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What changed in Cummins's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Cummins's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+428 added−437 removedSource: 10-K (2024-02-12) vs 10-K (2023-02-14)

Top changes in Cummins's 2023 10-K

428 paragraphs added · 437 removed · 297 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

96 edited+39 added−49 removed33 unchanged
Biggest changeFinancial information about our investments in joint ventures and alliances is incorporated by reference from NOTE 4, "INVESTMENTS IN EQUITY INVESTEES," to the Consolidated Financial Statements. 9 Table of Contents Our equity income from these investees was as follows: Years ended December 31, In millions 2022 2021 2020 Manufacturing entities Dongfeng Cummins Engine Company, Ltd. $ 45 20 % $ 82 19 % $ 63 17 % Beijing Foton Cummins Engine Co., Ltd. 37 17 % 112 26 % 113 30 % Chongqing Cummins Engine Company, Ltd. 32 14 % 39 9 % 35 9 % Tata Cummins, Ltd. 27 12 % 18 4 % 19 (1) 5 % All other manufacturers 28 (2) 12 % 131 32 % 115 (3) 30 % Distribution entities Komatsu Cummins Chile, Ltda. 44 20 % 32 8 % 31 8 % All other distributors 11 5 % 10 2 % 2 1 % Cummins share of net income (4) $ 224 100 % $ 424 100 % $ 378 100 % (1) Includes $18 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March 2020.
Biggest changeOur equity income from these investees was as follows: Years ended December 31, In millions 2023 2022 2021 Manufacturing entities Dongfeng Cummins Engine Company, Ltd. $ 65 19 % $ 45 20 % $ 82 19 % Beijing Foton Cummins Engine Co., Ltd. 47 14 % 37 17 % 112 26 % Chongqing Cummins Engine Company, Ltd. 36 11 % 32 14 % 39 9 % Tata Cummins, Ltd. 29 9 % 27 12 % 18 4 % All other manufacturers 91 27 % 28 (1) 12 % 131 32 % Distribution entities Komatsu Cummins Chile, Ltda. 55 16 % 44 20 % 32 8 % All other distributors 16 4 % 11 5 % 10 2 % Cummins share of net income (2) $ 339 100 % $ 224 100 % $ 424 100 % (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 indefinite suspension of our Russian operations.
In many cases, these competing distributors or dealers are owned by, or affiliated with the companies that are listed as competitors of the Engine, Components or Power Systems segments. These competitors vary by geographical location and application market.
In many cases, these competing distributors or dealers are owned by, or affiliated with the companies that are listed as competitors of the Components, Engine or Power Systems segments. These competitors vary by geographical location and application market.
In the U.S., pursuant to notices received from federal and state agencies and/or defendant parties in site environmental contribution actions, we were identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or similar state laws, at fewer than 20 waste disposal sites.
In the U.S., pursuant to notices received from federal and state agencies and/or defendant parties in site environmental contribution actions, we were identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended or similar state laws, at fewer than 20 manufacturing and waste disposal sites.
We will continue to make investments to develop new products and improve our current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas powered engines and related components as well as development activities around battery electric, fuel cell electric and hydrogen engine solutions.
We will continue to make investments to develop new products and improve our current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around hydrogen engine solutions, battery electric, fuel cell electric and hydrogen production technologies.
The nine PLANET 2050 goals for 2030 are as follows: • Reduce absolute greenhouse gas (GHG) emissions from facilities and operations by 50 percent. • Reduce scope three absolute lifetime GHG emissions from newly sold products by 25 percent. • Partner with customers to reduce scope three GHG emissions from products in the field by 55 million metric tons. • Reduce volatile organic compounds emissions from paint and coating operations by 50 percent. • Create a circular lifecycle plan for every part to use less, use better, use again. • Generate 25 percent less waste in facilities and operations as percent of revenue. • Reuse or responsibly recycle 100 percent of packaging plastics and eliminate single-use plastics in dining facilities, employee amenities and events. • Reduce absolute water consumption in facilities and operations by 30 percent. • Produce net water benefits that exceed our annual water use in all our regions.
The nine PLANET 2050 goals for 2030 are as follows: • Reduce absolute GHG emissions from facilities and operations by 50 percent. • Reduce scope three absolute lifetime GHG emissions from newly sold products by 25 percent. • Partner with customers to reduce scope three GHG emissions from products in the field by 55 million metric tons. • Reduce volatile organic compounds emissions from paint and coating operations by 50 percent. • Create a circular lifecycle plan for every part to use less, use better, use again. • Generate 25 percent less waste in facilities and operations as percent of revenue. • Reuse or responsibly recycle 100 percent of packaging plastics and eliminate single-use plastics in dining facilities, employee amenities and events. • Reduce absolute water consumption in facilities and operations by 30 percent. • Produce net water benefits that exceed our annual water use in all our regions.
Our products are sold under the Stamford, Newage and AVK brands and range in output from 7.5 kilovolt-amperes (kVA) to 11,200 kVA. Our customer base for Power Systems offerings is highly diversified, with customer groups varying based on their power needs.
Our products are sold under the Stamford and AVK brands and range in output from 7.5 kilovolt-amperes (kVA) to 11,200 kVA. Our customer base for Power Systems offerings is highly diversified, with customer groups varying based on their power needs.
Distribution’s mission encompasses the sales and support of a wide range of products and services, including power generation systems, high-horsepower engines, heavy-duty and medium-duty engines designed for on- and off-highway use, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts and in-shop and field-based repair services. We also provide selected sales and aftermarket support for the New Power business.
Distribution’s mission encompasses the sales and support of a wide range of products and services, including power generation systems, high-horsepower engines, heavy-duty and medium-duty engines designed for on- and off-highway use, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts and in-shop and field-based repair services. We also provide selected sales and aftermarket support for the Accelera business.
The New Power 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 anticipate our customer base for New Power offerings will be highly diversified, representing multiple end markets with a broad range of application requirements.
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 anticipate our customer base for Accelera offerings will be highly diversified, representing multiple end markets with a broad range of application requirements.
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 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, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products.
We also provide turnkey solutions for distributed generation and energy management applications using natural gas, diesel and newer alternative sustainable fuels such as hydrotreated vegetable oil and renewable natural gas. 8 Table of Contents • Industrial - We design, manufacture, sell and support diesel and natural gas high-speed, high-horsepower engines up to 4,400 horsepower for a wide variety of equipment in mining, rail, defense, oil and gas and marine applications throughout the world. • Generator technologies - We design, manufacture, sell and support A/C generator/alternator products for internal consumption and for external generator set assemblers.
We also provide turnkey solutions for distributed generation and energy management applications using natural gas, diesel and newer alternative sustainable fuels such as hydrotreated vegetable oil and renewable natural gas. • Industrial - We design, manufacture, sell and support diesel and natural gas high-speed, high-horsepower engines up to 4,400 horsepower for a wide variety of equipment in mining, rail, defense, oil and gas and marine applications throughout the world. • Generator technologies - We design, manufacture, sell and support A/C generator/alternator products for internal consumption and for external generator set assemblers.
Other Environmental Statutes and Regulations Expenditures for environmental control activities and environmental remediation projects at our facilities in the U.S. were not a substantial portion of our annual expenses and are not expected to be material in 2023. We believe we are in compliance in all material respects with laws and regulations applicable to our plants and operations.
Other Environmental Statutes and Regulations Expenditures for environmental control activities and environmental remediation projects at our facilities in the U.S. were not a substantial portion of our annual expenses and are not expected to be material in 2024. We believe we are in compliance in all material respects with laws and regulations applicable to our plants and operations.
The segment serves our customers and certified dealers through a worldwide network of wholly-owned, joint venture and independent distribution locations. Wholly-owned locations operate and serve markets in the eight geographic regions noted below. Joint venture locations serve markets in South America, Southeast Asia, India, Middle East and Africa, while independent distribution locations serve markets in these and other geographies.
The segment serves our customers and certified dealers through a worldwide network of wholly-owned, joint venture and independent distribution locations. Wholly-owned locations operate and serve markets in the seven geographic regions noted below. Joint venture locations serve markets in South America, Southeast Asia, India, Middle East and Africa, while independent distribution locations serve markets in these and other geographies.
Employee Safety and Wellness Cummins is committed to being world-class in health and safety. We strive to ensure a workplace with zero incidents. We are committed to removing conditions that cause personal injury or occupational illness and we make decisions and promote behaviors that protect others from risk of injury.
Employee Safety and Wellness Cummins is committed to being world-class in health and safety. We strive to ensure a hazard-free workplace with zero incidents. We are committed to removing conditions that cause personal injury or occupational illness and we make decisions and promote behaviors that protect others from risk of injury.
Power Systems Segment Power Systems segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2022 2021 2020 Percent of consolidated net sales (1) 14 % 15 % 15 % Percent of consolidated EBITDA (1) 15 % 14 % 11 % (1) Measured before intersegment eliminations The Power Systems segment is organized around the following product lines: • Power generation - We are a global OEM offering standby and prime power generators ranging from 2 kilowatts to 3.5 megawatts, as well as controls, paralleling systems and transfer switches, for customers with consumer, commercial, industrial, data center, health care, prime rental fleet and defense applications.
Power Systems Segment Power Systems segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2023 2022 2021 Percent of consolidated net sales (1) 14 % 14 % 15 % Percent of consolidated EBITDA (1) 16 % 15 % 14 % (1) Measured before intersegment eliminations The Power Systems segment is organized around the following product lines: • Power generation - We are a global OEM offering standby and prime power generators ranging from 2 kilowatts to 3.5 megawatts, as well as controls, paralleling systems and transfer switches, for customers with consumer, commercial, industrial, data center, health care, prime rental fleet and defense applications.
China, India, Europe, Asia Pacific, Latin America, the Middle East and Africa are our largest geographic markets outside of North America. In the markets served by the Power Systems segment, we compete with a variety of independent engine manufacturers and generator set assemblers as well as OEMs who manufacture engines for their own products around the world.
China, India, Europe, Asia Pacific, Latin America, the Middle East and Africa are our largest geographic markets outside of North America. 8 Table of Contents In the markets served by the Power Systems segment, we compete with a variety of independent engine manufacturers and generator set assemblers as well as OEMs who manufacture engines for their own products around the world.
This includes new markets, like the growing green hydrogen market, which we serve with our leading electrolyzer technologies. We will continue to pursue relationships in markets as they adopt hydrogen and electric solutions.
This includes new markets, like the growing green hydrogen market, which we serve with our leading hydrogen production technologies. We will continue to pursue relationships in markets as they adopt hydrogen and electric solutions.
We remain committed to ensuring our products meet all current and future emission standards and delivering value to our customers. Announced in late 2019 and launched in early 2020, the Product Compliance and Regulatory Affairs team leads both engine emissions certification and compliance and regulatory affairs initiatives and reports to the SET Committee of the Board at least annually.
We remain committed to ensuring our products meet all current and future emission standards and delivering value to our customers. Announced in late 2019 and launched in early 2020, the Product Compliance and Regulatory Affairs team leads both engine emissions certification and compliance and regulatory affairs initiatives and provides updates to the SET Committee of the Board at least annually.
We design and/or manufacture our strategic components used in or with our engines and power generation units and New Power products. Key suppliers are managed through long-term supply agreements that seek to secure capacity, delivery, quality and cost requirements are met over an extended period.
We design and/or manufacture our strategic components used in or with our engines, power generation units and Accelera products. Key suppliers are managed through long-term supply agreements that seek to secure capacity, delivery and quality and to assure cost requirements are met over an extended period.
This strategy has several key focus areas: creating a diverse, accessible, equitable and inclusive work environment; engaging employees and their families in improving wellness; developing self-aware and effective leaders and extending our talent development programs to our workforce at every level and job type. Leadership and Talent Management Managing our human capital resources is a key focus of the company.
This strategy has several key focus areas: creating a diverse, accessible, equitable and inclusive work environment; engaging employees and their families in improving wellness; developing self-aware and effective leaders and extending our talent development programs to our workforce at every level. Leadership and Talent Development Developing our human capital resources is a key focus of the company.
Excluding PACCAR, net sales to any single customer were less than 8 percent of our consolidated net sales in 2022, less than 8 percent in 2021 and less than 7 percent in 2020. These agreements contain standard purchase and sale agreement terms covering engine, aftertreatment and engine parts pricing, quality and delivery commitments, as well as engineering product support obligations.
Excluding PACCAR, net sales to any single customer were less than 9 percent of our consolidated net sales in 2023, less than 8 percent in 2022 and less than 8 percent in 2021. These agreements contain standard purchase and sale agreement terms covering engine, aftertreatment and engine parts pricing, quality and delivery commitments, as well as engineering product support obligations.
Over the past several years we have increased our global environmental compliance presence and expertise to 13 Table of Contents understand and meet emerging product environmental regulations around the world. Our ability to comply with these and future emission standards is an essential element in maintaining our leadership position in regulated markets.
Over the past several years, we have increased our global environmental compliance presence and expertise to understand and meet emerging product environmental regulations around the world. Our ability to comply with these and future emission standards is an essential element in maintaining our leadership position in regulated markets.
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 460 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in approximately 190 countries and territories.
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 450 wholly-owned, joint venture and independent distributor locations and more than 19,000 Cummins certified dealer locations in approximately 190 countries and territories.
This joint venture manufactures Cummins' 3.80 to 8.9-liter diesel and natural gas engines in India with a power range from 75 to 400 horsepower for use in trucks manufactured by Tata Motors, as well as for various industrial and power generation applications for Cummins.
This joint venture manufactures Cummins' 3.8 to 8.9 liter diesel and natural gas engines in India with a power range from 75 to 400 horsepower for use in trucks and buses manufactured by Tata Motors, as well as for various on-highway, industrial and power generation applications for Cummins.
Certain types of construction equipment and industrial applications are also served by these engine families. 10 Table of Contents • Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. is a joint venture in China with Chongqing Machinery and Electric Co. Ltd.
Certain types of construction equipment and industrial applications are also served by these engine families. • Chongqing Cummins Engine Company, Ltd. - Chongqing Cummins Engine Company, Ltd. is a joint venture in China with Chongqing Machinery and Electric Co. Ltd.
New Power Segment 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, fuel cell and electric powertrain technologies.
Accelera Segment The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies.
(4) This total represents our share of net income of our equity investees and is exclusive of royalties and interest income from our equity investees.
(2) This total represents our share of net income of our equity investees and is exclusive of royalties and interest income from our equity investees.
The results and investments in our joint ventures in which we have 50 percent or less ownership interest (except for Eaton Cummins Automated Transmission Technologies joint venture, which is consolidated due to our majority voting interest) discussed below are included in equity, royalty and interest income from investees and investments and advances related to equity method investees in our Consolidated Statements of Net Income and Consolidated Balance Sheets , respectively. • Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd.
The results and investments in our joint ventures in which we have 50 percent or less ownership interest (except for ECJV, which is consolidated due to our majority voting interest) discussed below are included in equity, royalty and interest income from investees and investments and advances related to equity method investees in our Consolidated Statements of Net Income and Consolidated Balance Sheets , respectively. • Dongfeng Cummins Engine Company, Ltd. - Dongfeng Cummins Engine Company, Ltd.
Our category strategy process supports the review of our long-term needs and guides decisions on what we make internally and what we purchase externally. For the items we decide to purchase externally, the strategies also identify the suppliers we should enter into long-term supply agreements to provide the best technology, the lowest total cost and highest supply chain performance.
Our category strategy process supports the review of our long-term needs and guides decisions on what we make internally and what we purchase externally. For externally purchased items, the strategies also identify the suppliers we should consider for long-term supply agreements to provide the best technology, the lowest total cost and highest supply chain performance.
Our primary competitors are CAT, MTU (Rolls Royce Power Systems Group) and Kohler/SDMO (Kohler Group), but we also compete with INNIO, Generac, Mitsubishi Heavy Industries (MHI) and numerous regional generator set assemblers. Our alternator business competes globally with Leroy Somer (NIDEC), Marathon Electric and Meccalte, among others.
Our primary competitors are Caterpillar, Inc., MTU (Rolls Royce Power Systems Group) and Kohler/SDMO (Kohler Group), but we also compete with INNIO, Generac, Mitsubishi Heavy Industries and numerous regional generator set assemblers. Our alternator business competes globally with Leroy Somer, Marathon Electric and Meccalte, among others.
In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport, Inc. (Westport JV). See NOTE 2, "ACQUISITIONS," and NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport, Inc. (Westport JV). See NOTE 24, "ACQUISITIONS," and NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
Other officers are appointed by the CEO, are ratified by the Board and hold office for such period as the CEO or the Board may prescribe. 18 Table of Contents
Other officers are appointed by the Chair and CEO, are ratified by the Board and hold office for such period as the Chair and CEO or the Board may prescribe. 17 Table of Contents
The organization also works to enhance our collaboration with the agencies setting the direction and regulations of emissions as we strive to meet every expectation today while planning for future changes. Following conversations with the U.S.
The organization also works to enhance our collaboration with the agencies setting the direction and regulations of emissions as we strive to meet every expectation today while planning for future changes.
In the markets served by the New Power segment, we compete with emerging fuel cell and battery companies, powertrain component manufacturers, vertically integrated OEMs and entities providing hydrogen production solutions. Our primary competitors include Proterra Inc, Daimler, PACCAR, Volvo, Traton, BYD Company Limited, Dana Incorporated, BorgWarner Inc., Ballard Power Systems, Inc., Nel ASA and Plug Power Inc.
In the markets served by the Accelera segment, we compete with emerging fuel cell and battery companies, powertrain component manufacturers, vertically integrated OEMs and entities providing hydrogen production solutions. Our primary competitors include Daimler, PACCAR, Volvo, Traton, BYD Company Limited, Dana Incorporated, BorgWarner Inc., Ballard Power Systems, Inc., Nel ASA, ITM Power, Siemens Energy, Thyssenkrupp and Plug Power Inc.
We make available, free of charge, on or through our Investors and Media webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 or the Securities Act of 1933, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. 16 Table of Contents We also have a Corporate Governance webpage.
We make available, free of charge, on or through our Investors and Media webpage, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 or the Securities Act of 1933, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
Barner (65) Vice President—Chief Administrative Officer and Corporate Secretary (2021) Vice President—General Counsel and Corporate Secretary (2020-2021) Vice President—General Counsel (2012-2020) Marvin Boakye (49) Vice President—Chief Human Resources Officer (2022) Chief People and Diversity Officer—Papa John's International (2019-2022) Chief People Officer—Papa John's International (2019) Vice President, Human Resources—Andeavor (2017-2019) Jenny M.
Barner (66) Vice President—Chief Administrative Officer (2021) Vice President—Chief Administrative Officer and Corporate Secretary (2021-2023) Vice President—General Counsel and Corporate Secretary (2020-2021) Vice President—General Counsel (2012-2020) Marvin Boakye (50) Vice President—Chief Human Resources Officer (2022) Chief People and Diversity Officer—Papa John's International (2019-2022) Chief People Officer—Papa John's International (2019) Vice President, Human Resources—Andeavor (2017-2019) Jenny M.
The results for the axles and brakes business are included in our Components segment while the electric powertrain portion is included in our New Power segment. See NOTE 2, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.
The results for the axles and brakes business are included in our Components segment while the electric powertrain portion is included in our Accelera segment. See NOTE 24, "ACQUISITIONS," to the Consolidated Financial Statements for additional information.
We will post any amendments to the Code of Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange LLC (NYSE), on our internet site.
We will post any amendments to the Code of Conduct and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE, on our internet site.
Additional commitments followed including Cummins Water Works, our program for strengthening communities through sustainable water and addressing the global water crisis, and Destination Zero, our long-term product decarbonization strategy. The PLANET 2050 strategy includes nine specific goals to achieve by 2030, including science-based carbon dioxide reduction targets for newly sold products and facilities, as well as aspirational targets for 2050.
Additional commitments followed including Cummins Water Works, our program for strengthening communities through sustainable water and addressing the global water crisis, and Destination Zero, our long-term product decarbonization strategy. 12 Table of Contents The PLANET 2050 strategy includes nine specific goals to achieve by 2030, including science-based greenhouse gas (GHG) reduction targets for newly sold products and facilities, as well as aspirational targets for 2050.
Collectively, our net sales to these four customers, including PACCAR, were 36 percent of our consolidated net sales in 2022, 33 percent in 2021 and 32 percent in 2020.
Collectively, our net sales to these four customers, including PACCAR, were 37 percent of our consolidated net sales in 2023, 36 percent in 2022 and 33 percent in 2021.
AVAILABLE INFORMATION We file annual, quarterly and current reports, proxy statements and other information electronically with the Securities and Exchange Commission (SEC). The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that Cummins files electronically with the SEC. The SEC's internet site is www.sec.gov. Our internet site is www.cummins.com.
The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information that Cummins files electronically with the SEC. The SEC's internet site is www.sec.gov. Our internet site is www.cummins.com.
Certain types of small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces the X11, X12, X13 and X15, ranging from 10.5 liter to 14.5 liter, high performance heavy-duty diesel engines and natural gas engines in Beijing.
Certain types of small construction equipment and industrial applications are also served by these engine families. The heavy-duty business produces 8.5 liter to 14.5 liter high performance heavy-duty diesel and natural gas engines in Beijing.
Research and development expenses, net of contract reimbursements, were $1.2 billion in 2022, $1.1 billion in 2021 and $903 million in 2020. Contract reimbursements were $110 million, $104 million and $86 million in 2022, 2021 and 2020, respectively. 12 Table of Contents ENVIRONMENTAL SUSTAINABILITY We are committed to making people's lives better by powering a more prosperous world.
Research and development expenses, net of contract reimbursements, were $1.4 billion in 2023, $1.2 billion in 2022 and $1.1 billion in 2021. Contract reimbursements were $81 million, $110 million and $104 million in 2023, 2022 and 2021, respectively. ENVIRONMENTAL SUSTAINABILITY We are committed to making people's lives better by powering a more prosperous world.
Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Systems segment manufacturing facilities.
Our largest manufacturing joint ventures are based in China and are included in the list below. Our engine manufacturing joint ventures are supplied by our Components segment in the same manner as it supplies our wholly-owned Engine segment and Power Systems segment manufacturing facilities.
This organization is led by the Vice President - Product Compliance and Regulatory Affairs. The focus of this organization is to strengthen our ability to design great products that help our customers win while complying with increasingly challenging global emission regulations.
This organization is led by the Vice President - Product Compliance and Regulatory Affairs and reports directly to the Chief Administrative Officer and the CEO for product emissions matters. The focus of this organization is to strengthen our ability to design great products that help our customers win while complying with increasingly challenging global emission regulations.
We sell our industrial engines to manufacturers of construction and agricultural equipment including Hyundai Heavy Industries, Xuzhou Construction Machinery Group, Komatsu, John Deere, JLG Industries, Inc. and Guangxi LiuGong Machinery Co., Ltd. In the Engine segment, our competitors vary from country to country, with local manufacturers generally predominant in each geography. Other independent engine manufacturers include Weichai Power Co.
We sell our industrial engines to manufacturers of construction and agricultural equipment including Hyundai Heavy Industries, Komatsu, Zoomlion Heavy Industry Science & Technology Co., Ltd, Xuzhou Construction Machinery Group, Guangxi LiuGong Machinery Co., Ltd, JLG Industries, Inc. and Sany Group. In the Engine segment, our competitors vary from country to country, with local manufacturers generally predominant in each geography.
When designing our base pay compensation ranges, we do market analyses to be sure ranges are current and our employees are advancing their earning potential. We also do annual compensation studies to assess market movement, pay equity and living wages.
When designing our base pay ranges, we conduct market analyses to ensure our ranges are competitive and our employees are advancing their earning potential. We also perform annual compensation studies to assess market movement, pay equity and living wages.
Our filtration business offers over 8,800 products for first fit and aftermarket applications including air filters, fuel filters, fuel water separators, lube filters, hydraulic filters, coolants, fuel additives and other filtration systems to OEMs, dealers/distributors and end-users.
Our business offers a full spectrum of filtration solutions for first fit and aftermarket applications including air filters, fuel filters, fuel water separators, lube filters, hydraulic filters, coolants, fuel additives and other filtration systems to OEMs, dealers/distributors and end-users.
Ltd. and Deutz AG. Truck OEMs may also elect to produce their own engines, and we must provide competitive products to win and keep their business.
Other independent engine manufacturers include Weichai Power Co. Ltd. and Deutz AG. Truck OEMs may also elect to produce their own engines, and we must provide competitive products to win and keep their business.
Our Components segment joint ventures and wholly-owned entities provide electronics, fuel systems, filtration, aftertreatment systems, turbocharger products, axles, drivelines, braking systems and automated transmissions that are used with our engines as well as some competitors' products.
Our Components segment joint ventures and wholly-owned entities provide axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, filtration products, automated transmissions and electronics that are used with our engines as well as some competitors' products.
(Stellantis) in North America and LCV markets in Latin America and China. • Off-highway - We manufacture diesel engines that range from 48 to 715 horsepower serving key global markets including construction, mining, marine, rail, oil and gas, defense and agriculture and also the power generation business for standby, mobile and distributed power generation solutions throughout the world.
We also provide diesel engines for Class A motor homes (RVs), primarily in North America. • Light-duty automotive (pick-up and light commercial vehicle (LCV)) - We manufacture 105 to 400 horsepower diesel engines, including engines for the pick-up truck market for Stellantis in North America and LCV markets in Latin America and China. • Off-highway - We manufacture diesel engines that range from 48 to 715 horsepower serving key global markets including construction, mining, marine, rail, oil and gas, defense and agriculture and also the power generation business for standby, mobile and distributed power generation solutions throughout the world.
The information on our internet site is not incorporated by reference into this report. 17 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Following are the names and ages of our executive officers, their positions with us at January 31, 2023 and summaries of their backgrounds and business experience: Name and Age Present Cummins Inc. position and year appointed to position Principal position during the past five years other than Cummins Inc. position currently held N.
The information on our internet site is not incorporated by reference into this report. 16 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Following are the names and ages of our executive officers, their positions with us at January 31, 2024, and summaries of their backgrounds and business experience: Name and Age Present Cummins Inc. position and year appointed to position Principal position during the past five years other than Cummins Inc. position currently held Jennifer Rumsey (50) Chair and Chief Executive Officer (2023) President and Chief Executive Officer (2022-2023) President and Chief Operating Officer (2021-2022) Vice President and President—Components (2019-2020) Vice President—Chief Technical Officer (2015-2019) Sharon R.
Wiltrout (42) Vice President—Corporate Strategy (2022) Executive Director—Corporate Development (2021-2022) Strategy Director—Power Systems Business Unit (2018-2021) Corporate Strategy Director (2016-2018) Our CEO is elected annually by the Board and holds office until the meeting of the Board at which her election is next considered.
Wiltrout (43) Vice President—Corporate Strategy (2022) Executive Director—Corporate Development (2021-2022) Strategy Director—Power Systems Business Unit (2018-2021) Jonathan Wood (53) Vice President—Chief Technical Offer (2023) Vice President—New Power Engineering (2021-2023) Vice President—Components Engineering (2018-2021) Our Chair and CEO is elected annually by the Board and holds office until the meeting of the Board at which her election is next considered.
We provide benefit programs with the goal of improving the physical, mental and financial wellness of our employees throughout their lifetime. Some examples include base and variable pay, medical, paid time off, retirement saving plans and employee stock purchase plans.
Our programs target the market for competitiveness and sustainability while ensuring that we honor our core values. We provide benefit programs with the goal of improving the physical, emotional, social and financial wellness of our employees throughout their lifetime. Some examples include base and variable pay, medical, paid time off, retirement saving plans and employee stock purchase plans.
(CIL), which is a publicly listed company on various stock exchanges in India. CIL produces medium-duty, heavy-duty and high-horsepower diesel engines, generators for the Indian and export markets and natural gas spark-ignited engines for power generation, automotive and industrial applications. CIL also has distribution and power generation operations.
CIL produces medium-duty, heavy-duty and high-horsepower diesel engines and generators for the Indian and export markets and natural gas spark-ignited engines for power generation, automotive and industrial applications. CIL also has distribution and power generation operations.
Our Code of Conduct applies to all employees, regardless of their position or the country in which they work. It also applies to the employees of any entity owned or controlled by us.
Code of Conduct, Committee Charters and other governance documents are included at this site. Our Code of Conduct applies to all employees, regardless of their position or the country in which they work. It also applies to the employees of any entity owned or controlled by us.
We publicly disclose metrics on our rate of recordable injuries, our rate of lost workdays due to injury and the rate of injuries involving contractors.
We publicly disclose metrics on our rate of recordable injuries, our rate of lost workdays due to injury, rate of ergonomic injuries and rate of potentially serious injuries and fatalities.
Through our Talent Management strategy our goal is to provide all employees access to the development and career opportunities that a global company enables. Competitive Pay and Benefits To attract and retain the best employees, we focus on providing competitive pay and benefits. Our programs target the market for competitiveness and sustainability while ensuring that we honor our core values.
Through our talent strategy, our goal is to provide all employees equitable access to the development and career opportunities that a global company enables. Competitive Pay and Benefits To attract and retain the best employees, we focus on providing progressive, competitive pay and benefits.
Distribution Entity Komatsu Cummins Chile, Ltda. - Komatsu Cummins Chile, Ltda. is a joint venture with Komatsu America Corporation. The joint venture is a distributor that offers the full range of our products and services to customers and end-users in Chile and Peru. See further discussion of our distribution network under the Distribution segment section above.
The joint venture is a distributor that offers the full range of our products and services to customers and end-users in Chile and Peru. See further discussion of our distribution network under the Distribution segment section above. Non-Wholly-Owned Subsidiaries • Atmus Filtration Technologies Inc.
PACCAR is our only customer accounting for more than 10 percent of our net sales in 2022. The loss of this customer or a significant decline in the production level of PACCAR vehicles that use our engines would have an adverse effect on our results of operations and financial condition. We have supplied engines to PACCAR for 78 years.
The loss of this customer or a significant decline in the production level of PACCAR vehicles that use our engines would have an adverse effect on our results of operations and financial condition. We have supplied engines to PACCAR for 79 years. A summary of principal customers for each operating segment is included in our segment discussion.
We have long-term supply agreements with PACCAR for our heavy-duty and medium-duty engines and aftertreatment systems. While a significant number of our sales to PACCAR are under long-term supply agreements, these agreements provide for particular engine requirements for specific vehicle models and not a specific volume of engines or aftertreatment systems.
While a significant number of our sales to PACCAR are under long-term supply agreements, these agreements provide for particular engine requirements for specific vehicle models and not a specific volume of engines or aftertreatment systems. PACCAR is our only customer accounting for more than 10 percent of our net sales in 2023.
The principal customers of our heavy-duty truck engines include truck manufacturers such as PACCAR Inc. (PACCAR), Traton Group (Traton, formerly Navistar International Corporation) and Daimler Trucks North America (Daimler). The principal customers of our medium-duty truck engines include truck manufacturers such as Daimler, Traton and PACCAR.
The principal customers of our heavy-duty truck engines include truck manufacturers such as PACCAR, Traton and Daimler. The principal customers of our medium-duty truck and bus engines include truck manufacturers such as Daimler, Traton and PACCAR.
The Components segment is organized around the following businesses: • Emission solutions - We are a global leader in designing, manufacturing and integrating aftertreatment technology and solutions for the commercial on- and off-highway light-duty, medium-duty, heavy-duty and high-horsepower engine markets.
We primarily serve markets in North America, Europe, South America, India, Asia Pacific and China. • Emission solutions - We are a global leader in designing, manufacturing and integrating aftertreatment technology and solutions for the commercial on- and off-highway light-duty, medium-duty, heavy-duty and high-horsepower engine markets.
A summary of principal customers for each operating segment is included in our segment discussion. In addition to our agreement with PACCAR, we have long-term heavy-duty and medium-duty engine and aftertreatment system supply agreements with Traton and Daimler. We also have an agreement with Stellantis to supply engines for its Ram trucks.
In addition to our agreement with PACCAR, we have long-term heavy-duty and medium-duty engine and aftertreatment system supply agreements with Traton and Daimler. We also have an agreement with Stellantis to supply engines for its pick-up truck applications.
See NOTE 24, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income . 5 Table of Contents Engine Segment Engine segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2022 2021 2020 Percent of consolidated net sales (1) 31 % 33 % 32 % Percent of consolidated EBITDA (1) 38 % 39 % 41 % (1) Measured before intersegment eliminations The Engine segment manufactures and markets a broad range of diesel and natural gas-powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive, construction, mining, marine, rail, oil and gas, defense and agricultural markets.
Engine Segment Engine segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2023 2022 2021 Percent of consolidated net sales (1) 28 % 31 % 33 % Percent of consolidated EBITDA (1) 32 % 38 % 39 % (1) Measured before intersegment eliminations The Engine segment manufactures and markets a broad range of diesel and natural gas-powered engines under the Cummins brand name, as well as certain customer brand names, for the heavy-duty truck, medium-duty truck and bus, light-duty automotive and off-highway markets.
You can access our Investors and Media webpage through our internet site, by clicking on the heading "About" followed by the "Cummins Inc. Investor Website" link.
You can access our Investors and Media webpage through our internet site, by hovering on the heading "Company" and selecting "Investor Relations" link under the "About Us" section.
Truck OEMs that currently produce some or all of their own engines include Daimler, PACCAR, Traton, Volvo Powertrain, Ford Motor Company, China First Auto Works, Dongfeng Motor Corporation, CNH Industrial and Isuzu. 6 Table of Contents Components Segment Components segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2022 2021 2020 Percent of consolidated net sales (1) 28 % 26 % 24 % Percent of consolidated EBITDA (1) 33 % 33 % 32 % (1) Measured before intersegment eliminations The Components segment supplies products which complement the Engine and Power Systems segments, including aftertreatment systems, turbochargers, transmissions, filtration products, electronics, fuel systems, axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications.
Truck OEMs that currently produce some or all of their own engines include Daimler, PACCAR, Traton, Volvo Powertrain, Ford Motor Company, China First Auto Works, Dongfeng Motor Corporation, CNH Industrial and Isuzu. 7 Table of Contents Distribution Segment Distribution segment sales and EBITDA as a percentage of consolidated results were: Years ended December 31, 2023 2022 2021 Percent of consolidated net sales (1) 25 % 26 % 26 % Percent of consolidated EBITDA (1) 24 % 22 % 20 % (1) Measured before intersegment eliminations The Distribution segment is our primary sales, service and support channel.
We also market and sell truck, trailer, on- and off-highway and other products principally for OEM dealers and other independent distributors and service garages within the aftermarket industry. We primarily serve markets in North America, Europe, South America, India, Asia Pacific and China. • Filtration - We design, manufacture and sell filters, coolants and chemical products.
We also market and sell truck, trailer, on- and off-highway and other products principally for OEM dealers and other independent distributors and service garages within the aftermarket industry.
Smith (55) Vice President—Chief Financial Officer (2019) Vice President—Financial Operations (2016-2019) Nathan R. Stoner (45) Vice President—China ABO (2020) General Manager—Partnerships and EBU China Joint Venture Business (2018-2020) General Manager—Power Systems Business, China (2016-2018) Jeffrey T.
Stoner (46) Vice President—China ABO (2020) General Manager—Partnerships and EBU China Joint Venture Business (2018-2020) Jeffrey T.
We increased frequency of formal and informal supplier engagement to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks.
We increased frequency of formal and informal supplier engagement to address potentially impactful supply base constraints and enhanced collaboration to develop specific countermeasures to mitigate risks. PATENTS AND TRADEMARKS We own or control a significant number of patents and trademarks relating to the products we manufacture. These patents and trademarks were granted and registered over a period of years.
In each of our operating segments, we compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. Our products primarily compete on the basis of performance, price, total cost of ownership, fuel economy, emissions compliance, speed of delivery, quality and customer support.
Our products primarily compete on the basis of performance, price, total cost of ownership, fuel economy, emissions compliance, speed of delivery, quality and customer support. We use segment EBITDA as the basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments.
OPERATING SEGMENTS We have five complementary operating segments: Engine, Components, Distribution, Power Systems and New Power. These segments share technology, customers, strategic partners, brand recognition and our distribution network in order to compete more efficiently and effectively in their respective markets.
These segments share technology, customers, strategic partners, brand recognition and our distribution network in order to compete more efficiently and effectively in their respective markets. In each of our operating segments, we compete worldwide with a number of other manufacturers and distributors that produce and sell similar products.
We will continue to evaluate joint venture and partnership opportunities in order to penetrate new markets, develop new products and generate manufacturing and operational efficiencies.
We will continue to evaluate joint venture and partnership opportunities in order to penetrate new markets, develop new products and generate manufacturing and operational efficiencies. Financial information about our investments in joint ventures and alliances is incorporated by reference from NOTE 4, "INVESTMENTS IN EQUITY INVESTEES," to the Consolidated Financial Statements.
Bush (48) Vice President and President—Power Systems (2022) Vice President—Cummins Sales & Service North America (2017-2022) Amy R. Davis (53) Vice President and President—New Power (2020) Vice President—Cummins Filtration (2018-2020) General Manager—Filtration Business (2015-2018) Tracy A.
Bush (49) Vice President and President—Power Systems (2022) Vice President—Cummins Sales & Service North America (2017-2022) Amy R.
Since 2020, we have taken many steps in the employee safety and wellness area including the following: • Executed robust safety protocols for essential on-site personnel. • Implemented a remote work environment where possible for employees who prefer working off-site. • Launched a global mental health awareness campaign to destigmatize conditions such as depression and encourage employees to seek support offered by us. • Launched an aggressive global effort to acquire vaccines and provide them on-site or near-site to our employees, their families and other stakeholders.
Since 2020, we have taken many steps in the employee safety and wellness area including the following: • Executed robust safety protocols for essential on-site personnel. • Implemented a remote work environment where possible for employees who prefer working off-site, including remote ergonomic evaluations and support. • Provided high-quality clinical services at onsite and near-site medical clinics at 36 key locations across the globe to support employee health and well-being. • Launched a global mental health campaign to destigmatize and normalize discussions about mental health, promote mental well-being, encourage employees and their families to seek help when needed and promote company-provided resources.
Manufacturing Entities Our manufacturing joint ventures were generally formed with customers and are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies. Our largest manufacturing joint ventures are based in China and are included in the list below.
To see how this amount reconciles to equity, royalty and interest income from investees in the Consolidated Statements of Net Income , see NOTE 4, "INVESTMENTS IN EQUITY INVESTEES," to our Consolidated Financial Statements for additional information . 9 Table of Contents Manufacturing Entities Our manufacturing joint ventures were generally formed with customers and are primarily intended to allow us to increase our market penetration in geographic regions, reduce capital spending, streamline our supply chain management and develop technologies.
We primarily serve markets in North America, China, India, Europe and Brazil. • Automated transmissions - We develop and supply automated transmissions for the heavy-duty commercial vehicle market. Automated transmissions include automated manual transmissions, dual-clutch transmissions and automatic transmissions for internal combustion engines.
Fleetguard products are available through thousands of distribution points worldwide. • Automated transmissions - We develop and supply automated transmissions for the heavy-duty commercial vehicle market. Automated transmissions include automated manual transmissions, dual-clutch transmissions and automatic transmissions for internal combustion engines.
Non-Wholly-Owned Subsidiaries We have a majority voting interest in ECJV by virtue of a tie-breaking vote on the joint venture’s board of directors. ECJV develops and supplies automated transmissions for the heavy-duty commercial vehicle markets in North America and China. We have a controlling interest in Cummins India Ltd.
ECJV develops and supplies automated transmissions for the heavy-duty commercial vehicle markets in North America and China. • Cummins India Ltd. (CIL) - We have a controlling interest in Cummins India Ltd. (CIL), which is a publicly listed company on various stock exchanges in India.
The Components segment competes with other manufacturers of aftertreatment systems, filtration, turbochargers, fuel systems, drivetrain systems and transmissions. Our primary competitors in these markets include Robert Bosch GmbH, Donaldson Company, Inc., Parker-Hannifin Corporation, Mann+Hummel Group, Garrett Motion, Inc., Borg-Warner Inc., Tenneco Inc., Eberspacher Holding GmbH & Co.
Our primary competitors in these markets include Robert Bosch GmbH, Donaldson Company, Inc., Parker-Hannifin Corporation, Mann+Hummel Group, Garrett Motion, Inc., Borg-Warner Inc., Tenneco Inc., Eberspacher Holding GmbH & Co. KG, Denso Corporation, Allison Transmission, Aisin Seiki Co., Ltd., ZF Friedrichshafen AG and Dana Incorporated.
LARGEST CUSTOMERS We have thousands of customers around the world and have developed long-standing business relationships with many of them. PACCAR is our largest customer, accounting for 16 percent of our consolidated net sales in 2022, 15 percent in 2021 and 15 percent in 2020.
PACCAR is our largest customer, accounting for 16 percent of our consolidated net sales in 2023, 16 percent in 2022 and 15 percent in 2021. We have long-term supply agreements with PACCAR for our heavy-duty and medium-duty engines and aftertreatment systems.
Our familiarity with a wide range of market applications allows us to tailor sales, service and support to meet customer-specific needs. The Distribution segment was historically organized and managed as eight geographic regions, including North America, Asia Pacific, Europe, China, Commonwealth of Independent States (CIS and historically mostly Russia), Africa and Middle East, India and Latin America.
Our familiarity with a wide range of market applications allows us to tailor sales, service and support to meet customer-specific needs. 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 CIS sales into the Europe and Africa and Middle East regions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeConcern over climate change has resulted in, and could continue to result in, new legal or regulatory requirements designed to reduce or mitigate the effects of greenhouse gas (GHG) emissions. We may become subject to additional legislation, regulations or accords regarding climate change, and compliance with any new rules could be difficult and costly, including increased capital expenditures.
Biggest changeWe may become subject to additional evolving regulations related to the cleanup of contaminated property, such as the EPA's proposal to designate two widely used PFAS as hazardous substances. Concern over climate change has resulted in, and could continue to result in, new legal or regulatory requirements designed to reduce or mitigate the effects of GHG emissions.
As the impact of any future climate related legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict its potential impact which could have a material adverse effect on our results of operations, financial condition and cash flows.
As the impact of any additional future climate related legislative or regulatory requirements on our global businesses and products is dependent on the timing, scope and design of the mandates or standards, we are currently unable to predict its potential impact which could have a material adverse effect on our results of operations, financial condition and cash flows.
These risks include: • public health crises, including the spread of a contagious disease, such as future pandemics or epidemics, quarantines or shutdowns related to public health crises, and other catastrophic events; • economic and political instability, including international conflicts, war, acts of terrorism or the threat thereof, political or labor unrest, civil unrest, riots or insurrections; • the difficulty of enforcing agreements and collecting receivables through foreign legal systems; • trade protection measures and import or export licensing requirements; • the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.; • the imposition of tariffs, exchange controls or other restrictions; • difficulty in staffing and managing widespread operations and the application of foreign labor regulations; • required compliance with a variety of foreign laws and regulations; and • changes in general economic and political conditions, including changes in relationship with the U.S., in countries where we operate, particularly in China and emerging markets.
These risks include: • public health crises, including the spread of a contagious disease, such as future pandemics or epidemics, quarantines or shutdowns related to public health crises, and other catastrophic events; • economic and political instability, including international conflicts, war, acts of terrorism or the threat thereof, political or labor unrest, civil unrest, riots or insurrections; • the difficulty of enforcing agreements and collecting receivables through foreign legal systems; • trade protection measures and import or export licensing requirements; • the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.; • the imposition of tariffs, exchange controls or other restrictions; • difficulty in staffing and managing widespread operations and the application of foreign labor regulations; • required compliance with a variety of foreign laws and regulations; and 24 Table of Contents • changes in general economic and political conditions, including changes in relationship with the U.S., in countries where we operate, particularly in China and emerging markets.
In particular, changing U.S. export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties, could affect our ability to collect receivables, provide aftermarket and warranty support for our products, sell products and otherwise impact our reputation and business, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
In particular, changing U.S. export controls and sanctions on China, as well as other restrictions affecting transactions involving China and Chinese parties, could affect our ability to collect receivables, access cash generated in China, provide aftermarket and warranty support for our products, sell products and otherwise impact our reputation and business, any of which could have a material adverse effect on our results of operations, financial condition and cash flows.
See Management's Discussion and Analysis for additional information. 27 Table of Contents Significant declines in future financial and stock market conditions could diminish our pension plan asset performance and adversely impact our results of operations, financial condition and cash flow. We sponsor both funded and unfunded domestic and foreign defined benefit pension and other retirement plans.
See Management's Discussion and Analysis for additional information. Significant declines in future financial and stock market conditions could diminish our pension plan asset performance and adversely impact our results of operations, financial condition and cash flow. We sponsor both funded and unfunded domestic and foreign defined benefit pension and other retirement plans.
Despite their own engine manufacturing abilities, these customers have historically chosen to outsource certain types of engine production to us due to the quality of our engine products, our emission compliance capabilities, our systems 22 Table of Contents integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus.
Despite their own engine manufacturing abilities, these customers have historically chosen to outsource certain types of engine production to us due to the quality of our engine products, our emission compliance capabilities, our systems integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus.
These threats could result in unauthorized public disclosures of information, create financial liability, subject us to 25 Table of Contents legal or regulatory sanctions, disrupt our ability to conduct our business, result in the loss of intellectual property or damage our reputation with customers, dealers, suppliers and other stakeholders.
These threats could result in unauthorized public disclosures of information, create financial liability, subject us to legal or regulatory sanctions, disrupt our ability to conduct our business, result in the loss of intellectual property or damage our reputation with customers, dealers, suppliers and other stakeholders.
In particular, increased levels of inflation, rising interest rates and concerns regarding a potential economic recession may result in increased operating costs and/or decreased levels of profitability. Further, the labor market for skilled manufacturing remains tight, and our labor costs have increased as a result.
In particular, increased levels of inflation, rising interest rates and 20 Table of Contents concerns regarding a potential economic recession may result in increased operating costs and/or decreased levels of profitability. Further, the labor market for skilled manufacturing remains tight, and our labor costs have increased as a result.
Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emission, discharges to water and the generation, handling, storage, transportation, treatment and disposal of waste materials.
Our operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emission, carbon content, discharges to water and the generation, handling, storage, transportation, treatment and disposal of waste materials.
Any delays in implementation or enforcement could result in a loss of our competitive advantage and could have a material adverse impact on our results of operations, financial condition and cash flows.
Any delays in implementation or enforcement could 18 Table of Contents result in a loss of our competitive advantage and could have a material adverse impact on our results of operations, financial condition and cash flows.
While we maintain 23 Table of Contents insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims.
While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims.
Additionally, higher material and commodity costs around the world as well as elevated levels of inflation may offset our efforts to reduce our cost structure.
Additionally, higher material and commodity costs around the world as well as elevated levels of inflation may offset our 21 Table of Contents efforts to reduce our cost structure.
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.
The acquisition of Meritor involves the integration of Meritor’s operations with our existing operations, and there are uncertainties inherent in such an integration. We have, and will be continued to be required to, devote significant management attention and resources to integrating Meritor’s operations.
As these emerging market customers enter into, and begin to compete in more developed markets, they may increasingly begin to compete with our existing customers in these markets. Our further aid to emerging market customers could 26 Table of Contents adversely affect our relationships with developed market customers.
As these emerging market customers enter into, and begin to compete in more developed markets, they may increasingly begin to compete with our existing customers in these markets. Our further aid to emerging market customers could adversely affect our relationships with developed market customers.
Any of these factors could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, if the separation is completed, the new independent company will incur ongoing costs, including costs of operating as an independent company, that the separated business will no longer be able to share.
Any of these factors could have a material adverse effect on each of Cummins' and Atmus's respective business, financial condition, results of operations and cash flows. In addition, if the divestiture is completed, the new independent company will incur ongoing costs, including costs of operating as an independent company, that the divested business will no longer be able to share.
We depend on the skills, institutional knowledge, working relationships, and continued services and contributions of key personnel, including our leadership team and others at all levels of the company, as a critical part of our human capital resources.
We operate in challenging markets for talent and may fail to attract, develop and retain key personnel. We depend on the skills, institutional knowledge, working relationships, and continued services and contributions of key personnel, including our leadership team and others at all levels of the company, as a critical part of our human capital resources.
Such risks and uncertainties include: • reputational harm, including damage to our relationships with customers, suppliers, investors, governments or other stakeholders; • adverse impacts on our ability to sell and manufacture products; • the success of our collaborations with third parties; • increased risk of litigation, investigations or regulatory enforcement action; • unfavorable ESG ratings or investor sentiment; • diversion of resources and increased costs to control, assess and report on ESG metrics; • our ability to achieve our goals, commitments and targets within the timeframes announced; • access to and increased cost of capital and • adverse impacts on our stock price.
Such risks and uncertainties include: • reputational harm, including damage to our relationships with customers, suppliers, investors, governments or other stakeholders; • adverse impacts on our ability to sell and manufacture products; • the success of our collaborations with third parties; • increased risk of litigation, investigations or regulatory enforcement actions; • unfavorable ESG ratings or investor sentiment; • diversion of resources and increased costs to control, assess and report on ESG metrics; • our ability to achieve our goals, commitments and targets within the timeframes announced; • access to and increased cost of capital and • adverse impacts on our stock price. 25 Table of Contents Any failure, or perceived failure, to meet evolving stakeholder expectations and industry standards or achieve our ESG goals, commitments and targets could have a material adverse effect on our business, results of operations and financial condition.
The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows.
Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows.
Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect customer demand for our products and our customers’ ability to repay obligations to us.
Our business and operations are subject to interest rate risks and changes in interest rates can reduce demand for our products and increase borrowing costs and result in non-cash charges Rising interest rates could have a dampening effect on overall economic activity and/or the financial condition of our customers, either or both of which could negatively affect customer demand for our products and our customers’ ability to repay obligations to us.
Whether or not the separation is completed, our businesses may face material challenges in connection with this transaction, including, without limitation: • the diversion of management’s attention from ongoing business concerns and impact on our businesses as a result of the devotion of management’s attention to strategic alternatives for the filtration business, including the separation; • maintaining employee morale and retaining key management and other employees; • retaining existing business and operational relationships, including with customers, suppliers, employees and other counterparties, and attracting new business and operational relationships; • execution and related risks in connection with financing transactions undertaken in connection with the separation; • foreseen and unforeseen dis-synergy costs, costs of restructuring transactions (including taxes) and other significant costs and expenses; and • any potential negative reactions from the financial markets resulting from the separation.
A delay or failure to complete the divestiture could result in our businesses facing material challenges in connection with this transaction, including, without limitation: • the diversion of management’s attention from ongoing business concerns and impact on our businesses as a result of the devotion of management’s attention to strategic alternatives for the Atmus divestiture; • maintaining employee morale and retaining key management and other employees; • retaining existing business and operational relationships, including with customers, suppliers, employees and other counterparties, and attracting new business and operational relationships; and 22 Table of Contents • foreseen and unforeseen dis-synergy costs, costs of restructuring transactions (including taxes) and other significant costs and expenses.
We face the challenge of accurately aligning our capacity with our demand. Our markets are cyclical in nature and we face periods when demand fluctuates significantly higher or lower than our normal operating levels, including variability driven by supply chain inconsistency.
Our markets are cyclical in nature and we face periods when demand fluctuates significantly higher or lower than our normal operating levels, including variability driven by supply chain inconsistency. Accurately forecasting our expected volumes and appropriately adjusting our capacity are important factors in determining our results of operations and cash flows.
In addition, some of these technologies are managed by third-party service providers and are not under our direct control. If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation.
If we experience a problem with an important technology, including during upgrades and/or new implementations of technologies, the resulting disruptions could have an adverse effect on our business and reputation.
Climate change may exacerbate the frequency and intensity of natural disasters and adverse weather conditions, which may cause disruptions to our operations, including disrupting manufacturing, distribution and our supply chain.
Climate change may exacerbate the frequency and intensity of natural disasters and adverse weather conditions, which may cause disruptions to our operations, including disrupting manufacturing, distribution and our supply chain. Our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures may expose us to additional costs and risks.
The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties. 19 Table of Contents In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards in our worldwide markets are unpredictable and subject to change.
The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.
The amounts ultimately paid upon resolution of these or subsequent tax audits could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our tax provision. Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.
The amounts ultimately paid upon resolution of these or 19 Table of Contents subsequent tax audits could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our tax provision.
In addition, if an acquisition results in any additional goodwill or increase in other intangible assets on our balance sheet and subsequently becomes impaired, we would be required to record a non-cash impairment charge, which could result in a material adverse effect on our financial condition. 24 Table of Contents Similarly, any strategic divestiture of a product line or business may reduce our revenue and earnings, reduce the diversity of our business, result in substantial costs and expenses and cause disruption to our employees, customers, vendors and communities in which we operate.
In addition, if an acquisition results in any additional goodwill or increase in other intangible assets on our balance sheet and subsequently becomes impaired, we would be required to record a non-cash impairment charge, which could result in a material adverse effect on our financial condition.
Furthermore, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us. GENERAL We may not complete the separation of our filtration business within the time frame we anticipate or at all.
Furthermore, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us. GENERAL We may not realize the anticipated value or tax treatment for the anticipated full divestiture of our interest in Atmus Filtration Technologies Inc. (Atmus).
While we continually work to safeguard our information technology environment and mitigate potential risks, there is no assurance that these actions will be sufficient to prevent information technology security threats, such as security breaches, computer malware, ransomware attacks and other "cyber attacks," which are increasing in both frequency and sophistication, along with power outages or hardware failures.
As such, our information technology environment faces information technology security threats, such as security breaches, computer malware, ransomware attacks and other "cyber attacks," which are increasing in both frequency and sophistication, along with power outages or hardware failures.
Our information technology environment and our products are exposed to potential security breaches or other disruptions which may adversely impact our competitive position, reputation, results of operations, financial condition and cash flows. We rely on the capacity, reliability and security of our information technology environment and data security infrastructure in connection with various aspects of our business activities.
Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows. Our information technology environment and our products are exposed to potential security breaches or other disruptions which may adversely impact our competitive position, reputation, results of operations, financial condition and cash flows.
In periods of weak demand, we may face under-utilized capacity and un-recovered overhead costs, while in periods of strong demand we may experience unplanned costs and could fail to meet customer demand. We cannot guarantee that we will be able to adequately adjust our manufacturing capacity in response to significant changes in customer demand, which could harm our business.
We manage our capacity by adjusting our manufacturing workforce, capital expenditures and purchases from suppliers. In periods of weak demand, we may face under-utilized capacity and un-recovered overhead costs, while in periods of strong demand we may experience unplanned costs and could fail to meet customer demand.
Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows.
The discovery of noncompliance issues could have a material adverse impact on our results of operations, financial condition and cash flows.
Foreign Corrupt Practices Act and similar laws from other countries, as well as new regulatory requirements regarding data privacy, such as the European Union General Data Protection Regulation. Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S.
Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries, as well as new regulatory requirements regarding data privacy, such as the European Union General Data Protection Regulation.
We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. 20 Table of Contents Evolving environmental and climate change legislation and regulatory initiatives may adversely impact our operations, could impact the competitive landscape within our markets and could negatively affect demand for our products.
Evolving environmental and climate change legislation and regulatory initiatives may adversely impact our operations, could impact the competitive landscape within our markets and could negatively affect demand for our products.
Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our results of operations, financial condition and cash flows. 21 Table of Contents In addition, the current economic environment has resulted, and may continue to result, in price volatility and increased levels of inflation of many of our raw material, transportation and other costs.
In addition, the current economic environment has resulted, and may continue to result, in price volatility and increased levels of inflation of many of our raw material, transportation and other costs.
If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations, financial condition and cash flows. We derive significant earnings from investees that we do not directly control, with more than 50 percent of these earnings from our China-based investees.
We cannot guarantee that we will be able to adequately adjust our manufacturing capacity in response to significant changes in customer demand, which could harm our business. If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations, financial condition and cash flows.
We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business. As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary upgrades.
As we implement new technologies, they may not perform as expected. We face the challenge of supporting our older technologies and implementing necessary upgrades. In addition, some of these technologies are managed by third-party service providers and are not under our direct control.
Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S.
Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk. Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations around the world.
The effects of climate change, including extreme weather events, long-term changes in temperature levels and water availability may exacerbate these risks.
The effects of climate change, including extreme weather events, long-term changes in temperature levels and water availability may exacerbate these risks. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our results of operations, financial condition and cash flows.
Material, transportation, labor and other cost inflation has impacted and could continue to impact our results of operations, financial condition and cash flows. The ongoing conflict between Russia and Ukraine, and the global response (including government bans or restrictions on doing business in Russia), could have a material adverse impact on our results of operations, financial condition and cash flows.
Material, transportation, labor and other cost inflation has impacted and could continue to impact our results of operations, financial condition and cash flows. We face the challenge of accurately aligning our capacity with our demand.
For 2022, we recognized $349 million of equity, royalty and interest income from investees, compared to $506 million in 2021.
We derive significant earnings from investees that we do not directly control, with more than 50 percent of these earnings from our China-based investees. For 2023, we recognized $483 million of equity, royalty and interest income from investees, compared to $349 million in 2022.
Regulatory agencies are making certification and compliance with emissions and noise standards more stringent and subjecting diesel engine products to an increasing level of scrutiny. The discovery of noncompliance issues could have a material adverse impact on our results of operations, financial condition and cash flows.
Regulatory agencies are making certification and compliance with emissions and noise standards more stringent and subjecting diesel engine products to an increasing level of scrutiny. In addition, failure to comply with the terms and conditions of the Agreement in Principle will subject us to stipulated penalties.
Approximately 23,400 of our employees worldwide were represented by various unions under collective bargaining agreements that expire between 2023 and 2027.
We may be adversely impacted by work stoppages and other labor matters. At December 31, 2023, we employed approximately 75,500 persons worldwide. Approximately 21,900 of our employees worldwide were represented by various unions under collective bargaining agreements that expire between 2024 and 2028.
Rising interest rates may increase our cost of capital which could have material adverse effects on our financial condition and cash flows. We operate in challenging markets for talent and may fail to attract, develop and retain key personnel.
Rising interest rates may increase our cost of capital which could have material adverse effects on our financial condition and cash 23 Table of Contents flows. Rising interest rates could also impact certain goodwill assets requiring non-cash impairment charges which could have a material adverse impact on our earnings.
Our failure to successfully comply with any such legislation, regulation or accord could also impact our ability to compete in our markets and decrease demand for our products. Future bans or limitations on the use of diesel-powered vehicles or other applications could have a material adverse impact on our business over the long term.
We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted. Future bans or limitations on the use of diesel-powered vehicles or other applications could have a material adverse impact on our business over the long term.
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 resulting from our formal review and these regulatory processes could have a material adverse impact on our results of operations and cash flows.
The consequences resulting from the resolution of the foregoing matters are uncertain and the related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows. See NOTE 15, "COMMITMENTS AND CONTINGENCIES," to the Consolidated Financial Statements for additional information.
Removed
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 and CARB to address their questions about these applications.
Added
GOVERNMENT REGULATION While we have reached the Agreement in Principle with the EPA, CARB, DOJ and CA AG to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S. and recorded a charge of $2.036 billion in the fourth quarter of 2023 in connection with the Agreement in Principle, the Agreement in Principle remains subject to final regulatory and judicial approvals.
Removed
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 have a material adverse impact on our results of operations and cash flows.
Added
In addition, we have incurred, and likely will incur, other additional claims, costs and expenses in connection with the matters covered by the Agreement in Principle and other matters related to our compliance with emission standards for our engines, including with respect to additional regulatory action and collateral litigation related to these matters.
Removed
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.
Added
Those and related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition and cash flows.
Removed
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.
Added
In December 2023, we announced that we reached the Agreement in Principle and recorded a charge of $2.036 billion in the fourth quarter of 2023 to resolve the matters addressed by the Agreement in Principle involving approximately one million of our pick-up truck applications in the U.S.
Removed
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.
Added
This charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. Failure to comply with the terms and conditions of the Agreement in Principle will also subject us to further stipulated penalties.
Removed
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.
Added
The Agreement in Principle remains subject to final regulatory and judicial approvals, and we cannot be certain that the Agreement in Principle will be approved, in its current form, or at all.
Removed
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 and Titan trucks for model years 2016 through 2019.
Added
We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.
Removed
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.
Added
In connection with our announcement of our entry into the Agreement in Principle, we have become subject to shareholder, consumer and third-party litigation regarding the matters covered by the Agreement in Principle and we may become subject to additional litigation in connection with these matters.
Removed
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.
Added
In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards in our worldwide markets are unpredictable and subject to change.
Removed
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 and seek to reach further resolutions as part of our ongoing commitment to compliance.
Added
For example, in October 2023, the EPA published a final rule imposing reporting and recordkeeping requirements on manufacturers and importers of per- and polyfluoroalkyl substances (PFAS).
Removed
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.
Added
We may become subject to further additional legislation, regulations or accords regarding climate change, and compliance with new rules could be difficult and costly, including increased capital expenditures. Our failure to successfully comply with any such legislation, regulation or accord could also impact our ability to compete in our markets and decrease demand for our products.
Removed
We suspended our commercial operations in Russia indefinitely, which resulted in a charge of $111 million during 2022 related to these actions. As of December 31, 2022, we had no inventory and approximately $14 million of receivables in Russia, all of which are fully reserved.
Added
Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct.
Removed
In addition, we have cash balances of $66 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. 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.
Added
There are uncertainties and risks related to the timing and potential value to Cummins, Atmus and our respective shareholders of the planned divestiture of Atmus, including business, industry and market risks, as well as risks involving realizing the anticipated favorable tax treatment of the divestiture if there is a significant delay or failure to complete the divestiture.
Removed
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.
Added
Failure to implement the divestiture effectively could result in a lower value to Cummins, Atmus and our respective shareholders.
Removed
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.
Added
Similarly, any strategic divestiture of a product line or business may reduce our revenue and earnings, reduce the diversity of our business, result in substantial costs and expenses and cause disruption to our employees, customers, vendors and communities in which we operate.
Removed
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, any of which could materially and adversely affect our business and results of operations.
Added
We rely on the capacity, reliability and security of our information technology environment and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these technologies and related infrastructure in response to the changing needs of our business.
Removed
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; adverse changes in international trade policies and relations; disruptions in global supply chains; and our exposure to foreign currency exchange rate changes.
Removed
Accurately forecasting our expected volumes and appropriately adjusting our capacity are important factors in determining our results of operations and cash flows. We manage our capacity by adjusting our manufacturing workforce, capital expenditures and purchases from suppliers.
Removed
The separation may present difficulties that could have an adverse effect on us and/or the independent business resulting from the separation and/or costs associated with the separation may be higher than anticipated. Additionally, if we complete the separation, we may not realize some or all of the expected benefits of the separation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeEngine Indiana: Columbus Brazil: Sao Paulo New York: Lakewood India: Phaltan North Carolina: Whitakers U.K.: Darlington Components Indiana: Columbus Australia: Kilsyth North Carolina: Fletcher Brazil: Sao Paulo South Carolina: Charleston China: Shanghai, Wuxi, Wuhan Tennessee: Cookeville France: Quimper Wisconsin: Mineral Point, Neillsville Germany: Marktheidenfeld India: Pune, Dewas, Pithampur, Phaltan, Rudrapur Mexico: Ciudad Juarez, Monterrey, San Luis Potosi South Korea: Suwon U.K.: Darlington, Huddersfield Power Systems Indiana: Elkhart, Seymour Brazil: Sao Paulo Minnesota: Fridley China: Wuxi, Wuhan New Mexico: Clovis India: Pune, Ahmednagar, Ranjangaon, Phaltan Mexico: San Luis Potosi Romania: Craiova U.K.: Daventry Nigeria: Lagos New Power Indiana: Columbus Belgium: Oevel Canada: Mississauga Germany: Herten In addition, engines and engine components are manufactured by joint ventures or independent licensees at manufacturing plants in the U.S., China, India, Japan, Sweden, U.K. and Mexico. 29 Table of Contents Distribution Facilities The principal distribution facilities that serve our segments are as follows: U.S.
Biggest changeComponents Indiana: Columbus Australia: Kilsyth North Carolina: Fletcher Brazil: Sao Paulo South Carolina: Charleston China: Shanghai, Wuhan, Wuxi Tennessee: Cookeville France: Quimper Wisconsin: Mineral Point, Neillsville Germany: Marktheidenfeld India: Dewas, Phaltan, Pithampur, Pune, Rudrapur Mexico: Ciudad Juarez, Monterrey, San Luis Potosi South Korea: Suwon U.K.: Darlington, Huddersfield Engine Indiana: Columbus Brazil: Sao Paulo New York: Lakewood India: Phaltan North Carolina: Whitakers U.K.: Darlington Power Systems Indiana: Elkhart, Seymour Brazil: Sao Paulo Minnesota: Fridley China: Wuhan, Wuxi New Mexico: Clovis India: Ahmednagar, Phaltan, Pune, Ranjangaon Mexico: San Luis Potosi Nigeria: Lagos Romania: Craiova U.K.: Daventry Accelera Indiana: Columbus Belgium: Oevel Minnesota: Fridley Canada: Mississauga North Carolina: Asheville, Forest City China: Shanghai, Tianjin Germany: Herten In addition, engines and engine components are manufactured by joint ventures or independent licensees at manufacturing plants in the U.S., China, India, Japan, Sweden, U.K. and Mexico. 29 Table of Contents Distribution Facilities The principal distribution facilities that serve our segments are as follows: U.S.
Georgia: Atlanta Belgium: Rumst Indiana: Columbus, Indianapolis China: Beijing, Shanghai, Wuhan Kentucky: Walton India: Phaltan, Pithampur, Pune Pennsylvania: Harrisburg Mexico: San Luis Potosi South Carolina: Charleston U.K.: Daventry Tennessee: Memphis Texas: Dallas Other Facilities We operate numerous management, research and development, marketing and administrative facilities globally.
Georgia: Atlanta Belgium: Rumst Indiana: Columbus, Indianapolis China: Beijing, Shanghai, Wuhan Kentucky: Walton India: Phaltan, Pithampur, Pune North Carolina: Enfield Mexico: Juarez, San Luis Potosi Oregon: Portland U.K.: Darlington, Daventry Pennsylvania: Harrisburg South Carolina: Charleston Tennessee: Memphis Texas: Dallas Other Facilities We operate numerous management, research and development, marketing and administrative facilities globally.
Facilities Facilities Outside the U.S. Arizona: Avondale Australia: Mackay, Perth Colorado: Henderson China: Beijing Kentucky: Florence South Africa: Johannesburg Minnesota: White Bear Lake U.K.: Wellingborough Texas: Dallas Utah: West Valley City Supply Chain Facilities The principal supply chain facilities that serve our segments are as follows: U.S. Facilities Facilities Outside the U.S.
Facilities Facilities Outside the U.S. Arizona: Avondale Australia: Mackay, Perth Colorado: Henderson Canada: Fort McMurray New Jersey: Kearny China: Beijing Texas: Dallas India: Pune Utah: West Valley City South Africa: Johannesburg U.K.: Wellingborough Supply Chain Facilities The principal supply chain facilities that serve our segments are as follows: U.S. Facilities Facilities Outside the U.S.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+2 added−0 removed3 unchanged
Biggest change(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 $2.0 billion repurchase plan authorized in 2019.
Biggest changeIn 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. During the three months ended December 31, 2023, we did not make any repurchases of common stock.
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the NYSE under the symbol "CMI." For other matters related to our common stock and shareholders' equity, see NOTE 17, "CUMMINS INC. SHAREHOLDERS' EQUITY," to the Consolidated Financial Statements .
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the NYSE under the symbol "CMI." For other matters related to our common stock and shareholders' equity, see NOTE 16, "CUMMINS INC. SHAREHOLDERS' EQUITY," to the Consolidated Financial Statements .
The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our stock. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG CUMMINS INC., S&P 500 INDEX AND CUSTOM PEER GROUP ASSUMES $100 INVESTED ON DECEMBER 31, 2017 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DECEMBER 31, 2022
The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our stock. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG CUMMINS INC., S&P 500 INDEX AND CUSTOM PEER GROUP ASSUMES $100 INVESTED ON DECEMBER 31, 2018 ASSUMES DIVIDENDS REINVESTED FISCAL YEAR ENDING DECEMBER 31, 2023
Our peer group includes BorgWarner Inc., Caterpillar, Inc., Daimler Truck Holding AG, Deere & Company, Donaldson Company Inc., Eaton Corporation, Emerson Electric Co., Fortive Corporation, W.W. Grainger Inc., Honeywell International, Illinois Tool Works Inc., PACCAR, Parker-Hannifin Corporation, Textron Inc. and Volvo AB.
Our revised peer group includes BorgWarner Inc., Caterpillar, Inc., Daimler Truck Holding AG, Deere & Company, Dana Inc., Eaton Corporation, Emerson Electric Co., Fortive Corporation, W.W. Grainger Inc., Honeywell International, Illinois Tool Works Inc., PACCAR, Parker-Hannifin Corporation, Textron Inc. and Volvo AB.
At December 31, 2022, there were 2,446 holders of record of Cummins Inc.'s $2.50 par value common stock. 30 Table of Contents 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) October 1 - October 31 21,830 $ 206.12 21,830 $ 2,218 November 1 - November 30 — — — 2,218 December 1 - December 31 — — — 2,218 Total 21,830 206.12 21,830 (1) Shares purchased represent shares under the Board authorized share repurchase program.
At December 31, 2023, there were 2,371 holders of record of Cummins Inc.'s $2.50 par value common stock. 30 Table of Contents The following information is provided pursuant to Item 703 of Regulation S-K: Issuer Purchases of Equity Securities Period Total Number of Shares Purchased 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) (1) October 1 - October 31 — $ — — $ 2,218 November 1 - November 30 — — — 2,218 December 1 - December 31 — — — 2,218 Total — — — (1) 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.
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.
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.
During the three months ended December 31, 2022, we repurchased $4 million of common stock under the 2019 authorization. The dollar value remaining available for future purchases under the 2019 program at December 31, 2022, was $218 million.
The dollar value remaining available for future purchases under the 2019 program at December 31, 2023, was $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.
Added
In 2023, we re-evaluated our peer group that the Board benchmarks against and chose to include companies that participate in similar end-markets and have similar businesses.
Added
Dana Incorporated was added to provide exposure to similar products including e-axles, drivetrain components and transmissions and electric and hybrid products, while Donaldson Company Inc. was removed due to the IPO of Atmus (formerly our filtration business) into a separate publicly traded company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

135 edited+71 added−66 removed48 unchanged
Biggest changeDistribution Segment Results Financial data for the Distribution segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent External sales $ 8,901 $ 7,742 $ 7,110 $ 1,159 15 % $ 632 9 % Intersegment sales 28 30 26 (2) (7) % 4 15 % Total sales 8,929 7,772 7,136 1,157 15 % 636 9 % Research, development and engineering expenses 52 48 31 (4) (8) % (17) (55) % Equity, royalty and interest income from investees 77 63 62 14 22 % 1 2 % Interest income 16 7 4 9 NM 3 75 % Russian suspension costs (1) 54 — — 54 NM — — % Segment EBITDA 888 731 665 157 21 % 66 10 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 9.9 % 9.4 % 9.3 % 0.5 0.1 "NM" - not meaningful information (1) See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
Biggest changeDistribution Segment Results Financial data for the Distribution segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent External sales $ 10,199 $ 8,901 $ 7,742 $ 1,298 15 % $ 1,159 15 % Intersegment sales 50 28 30 22 79 % (2) (7) % Total sales 10,249 8,929 7,772 1,320 15 % 1,157 15 % Research, development and engineering expenses 57 52 48 (5) (10) % (4) (8) % Equity, royalty and interest income from investees 97 77 63 20 26 % 14 22 % Interest income 34 16 7 18 NM 9 NM Russian suspension costs (1) — 54 — 54 100 % (54) NM Segment EBITDA 1,209 888 731 321 36 % 157 21 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 11.8 % 9.9 % 9.4 % 1.9 0.5 "NM" - not meaningful information (1) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information. 43 Table of Contents Sales for our Distribution segment by region, including adjusted prior year balances for the changes noted above, were as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent North America $ 7,081 $ 5,948 $ 4,912 $ 1,133 19 % $ 1,036 21 % Asia Pacific 1,096 1,016 906 80 8 % 110 12 % Europe 853 929 966 (76) (8) % (37) (4) % China 430 355 330 75 21 % 25 8 % Africa and Middle East 294 251 278 43 17 % (27) (10) % India 270 220 198 50 23 % 22 11 % Latin America 225 210 182 15 7 % 28 15 % Total sales $ 10,249 $ 8,929 $ 7,772 $ 1,320 15 % $ 1,157 15 % Sales for our Distribution segment by product line were as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent Parts $ 4,071 $ 3,818 $ 3,145 $ 253 7 % $ 673 21 % Power generation 2,509 1,774 1,762 735 41 % 12 1 % Engines 1,997 1,776 1,499 221 12 % 277 18 % Service 1,672 1,561 1,366 111 7 % 195 14 % Total sales $ 10,249 $ 8,929 $ 7,772 $ 1,320 15 % $ 1,157 15 % 2023 vs. 2022 Sales Distribution segment sales increased $1.3 billion.
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 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 originally forecast to be issued in 2023 to replace our senior notes at maturity.
NOTE 11, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to our Consolidated Financial Statements provides a summary of our pension benefit plan activity, the funded status of our plans and the amounts recognized in our Consolidated Financial Statements . RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS See NOTE 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" to our Consolidated Financial Statements for additional information.
NOTE 11, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to our Consolidated Financial Statements provides a summary of our pension benefit plan activity, the funded status of our plans and the amounts recognized in our Consolidated Financial Statements . RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS See NOTE 1, "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" to our Consolidated Financial Statements for additional information.
The decrease in net periodic pension cost in 2022 compared to 2021 was primarily due to higher discount rates in the U.S. and U.K. and favorable actuarial experience in the U.S., partially offset by a lower expected rate of return in the U.K.
The decrease in net periodic pension cost in 2022 compared to 2021 was due to higher discount rates in the U.S. and U.K. and favorable actuarial experience in the U.S., partially offset by a lower expected rate of return in the U.K.
This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as the primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments.
This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as the basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments.
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.
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, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products.
Long-term Expected Return Assumptions 2023 2022 2021 2020 U.S. plans 7.00 % 6.50 % 6.25 % 6.25 % U.K. plans 5.00 % 4.01 % 4.00 % 4.00 % Pension accounting offers various acceptable alternatives to account for the differences that eventually arise between the estimates used in the actuarial valuations and the actual results.
Long-term Expected Return Assumptions 2024 2023 2022 2021 U.S. plans 7.25 % 7.00 % 6.50 % 6.25 % U.K. plans 5.00 % 5.00 % 4.01 % 4.00 % Pension accounting offers various acceptable alternatives to account for the differences that eventually arise between the estimates used in the actuarial valuations and the actual results.
All bonds used to develop our hypothetical portfolio in the U.S. and U.K. were deemed high-quality, non-callable bonds (Aa or better) at December 31, 2022, by at least one of the bond rating agencies. Our model called for projected payments until near extinction for the U.S. and the U.K.
All bonds used to develop our hypothetical portfolio in the U.S. and U.K. were deemed high-quality, non-callable bonds (Aa or better) at December 31, 2023, by at least one of the bond rating agencies. Our model called for projected payments until near extinction for the U.S. and the U.K.
In addition, we also perform a sensitivity analysis to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount.
In addition, we also perform sensitivity analyses to determine how much our forecasts can fluctuate before the fair value of a reporting unit would be lower than its carrying amount.
See NOTE 24, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income . Following is a discussion of results for each of our operating segments.
See NOTE 25, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income . Following is a discussion of results for each of our operating segments.
Our MD&A is presented in the following sections: • EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS • RESULTS OF OPERATIONS • OPERATING SEGMENT RESULTS • 2023 OUTLOOK • LIQUIDITY AND CAPITAL RESOURCES • APPLICATION OF CRITICAL ACCOUNTING ESTIMATES • RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS The following is the discussion and analysis of changes in the financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021.
Our MD&A is presented in the following sections: • EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS • RESULTS OF OPERATIONS • OPERATING SEGMENT RESULTS • 2024 OUTLOOK • LIQUIDITY AND CAPITAL RESOURCES • APPLICATION OF CRITICAL ACCOUNTING ESTIMATES • RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The following is the discussion and analysis of changes in the financial condition and results of operations for fiscal year 2023 compared to fiscal year 2022.
The year ended December 31, 2022, contained discrete tax items that netted to zero, primarily due to $31 million of favorable changes in accrued withholding taxes, $29 million of favorable changes in tax reserves, $15 million of favorable valuation allowance adjustments and $9 million of favorable other net discrete items, offset by $69 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and $15 million of unfavorable return to provision adjustments related to the 2021 filed tax returns.
The year ended December 31, 2022, contained discrete tax items that netted to zero, primarily due to $31 million of favorable changes in accrued withholding taxes, $29 million of favorable changes in tax reserves, $15 million of favorable valuation allowance adjustments and $9 million of favorable other net discrete items, offset by $69 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of Atmus and $15 million of unfavorable return to provision adjustments related to the 2021 filed tax returns.
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 engines and related components as well as development activities around battery electric, fuel cell electric and hydrogen engine solutions.
Research activities continue to focus on development of new products and improvements of current technologies to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas-powered engines and related components, as well as development activities around hydrogen engine solutions, battery electric, fuel cell electric and hydrogen production technologies.
The discussion and analysis of fiscal year 2020 and changes in the financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020 that are not included in this Form 10-K may be found in Part II, ITEM 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (SEC) on February 8, 2022.
The discussion and analysis of fiscal year 2021 and changes in the financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021, that are not included in this Form 10-K, may be found in Part II, ITEM 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (SEC) on February 14, 2023.
An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. We perform the required procedures as of the end of our fiscal third quarter.
An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year. We perform the goodwill impairment assessment as of the end of our fiscal third quarter.
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, Traton Group (formerly Navistar International Corporation), Daimler Trucks North America and Stellantis N.V.
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, Traton Group, Daimler Trucks North America and Stellantis N.V.
Based on the historical returns and forward-looking return expectations for capital markets, as plan assets continue to be de-risked, consistent with our investment policy, we believe our investment return assumption of 7.00 percent in 2023 for U.S. pension assets is reasonable and attainable.
Based on the historical returns and forward-looking return expectations for capital markets, as plan assets continue to be de-risked, consistent with our investment policy, we believe our investment return assumption of 7.25 percent in 2024 for U.S. pension assets is reasonable and attainable.
The resulting discount rate is reflective of both the current interest rate environment and the plan's distinct liability characteristics. The table below sets forth the estimated impact on our 2023 net periodic pension income relative to a change in the discount rate and a change in the expected rate of return on plan assets.
The resulting discount rate is reflective of both the current interest rate environment and the plan's distinct liability characteristics. The table below sets forth the estimated impact on our 2024 net periodic pension cost relative to a change in the discount rate and a change in the expected rate of return on plan assets.
See NOTE 2, "ACQUISITIONS," to our Consolidated Financial Statements for additional information about our recent business combinations. 54 Table of Contents Goodwill Impairment We are required to make certain subjective and complex judgments in assessing whether a goodwill impairment event has occurred, including assumptions and estimates used to determine the fair value of our reporting units.
See NOTE 24, "ACQUISITIONS," to our Consolidated Financial Statements for additional information about our recent business combinations. Goodwill Impairment We are required to make certain subjective and complex judgments in assessing whether a goodwill impairment event has occurred, including assumptions and estimates used to determine the fair value of our reporting units.
At December 31, 2022, based upon our target asset allocations, it is anticipated that our U.S. investment policy will generate an average annual return over the 30-year projection period equal to or in excess of 6.50 percent, including the additional positive returns expected from active investment management.
At December 31, 2023, based upon our target asset allocations, it is anticipated that our U.S. investment policy will generate an average annual return over the 30-year projection period equal to or in excess of 7 percent, including the additional positive returns expected from active investment management.
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, fuel cell and electric powertrain technologies.
The Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies.
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.
Cost of Sales The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; compensation and related expenses including variable compensation, salaries and fringe benefits; depreciation on 37 Table of Contents 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.
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 or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve.
As a worldwide business, our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve.
The net deferred tax assets included $799 million for the value of net operating loss and credit carryforwards. A valuation allowance of $704 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized.
The net deferred tax assets included $881 million for the value of net operating loss and credit carryforwards. A valuation allowance of $789 million was recorded to reduce the tax assets to the net value management believed was more likely than not to be realized.
See NOTE 13, "DEBT," to the Consolidated Financial Statements for additional information. Pensions Our global pension plans, including our unfunded and non-qualified plans, were 120 percent funded at December 31, 2022.
See NOTE 13, "DEBT," to the Consolidated Financial Statements for additional information. Pensions Our global pension plans, including our unfunded and non-qualified plans, were 113 percent funded at December 31, 2023.
At December 31, 2022, based upon our target asset allocations, it is anticipated that our U.K. investment policy will generate an average annual return over the 20-year projection period equal to or in excess of 4.01 percent. The one-year return for our U.K. plans was a 41.3 percent loss for 2022.
At December 31, 2023, based upon our target asset allocations, it is anticipated that our U.K. investment policy will generate an average annual return over the 20-year projection period equal to or in excess of 5 percent. The one-year return for our U.K. plans was a 4.37 percent loss for 2023.
We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. At December 31, 2022, we recorded a net deferred tax liability of $24 million.
We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets. At December 31, 2023, we recorded a net deferred tax asset of $552 million.
Contributions to the U.S. and U.K. plans were as follows: Years ended December 31, In millions 2022 2021 2020 Defined benefit pension contributions $ 53 $ 78 $ 92 Defined contribution pension plans 110 92 85 We anticipate making total contributions of approximately $106 million to our global defined benefit pension plans in 2023.
Contributions to the U.S. and U.K. plans were as follows: Years ended December 31, In millions 2023 2022 2021 Defined benefit pension contributions $ 115 $ 53 $ 78 Defined contribution pension plans 130 110 92 We anticipate making total contributions of approximately $67 million to our global defined benefit pension plans in 2024.
In millions Impact on Pension Income Increase/(Decrease) Discount rate used to value liabilities 0.25 percent increase $ (1) 0.25 percent decrease 1 Expected rate of return on assets 1 percent increase (60) 1 percent decrease 60 The above sensitivities reflect the impact of changing one assumption at a time.
In millions Impact on Pension Cost Increase/(Decrease) Discount rate used to value liabilities 0.25 percent increase $ (6) 0.25 percent decrease 7 Expected rate of return on assets 1 percent increase (61) 1 percent decrease 61 The above sensitivities reflect the impact of changing one assumption at a time.
Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 121 percent funded, and our U.K. defined benefit plans were 119 percent funded at December 31, 2022.
Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 113 percent funded, and our U.K. defined benefit plans were 113 percent funded at December 31, 2023.
The contractual obligations reported above exclude our unrecognized tax benefits of $283 million as of December 31, 2022, which includes $104 million of current tax liabilities and $179 million of long-term deferred tax liabilities. We are not able to reasonably estimate the period in which cash outflows relating to uncertain tax contingencies could occur.
The contractual obligations reported above exclude our unrecognized tax benefits of $330 million as of December 31, 2023, which includes $170 million of current tax liabilities and $160 million of long-term deferred tax liabilities. We are not able to reasonably estimate the period in which cash outflows relating to uncertain tax contingencies could occur.
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 acquisitions, dividend payments, common stock repurchases, targeted capital expenditures, projected pension obligations, working capital and debt service obligations through 2023 and beyond.
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 make payments required by the Agreement in Principle, targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases and fund acquisitions through 2024 and beyond.
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.
Generally, U.S. dollar-denominated loans 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.
See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
(2) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when we commit to a recall action or when a recall becomes probable and estimable, which generally occurs when management internally approves or commits to the action.
As a result of the uncertainty surrounding the nature and frequency of product recall programs, the liability for such programs is recorded when management commits to a recall action or when a recall becomes probable and estimable.
If we adopted the immediate recognition approach, we would record a loss of $693 million ($525 million after-tax) from cumulative actuarial net losses for our U.S. and U.K. pension plans.
If we adopted the immediate recognition approach, we would record a loss of $1.1 billion ($0.8 billion after-tax) from cumulative actuarial net losses for our U.S. and U.K. pension plans.
(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.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing August 2026 and June 2024, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes.
Net actuarial losses decreased our shareholders' equity by $129 million after-tax in 2022. The loss is primarily due to unfavorable asset returns, partially offset by higher discount rates in the U.S. and U.K. 57 Table of Contents The table below sets forth the net periodic pension (income) cost for the years ended December 31 and our expected cost for 2023.
Net actuarial losses decreased our shareholders' equity by $329 million after-tax in 2023. The loss is primarily due to unfavorable asset returns, partially offset by higher discount rates. The table below sets forth the net periodic pension cost for the years ended December 31 and our expected cost for 2024.
The one-year return for our U.S. plans was a 5.7 percent loss for 2022. Our U.S. plan assets averaged annualized returns of 6.58 percent over the prior ten years and resulted in approximately $166 million of actuarial losses in accumulated other comprehensive loss (AOCL) in the same period.
The one-year return for our U.S. plans was a 6.81 percent gain for 2023. Our U.S. plan assets averaged annualized returns of 6.50 percent over the prior ten years and resulted in approximately $223 million of actuarial losses in accumulated other comprehensive loss (AOCL) in the same period.
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 swaps were designated, and are accounted for, as fair value hedges.
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 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 2022, the investment loss on our U.S. pension trusts was 5.7 percent while our U.K. pension trusts' loss was 41.3 percent.
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 2023, the investment gain on our U.S. pension trusts was 6.81 percent, while our U.K. pension trusts' loss was 4.37 percent.
We estimate the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which includes estimates of discount rates, revenue growth rates, earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA), royalty rates, customer attrition rates, customer renewal rates and technology obsolesce rates.
We estimate the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which includes estimates of discount rates, revenue growth rates, EBITDA, royalty rates, customer attrition rates, customer renewal rates and technology obsolesce rates.
See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information. 2022 Results A summary of our results is as follows: Years ended December 31, In millions, except per share amounts 2022 2021 2020 Net sales $ 28,074 $ 24,021 $ 19,811 Net income attributable to Cummins Inc. 2,151 2,131 1,789 Earnings per common share attributable to Cummins Inc.
See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information. 2023 Results A summary of our results is as follows: Years ended December 31, In millions, except per share amounts 2023 2022 2021 Net sales $ 34,065 $ 28,074 $ 24,021 Net income attributable to Cummins Inc. 735 2,151 2,131 Earnings per common share attributable to Cummins Inc.
Working capital and balance sheet measures are provided in the following table: Dollars in millions December 31, 2022 December 31, 2021 Working capital (1) $ 3,030 $ 5,225 Current ratio 1.27 1.74 Accounts and notes receivable, net $ 5,202 $ 3,990 Days' sales in receivables 60 59 Inventories $ 5,603 $ 4,355 Inventory turnover 4.2 4.6 Accounts payable (principally trade) $ 4,252 $ 3,021 Days' payable outstanding 60 57 Total debt $ 7,855 $ 4,159 Total debt as a percent of total capital 44.1 % 31.5 % (1) Working capital includes cash and cash equivalents.
Working capital and balance sheet measures are provided in the following table: Dollars in millions December 31, 2023 December 31, 2022 Working capital (1) $ 2,295 $ 3,030 Current ratio 1.18 1.27 Accounts and notes receivable, net $ 5,583 $ 5,202 Days' sales in receivables 58 60 Inventories $ 5,677 $ 5,603 Inventory turnover 4.5 4.2 Accounts payable (principally trade) $ 4,260 $ 4,252 Days' payable outstanding 62 60 Total debt $ 6,696 $ 7,855 Total debt as a percent of total capital 40.3 % 44.1 % (1) Working capital includes cash and cash equivalents.
In addition, we expect our 2023 net periodic pension income to approximate $2 million. See application of critical accounting estimates within MD&A and NOTE 11, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to the Consolidated Financial Statements , for additional information concerning our pension and other postretirement benefit plans.
See application of critical accounting estimates within MD&A and NOTE 11, "PENSIONS AND OTHER POSTRETIREMENT BENEFITS," to the Consolidated Financial Statements , for additional information concerning our pension and other postretirement benefit plans.
Gross Margin Gross margin increased $1.0 billion and increased 0.2 points as a percentage of sales. The increase in gross margin and gross margin as a percentage of sales was mainly due to favorable pricing and increased volumes, partially offset by higher material costs and increased compensation expenses.
Gross Margin Gross margin increased $1.5 billion and increased 0.3 points as a percentage of sales. The increase in gross margin and gross margin as a percentage of sales was mainly due to favorable pricing and higher volumes (including sales of axles and brakes from the Meritor acquisition), partially offset by higher compensation expenses.
The effect of exchange rate changes on cash and cash equivalents increased $15 million, primarily due to favorable fluctuations in the British pound, partially offset by unfavorable fluctuations in the Chinese renminbi. 48 Table of Contents 2021 vs. 2020 For prior year liquidity comparisons see the Liquidity and Capital Resources section of our 202 1 Form 10-K .
The effect of exchange rate changes on cash and cash equivalents decreased $118 million, primarily due to unfavorable fluctuations in the British pound, partially offset by the Chinese renminbi. 2022 vs. 2021 For prior year liquidity comparisons see the Liquidity and Capital Resources section of our 2022 Form 10-K . 48 Table of Contents Sources of Liquidity We generate significant ongoing operating cash flow.
The maturity schedule of our existing long-term debt requires significant cash outflows in 2023 when our 3.65 percent senior notes and 2025 when our term loan and 0.75 percent senior notes are due. Required annual long-term debt principal payments range from $44 million (2024) to $2.1 billion (2025) over the next five years.
The maturity schedule of our existing long-term debt requires significant cash outflows in 2025 when our term loan and 0.75 percent senior notes are due. Required annual long-term debt principal payments range from $67 million to $1.8 billion over the next five years. We intend to retain our strong investment credit ratings.
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.
Borrowings under the Credit Agreement mature in September 2027 (with quarterly payments on the term loan beginning in September 2024) and 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.
The following were the primary drivers by market: • Medium-duty truck and bus sales increased $683 million mainly due to favorable pricing and higher demand (including higher aftermarket sales), especially in North America. • Heavy-duty truck engine sales increased $519 million principally due to favorable pricing and stronger demand (including higher aftermarket sales), especially in North America with shipments up 18 percent.
The following were the primary drivers by market: • Heavy-duty truck sales increased $552 million principally due to higher demand, especially in North America (with shipments up 12 percent) and China. • Medium-duty truck and bus sales increased $210 million mainly due to higher demand, especially in North America with medium-duty truck engine shipments up 11 percent.
Warranty Programs We estimate and record a liability for base warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management's best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ.
Warranty Programs We estimate and record a liability for base warranty programs at the time our products are sold. Our estimates are based on historical experience and reflect management's best estimates of costs to be incurred over the warranty period. Adjustments may be required to the liability when actual or projected costs differ.
In millions 2023 2022 2021 2020 Net periodic pension (income) cost $ (2) $ 19 $ 78 $ 102 We expect 2023 net periodic pension income to increase compared to 2022, primarily due to the full year benefit of the Meritor pension plans added during the acquisition and a higher estimated return on assets in the U.S. and U.K.
The decrease in net periodic pension cost in 2023 compared to 2022 was primarily due to the full year benefit of the Meritor pension plans added during the acquisition and a higher estimated return on assets in the U.S. and U.K.
The higher working capital requirements resulted in a cash outflow of $1.0 billion compared to a cash outflow of $359 million in the comparable period in 2021, mainly due to decreased accrued expenses (as a result of lower variable compensation accruals in 2022) and higher accounts receivable due to increased sales, partially offset by a lower spend in inventories and favorable changes in accounts payable.
The lower working capital requirements resulted in a cash inflow of $2.4 billion compared to a cash outflow of $1.0 billion in the comparable period in 2022, mainly due to increased accrued expenses (resulting from the Agreement in Principle and higher variable compensation accruals) and favorable changes in inventories and accounts receivable, partially offset by unfavorable changes in accounts payable.
Sources of Liquidity We generate significant ongoing operating cash flow. Cash provided by operations is our principal source of liquidity with $2.0 billion provided in 2022. At December 31, 2022, our sources of liquidity included: December 31, 2022 In millions Total U.S.
Cash provided by operations is our principal source of liquidity with $4.0 billion provided in 2023. At December 31, 2023, our sources of liquidity included: December 31, 2023 In millions Total U.S.
The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems, automated transmissions, axles, drivelines, brakes and suspension systems. 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 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.
U.S. dollar Wholly-owned subsidiaries $ (250) Chinese renminbi and Indian rupee $ (23) Brazilian real, British pound, Indian rupee and Euro, partially offset by Chinese renminbi Equity method investments (94) Chinese renminbi 19 Chinese renminbi, partially offset by Indian rupee Consolidated subsidiaries with a noncontrolling interest (40) Indian rupee (5) Indian rupee Total $ (384) $ (9) 2021 vs. 2020 For prior year foreign currency translation adjustment comparisons to 2020 see the Results of Operations section of our 202 1 Form 10-K . 40 Table of Contents OPERATING SEGMENT RESULTS Our reportable operating segments consist of the Engine, Components, Distribution, Power Systems and New Power segments.
U.S. dollar Wholly-owned subsidiaries $ 118 British pound and Brazilian real, partially offset by Chinese renminbi $ (250) Chinese renminbi and Indian rupee Equity method investments (23) Chinese renminbi, partially offset by Brazilian real (94) Chinese renminbi Consolidated subsidiaries with a noncontrolling interest (3) Chinese renminbi (40) Indian rupee Total $ 92 $ (384) 2022 vs. 2021 For prior year foreign currency translation adjustment comparisons to 2021 see the Results of Operations section of our 2022 Form 10-K .
The total combined borrowing capacity under the revolving credit facilities and commercial paper programs should not exceed $4.0 billion. At December 31, 2022, we had $2.6 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $1.4 billion. See NOTE 13, "DEBT," to our Consolidated Financial Statements for additional information.
At December 31, 2023, we had $1.5 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.5 billion. See NOTE 13, "DEBT," to our Consolidated Financial Statements for additional information .
See NOTE 2, "ACQUISITIONS," and NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information. 42 Table of Contents Components Segment Results Financial data for the Components segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent External sales $ 7,847 $ 5,932 $ 4,650 $ 1,915 32 % $ 1,282 28 % Intersegment sales 1,889 1,733 1,374 156 9 % 359 26 % Total sales 9,736 7,665 6,024 2,071 27 % 1,641 27 % Research, development and engineering expenses 309 307 264 (2) (1) % (43) (16) % Equity, royalty and interest income from investees 71 50 61 21 42 % (11) (18) % Interest income 12 5 4 7 NM 1 25 % Russian suspension costs (1) 5 — — 5 NM — — % Segment EBITDA 1,346 (2) 1,180 961 166 14 % 219 23 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 13.8 % 15.4 % 16.0 % (1.6) (0.6) "NM" - not meaningful information (1) See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
For all prior year segment results comparisons to 2021 see the Results of Operations section of our 2022 Form 10-K . 40 Table of Contents Components Segment Results Financial data for the Components segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent External sales $ 11,531 $ 7,847 $ 5,932 $ 3,684 47 % $ 1,915 32 % Intersegment sales 1,878 1,889 1,733 (11) (1) % 156 9 % Total sales 13,409 9,736 7,665 3,673 38 % 2,071 27 % Research, development and engineering expenses 387 309 307 (78) (25) % (2) (1) % Equity, royalty and interest income from investees 97 71 50 26 37 % 21 42 % Interest income 31 12 5 19 NM 7 NM Russian suspension costs (1) — 5 — 5 100 % (5) NM Segment EBITDA 1,840 (2) 1,346 (3) 1,180 494 37 % 166 14 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 13.7 % 13.8 % 15.4 % (0.1) (1.6) "NM" - not meaningful information (1) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
See NOTE 2, "ACQUISITIONS," and NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information. 38 Table of Contents Other Operating Expense, Net Other operating (expense) income, net was as follows: Years ended December 31, In millions 2022 2021 Amortization of intangible assets $ (70) $ (22) Russian suspension costs (63) (1) — Asset impairments and other charges (36) — Loss on write-off of assets (7) (12) Gain (loss) on sale of assets, net 1 (2) Royalty income, net 7 9 Other, net (6) (4) Other operating expense, net $ (174) $ (31) (1) See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
Other Operating Expense, Net Other operating (expense) income, net was as follows: Years ended December 31, In millions 2023 2022 Agreement in Principle (1) $ (2,036) $ — Amortization of intangible assets (133) (70) Loss on write-off of assets (9) (7) Russian suspension costs (2) — (63) Asset impairments and other charges — (36) Royalty income, net 29 7 Other, net 11 (5) Total other operating expense, net $ (2,138) $ (174) (1) See NOTE 2, "AGREEMENT IN PRINCIPLE," to our Consolidated Financial Statements for additional information.
(2) Includes $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the planned separation of our filtration business.
(2) Includes costs associated with the IPO and separation of Atmus of $78 million. (3) Includes $83 million of costs related to the acquisition and integration of Meritor and $28 million of costs associated with the separation of Atmus.
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, region, the economy of any single country or customer on our consolidated results. Meritor Acquisition On August 3, 2022, we completed the acquisition of Meritor, Inc.
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, region, the economy of any single country or customer on our consolidated results. Agreement in Principle In December 2023, we announced that we reached an agreement in principle with the U.S.
On September 30, 2022, certain of our subsidiaries entered into a $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.
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, in anticipation of the separation of our filtration business, extending the Credit Agreement termination date from March 30, 2023, to June 30, 2023.
Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 121 percent funded, and our U.K. defined benefit plans were 119 percent funded at December 31, 2022. We expect to contribute approximately $106 million in cash to our global pension plans in 2023.
Our global pension plans, including our unfunded and non-qualified plans, were 113 percent funded at December 31, 2023. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 113 percent funded, and our U.K. defined benefit plans were 113 percent funded at December 31, 2023.
Positive Trends • We expect demand for pick-up, medium-duty and heavy-duty trucks in North America to remain strong. • We believe market demand for trucks in India will continue to 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 truck utilization in North America and continued strong demand in our Power Systems business. • We expect demand for trucks in China to improve from the low demand levels in 2022 as COVID-19 restrictions are eased.
Positive Trends • We expect demand for medium-duty trucks in North America to remain strong. • We believe market demand for trucks in India will continue to be strong. • We expect demand within our Power Systems business to remain strong, including the power generation, mining and marine markets. • We anticipate demand in our aftermarket business will continue to be robust, driven primarily by strong demand in our Engine business and Power Systems business.
Engine Segment Results Financial data for the Engine segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent External sales $ 8,199 $ 7,589 $ 5,925 $ 610 8 % $ 1,664 28 % Intersegment sales 2,746 2,365 2,097 381 16 % 268 13 % Total sales 10,945 9,954 8,022 991 10 % 1,932 24 % Research, development and engineering expenses 506 399 290 (107) (27) % (109) (38) % Equity, royalty and interest income from investees 166 (1) 340 312 (174) (51) % 28 9 % Interest income 14 8 9 6 75 % (1) (11) % Russian suspension costs (2) 33 (3) — — 33 NM — — % Segment EBITDA 1,541 1,411 1,235 130 9 % 176 14 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 14.1 % 14.2 % 15.4 % (0.1) (1.2) "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.
Engine Segment Results Financial data for the Engine segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent External sales $ 8,874 $ 8,199 $ 7,589 $ 675 8 % $ 610 8 % Intersegment sales 2,810 2,746 2,365 64 2 % 381 16 % Total sales 11,684 10,945 9,954 739 7 % 991 10 % Research, development and engineering expenses 614 506 399 (108) (21) % (107) (27) % Equity, royalty and interest income from investees 251 160 (1) 335 91 57 % (175) (52) % Interest income 19 14 8 5 36 % 6 75 % Russian suspension costs (2) — 33 (3) — 33 100 % (33) NM Segment EBITDA 1,630 1,535 1,406 95 6 % 129 9 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 14.0 % 14.0 % 14.1 % — (0.1) "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 indefinite suspension of our Russian operations.
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.
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.
Segment EBITDA Components segment EBITDA increased $166 million, mainly due to favorable pricing, improved mix and increased volumes (including axles and brakes since the completion of the Meritor acquisition), partially offset by higher material costs and Meritor acquisition and integration costs.
Segment EBITDA Components segment EBITDA increased $494 million, mainly due to higher volumes (including sales of axles and brakes from the Meritor acquisition), favorable pricing, the absence of the Meritor acquisition and integration costs and lower freight costs, partially offset by higher compensation expenses.
(3) Includes $31 million of Russian suspension costs reflected in the equity, royalty and interest income from investees line above. 41 Table of Contents Sales for our Engine segment by market were as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent Heavy-duty truck $ 3,847 $ 3,328 $ 2,648 $ 519 16 % $ 680 26 % Medium-duty truck and bus 3,460 2,777 2,066 683 25 % 711 34 % Light-duty automotive 1,738 1,912 1,547 (174) (9) % 365 24 % Total on-highway 9,045 8,017 6,261 1,028 13 % 1,756 28 % Off-highway 1,900 1,937 1,761 (37) (2) % 176 10 % Total sales $ 10,945 $ 9,954 $ 8,022 $ 991 10 % $ 1,932 24 % Percentage Points Percentage Points On-highway sales as percentage of total sales 83 % 81 % 78 % 2 3 Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 Amount Percent Amount Percent Heavy-duty 120,700 117,600 92,500 3,100 3 % 25,100 27 % Medium-duty 283,600 273,800 220,900 9,800 4 % 52,900 24 % Light-duty 227,600 273,300 215,800 (45,700) (17) % 57,500 27 % Total unit shipments 631,900 664,700 529,200 (32,800) (5) % 135,500 26 % 2022 vs. 2021 Sales Engine segment sales increased $991 million across most markets.
Sales for our Engine segment by market were as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent Heavy-duty truck $ 4,399 $ 3,847 $ 3,328 $ 552 14 % $ 519 16 % Medium-duty truck and bus 3,670 3,460 2,777 210 6 % 683 25 % Light-duty automotive 1,762 1,738 1,912 24 1 % (174) (9) % Total on-highway 9,831 9,045 8,017 786 9 % 1,028 13 % Off-highway 1,853 1,900 1,937 (47) (2) % (37) (2) % Total sales $ 11,684 $ 10,945 $ 9,954 $ 739 7 % $ 991 10 % Percentage Points Percentage Points On-highway sales as percentage of total sales 84 % 83 % 81 % 1 2 42 Table of Contents Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 2023 2022 2021 Amount Percent Amount Percent Heavy-duty 141,900 120,700 117,600 21,200 18 % 3,100 3 % Medium-duty 294,100 283,600 273,800 10,500 4 % 9,800 4 % Light-duty 211,500 227,600 273,300 (16,100) (7) % (45,700) (17) % Total unit shipments 647,500 631,900 664,700 15,600 2 % (32,800) (5) % 2023 vs. 2022 Sales Engine segment sales increased $739 million across most markets.
Net sales in the U.S. and Canada improved by 24 percent primarily due to favorable pricing and increased demand in North American heavy-duty and medium-duty on-highway markets, which positively impacted all Components businesses and all Distribution product lines, as well as incremental sales of axles and brakes in North America since the acquisition of Meritor.
Net sales in the U.S. and Canada improved by 22 percent primarily due to incremental sales of axles and brakes, 34 Table of Contents increased demand in all Distribution product lines and stronger demand in heavy-duty and medium-duty truck markets, which positively impacted most Components businesses.
At December 31, 2022, we had $2.6 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities, net of commercial paper outstanding, to meet acquisition, working capital, investment and funding needs. In 2022, we repurchased $374 million or 1.9 million shares of common stock. See NOTE 17, "CUMMINS INC.
At December 31, 2023, we had $2.7 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of commercial paper outstanding), if necessary, to meet acquisition, working capital, investment and funding needs.
We can issue up to $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 use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes.
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 paper programs should not exceed $4.0 billion.
See NOTE 24, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income .
The following table contains sales and EBITDA by operating segment for the years ended December 31, 2023, and 2022. See NOTE 25, "OPERATING SEGMENTS," to the Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Consolidated Statements of Net Income .
Cash Flows Cash and cash equivalents were impacted as follows: Years ended December 31, Change In millions 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Net cash provided by operating activities $ 1,962 $ 2,256 $ 2,722 $ (294) $ (466) Net cash used in investing activities (4,172) (873) (719) (3,299) (154) Net cash provided by (used in) financing activities 1,669 (2,227) 280 3,896 (2,507) Effect of exchange rate changes on cash and cash equivalents 50 35 (11) 15 46 Net (decrease) increase in cash and cash equivalents $ (491) $ (809) $ 2,272 $ 318 $ (3,081) 2022 vs. 2021 Net cash provided by operating activities decreased $294 million, primarily due to higher working capital requirements of $646 million, partially offset by lower equity earnings, net of dividends of $147 million and Russian suspension costs of $111 million.
Cash Flows Cash and cash equivalents were impacted as follows: Years ended December 31, Change In millions 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net cash provided by operating activities $ 3,966 $ 1,962 $ 2,256 $ 2,004 $ (294) Net cash used in investing activities (1,643) (4,172) (873) 2,529 (3,299) Net cash (used in) provided by financing activities (2,177) 1,669 (2,227) (3,846) 3,896 Effect of exchange rate changes on cash and cash equivalents (68) 50 35 (118) 15 Net increase (decrease) in cash and cash equivalents $ 78 $ (491) $ (809) $ 569 $ 318 2023 vs. 2022 Net cash provided by operating activities increased $2.0 billion, primarily due to lower working capital requirements of $3.4 billion, partially offset by lower net income of $1.3 billion.
Discount Rates 2023 2022 2021 2020 U.S. plans 5.55 % 3.31 % 2.62 % 3.36 % U.K. plans 4.99 % 2.26 % 1.50 % 2.00 % The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date.
The weighted-average discount rates used to develop our net periodic pension cost are set forth in the table below. 57 Table of Contents Discount Rates 2024 2023 2022 2021 U.S. plans 5.15 % 5.55 % 3.31 % 2.62 % U.K. plans 4.72 % 4.99 % 2.26 % 1.50 % The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date.
Power Systems Segment Results Financial data for the Power Systems segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent External sales $ 2,951 $ 2,650 $ 2,055 $ 301 11 % $ 595 29 % Intersegment sales 2,082 1,765 1,576 317 18 % 189 12 % Total sales 5,033 4,415 3,631 618 14 % 784 22 % Research, development and engineering expenses 240 234 212 (6) (3) % (22) (10) % Equity, royalty and interest income from investees 43 56 21 (13) (23) % 35 NM Interest income 7 5 4 2 40 % 1 25 % Russian suspension costs (1) 19 — — 19 NM — — % Segment EBITDA 596 496 343 100 20 % 153 45 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 11.8 % 11.2 % 9.4 % 0.6 1.8 "NM" - not meaningful information (1) See NOTE 23, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information. 45 Table of Contents Sales for our Power Systems segment by product line were as follows: Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions 2022 2021 2020 Amount Percent Amount Percent Power generation $ 2,790 $ 2,515 $ 2,167 $ 275 11 % $ 348 16 % Industrial 1,772 1,534 1,188 238 16 % 346 29 % Generator technologies 471 366 276 105 29 % 90 33 % Total sales $ 5,033 $ 4,415 $ 3,631 $ 618 14 % $ 784 22 % 2022 vs. 2021 Sales Power Systems segment sales increased $618 million across all product lines.
Segment EBITDA Distribution segment EBITDA increased $321 million, primarily due to increased volumes and favorable mix, partially offset by higher compensation expenses. 44 Table of Contents Power Systems Segment Results Financial data for the Power Systems segment was as follows: Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions 2023 2022 2021 Amount Percent Amount Percent External sales $ 3,125 $ 2,951 $ 2,650 $ 174 6 % $ 301 11 % Intersegment sales 2,548 2,082 1,765 466 22 % 317 18 % Total sales 5,673 5,033 4,415 640 13 % 618 14 % Research, development and engineering expenses 237 240 234 3 1 % (6) (3) % Equity, royalty and interest income from investees 53 43 56 10 23 % (13) (23) % Interest income 9 7 5 2 29 % 2 40 % Russian suspension costs (1) — 19 — 19 100 % (19) NM Segment EBITDA 836 596 496 240 40 % 100 20 % Percentage Points Percentage Points Segment EBITDA as a percentage of total sales 14.7 % 11.8 % 11.2 % 2.9 0.6 "NM" - not meaningful information (1) See NOTE 22, "RUSSIAN OPERATIONS," to our Consolidated Financial Statements for additional information.
The New Power 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.
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.
As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged. 36 Table of Contents RESULTS OF OPERATIONS Favorable/(Unfavorable) Years ended December 31, 2022 vs. 2021 2021 vs. 2020 In millions (except per share amounts) 2022 2021 2020 Amount Percent Amount Percent NET SALES $ 28,074 $ 24,021 $ 19,811 $ 4,053 17 % $ 4,210 21 % Cost of sales 21,355 18,326 14,917 (3,029) (17) % (3,409) (23) % GROSS MARGIN 6,719 5,695 4,894 1,024 18 % 801 16 % OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 2,687 2,374 2,125 (313) (13) % (249) (12) % Research, development and engineering expenses 1,278 1,090 906 (188) (17) % (184) (20) % Equity, royalty and interest income from investees 349 506 452 (157) (31) % 54 12 % Other operating expense, net 174 31 46 (143) NM 15 33 % OPERATING INCOME 2,929 2,706 2,269 223 8 % 437 19 % Interest expense 199 111 100 (88) (79) % (11) (11) % Other income, net 89 156 169 (67) (43) % (13) (8) % INCOME BEFORE INCOME TAXES 2,819 2,751 2,338 68 2 % 413 18 % Income tax expense 636 587 527 (49) (8) % (60) (11) % CONSOLIDATED NET INCOME 2,183 2,164 1,811 19 1 % 353 19 % Less: Net income attributable to noncontrolling interests 32 33 22 1 3 % (11) (50) % NET INCOME ATTRIBUTABLE TO CUMMINS INC . $ 2,151 $ 2,131 $ 1,789 $ 20 1 % $ 342 19 % Diluted earnings per common share attributable to Cummins Inc. $ 15.12 $ 14.61 $ 12.01 $ 0.51 3 % $ 2.60 22 % "NM" - not meaningful information Favorable/(Unfavorable) Percentage Points Percent of sales 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Gross margin 23.9 % 23.7 % 24.7 % 0.2 (1.0) Selling, general and administrative expenses 9.6 % 9.9 % 10.7 % 0.3 0.8 Research, development and engineering expenses 4.6 % 4.5 % 4.6 % (0.1) 0.1 2022 vs. 2021 Net Sales Net sales increased $4.1 billion, primarily driven by the following: • Components segment sales increased 27 percent largely due to axles and brakes sales since the completion of the Meritor acquisition. • Distribution segment sales increased 15 percent mainly due to higher demand across all product lines in North America. • Engine segment sales increased 10 percent principally due to favorable pricing and stronger medium-duty and heavy-duty on-highway demand (including higher aftermarket sales) in North America. • Power Systems segment sales increased 14 percent primarily due to favorable pricing and higher demand in power generation markets in Latin America, North America and India and stronger demand in industrial markets with higher aftermarket sales and increased oil and gas demand in North America and China. • New Power segment sales increased 71 percent principally due to higher electrified components sales, traction sales since the completion of the Meritor and Siemens CVP acquisitions and improved sales of fuel cells and electrolyzers.
As of the date of this filing, our credit ratings from Moody's Investor Services, Inc. remain unchanged and the outlook remains stable, while Standard and Poor's Rating Services downgraded our long-term rating to A while our short-term rate remained at A1 and our outlook remained stable . 36 Table of Contents RESULTS OF OPERATIONS Favorable/(Unfavorable) Years ended December 31, 2023 vs. 2022 2022 vs. 2021 In millions (except per share amounts) 2023 2022 2021 Amount Percent Amount Percent NET SALES $ 34,065 $ 28,074 $ 24,021 $ 5,991 21 % $ 4,053 17 % Cost of sales 25,816 21,355 18,326 (4,461) (21) % (3,029) (17) % GROSS MARGIN 8,249 6,719 5,695 1,530 23 % 1,024 18 % OPERATING EXPENSES AND INCOME Selling, general and administrative expenses 3,333 2,687 2,374 (646) (24) % (313) (13) % Research, development and engineering expenses 1,500 1,278 1,090 (222) (17) % (188) (17) % Equity, royalty and interest income from investees 483 349 506 134 38 % (157) (31) % Other operating expense, net 2,138 174 31 (1,964) NM (143) NM OPERATING INCOME 1,761 2,929 2,706 (1,168) (40) % 223 8 % Interest expense 375 199 111 (176) (88) % (88) (79) % Other income, net 240 89 156 151 NM (67) (43) % INCOME BEFORE INCOME TAXES 1,626 2,819 2,751 (1,193) (42) % 68 2 % Income tax expense 786 636 587 (150) (24) % (49) (8) % CONSOLIDATED NET INCOME 840 2,183 2,164 (1,343) (62) % 19 1 % Less: Net income attributable to noncontrolling interests 105 32 33 (73) NM 1 3 % NET INCOME ATTRIBUTABLE TO CUMMINS INC . $ 735 $ 2,151 $ 2,131 $ (1,416) (66) % $ 20 1 % Diluted earnings per common share attributable to Cummins Inc. $ 5.15 $ 15.12 $ 14.61 $ (9.97) (66) % $ 0.51 3 % "NM" - not meaningful information Favorable/(Unfavorable) Percentage Points Percent of sales 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Gross margin 24.2 % 23.9 % 23.7 % 0.3 0.2 Selling, general and administrative expenses 9.8 % 9.6 % 9.9 % (0.2) 0.3 Research, development and engineering expenses 4.4 % 4.6 % 4.5 % 0.2 (0.1) 2023 vs. 2022 Net Sales Net sales increased $6.0 billion, primarily driven by the following: • Components segment sales increased 38 percent largely due to axles and brakes sales from the Meritor acquisition. • Distribution segment sales increased 15 percent due to higher demand across all product lines, especially in North America. • Engine segment sales increased 7 percent principally due to stronger heavy-duty and medium-duty truck demand in North America. • Power Systems segment sales increased 13 percent primarily due to higher demand in power generation markets.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We elected this option on certain reporting units.
We test for goodwill impairment at the reporting unit level and our reporting units are the operating segments or the components of operating segments that constitute businesses for which discrete financial information is available and is regularly reviewed by management. 54 Table of Contents We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test.
International Primary location of international balances Cash and cash equivalents $ 2,101 $ 870 $ 1,231 Singapore, China, Canada, Belgium, Australia, Mexico Marketable securities (1) 472 80 392 India Total $ 2,573 $ 950 $ 1,623 Available credit capacity Revolving credit facilities (2) $ 1,426 International and other uncommitted domestic credit facilities $ 226 (1) The majority of marketable securities could be liquidated into cash within a few days.
International Primary location of international balances Cash and cash equivalents $ 2,179 $ 971 $ 1,208 Australia, Belgium, China, Singapore Canada, Mexico Marketable securities (1) 562 84 478 India Total $ 2,741 $ 1,055 $ 1,686 Available credit capacity Revolving credit facilities (2) $ 2,504 Atmus revolving credit facility (3) $ 400 International and other uncommitted domestic credit facilities $ 393 (1) The majority of marketable securities could be liquidated into cash within a few days.
We expect to fund dividend payments with cash from operations. 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.
In July 2023, the Board authorized an increase to our quarterly dividend of approximately 7 percent from $1.57 per share to $1.68 per share.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+3 added−1 removed14 unchanged
Biggest changeWhile these are our best estimates of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous with parallel shifts in the yield curve. Commodity Price Risk We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers.
Biggest changeHowever, this does not take into consideration an offset in the underlying hedged items when using fair value hedges. While these are our best estimates of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous with parallel shifts in the yield curve.
We enter into physical forward contracts with suppliers of platinum and palladium to purchase some volumes of the commodities at contractually stated prices for various periods, generally less than two years. These arrangements enable us to fix the prices of a portion of our purchases of these commodities, which otherwise are subject to market volatility.
We enter into physical forward contracts with suppliers of platinum, palladium and iridium to purchase some volumes of the commodities at contractually stated prices for various periods, generally less than two years. These arrangements enable us to fix the prices of a portion of our purchases of these commodities, which otherwise are subject to market volatility.
These arrangements, as further described below, enable us to fix the prices of portions of our normal purchases of these commodities, which otherwise are subject to market volatility. The following describes our risk exposures and provides the results of a sensitivity analysis performed at December 31, 2022.
These arrangements, as further described below, enable us to fix the prices of portions of our normal purchases of these commodities, which otherwise are subject to market volatility. The following describes our risk exposures and provides the results of a sensitivity analysis performed at December 31, 2023.
Our foreign currency cash flow hedges generally mature within two years. These foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges. For the years ended December 31, 2022 and 2021, there were no circumstances that resulted in the discontinuance of a foreign currency cash flow hedge.
Our foreign currency cash flow hedges generally mature within two years. These foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges. For the years ended December 31, 2023, and 2022, there were no circumstances that resulted in the discontinuance of a foreign currency cash flow hedge.
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 58 Table of Contents purposes.
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.
The sensitivity analysis assumes instantaneous, parallel shifts in foreign currency exchange rates and commodity prices. See NOTE 22, "DERIVATIVES," to our Consolidated Financial Statements for additional information. Foreign Currency Exchange Rate Risk As a result of our international business presence, we are exposed to foreign currency exchange rate risks.
The sensitivity analysis assumes instantaneous, parallel shifts in foreign currency exchange rates and commodity prices. See NOTE 21, "DERIVATIVES," to our Consolidated Financial Statements for additional information. 58 Table of Contents Foreign Currency Exchange Rate Risk As a result of our international business presence, we are exposed to foreign currency exchange rate risks.
At December 31, 2022, the potential gain or loss in the fair value of our outstanding foreign currency contracts, assuming a hypothetical 10 percent fluctuation in the currencies of such contracts, would be approximately $9 million.
At December 31, 2023, the potential gain or loss in the fair value of our outstanding foreign currency contracts, assuming a hypothetical 10 percent fluctuation in the currencies of such contracts, would be approximately $29 million.
Any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. 59 Table of Contents Interest Rate Risk We are exposed to market risk from fluctuations in interest rates.
Any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items. Interest Rate Risk We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps.
These commodity swaps are designated and qualify as cash flow hedges. At December 31, 2022, realized and unrealized gains and losses related to these hedges were not material to our financial statements. We also enter into physical forward contracts, which qualify for the normal purchases scope exception and are treated as purchase commitments.
These commodity swaps are designated and qualify as cash flow hedges. At December 31, 2023, realized and unrealized gains and losses related to these hedges were not material to our financial statements.
We also limit our exposure to commodity price risk by entering into purchasing arrangements to fix the price of certain volumes of platinum and palladium expected to be used in our products.
We also enter into physical forward contracts, which qualify for the normal purchases scope exception and are treated as purchase commitments. 59 Table of Contents We also limit our exposure to commodity price risk by entering into purchasing arrangements to fix the price of certain volumes of platinum, palladium and iridium expected to be used in our products.
Assuming a hypothetical adverse movement in interest rates of one percentage point, the combined value of our interest rate derivatives portfolios would be reduced by $7 million, as calculated as of December 31, 2022. However, this does not take into consideration an offset in the underlying hedged items.
At any time, a change in interest rates could have an adverse impact on the fair value of our portfolios. Assuming a hypothetical adverse movement in interest rates of one percentage point, the combined value of our interest rate derivatives portfolios would be reduced by $3 million, as calculated as of December 31, 2023.
Removed
We manage our exposure to interest rate fluctuations through the use of interest rate swaps and interest rate locks. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. At any time, a change in interest rates could have an adverse impact on the fair value of our portfolios.
Added
The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount.
Added
Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. We also may hedge the anticipated issuance of fixed-rate debt, and these contracts are designated as cash flow hedges.
Added
Commodity Price Risk We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers.

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