Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS

v3.24.0.1
ACQUISITIONS
 12 Months Ended
Dec. 31, 2023
Business Combinations [Abstract]  
Mergers, Acquisitions and Dispositions Disclosures
NOTE 24. ACQUISITIONS
Acquisitions for the years ended December 31, 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
Type of Acquisition(1)
Goodwill Acquired
Intangibles Recognized(2)
2023
Cummins France SA 10/31/23 100  % $ 25  $ 5  $ 30  COMB $ 4  $ — 
Faurecia 10/02/23 100  % 210  —  210 
(3)
 COMB 90  — 
Hydrogenics Corporation (Hydrogenics) 06/29/23 19  % 287  48  335 
(4)
 EQUITY —  — 
Teksid Hierro de Mexico, S.A. de C.V. (Teksid MX) 04/03/23 100  % 143  —  143 
(5)
 COMB 18  — 
2022
Siemens Commercial Vehicles Propulsion (Siemens CVP) 11/30/22 100  % $ 187  $ —  $ 187  COMB $ 70  $ 106 
Meritor, Inc. (Meritor) 08/03/22 100  % 2,613  248  2,861  COMB 926  1,610 
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) 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).
(2) Intangible assets acquired in the business combination were mostly customer, technology and trade name related.
(3) Total purchase consideration included $30 million for the settlement of accounts payable that were treated as an operating cash outflow.
(4) 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.
(5) Total purchase consideration included $32 million for the settlement of accounts payable that were treated as an operating cash outflow.
Faurecia
On October 2, 2023, we purchased, from the Forvia Group, all of the equity ownership of Faurecia's U.S. and Europe commercial vehicle exhaust business for $210 million, subject to certain working capital and other customary adjustments, and does not contain any contingent consideration. The acquisition provides canning and assembly operations for full exhaust systems primarily for on-highway applications, ensures the long-term supply of aftertreatment components, minimizes opportunities for supply disruptions, adds significant technical and manufacturing resources and enhances our existing portfolio. 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 contingent liabilities and deferred taxes.
The preliminary purchase price allocation was as follows:
In millions
Cash and cash equivalents $ 8 
Accounts and notes receivable, net (1)
52 
Inventories 32 
Property, plant and equipment 93 
Goodwill 90 
Other current and long-term assets 46 
Accounts payable (principally trade) (62)
Other current and long-term liabilities (49)
Total purchase price $ 210 
 (1) Includes $30 million of Cummins receivables that were eliminated against payables at other Cummins entities.
Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible assets and liabilities. All of the goodwill is expected to be deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are an acquired workforce and other economic benefits that are anticipated to arise from operational synergies from combining the business with Cummins.
The results of this business were reported in our Components segment within the emission solutions business. Since we are the primary customer of this business, the acquisition is not expected to result in material incremental sales to our business. Pro forma financial information for the acquisition was not presented as the effects were not material to our Consolidated Financial Statements.
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 Consolidated Financial Statements. The debt amount, net of unamortized debt discount, was $148 million and reflected in current maturities of long-term debt and long-term debt at December 31, 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 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 $143 million (including $32 million for the settlement of accounts payable), 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 $18 million of goodwill, none of which is deductible for tax purposes. In the third quarter we finalized the purchase accounting and made certain other adjustments, which resulted in a $7 million decrease in goodwill. The results of the business were reported in our Engine segment. Pro forma financial information for the acquisition was not presented as the effects were not material to our Consolidated Financial Statements.
Siemens CVP
On November 30, 2022, we acquired Siemens' Commercial Vehicles Propulsion business for approximately $187 million, subject to working capital and other customary adjustments, and was allocated primarily to intangible assets, goodwill and inventories. This business develops, designs and produces electric drive systems including electric motors, inverters, software and related services for the commercial vehicle markets. This acquisition is included in our Accelera segment. This acquisition added key capabilities in direct drive and transmission-based remote mount electric motors, inverters, software and related services that are critical elements in the next generation of electric powertrain, which will accelerate our ability to offer global customers a wider array of electrified product solutions across commercial vehicle applications. Final purchase accounting adjustments did not significantly impact goodwill.
Meritor, Inc.
On August 3, 2022, we completed the acquisition of Meritor whereby we paid $36.50 per share for each outstanding share of Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. The total purchase price was $2.9 billion, including debt that was retired on the closing date of $248 million. In addition, we assumed $1.0 billion of additional debt, of which $0.9 billion was retired prior to the end of the third quarter of 2022. The acquisition was funded with a combination of $2.0 billion in new debt (see NOTE 13, "DEBT" for additional details), cash on hand and additional commercial paper borrowings. The integration of Meritor’s people, technology and capabilities position us as one of the few companies able to provide integrated powertrain solutions across combustion and electric power applications at a time when demand for decarbonized solutions is continuing to accelerate. The majority of this business was be included within our Components segment with the exception of the electric powertrain business, which was included in our Accelera segment.
The final purchase price allocation has been updated as follows:
In millions
Cash and cash equivalents $ 98 
Accounts and notes receivable, net 640 
Inventories 750 
Property, plant and equipment 841 
Intangible assets 1,610 
Investments and advances related to equity method investees 382 
Goodwill 926 
Pension assets 147 
Other current and long-term assets 322 
Accounts payable (principally trade) (711)
Net deferred taxes (277)
Other liabilities (pensions and other postretirement benefits) (129)
Long-term debt (962)
Other current and long-term liabilities (665)
Noncontrolling interests (111)
Total purchase price $ 2,861 
During 2023, we finalized our accounting for the Meritor, Inc. acquisition. The primary components of the change were to increase contingent liabilities by $70 million offset by finalization of deferred taxes and tax reserves, with a net increase to goodwill of $32 million. There was no impact to the Consolidated Statements of Net Income for any of the changes.
The estimated fair values (all considered Level 3 measurements) of the identifiable intangible assets acquired, their weighted-average useful lives, the related valuation methodology and key assumptions are as follows:
Fair Value (in millions) Weighted-Average Useful Life (in years) Valuation Methodology Key Assumptions
Customer relationships $ 960  12 Multi-period excess earnings
Revenue, EBITDA(1), discount rate, customer renewal rates, customer attrition rates
Technology 345  8 Relief-from-royalty Royalty rate, discount rate, obsolescence factor
Trade name 305  21 Relief-from-royalty Royalty rate, discount rate
(1) Earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests.
Annual amortization of the intangible assets for the next five years is expected to approximate $142 million per year.
Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities. Goodwill was allocated to the Components segment ($759 million) and the Accelera segment ($167 million) based on the relative value of those businesses compared to the assets and liabilities assigned to them. We do not expect any of the goodwill to be deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are Meritor’s expected future customers, new versions of technologies, an acquired workforce, other economic benefits that are anticipated to arise from future product sales and operational synergies from combining the business with Cummins.
Included in our results for the year ended December 31, 2022, were revenues of $1.9 billion and net loss of $43 million related to this business. In addition, in 2022 we incurred acquisition related costs of $30 million included in selling, general and administrative expenses in our Consolidated Statements of Net Income.
The following table presents the supplemental consolidated results of the Company for the years ended December 2022 and 2021, on an unaudited pro-forma basis as if the acquisition had been consummated on January 1, 2021. The primary adjustments reflected in the pro-forma results related to (1) increase in interest expense for debt used to fund the acquisition, (2) removal of acquisition related costs from 2022 (and included in 2021) and (3) changes related to purchase accounting primarily related to amortization of intangibles, fixed assets and joint ventures. The unaudited pro forma financial information presented below does not purport to represent the actual results of operations that Cummins and Meritor would have achieved had the companies been combined during the periods presented and was not intended to project the future results of operations that the combined company could achieve after the acquisition. The unaudited pro forma financial information does not reflect any potential cost savings, operating efficiencies, long-term debt pay down estimates, financial synergies or other strategic benefits as a result of the acquisition or any restructuring costs to achieve those benefits.
(Unaudited) Years ended December 31,
In millions 2022 2021
Net sales $ 30,841  $ 27,949 
Net income 2,196  2,058 
The Meritor acquisition increased net assets in the Components segment by $3.8 billion and Accelera segment by $0.3 billion in 2022.
Jacobs Vehicle Systems
On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. The purchase price was $345 million in cash and does not contain any contingent consideration. Jacobs is a supplier of engine braking, cylinder deactivation and start and stop thermal management technologies (valvetrain technologies). The acquisition furthers our investment in key technologies and capabilities to drive growth, while securing our supply base.
The final purchase price allocation was as follows:
In millions
Cash and cash equivalents $ 18 
Accounts and notes receivable, net 24 
Inventories 15 
Property, plant and equipment 70 
Intangible assets 164 
Goodwill 108 
Accounts payable (principally trade) (21)
Net deferred taxes (27)
Other, net (6)
Total purchase price $ 345 
The estimated fair values (all considered Level 3 measurements) of the identifiable intangible assets acquired, their weighted-average useful lives, the related valuation methodology and key assumptions are as follows:
Fair Value (in millions) Weighted-Average Useful Life (in years) Valuation Methodology Key Assumptions
Customer relationships $ 108  9 Multi-period excess earnings Discount rate, customer renewal rates
Technology 31  7 Relief-from-royalty Royalty rate, rate of return, obsolescence factor
Trade name 25  14 Relief-from-royalty Royalty rate, discount
Annual amortization of the intangible assets for the next five years is expected to approximate $18 million per year.
Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities. Approximately $9 million of the goodwill is deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are Jacobs' expected future customers, new versions of technologies, an acquired workforce and other economic benefits that are anticipated to arise from future product sales and operational synergies from combining the business with Cummins.
Included in our results for the year ended December 31, 2022, were revenues of $118 million and loss of $1 million related to this business. The results of this business were reported in our Components segment. Pro forma financial information for the acquisition was not presented as the effects were not material to our Consolidated Financial Statements.
Westport JV
On February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Westport JV. We will continue to operate the business as the sole owner. The purchase price was $42 million and was allocated primarily to cash, warranty and deferred revenue related to extended coverage contracts. The results of the business were reported in our Engine segment. Pro forma financial information for the acquisition was not presented as the effects were not material to our Consolidated Financial Statements.