which are being amortized over a weighted average life of 18 years. The determination of the useful life was based on historical experience, economic factors and future cash flows of the assets acquired. The intangible assets have been assigned to the following categories:



(In thousands)
Customer relationships	$	76,500
Patents	69,900
Unpatented technology	31,600
Backlog	3,200
	$	181,200

Approximately $11.5 million and $7.7 million of the inventory fair value adjustment associated with the acquisition was expensed in fiscal 2012 and 2011, respectively, through Cost of sales on the Consolidated Statements of Income as the corresponding inventory was sold. We incurred total acquisition costs of $10.9 million related to LeTourneau, of which $0.5 million was recognized in fiscal 2012. All other acquisition costs were recognized prior to fiscal 2012.

The following unaudited pro forma financial information for the year ended October 28, 2011 reflects the results of continuing operations of the Company as if the acquisition of LeTourneau had been completed on October 30, 2010. Pro forma adjustments have been made for changes in depreciation and amortization expenses related to the valuation of the acquired tangible and intangible assets at fair value, the elimination of non-recurring items, the addition of incremental costs related to debt used to finance the acquisition and the tax benefits related to the increased costs.



	Year Ended
(in thousands, except per share data)	October 28, 2011
Net sales	$	4,620,059
Income from continuing operations	$	913,474
Basic earnings per share from continuing operations	$	6.12
Diluted earnings per share from continuing operations	$	6.02