Item 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

						Three months ended
In millions, except per share amounts						March 31, 2022						April 4, 2021
NET SALES (a) (Note 2)						$	6,385					$	6,092
Cost of sales (Note 3)						4,853						4,606
GROSS MARGIN						1,532						1,486
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses						615						574
Research, development and engineering expenses						298						260
Equity, royalty and interest income from investees (Notes 3 and 5)						96						166
Other operating expense, net (Note 3)						111						8
OPERATING INCOME						604						810
Interest expense						17						28
Other (expense) income, net						(9)						1
INCOME BEFORE INCOME TAXES						578						783
Income tax expense (Note 6)						155						172
CONSOLIDATED NET INCOME						423						611
Less: Net income attributable to noncontrolling interests						5						8
NET INCOME ATTRIBUTABLE TO CUMMINS INC.						$	418					$	603
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic						$	2.94					$	4.10
Diluted						$	2.92					$	4.07
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic						142.2						147.0
Dilutive effect of stock compensation awards						0.9						1.3
Diluted						143.1						148.3
(a) Includes sales to nonconsolidated equity investees of $344 million for the three months ended March 31, 2022, compared with $478 million for the comparable period in 2021.

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

									Three months ended
			In millions						March 31, 2022						April 4, 2021
			CONSOLIDATED NET INCOME						$	423					$	611
			Other comprehensive income (loss), net of tax (Note 13)
			Change in pension and other postretirement defined benefit plans						16						29
			Foreign currency translation adjustments						4						(56)
			Unrealized gain on derivatives						28						72
			Total other comprehensive income, net of tax						48						45
			COMPREHENSIVE INCOME						471						656
			Less: Comprehensive (loss) income attributable to noncontrolling interests						(3)						8
			COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.						$	474					$	648

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In millions, except par value						March 31, 2022						December 31, 2021
ASSETS
Current assets
Cash and cash equivalents						$	2,276					$	2,592
Marketable securities (Note 7)						527						595
Total cash, cash equivalents and marketable securities						2,803						3,187
Accounts and notes receivable, net
Trade and other						3,969						3,565
Nonconsolidated equity investees						399						425
Inventories (Note 8)						4,586						4,355
Prepaid expenses and other current assets						839						777
Total current assets						12,596						12,309
Long-term assets
Property, plant and equipment						9,333						9,358
Accumulated depreciation						(4,952)						(4,936)
Property, plant and equipment, net						4,381						4,422
Investments and advances related to equity method investees						1,592						1,538
Goodwill						1,286						1,287
Other intangible assets, net						917						900
Pension assets (Note 4)						1,506						1,488
Other assets (Note 9)						1,844						1,766
Total assets						$	24,122					$	23,710
LIABILITIES
Current liabilities
Accounts payable (principally trade)						$	3,497					$	3,021
Loans payable (Note 10)						243						208
Commercial paper (Note 10)						311						313
Accrued compensation, benefits and retirement costs						411						683
Current portion of accrued product warranty (Note 11)						798						755
Current portion of deferred revenue (Note 2)						883						855
Other accrued expenses (Note 9)						1,300						1,190
Current maturities of long-term debt (Note 10)						69						59
Total current liabilities						7,512						7,084
Long-term liabilities
Long-term debt (Note 10)						3,502						3,579
Pensions and other postretirement benefits (Note 4)						593						604
Accrued product warranty (Note 11)						709						684
Deferred revenue (Note 2)						877						850
Other liabilities (Note 9)						1,566						1,508
Total liabilities						$	14,759					$	14,309
Commitments and contingencies (Note 12)
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued						$	2,411					$	2,427
Retained earnings						16,952						16,741
Treasury stock, at cost, 81.4 and 80.0 shares						(9,412)						(9,123)
Accumulated other comprehensive loss (Note 13)						(1,515)						(1,571)
Total Cummins Inc. shareholders’ equity						8,436						8,474
Noncontrolling interests						927						927
Total equity						$	9,363					$	9,401
Total liabilities and equity						$	24,122					$	23,710

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

						Three months ended
In millions						March 31, 2022						April 4, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income						$	423					$	611
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization						161						170
Deferred income taxes						(66)						8
Equity in income of investees, net of dividends						(76)						(136)
Pension and OPEB expense (Note 4)						9						20
Pension contributions and OPEB payments (Note 4)						(43)						(51)
Share-based compensation expense						5						8
Russian suspension costs (Note 3)						158						—
Asset impairments and other charges						36						—
Loss on corporate owned life insurance						37						32
Foreign currency remeasurement and transaction exposure						(7)						1
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable						(417)						(374)
Inventories						(289)						(336)
Other current assets						(57)						(24)
Accounts payable						484						465
Accrued expenses						(251)						(24)
Changes in other liabilities						70						—
Other, net						(13)						(31)
Net cash provided by operating activities						164						339
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures						(104)						(87)
Investments in internal use software						(11)						(11)
Investments in and advances to equity investees						(32)						(24)
Acquisition of a business, net of cash acquired (Note 14)						83						—
Investments in marketable securities—acquisitions						(197)						(143)
Investments in marketable securities—liquidations (Note 7)						254						207
Cash flows from derivatives not designated as hedges						(2)						14
Other, net						(1)						19
Net cash used in investing activities						(10)						(25)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments of commercial paper						(2)						(6)
Payments on borrowings and finance lease obligations						(24)						(16)
Net borrowings (payments) under short-term credit agreements						29						(102)
Distributions to noncontrolling interests						(14)						(13)
Dividend payments on common stock						(207)						(197)
Repurchases of common stock						(311)						(418)
Proceeds from issuing common stock						9						18
Other, net						23						(11)
Net cash used in financing activities						(497)						(745)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS						27						(12)
Net decrease in cash and cash equivalents						(316)						(443)
Cash and cash equivalents at beginning of year						2,592						3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD						$	2,276					$	2,958

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

						Three 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																		418																								418						5						423
Other comprehensive income (loss), net of tax (Note 13)																																				56						56						(8)						48
Repurchases of common stock																								(311)																		(311)						—						(311)
Cash dividends on common stock, $1.45 per share																		(207)																								(207)						—						(207)
Distributions to noncontrolling interests																																										—						(14)						(14)
Share-based awards												(9)												18																		9						—						9
Other shareholder transactions												(7)												4																		(3)						17						14
BALANCE AT MARCH 31, 2022						$	556					$	1,855					$	16,952					$	(9,412)											$	(1,515)					$	8,436					$	927					$	9,363
BALANCE AT DECEMBER 31, 2020						$	556					$	1,848					$	15,419					$	(7,779)											$	(1,982)					$	8,062					$	927					$	8,989
Net income																		603																								603						8						611
Other comprehensive income, net of tax (Note 13)																																				45						45						—						45
Repurchases of common stock																								(418)																		(418)						—						(418)
Cash dividends on common stock, $1.35 per share																		(197)																								(197)						—						(197)
Distributions to noncontrolling interests																																										—						(13)						(13)
Share-based awards												(6)												24																		18						—						18
Other shareholder transactions												(5)												1																		(4)						—						(4)
BALANCE AT APRIL 4, 2021						$	556					$	1,837					$	15,825					$	(8,172)											$	(1,937)					$	8,109					$	922					$	9,031

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

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, electric power generation systems, batteries, electrified power systems, 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 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 first quarters of 2022 and 2021 ended on March 31 and April 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. Our interim period financial results for the three 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
			March 31, 2022						April 4, 2021
Options excluded			20,463						2,780

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 March 31, 2022, was $736 million. We expect to recognize the related revenue of $112 million over the next 12 months and $624 million over periods up to 10 years. See Note 11, "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						March 31, 2022						December 31, 2021
Unbilled revenue						$	138					$	100
Deferred revenue, primarily extended warranty						1,760						1,705

We recognized revenue of $240 million for the three months ended March 31, 2022, compared with $169 million for the comparable period in 2021, 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 months ended March 31, 2022 or April 4, 2021.

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
In millions						March 31, 2022						April 4, 2021
United States						$	3,457					$	3,060
China						653						957
India						309						330
Other international						1,966						1,745
Total net sales						$	6,385					$	6,092

Segment Revenue

Engine segment external sales by market were as follows:

						Three months ended
In millions						March 31, 2022						April 4, 2021
Heavy-duty truck						$	684					$	613
Medium-duty truck and bus						591						483
Light-duty automotive						487						474
Total on-highway						1,762						1,570
Off-highway						287						325
Total sales						$	2,049					$	1,895

Distribution segment external sales by region were as follows:

						Three months ended
In millions						March 31, 2022						April 4, 2021
North America						$	1,371					$	1,166
Asia Pacific						244						213
Europe						143						163
Russia						136						57
China						82						85
India						48						49
Africa and Middle East						46						54
Latin America						41						40
Total sales						$	2,111					$	1,827

Distribution segment external sales by product line were as follows:

						Three months ended
In millions						March 31, 2022						April 4, 2021
Parts						$	926					$	754
Engines						438						333
Power generation						398						416
Service						349						324
Total sales						$	2,111					$	1,827

Components segment external sales by business were as follows:

						Three months ended
In millions						March 31, 2022						April 4, 2021
Emission solutions						$	808					$	966
Filtration						308						301
Turbo technologies						197						225
Automated transmissions						134						115
Electronics and fuel systems						70						117
Total sales						$	1,517					$	1,724

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

						Three months ended
In millions						March 31, 2022						April 4, 2021
Power generation						$	399					$	351
Industrial						188						179
Generator technologies						96						82
Total sales						$	683					$	612

NOTE 3. 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 and direct sales into Russia from our other business units. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other liabilities that may have been incurred. 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. We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods. The following summarizes the costs associated with the suspension of our Russian operations in our first quarter results on our Condensed Consolidated Statements of Net Income:

In millions						March 31, 2022						Statement of Net Income Location
Inventory write-downs						$	59					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						25						Other operating expense, net
Total						$	158

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
In millions						March 31, 2022						April 4, 2021
Defined benefit pension contributions						$	33					$	42
OPEB payments, net						10						9
Defined contribution pension plans						36						35

We anticipate making additional defined benefit pension contributions during the remainder of 2022 of $17 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.

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						March 31, 2022						April 4, 2021						March 31, 2022						April 4, 2021						March 31, 2022						April 4, 2021
Service cost						$	34					$	35					$	8					$	8					$	—					$	—
Interest cost						22						19						9						8						1						1
Expected return on plan assets						(52)						(50)						(20)						(21)						—						—
Recognized net actuarial loss						6						12						1						8						—						—
Net periodic benefit cost (credit)						$	10					$	16					$	(2)					$	3					$	1					$	1

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 period was as follows:

						Three months ended
In millions						March 31, 2022						April 4, 2021
Manufacturing entities
Dongfeng Cummins Engine Company, Ltd.						$	16					$	31
Beijing Foton Cummins Engine Co., Ltd.						14						39
Tata Cummins, Ltd.						9						6
Chongqing Cummins Engine Company, Ltd.						9						10
All other manufacturers						(10)			(1)			55
Distribution entities
Komatsu Cummins Chile, Ltda.						7						6
All other distributors						2						3
Cummins share of net income						47						150
Royalty and interest income						49						16
Equity, royalty and interest income from investees						$	96					$	166
(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.

NOTE 6. INCOME TAXES

Our effective tax rates for the three months ended March 31, 2022 and April 4, 2021, were 26.8 percent and 22.0 percent, respectively.

The three months ended March 31, 2022, contained unfavorable discrete tax items of $31 million, primarily due to $18 million of unfavorable changes associated with uncertainty in our Russian operations, $9 million of unfavorable changes in tax reserves and $4 million of net unfavorable other discrete tax items.

The three months ended April 4, 2021, contained favorable discrete items of $4 million.

NOTE 7. MARKETABLE SECURITIES

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

						March 31, 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						$	284					$	—					$	284					$	299					$	—					$	299
Debt mutual funds						205						(2)						203						254						2						256
Equity mutual funds						31						9						40						29						10						39
Debt securities						—						—						—						1						—						1
Total marketable securities						$	520					$	7					$	527					$	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 three months ended March 31, 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.

*•*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:

												Three months ended
In millions																		March 31, 2022						April 4, 2021
Proceeds from sales of marketable securities																		$	195					$	163
Proceeds from maturities of marketable securities																		59						44
Investments in marketable securities - liquidations																		$	254					$	207

NOTE 8. INVENTORIES

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

In millions						March 31, 2022						December 31, 2021
Finished products						$	2,767					$	2,538
Work-in-process and raw materials						2,028						2,009
Inventories at FIFO cost						4,795						4,547
Excess of FIFO over LIFO						(209)						(192)
Total inventories						$	4,586					$	4,355

NOTE 9. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:

			In millions						March 31, 2022						December 31, 2021
			Deferred income taxes						$	494					$	428
			Corporate owned life insurance						455						492
			Operating lease assets						440						444
			Other						455						402
			Other assets						$	1,844					$	1,766

Other accrued expenses included the following:

In millions						March 31, 2022						December 31, 2021
Marketing accruals						$	304					$	303
Income taxes payable						229						107
Other taxes payable						208						234
Current portion of operating lease liabilities						127						128
Other						432						418
Other accrued expenses						$	1,300					$	1,190

Other liabilities included the following:

In millions						March 31, 2022						December 31, 2021
Deferred income taxes						$	385					$	403
Operating lease liabilities						326						326
Long-term income taxes						263						263
Accrued compensation						160						177
Mark-to-market valuation on interest rate derivatives						75						19
Other long-term liabilities						357						320
Other liabilities						$	1,566					$	1,508

NOTE 10. DEBT

Loans Payable and Commercial Paper

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

In millions						March 31, 2022												December 31, 2021
Loans payable (1)						$	243											$	208
Commercial paper						311									(2)			313			(3)
(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 0.33 percent at March 31, 2022. This included $111 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.22 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.63 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.

We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs. The 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

We have access to committed credit facilities totaling $3.5 billion, including the $1.5 billion 364-day facility that expires August 17, 2022 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 March 31, 2022 and December 31, 2021.

At March 31, 2022, the $311 million of outstanding commercial paper effectively reduced the $3.5 billion of revolving credit capacity to $3.2 billion.

At March 31, 2022, we also had an additional $253 million available for borrowings under our international and other domestic credit facilities.

Long-term Debt

A summary of long-term debt was as follows:

In millions						Interest Rate						March 31, 2022						December 31, 2021
Long-term debt
Senior notes, due 2023						3.65%						$	500					$	500
Senior notes, due 2025(1)						0.75%						500						500
Debentures, due 2027						6.75%						58						58
Debentures, due 2028						7.125%						250						250
Senior notes, due 2030(1)						1.50%						850						850
Senior notes, due 2043						4.875%						500						500
Senior notes, due 2050						2.60%						650						650
Debentures, due 2098(2)						5.65%						165						165
Other debt												126						110
Unamortized discount and deferred issuance costs												(66)						(68)
Fair value adjustments due to hedge on indebtedness												(49)						34
Finance leases												87						89
Total long-term debt												3,571						3,638
Less: Current maturities of long-term debt												69						59
Long-term debt												$	3,502					$	3,579
(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.

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

In millions						2022						2023						2024						2025						2026
Principal payments						$	62					$	548					$	32					$	507					$	24

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 loss on the interest rate swaps was $72 million and the offsetting gain on borrowings was $80 million for the three months ended March 31, 2022.

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, net of tax, recognized in other comprehensive income:

In millions						Three months ended
Type of Swap						March 31, 2022						April 4, 2021
Interest rate locks						$	39					$	61

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						March 31, 2022						December 31, 2021
Fair value of total debt (1)						$	4,060					$	4,461
Carrying value of total debt						4,125						4,159
(1) The fair value of debt is derived from Level 2 input measures.

Shelf Registration

As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the 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.

NOTE 11. 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
In millions						March 31, 2022						April 4, 2021
Balance, beginning of year						$	2,425					$	2,307
Provision for base warranties issued						123						157
Deferred revenue on extended warranty contracts sold						70						65
Provision for product campaigns issued						42						3
Payments made during period						(132)						(146)
Amortization of deferred revenue on extended warranty contracts						(73)						(61)
Changes in estimates for pre-existing product warranties						(26)						(44)
Foreign currency translation and other						94			(1)			(6)
Balance, end of period						$	2,523					$	2,275
(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.

We recognized supplier recoveries of $13 million for the three months ended March 31, 2022, compared with $4 million for the comparable period in 2021.

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

In millions						March 31, 2022						December 31, 2021						Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion						$	292					$	286					Current portion of deferred revenue
Long-term portion						724						700						Deferred revenue
Total						$	1,016					$	986
Product warranty
Current portion						$	798					$	755					Current portion of accrued product warranty
Long-term portion						709						684						Accrued product warranty
Total						$	1,507					$	1,439
Total warranty accrual						$	2,523					$	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 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.

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 March 31, 2022, the remaining accrual balance was $72 million.

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 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 March 31, 2022, the maximum potential loss related to these guarantees was $39 million.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At March 31, 2022, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $136 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 March 31, 2022, the total commitments under these contracts were $64 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 $104 million at March 31, 2022.

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.

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 December 31, 2021						$	(346)					$	(1,208)											$	(17)					$	(1,571)
Other comprehensive income before reclassifications
Before-tax amount						14						11												36						61						$	(8)					$	53
Tax (expense) income						(4)						1												(7)						(10)						—						(10)
After-tax amount						10						12												29						51						(8)						43
Amounts reclassified from accumulated other comprehensive income(1)						6						—												(1)						5						—						5
Net current period other comprehensive income (loss)						16						12												28			(2)			56						$	(8)					$	48
Balance at March 31, 2022						$	(330)					$	(1,196)											$	11					$	(1,515)
Balance at December 31, 2020						$	(735)					$	(1,204)											$	(43)					$	(1,982)
Other comprehensive income before reclassifications
Before-tax amount						15						(60)												93						48						$	—					$	48
Tax (expense) benefit						(3)						4												(22)						(21)						—						(21)
After-tax amount						12						(56)												71						27						—						27
Amounts reclassified from accumulated other comprehensive income(1)						17						—												1						18						—						18
Net current period other comprehensive income (loss)						29						(56)												72			(2)			45						$	—					$	45
Balance at April 4, 2021						$	(706)					$	(1,260)											$	29					$	(1,937)
(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.

NOTE 14. ACQUISITIONS

Completed Acquisitions

On February 7, 2022, we purchased Westport Fuel System Inc.'s stake in the Cummins Westport Joint Venture. 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.

Pending Acquisitions

On February 9, 2022, we reached an agreement with Altra Industrial Motion Corp to acquire its Jacobs Vehicle Systems business and closed the transaction in April 2022. 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. At this time, we have not completed the purchase price allocation, but expect to record approximately $270 million to $300 million of goodwill and intangibles. This acquisition will be reported in our Components segment.

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 will pay $36.50 in cash per share of Meritor common stock, for a total transaction value of approximately $3.7 billion, including assumed debt and net of acquired cash. We plan to fund this acquisition with a combination of cash, commercial paper and long-term debt.

The Board of Directors of Meritor recommended that Meritor shareholders vote in favor of the transaction at a Special Meeting of Shareholders to be held on May 26, 2022. The transaction is expected to close by the end of 2022 subject to customary closing conditions and receipt of applicable regulatory approvals. The Merger Agreement contains certain customary termination rights, subject to certain limitations, that could result in either us or Meritor having to pay a termination fee to the other party. Should the Merger Agreement be terminated under such specified circumstances, Meritor could be required to pay us approximately a $74 million termination fee, and we could be required to pay Meritor a $160 million termination fee.

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 President and Chief Operating 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 ranging from fully electric to hybrid along 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.

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 March 31, 2022
External sales						$	2,049					$	2,111					$	1,517					$	683					$	25					$	6,385
Intersegment sales						704						6						471						477						6						1,664
Total sales						2,753						2,117						1,988						1,160						31						8,049
Research, development and engineering expenses						109						13						76						64						36						298
Equity, royalty and interest income (loss) from investees						44			(1)			16						28						11						(3)						96
Interest income						4						2						1						1						—						8
Russian suspension costs(2)						32			(3)			100						6						20						—						158
Segment EBITDA						392						110						320						90						(67)						845
Depreciation and amortization(4)						51						28						43						31						7						160
Three months ended April 4, 2021
External sales						$	1,895					$	1,827					$	1,724					$	612					$	34					$	6,092
Intersegment sales						564						8						428						410						1						1,411
Total sales						2,459						1,835						2,152						1,022						35						7,503
Research, development and engineering expenses						92						13						75						57						23						260
Equity, royalty and interest income from investees						113						17						19						12						5						166
Interest income						3						1						1						1						—						6
Segment EBITDA						354						160						421						126						(51)						1,010
Depreciation and amortization(4)						51						30						48						35						5						169
(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 $1 million and $1 million for the three months ended March 31, 2022 and April 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
In millions						March 31, 2022						April 4, 2021
Total segment sales						$	8,049					$	7,503
Elimination of intersegment sales						(1,664)						(1,411)
Total net sales						$	6,385					$	6,092

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
In millions						March 31, 2022						April 4, 2021
TOTAL SEGMENT EBITDA						$	845					$	1,010
Intersegment eliminations and other (1)						(90)						(30)
Less:
Interest expense						17						28
Depreciation and amortization						160						169
INCOME BEFORE INCOME TAXES						578						783
Less: Income tax expense						155						172
CONSOLIDATED NET INCOME						423						611
Less: Net income attributable to noncontrolling interests						5						8
NET INCOME ATTRIBUTABLE TO CUMMINS INC.						$	418					$	603
(1)Intersegment eliminations and other for the three months ended March 31, 2022, included $17 million of costs associated with the planned separation of our Filtration business.