Business Acquisition, Transaction Costs

[Table of Contents](#ib75a44f638b042a5a7472d3f3be80b22_7)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:

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|  |  | Fair Value (in millions) |  | Weighted-Average Useful Life (in years) |  | Valuation Methodology |  | Key Assumptions |  |  |  |  |  |
| Customer relationships |  | $ | 960  |  |  | 12 |  | Multi-period excess earnings |  | Revenue, EBITDA, rate of return, renewal rates |  |  |  |  |  |  |  |  |  |
| Technology |  | 345  |  |  | 8 |  | Relief-from-royalty |  | Royalty rate, rate of return, obsolescence factor |  |  |  |  |  |  |  |  |  |
| Trade name |  | 305  |  |  | 21 |  | Relief-from-royalty |  | Royalty rate, rate of return |  |  |  |  |  |  |  |  |  |
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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 ($691 million) and the New Power segment ($159 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 third quarter results were revenues of $737 million and net loss of $37 million related to this business. In addition, on a year-to-date basis we have incurred acquisition related costs of $30 million included in selling, general and administrative expenses in our Condensed Consolidated Statements of Net Income.The following table presents the supplemental consolidated results of the Company for the three and nine months ended September 30, 2022 and October 3, 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. 

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| (Unaudited) |  | Three months ended |  | Nine months ended |  |  |  |  |
| In millions |  | September 30,2022 |  | October 3,2021 |  | September 30,2022 |  | October 3,2021 |  |  |  |  |
| Net sales |  | $ | 7,734  |  |  | $ | 6,913  |  |  | $ | 23,071  |  |  | $ | 21,115  |  |  |  |  |  |
| Net income |  | 397  |  |  | 544  |  |  | 1,565  |  |  | 1,662  |  |  |  |  |  |
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The Meritor acquisition increased net assets in the Components segment by $3.8 billion and New Power segment by $0.3 billion.Jacobs Vehicle SystemsOn April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. The purchase price was $346 million in cash, subject to typical adjustments related to closing working capital and other amounts and does not contain any contingent consideration. Jacobs is a supplier of engine braking, cylinder deactivation and start and stop thermal management technologies. The acquisition furthers our investment in key technologies and capabilities to drive growth, while securing our supply base. 27
