Annual report pursuant to Section 13 and 15(d)

FORMATION OF ATMUS AND IPO

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FORMATION OF ATMUS AND IPO
 12 Months Ended
Dec. 31, 2024
Business Acquisition [Line Items]  
Mergers, Acquisitions and Dispositions Disclosures
NOTE 23. ACQUISITIONS
Acquisitions for the for the years ended December 31, 2024, 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)
2024
Engendren Corporation 02/16/24 100  % $ 65  $ —  $ 65  COMB $ 33  $ 8 
2023
Cummins France SA 10/31/23 100  % $ 25  $ 5  $ 30  COMB $ 4  $ — 
Faurecia 10/02/23 100  % 208  —  208 
(3)
 COMB 92  — 
Hydrogenics Corporation 06/29/23 19  % 287  48  335 
(4)
 EQUITY —  — 
Teksid Hierro de Mexico, S.A. de C.V. 04/03/23 100  % 143  $ —  143 
(5)
 COMB 18  $ — 
2022
Siemens Commercial Vehicles Propulsion 11/30/22 100  % $ 187  $ —  $ 187  COMB $ 70  $ 106 
Meritor, Inc. 08/03/22 100  % 2,613  248  2,861  COMB 926  1,610 
Jacobs Vehicle Systems 04/08/22 100  % 345  —  345  COMB 108  164 
Cummins Westport, Inc. 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, $50 million paid on December 31, 2024 and the remaining $110 million due in two installments in 2025.
(5) Total purchase consideration included $32 million for the settlement of accounts payable that was 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 $208 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. In the third quarter of 2024, we finalized the purchase accounting and made certain other adjustments. The primary adjustments were to reduce property, plant and equipment by $3 million, offset by the finalization of purchase price, with a net increase to goodwill of $2 million.
The final purchase price allocation has been updated as follows:
In millions
Cash and cash equivalents $ 8 
Accounts and notes receivable, net (1)
52 
Inventories 32 
Property, plant and equipment 90 
Goodwill 92 
Other current and long-term assets 50 
Accounts payable (principally trade) (66)
Other current and long-term liabilities (50)
Total purchase price $ 208 
 (1) Included $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 in 2023, $50 million paid in 2024 and the remaining $110 million due in two installments in 2025. We recorded the non-interest-bearing promissory notes at their present value in our Consolidated Financial Statements.
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.
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 12, "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 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 was 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 
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 year ended December 2022, 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 (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 period 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) Year ended December 31,
In millions 2022
Net sales $ 30,841 
Net income 2,196 
The Meritor acquisition increased net assets in the Components segment by $3.8 billion and Accelera segment by $0.3 billion in 2022.
Atmus Filtration Technologies Inc.  
Business Acquisition [Line Items]  
Mergers, Acquisitions and Dispositions Disclosures
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 $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, was used for the retirement of our historical debt and payment of dividends. 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 recorded as an offset to additional paid-in capital. Of our consolidated cash and cash equivalents at December 31, 2023, $166 million was retained by Atmus for its working capital purposes.
Divestiture
On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. The transaction involved the exchange of our shares in Atmus for shares of Cummins stock with a 7.0 percent discount on the exchange ratio for Atmus shares. The exchange ratio was determined based on each entity's respective stock price using the daily volume weighted-average stock price for three days preceding the final exchange offer date. Based on the final exchange ratio, we exchanged all 67 million of our Atmus shares for 5.6 million shares of Cummins stock, which was recorded as treasury stock based on the fair value of the Cummins shares obtained.
We evaluated the full divestiture of Atmus and determined the transaction did not qualify for discontinued operation presentation. We recognized a gain related to the divestiture of approximately $1.3 billion (based on the difference between the fair value of the Cummins shares obtained less the carrying value of our Atmus investment), which was recorded in other income, net in our Consolidated Statements of Net Income for the year ended December 31, 2024. Approximately $114 million of goodwill was included in the carrying value of the Atmus investment for purposes of calculating the gain. The operating results of Atmus were reported in the Consolidated Financial Statements through March 18, 2024, the date of divestiture.
As part of the divestiture, the $600 million term loan remained with Atmus after the split. In addition, a net $61 million of other comprehensive income and $19 million of noncontrolling interests related to Atmus were written-off and netted against the gain recognized upon the split.
We entered into a transitional services agreement (TSA) with Atmus that is designed to facilitate the orderly transfer of various services to Atmus. The TSA relates primarily to administrative services, which are generally to be provided over the next 2 years after the divestiture date. This agreement is not material and does not confer upon us the ability to influence the operating and/or financial policies of Atmus subsequent to March 18, 2024