SPECIAL ITEMS

12 Months Ended

Oct. 30, 2022

SPECIAL ITEMS

SPECIAL ITEMS

4. SPECIAL ITEMS

UAW Collective Bargaining Agreement

In November 2021, employees represented by the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (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 included 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 7 for more information on the U.S. hourly plan remeasurement.

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 and provides financial services in Russia. As of October 30, 2022, the company’s net exposure in Russia / Ukraine was approximately $266 million, including ruble exposure of $31 million (ruble-denominated financial assets, net of cross-currency interest rate contracts). 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 reduced the forecasted revenue for the region, which made it probable future cash flows will not cover the carrying value of certain assets. As a result, an impairment was recorded for most long-lived assets in Russia, and the company’s U.S. senior management decided to initiate a voluntary employee-separation program. The company also recorded a reserve on inventory, and increased its allowance for credit losses, reflecting economic uncertainty in Russia.

The financial services operations received an intercompany benefit from the equipment operations, which guarantees the financial services’ investments in certain international markets, including Russia.

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. The company’s U.S. senior management continues to closely monitor all financial risks to company operations in the region. A summary of the reserves, impairments, and voluntary-separation costs recorded in 2022 follows in millions of dollars. See Note 25 for fair value measurement information.

	PPA		SAT		CF		FS		Total
Inventory reserve – Cost of sales	$	14	$	2	$	3			$	19
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							$	153		153
Voluntary-separation program: – Cost of sales		3								3
– SA&G expenses		4				6		1		11
Intercompany agreement		82		9		62		(153)
Total Russia/Ukraine events pretax expense	$	133	$	11	$	110	$	1		255
Net tax impact										(40)
Total Russia/Ukraine events after-tax expense									$	215

Gain on Previously Held Equity Investment

In March 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 3).

2021 Special Items

In 2021, the company sold a closed factory that previously produced small agricultural equipment in China, resulting in a $27 million pretax gain. 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. The company recognized a favorable indirect tax ruling in Brazil of $58 million pretax. See Note 25 for fair value measurement information.

Summary of 2022 and 2021 Special Items

The following table summarizes the operating profit impact, in millions of dollars, of the special items recorded in 2022 and 2021:

	PPA		SAT		CF		FS		Total
2022 Expense (benefit)
Gain on remeasurement of equity investment – Other income (Note 3)					$	(326)			$	(326)
Total Russia/Ukraine events pretax expense	$	133	$	11		110	$	1		255
UAW ratification bonus – Cost of sales		53		9		28				90
Total expense (benefit)		186		20		(188)		1		19
2021 Expense (benefit)
Gain on sale – Other income				(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)		(48)		(24)		37				(35)
Year over year change	$	234	$	44	$	(225)	$	1	$	54

2020 Special Items

In 2020, the company closed a factory that produced small agricultural equipment in China, recognized impairments in the fixed assets in an asphalt plant factory in Germany, a construction equipment factory in Brazil, and other international locations, and recorded impairments of equipment on operating leases and matured lease inventory, as well as impairments of the investment in certain affiliate companies. A summary of the factory closure and costs related to impairments follows in millions of dollars. See Note 25 for a description of the valuation methodologies used to measure these impairments.

	PPA		SAT		CF		FS		Total
Factory closure – Cost of sales			$	20					$	20
Long-lived asset impairments:
Cost of sales				13	$	80				93
SA&G expenses	$	2		2						4
Other operating expenses							$	32		32
Affiliate company impairments – Equity in loss of unconsolidated affiliates						50				50
Total pretax impairments and closure costs	$	2	$	35	$	130	$	32	$	199

Employee-Separation Programs

During 2020, the company implemented employee-separation programs for the company’s salaried workforce in several geographic areas, including the U.S., Europe, Asia, and Latin America. The programs’ main purpose was to improve efficiency through a leaner, more flexible organization. The programs were largely voluntary in nature with the expense recorded in the period in which the employees irrevocably accepted a separation offer. For the limited involuntary employee-separation programs, the expense was recorded when management committed to a plan, the plan was communicated to the employees, and the employees were not required to provide service beyond the legal notification period. The programs provided for cash payments based on years of service, and in some countries subsidized healthcare for a limited period and outplacement services.

The programs’ total pretax expenses in 2020 were as follows in millions of dollars:

	PPA		SAT		CF		FS		Total
Cost of sales	$	51	$	31	$	22			$	104
Research and development expenses		29		18		8				55
Selling, administrative and general expenses		53		43		24	$	15		135
Total operating profit impact	$	133	$	92	$	54	$	15		294
Non-operating profit impact*										41
Total pretax expense									$	335

*    Relates primarily to non-cash charges of $34 million from curtailments in certain OPEB plans (see Note 7) and other corporate expenses, both of which were recorded outside of operating profit. Approximately $6 million of the curtailment charge was recorded by financial services.

Redeemable Noncontrolling Interest

In 2020, the minority interest holder in Hagie Manufacturing Company, LLC (Hagie) exercised its right to sell the remaining 20 percent interest to the company for $14 million. As a result of such transaction, the company became a 100 percent interest holder in Hagie. The arrangement was accounted for as an equity transaction with no gain or loss recorded in the statements of consolidated income. This operation is included in the company’s production and precision agriculture segment.