UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2022~~March 31, 2023

Commission File Number 1-4949

CUMMINS INC.

(Exact name of registrant as specified in its charter)


Indiana						35-0257090
(State of Incorporation)						(IRS Employer Identification No.)

500 Jackson Street

Box 3005

Columbus, Indiana 47202-3005

(Address of principal executive offices)

Telephone (812) 377-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $2.50 par value

CMI

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of ~~June 30, 2022,~~March 31, 2023, there were ~~140,992,323~~141,561,784 shares of common stock outstanding with a par value of $2.50 per share.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q


		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Net Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021~~	4

	Condensed Consolidated Balance Sheets at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022	5
	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021~~	6
	Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021~~	7
	Notes to Condensed Consolidated Financial Statements	98
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5247
ITEM 4.	Controls and Procedures	5247
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	5248
ITEM 1A.	Risk Factors	5348
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5449
ITEM 3.	Defaults Upon Senior Securities	5449
ITEM 4.	Mine Safety Disclosures	5449
ITEM 5.	Other Information	5449
ITEM 6.	Exhibits	5550
	Signatures	5651

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)


											Three months ended
		Three months ended				Six months ended					March 31,
In millions, except per share amounts	In millions, except per share amounts	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		In millions, except per share amounts	2023		2022
NET SALES (a) (Note 2)		$	6,586	$	6,111	$	12,971	$	12,203
Cost of sales (Note 3)		4,860		4,633		9,713		9,239
NET SALES (Notes 1 and 2)										NET SALES (Notes 1 and 2)	$	8,453	$	6,385
Cost of sales										Cost of sales	6,424		4,853
GROSS MARGIN	GROSS MARGIN	1,726		1,478		3,258		2,964		GROSS MARGIN	2,029		1,532

OPERATING EXPENSES AND INCOME	OPERATING EXPENSES AND INCOME									OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	Selling, general and administrative expenses	622		600		1,237		1,174		Selling, general and administrative expenses	753		615
Research, development and engineering expenses	Research, development and engineering expenses	299		276		597		536		Research, development and engineering expenses	350		298
Equity, royalty and interest income from investees (Notes 3 and 5)		95		137		191		303
Equity, royalty and interest income from investees (Note 4)										Equity, royalty and interest income from investees (Note 4)	119		96

Other operating expense, net (Note 3)		3		4		114		12
Other operating expense, net										Other operating expense, net	19		111
OPERATING INCOME	OPERATING INCOME	897		735		1,501		1,545		OPERATING INCOME	1,026		604

Interest expense	Interest expense	34		29		51		57		Interest expense	87		17
Other (expense) income, net		(8)		73		(17)		74
Other income (expense), net										Other income (expense), net	90		(9)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	855		779		1,433		1,562		INCOME BEFORE INCOME TAXES	1,029		578

Income tax expense (Note 6)		148		167		303		339
Income tax expense (Note 5)										Income tax expense (Note 5)	223		155
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	707		612		1,130		1,223		CONSOLIDATED NET INCOME	806		423

Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	5		12		10		20		Less: Net income attributable to noncontrolling interests	16		5
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	702	$	600	$	1,120	$	1,203	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	790	$	418

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.	EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.									EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	Basic	$	4.97	$	4.14	$	7.90	$	8.24	Basic	$	5.58	$	2.94
Diluted	Diluted	$	4.94	$	4.10	$	7.86	$	8.16	Diluted	$	5.55	$	2.92

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING	WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING									WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	Basic	141.2		145.1		141.7		146.0		Basic	141.5		142.2
Dilutive effect of stock compensation awards	Dilutive effect of stock compensation awards	0.8		1.4		0.8		1.4		Dilutive effect of stock compensation awards	0.9		0.9
Diluted	Diluted	142.0		146.5		142.5		147.4		Diluted	142.4		143.1

(a) Includes sales to nonconsolidated equity investees of $281 million and $625 million for the three and six months ended June 30, 2022, compared with $423 million and $901 million for the comparable periods in 2021.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
CONSOLIDATED NET INCOME $ 707 $ 612 $ 1,130 $ 1,223
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans 6 17 22 46
Foreign currency translation adjustments (245) 22 (241) (34)
Unrealized gain (loss) on derivatives 43 (38) 71 34
Total other comprehensive (loss) income, net of tax (196) 1 (148) 46
COMPREHENSIVE INCOME 511 613 982 1,269
Less: Comprehensive (loss) income attributable to noncontrolling interests (10) 5 (13) 13
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. $ 521 $ 608 $ 995 $ 1,256



	Three months ended
	March 31,
In millions	2023		2022
CONSOLIDATED NET INCOME	$	806	$	423
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans	(9)		16
Foreign currency translation adjustments	82		4

Unrealized (loss) gain on derivatives	(3)		28
Total other comprehensive income, net of tax	70		48
COMPREHENSIVE INCOME	876		471
Less: Comprehensive income (loss) attributable to noncontrolling interests	19		(3)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	857	$	474

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except par value	In millions, except par value	June 30, 2022		December 31, 2021		In millions, except par value	March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,462	$	2,592	Cash and cash equivalents	$	1,980	$	2,101

Marketable securities (Note 7)		536		595
Marketable securities (Note 6)						Marketable securities (Note 6)	459		472
Total cash, cash equivalents and marketable securities	Total cash, cash equivalents and marketable securities	2,998		3,187		Total cash, cash equivalents and marketable securities	2,439		2,573
Accounts and notes receivable, net	Accounts and notes receivable, net					Accounts and notes receivable, net	5,834		5,202
Trade and other		3,869		3,565
Nonconsolidated equity investees		287		425
Inventories (Note 8)		4,765		4,355

Inventories (Note 7)						Inventories (Note 7)	5,878		5,603
Prepaid expenses and other current assets	Prepaid expenses and other current assets	843		777		Prepaid expenses and other current assets	1,217		1,073
Total current assets	Total current assets	12,762		12,309		Total current assets	15,368		14,451
Long-term assets	Long-term assets					Long-term assets
Property, plant and equipment	Property, plant and equipment	9,374		9,358		Property, plant and equipment	10,629		10,507
Accumulated depreciation	Accumulated depreciation	(4,985)		(4,936)		Accumulated depreciation	(5,039)		(4,986)
Property, plant and equipment, net	Property, plant and equipment, net	4,389		4,422		Property, plant and equipment, net	5,590		5,521
Investments and advances related to equity method investees	Investments and advances related to equity method investees	1,544		1,538		Investments and advances related to equity method investees	1,860		1,759
Goodwill	Goodwill	1,391		1,287		Goodwill	2,365		2,343
Other intangible assets, net	Other intangible assets, net	1,054		900		Other intangible assets, net	2,640		2,687
Pension assets (Note 4)		1,461		1,488
Other assets (Note 9)		1,876		1,766
Pension assets (Note 3)						Pension assets (Note 3)	1,496		1,398
Other assets (Note 8)						Other assets (Note 8)	2,114		2,140
Total assets	Total assets	$	24,477	$	23,710	Total assets	$	31,433	$	30,299

LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities	Current liabilities					Current liabilities
Accounts payable (principally trade)	Accounts payable (principally trade)	$	3,405	$	3,021	Accounts payable (principally trade)	$	4,636	$	4,252
Loans payable (Note 10)		165		208
Commercial paper (Note 10)		705		313
Loans payable (Note 9)						Loans payable (Note 9)	229		210
Commercial paper (Note 9)						Commercial paper (Note 9)	2,545		2,574
Current maturities of long-term debt (Note 9)						Current maturities of long-term debt (Note 9)	569		573
Accrued compensation, benefits and retirement costs	Accrued compensation, benefits and retirement costs	443		683		Accrued compensation, benefits and retirement costs	510		617
Current portion of accrued product warranty (Note 11)		796		755
Current portion of accrued product warranty (Note 10)						Current portion of accrued product warranty (Note 10)	746		726
Current portion of deferred revenue (Note 2)	Current portion of deferred revenue (Note 2)	871		855		Current portion of deferred revenue (Note 2)	1,040		1,004

Other accrued expenses (Note 9)		1,221		1,190
Current maturities of long-term debt (Note 10)		65		59
Other accrued expenses (Note 8)						Other accrued expenses (Note 8)	1,648		1,465
Total current liabilities	Total current liabilities	7,671		7,084		Total current liabilities	11,923		11,421
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt (Note 10)		3,490		3,579
Pensions and other postretirement benefits (Note 4)		589		604
Accrued product warranty (Note 11)		714		684
Long-term debt (Note 9)						Long-term debt (Note 9)	4,409		4,498

Deferred revenue (Note 2)	Deferred revenue (Note 2)	852		850		Deferred revenue (Note 2)	937		844
Other liabilities (Note 9)		1,506		1,508
Other liabilities (Note 8)						Other liabilities (Note 8)	3,283		3,311
Total liabilities	Total liabilities	$	14,822	$	14,309	Total liabilities	$	20,552	$	20,074

Commitments and contingencies (Note 12)		0		0
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)						Redeemable noncontrolling interests (Note 12)	$	261	$	258

EQUITY	EQUITY					EQUITY
Cummins Inc. shareholders’ equity	Cummins Inc. shareholders’ equity					Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,423	$	2,427	Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,230	$	2,243
Retained earnings	Retained earnings	17,450		16,741		Retained earnings	18,605		18,037
Treasury stock, at cost, 81.5 and 80.0 shares		(9,439)		(9,123)
Treasury stock, at cost, 80.9 and 81.2 shares						Treasury stock, at cost, 80.9 and 81.2 shares	(9,389)		(9,415)

Accumulated other comprehensive loss (Note 13)	Accumulated other comprehensive loss (Note 13)	(1,696)		(1,571)		Accumulated other comprehensive loss (Note 13)	(1,823)		(1,890)

Total Cummins Inc. shareholders’ equity	Total Cummins Inc. shareholders’ equity	8,738		8,474		Total Cummins Inc. shareholders’ equity	9,623		8,975
Noncontrolling interests	Noncontrolling interests	917		927		Noncontrolling interests	997		992
Total equity	Total equity	$	9,655	$	9,401	Total equity	$	10,620	$	9,967
Total liabilities and equity		$	24,477	$	23,710
Total liabilities, redeemable noncontrolling interests and equity						Total liabilities, redeemable noncontrolling interests and equity	$	31,433	$	30,299

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


							Three months ended
		Six months ended					March 31,
In millions	In millions	June 30, 2022		July 4, 2021		In millions	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	Consolidated net income	$	1,130	$	1,223	Consolidated net income	$	806	$	423
Adjustments to reconcile consolidated net income to net cash provided by operating activities	Adjustments to reconcile consolidated net income to net cash provided by operating activities					Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	Depreciation and amortization	328		337		Depreciation and amortization	246		161

Deferred income taxes	Deferred income taxes	(112)		17		Deferred income taxes	(38)		(66)
Equity in income of investees, net of dividends	Equity in income of investees, net of dividends	(62)		(114)		Equity in income of investees, net of dividends	(67)		(76)
Pension and OPEB expense (Note 4)		17		41
Pension contributions and OPEB payments (Note 4)		(55)		(68)
Share-based compensation expense		14		18
Pension and OPEB expense (Note 3)						Pension and OPEB expense (Note 3)	1		9
Pension contributions and OPEB payments (Note 3)						Pension contributions and OPEB payments (Note 3)	(92)		(43)

Russian suspension costs, net of recoveries (Note 3)		111		—
Asset impairments and other charges		36		—
Loss on corporate owned life insurance		85		12

Russian suspension costs (Note 15)						Russian suspension costs (Note 15)	—		158

(Gain) loss on corporate owned life insurance						(Gain) loss on corporate owned life insurance	(19)		37

Foreign currency remeasurement and transaction exposure	Foreign currency remeasurement and transaction exposure	(10)		10		Foreign currency remeasurement and transaction exposure	(11)		(7)
Changes in current assets and liabilities, net of acquisitions	Changes in current assets and liabilities, net of acquisitions					Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	Accounts and notes receivable	(252)		(331)		Accounts and notes receivable	(621)		(417)
Inventories	Inventories	(498)		(628)		Inventories	(263)		(289)
Other current assets	Other current assets	(65)		(18)		Other current assets	(142)		(57)
Accounts payable	Accounts payable	426		377		Accounts payable	381		484
Accrued expenses	Accrued expenses	(281)		169		Accrued expenses	151		(251)
Changes in other liabilities	Changes in other liabilities	(11)		(34)		Changes in other liabilities	64		70

Other, net	Other, net	(38)		(56)		Other, net	99		28
Net cash provided by operating activities	Net cash provided by operating activities	763		955		Net cash provided by operating activities	495		164

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(251)		(212)		Capital expenditures	(193)		(104)
Investments in internal use software		(24)		(22)

Proceeds from sale of land		—		20
Investments in and net advances (to) from equity investees		(53)		10
Acquisitions of businesses, net of cash acquired (Note 14)		(245)		—

Acquisition of a business, net of cash acquired (Note 16)						Acquisition of a business, net of cash acquired (Note 16)	—		83

Investments in marketable securities—acquisitions	Investments in marketable securities—acquisitions	(433)		(362)		Investments in marketable securities—acquisitions	(326)		(197)
Investments in marketable securities—liquidations (Note 7)		461		381
Investments in marketable securities—liquidations (Note 6)						Investments in marketable securities—liquidations (Note 6)	345		254

Cash flows from derivatives not designated as hedges		(32)		12

Other, net	Other, net	1		27		Other, net	(54)		(46)
Net cash used in investing activities	Net cash used in investing activities	(576)		(146)		Net cash used in investing activities	(228)		(10)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	Proceeds from borrowings	56		20		Proceeds from borrowings	43		14
Net borrowings (payments) of commercial paper		392		(123)
Net payments of commercial paper						Net payments of commercial paper	(29)		(2)
Payments on borrowings and finance lease obligations	Payments on borrowings and finance lease obligations	(71)		(33)		Payments on borrowings and finance lease obligations	(142)		(24)
Net payments under short-term credit agreements		(24)		(102)
Distributions to noncontrolling interests		(14)		(13)

Dividend payments on common stock	Dividend payments on common stock	(411)		(394)		Dividend payments on common stock	(222)		(207)
Repurchases of common stock	Repurchases of common stock	(347)		(1,090)		Repurchases of common stock	—		(311)
Proceeds from issuing common stock		19		26

Other, net	Other, net	9		(13)		Other, net	(13)		33
Net cash used in financing activities	Net cash used in financing activities	(391)		(1,722)		Net cash used in financing activities	(363)		(497)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	74		(7)		EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(25)		27
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(130)		(920)		Net decrease in cash and cash equivalents	(121)		(316)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	2,592		3,401		Cash and cash equivalents at beginning of year	2,101		2,592
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,462	$	2,481	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,980	$	2,276

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(Unaudited)


		Three months ended																Three months ended
In millions, except per share amounts	In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity			In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT MARCH 31, 2022		$	556	$	1,855	$	16,952	$	(9,412)	$	(1,515)	$	8,436	$	927	$	9,363
BALANCE AT DECEMBER 31, 2022																			BALANCE AT DECEMBER 31, 2022	$	258	$	556	$	1,687	$	18,037	$	(9,415)	$	(1,890)	$	8,975	$	992	$	9,967

Net income	Net income					702						702		5		707			Net income	(8)						790						790		24		814
Other comprehensive loss, net of tax (Note 13)										(181)		(181)		(15)		(196)
Issuance of common stock				1								1		—		1
Other comprehensive income, net of tax (Note 13)																			Other comprehensive income, net of tax (Note 13)											67		67		3		70

Cash dividends on common stock, $1.57 per share																			Cash dividends on common stock, $1.57 per share							(222)						(222)		—		(222)
Distributions to noncontrolling interests																			Distributions to noncontrolling interests													—		(22)		(22)
Share-based awards																			Share-based awards					(5)				25				20		—		20

Fair value adjustment of redeemable noncontrolling interests																			Fair value adjustment of redeemable noncontrolling interests	11				(11)								(11)		—		(11)

Other shareholder transactions																			Other shareholder transactions					3				1				4		—		4
BALANCE AT MARCH 31, 2023																			BALANCE AT MARCH 31, 2023	$	261	$	556	$	1,674	$	18,605	$	(9,389)	$	(1,823)	$	9,623	$	997	$	10,620

BALANCE AT DECEMBER 31, 2021																			BALANCE AT DECEMBER 31, 2021	$	366	$	556	$	1,543	$	16,741	$	(9,123)	$	(1,571)	$	8,146	$	889	$	9,035

Net income																			Net income	(4)						418						418		9		427
Other comprehensive income (loss), net of tax (Note 13)																			Other comprehensive income (loss), net of tax (Note 13)											56		56		(8)		48

Repurchases of common stock	Repurchases of common stock			0				(36)		0		(36)		—		(36)			Repurchases of common stock									(311)				(311)		—		(311)
Cash dividends on common stock, $1.45 per share	Cash dividends on common stock, $1.45 per share					(204)						(204)		—		(204)			Cash dividends on common stock, $1.45 per share							(207)						(207)		—		(207)

Distributions to noncontrolling interests																			Distributions to noncontrolling interests													—		(14)		(14)
Share-based awards	Share-based awards			2				8		0		10		—		10			Share-based awards					(9)				18				9		—		9

Fair value adjustment of redeemable noncontrolling interests																			Fair value adjustment of redeemable noncontrolling interests	30				(30)								(30)		—		(30)
Other shareholder transactions	Other shareholder transactions			9				1				10		—		10			Other shareholder transactions					(7)				4				(3)		17		14
BALANCE AT JUNE 30, 2022		$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

BALANCE AT APRIL 4, 2021		$	556	$	1,837	$	15,825	$	(8,172)	$	(1,937)	$	8,109	$	922	$	9,031

Net income						600						600		12		612
Other comprehensive income (loss), net of tax (Note 13)										8		8		(7)		1
Issuance of common stock				1								1		—		1

Repurchases of common stock				0				(672)		0		(672)		—		(672)
Cash dividends on common stock, $1.35 per share						(197)						(197)		—		(197)

Share-based awards				2				6		0		8		—		8

Other shareholder transactions				9								9		—		9
BALANCE AT JULY 4, 2021		$	556	$	1,849	$	16,228	$	(8,838)	$	(1,929)	$	7,866	$	927	$	8,793
BALANCE AT MARCH 31, 2022																			BALANCE AT MARCH 31, 2022	$	392	$	556	$	1,497	$	16,952	$	(9,412)	$	(1,515)	$	8,078	$	893	$	8,971

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

~~Table of Contents~~

~~CUMMINS INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY~~

~~(Unaudited)~~

Six months ended
In millions, except per share amounts Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Loss Total
Cummins Inc.
Shareholders’
Equity Noncontrolling
Interests Total
Equity
BALANCE AT DECEMBER 31, 2021 $ 556 $ 1,871 $ 16,741 $ (9,123) $ (1,571) $ 8,474 $ 927 $ 9,401
Net income 1,120 1,120 10 1,130
Other comprehensive loss, net of tax (Note 13) (125) (125) (23) (148)
Issuance of common stock 1 1 — 1
Repurchases of common stock 0 (347) (347) — (347)
Cash dividends on common stock, $2.90 per share (411) (411) — (411)
Distributions to noncontrolling interests — (14) (14)
Share-based awards (7) 26 19 — 19
Other shareholder transactions 2 5 7 17 24
BALANCE AT JUNE 30, 2022 $ 556 $ 1,867 $ 17,450 $ (9,439) $ (1,696) $ 8,738 $ 917 $ 9,655
BALANCE AT DECEMBER 31, 2020 $ 556 $ 1,848 $ 15,419 $ (7,779) $ (1,982) $ 8,062 $ 927 $ 8,989
Net income 1,203 1,203 20 1,223
Other comprehensive income (loss), net of tax (Note 13) 53 53 (7) 46
Issuance of common stock 1 1 — 1
Repurchases of common stock 0 (1,090) (1,090) — (1,090)
Cash dividends on common stock, $2.70 per share (394) (394) — (394)
Distributions to noncontrolling interests — (13) (13)
Share-based awards (4) 30 26 — 26
Other shareholder transactions 4 1 5 — 5
BALANCE AT JULY 4, 2021 $ 556 $ 1,849 $ 16,228 $ (8,838) $ (1,929) $ 7,866 $ 927 $ 8,793

~~The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.~~

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CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

Cummins Inc. (“Cummins,” “we,” “our” or “us”) was founded in 1919 as Cummins Engine Company, a corporation in Columbus, Indiana, and one of the first diesel engine manufacturers. In 2001, we changed our name to Cummins Inc. We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, electric powertrains, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a service network of approximately ~~500~~460 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in approximately 190 countries and territories.

~~Reporting Period~~

Beginning in 2022, we transitioned to a Gregorian calendar with our reporting period ending on the last day of the quarterly calendar period. In 2021 and prior, our reporting period ended on the Sunday closest to the last day of the quarterly calendar period. The second quarters of 2022 and 2021 ended on June 30 and July 4, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

Interim Condensed Financial Statements

The unaudited Condensed Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of operations, financial position and cash flows. All such adjustments are of a normal recurring nature. The Condensed Consolidated Financial Statements were prepared in accordance with accounting principles in the United States of America (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements were condensed or omitted as permitted by such rules and regulations.

These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~20 2 2. Our interim period financial results for the three ~~and six~~ month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all required annual disclosures.

Reclassifications

Certain amounts for prior year periods were reclassified to conform to the current year presentation.

Use of Estimates in Preparation of Financial Statements

Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Condensed Consolidated Financial Statements. Significant estimates and assumptions in these Condensed Consolidated Financial Statements require the exercise of judgment. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

Weighted-Average Diluted Shares Outstanding

The weighted-average diluted common shares outstanding exclude the anti-dilutive effect of certain stock options. The options excluded from diluted earnings per share were as follows:

Three months ended Six months ended
June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Options excluded 33,100 3,137 26,782 2,958


	Three months ended
	March 31,
	2023	2022
Options excluded	4,833	20,463

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Related Party Transactions

In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties.

The following is a summary of sales to and purchases from nonconsolidated equity investees:


	Three months ended
	March 31,
In millions	2023		2022
Sales to nonconsolidated equity investees	$	376	$	344
Purchases from nonconsolidated equity investees	704		427

The following is a summary of accounts receivable from and accounts payable to nonconsolidated equity investees:


In millions	March 31, 2023		December 31, 2022		Balance Sheet Location
Accounts receivable from nonconsolidated equity investees	$	469	$	376	Accounts and notes receivable, net
Accounts payable to nonconsolidated equity investees	370		292		Accounts payable (principally trade)

Supply Chain Financing

We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the original due date. The maximum amount that we may have outstanding under the program is $532 million at March 31, 2023. We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our Condensed Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at March 31, 2023 and December 31, 2022, were $253 million and $331 million, respectively.

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

The majority of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that were not satisfied as of ~~June 30, 2022,~~March 31, 2023, was ~~$723~~$649 million. We expect to recognize the related revenue of ~~$128~~$126 million over the next 12 months and ~~$595~~$523 million over periods up to 10 years. See NOTE ~~11,~~10, "PRODUCT WARRANTY LIABILITY," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties.

Deferred and Unbilled Revenue

The following is a summary of our unbilled and deferred revenue and related activity:


In millions	In millions	June 30, 2022		December 31, 2021		In millions	March 31, 2023		December 31, 2022
Unbilled revenue	Unbilled revenue	$	128	$	100	Unbilled revenue	$	332	$	257
Deferred revenue, primarily extended warranty		1,723		1,705
Deferred revenue						Deferred revenue	1,977		1,848

We recognized revenue of ~~$176 million and $416~~$206 million for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, compared with ~~$133 million and $302~~$240 million for the comparable ~~periods~~period in ~~2021,~~2022, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 or ~~July 4, 2021.~~March 31, 2022.

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Disaggregation of Revenue

Consolidated Revenue

The table below presents our consolidated sales by geographic area. Net sales attributed to geographic areas were based on the location of the customer.


											Three months ended
		Three months ended				Six months ended					March 31,
In millions	In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		In millions	2023		2022
United States	United States	$	3,788	$	3,263	$	7,245	$	6,323	United States	$	4,802	$	3,457

China	China	520		832		1,173		1,789		China	790		653

India	India	311		217		620		547		India	411		309

Other international	Other international	1,967		1,799		3,933		3,544		Other international	2,450		1,966
Total net sales	Total net sales	$	6,586	$	6,111	$	12,971	$	12,203	Total net sales	$	8,453	$	6,385

Segment Revenue

As previously announced, our Components segment reorganized its reporting structure to carve out the electronics business into the newly formed software and electronics business and combined the turbo technologies and fuels systems businesses into the newly formed engine components business. We started reporting results for the reorganized business in the first quarter of 2023 and reflected these changes for prior periods.

Components segment external sales by business were as follows:


	Three months ended
	March 31,
In millions	2023		2022
Axles and brakes	$	1,272	$	—
Emission solutions	939		808
Filtration	342		308
Engine components	292		240
Automated transmissions	178		134
Software and electronics	20		27
Total sales	$	3,043	$	1,517

Engine segment external sales by market were as follows:


											Three months ended
		Three months ended				Six months ended					March 31,
In millions	In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		In millions	2023		2022
Heavy-duty truck	Heavy-duty truck	$	797	$	666	$	1,481	$	1,279	Heavy-duty truck	$	860	$	684
Medium-duty truck and bus	Medium-duty truck and bus	620		477		1,211		960		Medium-duty truck and bus	617		591
Light-duty automotive	Light-duty automotive	425		466		912		940		Light-duty automotive	441		487
Total on-highway	Total on-highway	1,842		1,609		3,604		3,179		Total on-highway	1,918		1,762
Off-highway	Off-highway	250		311		537		636		Off-highway	334		287
Total sales	Total sales	$	2,092	$	1,920	$	4,141	$	3,815	Total sales	$	2,252	$	2,049

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As previously announced, due to the indefinite suspension of operations in Russia, we reorganized the regional management structure of our Distribution segment and moved all Commonwealth of Independent States (CIS) sales into the Europe and Africa and Middle East regions. The Russian portion of prior period CIS sales moved to the Europe region. We started to report results for our new regional management structure in the first quarter of 2023 and reflected these changes for historical periods.

Distribution segment external sales by region were as follows:


											Three months ended
		Three months ended				Six months ended					March 31,
In millions	In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		In millions	2023		2022
North America	North America	$	1,491	$	1,228	$	2,862	$	2,394	North America	$	1,693	$	1,371
Asia Pacific	Asia Pacific	242		226		486		439		Asia Pacific	239		244
Europe	Europe	177		161		320		324		Europe	194		275
China	China	99		74		181		159		China	101		82
Russia		75		66		211		123
Latin America		56		48		97		88
Africa and Middle East	Africa and Middle East	55		69		101		123		Africa and Middle East	62		50
India	India	52		41		100		90		India	57		48
Latin America										Latin America	53		41

Total sales	Total sales	$	2,247	$	1,913	$	4,358	$	3,740	Total sales	$	2,399	$	2,111

Distribution segment external sales by product line were as follows:

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Parts $ 987 $ 763 $ 1,913 $ 1,517
Power generation 440 452 838 868
Engines 428 349 866 682
Service 392 349 741 673
Total sales $ 2,247 $ 1,913 $ 4,358 $ 3,740

~~Components segment external sales by business were as follows:~~

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Emission solutions $ 767 $ 801 $ 1,575 $ 1,767
Filtration 319 303 627 604
Turbo technologies 195 207 392 432
Automated transmissions 143 147 277 262
Electronics and fuel systems 53 98 123 215
Total sales $ 1,477 $ 1,556 $ 2,994 $ 3,280


	Three months ended
	March 31,
In millions	2023		2022
Parts	$	1,052	$	926
Power generation	491		398
Engines	456		438
Service	400		349
Total sales	$	2,399	$	2,111

Power Systems segment external sales by product line were as follows:

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Power generation $ 408 $ 381 $ 807 $ 732
Industrial 213 233 401 412
Generator technologies 113 85 209 167
Total sales $ 734 $ 699 $ 1,417 $ 1,311


	Three months ended
	March 31,
In millions	2023		2022
Power generation	$	380	$	399
Industrial	189		188
Generator technologies	110		96
Total sales	$	679	$	683

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NOTE 3. ~~RUSSIAN OPERATIONS~~PENSIONS AND OTHER POSTRETIREMENT BENEFITS

~~On March 17, 2022,~~We sponsor funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit (OPEB) plans. Contributions to these plans were as follows:


	Three months ended
	March 31,
In millions	2023		2022



Defined benefit pension contributions	$	88	$	33


OPEB payments, net	4		10


Defined contribution pension plans	43		36

We anticipate making additional defined benefit pension contributions during the ~~Board~~remainder of ~~Directors (the Board) decided to indefinitely suspend~~2023 of $20 million for our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture (the Unconsolidated JV) with KAMAZ Publicly Traded Company (KAMAZ), a Russian truck manufacturer with whom we share the Unconsolidated JV,U.S. and ~~direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia~~U.K. qualified and ~~assessed other potential liabilities. We experienced and expect to continue to experience, an inability to collect customer receivables and~~non-qualified pension plans. These contributions may be ~~the subject~~made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2023 annual net periodic pension cost to be near zero.

The components of ~~litigation~~net periodic pension and OPEB expense (income) under our plans were as a consequence of our suspension of commercial operations in Russia. We recorded a charge of $158 million in the first quarter related to these actions. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. As of June 30, 2022, we had approximately $17 million of inventory and $26 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $84 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. The following summarizes the costs (recoveries) associated with the suspension of our Russian operations in our ~~Condensed Consolidated Statements of Net Income:~~follows:

Three months ended Six months ended
In millions June 30,
2022 June 30,
2022 Statement of Net Income Location
Inventory write-downs $ (40) $ 19 Cost of sales
Accounts receivable reserves — 43 Other operating expense, net
Impairment and other joint venture costs — 31 Equity, royalty and interest income from investees
Other (7) 18 Other operating expense, net
Total $ (47) $ 111

~~We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.~~


	Pension
	U.S. Plans				U.K. Plans				OPEB
	Three months ended March 31,
In millions	2023		2022		2023		2022		2023		2022
Service cost	$	29	$	34	$	4	$	8	$	—	$	—
Interest cost	42		22		17		9		2		1
Expected return on plan assets	(69)		(52)		(25)		(20)		—		—

Recognized net actuarial loss (gain)	2		6		—		1		(1)		—
Net periodic benefit expense (income)	$	4	$	10	$	(4)	$	(2)	$	1	$	1

NOTE 4. ~~PENSIONS AND OTHER POSTRETIREMENT BENEFITS~~

~~We sponsor funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit (OPEB) plans. Contributions to these plans were as follows:~~

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Defined benefit pension contributions $ 6 $ 12 $ 39 $ 54
OPEB payments, net 6 5 16 14
Defined contribution pension plans 20 17 56 52

We anticipate making additional defined benefit pension contributions during the remainder of 2022 of $10 million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2022 annual net periodic pension cost to approximate $31 million.

~~Table of Contents~~

~~The components of net periodic pension and OPEB costs under our plans were as follows:~~

Pension
U.S. Plans U.K. Plans OPEB
Three months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Service cost $ 34 $ 35 $ 8 $ 9 $ — $ —
Interest cost 22 20 9 7 1 1
Expected return on plan assets (52) (50) (20) (22) — —
Amortization of prior service cost — — — 1 — —
Recognized net actuarial loss 6 12 — 8 — —
Net periodic benefit cost (credit) $ 10 $ 17 $ (3) $ 3 $ 1 $ 1

Pension
U.S. Plans U.K. Plans OPEB
Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Service cost $ 68 $ 70 $ 16 $ 17 $ — $ —
Interest cost 44 39 18 15 2 2
Expected return on plan assets (104) (100) (40) (43) — —
Amortization of prior service cost — — — 1 — —
Recognized net actuarial loss 12 24 1 16 — —
Net periodic benefit cost (credit) $ 20 $ 33 $ (5) $ 6 $ 2 $ 2

~~NOTE 5.~~ EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Net Income for the reporting ~~periods~~period was as follows:


												Three months ended
		Three months ended				Six months ended						March 31,
In millions	In millions	June 30, 2022		July 4, 2021		June 30, 2022			July 4, 2021		In millions	2023		2022
Manufacturing entities	Manufacturing entities										Manufacturing entities
Dongfeng Cummins Engine Company, Ltd.											Dongfeng Cummins Engine Company, Ltd.	$	19	$	16
Beijing Foton Cummins Engine Co., Ltd.	Beijing Foton Cummins Engine Co., Ltd.	$	14	$	46	$	28		$	85	Beijing Foton Cummins Engine Co., Ltd.	16		14
Dongfeng Cummins Engine Company, Ltd.		11		21		27			52
Chongqing Cummins Engine Company, Ltd.	Chongqing Cummins Engine Company, Ltd.	7		10		16			20		Chongqing Cummins Engine Company, Ltd.	9		9
Tata Cummins, Ltd.	Tata Cummins, Ltd.	5		1		14			7		Tata Cummins, Ltd.	8		9
All other manufacturers	All other manufacturers	13		28		3		(1)	83		All other manufacturers	19		(10)		(1)

Distribution entities	Distribution entities										Distribution entities
Komatsu Cummins Chile, Ltda.	Komatsu Cummins Chile, Ltda.	12		9		19			15		Komatsu Cummins Chile, Ltda.	14		7
All other distributors	All other distributors	3		1		5			4		All other distributors	3		2

Cummins share of net income	Cummins share of net income	65		116		112			266		Cummins share of net income	88		47
Royalty and interest income	Royalty and interest income	30		21		79			37		Royalty and interest income	31		49
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	$	95	$	137	$	191		$	303	Equity, royalty and interest income from investees	$	119	$	96

(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.											(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

1312

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NOTE 6.5. INCOME TAXES

Our effective tax rates for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022, were ~~17.3~~21.7 percent and ~~21.1 percent, respectively. Our effective tax rates for the three and six months ended July 4, 2021, were 21.4 percent and 21.7~~26.8 percent, respectively.

The three months ended ~~June 30, 2022,~~March 31, 2023, contained favorable discrete tax items of ~~$36~~$3 million, primarily due to ~~$36~~share-based compensation tax benefits.

The three months ended March 31, 2022, contained unfavorable discrete items of $31 million, of favorable changes in tax reserves, $10 million of favorable changes associated with uncertainty in our Russian operations and $8 million of net favorable other discrete tax items, partially offset byprimarily due to $18 million of unfavorable ~~tax costs~~changes associated with ~~internal restructuring ahead~~the indefinite suspension of ~~the planned separation of our filtration business.~~

NOTE 6. MARKETABLE SECURITIES

A summary of ~~unfavorable tax costs associated with internal restructuring ahead~~marketable securities, all of ~~the planned separation~~which were classified as current, was as follows:


	March 31, 2023						December 31, 2022
In millions	Cost		Gross unrealized gains/(losses)(1)		Estimated fair value		Cost		Gross unrealized gains/(losses)(1)		Estimated fair value

Equity securities





Certificates of deposit	$	226	$	—	$	226	$	209	$	—	$	209
Debt mutual funds	206		(4)		202		238		(5)		233



Equity mutual funds	31		(2)		29		25		3		28

Debt securities	1		1		2		2		—		2







Marketable securities	$	464	$	(5)	$	459	$	474	$	(2)	$	472

(1) Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in our Condensed Consolidated Statements of Net Income.

All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. The fair value of ~~our filtration business~~Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and ~~$8 million of unfavorable changes associated with uncertainty in our Russian operations.~~

~~The~~observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during the three months ended ~~July 4, 2021, contained unfavorable discrete items~~March 31, 2023, or the year ended December 31, 2022.

A description of ~~$7 million, primarily due~~the valuation techniques and inputs used for our Level 2 fair value measures is as follows:

•Certificates of deposit — These investments provide us with a contractual rate of return and generally range in maturity from three months to five years. The counterparties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institution's month-end statement.

•Debt mutual funds — The fair value measures for the vast majority of these investments are the daily net asset values published on a ~~$10 million unfavorable statutory change in tax rates (mostly in~~regulated governmental website. Daily quoted prices are available from the ~~UK), partially offset~~issuing brokerage and are used on a test basis to corroborate this Level 2 input measure.

•Equity mutual funds — The fair value measures for these investments are the net asset values published by ~~$3 million~~the issuing brokerage. Daily quoted prices are available from reputable third-party pricing services and are used on a test basis to corroborate this Level 2 input measure.

•Debt securities — The fair value measures for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national exchange and these values are used on a test basis to corroborate our Level 2 input measure.

Table of ~~other favorable discrete items.~~Contents

The ~~six months ended July 4, 2021, contained unfavorable discrete items~~proceeds from sales and maturities of ~~$3 million, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in~~marketable securities were as follows:


		Three months ended
	March 31,
In millions		2023		2022
Proceeds from sales of marketable securities		$	276	$	195
Proceeds from maturities of marketable securities		69		59
Investments in marketable securities - liquidations		$	345	$	254

NOTE 7. INVENTORIES

Inventories are stated at the ~~UK), partially offset by $7 million~~lower of ~~other favorable discrete items.~~cost or net realizable value. Inventories included the following:


In millions	March 31, 2023		December 31, 2022
Finished products	$	3,089	$	2,917
Work-in-process and raw materials	3,019		2,926
Inventories at FIFO cost	6,108		5,843
Excess of FIFO over LIFO	(230)		(240)
Inventories	$	5,878	$	5,603

~~NOTE 7. MARKETABLE SECURITIES~~

~~A summary of marketable securities, all of which were classified as current, was as follows:~~

June 30,
2022 December 31,
2021
In millions Cost
Gross unrealized gains/(losses)(1)
Estimated
fair value Cost
Gross unrealized gains/(losses)(1)
Estimated
fair value
Equity securities
Certificates of deposit $ 296 $ — $ 296 $ 299 $ — $ 299
Debt mutual funds 220 (5) 215 254 2 256
Equity mutual funds 22 3 25 29 10 39
Debt securities — — — 1 — 1
Total marketable securities $ 538 $ (2) $ 536 $ 583 $ 12 $ 595
(1) Unrealized gains and losses for debt securities are recorded in other comprehensive income while unrealized gains and losses for equity securities are recorded in other income, net in our Condensed Consolidated Statements of Net Income.

All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during the six months ended June 30, 2022, or the year ended December 31, 2021.

~~A description of the valuation techniques and inputs used for our Level 2 fair value measures is as follows:~~

•~~Certificates of deposit~~ — These investments provide us with a contractual rate of return and generally range in maturity from three months to five years. The counterparties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institution's month-end statement.

•~~Debt mutual funds~~ — The fair value measures for the vast majority of these investments are the daily net asset values published on a regulated governmental website. Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input measure.

•~~Equity mutual funds~~ — The fair value measures for these investments are the net asset values published by the issuing brokerage. Daily quoted prices are available from reputable third-party pricing services and are used on a test basis to corroborate this Level 2 input measure.

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•~~Debt securities~~ — The fair value measures for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national exchange and these values are used on a test basis to corroborate our Level 2 input measure.

~~The proceeds from sales and maturities of marketable securities were as follows:~~

Six months ended
In millions June 30,
2022 July 4,
2021
Proceeds from sales of marketable securities $ 346 $ 273
Proceeds from maturities of marketable securities 115 108
Investments in marketable securities - liquidations $ 461 $ 381

NOTE 8. ~~INVENTORIES~~

~~Inventories are stated at the lower of cost or net realizable value. Inventories included the following:~~

In millions June 30,
2022 December 31,
2021
Finished products $ 2,635 $ 2,538
Work-in-process and raw materials 2,349 2,009
Inventories at FIFO cost 4,984 4,547
Excess of FIFO over LIFO (219) (192)
Total inventories $ 4,765 $ 4,355

~~NOTE 9.~~ SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:

In millions June 30,
2022 December 31,
2021
Deferred income taxes $ 525 $ 428
Operating lease assets 430 444
Corporate owned life insurance 407 492
Other 514 402
Other assets $ 1,876 $ 1,766



In millions	March 31, 2023		December 31, 2022
Deferred income taxes	$	688	$	625
Operating lease assets	489		492
Corporate owned life insurance	409		390

Other	528		633
Other assets	$	2,114	$	2,140

Other accrued expenses included the following:


In millions	In millions	June 30, 2022		December 31, 2021		In millions	March 31, 2023		December 31, 2022
Income taxes payable						Income taxes payable	$	341	$	173
Marketing accruals	Marketing accruals	$	297	$	303	Marketing accruals	339		316
Other taxes payable	Other taxes payable	195		234		Other taxes payable	226		224
Income taxes payable		152		107
Current portion of operating lease liabilities	Current portion of operating lease liabilities	120		128		Current portion of operating lease liabilities	133		132
Other	Other	457		418		Other	609		620
Other accrued expenses	Other accrued expenses	$	1,221	$	1,190	Other accrued expenses	$	1,648	$	1,465

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Other liabilities included the following:


In millions	In millions	June 30, 2022		December 31, 2021		In millions	March 31, 2023		December 31, 2022

Accrued product warranty						Accrued product warranty	$	753	$	744
Deferred income taxes	Deferred income taxes	$	395	$	403	Deferred income taxes	662		649
Pensions						Pensions	442		445
Operating lease liabilities	Operating lease liabilities	315		326		Operating lease liabilities	364		368
Long-term income taxes	Long-term income taxes	192		263		Long-term income taxes	192		192
Accrued compensation	Accrued compensation	162		177		Accrued compensation	172		184
Other postretirement benefits						Other postretirement benefits	138		141
Mark-to-market valuation on interest rate derivatives	Mark-to-market valuation on interest rate derivatives	114		19		Mark-to-market valuation on interest rate derivatives	118		151
Other long-term liabilities	Other long-term liabilities	328		320		Other long-term liabilities	442		437
Other liabilities	Other liabilities	$	1,506	$	1,508	Other liabilities	$	3,283	$	3,311

NOTE ~~10.~~9. DEBT

Loans Payable and Commercial Paper

Loans payable, commercial paper and the related weighted-average interest rates were as follows:


In millions	In millions	June 30, 2022			December 31, 2021			In millions	March 31, 2023		December 31, 2022

Loans payable (1)	Loans payable (1)	$	165		$	208		Loans payable (1)	$	229	$	210

Commercial paper(2)	Commercial paper(2)	705		(2)	313		(3)	Commercial paper(2)	2,545		2,574

(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.	(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.						(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was 1.33 percent at June 30, 2022. This included $105 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.20 percent and $600 million of borrowings under the U.S. program at a weighted-average interest rate of 1.60 percent.
(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2021. This included $113 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.39 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.21 percent.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was 4.82 percent and 4.27 percent at March 31, 2023 and December 31, 2022, respectively.								(2) The weighted-average interest rate, inclusive of all brokerage fees, was 4.82 percent and 4.27 percent at March 31, 2023 and December 31, 2022, respectively.

We can issue up to ~~$3.5~~$4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. ~~The~~These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes.

Revolving Credit Facilities

~~As of June 30, 2022, we had~~We have access to committed credit facilities totaling ~~$3.5~~$4.0 billion, including the $1.5 billion 364-day facility that expires August ~~17, 2022~~16, 2023, $500 million incremental 364-day facility that expires August 16, 2023, and our $2.0 billion five-year facility that expires on August 18, 2026. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. There were no outstanding borrowings under these facilities at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~

2022. At ~~June 30, 2022,~~March 31, 2023, the ~~$705 million~~$2.5 billion of outstanding commercial paper effectively reduced the ~~$3.5~~$4.0 billion of revolving credit capacity to ~~$2.8~~$1.5 billion.

At ~~June 30, 2022,~~March 31, 2023, we also had an additional ~~$271~~$215 million available for borrowings under our international and other domestic credit facilities.

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Long-term Debt

A summary of long-term debt was as follows:


In millions	In millions	Interest Rate	June 30, 2022		December 31, 2021		In millions	Interest Rate	March 31, 2023		December 31, 2022
Long-term debt	Long-term debt						Long-term debt
Senior notes, due 2023(1)	Senior notes, due 2023(1)	3.65%	$	500	$	500	Senior notes, due 2023(1)	3.65%	$	500	$	500
Senior notes, due 2025(1)		0.75%	500		500
Term loan, due 2025(2)							Term loan, due 2025(2)	Variable	1,450		1,550
Senior notes, due 2025(3)							Senior notes, due 2025(3)	0.75%	500		500
Debentures, due 2027	Debentures, due 2027	6.75%	58		58		Debentures, due 2027	6.75%	58		58
Debentures, due 2028	Debentures, due 2028	7.125%	250		250		Debentures, due 2028	7.125%	250		250
Senior notes, due 2030(1)		1.50%	850		850
Senior notes, due 2030(3)							Senior notes, due 2030(3)	1.50%	850		850
Senior notes, due 2043	Senior notes, due 2043	4.875%	500		500		Senior notes, due 2043	4.875%	500		500
Senior notes, due 2050	Senior notes, due 2050	2.60%	650		650		Senior notes, due 2050	2.60%	650		650
Debentures, due 2098(2)		5.65%	165		165
Debentures, due 2098(4)							Debentures, due 2098(4)	5.65%	165		165

Other debt	Other debt		149		110		Other debt		109		121

Unamortized discount and deferred issuance costs	Unamortized discount and deferred issuance costs		(65)		(68)		Unamortized discount and deferred issuance costs		(63)		(64)
Fair value adjustments due to hedge on indebtedness	Fair value adjustments due to hedge on indebtedness		(85)		34		Fair value adjustments due to hedge on indebtedness		(102)		(122)
Finance leases	Finance leases		83		89		Finance leases		111		113
Total long-term debt	Total long-term debt		3,555		3,638		Total long-term debt		4,978		5,071
Less: Current maturities of long-term debt	Less: Current maturities of long-term debt		65		59		Less: Current maturities of long-term debt		569		573
Long-term debt	Long-term debt		$	3,490	$	3,579	Long-term debt		$	4,409	$	4,498

(1) In 2021, we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate. See "Interest Rate Risk" below for additional information.
(2) The effective interest rate is 7.48 percent.
(1) Senior notes, due 2023, are classified as current maturities of long-term debt.							(1) Senior notes, due 2023, are classified as current maturities of long-term debt.
(2) During the first quarter of 2023, we paid down $100 million of the term loan.							(2) During the first quarter of 2023, we paid down $100 million of the term loan.
(3) In 2021, we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate. See "Interest Rate Risk" in NOTE 14, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.							(3) In 2021, we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate. See "Interest Rate Risk" in NOTE 14, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.
(4) The effective interest rate is 7.48 percent.							(4) The effective interest rate is 7.48 percent.

Principal payments required on long-term debt during the next five years are as follows:

In millions 2022 2023 2024 2025 2026
Principal payments $ 44 $ 545 $ 41 $ 508 $ 54

~~Interest Rate Risk~~

Beginning in the second half of 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month LIBOR plus a spread, and we also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread.

~~The following table summarizes the gains and losses:~~

Three months ended Six months ended
In millions June 30, 2022 June 30, 2022
Type of Swap Gain (Loss)
on Swaps Gain (Loss) on Borrowings Gain (Loss)
on Swaps Gain (Loss) on Borrowings
Interest rate swaps(1)
$ (39) $ 34 $ (111) $ 114
(1) The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.

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We have interest rate lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The following table summarizes the gains and losses, net of tax, recognized in other comprehensive income:

In millions Three months ended Six months ended
Type of Swap June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Interest rate locks $ 43 $ (33) $ 82 $ 28



In millions	2023		2024		2025		2026		2027
Principal payments	$	559	$	46	$	1,962	$	56	$	65

Fair Value of Debt

Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:


In millions	In millions	June 30, 2022		December 31, 2021		In millions	March 31, 2023		December 31, 2022
Fair value of total debt (1)	Fair value of total debt (1)	$	4,109	$	4,461	Fair value of total debt (1)	$	7,386	$	7,400
Carrying value of total debt	Carrying value of total debt	4,425		4,159		Carrying value of total debt	7,752		7,855

(1) The fair value of debt is derived from Level 2 input measures.	(1) The fair value of debt is derived from Level 2 input measures.					(1) The fair value of debt is derived from Level 2 input measures.

~~Shelf Registration~~

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AsFiltration Contingent Debt Agreement

On February 15, 2023, certain of our subsidiaries entered into an amendment to the $1.0 billion credit agreement (Credit Agreement), consisting of a ~~well-known seasoned issuer, we filed an automatic shelf registration~~$400 million revolving credit facility and a $600 million term loan facility (Facilities), in anticipation of ~~an undetermined amount~~the separation of ~~debt~~our filtration business, which extended the date on which the Credit Agreement terminates from March 30, 2023 to June 30, 2023. Borrowings under the Credit Agreement will not become available under the Credit Agreement unless and ~~equity with~~until, among other things, there is a sale to the ~~SEC~~public of shares in our subsidiary that holds the filtration business (Parent Borrower). The Credit Agreement will automatically terminate if no such public sale of shares of Parent Borrower occurs on ~~February 8, 2022. Under this shelf registration we may offer,~~or prior to June 30, 2023. Borrowings under the Credit Agreement would be available to Parent Borrower and one or more of its subsidiaries (Borrower). If borrowings become available under the Credit Agreement, the Facilities would mature on September 30, 2027.

Borrowings under the Credit Agreement would bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable Borrower’s election. Generally, U.S. dollar-denominated loans would bear interest at adjusted term Secured Overnight Financing Rate (SOFR) (which includes a 0.10 percent credit spread adjustment to term SOFR) for the applicable interest period plus a rate ranging from ~~time~~1.125 percent to ~~time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.~~1.75 percent depending on Parent Borrower's net leverage ratio.

NOTE 10. PRODUCT WARRANTY LIABILITY

A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued product campaigns, was as follows:


	Three months ended
	March 31,
In millions	2023		2022
Balance, beginning of year	$	2,477	$	2,425
Provision for base warranties issued	146		123
Deferred revenue on extended warranty contracts sold	102		70
Provision for product campaigns issued	6		42
Payments made during period	(143)		(132)

Amortization of deferred revenue on extended warranty contracts	(75)		(73)
Changes in estimates for pre-existing product warranties and campaigns	10		(26)
Acquisition(1)	—		95
Foreign currency translation adjustments and other	7		(1)

Balance, end of period	$	2,530	$	2,523

(1) See NOTE 16, "ACQUISITION," to our Condensed Consolidated Financial Statements for additional information.

We recognized supplier recoveries of $10 million for the three months ended March 31, 2023, compared with $13 million for the comparable period in 2022.

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Warranty related deferred revenues and warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:


In millions	March 31, 2023		December 31, 2022		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	289	$	290	Current portion of deferred revenue
Long-term portion	742		717		Deferred revenue
Total	$	1,031	$	1,007

Product warranty
Current portion	$	746	$	726	Current portion of accrued product warranty
Long-term portion	753		744		Other liabilities
Total	$	1,499	$	1,470

Total warranty accrual	$	2,530	$	2,477

NOTE 11. ~~PRODUCT WARRANTY LIABILITY~~COMMITMENTS AND CONTINGENCIES

~~A tabular reconciliation~~Legal Proceedings

We are subject to numerous lawsuits and claims arising out of the ~~product warranty liability,~~ordinary course of our business, including ~~the deferred revenue~~actions related to product liability; personal injury; the use and performance of our ~~extended~~products; warranty ~~coverage~~matters; product recalls; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; environmental matters; and ~~accrued~~asbestos claims. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product ~~campaigns, was as follows:~~

Six months ended
In millions June 30,
2022 July 4,
2021
Balance, beginning of year $ 2,425 $ 2,307
Provision for base warranties issued 267 302
Deferred revenue on extended warranty contracts sold 145 136
Provision for product campaigns issued 65 46
Payments made during period (289) (283)
Amortization of deferred revenue on extended warranty contracts (146) (124)
Changes in estimates for pre-existing product warranties (47) (74)
Foreign currency translation and other 106 (1) (6)
Balance, end of period $ 2,526 $ 2,304
(1) Includes $95 million of product warranty liability related to the acquisition of Cummins Westport Joint Venture. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.
liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

We ~~recognized supplier recoveries~~conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of ~~$10 million~~these laws to particular circumstances.

On June 28, 2022, KAMAZ Publicly Traded Company (KAMAZ) was designated to the List of Specially Designated Nationals and ~~$23 million~~Blocked Persons by the U.S. Department of the Treasury’s Office of Foreign Assets Control. We filed blocked property reports for relevant assets and are seeking relevant authorizations to extricate ourselves from our relationship with KAMAZ and its subsidiaries, including our unconsolidated joint venture with KAMAZ, in compliance with U.S. law.

On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the Environmental Protection Agency (EPA) and California Air Resources Board (CARB) regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors as we strive to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the ~~three~~engines in model year 2019 RAM 2500 and ~~six months ended June 30, 2022, compared with $5 million~~3500 trucks that has been included in all engines shipped since September 2019. During our ongoing discussions, the regulators turned their attention to other model years and ~~$9 million~~other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through 2018 and Titan trucks for model years 2016 through 2019. Most recently, the ~~comparable periods in 2021.~~regulators

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~~Warranty~~have also raised concerns regarding the completeness of our disclosures in our certification applications for RAM 2500 and 3500 trucks for model years 2013 through 2023. We have also been in communication with Environmental and Climate Change Canada regarding similar issues relating to some of these very same platforms. In connection with these and other ongoing discussions with the EPA and CARB, we are developing a new software calibration and will recall model years 2013 through 2018 RAM 2500 and 3500 trucks. We accrued $30 million for the RAM recall during the first quarter of 2022, an amount that reflected our current estimate of the cost of that recall. We are also developing a new software calibration and hardware fix and will recall model years 2016 through 2019 Titan trucks. We accrued $29 million for the Titan recall during the third quarter of 2022, an amount that reflected our current estimate of the cost of that recall.

We will continue to work together closely with the relevant regulators to develop and implement recommendations for improvements and seek to reach further resolutions as part of our ongoing commitment to compliance. Based upon our discussions to date with the regulators which are continuing, such resolutions may involve our agreeing to one or more consent decrees and paying civil penalties. Due to the presence of many unknown facts and circumstances, we are not yet able to estimate any further financial impact of these matters. The consequences resulting from our formal review and these regulatory processes likely will have a material adverse impact on our results of operations and cash flows, however we cannot yet reasonably estimate a loss or range of loss.

Guarantees and Commitments

Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At March 31, 2023, the maximum potential loss related ~~deferred revenues~~to these guarantees was $42 million.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At March 31, 2023, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $161 million. These arrangements enable us to secure supplies of critical components and ~~warranty~~IT services. We do not currently anticipate paying any penalties under these contracts.

We enter into physical forward contracts with suppliers of platinum and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At March 31, 2023, the total commitments under these contracts were $38 million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.

We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were $126 million at March 31, 2023.

Indemnifications

Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include:

•product liability and license, patent or trademark indemnifications;

•asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and

•any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.

We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities onand due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.

NOTE 12. REDEEMABLE NONCONTROLLING INTERESTS

A 19 percent minority shareholder in one of our businesses, Hydrogenics Corporation (Hydrogenics), has, among other rights and subject to related obligations and restrictive covenants, rights that are 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). We recorded the estimated fair value of the put option as redeemable noncontrolling interests in our Condensed Consolidated ~~Balance Sheets~~Financial Statements ~~were as follows:~~

In millions June 30,
2022 December 31,
2021 Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion $ 296 $ 286 Current portion of deferred revenue
Long-term portion 720 700 Deferred revenue
Total $ 1,016 $ 986
Product warranty
Current portion $ 796 $ 755 Current portion of accrued product warranty
Long-term portion 714 684 Accrued product warranty
Total $ 1,510 $ 1,439
Total warranty accrual $ 2,526 $ 2,425

~~Engine System Campaign Accrual~~

~~During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for~~with an offset to additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

paid-in capital. The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population. The total engine system campaign charge, excluding supplier recoveries, was $410 million. In the fourth quarter of 2020, we recorded an additional $20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $430 million. At June 30, 2022, the remaining accrualredeemable noncontrolling interest balance was ~~$63 million.~~$261 million and $258 million at March 31, 2023 and December 31, 2022, respectively.

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~~NOTE 12. COMMITMENTS AND CONTINGENCIES~~

~~Legal Proceedings~~

We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; product recalls; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.

On June 28, 2022, KAMAZ was designated to the List of Specially Designated Nationals and Blocked Persons by the U.S. Department of the Treasury’s Office of Foreign Assets Control. We filed blocked property reports for relevant assets and are seeking relevant authorizations to extricate ourselves from our relationship with KAMAZ and its subsidiaries, including the Unconsolidated JV, in compliance with U.S. law.

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On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors as we strive to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our ongoing discussions, the regulators turned their attention to other model years and other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through 2018. In connection with these and other ongoing discussions with the EPA and CARB, we are developing a new software calibration and will recall model years 2013 through 2018 RAM 2500 and 3500 trucks. We accrued $30 million for the recall during the first quarter of 2022, an amount that reflects our current estimate of the cost of the recall.

We will continue to work together closely with the relevant regulators to develop and implement recommendations for improvement and seek to reach further resolutions as part of our ongoing commitment to compliance. Due to the presence of many unknown facts and circumstances, we are not yet able to estimate any further financial impact of these matters. It is possible that the consequences of any remediation plans resulting from our formal review and these regulatory processes could have a material adverse impact on our results of operations and cash flows.

~~Guarantees and Commitments~~

Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At June 30, 2022, the maximum potential loss related to these guarantees was $41 million.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At June 30, 2022, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $126 million. These arrangements enable us to secure supplies of critical components and IT services. We do not currently anticipate paying any penalties under these contracts.

We enter into physical forward contracts with suppliers of platinum and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At June 30, 2022, the total commitments under these contracts were $91 million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.

~~Indemnifications~~

~~Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include:~~

•~~product liability and license, patent or trademark indemnifications;~~

•~~asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and~~

•~~any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.~~

We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.

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NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component for the three months ended:

In millions Change in pensions
and other
postretirement
defined benefit plans Foreign currency
translation
adjustment Unrealized gain
(loss) on
derivatives Total
attributable to
Cummins Inc. Noncontrolling
interests Total
Balance at March 31, 2022 $ (330) $ (1,196) $ 11 $ (1,515)
Other comprehensive income before reclassifications
Before-tax amount — (235) 59 (176) $ (15) $ (191)
Tax benefit (expense) 1 5 (15) (9) — (9)
After-tax amount 1 (230) 44 (185) (15) (200)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
5 — (1) 4 — 4
Net current period other comprehensive income (loss) 6 (230) 43 (2) (181) $ (15) $ (196)
Balance at June 30, 2022 $ (324) $ (1,426) $ 54 $ (1,696)
Balance at April 4, 2021 $ (706) $ (1,260) $ 29 $ (1,937)
Other comprehensive income before reclassifications
Before-tax amount — 29 (45) (16) $ (7) $ (23)
Tax benefit 1 — 9 10 — 10
After-tax amount 1 29 (36) (6) (7) (13)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
16 — (2) 14 — 14
Net current period other comprehensive income (loss) 17 29 (38) (2) 8 $ (7) $ 1
Balance at July 4, 2021 $ (689) $ (1,231) $ (9) $ (1,929)
(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 10, "DEBT," for additional information.



In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at December 31, 2022	$	(427)	$	(1,552)	$	89	$	(1,890)
Other comprehensive income (loss) before reclassifications
Before-tax amount	(13)		75		(3)		59		$	3	$	62
Tax benefit	2		4		1		7		—		7
After-tax amount	(11)		79		(2)		66		3		69
Amounts reclassified from accumulated other comprehensive income (loss)(1)	2		—		(1)		1		—		1

Net current period other comprehensive (loss) income	(9)		79		(3)		67		$	3	$	70
Balance at March 31, 2023	$	(436)	$	(1,473)	$	86	$	(1,823)

Balance at December 31, 2021	$	(346)	$	(1,208)	$	(17)	$	(1,571)
Other comprehensive income (loss) before reclassifications
Before-tax amount	14		11		36		61		$	(8)	$	53
Tax (expense) benefit	(4)		1		(7)		(10)		—		(10)
After-tax amount	10		12		29		51		(8)		43
Amounts reclassified from accumulated other comprehensive income (loss)(1)	6		—		(1)		5		—		5
Net current period other comprehensive income (loss)	16		12		28		56		$	(8)	$	48
Balance at March 31, 2022	$	(330)	$	(1,196)	$	11	$	(1,515)

(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.

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~~Following are the changes in accumulated other comprehensive income (loss) by component for the six months ended:~~

In millions Change in pensions
and other
postretirement
defined benefit plans Foreign currency
translation
adjustment Unrealized gain
(loss) on
derivatives Total
attributable to
Cummins Inc. Noncontrolling
interests Total
Balance at December 31, 2021 $ (346) $ (1,208) $ (17) $ (1,571)
Other comprehensive income before reclassifications
Before-tax amount 14 (224) 95 (115) $ (23) $ (138)
Tax (expense) benefit (3) 6 (22) (19) — (19)
After-tax amount 11 (218) 73 (134) (23) (157)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
11 — (2) 9 — 9
Net current period other comprehensive income (loss) 22 (218) 71 (2) (125) $ (23) $ (148)
Balance at June 30, 2022 $ (324) $ (1,426) $ 54 $ (1,696)
Balance at December 31, 2020 $ (735) $ (1,204) $ (43) $ (1,982)
Other comprehensive income before reclassifications
Before-tax amount 15 (31) 48 32 $ (7) $ 25
Tax (expense) benefit (2) 4 (13) (11) — (11)
After-tax amount 13 (27) 35 21 (7) 14
Amounts reclassified from accumulated other comprehensive income (loss)(1)
33 — (1) 32 — 32
Net current period other comprehensive income (loss) 46 (27) 34 (2) 53 $ (7) $ 46
Balance at July 4, 2021 $ (689) $ (1,231) $ (9) $ (1,929)
(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 10, "DEBT," for additional information.

2220

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NOTE 14. ~~ACQUISITIONS~~DERIVATIVES

We are exposed to financial risk resulting from volatility in foreign exchange rates, interest rates and commodity prices. This risk is closely monitored and managed through the use of physical forward contracts (which are not considered derivatives), and financial derivative instruments including foreign currency forward contracts, commodity swap contracts and interest rate swaps and locks. Financial derivatives are used expressly for hedging purposes and under no circumstances are they used for speculative purposes. When material, we adjust the estimated fair value of our derivative contracts for counterparty or our credit risk. None of our derivative instruments are subject to collateral requirements. Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.

Foreign Currency Exchange Rate Risk

We had foreign currency forward contracts with notional amounts of $4.4 billion and $3.6 billion at March 31, 2023 and December 31, 2022, respectively. The following currencies comprise 86 percent and 88 percent of outstanding foreign currency forward contracts at March 31, 2023 and December 31, 2022, respectively: British pound, Chinese renminbi, Euro, Canadian dollar and Australian dollar.

We are further exposed to foreign currency exchange risk as many of our subsidiaries are subject to fluctuations as the functional currencies of the underlying entities are not our U.S. dollar reporting currency. To help minimize movements for certain investments, in the third quarter of 2022 we began entering into foreign exchange forwards designated as net investment hedges for certain of our investments. Under the current terms of our foreign exchange forwards, we agreed with third parties to sell British pound in exchange for U.S. dollar currency at a specified rate at the maturity of the contract. The notional amount of these hedges at March 31, 2023, was $724 million.

The following table summarizes the net investment hedge activity in AOCL:


	Three months ended
	March 31,
In millions	2023
Type of Derivative	Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings

Foreign exchange forwards	$	(15)	$	—

Interest Rate Risk

In 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month LIBOR plus a spread. We also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread. We designated the swaps as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as interest expense. The net swap settlements that accrue each period are also reported in the Condensed Consolidated Financial Statements as interest expense. In March 2023, we settled a portion of our 2021 interest rate swaps with a notional amount of $100 million. The $7 million loss on settlement will be amortized over the remaining term of the related debt.

The following table summarizes the gains and losses:


	Three months ended
	March 31,
In millions	2023				2022
Type of Swap	Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings
Interest rate swaps(1)	$	27	$	(22)	$	(72)	$	80

(1) The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.

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In 2019, we entered into $350 million of interest rate lock agreements, and in 2020 we entered into an additional $150 million of lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The terms of the rate locks mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt. The gains and losses on these derivative instruments are initially recorded in other comprehensive income and will be released to earnings in interest expense in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance. In December 2022, we settled certain rate lock agreements with notional amounts totaling $150 million for $49 million. In February 2023, we settled certain rate lock agreements with notional amounts totaling $100 million for $34 million. The $83 million of gains on settlements will remain in other comprehensive income and will be amortized over the term of the anticipated new debt as discussed above.

The following table summarizes the interest rate lock activity in AOCL:


	Three months ended
	March 31,
In millions	2023				2022
Type of Swap	Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Interest Expense		Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Interest Expense
Interest rate locks	$	(9)	$	—	$	39	$	—

Cash Flow Hedging

The following table summarizes the effect on our Condensed Consolidated Statements of Net Income for derivative instruments classified as cash flow hedges. The table does not include amounts related to ineffectiveness as it was not material for the periods presented.


	Three months ended
	March 31,
In millions	2023		2022
Gain reclassified from AOCL into income - Net sales(1)	$	1	$	3
Loss reclassified from AOCL into income - Cost of sales(1)(2)	—		(2)



(1) Includes foreign currency forward contracts.
(2) Includes commodity swap contracts.

Derivatives Not Designated as Hedging Instruments

The following table summarizes the effect on our Condensed Consolidated Statements of Net Income for derivative instruments not classified as cash flow hedges:


	Three months ended
	March 31,
In millions	2023		2022
Loss recognized in income - Cost of sales(1)	$	(2)	$	(1)
Gain recognized in income - Other income (expense), net(1)	27		8


(1) Includes foreign currency forward contracts.

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Fair Value Amount and Location of Derivative Instruments

The following table summarizes the location and fair value of derivative instruments on our Condensed Consolidated Balance Sheets:


	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
In millions	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Notional amount	$	2,898	$	3,051	$	3,688	$	2,900

Derivative assets
Prepaid expenses and other current assets	$	16	$	18	$	7	$	27

Other assets	35		80		—		—
Total derivative assets(1)	$	51	$	98	$	7	$	27

Derivative liabilities
Other accrued expenses	$	22	$	19	$	2	$	3
Other liabilities	118		151		—		—
Total derivative liabilities(1)	$	140	$	170	$	2	$	3

(1) Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the three months ended March 31, 2023, or the year ended December 31, 2022.

We elected to present our derivative contracts on a gross basis in our Condensed Consolidated Balance Sheets. Had we chosen to present on a net basis, we would have derivatives in a net asset position of $29 million and $52 million and derivatives in a net liability position of $113 million and $100 million at March 31, 2023 and December 31, 2022, respectively.

NOTE 15. RUSSIAN OPERATIONS

On March 17, 2022, the Board indefinitely suspended our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture with KAMAZ (a Russian truck manufacturer) and direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other potential liabilities. We experienced and expect to continue to experience an inability to collect customer receivables and may be the subject of litigation as a consequence of our suspension of commercial operations in Russia. The following summarizes the costs associated with the suspension of our Russian operations in our Condensed Consolidated Statements of Net Income:

Three months ended

In millions

March 31,
2022

Statement of Net Income Location

Inventory write-downs

Cost of sales

Accounts receivable reserves

Other operating expense, net

Impairment and other joint venture costs

Equity, royalty and interest income from investees

Other

Other operating expense, net

Total

158

For the three month ended March 31, 2023, there were no material additional costs. We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.

NOTE 16. ACQUISITION

On February 7, 2022, we purchased Westport Fuel System Inc.'s stake in ~~the~~ Cummins Westport, ~~Joint Venture.~~Inc. 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 are not material to our Condensed Consolidated Financial Statements.

On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. Sales of this business were $194 million in 2021. 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. The preliminary purchase price allocation was as follows:


~~In millions~~
~~Cash~~	$	18
~~Accounts receivable~~	24
~~Inventory~~	15
~~Fixed assets~~	70
~~Intangible assets~~
~~Customer relationships~~	~~108~~
~~Technology~~	31
~~Trade name~~	25
~~Goodwill~~	~~108~~
~~Accounts payable~~	~~(21)~~
~~Deferred tax liability, net~~	~~(27)~~
~~Other, net~~	~~(5)~~
~~Total purchase price~~	$	~~346~~

Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers, which we are amortizing over nine years. The assets were valued using an income approach, specifically the "multi-period excess earnings" method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of 18 percent and (2) renewal probability assumptions. Technology assets primarily represent the associated patents and know how related to the engine braking and emission technology, which we are amortizing over a range of 7 to 12 years. Trade name represents the value of Jacobs trade names in the marketplace, which we are amortizing over 14 years. These assets were valued using the "relief-from-royalty" method, which is a combination of both the income approach and market approach that values a subject asset based on an estimate of the "relief" from the royalty expense that would be incurred if the subject asset were licensed from a third party. Key assumptions impacting these values include: (1) market royalty rates of 2 to 7 percent, (2) rates of return of 17 to 18 percent and (3) technology obsolescence of 7 to 10 percent. These values are considered a level 3 measurement under the GAAP fair value hierarchy. Annual amortization of the intangible assets for the next five years is expected to approximate $18 million.

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 Jacob’s 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 second quarter results were revenues of $37 million and income of $2 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 are not material to our ~~Condensed Consolidated Financial Statements.~~

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On February 21, 2022, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Meritor, Inc. (Meritor) and Rose NewCo Inc. (Merger Sub) pursuant to which we agreed to acquire Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. At closing, Merger Sub will merge into Meritor with Meritor as the surviving entity and becoming our wholly-owned subsidiary. This acquisition will be reported in our Components and New Power segments. ~~Pursuant to the terms of the Merger Agreement, we agreed to pay $36.50 in cash per share of Meritor common stock.~~

~~On May 26, 2022, Meritor's shareholders voted to approve the Merger Agreement. On August 3, 2022, we completed the acquisition of Meritor with a purchase price of $3.0 billion~~ ~~(including convertible debt). We repaid~~ ~~$250 million~~ ~~of Meritor's debt as part of the acquisition, and we intend to pay off an additional $310 million~~ ~~in the third quarter of 2022. The acquisition was funded with borrowings drawn under the $2.0 billion~~ ~~term loan agreement and~~ ~~$1.3 billion~~ of additional commercial paper borrowings. The integration of Meritor's people, products and capabilities in axle and brake technology will position us as a leading provider of integrated powertrain solutions across internal combustion and electric power applications. See NOTE 16, “SUBSEQUENT EVENTS,” for additional information related to the $2.0 billion loan agreement. Due to the timing of the acquisition, the initial purchase accounting is not yet complete and will follow in the third quarter Form 10-Q filing.

~~NOTE 15. OPERATING SEGMENTS~~

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.

Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments.

~~The accounting policies of our operating segments are the same as those applied in our~~ ~~Condensed Consolidated Financial Statements.~~ We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance to individual segments. EBITDA may not be consistent with measures used by other companies.

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~~Summarized financial information regarding our reportable operating segments for the three months ended is shown in the table below:~~

In millions Engine Distribution Components Power Systems New Power Total Segments
Three months ended June 30, 2022
External sales $ 2,092 $ 2,247 $ 1,477 $ 734 $ 36 $ 6,586
Intersegment sales 683 6 473 469 6 1,637
Total sales 2,775 2,253 1,950 1,203 42 8,223
Research, development and engineering expenses 116 13 73 58 39 299
Equity, royalty and interest income (loss) from investees 59 21 9 10 (4) 95
Interest income 1 3 2 1 — 7
Russian suspension costs (recoveries)(1)
1 (45) (2) (1) — (47)
Segment EBITDA 422 297 352 128 (80) 1,119
Depreciation and amortization(2)
49 29 49 31 8 166
Three months ended July 4, 2021
External sales $ 1,920 $ 1,913 $ 1,556 $ 699 $ 23 $ 6,111
Intersegment sales 571 7 438 444 1 1,461
Total sales 2,491 1,920 1,994 1,143 24 7,572
Research, development and engineering expenses 99 12 79 60 26 276
Equity, royalty and interest income (loss) from investees 104 15 12 9 (3) 137
Interest income 1 2 1 1 — 5
Segment EBITDA 402 201 301 139 (60) 983
Depreciation and amortization(2)
50 30 46 33 7 166
(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. A portion of depreciation expense is included in Research, development and engineering expenses.

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~~Summarized financial information regarding our reportable operating segments for the six months ended is shown in the table below:~~

In millions Engine Distribution Components Power Systems New Power Total Segments
Six months ended June 30, 2022
External sales $ 4,141 $ 4,358 $ 2,994 $ 1,417 $ 61 $ 12,971
Intersegment sales 1,387 12 944 946 12 3,301
Total sales 5,528 4,370 3,938 2,363 73 16,272
Research, development and engineering expenses 225 26 149 122 75 597
Equity, royalty and interest income (loss) from investees 103 (1) 37 37 21 (7) 191
Interest income 5 5 3 2 — 15
Russian suspension costs(2)
33 (3) 55 4 19 — 111
Segment EBITDA 814 407 672 218 (147) 1,964
Depreciation and amortization(4)
100 57 92 62 15 326
Six months ended July 4, 2021
External sales $ 3,815 $ 3,740 $ 3,280 $ 1,311 $ 57 $ 12,203
Intersegment sales 1,135 15 866 854 2 2,872
Total sales 4,950 3,755 4,146 2,165 59 15,075
Research, development and engineering expenses 191 25 154 117 49 536
Equity, royalty and interest income from investees 217 32 31 21 2 303
Interest income 4 3 2 2 — 11
Segment EBITDA 756 361 722 265 (111) 1,993
Depreciation and amortization(4)
101 60 94 68 12 335
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.
(4) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. The amortization of debt discount and deferred costs was $2 million and $2 million for the six months ended June 30, 2022 and July 4, 2021, respectively. A portion of depreciation expense is included in Research, development and engineering expenses.

~~A reconciliation of our total segment sales to total net sales in the~~ ~~Condensed Consolidated Statements of Net Income~~ ~~was as follows:~~

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
Total segment sales $ 8,223 $ 7,572 $ 16,272 $ 15,075
Elimination of intersegment sales (1,637) (1,461) (3,301) (2,872)
Total net sales $ 6,586 $ 6,111 $ 12,971 $ 12,203

~~Table of Contents~~

~~A reconciliation of our segment information to the corresponding amounts in the~~ ~~Condensed Consolidated Statements of Net Income~~ ~~is shown in the table below:~~

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
TOTAL SEGMENT EBITDA $ 1,119 $ 983 $ 1,964 $ 1,993
Intersegment eliminations and other(1)
(64) (9) (154) (39)
Less:
Interest expense 34 29 51 57
Depreciation and amortization 166 166 326 335
INCOME BEFORE INCOME TAXES 855 779 1,433 1,562
Less: Income tax expense 148 167 303 339
CONSOLIDATED NET INCOME 707 612 1,130 1,223
Less: Net income attributable to noncontrolling interests 5 12 10 20
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 702 $ 600 $ 1,120 $ 1,203
(1)Intersegment eliminations and other included $24 million and $41 million of costs associated with the planned separation of our Filtration business for the three and six months ended June 30, 2022.

NOTE ~~16. SUBSEQUENT EVENTS~~17. OPERATING SEGMENTS

~~On July 13, 2022, we entered into~~Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer.

Our reportable operating segments consist of Components, Engine, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems, automated transmissions, axles, drivelines, brakes and suspension systems. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The Accelera segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electrolyzers for hydrogen production and electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a ~~loan agreement under~~useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments.

The accounting policies of our operating segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance and certain filtration separation costs to individual segments. EBITDA may ~~obtain delayed-draw loans~~not be consistent with measures used by other companies.

As previously announced, in ~~an amount up~~March 2023, we rebranded our New Power segment as "Accelera" to ~~$2.0 billion~~better represent our commitment to zero-emission technologies. In addition, we moved our NPROXX joint venture from the Accelera segment to the Engine segment, which adjusted both the equity, royalty and interest income from investees and segment EBITDA line items for the current and prior year. We started to report results for the changes within our operating segments effective January 1, 2023, and reflected these changes in the aggregate prior to October 13, 2022. We drew down the entire $2.0 billion balance on August 2, 2022, to help fund the acquisition of Meritor. The initial interest rate, based on the Secured Overnight Financing Rate for the one-month interest period plus the relevant spread, is 3.11 percent. The loan will mature on August 2, 2025.

~~On August 3, 2022, we completed the acquisition of Meritor with a purchase price of $3.0 billion~~ ~~(including convertible debt). We borrowed an additional~~ ~~$1.3 billion~~ ~~under our commercial paper program to complete the acquisition. The acquisition reduced our borrowing capacity under the revolving credit facilities to~~ ~~$1.43 billion~~ ~~at the time of filing. See NOTE 14, "ACQUISITIONS," for additional information.~~

historical periods presented.

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Summarized financial information regarding our reportable operating segments for the three months ended is shown in the table below:



In millions	Components			Engine			Distribution		Power Systems		Accelera		Total Segments
Three months ended March 31, 2023
External sales	$	3,043		$	2,252		$	2,399	$	679	$	80	$	8,453
Intersegment sales	514			734			7		664		5		1,924
Total sales	3,557			2,986			2,406		1,343		85		10,377



Research, development and engineering expenses	91			134			14		63		48		350
Equity, royalty and interest income (loss) from investees	21			65			24		13		(4)		119

Interest income	6			3			7		2		—		18

Segment EBITDA	507		(1)	457			335		219		(94)		1,424
Depreciation and amortization(2)	123			51			28		29		14		245


Three months ended March 31, 2022
External sales	$	1,517		$	2,049		$	2,111	$	683	$	25	$	6,385
Intersegment sales	471			704			6		477		6		1,664
Total sales	1,988			2,753			2,117		1,160		31		8,049



Research, development and engineering expenses	76			109			13		64		36		298
Equity, royalty and interest income (loss) from investees	28			42		(3)	16		11		(1)		96

Interest income	1			4			2		1		—		8
Russian suspension costs(4)	6			32		(5)	100		20		—		158
Segment EBITDA	320			390			110		90		(65)		845
Depreciation and amortization(2)	43			51			28		31		7		160


(1) Includes $12 million of costs associated with the planned separation of our filtration business.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as interest expense. The amortization of debt discount and deferred costs was $1 million and $1 million for the three months ended March 31, 2023 and March 31, 2022, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(3) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(4) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(5) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income (loss) from investees line above.

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Net Income is shown in the table below:


	Three months ended
	March 31,
In millions	2023		2022
TOTAL SEGMENT EBITDA	$	1,424	$	845

Intersegment eliminations and other(1)	(63)		(90)

Less:
Interest expense	87		17
Depreciation and amortization	245		160
INCOME BEFORE INCOME TAXES	$	1,029	$	578





(1)Intersegment eliminations and other included $6 million and $17 million of costs associated with the planned separation of our filtration business for the three months ended March 31, 2023 and 2022.

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NOTE 18. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In September 2022, the Financial Accounting Standards Board issued a standard related to the disclosure of additional information about the use of supplier finance programs. Under the new standard, entities are required to disclose (1) key terms of the programs, (2) the amount outstanding that remains unpaid as of the end of the period, including where amounts are recorded in the balance sheets and (3) an annual rollforward of those obligations, including the amount of obligations confirmed and the amount of obligations subsequently paid. We adopted the new standard on January 1, 2023, on a retrospective basis other than the rollforward, which we currently plan to early adopt on a prospective basis beginning with our 2023 annual financial statements. The adoption did not have a material impact on our financial statements. See "Supply Chain Financing" section in NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," for additional information.

NOTE 19. SUBSEQUENT EVENT

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 €138 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. The acquisition will be included in our Engine segment starting in the second quarter of 2023. Due to the timing of the acquisition, the initial purchase accounting is not yet complete and will follow in the second quarter Form 10-Q filing.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cummins Inc. and its consolidated subsidiaries are hereinafter sometimes referred to as “Cummins,” “we,” “our” or “us.”

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain parts of this quarterly report contain forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are based on current expectations, estimates and projections about the industries in which we operate and management’s beliefs and assumptions. Forward-looking statements are generally accompanied by words such as "anticipates," "expects," "forecasts," "intends," "plans," "believes," "seeks," "estimates," "could," "should," "may" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:

GOVERNMENT REGULATION

•any adverse results of our internal review into our emissions certification process and compliance with emission standards;

•increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;

•changes in international, national and regional trade laws, regulations and policies;

•~~any adverse effects of the U.S. government's COVID-19 vaccine mandates;~~

•changes in taxation;

•global legal and ethical compliance costs and risks;

•~~increasingly stringent~~evolving environmental ~~laws~~ and ~~regulations;~~climate change legislation and regulatory initiatives;

•future bans or limitations on the use of diesel-powered products;

BU~~SINESS~~BUSINESS CONDITIONS / DISRUPTIONS

•failure to successfully integrate and / or failure to fully realize all of the anticipated benefits of the acquisition of Meritor, Inc. (Meritor);

•raw material, transportation and labor price fluctuations and supply shortages;

•any adverse effects of the conflict between Russia and Ukraine and the global response (including government bans or restrictions on doing business in Russia);

•~~failure to successfully integrate the acquisition of Meritor, Inc.;~~

•~~failure to realize all of the anticipated benefits from our acquisition of Meritor, Inc.;~~

•~~raw material, transportation and labor price fluctuations and supply shortages;~~

•aligning our capacity and production with our demand;

•the actions of, and income from, joint ventures and other investees that we do not directly control;

•large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, ~~bankruptcy~~ or change in control;

PRODUCTS AND TECHNOLOGY

•product recalls;

•variability in material and commodity costs;

•the development of new technologies that reduce demand for our current products and services;

•lower than expected acceptance of new or existing products or services;

•product liability claims;

•our sales mix of products;

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GENERAL

•failure to complete, adverse results from or failure to realize the expected benefits of the separation of our filtration business;

•our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;

•increasing interest rates;

•challenging markets for talent and ability to attract, develop and retain key personnel;

•climate change, ~~and~~ global ~~warming;~~warming, more stringent climate change regulations, accords, mitigation efforts, greenhouse gas regulations or other legislation designed to address climate change;

•exposure to potential security breaches or other disruptions to our information technology environment and data security;

•political, economic and other risks from operations in numerous countries including political, economic and social uncertainty and the evolving globalization of our business;

•competitor activity;

•increasing competition, including increased global competition among our customers in emerging markets;

•failure to meet environmental, social and governance (ESG) expectations or standards, or achieve our ESG goals;

•labor relations or work stoppages;

•foreign currency exchange rate changes;

•the performance of our pension plan assets and volatility of discount rates;

•the price and availability of energy;

•continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and

•other risk factors described in Part II, Item 1A in this quarterly report and our ~~2021~~2022 Form 10-K, Part I, Item 1A, both under the caption "Risk Factors."

Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this quarterly report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations section of our ~~2021~~2022 Form 10-K. Our MD&A is presented in the following sections:

•EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

•RESULTS OF OPERATIONS

•OPERATING SEGMENT RESULTS

•OUTLOOK

•LIQUIDITY AND CAPITAL RESOURCES

•APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

•RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, electric powertrains, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, ~~Navistar International Corporation,~~Traton Group, Daimler Trucks North America and Stellantis N.V. We serve our customers through a service network of approximately ~~500~~460 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in approximately 190 countries and territories.

As previously announced, beginning in the first quarter of 2023, we realigned certain businesses and regions within our reportable segments to be consistent with how our segment managers monitor the performance of our segments. We reorganized the businesses within our Components segment to carve out the electronics business into the newly formed software and electronics business and combined the turbo technologies and fuel systems businesses into the newly formed engine components business. Our Components segment now consists of the following businesses: axles and brakes, emission solutions, engine components, filtration, automated transmissions and software and electronics. As a result of the indefinite suspension of operations in Russia, we reorganized the regional management structure of our Distribution segment and moved all Commonwealth of Independent States (CIS) sales into the Europe and Africa and Middle East regions. The Russian portion of prior period CIS sales moved to the Europe region. In March 2023, we rebranded our New Power segment as "Accelera" to better represent our commitment to zero-emission technologies. In addition, we moved our NPROXX joint venture from the Accelera segment to the Engine segment, which adjusted both the equity, royalty and interest income from investees and segment EBITDA line items for the current and prior year. We started to report results for the changes within our operating segments effective January 1, 2023, and reflected these changes in the historical periods presented.

Our reportable operating segments consist of Components, Engine, Distribution, ~~Components,~~ Power Systems and ~~New Power.~~Accelera. This reporting structure is organized according to the products and markets each segment serves. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems, automated transmissions, axles, drivelines, brakes and suspension systems. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The ~~Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The~~ Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The ~~New Power~~Accelera segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems with innovative components and subsystems, including battery, ~~and~~ fuel cell and electric powertrain technologies. The ~~New Power~~Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development ~~phase with a primary focus on research~~of our electrolyzers for hydrogen production and ~~development activities for our~~electrified power systems and related

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components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, construction and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules, stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by geopolitical risks (such as the conflict between Russia and Ukraine), currency fluctuations, political and economic uncertainty, public health crises ~~epidemics~~(epidemics or ~~pandemics~~pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry ~~high~~higher levels of these risks such as China, Brazil, India, Mexico ~~Russia~~ and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry, ~~or customer or~~region, the economy of any single country or customer on our consolidated results.

~~Table of Contents~~

~~Russian Operations~~

On March 17, 2022, the Board of Directors (the Board) decided to indefinitely suspend our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture (the Unconsolidated JV) with KAMAZ Publicly Traded Company (KAMAZ), a Russian truck manufacturer with whom we share the Unconsolidated JV, and direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other potential liabilities. We experienced and expect to continue to experience, an inability to collect customer receivables and may be the subject of litigation as a consequence of our suspension of commercial operations in Russia. We recorded a charge of $158 million in the first quarter related to these actions. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. As of June 30, 2022, we had approximately $17 million of inventory and $26 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $84 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. The following summarizes the costs (recoveries) associated with the suspension of our Russian operations in our ~~Condensed Consolidated Statements of Net Income:~~

Three months ended Six months ended
In millions June 30,
2022 June 30,
2022
Inventory write-downs $ (40) $ 19
Accounts receivable reserves — 43
Impairment and other joint venture costs — 31
Other (7) 18
Total $ (47) $ 111

~~We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.~~

Supply Chain Disruptions

We continue to experience supply chain disruptions, increased price levels and related financial impacts reflected as increased cost of ~~sales.~~sales and inventory holdings. Our industry continues to be unfavorably impacted by supply chain constraints leading to shortages and price increases across multiple ~~components~~component categories and limiting our collective ability to meet end-user demand. Our customers are also experiencing supply chain issues. Should the supply chain issues continue for an extended period of time or worsen, the impact on our production and supply chain could have a material adverse effect on our results of operations, financial condition and cash flows. The Board continues to monitor and evaluate all of these factors and the related impacts on our business and operations, and we are diligently working to minimize the supply chain impacts to our business and to our customers.

~~2022 Second~~2023 First Quarter ~~and Year-to-Date~~ Results

A summary of our results is as follows:


											Three months ended
		Three months ended				Six months ended					March 31,
In millions, except per share amounts	In millions, except per share amounts	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		In millions, except per share amounts	2023		2022
Net sales	Net sales	$	6,586	$	6,111	$	12,971	$	12,203	Net sales	$	8,453	$	6,385
Net income attributable to Cummins Inc.	Net income attributable to Cummins Inc.	702		600		1,120		1,203		Net income attributable to Cummins Inc.	790		418
Earnings per common share attributable to Cummins Inc.	Earnings per common share attributable to Cummins Inc.									Earnings per common share attributable to Cummins Inc.
Basic	Basic	$	4.97	$	4.14	$	7.90	$	8.24	Basic	$	5.58	$	2.94
Diluted	Diluted	4.94		4.10		7.86		8.16		Diluted	5.55		2.92

~~Our industry's~~Worldwide revenues increased 32 percent in the three months ended March 31, 2023, compared to the same period in 2022, due to axles and brakes sales ~~continue~~in the Components segment of $1.3 billion from the Meritor acquisition and higher demand in all operating segments and most geographic regions, partially offset by decreases in Russia due to ~~be unfavorably~~the indefinite suspension of our Russian operations. Net sales in the U.S. and Canada improved 39 percent, primarily due to incremental sales of axles and brakes in North America, increased demand in all Distribution product lines and stronger demand in North American heavy-duty and medium-duty truck markets, which positively impacted most Components businesses. International demand (excludes the U.S. and Canada) improved 24 percent, with lower sales in Russia more than offset by ~~supply chain constraints leading~~higher sales in most other geographic regions. The increase in international sales was principally due to ~~shortages across multiple components categories~~incremental sales of axles and ~~limiting our collective ability to meet end-user demand. Our customers are also experiencing other supply chain issues limiting full production capabilities.~~brakes in Western Europe and Latin America. Unfavorable foreign currency fluctuations impacted international sales by 5 percent (primarily the Chinese renminbi, Indian rupee and Euro).

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Worldwide revenues increased 8 percent in the three months ended June 30, 2022, compared to the same period in 2021, due to favorable pricing and higher demand in most operating segments and most geographic regions except for China. Net sales in the U.S. and Canada improved 15 percent, primarily due to favorable pricing and increased demand in North American on-highway markets, which positively impacted all components businesses, and most distribution product lines. International demand (excludes the U.S. and Canada) declined 2 percent, with lower sales in China (due to a sharp slowdown in truck and construction markets, exacerbated by COVID lockdowns) and Russia, partially offset by higher sales in all other geographic regions. The decrease in international sales was principally due to lower demand in China as the result of COVID-related lockdowns significantly reducing demand in most businesses. Unfavorable foreign currency fluctuations impacted international sales by 3 percent (primarily the Euro, British pound and Indian rupee).

Worldwide revenues increased 6 percent in the six months ended June 30, 2022, compared to the same period in 2021, due to favorable pricing and higher demand in most operating segments and most geographic regions except for China. Net sales in the U.S. and Canada improved 14 percent, primarily due to favorable pricing and increased demand in North American on-highway markets, which positively impacted all components businesses and all distribution product lines. International demand (excludes the U.S. and Canada) declined by 3 percent, with lower sales in China (due to a sharp slowdown in truck and construction markets, exacerbated by COVID lockdowns), partially offset by higher sales in all other geographic regions. The decrease in international sales was principally due to lower demand in China as the result of COVID-related lockdowns significantly reducing demand in most businesses. Unfavorable foreign currency fluctuations impacted international sales by 2 percent (primarily the Euro, British pound and Indian rupee).

The following ~~tables contain~~table contains sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment, including adjusted prior year balances for the NPROXX changes noted above, for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 and ~~July 4, 2021.~~2022. See NOTE ~~15,~~17, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.


		Three months ended																		Three months ended March 31,
Operating Segments	Operating Segments	June 30, 2022							July 4, 2021						Percent change				Operating Segments	2023							2022							Percent change
				Percent							Percent				2022 vs. 2021							Percent							Percent					2023 vs. 2022
In millions	In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA		Sales		EBITDA		In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA			Sales		EBITDA
Components																			Components	3,557		42	%	507			1,988		31	%	320			79	%	58	%
Engine	Engine	$	2,775	42	%	$	422		$	2,491	41	%	$	402	11	%	5	%	Engine	2,986		36	%	457			2,753		43	%	390			8	%	17	%
Distribution	Distribution	2,253		34	%	297			1,920		31	%	201		17	%	48	%	Distribution	2,406		28	%	335			2,117		33	%	110			14	%	NM
Components		1,950		30	%	352			1,994		33	%	301		(2)	%	17	%
Power Systems	Power Systems	1,203		18	%	128			1,143		19	%	139		5	%	(8)	%	Power Systems	1,343		16	%	219			1,160		18	%	90			16	%	NM
New Power		42		1	%	(80)			24		—	%	(60)		75	%	(33)	%
Accelera																			Accelera	85		1	%	(94)			31		1	%	(65)			NM		(45)	%
Intersegment eliminations	Intersegment eliminations	(1,637)		(25)	%	(64)			(1,461)		(24)	%	(9)		12	%	NM		Intersegment eliminations	(1,924)		(23)	%	(63)			(1,664)		(26)	%	(90)			16	%	(30)	%

Total	Total	$	6,586	100	%	$	1,055	(1)	$	6,111	100	%	$	974	8	%	8	%	Total	$	8,453	100	%	$	1,361	(1)	$	6,385	100	%	$	755	(2)	32	%	80	%

"NM" - not meaningful information	"NM" - not meaningful information																		"NM" - not meaningful information
(1) EBITDA includes $47 million of recoveries associated with the suspension of our Russian operations and $29 million of costs associated with the planned separation of our Filtration business.
(1) EBITDA includes $18 million of costs associated with the planned separation of our filtration business.																			(1) EBITDA includes $18 million of costs associated with the planned separation of our filtration business.
(2) EBITDA includes $158 million of costs associated with the suspension of our Russian operations and $17 million of costs associated with the planned separation of our filtration business. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.																			(2) EBITDA includes $158 million of costs associated with the suspension of our Russian operations and $17 million of costs associated with the planned separation of our filtration business. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Net income attributable to Cummins Inc. was ~~$702~~$790 million, or ~~$4.94~~$5.55 per diluted share, on sales of ~~$6.6~~$8.5 billion for the three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable prior year period net income attributable to Cummins Inc. of ~~$600~~$418 million, or ~~$4.10~~$2.92 per diluted share, on sales of ~~$6.1~~$6.4 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by higher net sales ~~increased gross margin, recoveries~~and the absence of costs associated with the suspension of our Russian operations, ~~and favorable discrete tax items,~~ partially offset by ~~unfavorable changes in corporate owned life insurance,~~ increased ~~consulting expenses driven by acquisitions~~compensation costs, higher interest expense related to increased floating interest rates and ~~the work towards separation~~new borrowings and higher amortization of ~~the filtration business and lower equity, royalty and interest income~~intangible assets resulting from ~~investees (primarily in China). See NOTE 3, "RUSSIAN OPERATIONS," to~~ our ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~acquisitions. The increase in gross margin was primarily due to higher volumes (including sales of axles and brakes due to the Meritor acquisition) and favorable pricing, ~~and higher volumes,~~ partially offset by higher ~~material costs.~~

~~Table of Contents~~

Six months ended
Operating Segments June 30,
2022 July 4,
2021 Percent change
Percent Percent 2022 vs. 2021
In millions Sales of Total EBITDA Sales of Total EBITDA Sales EBITDA
Engine $ 5,528 43 % $ 814 $ 4,950 41 % $ 756 12 % 8 %
Distribution 4,370 34 % 407 3,755 31 % 361 16 % 13 %
Components 3,938 30 % 672 4,146 34 % 722 (5) % (7) %
Power Systems 2,363 18 % 218 2,165 18 % 265 9 % (18) %
New Power 73 1 % (147) 59 — % (111) 24 % (32) %
Intersegment eliminations (3,301) (26) % (154) (2,872) (24) % (39) 15 % NM
Total $ 12,971 100 % $ 1,810 (1) $ 12,203 100 % $ 1,954 6 % (7) %
"NM" - not meaningful information
(1) EBITDA includes $111 million of costs associated with the suspension of our Russian operations and $46 million of costs associated with the planned separation of our Filtration business.

Net income attributable to Cummins Inc. was $1,120 million, or $7.86 per diluted share, on sales of $13.0 billion for the six months ended June 30, 2022, versus the comparable prior year period net income attributable to Cummins Inc. of $1,203 million, or $8.16 per diluted share, on sales of $12.2 billion. The decreases in net income attributable to Cummins Inc. and earnings per diluted share were driven by costs associated with the suspension of our Russian operations, increased consulting expenses driven by acquisitions and the work towards separation of the filtration business, lower equity, royalty and interest income from investees (primarily in China) and unfavorable changes in corporate owned life insurance, partially offset by higher net sales and increased gross margin. See NOTE 3, "RUSSIAN OPERATIONS," to our ~~Condensed Consolidated Financial Statements~~ for additional information. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing and increased volumes, partially offset by higher material costs, increased freight costs due to supply chain constraints and unfavorable foreign currency impacts (principally the Euro). Diluted earnings per common share for the six months ended June 30, 2022, benefited $0.06 from fewer weighted-average shares outstanding due to the stock repurchase program.compensation expenses.

We generated ~~$763~~$495 million of cash from operations for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, compared to ~~$955~~$164 million for the comparable period in ~~2021.~~2022. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Our debt to capital ratio (total capital defined as debt plus equity) at ~~June 30, 2022,~~March 31, 2023, was ~~31.4~~42.2 percent, compared to ~~30.7~~44.1 percent at December 31, ~~2021.~~2022. The ~~increase~~decrease was primarily due to the increased equity balance from strong first quarter earnings and lower debt balances since December 31, ~~2021.~~2022. At ~~June 30, 2022,~~March 31, 2023, we had ~~$3.0~~$2.4 billion in cash and marketable securities on hand and access to our ~~$3.5~~$4.0 billion credit facilities, if necessary, to meet acquisition, working capital, investment and funding needs.

~~In the first six months of 2022, we purchased $347 million, or 1.7 million shares,~~On February 15, 2023, certain of our ~~common stock.~~

~~On August 3, 2022, we completed the acquisition of Meritor, Inc. (Meritor) with a purchase price of $3.0 billion (including convertible debt). See NOTE 14, "ACQUISITIONS," to our~~ ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~On July 13, 2022, we~~subsidiaries entered into an amendment to the $1.0 billion credit agreement (Credit Agreement), consisting of a $400 million revolving credit facility and a $600 million term loan ~~agreement under which we may obtain delayed-draw loans~~facility, in ~~an amount up to $2.0 billion in~~anticipation of the ~~aggregate prior to October 13, 2022. We drew down the entire $2.0 billion balance on August 2, 2022, to fund the acquisition~~separation of ~~Meritor.~~

~~In July 2022, the Board authorized an increase to~~ our ~~quarterly dividend of approximately 8 percent from $1.45 per share to $1.57 per share.~~

~~On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp with a purchase price of $346 million.~~

~~On April 20, 2022, we filed a confidential registration statement announcing our intent to separate the~~ filtration business, ~~into a stand-alone company.~~

~~As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with~~which extended the ~~Securities and Exchange Commission (SEC)~~date on ~~February 8, 2022.~~

~~Table of Contents~~

which the Credit Agreement terminates from March 30, 2023 to June 30, 2023.

In the first ~~six~~three months of ~~2022,~~2023, the investment ~~loss~~gain on our U.S. pension ~~trust~~trusts was ~~5.0~~1.49 percent while our U.K. pension ~~trust loss~~trusts' gain was ~~17.8~~0.41 percent. We anticipate making additional defined benefit pension contributions during the remainder of ~~2022~~2023 of ~~$10~~$20 million for our U.S. and U.K. qualified and non-qualified pension plans. We expect our ~~2022~~2023 annual net periodic pension cost to ~~approximate $31 million.~~be near zero.

On April 3, 2023, we purchased all of the equity ownership interest of Teksid Hierro de Mexico, S.A. de C.V. and Teksid, Inc. from Stellantis N.V. for approximately €138 million, subject to certain adjustments set forth in the agreement. See NOTE 19, "SUBSEQUENT EVENT," to the Condensed Consolidated Financial Statements for additional information.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

3431

Table of Contents

RESULTS OF OPERATIONS

Three months ended Favorable/ Six months ended Favorable/
June 30,
2022 July 4,
2021 (Unfavorable) June 30,
2022 July 4,
2021 (Unfavorable)
In millions, except per share amounts Amount Percent Amount Percent
NET SALES $ 6,586 $ 6,111 $ 475 8 % $ 12,971 $ 12,203 $ 768 6 %
Cost of sales 4,860 4,633 (227) (5) % 9,713 9,239 (474) (5) %
GROSS MARGIN 1,726 1,478 248 17 % 3,258 2,964 294 10 %
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 622 600 (22) (4) % 1,237 1,174 (63) (5) %
Research, development and engineering expenses 299 276 (23) (8) % 597 536 (61) (11) %
Equity, royalty and interest income from investees 95 137 (42) (31) % 191 303 (112) (37) %
Other operating expense, net 3 4 1 25 % 114 12 (102) NM
OPERATING INCOME 897 735 162 22 % 1,501 1,545 (44) (3) %
Interest expense 34 29 (5) (17) % 51 57 6 11 %
Other (expense) income, net (8) 73 (81) NM (17) 74 (91) NM
INCOME BEFORE INCOME TAXES 855 779 76 10 % 1,433 1,562 (129) (8) %
Income tax expense 148 167 19 11 % 303 339 36 11 %
CONSOLIDATED NET INCOME 707 612 95 16 % 1,130 1,223 (93) (8) %
Less: Net income attributable to noncontrolling interests 5 12 7 58 % 10 20 10 50 %
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 702 $ 600 $ 102 17 % $ 1,120 $ 1,203 $ (83) (7) %
Diluted Earnings Per Common Share Attributable to Cummins Inc. $ 4.94 $ 4.10 $ 0.84 20 % $ 7.86 $ 8.16 $ (0.30) (4) %
"NM" - not meaningful information



	Three months ended				Favorable/
	March 31,				(Unfavorable)
In millions, except per share amounts	2023		2022		Amount		Percent
NET SALES	$	8,453	$	6,385	$	2,068	32	%
Cost of sales	6,424		4,853		(1,571)		(32)	%
GROSS MARGIN	2,029		1,532		497		32	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	753		615		(138)		(22)	%
Research, development and engineering expenses	350		298		(52)		(17)	%
Equity, royalty and interest income from investees	119		96		23		24	%

Other operating expense, net	19		111		92		83	%
OPERATING INCOME	1,026		604		422		70	%

Interest expense	87		17		(70)		NM
Other income (expense), net	90		(9)		99		NM
INCOME BEFORE INCOME TAXES	1,029		578		451		78	%
Income tax expense	223		155		(68)		(44)	%
CONSOLIDATED NET INCOME	806		423		383		91	%
Less: Net income attributable to noncontrolling interests	16		5		(11)		NM
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	790	$	418	$	372	89	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	5.55	$	2.92	$	2.63	90	%

"NM" - not meaningful information


		Three months ended								Favorable/ (Unfavorable)		Six months ended						Favorable/ (Unfavorable)					Three months ended							Favorable/ (Unfavorable)
		June 30, 2022				July 4, 2021					June 30, 2022			July 4, 2021						March 31,
Percent of sales	Percent of sales							Percentage Points									Percentage Points		Percent of sales			2023				2022			Percentage Points
Gross margin	Gross margin			26.2	%			24.2	%		2.0				25.1	%		24.3	%		0.8			Gross margin			24.0	%			24.0	%	—
Selling, general and administrative expenses	Selling, general and administrative expenses	9.4	%			9.8	%			0.4		9.5	%		9.6	%		0.1		Selling, general and administrative expenses			8.9		%		9.6	%		0.7
Research, development and engineering expenses	Research, development and engineering expenses	4.5	%			4.5	%			—		4.6	%		4.4	%		(0.2)		Research, development and engineering expenses			4.1		%		4.7	%		0.6

Net Sales

Net sales for the three months ended ~~June 30, 2022,~~March 31, 2023, increased by ~~$475 million~~$2.1 billion versus the comparable period in ~~2021.~~2022. The primary drivers were as follows:

•Components segment sales increased 79 percent largely due to axles and brakes sales from the Meritor acquisition.

•Distribution segment sales increased 1714 percent ~~principally~~ due to higher demand across ~~most~~all product lines in North ~~America~~.America.

•Engine segment sales increased 118 percent principally due to ~~favorable pricing and increased on-highway~~strong heavy-duty truck demand (including higher aftermarket sales) in North America.

•Power Systems segment sales increased ~~5 percent primarily due to higher demand in oil and gas markets (including higher aftermarket sales) in North America and India and generator technologies markets in Europe and India.~~

~~These increases were partially offset by the following drivers:~~

•~~Components segment sales decreased 2 percent largely due to lower demand in all businesses in China, partially offset by higher demand in North America.~~

•~~Unfavorable foreign currency fluctuations of 1 percent of total sales, primarily in the Euro, British pound and Indian rupee.~~

~~Table of Contents~~

~~Net sales for the six months ended June 30, 2022, increased $768 millionversus the comparable period in 2021. The primary drivers were as follows:~~

•~~Distribution segment sales increased~~ 16 ~~percent principally due to higher demand across most product lines in North America.~~

•~~Engine segment sales increased 12 percent due to favorable pricing and stronger on-highway demand (including higher aftermarket sales) in North America.~~

•~~Power Systems segment sales increased 9~~ percent primarily due to higher demand in power generation markets ~~in China~~ and ~~India and global mining markets and~~industrial oil and gas markets ~~(including higher aftermarket sales)~~ in North ~~America, China and India.~~America.

These increases were partially offset by ~~the following drivers:~~

•~~Components segment sales decreased 5 percent largely due to lower demand in all businesses in China, partially offset by higher demand in North America.~~

•~~Unfavorable~~unfavorable foreign currency fluctuations of 12 percent of total sales, primarily in the ~~Euro, British pound~~Chinese renminbi, Indian rupee and ~~Indian rupee.~~Euro.

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, were 39 ~~percent and 40~~ percent of total net sales compared with ~~43 percent and 44~~42 percent of total net sales for the comparable ~~periods~~period in ~~2021.~~2022. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Table of Contents

Cost of Sales

The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; salaries, wages and benefits; depreciation on production equipment and facilities and amortization of technology intangibles; estimated costs of warranty programs and campaigns; production utilities; production-related purchasing; warehousing, including receiving and inspection; freight costs; engineering support costs; repairs and maintenance; production and warehousing facility property insurance; rent for production facilities; charges for the write-downs of inventories in Russia and other production overhead.

Gross Margin

Gross margin increased ~~$248~~$497 million for the three months ended ~~June 30, 2022~~March 31, 2023 and ~~increased 2.0 points~~remained flat as a percentage of net sales versus the comparable period in ~~2021.~~2022. The increase in gross margin ~~and gross margin as a percentage of sales~~ was primarily due to higher volumes (including sales of axles and brakes due to the Meritor acquisition) and favorable pricing, ~~and higher volumes,~~ partially offset by higher ~~material costs.~~

Gross margin increased $294 million for the six months ended June 30, 2022 and increased 0.8 points as a percentage of sales versus the comparable period in 2021. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing and increased volumes, partially offset by higher material costs, increased freight costs due to supply chain constraints and unfavorable foreign currency impacts (principally the Euro).compensation expenses.

The provision for base warranties issued as a percent of sales for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, was ~~2.2~~1.7 percent ~~and 2.1 percent, respectively,~~ compared to ~~2.4 percent and 2.5~~1.9 percent for the comparable ~~periods~~period in ~~2021.~~2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$22~~$138 million for the three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to higher compensation expenses and higher consulting expenses. Compensation and related expenses ~~driven by acquisitions and the work towards separation of the filtration business, partially offset by lower~~include variable compensation, ~~expenses.~~salaries and fringe benefits. Overall, selling, general and administrative expenses as a percentage of net sales decreased to ~~9.4~~8.9 percent in the three months ended ~~June 30, 2022,~~March 31, 2023, from ~~9.8~~9.6 percent in the comparable period in ~~2021.~~2022. The decrease in selling, general and administrative expenses as a percentage of net sales was ~~mainly~~ due to net sales increasing at a faster rate than selling, general and administrative ~~expenses increasing at a slower rate than the growth in net sales.~~

Selling, general and administrative expenses increased $63 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to higher consulting expenses driven by acquisitions and the work towards the separation of the filtration business, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses, as a percentage of sales, decreased to 9.5 percent in the six months ended June 30, 2022, from 9.6 percent in the comparable period in 2021. The decrease in selling, general and administrative expenses as a percentage of net sales was mainly due to selling, general and administrative expenses increasing at a slower rate than the increase in net sales.

~~Table of Contents~~

Research, Development and Engineering Expenses

Research, development and engineering expenses increased ~~$23~~$52 million for the three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to ~~increased consulting~~higher compensation expenses and ~~higher spending on supplies.~~lower expense recovery. Compensation and related expenses include variable compensation, salaries and fringe benefits. Overall, research, development and engineering expenses as a percentage of net sales ~~remained flat at 4.5~~decreased to 4.1 percent in the three months ended ~~June 30, 2022, and the comparable period in 2021.~~

Research, development and engineering expenses increased $61 million for the six months ended June 30, 2022, versus the comparable period in 2021, primarily due to increased consulting expenses and higher spending on prototypes and supplies. Overall, research, development and engineering expenses as a percentage of sales increased to 4.6 percent in the six months ended June 30, 2022,March 31, 2023, from ~~4.4~~4.7 percent in the comparable period in ~~2021.~~2022. The ~~increase~~decrease in research, development and engineering expenses as a percentage of net sales was ~~mainly~~ due to ~~research, development and engineering expenses~~net sales increasing at a faster rate than ~~the increase in net sales.~~research, development and engineering expenses.

Research activities continue to focus on development of new products to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural ~~gas powered~~gas-powered engines and related components as well as development activities around battery electric, fuel cell electric and hydrogen engine solutions.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees ~~decreased $42~~increased $23 million for the three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to ~~decreased~~the absence of the $28 million impairment of our Russian joint venture with KAMAZ in the first quarter of 2022 and higher earnings at ~~Beijing Foton~~Komatsu Cummins ~~Engine Co.~~Chile, Ltda., ~~Ltd.~~partially offset by lower royalty and ~~Dongfeng Cummins Engine Co., Ltd. and the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture.~~interest income from investees. See NOTE ~~14, "ACQUISITIONS,~~15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Equity, royalty and interest income from investees decreased $112 million for the six months ended June 30, 2022, versus the comparable period in 2021, mainly due to decreased earnings at Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd., the $28 million impairmentTable of our Russian joint venture with KAMAZ and the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Contents~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

Other Operating Expense, Net

Other operating (expense) income, net was as follows:


													Three months ended
		Three months ended					Six months ended						March 31,
In millions	In millions	June 30, 2022			July 4, 2021		June 30, 2022			July 4, 2021		In millions	2023		2022
Amortization of intangible assets	Amortization of intangible assets	$	(9)		$	(5)	$	(14)		$	(11)	Amortization of intangible assets	$	(32)	$	(5)
Loss on write-off of assets	Loss on write-off of assets	(3)			—		(8)			(4)		Loss on write-off of assets	(1)		(5)
Russian suspension costs												Russian suspension costs	—		(68)		(1)
Asset impairments and other charges	Asset impairments and other charges	—			—		(36)			—		Asset impairments and other charges	—		(36)
Gain (loss) on sale of assets, net		—			(2)		1			(1)
Royalty income, net		3			3		5			5
Russian suspension recoveries (costs)		7		(1)	—		(61)		(1)	—

Other, net	Other, net	(1)			—		(1)			(1)		Other, net	14		3
Total other operating expense, net	Total other operating expense, net	$	(3)		$	(4)	$	(114)		$	(12)	Total other operating expense, net	$	(19)	$	(111)

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.												(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Interest Expense

Interest expense increased ~~$5 million and decreased $6~~$70 million for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable periods in ~~2021.~~2022. The ~~three month~~ increase iswas primarily due to the overall increase in floating interest rates, ~~in the second quarter of 2022. The six month decrease is principally due to the performance on the fixed to floating swaps placed in 2021 for our 2030~~higher short-term borrowings (including commercial paper) and ~~2050 debt maturities.~~

~~Table of Contents~~

new term loan borrowings.

Other Income (Expense) ~~Income,~~, Net

Other income (expense) ~~income,~~, net was as follows:

Three months ended Six months ended
In millions June 30,
2022 July 4,
2021 June 30,
2022 July 4,
2021
(Loss) gain on corporate owned life insurance $ (48) $ 20 $ (85) $ (12)
(Loss) gain on marketable securities, net (5) 3 (9) 3
Foreign currency (loss) gain, net (1) 3 (13) (2)
Gain on sale of land — 18 — 18
Interest income 7 5 15 11
Non-service pension and OPEB credit 32 25 65 49
Other, net 7 (1) 10 7
Total other (expense) income, net $ (8) $ 73 $ (17) $ 74


	Three months ended
	March 31,
In millions	2023		2022
Non-service pension and OPEB income	$	31	$	33
Gain (loss) on corporate owned life insurance	19		(37)
Interest income	18		8
Foreign currency gain (loss), net	12		(12)
Gain (loss) on marketable securities, net	5		(4)




Other, net	5		3
Total other income (expense), net	$	90	$	(9)

Income Tax Expense

Our effective tax rate for ~~2022~~2023 is expected to approximate ~~21.5~~22.0 percent, excluding any discrete items that may arise.

The three months ended ~~June 30, 2022,~~March 31, 2023, contained favorable discrete tax items of ~~$36~~$3 million, primarily due to ~~$36~~share-based compensation tax benefits.

~~The six months ended June 30, 2022, contained favorable net discrete tax items of $5 million, primarily due to $27~~Russian operations, $9 million of ~~favorable~~net unfavorable changes in tax reserves and $4 million of net ~~favorable~~unfavorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and $8 million of unfavorable changes associated with uncertainty in our Russian operations.

The three months ended July 4, 2021, contained unfavorable discrete items of $7 million, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $3 million of other favorable discrete items.

The six months ended July 4, 2021, contained unfavorable discrete items of $3 million, primarily due to a $10 million unfavorable statutory change in tax rates (mostly in the UK), partially offset by $7 million of other favorable discrete items.

Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three ~~and six~~ months ended ~~June 30, 2022, decreased $7~~March 31, 2023, increased $11 million and $10 million, respectively, versus the comparable periods in 2021. The decrease for the three and six months ended June 30, 2022, was primarily due to lower earnings at Cummins India Limited and Hydrogenics Corporation.

~~Net Income Attributable to Cummins Inc. and Diluted Earnings Per Common Share Attributable to Cummins Inc.~~

~~Net income and diluted earnings per common share attributable to Cummins Inc. for the three months ended June 30, 2022, increased $102 million and $0.84 per diluted share~~ versus the comparable period in ~~2021,~~2022 primarily due to higher ~~net sales, increased gross margin, recoveries associated with the suspension of our Russian operations~~earnings at Eaton Cummins Joint Venture and favorable discrete tax items, partially offset by unfavorable changes in corporate owned life insurance, increased consulting expenses driven by acquisitions and the work towards separation of the filtration business and lower equity, royalty and interest income from investees (primarily in China). See NOTE 3, "RUSSIAN OPERATIONS," to our ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~Cummins India Limited.

3834

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Net income and diluted earnings per common share attributable to Cummins Inc. for the six months ended June 30, 2022, decreased $83 million and $0.30 per diluted share versus the comparable period in 2021, primarily due to costs associated with the suspension of our Russian operations, increased consulting expenses driven by acquisitions and the work towards separation of the filtration business, lower equity, royalty and interest income from investees (primarily in China) and unfavorable changes in corporate owned life insurance, partially offset by higher net sales and increased gross margin. See NOTE 3, "RUSSIAN OPERATIONS," to our ~~Condensed Consolidated Financial Statements~~ for additional information. Diluted earnings per common share for the six months ended June 30, 2022, benefited $0.06 from fewer weighted-average shares outstanding due to the stock repurchase program.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net ~~loss~~gain of ~~$245~~$82 million ~~and $241 million, respectively,~~ for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, compared to a net gain of ~~$22~~$4 million ~~and net loss of $34 million, respectively,~~ for the three ~~and six~~ months ended ~~July 4, 2021,~~March 31, 2022, driven by the following:

Three months ended

March 31,

June 30,
2022

July 4,
2021

2023

2022

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

Wholly-owned subsidiaries

(175)

Chinese renminbi, Indian rupee

Brazilian real, Chinese renminbi, partially offset by Indian rupee, British pound

Wholly-owned subsidiaries

British pound, Brazilian real, Euro

Brazilian real, partially offset by Indian rupee, British pound, Euro

Equity method investments

(55)

Chinese renminbi

Chinese renminbi, partially offset by Indian rupee

Equity method investments

Brazilian real, Chinese renminbi

(4)

Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(15)

Indian rupee

(7)

Indian rupee

Consolidated subsidiaries with a noncontrolling interest

Indian rupee

(8)

Indian rupee

Total

(245)

Total

Six months ended

June 30,
2022

July 4,
2021

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

Wholly-owned subsidiaries

(159)

Chinese renminbi, Indian rupee

(28)

British pound, Indian rupee, partially offset by Chinese renminbi

Equity method investments

(59)

Chinese renminbi

Chinese renminbi, partially offset by Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(23)

Indian rupee

(7)

Indian rupee

Total

(241)

(34)

3935

Table of Contents

OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the Components, Engine, Distribution, ~~Components,~~ Power Systems and ~~New Power~~Accelera segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as a primary basis for the ~~Chief Operating Decision Maker~~CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments. See NOTE ~~15,~~17, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

We continue to experience supply chain disruptions and related financial impacts reflected as increased cost of sales. Our industry continues to be unfavorably impacted by supply chain constraints leading to shortages across multiple components categories and limiting our collective ability to meet end-user demand. Our customers are also experiencing supply chain issues.

Following is a discussion of results for each of our operating segments.

Components Segment Results

Financial data for the Components segment was as follows:


	Three months ended								Favorable/
	March 31,								(Unfavorable)
In millions	2023				2022				Amount		Percent
External sales	$	3,043			$	1,517			$	1,526	NM
Intersegment sales	514				471				43		9	%
Total sales	3,557				1,988				1,569		79	%

Research, development and engineering expenses	91				76				(15)		(20)	%
Equity, royalty and interest income from investees	21				28				(7)		(25)	%
Interest income	6				1				5		NM

Russian suspension costs	—				6			(1)	6		100	%
Segment EBITDA	507			(2)	320				187		58	%

									Percentage Points
Segment EBITDA as a percentage of total sales	14.3		%		16.1		%				(1.8)

"NM" - not meaningful information

(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Includes $12 million of costs associated with the planned separation of our filtration business.

As noted above, the descriptions of the two new businesses are as follows:

•Engine components - We design, manufacture and market turbocharger, valvetrain and fuel system technologies for light-duty, mid-range, heavy-duty and high-horsepower markets across North America, Europe, China and India.

•Software and electronics - We develop, supply and remanufacture control units, specialty sensors, power electronics, actuators and software for on-highway, off-highway and power generation applications. We primarily serve markets in the Americas, China, India and Europe.

Table of Contents

Sales for our Components segment by business, including adjusted prior year balances for the changes noted above, were as follows:


	Three months ended				Favorable/
	March 31,				(Unfavorable)
In millions	2023		2022		Amount		Percent
Axles and brakes	$	1,272	$	—	$	1,272	NM
Emission solutions	1,056		910		146		16	%
Engine components	581		502		79		16	%
Filtration	417		382		35		9	%
Automated transmissions	179		134		45		34	%
Software and electronics	52		60		(8)		(13)	%
Total sales	$	3,557	$	1,988	$	1,569	79	%

"NM" - not meaningful information

Sales

Components segment sales for the three months ended March 31, 2023, increased $1.6 billion versus the comparable period in 2022. The following were the primary drivers by business:

•Axles and brakes sales added $1.3 billion in sales due to the Meritor acquisition.

•Emission solutions sales increased $146 million primarily due to stronger demand in North America and China.

•Engine components sales increased $79 million largely due to higher demand in North America and China.

These increases were partially offset by unfavorable foreign currency fluctuations primarily in the Chinese renminbi, Euro and Indian rupee.

Segment EBITDA

Components segment EBITDA for the three months ended March 31, 2023, increased $187 million versus the comparable period in 2022, mainly due to higher volumes (including sales of axles and brakes due to the Meritor acquisition) and favorable pricing, partially offset by higher compensation expenses.

Table of Contents

Engine Segment Results

Financial data for the Engine segment was as follows:

Three months ended Favorable/ Six months ended Favorable/
June 30, July 4, (Unfavorable) June 30, July 4, (Unfavorable)
In millions 2022 2021 Amount Percent 2022 2021 Amount Percent
External sales $ 2,092 $ 1,920 $ 172 9 % $ 4,141 $ 3,815 $ 326 9 %
Intersegment sales 683 571 112 20 % 1,387 1,135 252 22 %
Total sales 2,775 2,491 284 11 % 5,528 4,950 578 12 %
Research, development and engineering expenses 116 99 (17) (17) % 225 191 (34) (18) %
Equity, royalty and interest income from investees 59 104 (45) (43) % 103 (1) 217 (114) (53) %
Interest income 1 1 — — % 5 4 1 25 %
Russian suspension costs(2)
1 — (1) NM 33 (3) — (33) NM
Segment EBITDA 422 402 20 5 % 814 756 58 8 %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 15.2 % 16.1 % (0.9) 14.7 % 15.3 % (0.6)
"NM" - not meaningful information
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income from investees line above.

~~Table of Contents~~


	Three months ended							Favorable/
	March 31,							(Unfavorable)
In millions	2023			2022				Amount		Percent
External sales	$	2,252		$	2,049			$	203	10	%
Intersegment sales	734			704				30		4	%
Total sales	2,986			2,753				233		8	%

Research, development and engineering expenses	134			109				(25)		(23)	%
Equity, royalty and interest income from investees	65			42			(1)	23		55	%

Interest income	3			4				(1)		(25)	%

Russian suspension costs	—			32			(2)	32		100	%

Segment EBITDA	457			390				67		17	%

								Percentage Points
Segment EBITDA as a percentage of total sales	15.3		%	14.2		%				1.1




(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income from investees line above. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales for our Engine segment by market were as follows:


		Three months ended						Favorable/				Six months ended						Favorable/					Three months ended						Favorable/
		June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)					March 31,						(Unfavorable)
In millions	In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent		In millions	2023			2022			Amount		Percent
Heavy-duty truck	Heavy-duty truck	$	1,001		$	839		$	162	19	%	$	1,909		$	1,666		$	243	15	%	Heavy-duty truck	$	1,114		$	908		$	206	23	%
Medium-duty truck and bus	Medium-duty truck and bus	875			688			187		27	%	1,723			1,362			361		27	%	Medium-duty truck and bus	903			848			55		6	%
Light-duty automotive	Light-duty automotive	456			484			(28)		(6)	%	954			965			(11)		(1)	%	Light-duty automotive	439			498			(59)		(12)	%
Total on-highway	Total on-highway	2,332			2,011			321		16	%	4,586			3,993			593		15	%	Total on-highway	2,456			2,254			202		9	%
Off-highway	Off-highway	443			480			(37)		(8)	%	942			957			(15)		(2)	%	Off-highway	530			499			31		6	%
Total sales	Total sales	$	2,775		$	2,491		$	284	11	%	$	5,528		$	4,950		$	578	12	%	Total sales	$	2,986		$	2,753		$	233	8	%

								Percentage Points										Percentage Points											Percentage Points
On-highway sales as percentage of total sales	On-highway sales as percentage of total sales	84		%	81		%			3		83		%	81		%			2		On-highway sales as percentage of total sales	82		%	82		%			—

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:


		Three months ended		Favorable/			Six months ended		Favorable/				Three months ended		Favorable/
		June 30,	July 4,	(Unfavorable)			June 30,	July 4,	(Unfavorable)				March 31,		(Unfavorable)
		2022	2021	Amount	Percent		2022	2021	Amount	Percent			2023	2022	Amount	Percent
Heavy-duty	Heavy-duty	30,900	29,400	1,500	5	%	59,500	60,100	(600)	(1)	%	Heavy-duty	34,700	28,600	6,100	21	%
Medium-duty	Medium-duty	68,800	67,500	1,300	2	%	141,400	140,600	800	1	%	Medium-duty	78,900	72,600	6,300	9	%
Light-duty	Light-duty	60,400	68,100	(7,700)	(11)	%	126,900	136,600	(9,700)	(7)	%	Light-duty	55,000	66,500	(11,500)	(17)	%
Total unit shipments	Total unit shipments	160,100	165,000	(4,900)	(3)	%	327,800	337,300	(9,500)	(3)	%	Total unit shipments	168,600	167,700	900	1	%

Table of Contents

Sales

Engine segment sales for the three months ended ~~June 30, 2022,~~March 31, 2023, increased ~~$284~~$233 million versus the comparable period in ~~2021.~~2022. The following were the primary drivers by market:

•~~Medium-duty truck and bus sales increased $187 million~~ ~~mainly due to~~ ~~favorable pricing and higher demand (including higher aftermarket sales), especially in North America.~~

•Heavy-duty truck sales increased ~~$162~~$206 million principally due to ~~favorable pricing and~~ stronger demand (including higher aftermarket sales) in North America with higher shipments of 26 percent.

•Medium-duty truck and ~~Latin~~bus sales increased $55 million mainly due to higher demand (including higher aftermarket sales) especially in North America.

These increases were partially offset by decreased ~~off-highway~~light-duty automotive sales of ~~$37~~$59 million primarily due to lower ~~demand~~sales to Stellantis and our indefinite suspension of operations in ~~construction markets in China, partially offset by increased demand in Western Europe.~~

~~Engine segment sales for the six months ended June 30, 2022, increased $578 million versus the comparable period in 2021. The following were the primary drivers by market:~~

•~~Medium-duty truck and bus sales increased $361 million mainly due to favorable pricing and higher demand (including higher aftermarket sales), especially in North America.~~

•Heavy-duty truck sales increased $243 million principally due to favorable pricing and stronger demand (including higher aftermarket sales), especially in North America with higher shipments of 5 percent.Russia.

Segment EBITDA

Engine segment EBITDA for the three months ended ~~June 30, 2022,~~March 31, 2023, increased ~~$20~~$67 million versus the comparable period in ~~2021,~~2022, primarily due to favorable pricing, ~~partially offset by higher material~~the absence of costs ~~lower equity, royalty~~related to asset impairments and ~~interest income from investees (principally Beijing Foton Cummins Engine Co., Ltd.~~other charges recorded in the first quarter of 2022 and ~~Dongfeng Cummins Engine Co., Ltd.) and increased freight costs due to supply chain constraints.~~

~~Table~~the absence of ~~Contents~~

Engine segment EBITDA for the six months ended June 30, 2022, increased $58 million versus the comparable period in 2021, mainly due to favorable pricing, partially offset by higher material costs, lower equity, royalty and interest income from investees (principally Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd.) and costs associated with the suspension of our Russian operations ~~including a $28 million~~(including impairment of our joint venture with ~~KAMAZ.~~KAMAZ), partially offset by higher compensation expenses, increased materials costs and unfavorable mix. See ~~Note 3,~~NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Distribution Segment Results

Financial data for the Distribution segment was as follows:


	Three months ended							Favorable/
	March 31,							(Unfavorable)
In millions	2023			2022				Amount		Percent
External sales	$	2,399		$	2,111			$	288	14	%
Intersegment sales	7			6				1		17	%
Total sales	2,406			2,117				289		14	%

Research, development and engineering expenses	14			13				(1)		(8)	%
Equity, royalty and interest income from investees	24			16				8		50	%
Interest income	7			2				5		NM

Russian suspension costs	—			100			(1)	100		100	%
Segment EBITDA	335			110				225		NM

								Percentage Points
Segment EBITDA as a percentage of total sales	13.9		%	5.2		%				8.7

"NM" - not meaningful information

(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales for our Distribution segment by region, including adjusted prior year balances for the changes noted above, were as follows:


		Three months ended				Favorable/				Six months ended				Favorable/					Three months ended				Favorable/
		June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)					March 31,				(Unfavorable)
In millions	In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent		In millions	2023		2022		Amount		Percent
North America	North America	$	1,494	$	1,230	$	264	21	%	$	2,861	$	2,401	$	460	19	%	North America	$	1,695	$	1,367	$	328	24	%
Asia Pacific	Asia Pacific	242		227		15		7	%	488		441		47		11	%	Asia Pacific	240		246		(6)		(2)	%
Europe	Europe	179		161		18		11	%	328		324		4		1	%	Europe	195		281		(86)		(31)	%
China	China	99		77		22		29	%	182		164		18		11	%	China	102		83		19		23	%
Russia		75		66		9		14	%	211		123		88		72	%
Latin America		56		48		8		17	%	97		88		9		10	%
Africa and Middle East	Africa and Middle East	55		69		(14)		(20)	%	101		123		(22)		(18)	%	Africa and Middle East	62		50		12		24	%
India	India	53		42		11		26	%	102		91		11		12	%	India	59		49		10		20	%
Latin America																		Latin America	53		41		12		29	%

Total sales	Total sales	$	2,253	$	1,920	$	333	17	%	$	4,370	$	3,755	$	615	16	%	Total sales	$	2,406	$	2,117	$	289	14	%

Table of Contents

Sales for our Distribution segment by product line were as follows:

Three months ended Favorable/ Six months ended Favorable/
June 30, July 4, (Unfavorable) June 30, July 4, (Unfavorable)
In millions 2022 2021 Amount Percent 2022 2021 Amount Percent
Parts $ 990 $ 765 $ 225 29 % $ 1,914 $ 1,522 $ 392 26 %
Power generation 441 454 (13) (3) % 842 872 (30) (3) %
Engines 429 351 78 22 % 870 685 185 27 %
Service 393 350 43 12 % 744 676 68 10 %
Total sales $ 2,253 $ 1,920 $ 333 17 % $ 4,370 $ 3,755 $ 615 16 %

~~Table of Contents~~


	Three months ended				Favorable/
	March 31,				(Unfavorable)
In millions	2023		2022		Amount		Percent
Parts	$	1,057	$	924	$	133	14	%
Power generation	492		401		91		23	%
Engines	456		441		15		3	%
Service	401		351		50		14	%
Total sales	$	2,406	$	2,117	$	289	14	%

Sales

Distribution segment sales for the three months ended ~~June 30, 2022,~~March 31, 2023, increased ~~$333~~$289 million versus the comparable period in ~~2021.~~2022. The following were the primary drivers by region:

•North American sales increased ~~$264~~$328 million ~~representing 79 percent of the total change in Distribution segment sales, mainly~~ due to higher demand ~~for parts and vocational engines.~~across all product lines.

~~These increases were~~The increase was partially offset by ~~unfavorable~~the following:

•Europe sales decreased $86 million as a result of our indefinite suspension of operations in Russia.

•Unfavorable foreign currency fluctuations, primarily in the ~~Euro, Australian dollar,~~Chinese renminbi, Canadian dollar, ~~and~~ Indian ~~rupee.~~

~~Distribution segment sales for the six months ended June 30, 2022, increased $615 million versus the comparable period in 2021. The following were the primary drivers by region:~~

•~~North American sales increased $460 million, representing 75 percent of the total change in Distribution segment sales, largely due to higher demand for parts and vocational engines.~~

•~~Russian sales increased $88 million as a result of increased demand for engines and parts following our announcement to indefinitely suspend our operations in Russia.~~

~~These increases were partially offset by unfavorable foreign currency fluctuations, mainly in the Euro,~~rupee, Australian dollar and ~~Japanese yen.~~Euro.

Segment EBITDA

Distribution segment EBITDA for the three months ended ~~June 30, 2022,~~March 31, 2023, increased ~~$96~~$225 million versus the comparable period in ~~2021,~~2022, primarily due to ~~higher volumes and recoveries associated with~~ the ~~suspension~~absence of ~~our Russian operations, partially offset by unfavorable foreign currency fluctuations (principally in emerging market currencies and South African rand). See NOTE 3, "RUSSIAN OPERATIONS," to our~~ ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~Distribution segment EBITDA for the six months ended June 30, 2022, increased $46 million versus the comparable period in 2021, mainly due to higher volumes and favorable pricing, partially offset by~~ costs associated with the suspension of our Russian operations, ~~unfavorable foreign currency fluctuations (principally in the emerging market currencies~~favorable mix and ~~Australian dollar),~~ increased ~~freight costs due to supply chain constraints and the absence of an $18 million gain on sale of land recorded in the second quarter of 2021.~~volumes. See NOTE 3,15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

~~Components Segment Results~~

~~Financial data for the Components segment was as follows:~~

Three months ended Favorable/ Six months ended Favorable/
June 30, July 4, (Unfavorable) June 30, July 4, (Unfavorable)
In millions 2022 2021 Amount Percent 2022 2021 Amount Percent
External sales $ 1,477 $ 1,556 $ (79) (5) % $ 2,994 $ 3,280 $ (286) (9) %
Intersegment sales 473 438 35 8 % 944 866 78 9 %
Total sales 1,950 1,994 (44) (2) % 3,938 4,146 (208) (5) %
Research, development and engineering expenses 73 79 6 8 % 149 154 5 3 %
Equity, royalty and interest income from investees 9 12 (3) (25) % 37 31 6 19 %
Interest income 2 1 1 100 % 3 2 1 50 %
Russian suspension (recoveries) costs(1)
(2) — 2 NM 4 — (4) NM
Segment EBITDA 352 301 51 17 % 672 722 (50) (7) %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 18.1 % 15.1 % 3.0 17.1 % 17.4 % (0.3)
"NM" - not meaningful information
(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

~~Table of Contents~~

~~Sales for our Components segment by business were as follows:~~

Three months ended Favorable/ Six months ended Favorable/
June 30, July 4, (Unfavorable) June 30, July 4, (Unfavorable)
In millions 2022 2021 Amount Percent 2022 2021 Amount Percent
Emission solutions $ 863 $ 882 $ (19) (2) % $ 1,773 $ 1,917 $ (144) (8) %
Filtration 391 374 17 5 % 773 746 27 4 %
Turbo technologies 355 (1) 351 4 1 % 701 (1) 718 (17) (2) %
Electronics and fuel systems 198 241 (43) (18) % 414 504 (90) (18) %
Automated transmissions 143 146 (3) (2) % 277 261 16 6 %
Total sales $ 1,950 $ 1,994 $ (44) (2) % $ 3,938 $ 4,146 $ (208) (5) %
(1) The three and six months ended June 30, 2022, included revenues of $37 million related to the newly acquired Jacobs Vehicle Systems business. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

~~Sales~~

~~Components segment sales for the three months ended June 30, 2022, decreased $44 million versus the comparable period in 2021. The following were the primary drivers by business:~~

•~~Electronics and fuel systems sales decreased by $43 million principally due to weaker demand in China.~~

•~~Unfavorable foreign currency fluctuations primarily in the Euro, British pound and Indian rupee.~~

•~~Emission solutions sales decreased $19 million primarily due to lower demand in China, partially offset by stronger demand in North America and India.~~

These decreases were partially offset by increased sales of $17 million in the filtration business mainly due to stronger demand in North America and Latin America, partially offset by lower demand in China.

~~Components segment sales for the six months ended June 30, 2022, decreased $208 million versus the comparable period in 2021. The following were the primary drivers by business:~~

•~~Emission solutions sales decreased $144 million primarily due to lower demand in China, partially offset by stronger demand in North America.~~

•~~Electronics and fuel systems sales decreased $90 million mainly due to weaker demand in China, partially offset by higher demand in North America.~~

•~~Unfavorable foreign currency fluctuations, primarily in the Euro and Indian rupee.~~

These decreases were partially offset by increased sales of $27 million in the filtration business mainly due to stronger demand in North America and Latin America, partially offset by lower demand in China.

~~Segment EBITDA~~

Components segment EBITDA for the three months ended June 30, 2022, increased $51 million versus the comparable period in 2021, mainly due to favorable pricing and lower product coverage costs, partially offset by increased material costs.

Components segment EBITDA for the six months ended June 30, 2022, decreased $50 million versus the comparable period in 2021, primarily due to lower volumes and increased material costs, partially offset by favorable pricing.

~~Table of Contents~~

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:


		Three months ended						Favorable/				Six months ended						Favorable/					Three months ended							Favorable/
		June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)					March 31,							(Unfavorable)
In millions	In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent		In millions	2023			2022				Amount		Percent
External sales	External sales	$	734		$	699		$	35	5	%	$	1,417		$	1,311		$	106	8	%	External sales	$	679		$	683			$	(4)	(1)	%
Intersegment sales	Intersegment sales	469			444			25		6	%	946			854			92		11	%	Intersegment sales	664			477				187		39	%
Total sales	Total sales	1,203			1,143			60		5	%	2,363			2,165			198		9	%	Total sales	1,343			1,160				183		16	%

Research, development and engineering expenses	Research, development and engineering expenses	58			60			2		3	%	122			117			(5)		(4)	%	Research, development and engineering expenses	63			64				1		2	%
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	10			9			1		11	%	21			21			—		—	%	Equity, royalty and interest income from investees	13			11				2		18	%
Interest income	Interest income	1			1			—		—	%	2			2			—		—	%	Interest income	2			1				1		100	%

Russian suspension (recoveries) costs(1)		(1)			—			1		NM		19			—			(19)		NM
Russian suspension costs																						Russian suspension costs	—			20			(1)	20		100	%
Segment EBITDA	Segment EBITDA	128			139			(11)		(8)	%	218			265			(47)		(18)	%	Segment EBITDA	219			90				129		NM

								Percentage Points										Percentage Points												Percentage Points
Segment EBITDA as a percentage of total sales	Segment EBITDA as a percentage of total sales	10.6		%	12.2		%			(1.6)		9.2		%	12.2		%			(3.0)		Segment EBITDA as a percentage of total sales	16.3		%	7.8		%				8.5

"NM" - not meaningful information	"NM" - not meaningful information																					"NM" - not meaningful information

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.																						(1) See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

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Sales for our Power Systems segment by product line were as follows:


		Three months ended				Favorable/				Six months ended				Favorable/					Three months ended				Favorable/
		June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)					March 31,				(Unfavorable)
In millions	In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent		In millions	2023		2022		Amount		Percent
Power generation	Power generation	$	657	$	655	$	2	—	%	$	1,321	$	1,266	$	55	4	%	Power generation	$	770	$	664	$	106	16	%
Industrial	Industrial	428		399		29		7	%	821		723		98		14	%	Industrial	455		393		62		16	%
Generator technologies	Generator technologies	118		89		29		33	%	221		176		45		26	%	Generator technologies	118		103		15		15	%
Total sales	Total sales	$	1,203	$	1,143	$	60	5	%	$	2,363	$	2,165	$	198	9	%	Total sales	$	1,343	$	1,160	$	183	16	%

Sales

Power Systems segment sales for the three months ended ~~June 30, 2022,~~March 31, 2023, increased ~~$60~~$183 million versus the comparable period in ~~2021.~~2022. The following were the primary drivers by product line:

•~~Industrial~~Power generation sales increased ~~$29~~$106 million ~~due to stronger demand (including higher aftermarket sales) in oil and gas markets in North America and India.~~

•~~Generator technologies sales increased $29 million~~primarily due to higher demand in North America, Asia Pacific, Western Europe, Latin America and ~~India.~~India, partially offset by weaker demand in China.

•Industrial sales increased $62 million principally due to improved oil and gas market demand in North America.

These increases were partially offset by unfavorable foreign currency fluctuations, primarily in the ~~Euro,~~Indian rupee, Chinese renminbi and British ~~pound and Indian rupee.~~

~~Power Systems segment sales for the six months ended June 30, 2022, increased $198 million versus the comparable period in 2021. The following were the primary drivers by product line:~~

•~~Industrial sales increased $98 million due to stronger demand (including higher aftermarket sales) in oil and gas markets in North America and China and global mining markets.~~

•~~Power generation sales increased $55 million due to higher demand in China and India, partially offset by weaker demand in North America.~~

•~~Generator technologies sales increased $45 million due to higher demand in Europe and India.~~

~~These increases were partially offset by unfavorable foreign currency fluctuations, primarily in the Euro, British pound and Indian rupee.~~

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pound.

Segment EBITDA

Power Systems segment EBITDA for the three months ended ~~June 30, 2022, decreased $11~~March 31, 2023, increased $129 million versus the comparable period in ~~2021,~~2022, mainly due to ~~higher material costs,~~favorable pricing, increased ~~freight costs due to supply chain constraints~~volumes, favorable foreign currency fluctuations (principally in the British pound and ~~higher product coverage costs, partially offset by favorable pricing.~~

~~Power Systems segment EBITDA for~~Indian rupee) and the ~~six months ended June 30, 2022, decreased $47 million versus the comparable period in 2021, primarily due to higher material costs, increased freight costs due to supply chain constraints and~~absence of costs associated with the suspension of our Russian operations, partially offset by ~~favorable pricing~~. higher compensation expenses. See NOTE 3,15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

~~New Power~~Accelera Segment Results

The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. Financial data for the ~~New Power~~Accelera segment was as follows:


		Three months ended				Favorable/				Six months ended				Favorable/					Three months ended				Favorable/
		June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)					March 31,				(Unfavorable)
In millions	In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent		In millions	2023		2022		Amount		Percent
External sales	External sales	$	36	$	23	$	13	57	%	$	61	$	57	$	4	7	%	External sales	$	80	$	25	$	55	NM
Intersegment sales	Intersegment sales	6		1		5		NM		12		2		10		NM		Intersegment sales	5		6		(1)		(17)	%
Total sales	Total sales	42		24		18		75	%	73		59		14		24	%	Total sales	85		31		54		NM

Research, development and engineering expenses	Research, development and engineering expenses	39		26		(13)		(50)	%	75		49		(26)		(53)	%	Research, development and engineering expenses	48		36		(12)		(33)	%
Equity, royalty and interest (loss) income from investees		(4)		(3)		(1)		(33)	%	(7)		2		(9)		NM
Equity, royalty and interest loss from investees																		Equity, royalty and interest loss from investees	(4)		(1)		(3)		NM

Segment EBITDA	Segment EBITDA	(80)		(60)		(20)		(33)	%	(147)		(111)		(36)		(32)	%	Segment EBITDA	(94)		(65)		(29)		(45)	%

"NM" - not meaningful information	"NM" - not meaningful information																	"NM" - not meaningful information

Accelera segment sales for the three months ended March 31, 2023, increased $54 million versus the comparable period in 2022 principally due to incremental sales of central drive systems, e-axles and accessory systems since the acquisitions of Siemens' Commercial Vehicles Propulsion business and Meritor as well as improved electrified components and fuel cell sales.

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OUTLOOK

Supply Chain Disruptions

Business Outlook

Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential for the remainder of ~~2022.~~2023.

Positive Trends

•We expect demand for pick-up, medium-duty and heavy-duty trucks in North America to ~~remain strong.~~

•~~We expect North American medium-duty and heavy-duty truck demand will~~ remain strong.

•We believe market demand for trucks in India will continue to ~~improve.~~be strong.

•We expect demand within our Power Systems business to remain strong, including the power generation, mining, oil and gas and marine markets.

•We anticipate demand in our aftermarket business will continue to be robust, driven primarily by ~~increased~~ truck utilization in North America and ~~improved~~continued strong demand in our Power Systems business.

•~~Our liquidity of $5.8 billion~~We expect demand for trucks in ~~cash, marketable securities and available credit facilities puts us~~China to improve from the low demand levels in ~~a strong position to deal with any uncertainties that may arise in the remainder of~~ 2022.

Challenges

•~~Supply constraints driven by strong demand in multiple end markets and regions may lead to increased costs, including higher freight and conversion costs.~~

•Continued increases in material and ~~commodity~~labor costs, as well as other inflationary pressures, could negatively impact earnings.

•Our industry's sales continue to be unfavorably impacted by supply chain constraints leading to shortages across multiple components categories and limiting our collective ability to meet end-user demand. Our customers are also experiencing other supply chain issues limiting full production capabilities.

•Resurgence of COVID-19 in China led to lockdowns in several cities that negatively impacted the economy and our end markets. Any continued lockdowns will also contribute to further disruptions in the global supply chain, negatively impacting both our revenues and profitability.

•~~We expect market demand in truck and construction markets in China to decline from 2021 full year levels.~~

•The indefinite suspension of our operations in Russia is expected to impact our revenue and profitability. The 2021 sales through our wholly-owned distributor in Russia and direct sales into Russia were 2.7 percent of net sales.

•~~We expect to incur incremental expenses as a result of the completion of the Meritor, Inc. acquisition and its integration into our business.~~

•The completion of the Meritor, Inc. acquisition ~~will impact~~in 2022 impacted our liquidity and ~~result~~resulted in incremental interest expense for debt utilized in funding the ~~transaction.~~transaction and increased amortization of intangible assets, which will negatively impact net income.

•~~Planned~~Increasing interest rates could increase borrowing costs and negatively impact net income.

•We expect the planned separation of our filtration business, into a stand-alone company, ~~is expected~~will continue to result in incremental expenses.

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LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. Various assets and liabilities, including short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. As a result, working capital is a prime focus of management's attention. Working capital and balance sheet measures are provided in the following table:


Dollars in millions	Dollars in millions	June 30, 2022			December 31, 2021			Dollars in millions	March 31, 2023			December 31, 2022
Working capital (1)	Working capital (1)	$	5,091		$	5,225		Working capital (1)	$	3,445		$	3,030
Current ratio	Current ratio	1.66			1.74			Current ratio	1.29			1.27
Accounts and notes receivable, net	Accounts and notes receivable, net	$	4,156		$	3,990		Accounts and notes receivable, net	$	5,834		$	5,202
Days' sales in receivables	Days' sales in receivables	57			59			Days' sales in receivables	60			60
Inventories	Inventories	$	4,765		$	4,355		Inventories	$	5,878		$	5,603
Inventory turnover	Inventory turnover	4.2			4.6			Inventory turnover	4.4			4.2
Accounts payable (principally trade)	Accounts payable (principally trade)	$	3,405		$	3,021		Accounts payable (principally trade)	$	4,636		$	4,252
Days' payable outstanding	Days' payable outstanding	59			57			Days' payable outstanding	62			60
Total debt	Total debt	$	4,425		$	4,159		Total debt	$	7,752		$	7,855
Total debt as a percent of total capital	Total debt as a percent of total capital	31.4		%	30.7		%	Total debt as a percent of total capital	42.2		%	44.1		%

(1) Working capital includes cash and cash equivalents.	(1) Working capital includes cash and cash equivalents.							(1) Working capital includes cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:


									Three months ended
		Six months ended							March 31,
In millions	In millions	June 30, 2022		July 4, 2021		Change		In millions	2023		2022		Change
Net cash provided by operating activities	Net cash provided by operating activities	$	763	$	955	$	(192)	Net cash provided by operating activities	$	495	$	164	$	331
Net cash used in investing activities	Net cash used in investing activities	(576)		(146)		(430)		Net cash used in investing activities	(228)		(10)		(218)
Net cash used in financing activities	Net cash used in financing activities	(391)		(1,722)		1,331		Net cash used in financing activities	(363)		(497)		134
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	74		(7)		81		Effect of exchange rate changes on cash and cash equivalents	(25)		27		(52)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(130)	$	(920)	$	790	Net decrease in cash and cash equivalents	$	(121)	$	(316)	$	195

Net cash provided by operating activities ~~decreased $192~~increased $331 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to higher net income of $383 million and lower working capital ~~requirements~~requirement of ~~$239 million. During~~$36 million, partially offset by the ~~first six months~~absence of ~~2022, the higher~~Russian suspension costs in 2023. The lower working capital requirements resulted in a cash outflow of ~~$670~~$494 million compared to a cash outflow of ~~$431~~$530 million in the comparable period ~~in 2021,~~of 2022, mainly due to increased accrued expenses (from higher variable compensation ~~payouts~~accruals in ~~accrued expenses,~~2023 and higher variable compensation payments in the first quarter of 2022 for the previous year), partially offset by ~~favorable changes in inventories~~increased accounts and notes receivable balances and lower accounts ~~receivable.~~payable balances.

Net cash used in investing activities increased ~~$430~~$218 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to higher capital expenditures of $89 million and the absence of $83 million of cash acquired from the acquisition of ~~Jacobs Vehicle Systems and~~ Cummins Westport ~~Joint Venture,~~Inc., net of ~~cash acquired,~~purchase price, in the first quarter of $245 million, higher investments in and net advances to equity investees of $63 million, unfavorable changes in cash flows from derivatives not designated as hedges of $44 million and higher capital spending of $39 million.2022.

Net cash used in financing activities decreased ~~$1,331~~$134 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021,~~2022, primarily due to ~~lower~~the absence of repurchases of common stock of ~~$743~~$311 million, partially offset by higher payments on borrowings and finance lease obligations of $118 million and higher net ~~borrowings~~payments of commercial paper of ~~$515~~$27 million.

The effect of exchange rate changes on cash and cash equivalents for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, versus the comparable period in ~~2021, increased $81~~2022, changed $52 million primarily due to ~~favorable~~unfavorable fluctuations in the British ~~pound of $124 million, partially offset by unfavorable fluctuations in the Chinese renminbi of $38 million.~~pound.

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Sources of Liquidity

We generate significant ongoing cash flow. Cash provided by operations is our principal source of liquidity with ~~$763~~$495 million generated in the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. Our sources of liquidity include:


		June 30, 2022								March 31, 2023
In millions	In millions	Total		U.S.		International		Primary location of international balances	In millions	Total		U.S.		International		Primary location of international balances
Cash and cash equivalents	Cash and cash equivalents	$	2,462	$	732	$	1,730	China, Singapore, Belgium, Australia, Mexico, India	Cash and cash equivalents	$	1,980	$	658	$	1,322	Singapore, China, Belgium, Canada, Australia, Mexico, India

Marketable securities (1)	Marketable securities (1)	536		100		436		India	Marketable securities (1)	459		89		370		India
Total	Total	$	2,998	$	832	$	2,166		Total	$	2,439	$	747	$	1,692
Available credit capacity	Available credit capacity								Available credit capacity
Revolving credit facilities (2)	Revolving credit facilities (2)	$	2,795						Revolving credit facilities (2)	$	1,455
International and other uncommitted domestic credit facilities	International and other uncommitted domestic credit facilities	$	271						International and other uncommitted domestic credit facilities	$	215

(1) The majority of marketable securities could be liquidated into cash within a few days.	(1) The majority of marketable securities could be liquidated into cash within a few days.								(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2026 and August 2022, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At June 30, 2022, we had $705 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.8 billion.
(2) The five-year credit facility for $2.0 billion, the 364-day credit facility for $1.5 billion and the $500 million incremental 364-day credit facility, maturing August 2026 and August 2023, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At March 31, 2023, we had $2.5 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $1.5 billion.									(2) The five-year credit facility for $2.0 billion, the 364-day credit facility for $1.5 billion and the $500 million incremental 364-day credit facility, maturing August 2026 and August 2023, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At March 31, 2023, we had $2.5 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $1.5 billion.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flow is generated outside the U.S. We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our operating needs with local resources.

If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes, for example, if we repatriated cash from certain foreign subsidiaries whose earnings we asserted are completely or partially permanently reinvested. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India, Canada (including underlying subsidiaries) and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings for which we ~~asserted~~assert permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested when it is cost effective to do so.

Debt Facilities and Other Sources of Liquidity

~~As of June 30, 2022, we had~~We have access to committed credit facilities totaling ~~$3.5~~$4.0 billion, including the $1.5 billion 364-day facility that expires August ~~17, 2022~~16, 2023, $500 million incremental 364-day facility that expires August 16, 2023, and our $2.0 billion five-year facility that expires on August 18, 2026. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. There were no outstanding borrowings under these facilities at ~~June 30, 2022. We anticipate renewing our 364-day credit facility before expiration and adding another credit facility available for general corporate purposes in the near-term.~~March 31, 2023.

We can issue up to $~~3.5~~4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial programs should not exceed ~~$3.5~~$4.0 billion. ~~See NOTE 10, "DEBT," to our~~ ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

At ~~June 30, 2022,~~March 31, 2023, we had ~~$705 million~~$2.5 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to ~~$2.8~~$1.5 billion.

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2023, we settled a portion of our 2021 interest rate swaps with a notional amount of $100 million. The $7 million loss on settlement will be amortized over the remaining term of the related debt.

In 2019 we entered into $350 million of interest rate lock agreements, and in 2020 we entered into an additional $150 million of lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. In December 2022, we settled certain rate lock agreements with notional amounts totaling $150 million for $49 million. In February 2023, we settled certain rate lock agreements with notional amounts totaling $100 million for $34 million. The $83 million of gains on settlements will remain in other comprehensive income and will be amortized over the term of the anticipated new debt.

As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the ~~SEC~~Securities and Exchange Commission (SEC) on February 8, 2022. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

In July 2017, the U.K.'s Financial Conduct Authority, which regulates the ~~London Interbank Offered Rate (LIBOR),~~LIBOR, announced it intends to phase out LIBOR by the end of 2021. The cessation date for submission and publication of rates for certain tenors of

~~Table of Contents~~

LIBOR has since been extended until mid-2023. Various central bank committees and working groups continue to discuss replacement of benchmark rates, the process for amending existing LIBOR-based contracts and the potential economic impacts of different alternatives. The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for U.S. dollar LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. We have evaluated the potential impact of the replacement of the LIBOR benchmark interest rate including risk management, internal operational readiness and monitoring the Financial Accounting Standards Board standard-setting process to address financial reporting issues that might arise in connection with transition from LIBOR to a new benchmark rate. While we do not believe the change will materially impact us due to our operational and system readiness coupled with relevant contractual fallback language, we continue to evaluate all eventual transition risks. In anticipation of LIBOR's phase out, our ~~most recent~~ revolving credit and term loan agreements ~~include~~incorporate the use of SOFR as a ~~well-documented transition mechanism~~replacement for ~~selecting a benchmark replacement rate for LIBOR, subject~~LIBOR. Our 5-year credit facility maturing August 18, 2026, as amended to ~~our agreement.~~date, also incorporates SOFR. Additionally, with respect to our ~~$1.3~~$1.2 billion in LIBOR-based fixed to variable rate swaps maturing in 2025 and 2030, we reviewed and believe our adherence to the 2020 LIBOR fallback protocol will allow for a smooth transition to the designated replacement rate when that transition occurs.

On February 15, 2023, certain of our subsidiaries entered into an amendment to the $1.0 billion credit agreement (Credit Agreement), consisting of a $400 million revolving credit facility and a $600 million term loan facility (Facilities), in anticipation of the separation of our filtration business, which extended the date on which the Credit Agreement terminates from March 30, 2023 to June 30, 2023. Borrowings under the Credit Agreement will not become available under the Credit Agreement unless and until, among other things, there is a sale to the public of shares in our subsidiary that holds the filtration business (Parent Borrower). The Credit Agreement will automatically terminate if no such public sale of shares of Parent Borrower occurs on or prior to June 30, 2023. Borrowings under the Credit Agreement would be available to Parent Borrower and one or more of its subsidiaries (Borrower). If borrowings become available under the Credit Agreement, the Facilities would mature on September 30, 2027.

Borrowings under the Credit Agreement would bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable Borrower’s election. Generally, U.S. dollar-denominated loans would bear interest at adjusted term SOFR (which includes a 0.10 percent credit spread adjustment to term SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Parent Borrower's net leverage ratio.

Supply Chain Financing

We currently have supply chain financing programs with financial intermediaries, which provide certain vendors the option to be paid by financial intermediaries earlier than the due date on the applicable invoice. When a vendor utilizes the program and receives an early payment from a financial intermediary, they take a discount on the invoice. We then pay the financial intermediary the face amount of the invoice on the ~~regularly scheduled~~original due date. The maximum amount that we may have outstanding under the program is ~~$457~~$532 million. We do not reimburse vendors for any costs they incur for participation in the program, ~~and~~ their participation is completely ~~voluntary.~~voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as ~~Accounts~~accounts payable in our Condensed Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at ~~June 30, 2022,~~March 31, 2023, were ~~$336~~$253 million.

Uses of Cash

~~Stock Repurchases~~

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2019 repurchase plan. In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In the first six months of 2022, we made the following purchases under the 2019 stock repurchase program:

In millions, except per share amounts Shares
Purchased Average Cost
Per Share Total Cost of
Repurchases
Remaining
Authorized
Capacity (1)
March 31 1.6 $ 199.27 $ 311 $ 2,281
June 30 0.1 194.00 36 2,245
Total 1.7 198.72 $ 347
(1) The remaining $245 million authorized capacity under the 2019 plan was calculated based on the cost to purchase the shares, but excludes commission expenses in accordance with the authorized plan.

~~We intend to repurchase outstanding shares from time to time during 2022 to enhance shareholder value.~~

Dividends

We paid dividends of ~~$411~~$222 million during the ~~six~~three months ended ~~June 30, 2022. In July 2022, the Board authorized an increase to our quarterly dividend~~March 31, 2023.

Table of ~~approximately 8 percent from $1.45 per share to $1.57 per share.~~Contents

Capital Expenditures

Capital expenditures ~~including spending on internal use software,~~ for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, were ~~$275~~$193 million versus ~~$234~~$104 million in the comparable period in ~~2021.~~2022. We continue to invest in new product lines and targeted capacity expansions. We plan to spend an estimated ~~$850 million~~$1.2 billion to ~~$900 million~~$1.3 billion in ~~2022~~2023 on capital expenditures ~~excluding internal use software,~~ with over 60 percent of these expenditures expected to be invested in North America. ~~In addition, we plan to spend an estimated $60 million to $70 million on internal use software in 2022.~~

~~Table of Contents~~

Current Maturities of Short and Long-Term Debt

We had ~~$705 million~~$2.5 billion of commercial paper outstanding at ~~June 30, 2022,~~March 31, 2023, that matures in less than one year. The maturity schedule of our existing long-term debt ~~does not require~~requires significant cash outflows ~~until~~in 2023 when our 3.65 percent senior notes are due and in 2025 when our term loan and 0.75 percent senior notes are due. Required annual long-term debt principal payments range from ~~$41~~$46 million to ~~$545 million~~$2.0 billion over the next five years (including the remainder of ~~2022)~~2023). In 2023, we intend to have a greater emphasis on the repayment of debt to maintain our strong credit ratings. See NOTE ~~10,~~9, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were ~~121~~120 percent funded at December 31, ~~2021.~~2022. Our U.S. defined benefit ~~plan,~~plans (qualified and non-qualified), which represented approximately 5269 percent of the worldwide pension obligation, ~~was 138~~were 121 percent funded, and our U.K. defined benefit ~~plan was 127~~plans were 119 percent funded at December 31, ~~2021.~~2022. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In the first ~~six~~three months of ~~2022,~~2023, the investment ~~loss~~gain on our U.S. pension ~~trust~~trusts was ~~5.0~~1.49 percent while our U.K. pension ~~trust loss~~trusts' gain was ~~17.8~~0.41 percent. Approximately 64 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 36 percent of our plan assets are held in less liquid, but market valued investments, including real estate, private equity, venture capital, opportunistic credit and insurance contracts. We anticipate making additional defined benefit pension contributions during the remainder of ~~2022~~2023 of ~~$10~~$20 million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our ~~2022~~2023 annual net periodic pension cost to ~~approximate $31~~be near zero.

Stock Repurchases

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the $2.0 billion repurchase plan authorized in 2019. We did not make any repurchases of common stock in the first three months of 2023.

Redeemable Noncontrolling Interests

A 19 percent minority shareholder in one of our businesses, Hydrogenics Corporation (Hydrogenics), has, among other rights and subject to related obligations and restrictive covenants, rights that are 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). We recorded the estimated fair value of the put option as redeemable noncontrolling interests in our Condensed Consolidated Financial Statements with an offset to additional paid-in capital. At March 31, 2023, the redeemable noncontrolling interest balance was $261 million.

Credit Ratings

Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below:

Long-Term

Short-Term

Credit Rating Agency (1)

Senior Debt Rating

Debt Rating

Outlook

Standard and Poor’s Rating Services

A+

Stable

Moody’s Investors Service, Inc.

Stable

(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

~~Subsequent Events~~

On July 13, 2022, we entered into a loan agreement under which we may obtain delayed-draw loans in an amount up to $2.0 billion in the aggregate prior to October 13, 2022. We drew down the entire $2.0 billion balance on August 2, 2022, to help fund the acquisition

Table of Meritor. The initial interest rate, based on the Secured Overnight Financing Rate for the one-month interest period plus the relevant spread, is 3.11 percent. The loan will mature on August 2, 2025. Borrowings under the agreement will not be secured by liens on any of our assets or assets of our subsidiaries. The agreement contains customary events of default and financial and other covenants, including maintaining a net debt to capital ratio of no more than 0.65 to 1.0.Contents

~~On August 3, 2022, we completed the acquisition of Meritor with a purchase price of $3.0 billion~~ (including convertible debt). We borrowed an additional $1.3 billion under our commercial paper program to complete the acquisition. The acquisition reduced our borrowing capacity under the revolving credit facilities to ~~$1.43 billion~~ ~~at the time of filing. See NOTE 14, "ACQUISITIONS," to our~~ ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund repayment of debt obligations, dividend payments, acquisitions, targeted capital expenditures, common stock repurchases, ~~dividend payments, targeted capital expenditures,~~ projected pension obligations and working capital ~~and debt service obligations~~ through ~~2022~~2023 and beyond. We continue to generate significant cash from operations and maintain access to our revolving credit facilities and commercial paper programs as noted above.

~~Table of Contents~~

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in N ~~OTE~~NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our ~~2021~~2022 Form 10-K, which discusses accounting policies that we have selected from acceptable alternatives.

Our Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles that often require management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our Condensed Consolidated Financial Statements.

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of the Board. Our critical accounting estimates disclosed in the Form 10-K address estimating liabilities for warranty programs, fair value of intangible assets, assessing goodwill impairment, accounting for income taxes and pension benefits.

A discussion of our critical accounting estimates may be found in the “Management’s Discussion and Analysis” section of our ~~2021~~2022 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first ~~six~~three months of ~~2022.~~2023.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note 18, "RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS," in the Notes to Condensed Consolidated Financial Statements for additional information.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A discussion of quantitative and qualitative disclosures about market risk may be found in Item 7A of our ~~2021~~2022 Form 10-K. There have been no material changes in this information since the filing of our ~~2021~~2022 Form 10-K.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There ~~has been~~were no ~~change~~changes in our internal control over financial reporting during the quarter ended ~~June 30, 2022,~~March 31, 2023, that ~~has~~ materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The matters described under "Legal Proceedings" in NOTE ~~12,~~11, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements are incorporated herein by reference.

~~Table of Contents~~

ITEM 1A. Risk Factors

In addition to other information set forth in this report and the risk ~~factors~~factor noted below, you should consider other risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022, which could materially affect our business, financial condition or future results. Other than noted below, there have been no material changes to our risks described in our ~~2021~~2022 Annual Report on Form 10-K or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly report. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our business, financial condition or operating results.

GOVERNMENT REGULATION

We are conducting a formal internal review of our emission certification process and compliance with emission standards with respect to our pick-up truck applications and are working with the ~~EPA~~Environmental Protection Agency (EPA) and ~~CARB~~California Air Resources Board (CARB) to address their questions about these applications. Due to the continuing nature of our formal internal review and on-going discussions with the EPA and CARB, we cannot predict the final results of this formal review and these regulatory processes, nor ~~whether, or~~ the extent to which, they ~~could~~likely will have a material adverse impact on ~~our~~the results of operations and cash flows.

We previously announced that we are conducting a formal internal review of our emissions certification process and compliance with emission standards with respect to all of our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines for model year 2019 RAM 2500 and 3500 trucks. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our ongoing discussions, the regulators turned their attention to other model years and other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through ~~2018.~~2018 and Titan trucks for model years 2016 through 2019. Most recently, the regulators have also raised concerns regarding the completeness of our disclosures in our certification applications for RAM 2500 and 3500 trucks for model years 2013 through 2023. We have also been in communication with Environmental and Climate Change Canada regarding similar issues relating to some of these very same platforms. In connection with these and other ongoing discussions with the EPA and CARB, we are developing a new software calibration and will recall model years 2013 through 2018 RAM 2500 and 3500 trucks. We accrued $30 million for the RAM recall during the first quarter of 2022, an amount that ~~reflects~~reflected our current estimate of the cost of that recall. We are also developing a new software calibration and hardware fix and will recall model years 2016 through 2019 Titan trucks. We accrued $29 million for the Titan recall during the third quarter of 2022, an amount that reflected our current estimate of the cost of that recall.

We will continue to work together closely with the relevant regulators to develop and implement recommendations for ~~improvement~~improvements and seek to reach further resolutions as part of our ongoing commitment to compliance. Based upon our discussions to date with the regulators which are continuing, such resolutions may involve our agreeing to one or more consent decrees and paying civil penalties. Due to the presence of many unknown facts and circumstances, we are not yet able to estimate any further financial impact of these matters. ~~It is possible that the~~The consequences ~~of any remediation plans~~ resulting from our formal review and these regulatory processes ~~could~~likely will have a material adverse impact on our results of operations and cash ~~flows.~~

~~BUSINESS CONDITIONS / DISRUPTIONS~~

~~The ongoing conflict between Russia and Ukraine, and the global response (including government bans~~flows, however we cannot yet reasonably estimate a loss or ~~restrictions on doing business in Russia), could have a material adverse impact on our results~~range of ~~operations, financial condition and cash flows.~~

Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine, may adversely affect our results of operations, financial condition and cash flows. We have suspended our commercial operations in Russia indefinitely, which resulted in a $158 million charge in the first quarter of 2022. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. We may incur additional charges as conditions continue to evolve including with respect to our planned extrication from our relationship with KAMAZ Publicly Traded Company and its subsidiaries, including the unconsolidated joint venture. In addition, we have experienced, and expect to continue to experience, an inability to collect customer receivables and may be the subject of litigation in connection with our suspension of commercial operations in Russia. The broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory action by the Russian government against companies, including possible nationalization of foreign businesses in Russia; increased tensions between the United States and countries in which we operate; and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted. To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many other risks disclosed in our ~~Annual Report on Form 10-K for the year ended December 31, 2021~~, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation, particularly with regard to raw material, transportation and labor price fluctuations; disruptions to our information technology environment, including through cyberattack, ransom attack, or cyber-intrusion; adverseloss.

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~~changes in international trade policies and relations; disruptions in global supply chains; and our exposure to foreign currency exchange rate changes.~~

~~Failure to successfully integrate the acquisition of Meritor, Inc. (Meritor) could have a material adverse impact on our results of operations, financial condition and cash flows.~~

The acquisition of Meritor will involve the integration of Meritor’s operations with our existing operations, and there are uncertainties inherent in such an integration. We will be required to devote significant management attention and resources to integrating Meritor’s operations. A delay in the integration of Meritor could cause us to fail to realize some or all of the anticipated benefits within a reasonable period of time or at all, which could result in additional transaction costs or in other negative effects.

~~We may fail to fully realize all of the anticipated benefits, including enhanced revenue, earnings, and cash flow from our acquisition of Meritor.~~

Our ability to fully realize all of the anticipated benefits, including enhanced revenue, earnings, and cash flow, from our acquisition of Meritor will depend, in substantial part, on our ability to successfully integrate the products into our segments, launch the Meritor products around the world and achieve our projected market penetration. While we believe we will ultimately achieve these objectives, it is possible that we will be unable to achieve all of these objectives within our anticipated time frame or in the anticipated amounts. If we are not able to successfully complete the integration of the Meritor business or implement our Meritor strategy, we may not fully realize the anticipated benefits, including enhanced revenue, earnings, and cash flows, from this acquisition or such anticipated benefits may take longer to realize than expected.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following information is provided pursuant to Item 703 of Regulation S-K:

Issuer Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased (1)
Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
(in millions) (2)
April 1 - April 30 — $ — — $ 2,281
May 1 - May 31 — — — 2,281
June 1 - June 30 184,243 194.00 184,243 2,245
Total 184,243 194.00 184,243
(1) Shares purchased represent shares under the Board authorized share repurchase program.
(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (2)
January 1 - January 31	—	$	—	—	$	2,218
February 1 - February 28	—	—		—	2,218
March 1 - March 31	—	—		—	2,218
Total	—	—		—

(1) Shares purchased represent shares under the Board authorized share repurchase program.
(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the ~~2019 repurchase plan. In December 2019, the Board authorized the acquisition of up to~~ $2.0 billion ~~of additional common stock upon completion of the 2018~~ repurchase ~~plan.~~plan authorized in 2019. During the three months ended ~~June 30, 2022,~~March 31, 2023, we ~~repurchased $36 million~~did not make any repurchases of common ~~stock under the 2019 authorization.~~stock. The dollar value remaining available for future purchases under the 2019 program at ~~June 30, 2022,~~March 31, 2023, was ~~$245~~$218 million.

Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. Shares associated with participants' sales are sold as open-market transactions via a third-party broker.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

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ITEM 6. Exhibits

The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

CUMMINS INC.

EXHIBIT INDEX


Exhibit No.						Description of Exhibit
















~~10.1~~10(a)						~~Loan~~Amendment No. 1 to Credit Agreement, dated as of ~~July 13, 2022, by and~~February 15, 2023, among ~~Cummins~~Atmus Filtration Technologies Inc., Cummins Filtration Inc, the lenders ~~from time to time~~ party thereto, and ~~Wells Fargo~~ Bank ~~National Association,~~of America, N.A., as ~~Administrative Agent.(incorporated~~administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on ~~July 19, 2022~~February 15, 2023 (File No. 001-04949)).





31(a)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed with this quarterly report on Form 10-Q are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Net Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021,~~, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021,~~, (iii) the Condensed Consolidated Balance Sheets at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021,~~, (v) the Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and March 31, 2022 ~~and July 4, 2021~~ and (vi) Notes to Condensed Consolidated Financial ~~Statements.~~

Statements
.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cummins Inc.

Date:

~~August 3, 2022~~May 2, 2023

By:

/s/ MARK A. SMITH

By:

/s/ LUTHER E. PETERS

Mark A. Smith

Luther E. Peters

Vice President and Chief Financial Officer

Vice President-Controller

(Principal Financial Officer)

(Principal Accounting Officer)

5651



	Six months ended
In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2021	$	556	$	1,871	$	16,741	$	(9,123)	$	(1,571)	$	8,474	$	927	$	9,401

Net income					1,120						1,120		10		1,130
Other comprehensive loss, net of tax (Note 13)									(125)		(125)		(23)		(148)
Issuance of common stock			1								1		—		1

Repurchases of common stock			0				(347)				(347)		—		(347)
Cash dividends on common stock, $2.90 per share					(411)						(411)		—		(411)
Distributions to noncontrolling interests											—		(14)		(14)
Share-based awards			(7)				26				19		—		19

Other shareholder transactions			2				5				7		17		24
BALANCE AT JUNE 30, 2022	$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

BALANCE AT DECEMBER 31, 2020	$	556	$	1,848	$	15,419	$	(7,779)	$	(1,982)	$	8,062	$	927	$	8,989

Net income					1,203						1,203		20		1,223
Other comprehensive income (loss), net of tax (Note 13)									53		53		(7)		46
Issuance of common stock			1								1		—		1

Repurchases of common stock			0				(1,090)				(1,090)		—		(1,090)
Cash dividends on common stock, $2.70 per share					(394)						(394)		—		(394)
Distributions to noncontrolling interests											—		(13)		(13)
Share-based awards			(4)				30				26		—		26

Other shareholder transactions			4				1				5		—		5
BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	(1,929)	$	7,866	$	927	$	8,793


In millions, except per share amounts	Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Remaining Authorized Capacity (1)

March 31	1.6	$	199.27	$	311	$	2,281
June 30	0.1	194.00		36		2,245


Total	1.7	198.72		$	347

(1) The remaining $245 million authorized capacity under the 2019 plan was calculated based on the cost to purchase the shares, but excludes commission expenses in accordance with the authorized plan.