Business Combination

6 Months Ended

Apr. 29, 2022

Business Combination and Asset Acquisition [Abstract]

Business Combination

2 Business Combination

Intimidator Group

On January 13, 2022 ("closing date"), pursuant to an equity interest purchase agreement ("equity agreement"), the company acquired the privately-held Intimidator Group ("Intimidator"). Intimidator primarily designs, manufactures, markets, and sells a commercial-grade line of zero-turn mowers under the Spartan Mowers brand, which are intended to provide innovative turf management solutions to landscape contractors and other customers who require a commercial-grade solution. The acquisition of Intimidator broadened the company's Professional reportable segment and expanded its manufacturing footprint and dealer network.

The Intimidator acquisition was structured as an equity purchase, pursuant to which the company acquired 100 percent of the equity interests of the legal entities that comprised Intimidator, with the legal entities continuing as surviving entities and wholly-owned subsidiaries of the company. As part of the acquisition, the company also acquired the real property used by Intimidator that was owned by an affiliate of Intimidator. The aggregate preliminary cash consideration was $400.5 million ("purchase price") and remains subject to certain customary adjustments based on, among other things, the amount of actual cash, debt, and working capital in the business of Intimidator at the closing date. Such customary adjustments are expected to be completed during fiscal 2022. Additionally, the aggregate preliminary cash consideration remains subject to contingent consideration through the end of calendar year 2022, in the event of certain qualifying tax changes. As a result, the company could be subject to additional cash purchase consideration for an amount not to exceed $15.0 million and remittance of such contingent consideration, if required, is due by March 15, 2023. As of April 29, 2022, no liability was recorded within the Condensed Consolidated Balance Sheets for the contingent consideration as the contingency is not probable or estimable. If amounts were recorded for the contingent consideration during the 12 month provisional measurement period allowed under the accounting standards codification guidance for business combinations as a result of a qualifying tax change, the aggregate preliminary cash consideration would be increased by the amount of the contingent consideration with a corresponding increase in the goodwill recognized for the acquisition. The company funded the preliminary purchase price with borrowings under its existing unsecured senior revolving credit facility and cash provided by operating activities. For additional information regarding the company's unsecured senior revolving credit facility utilized to fund the purchase price, refer to Note 6, Indebtedness.

Preliminary Purchase Price Allocation

The company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the aggregate preliminary purchase price was allocated to the acquired net tangible and intangible assets of Intimidator based on their fair values as of the closing date. The company believes that the information available as of the closing date provides a reasonable basis for estimating fair values of the assets acquired and liabilities assumed; however, the company is continuing to finalize these amounts. Thus, the preliminary measurements of the fair values of the assets acquired and liabilities assumed within the preliminary purchase price allocation are subject to change as additional information becomes available and as additional analysis is performed. The company expects to finalize its preliminary valuation and complete the allocation of the preliminary purchase price as soon as practicable, but no later than one year from the closing date of the acquisition, as required.

The following table summarizes the allocation of the preliminary purchase price to the fair values assigned to the assets acquired and liabilities assumed. These preliminary fair values are based on internal company and independent external third-party valuations and are subject to change as certain asset and liability valuations are finalized:

(Dollars in thousands)	January 13, 2022
Cash and cash equivalents	$	975
Receivables	6,954
Inventories	34,608
Prepaid expenses and other current assets	512
Property, plant and equipment	27,619
Right-of-use assets	344
Goodwill	160,829
Other intangible assets:
Indefinite-lived trade name	99,100
Finite-lived trade names	3,260
Finite-lived customer-related	80,500
Finite-lived backlog	1,340
Accounts payable	(8,535)
Accrued liabilities	(5,687)
Short-term lease liabilities	(100)
Long-term lease liabilities	(244)
Total fair value of net assets acquired	401,475
Less: cash and cash equivalents acquired	(975)
Total preliminary purchase price	$	400,500

The goodwill recognized is primarily attributable to the expected future cash flows, the value of the workforce, and expected synergies, including customer and dealer growth opportunities, expanding existing product lines, and cost reduction initiatives. 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 acquisition of Intimidator was recognized within the

company's Professional segment and is the primary driver for the increase in the company's Professional segment goodwill to $570.9 million as of April 29, 2022 as compared to $411.1 million as of October 31, 2021. The acquisition was considered an asset acquisition for income tax purposes and as a result, the goodwill arising from the transaction is deductible. As permitted under the accounting standards codification guidance for business combinations, the company recorded a $5.2 million increase to the carrying value of goodwill as of April 29, 2022 as a result of revising the Intimidator purchase price for certain customary adjustments. Such purchase accounting adjustment did not impact the company's Consolidated Statements of Earnings for the three and six month periods ended April 29, 2022.

Other Intangible Assets Acquired

The allocation of the preliminary purchase price to the net assets acquired resulted in the recognition of $184.2 million of preliminary value for other intangible assets as of the closing date. The preliminary fair values of the acquired trade names, customer-related, and backlog 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. As of the closing date, the acquired finite-lived intangible assets had a weighted average useful life of 9.5 years. The preliminary 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 respective trade name and were based on expected future revenues from the respective trade name. The weighted-average useful life of the finite-lived trade name intangible assets was determined to be 9.8 years as of the closing date. The preliminary fair values of the customer-related and backlog intangible assets were determined using the excess earnings method and were based on the expected operating cash flows attributable to the respective intangible asset, which were determined by deducting expected economic costs, including operating expenses and contributory asset charges, from the revenue expected to be generated from the respective intangible asset. As of the closing date of the acquisition, the weighted-average useful life of the customer-related and backlog intangible assets were determined to be 9.6 years and 9 months, respectively.

Results of Operations

Intimidator's results of operations are included within the company's Professional reportable segment in the company's Condensed Consolidated Financial Statements from the closing date. For the three and six months ended April 29, 2022, the company recognized $60.5 million of net sales from Intimidator's operations. Intimidator's operations had an immaterial impact on Professional segment earnings for the three and six month periods ended April 29, 2022. Unaudited pro forma financial information is not disclosed as the Intimidator acquisition was not considered material to the company's consolidated results of operations.