Quarterly report pursuant to Section 13 or 15(d)

FORMATION OF ATMUS AND IPO

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FORMATION OF ATMUS AND IPO
 6 Months Ended
Jun. 30, 2023
Business Acquisition [Line Items]  
Mergers, Acquisitions and Dispositions Disclosures
NOTE 16. ACQUISITIONS
Acquisitions for the six months ended June 30, 2023 and 2022, were as follows:
Entity Acquired (Dollars in millions) Date of Acquisition Additional Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements
Total Purchase Consideration(1)
Type of Acquisition(2)
Goodwill Acquired
Intangibles Recognized(3)
2023
Hydrogenics Corporation (Hydrogenics) 06/29/23 19% $ 287  $ 48  $ 335  EQUITY $ —  $ — 
Teksid Hierro de Mexico, S.A. de C.V. (Teksid MX) 04/03/23 100% 150 —  150 COMB 25 — 
2022 (4)
Jacobs Vehicle Systems (Jacobs) 04/08/22 100% $ 345  $ —  $ 345  COMB $ 108  $ 164 
Cummins Westport, Inc. (Westport JV) 02/07/22 50% 42  —  42  COMB —  20 
(1) The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. Hydrogenics entered into three non-interest-bearing promissory notes with $175 million paid on July 31, 2023, and the remaining $160 million due in three installments through 2025.
(2) All results from acquired entities were included in segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB).
(3) Intangible assets acquired in the business combination were mostly customer, technology and trade name related.
Hydrogenics Corporation - Redeemable Noncontrolling Interest
On June 29, 2023, a share purchase agreement was executed with a 19 percent minority shareholder in one of our businesses, Hydrogenics Corporation (Hydrogenics), whereby we agreed to pay the minority shareholder $335 million for their 19 percent ownership, including the settlement of shareholder loans of $48 million. As part of the share purchase agreement, Hydrogenics entered into three non-interest-bearing promissory notes with $175 million paid on July 31, 2023, and the remaining $160 million due in three installments through 2025. We recorded the non-interest-bearing promissory notes at their present value in our Condensed Consolidated Financial Statements. The short-term amount was $175 million and recorded in loans payable at June 30, 2023. The long-term amount, net of unamortized debt discount, was $145 million and reflected in long-term debt at June 30, 2023.
Prior to the execution of this transaction, the minority shareholder had, among other rights and subject to related obligations and restrictive covenants, rights that were exercisable between September 2022 and September 2026 to require us to (1) purchase such shareholder's shares (put option) at an amount up to the fair market value (calculated pursuant to a process outlined in the shareholders' agreement) and (2) sell to such shareholder Hydrogenics' electrolyzer business at an amount up to the fair market value of the electrolyzer business (calculated pursuant to a process outlined in the shareholders’ agreement). The estimated fair value of the put option was recorded as redeemable noncontrolling interests in our Condensed Consolidated Financial Statements with an offset to additional paid-in capital, and at December 31, 2022, the balance was $258 million. The redeemable noncontrolling interest balance was reduced to zero as of the acquisition date.
Teksid Hierro de Mexico, S.A. de C.V.
On April 3, 2023, we purchased all of the equity ownership interest of Teksid Hierro de Mexico, S.A. de C.V. (Teksid MX) and Teksid, Inc. from Stellantis N.V. for approximately $150 million, subject to certain adjustments set forth in the agreement. Teksid MX operates a cast iron foundry located in Monclova, Mexico, which primarily forges blocks and heads used in our and other manufacturers’ engines. Teksid, Inc. facilitates the commercialization of Teksid MX products in North America. Since we are the primary customer of the foundry, the acquisition is not expected to result in material incremental sales to our business. Approximately $90 million of the purchase price was allocated to property, plant and equipment. The remainder was allocated primarily to working capital assets and liabilities (including approximately $16 million of cash and cash equivalents) and resulted in approximately $25 million of goodwill, none of which is deductible for tax purposes. The values assigned to individual assets acquired and liabilities assumed are preliminary based on management’s current best estimate and subject to change as certain matters are finalized. The primary areas that remain open are related to deferred taxes and other tax contingencies. The results of the business were reported in our Engine segment. Pro forma financial information for the acquisition was not presented as the effects are not material to our Condensed Consolidated Financial Statements.
Meritor, Inc.
During the second quarter of 2023, we finalized our accounting for the Meritor, Inc. acquisition. The primary components of the change were to increase contingent liabilities by $62 million offset by finalization of deferred taxes and tax reserves, with a net increase to goodwill of $26 million. There was no impact to the Condensed Consolidated Statements of Net Income for any of the changes.
Pending Acquisition
In May 2023, we agreed to purchase from the Forvia Group, Faurecia's U.S. and Europe commercial vehicle exhaust business for approximately €142 million, subject to final working capital and other adjustments. The transaction is expected to close in the fourth quarter. This acquisition will be included in our Components segment with the emission solutions business unit. Since we are the primary customer of this business, the acquisition is not expected to result in material incremental sales to our business.
Atmus Filtration Technologies Inc.  
Business Acquisition [Line Items]  
Mergers, Acquisitions and Dispositions Disclosures
NOTE 15. FORMATION OF ATMUS AND IPO
On May 23, 2023, in connection with the Atmus IPO, Cummins issued approximately $350 million of commercial paper with certain lenders. On May 26, 2023, Atmus shares began trading on the New York Stock Exchange under the symbol "ATMU." The IPO was completed on May 30, 2023, whereby Cummins exchanged 19.5 percent (approximately 16 million shares) of its ownership in Atmus, at $19.50 per share, to retire $299 million of the commercial paper as proceeds from the offering through a non-cash transaction.
In connection with the completion of the IPO, through a series of asset and equity contributions, we transferred the filtration business to Atmus. In exchange, Atmus transferred consideration of approximately $650 million to Cummins, which consisted primarily of the net proceeds from a term loan facility and revolver executed by Atmus during May 2023. The commercial paper issued and retired through the IPO proceeds, coupled with the $650 million received, is intended to be used for the retirement of our historical debt, dividends and share repurchases. The difference between the commercial paper retired from the IPO, other IPO related fees and the net book value of our divested interest was $285 million and was recorded as an offset to additional paid-in capital. Of our consolidated cash and cash equivalents at June 30, 2023, $134 million is retained by Atmus for its working capital purposes. See NOTE 9, "DEBT," to our Condensed Consolidated Financial Statements for additional information.
We will continue to consolidate the financial position and results of Atmus, so long as we retain control. The earnings attributable to the divested, noncontrolling interest for the period from IPO until June 30, 2023, were not material for the three months ended June 30, 2023. At June 30, 2023, the noncontrolling interest associated with Atmus is reflected in noncontrolling interests in our Condensed Consolidated Balance Sheets.
Subject to market conditions, we intend to make a tax-free split-off of Atmus, pursuant to which Cummins will offer its stockholders the option to exchange their shares of Cummins common stock for shares of Atmus common stock in an exchange offer.