Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

ACQUISITIONS

ACQUISITIONS

12 Months Ended

Dec. 31, 2014

NOTE 2. ACQUISITIONS

In September 2013, we announced our intention to acquire the equity that we do not already own in most of our partially-owned United States and Canadian distributors over the next three to five years.

The Distribution segment joint venture acquisitions for the years ended December 31, 2014, 2013 and 2012 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⁾	Gain Recognized⁽¹⁾		Goodwill Acquired		Intangibles Recognized⁽²⁾		Net Sales Previous Fiscal Year Ended⁽³⁾
2014
Cummins Bridgeway LLC (Bridgeway)⁽⁴⁾	11/03/14	54%	$	22	$	45	$	77	⁽⁵⁾	COMB	$	13	$	4	$	15	$	331
Cummins Npower LLC (Npower)	09/29/14	50%	33		34		73		⁽⁵⁾	COMB	15		7		8		374
Cummins Power South LLC (Power South)	09/29/14	50%	17		16		35		⁽⁵⁾	COMB	7		8		1		239
Cummins Eastern Canada LP (Eastern Canada)	08/04/14	50%	29		32		62		⁽⁵⁾	COMB	18		5		4		228
Cummins Power Systems LLC (Power Systems)	05/05/14	30%	14		—		14			EQUITY	—		—		—		—
Cummins Southern Plains LLC (Southern Plains)	03/31/14	50%	43		48		92		⁽⁵⁾	COMB	13		1		11		433
Cummins Mid-South LLC (Mid-South)	02/14/14	62.2%	55		61		118		⁽⁵⁾	COMB	7		4		8		368
2013
Cummins Western Canada LP (Western Canada)	12/31/13	35%	$	32	$	—	$	32		EQUITY	$	—	$	—	$	—	$	—
Cummins Rocky Mountain LLC (Rocky Mountain)	05/06/13	67%	62		74		136			COMB	5		10		8		384
Cummins Northwest LLC (Northwest)	07/01/13	20.01%	4		—		4			EQUITY	—		—		—		—
Cummins Northwest LLC (Northwest)⁽⁶⁾	01/31/13	50%	18		—		18			COMB	7		3		2		137
2012
Cummins Central Power LLC (Central Power)⁽⁷⁾	07/02/12	45%	$	26	$	—	$	26		COMB	$	7	$	—	$	4	$	209

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⁽¹⁾

All results from acquired entities were included in Distribution 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) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP and are included in the Consolidated Statements of Income as "Other income (expense), net."


⁽²⁾	Intangible assets acquired in business combinations were mostly customer related, the majority of which will be amortized over a period of up to five years from the date of the acquisition.


⁽³⁾	Sales amounts are not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.

⁽⁴⁾Purchase accounting for this acquisition is preliminary awaiting customary adjustment to purchase price in accordance with the purchase agreements.


⁽⁵⁾	The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. In some instances a portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2014, was $22 million.

⁽⁶⁾

Prior to our decision to acquire the remaining interest in our North American and Canadian distributors, we acquired the remaining ownership interest in Northwest and immediately formed a new partnership with a new distributor principal and sold 20.01 percent to the new distributor principal. We retained a new ownership in Northwest of 79.99 percent. We subsequently repurchased the remaining outstanding interest under the new contract in July 2013.


⁽⁷⁾	After the acquisition, Cummins owned a 79.99 percent interest in Central Power.

The final purchase allocations for the largest acquisitions for 2014 and 2013 were as follows:



In millions	Southern Plains			Mid-South			Rocky Mountain
Accounts receivable	$	63		$	71		$	48
Inventory	59			70			100
Fixed assets	47			37			34
Intangible assets	11			8			8
Goodwill	1			4			10
Other current assets	8			10			8
Current liabilities	(53		)	(43		)	(41		)
Other long-term liability	—			(4		)	—
Total business valuation	136			153			167
Fair value of pre-existing interest	(44		)	(35		)	(31		)
Total purchase consideration	$	92		$	118		$	136

North American distributor acquisitions excluded from the table were deemed immaterial individually and in the aggregate for additional disclosure.

Hilite Germany GmbH

In July 2012, we purchased the doser technology and business assets from Hilite Germany GmbH (Hilite) in a cash transaction. Dosers are products that enable compliance with emission standards in certain aftertreatment systems and complement our current product offerings. The purchase price was $176 million and is summarized below. There was no contingent consideration associated with this transaction. During 2012, we expensed approximately $4 million of acquisition related costs.

The acquisition of Hilite was accounted for as a business combination with the results of the acquired entity and the goodwill included in the Components operating segment beginning in the third quarter of 2012. The majority of the purchase price was allocated to technology and customer related intangible assets and goodwill.

Intangible assets by asset class, including weighted average amortization life, were as follows:



Dollars in millions	Purchase price allocation		Weighted average amortization life in years
Technology	$	52	10.6
Customer	23		4.5
License arrangements	8		6.0
Total intangible assets	$	83	8.5

The purchase allocation was as follows:



In millions
Inventory	$	5
Fixed assets	5
Intangible assets	83
Goodwill	91
Liabilities	(8		)
Total purchase consideration	$	176

Net sales for Hilite were $104 million for 2012, of which $46 million was included in our Consolidated Statements of Income.