What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-08 compared with 2021-02-10 · 372 added, 504 removed, 1524 unchanged (37% of the section changed)

2 unchanged sentences

• Management's Report to Shareholders

• Report of Independent Registered Public Accounting Firm

• Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

• Consolidated Statements of Net Income for the years ended December 31, 2021, 2020 and 2019

13 unchanged sentences

NOTE 9 GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 10 PENSIONS AND OTHER POSTRETIREMENT BENEFITS

NOTE 11 SUPPLEMENTAL BALANCE SHEET DATA

NOTE 13 PRODUCT WARRANTY LIABILITY

NOTE 13 PENSIONS AND OTHER POSTRETIREMENT BENEFITS

NOTE 14 COMMITMENTS AND CONTINGENCIES

5 unchanged sentences

NOTE 19 EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

NOTE 20 ACQUISITIONS

NOTE 20 ACQUISITION

NOTE 21 RESTRUCTURING ACTIONS

NOTE 22 OPERATING SEGMENTS

• Selected Quarterly Financial Data (Unaudited)

MANAGEMENT'S REPORT TO SHAREHOLDERS

27 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

15 unchanged sentences

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

3 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment - Automated Transmission Reporting Unit

Goodwill Impairment Test - Automated Transmission Reporting Unit

As described in Notes 1 and 9 to the consolidated financial statements, the Company’s consolidated goodwill balance was $ 1,287 million, and the goodwill associated with the Automated Transmission reporting unit was $ 544 million as of December 31, 2021.

Management performs an impairment test as of the end of the fiscal third quarter each year, or more frequently if events or circumstances indicate the fair value of a reporting unit is less than its carrying amount.

Management performs the annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value.

Management performs the annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

Management’s valuation method is an income approach using a discounted cash flow model.

The discounted cash flow model requires projections of revenue, gross margin, operating expenses, working capital investment and fixed asset additions for the Automated Transmission reporting unit over a multi-year period, and a discount rate based upon a weighted-average cost of capital.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for the Automated Transmission reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence relating to management’s cash flow projections and significant assumptions related to projected revenue, projected gross margin, and the discount rate;

The principal considerations for our determination that performing procedures relating to the goodwill impairment test for the Automated Transmission reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the Automated Transmission reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions related to projections of revenue and projections of gross margin;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Automated Transmission reporting unit.

These procedures also included, among others, testing management’s process for developing the fair value estimate.

This included evaluating the appropriateness of the discounted cash flow model, testing the completeness, accuracy, and relevance of underlying data used in the model, and evaluating the reasonableness of significant assumptions used by management related to projected revenue, projected gross margin, and the discount rate.

Evaluating management assumptions related to projected revenue and projected gross margin involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Automated Transmission reporting unit, and (ii) the consistency with external market and industry data.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model and reasonableness of the discount rate assumption.

Base Product Warranty

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test, including controls over the valuation of the Automated Transmission reporting unit.

These procedures also included, among others, testing management’s process for developing the fair value of the Automated Transmission reporting unit.

This included evaluating the appropriateness of the discounted cash flow model, testing the completeness and accuracy of underlying data used in the discounted cash flow model, and evaluating the reasonableness of significant assumptions used by management related to projections of revenue and projections of gross margin.

Evaluating management’s assumptions related to projections of revenue and projections of gross margin involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Automated Transmission reporting unit and (ii) the consistency with external market and industry data.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow model.

Base Product Warranty Liability

As described in Notes 1 and 13 to the consolidated financial statements, management estimates and records a liability for base product warranty programs at the time products are sold.

As of December 31, 2021, the accrued liability for base product warranty programs was $1,439 million.

As disclosed by management, the estimate for one of the base product warranty programs is based on historical experience and reflects management's best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ.

Management’s estimate of base product warranty liability is generally affected by component failure rates, repair costs, and the point of failure within the product life cycle.

The estimate for one of the base product warranty programs is based on historical experience and reflects management's best estimates of expected costs at the time products are sold and subsequent adjustment to those expected costs when actual costs differ.

Management’s estimate of the base product warranty liability is generally affected by component failure rates, repair costs, and the point of failure within the product life cycle.

The principal considerations for our determination that performing procedures relating to the base product warranty liability is a critical audit matter are (i) the significant judgment by management when determining the estimate for the base product warranty liability;

and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s

estimate and significant assumptions related to component failure rates, repair costs, and the point of failure within the product life cycle.

and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumptions related to component failure rates, repair costs, and the point of failure within the product life cycle.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s estimate for the base product warranty liability related to the determination of component failure rates, repair costs, and the point of failure within the product life cycle.

These procedures included testing the effectiveness of controls relating to management’s estimate for the base product warranty liability, including controls related to the determination of component failure rates, repair costs, and the point of failure within the product life cycle.

These procedures also included, among others, testing management’s process for determining the base product warranty liability.

Procedures related to management’s estimate included evaluating the appropriateness of the method used by management, the completeness, accuracy, and relevance of underlying data used in the warranty estimate, and the reasonableness of significant assumptions used by management in estimating the base product warranty liability related to the component failure rates, repair costs, and the point of failure within the product life cycle.

Evaluating management’s assumptions relating to the component failure rates, repair costs, and the point of failure within the product life cycle involved evaluating whether the assumptions were reasonable considering historical product experience of the Company.

This included evaluating the appropriateness of the method used by management,

testing the completeness and accuracy of underlying data used in the warranty estimate, and evaluating the reasonableness of significant assumptions used by management related to the component failure rates, repair costs, and the point of failure within the product life cycle.

Evaluating management’s assumptions related to the component failure rates, repair costs, and the point of failure within the product life cycle involved evaluating whether the assumptions used by management were reasonable considering the historical product experience of the Company.

/s/ PricewaterhouseCoopers LLP

36 unchanged sentences

Foreign currency translation adjustments ( 9 ) 71 ( 152 )

Unrealized (loss) gain on derivatives ( 34 ) ( 11 ) 5

Unrealized gain (loss) on derivatives 26 ( 34 ) ( 11 )

Total other comprehensive income (loss), net of tax 406 36 ( 226 )

49 unchanged sentences

( 9,123 ) ( 7,779 )

Common stock held by employee benefits trust, at cost, — and 0.2 shares

Accumulated other comprehensive loss (Note 16) ( 1,571 ) ( 1,982 )

18 unchanged sentences

Share-based compensation expense (Note 18) 37 31 49

Restructuring actions, net of cash payments (Note 21) ( 110 ) 115 —

(Gain) loss on corporate owned life insurance ( 57 ) ( 61 ) 26

Restructuring actions, net of cash payments ( 1 ) ( 110 ) 115

Gain on corporate owned life insurance — ( 57 ) ( 61 )

Foreign currency remeasurement and transaction exposure 37 2 ( 105 )

11 unchanged sentences

Investments in internal use software ( 52 ) ( 47 ) ( 75 )

Proceeds from sale of land 20 — —

Investments in and advances to equity investees ( 48 ) ( 51 ) ( 20 )

7 unchanged sentences

Proceeds from borrowings (Note 12) 79 2,014 11

Net (payments) borrowings of commercial paper (Note 11) ( 337 ) ( 120 ) 482

Net payments of commercial paper ( 10 ) ( 337 ) ( 120 )

Payments on borrowings and finance lease obligations ( 73 ) ( 73 ) ( 96 )

Net borrowings under short-term credit agreements 10 53 1

Net (payments) borrowings under short-term credit agreements ( 28 ) 10 53

Distributions to noncontrolling interests ( 28 ) ( 26 ) ( 33 )

3 unchanged sentences

Other, net ( 12 ) 27 46

Net cash provided by (used in) financing activities 280 ( 2,095 ) ( 1,400 )

Net cash (used in) provided by financing activities ( 2,227 ) 280 ( 2,095 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 35 ( 11 ) ( 110 )

Net increase (decrease) in cash and cash equivalents 2,272 ( 174 ) ( 66 )

Net (decrease) increase in cash and cash equivalents ( 809 ) 2,272 ( 174 )

Cash and cash equivalents at beginning of year 3,401 1,129 1,303

13 unchanged sentences

BALANCE AT DECEMBER 31, 2018 $ 556 $ 1,715 $ 12,917 $ ( 6,028 ) $ ( 5 ) $ ( 1,807 ) $ 7,348 $ 911 $ 8,259

Adoption of new accounting standards 30 30 — 30

Net income 2,260 2,260 8 2,268

8 unchanged sentences

BALANCE AT DECEMBER 31, 2019 $ 556 $ 1,790 $ 14,416 $ ( 7,225 ) $ ( 2 ) $ ( 2,028 ) $ 7,507 $ 958 $ 8,465

Adoption of new accounting standards ( 4 ) ( 4 ) — ( 4 )

Net income 1,789 1,789 22 1,811

Other comprehensive loss, net of tax (Note 16) ( 221 ) ( 221 ) ( 5 ) ( 226 )

Other comprehensive income (loss), net of tax (Note 16) 46 46 ( 10 ) 36

Issuance of common stock 10 10 — 10

6 unchanged sentences

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

Adoption of new accounting standards (Note 1) ( 4 ) ( 4 ) — ( 4 )

Net income 2,131 2,131 33 2,164

1 unchanged sentence

Issuance of common stock 1 1 — 1

Employee benefits trust activity 32 2 34 — 34

Repurchases of common stock (Note 15) ( 1,402 ) ( 1,402 ) — ( 1,402 )

13 unchanged sentences

We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide.

We serve our customers through a network of over 500 wholly-owned, joint venture and independent distributor locations and over 9,000 Cummins certified dealer locations with service to approximately 190 countries and territories.

The outbreak of COVID-19 spread throughout the world and became a global pandemic with the resultant economic impacts evolving into a worldwide recession.

The pandemic triggered a significant downturn in our markets globally, which continued to unfavorably impact market conditions throughout 2020 and these challenging market conditions could continue for an extended period of time.

In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, match the reduced demand from our customers and in accordance with governmental requirements, we closed or partially shut down certain office, manufacturing, distribution and technical center facilities around the world in March 2020.

Although most of our manufacturing, distribution and technical center facilities re-opened early in the second quarter of 2020, some operated at reduced capacities, most of our global office buildings remained closed through the remainder of 2020.

We serve our customers through a service network of approximately 500 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in approximately 190 countries and territories.

The outbreak of COVID-19 in early 2020 became a global pandemic with the resultant economic impacts evolving into a worldwide recession.

The pandemic triggered a significant downturn in our markets globally, which negatively impacted our sales and results of operations during 2020.

While the majority of the negative impacts to demand largely subsided in 2021, we are still experiencing supply chain disruptions and related financial impacts reflected as increased cost of sales.

Our industry continues to be unfavorably impacted by supply chain constraints leading to shortages across multiple components categories and limiting our collective ability to meet end-user demand.

Our customers are also experiencing other supply chain issues and slowing production.

Principles of Consolidation

7 unchanged sentences

Reclassifications

Certain amounts for 2019 and 2018 have been reclassified to conform to the current year presentation.

Certain amounts for 2020 and 2019 were reclassified to conform to the current year presentation.

Investments in Equity Investees

15 unchanged sentences

Preparation of financial statements requires management to make estimates and assumptions that affect reported amounts presented and disclosed in our Consolidated Financial Statements .

Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgement and are used for, but not limited to, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount rate and other assumptions for pensions and other postretirement benefit costs, restructuring costs, income taxes, deferred tax valuation allowances and contingencies and allowances for doubtful accounts.

Significant estimates and assumptions in these Consolidated Financial Statements require the exercise of judgement and are used for, but not limited to, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount rate and other assumptions for pensions and other postretirement benefit costs, restructuring costs, income taxes, deferred tax valuation allowances, contingencies and allowances for doubtful accounts.

Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

The global market downturn, closures and limitations on movement related to COVID-19 are expected to be temporary, however, the duration of the production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

Current supply chain disruptions and related future financial impacts cannot be estimated at this time.

This uncertainty could have an impact on certain estimates used in the preparation of our 2021 financial results.

11 unchanged sentences

We have elected to account for shipping and handling as activities to fulfill the promise to transfer goods and have not allocated revenue to the shipping activity.

All related shipping and handling costs are accrued at the time the related performance obligation has been satisfied.

All related shipping and handling costs are accrued at the time the related performance obligation is satisfied.

Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority.

8 unchanged sentences

These programs are designed to promote the sale of our products in the channel or encourage the usage of our products by OEM customers.

When there is uncertainty

surrounding these sales incentives, we may limit the amount of revenue we recognize under a contract until the uncertainty has been resolved.

When there is uncertainty surrounding these sales incentives, we may limit the amount of revenue we recognize under a contract until the uncertainty has been resolved.

Sales incentives primarily fall into three categories:

36 unchanged sentences

We record deferred revenue when we are entitled to bill a customer in advance of when we are permitted to recognize revenue.

Deferred revenue may arise in construction contracts, where billings may occur in advance of performance or in accordance with specific milestones.

Deferred revenue may arise in construction and other power generation system contracts, where billings may occur in advance of performance or in accordance with specific milestones.

Deferred revenue may also occur in long-term maintenance contracts, where billings are often based on usage of the underlying equipment, which generally follows a predictable pattern that often will result in the accumulation of collections in advance of our performance of the related maintenance services.

6 unchanged sentences

Unbilled revenue relates to our right to consideration for our completed performance under a contract.

Unbilled revenue generally arises from contractual provisions that delay a portion of the billings on genset deliveries until commissioning occurs.

Unbilled revenue generally arises from contractual provisions that delay a portion of the

billings on genset deliveries until commissioning occurs.

Unbilled revenue may also occur when billings trail the provision of service in construction and long-term maintenance contracts.

25 unchanged sentences

dollar is the functional currency, including those operating in highly inflationary economies when applicable, we remeasure non-monetary balances and the related income statement amounts using historical exchange rates.

We include the resulting gains and losses in income, including the effect of derivatives in our Consolidated Statements of Net Income , which combined with transaction gains and losses amounted to a net gain of $ 4 million and $ 28 million and a net loss of $ 34 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We include the resulting gains and losses in income, including the effect of derivatives in our Consolidated Statements of Net Income , which combined with transaction gains and losses amounted to a net gain of $ 2 million, $ 4 million and $ 28 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Fair Value Measurements

7 unchanged sentences

We make use of derivative instruments in foreign exchange, commodity price and interest rate hedging programs.

Derivatives currently in use are foreign currency forward contracts, commodity swap and physical forward contracts, commodity zero-cost collars and interest rate swaps.

Derivatives currently in use are foreign currency forward contracts, commodity swap and interest rate swaps and locks.

These contracts are used strictly for hedging and not for speculative purposes.

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.

The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk.

The gain or loss on these derivative instruments as well as the offsetting gain or loss on the hedged item are recognized in current income as "Interest expense." For more detail on our interest rate swaps, see Note 11, "DEBT."

We manage our exposure to interest rate fluctuations through the use of interest rate swaps and locks.

The objective is to more effectively balance our borrowing costs and interest rate risk for current and future exposure.

The gain or loss on the swaps as well as the offsetting gain or loss on the hedged item are recognized in current income as "Interest expense." The gain or loss on the locks is deferred and reported as a component of AOCL.

For more detail on our interest rate swaps, see Note 12, "DEBT."

Due to our international business presence, we are exposed to foreign currency exchange risk.

We transact in foreign currencies and have assets and liabilities denominated in foreign currencies.

We transact in foreign currencies and have assets, liabilities and investments in subsidiaries denominated in foreign currencies.

Consequently, our income experiences some volatility related to movements in foreign currency exchange rates.

8 unchanged sentences

We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers.

In order to protect ourselves against future price volatility and, consequently, fluctuations in gross margins, we periodically enter into commodity swap, forward and zero-cost collar contracts with designated banks and other counterparties to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations.

Commencing in 2019, these commodity swaps are designated and qualify as cash flow hedges.

In order to protect ourselves against future price volatility and, consequently, fluctuations in gross margins, we periodically enter into commodity swap and forward contracts with designated banks and other counterparties to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations.

These commodity swaps are designated and qualify as cash flow hedges.

At December 31, 2021, realized and unrealized gains and losses related to these hedges were not material to our financial statements.

The physical forward contracts qualify for the normal purchases scope exceptions and are treated as purchase commitments.

Additional information on the physical forwards is included in Note 14, "COMMITMENTS AND CONTINGENCIES." The commodity zero-cost collar contracts that represent an economic hedge, but are not designated for hedge accounting, are marked to market through earnings.

We also enter into physical forward contracts, which qualify for the normal purchases scope exceptions and are treated as purchase commitments.

Additional information on the physical forwards is included in Note 14, "COMMITMENTS AND CONTINGENCIES."

We record all derivatives at fair value in our financial statements.

34 unchanged sentences

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that have been earned, but may not be billed until the passage of time, and are recorded when the right to consideration becomes unconditional.

Trade accounts receivable represent amounts billed to customers and not yet collected or amounts that were earned, but may not be billed until the passage of time, and are recorded when the right to consideration becomes unconditional.

Trade accounts receivable are recorded at the invoiced amount, which approximates net realizable value, and generally do not bear interest.

13 unchanged sentences

Property, Plant and Equipment

We record property, plant and equipment at cost, inclusive of assets under capital leases in 2018 and finance lease assets starting in 2019, with the adoption of the new lease standard.

We record property, plant and equipment at cost, inclusive of assets under finance lease assets.

We depreciate the cost of the majority of our property, plant and equipment using the straight-line method with depreciable lives ranging from 20 to 40 years for buildings and 3 to 15 years for machinery, equipment and fixtures.

Finance lease (capital lease in 2018) asset amortization is recorded in depreciation expense.

Finance lease asset amortization is recorded in depreciation expense.

We expense normal maintenance and repair costs as incurred.

3 unchanged sentences

We review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable.

We assess the recoverability of the carrying value of the long-lived assets at the lowest level for

which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

We assess the recoverability of the carrying value of the long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

An impairment of a long-lived asset or asset group exists when the expected future pre-tax cash flows (undiscounted and without interest charges) estimated to be generated by the asset or asset group is less than its carrying value.

1 unchanged sentence

Assumptions and estimates used to estimate cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity.

Any changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge.

Lease Policies

We adopted the new standard on January 1, 2019, using a modified retrospective approach and as a result did not adjust prior periods.

Adoption of the standard resulted in the recording of $ 450 million of operating lease ROU assets and operating lease liabilities, but did not have a material impact on our net income or cash flows.

Any changes to the assumptions and estimates resulting

from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets and could result in a future impairment charge.

We determine if an arrangement contains a lease in whole or in part at the inception of the contract.

13 unchanged sentences

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 have elected this option on certain reporting units.

We elected this option on certain reporting units.

The quantitative impairment test is only required if an entity determines through this qualitative analysis that it is more likely than not that the fair value of the reporting unit is less than its carrying value.

7 unchanged sentences

These three situations are described further below:

• Within our Components segment, our emission solutions and filtration businesses have been aggregated into a single reporting unit,

• Within our New Power segment, our electrified power, fuel cell and hydrogen technologies businesses have been aggregated into a single reporting unit and

• Within our Components segment, our emission solutions and filtration businesses were aggregated into a single reporting unit,

• Within our New Power segment, our electrified power, fuel cell and hydrogen technologies businesses were aggregated into a single reporting unit and

• Our Distribution segment is considered a single reporting unit as it is managed geographically and all regions share similar economic characteristics and provide similar products and services.

4 unchanged sentences

We perform the required procedures as of the end of our fiscal third quarter.

While none of our reporting units recorded a goodwill impairment in 2020, we determined the automated transmission business is our only reporting unit with material goodwill where the estimated fair value does not substantially exceed the carrying value.

The estimated fair value of the reporting unit exceeds its carrying amount of $ 1.1 billion by approximately 18 percent.

Total goodwill in this reporting unit is $ 544 million.

Since this reporting unit is made up of only one business, our joint venture with Eaton Corporation plc (Eaton Cummins Automated Transmission Technologies), acquired in 2017, we did not expect the estimated fair value would exceed the carrying value by a significant amount.

At December 31, 2020, our recorded goodwill was $ 1,293 million, approximately 42 percent of which resided in the automated transmissions reporting unit, 30 percent in the aggregated emission solutions and filtration reporting unit, 20 percent in the new power reporting unit and 6 percent in the distribution reporting unit.

At December 31, 2021, our recorded goodwill was $ 1,287 million, of which approximately 42 percent or $ 544 million resided in the automated transmissions reporting unit, 30 percent in the aggregated emission solutions and filtration reporting unit, 20 percent in the new power reporting unit and 6 percent in the distribution reporting unit.

Changes in our projections or estimates, a deterioration of our operating results and the related cash flow effect or a significant increase in the discount rate could decrease the estimated fair value of our reporting units and result in a future impairment of goodwill.

1 unchanged sentence

Other Intangible Assets

We capitalize other intangible assets, such as trademarks, patents and customer relationships, that have been acquired either individually or with a group of other assets.

We capitalize other intangible assets, such as trademarks, patents and customer relationships, that were acquired either individually or with a group of other assets.

These intangible assets are amortized on a straight-line basis over their estimated useful lives generally ranging from 3 to 25 years.

21 unchanged sentences

Our research and development programs are focused on product improvements, product extensions, innovations and cost reductions for our customers.

Research and development expenditures include salaries, contractor fees, building costs, utilities, testing, technical IT, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred.

time to time, we enter into agreements with customers and government agencies to fund a portion of the research and development costs of a particular project.

Research and development expenditures include salaries, contractor fees, building costs, utilities, testing, technical information technology expenses, administrative expenses and allocation of corporate costs and are expensed, net of contract reimbursements, when incurred.

From time to time, we enter into agreements with customers and government agencies to fund a portion of the research and development costs of a particular project.

When not associated with a sales contract, we generally account for these reimbursements as an offset to the related research and development expenditure.

Research and development expenses, net of contract reimbursements, were $ 903 million, $ 998 million and $ 894 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Research and development expenses, net of contract reimbursements, were $ 1.1 billion, $ 903 million and $ 998 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Contract reimbursements were $ 104 million, $ 86 million and $ 90 million for the years ended December 31, 2021, 2020 and 2019, respectively.

5 unchanged sentences

Our related party purchases were not material to our financial position or results of operations.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In August 2018, the Financial Accounting Standards Board (FASB) issued a new standard that aligns the accounting for implementation costs incurred in a cloud computing arrangement accounted for as a service contract with the model currently used for internal use software costs.

Under the new standard, costs that meet certain criteria will be required to be capitalized on the balance sheet and subsequently amortized over the term of the hosting arrangement.

We adopted the standard on January 1, 2020, on a prospective basis as allowed by the standard.

The adoption did not have a material impact on our Consolidated Financial Statements .

On January 1, 2020, we adopted the new FASB standard related to accounting for credit losses on financial instruments.

This standard introduced new guidance for accounting for credit losses on instruments including trade receivables and held-to-maturity debt securities.

The standard required entities to record a cumulative effect adjustment to the statement of financial position.

We recorded a net decrease to opening retained earnings of $ 4 million, net of tax, as of January 1, 2020, due to the cumulative impact of adopting the new standard.

The impact to any individual financial statement line item as a result of applying the new standard, as compared to the old standard, was not material for the year ended December 31, 2020.

In March 2020, the FASB amended its standard to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendment allows entities to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

These expedients also apply to interest rate locks.

The guidance was effective upon issuance and expires after December 31, 2022.

The amendment did not have an effect on our Consolidated Financial Statements at December 31, 2020.

We are still evaluating which contracts will be impacted by reference rate reform, but the expedients will allow us to make permitted changes prior to the expiration of the amendments without resulting in a material impact to our Consolidated Financial Statements .

REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

Most of our contracts are for a period of less than one year.

The majority of our contracts are for a period of less than one year.

We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year.

The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that had not been satisfied as of December 31, 2020, was $ 879 million.

The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that were not satisfied as of December 31, 2021, was $ 740 million.

We expect to recognize the related revenue of $ 114 million over the next 12 months and $ 626 million over periods up to 10 years.

36 unchanged sentences

Europe 647 597 528

Russia 334 191 157

China 323 340 356

Africa and Middle East 259 198 235

Russia 191 157 169

India 194 150 200

6 unchanged sentences

Power generation 1,754 1,686 1,777

Service 1,258 1,474 1,471

Engines 1,493 1,245 1,511

Service 1,359 1,258 1,474

Total sales $ 7,742 $ 7,110 $ 8,040

5 unchanged sentences

Turbo technologies 787 673 696

Electronics and fuel systems 317 236 237

Automated transmissions 481 303 534

Electronics and fuel systems 351 317 236

Total sales $ 5,932 $ 4,650 $ 5,253

8 unchanged sentences

Investments and advances related to equity method investees and our ownership percentages were as follows:

Dollars in millions Ownership % 2020 2019

Ownership December 31,

Dollars in millions percentage 2021 2020

Komatsu alliances 20 - 50 %

27 unchanged sentences

Manufacturing Entities

Our manufacturing joint ventures have generally been 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 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.

8 unchanged sentences

Certain types of small construction equipment and industrial applications are also served by these engine families.

The heavy-duty business produces the X11, X12 and X13, ranging from 10.5 liter to 12.9 liter, high performance heavy-duty diesel engines in Beijing.

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 construction equipment and industrial applications are also served by these engine families.

3 unchanged sentences

Ltd., a subsidiary of Dongfeng Motor Corporation and one of the largest medium-duty and heavy-duty truck manufacturers in China.

DCEC produces 3.9 liter to 14 liter diesel engines with a power range from 80 to 680 horsepower and natural gas engines.

DCEC produces 3.9 liter to 14.5 liter diesel engines with a power range from 80 to 760 horsepower, natural gas engines and automated transmissions.

On-highway engines are used in multiple applications in light-duty and medium-duty trucks, special purpose vehicles, buses and heavy-duty trucks with a main market in China.

4 unchanged sentences

This joint venture manufactures several models of our heavy-duty and high-horsepower diesel engines primarily serving the industrial and stationary power markets in China.

Our joint venture agreement for Cummins Westport, Inc.

expired on December 31, 2021, and will not be renewed.

Beginning in January 2022, engines previously sold through the joint venture will now be included in our consolidated results.

Distribution Entities

12 unchanged sentences

Summary financial information for our equity investees was as follows:

For the years ended and at December 31,

Years ended and at December 31,

In millions 2021 2020 2019

6 unchanged sentences

Current assets $ 4,587 $ 4,264

Non-current assets 1,673 1,622

Long-term assets 1,850 1,673

Current liabilities ( 3,573 ) ( 3,347 )

Non-current liabilities ( 251 ) ( 326 )

Long-term liabilities ( 288 ) ( 251 )

Net assets $ 2,576 $ 2,339

6 unchanged sentences

Income before income taxes $ 2,751 $ 2,338 $ 2,834

Income tax expense (benefit) consists of the following:

Income tax expense (benefit) consisted of the following:

Years ended December 31,

2 unchanged sentences

Foreign 319 358 282

Impact of tax law changes — — 153

Total current income tax expense 580 520 570

1 unchanged sentence

Foreign 19 22 28

Impact of tax law changes ( 17 ) — ( 141 )

Impact of India tax law changes — ( 17 ) —

Total deferred income tax expense (benefit) 7 7 ( 4 )

10 unchanged sentences

Foreign derived intangible income ( 1.0 ) ( 1.2 ) ( 1.3 )

Impact of tax law changes ( 0.7 ) — 0.5

Impact of India tax law changes — ( 0.7 ) —

Other, net 0.7 0.1 ( 0.8 )

1 unchanged sentence

Our effective tax rate for 2021 was 21.3 percent compared to 22.5 percent for 2020 and 20.0 percent for 2019.

The year ended December 31, 2020, contained $ 26 million , or $ 0.17 per share, of unfavorable net discrete tax items, primarily due to $ 33 million of unfavorable changes in tax reserves and $ 10 million of withholding tax adjustments, partially offset by $ 15 million of favorable changes due to the India Tax Law Change.

The year ended December 31, 2021, contained unfavorable net discrete tax items of $ 9 million, primarily due to $ 12 million of unfavorable provision to return adjustments related to the 2020 filed tax returns, partially offset by $ 3 million of favorable other discrete tax items.

The year ended December 31, 2020, contained $ 26 million of unfavorable net discrete tax items, primarily due to $ 33 million of unfavorable changes in tax reserves and $ 10 million of withholding tax adjustments, partially offset by $ 15 million of favorable changes due to the India Tax Law Change.

The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $ 35 million.

The year ended December 31, 2019, contained $ 34 million of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments.

The year ended December 31, 2018, contained $ 14 million of favorable net discrete tax items, primarily due to $ 26 million of other favorable discrete tax items, partially offset by $ 12 million of unfavorable discrete tax items related to final adjustments for 2017 tax legislation.

The India Tax Law Change resulted in the following adjustments to the Consolidated Statements of Net Income for the year ended December 31, 2020:

5 unchanged sentences

(1) The adjustment to "Income tax expense" includes $ 15 million of favorable discrete items.

The year ended December 31, 2019, contained $ 34 million of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments.

At December 31, 2021, $ 4.1 billion of non-U.S.

earnings are considered indefinitely reinvested in operations outside the U.S.

for which deferred taxes have not been provided.

for which deferred taxes were not provided.

Determination of the related deferred tax liability, if any, is not practicable because of the complexities associated with the hypothetical calculation.

Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax (liabilities) assets were as follows:

Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets (liabilities) were as follows:

In millions 2021 2020

33 unchanged sentences

Other liabilities

One-time transition tax 289 293

Long-term income tax 263 289

Deferred income tax liabilities 403 325

8 unchanged sentences

Included in the December 31, 2021, 2020 and 2019, balances are $ 85 million, $ 114 million and $ 69 million, respectively, related to tax positions that, if recognized, would favorably impact the effective tax rate in future periods.

We have also accrued interest expense related to the unrecognized tax benefits of $ 17 million, $ 5 million and $ 4 million as of December 31, 2020, 2019 and 2018, respectively.

We also accrued interest expense related to the unrecognized tax benefits of $ 15 million, $ 17 million and $ 5 million as of December 31, 2021, 2020 and 2019, respectively.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

12 unchanged sentences

Equity securities

Debt mutual funds $ 267 $ 5 $ 272 $ 180 $ 3 $ 183

Certificates of deposit $ 299 $ — $ 299 $ 164 $ — $ 164

Debt mutual funds 254 2 256 267 5 272

Equity mutual funds 29 10 39 19 5 24

Bank debentures — — — 1 — 1

Debt securities 1 — 1 1 — 1

6 unchanged sentences

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

• Debt mutual funds — The fair value measures for the vast majority of these investments are the daily net asset values published on a regulated governmental website.

Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input.

• Certificates of deposit and bank debentures — These investments provide us with a contractual rate of return and generally range in maturity from three months to five years .

• Certificates of deposit — These investments provide us with a contractual rate of return and generally range in maturity from three months to five years .

The counterparties to these investments are reputable financial institutions with investment grade credit ratings.

Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institution's month-end statement.

• Debt mutual funds — The fair value measures for the vast majority of these investments are the daily net asset values published on a regulated governmental website.

Daily quoted prices are available from the issuing brokerage and are used on a test basis to corroborate this Level 2 input measure.

• Equity mutual funds — The fair value measures for these investments are the net asset values published by the issuing brokerage.

28 unchanged sentences

These leases typically range in term from 2 to 50 years and may contain renewal options for periods up to 10 years at our discretion.

Our equipment lease portfolio consists primarily of vehicles (including service vehicles), forktrucks and IT equipment.

These leases typically range in term from two years to three years and may contain renewal options.

Our leases generally do not contain variable lease payments other than (1) certain foreign real estate leases which have payments indexed to inflation and (2) certain real estate executory costs (such as taxes, insurance and maintenance), which are

paid based on actual expenses incurred by the lessor during the year.

Our equipment lease portfolio consists primarily of vehicles (including service vehicles), fork trucks and IT equipment.

These leases typically range in term from two to three years and may contain renewal options.

Our leases generally do not include residual value guarantees other than our service vehicle fleet, which has a residual guarantee based on a percentage of the original cost declining over the lease term.

9 unchanged sentences

Total lease cost $ 221 $ 225 $ 247

The total rental expense for the year ended December 31, 2018, prior to adoption of the new lease standard, was $ 217 million.

Supplemental balance sheet information related to leases:

4 unchanged sentences

Total lease assets $ 539 $ 537

Operating $ 128 $ 131 Other accrued expenses

Finance 12 12 Current maturities of long-term debt

Operating 325 370 Other liabilities

Finance 79 78 Long-term debt

Operating lease liabilities $ 128 $ 128 Other accrued expenses

Finance lease liabilities 14 12 Current maturities of long-term debt

Operating lease liabilities 326 325 Other liabilities

Finance lease liabilities 75 79 Long-term debt

Total lease liabilities $ 543 $ 544

28 unchanged sentences

Balance at December 31, 2019 $ 934 $ 257 $ 79 $ 10 $ 6 $ 1,286

Acquisitions — 161 (1)

Translation and other 7 — — — — 7

Balance at December 31, 2020 941 257 79 10 6 1,293

Acquisitions — — — 2 — 2

Translation and other ( 7 ) — — ( 1 ) — ( 8 )

Balance at December 31, 2021 $ 934 $ 257 $ 79 $ 11 $ 6 $ 1,287

(1) See Note 20, "ACQUISITIONS," for additional information on acquisition goodwill.

Intangible assets that have finite useful lives are amortized over their estimated useful lives.

12 unchanged sentences

Projected amortization expense $ 139 $ 128 $ 109 $ 76 $ 53

SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:

In millions 2020 2019

Corporate owned life insurance $ 508 $ 464

Deferred income taxes 479 441

Operating lease assets 438 496

Other 308 177

Other assets $ 1,733 $ 1,578

Other accrued expenses included the following:

In millions 2020 2019

Other taxes payable $ 256 $ 228

Marketing accruals 242 176

Current portion of operating lease liabilities 128 131

Income taxes payable 82 52

Other 404 452

Other accrued expenses $ 1,112 $ 1,039

Other liabilities included the following:

In millions 2020 2019

Operating lease liabilities $ 325 $ 370

Deferred income taxes 325 306

One-time transition tax 289 293

Accrued compensation 203 206

Mark-to-market valuation on interest rate locks 41 12

Other long-term liabilities 365 192

Other liabilities $ 1,548 $ 1,379

Loans Payable and Commercial Paper

Loans payable at December 31, 2020 and 2019 were $ 169 million and $ 100 million, respectively, and consisted primarily of notes payable to financial institutions.

The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31 was as follows:

2020 2019 2018

Weighted-average interest rate 2.53 % 3.20 % 4.66 %

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

The programs facilitate the private placement of unsecured short-term debt through third-party brokers.

We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes.

We had $ 323 million and $ 660 million in outstanding borrowings under our commercial paper programs at December 31, 2020 and 2019, respectively.

The weighted-average interest rate for commercial paper at December 31 was as follows:

2020 2019 2018

Weighted-average interest rate ( 0.01 ) % (1)

1.82 % 2.59 %

(1) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020.

This includes $ 123 million of borrowings under the EUR program that were at a negative weighted-average interest rate of 0.34 percent and $ 200 million of borrowings under the U.S.

program at a weighted-average interest rate of 0.19 percent.

On April 14, 2020, we were approved for the Federal Reserve Bank of New York’s Commercial Paper Funding Facility (CPFF) program to assure access to the commercial paper funding markets during volatile credit market conditions.

The CPFF was intended to provide a liquidity backstop to U.S.

issuers of commercial paper through a special purpose vehicle (SPV).

The facility allows us, based on our current short-term credit rating, to issue three-month unsecured commercial paper at a rate equal to a + 110 basis point spread over the three-month overnight index swap rate on the date of issuance.

The maximum amount of commercial paper that we may issue at any time through this program is $ 1.5 billion less the total principal amount of all other outstanding commercial paper that we have issued.

We retain full access to our Board authorized $ 3.5 billion commercial paper program, as reduced by any amounts issued under this facility.

The SPV is currently scheduled to cease purchasing commercial paper on March 17, 2021.

At December 31, 2020, there were no outstanding borrowings under the CPFF program.

Revolving Credit Facilities

On August 19, 2020, we entered into an amended and restated 364 -day credit agreement that allows us to borrow up to $ 1.5 billion of unsecured funds at any time prior to August 18, 2021.

This credit agreement amended and restated the prior $ 1.5 billion 364 -day credit facility that matured on August 19, 2020.

On August 22, 2018, we entered into a new 5 -year revolving credit agreement with a syndicate of lenders and we amended the agreement on August 21, 2019.

The amended credit agreement provides us with a $ 2 billion senior unsecured revolving credit facility until August 22, 2023.

Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness.

Advances under the facility bear interest at (i) an alternate base rate or (ii) a rate equal to the adjusted LIBOR plus an applicable margin based on the credit ratings of our outstanding senior unsecured long-term debt.

Based on our current

long-term debt ratings, the applicable margin on adjusted LIBOR rate loans was 0.75 percent per annum as of December 31, 2020.

Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.

Both credit agreements include various covenants, including, among others, maintaining a net debt to total capital leverage ratio of no more than 0.65 to 1.0.

At December 31, 2020, we were in compliance with the covenants.

We maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration.

These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes.

There were no outstanding borrowings under these facilities at December 31, 2020.

At December 31, 2020, our $ 323 million of commercial paper outstanding effectively reduced the $ 3.5 billion available capacity under our revolving credit facilities to $ 3.2 billion.

At December 31, 2020, we also had $ 256 million available for borrowings under our international and other domestic credit facilities.

Long-term Debt

A summary of long-term debt was as follows:

In millions Interest Rate 2020 2019

Long-term debt

Senior notes, due 2023 (1)

3.65 % $ 500 $ 500

Senior notes, due 2025 0.75 % 500 —

Debentures, due 2027 6.75 % 58 58

Debentures, due 2028 7.125 % 250 250

Senior notes, due 2030 1.50 % 850 —

Senior notes, due 2043 4.875 % 500 500

Senior notes, due 2050 2.60 % 650 —

Debentures, due 2098 (2)

5.65 % 165 165

Other debt 132 59

Unamortized discount and deferred issuance costs ( 72 ) ( 50 )

Fair value adjustments due to hedge on indebtedness 48 35

Finance leases 91 90

Total long-term debt 3,672 1,607

Current maturities of long-term debt 62 31

Long-term debt $ 3,610 $ 1,576

(1) In June and July 2020, we settled our February 2014 interest rate swaps.

See "Interest Rate Risk" below for additional information.

(2) The effective interest rate is 7.48 %.

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

In millions 2021 2022 2023 2024 2025

Principal payments $ 62 $ 49 $ 526 $ 23 $ 506

On August 24, 2020, we issued $ 2 billion aggregate principal amount of senior unsecured notes consisting of $ 500 million aggregate principal amount of 0.75 % senior unsecured notes due in 2025, $ 850 million aggregate principal amount of 1.50 % senior unsecured notes due in 2030 and $ 650 million aggregate principal amount of 2.60 % senior unsecured notes due in 2050.

We received net proceeds of $ 1.98 billion.

The senior unsecured notes pay interest semi-annually on March 1 and September 1, commencing on March 1, 2021.

The indenture governing the senior unsecured notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions.

The $ 250 million 7.125 % debentures and $ 165 million 5.65 % debentures are unsecured and are not subject to any sinking fund requirements.

We can redeem these debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture holders are not penalized by the early redemption.

Our debt agreements contain several restrictive covenants.

The most restrictive of these covenants applies to our revolving credit facility which will upon default, among other things, limit our ability to incur additional debt or issue preferred stock, enter into sale-leaseback transactions, sell or create liens on our assets, make investments and merge or consolidate with any other entity.

At December 31, 2020, we were in compliance with all of the covenants under our borrowing agreements.

Shelf Registration

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission on February 13, 2019.

Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

Our current shelf is scheduled to expire in February 2022.

Interest Expense

For the years ended December 31, 2020, 2019 and 2018, total interest incurred was $ 102 million, $ 112 million and $ 116 million, respectively, and interest capitalized was $ 2 million, $ 3 million and $ 2 million, respectively.

Interest Rate Risk

In 2019 we entered into $ 350 million of interest rate lock agreements, and in the first half of 2020 we entered into an additional $ 150 million of lock agreements to reduce the variability of the cash flows of the interest payments on a total of $ 500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity.

The terms of the rate locks mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt.

The gains and losses on these derivative instruments will be initially recorded in "Other comprehensive income" and will be released to earnings in "Interest expense" in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance.

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

Year ended December 31,

In millions 2020 2019

Type of Swap Gain (Loss)

Recognized in AOCL Gain (Loss) Reclassified from AOCL into Interest Expense Gain (Loss)

Recognized in AOCL Gain (Loss) Reclassified from AOCL into Interest Expense

Interest rate locks $ ( 22 ) $ — ( 10 ) —

We had a series of interest rate swaps to effectively convert our September 2013, $ 500 million debt issue, due in 2023, from a fixed rate of 3.65 percent to a floating rate equal to the one-month LIBOR plus a spread.

The debt is included in the Consolidated Balance Sheets as "Long-term debt." The terms of the swaps mirrored those of the debt, with interest paid semi-annually.

The swaps were designated, and were accounted for, as fair value hedges.

The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in current income as “Interest expense.” The net swap settlements that accrued each period were also reported in the Consolidated Financial Statements as "Interest expense." A basis adjustment related to credit risk, excluded from the assessment of effectiveness, was being amortized over the life of the hedge using a straight-line method and was considered de minimis.

In June and July of 2020, we settled our February 2014 interest rate swaps, which previously converted our $ 500 million debt issue, due in 2023, from fixed rate to floating rate based on a LIBOR spread.

We will amortize the $ 24 million gain realized upon settlement over the remaining three -year term of the related debt.

The following table summarizes the gains and losses:

Years ended December 31,

In millions 2020 2019 2018

Type of Swap Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on

Swaps Gain (Loss) on

Interest rate swaps (1)

$ 7 $ ( 5 ) $ 16 $ ( 14 ) $ ( 8 ) $ 7

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

Fair Value of Debt

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

In millions 2020 2019

Fair values of total debt (1)

$ 4,665 $ 2,706

Carrying value of total debt 4,164 2,367

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

PRODUCT WARRANTY LIABILITY

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

In millions 2020 2019 2018

Balance, beginning of year $ 2,389 $ 2,208 $ 1,687

Provision for base warranties issued 443 458 437

Deferred revenue on extended warranty contracts sold 248 356 293

Provision for product campaigns issued 90 210 481

Payments made during period ( 589 ) ( 590 ) ( 443 )

Amortization of deferred revenue on extended warranty contracts ( 227 ) ( 230 ) ( 244 )

Changes in estimates for pre-existing product warranties ( 52 ) ( 24 ) 3

Foreign currency translation and other 5 1 ( 6 )

Balance, end of year $ 2,307 $ 2,389 $ 2,208

We recognized supplier recoveries of $ 20 million, $ 67 million and $ 26 million for the for the years ended December 31, 2020, 2019 and 2018, respectively.

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

In millions 2020 2019 Balance Sheet Location

Deferred revenue related to extended coverage programs

Current portion $ 261 $ 227 Current portion of deferred revenue

Long-term portion 700 714 Deferred revenue

Total $ 961 $ 941

Product warranty

Current portion $ 674 $ 803 Current portion of accrued product warranty

Long-term portion 672 645 Accrued product warranty

Total $ 1,346 $ 1,448

Total warranty accrual $ 2,307 $ 2,389

Engine System Campaign Accrual

During 2017, the California Air Resources Board (CARB) and the U.S.

Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing.

Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component.

In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations.

From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population.

The total engine system campaign charge, excluding supplier recoveries, was $ 410 million.

In the fourth quarter of 2020, we recorded an additional $ 20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $ 430 million.

At December 31, 2020, the remaining accrual balance was $ 151 million.

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

15 unchanged sentences

Interest cost 79 95 30 36

Actuarial loss 224 296 136 232

Actuarial (gain) loss ( 132 ) 224 ( 136 ) 136

Benefits paid from fund ( 178 ) ( 224 ) ( 63 ) ( 72 )

Benefits paid directly by employer ( 18 ) ( 22 ) — —

Exchange rate changes — — 70 62

Foreign currency translation adjustments — — ( 27 ) 70

Benefit obligation at end of year $ 3,012 $ 3,122 $ 1,887 $ 2,050

4 unchanged sentences

Benefits paid from fund ( 178 ) ( 224 ) ( 63 ) ( 72 )

Exchange rate changes — — 83 69

Foreign currency translation adjustments — — ( 32 ) 83

Fair value of plan assets at end of year $ 3,548 $ 3,429 $ 2,390 $ 2,337

3 unchanged sentences

Accrued compensation, benefits and retirement costs ( 18 ) ( 17 ) — —

Pension and OPEB benefits ( 431 ) ( 385 ) — —

Pension and OPEB ( 431 ) ( 431 ) — —

Net amount recognized $ 536 $ 307 $ 503 $ 287

25 unchanged sentences

Net periodic pension cost $ 67 $ 75 $ 53 $ 11 $ 27 $ 12

Other changes in benefit obligations and plan assets recognized in other comprehensive loss for the years ended December 31 were as follows:

Other changes in benefit obligations and plan assets recognized in other comprehensive (income) loss for the years ended December 31 were as follows:

In millions 2021 2020 2019

1 unchanged sentence

Recognized net actuarial loss ( 78 ) ( 75 ) ( 28 )

Incurred actuarial loss 85 101 91

Foreign exchange translation adjustments 19 4 ( 5 )

Total recognized in other comprehensive loss $ 26 $ 74 $ 24

Total recognized in net periodic pension cost and other comprehensive loss $ 128 $ 139 $ 110

Incurred actuarial (gain) loss ( 368 ) 85 101

Foreign currency translation adjustments 5 19 4

Total recognized in other comprehensive (income) loss $ ( 444 ) $ 26 $ 74

Total recognized in net periodic pension cost and other comprehensive (income) loss $ ( 366 ) $ 128 $ 139

The table below presents various assumptions used in determining the PBO for each year and reflects weighted-average percentages for the various plans as follows:

19 unchanged sentences

We expect additional positive returns from this active investment management.

Based on the historical returns and forward-looking return expectations, we have elected to maintain our assumption of 6.25 percent in 2021.

Based on the historical returns and forward-looking return expectations, we elected to maintain our assumption of 6.25 percent in 2022.

The primary investment objective is to exceed, on a net-of-fee basis, the rate of return of a policy portfolio comprised of the following:

Asset Class Target Range

Asset Class Target Minimum Maximum

equities 5.0 % — % 10 %

17 unchanged sentences

asset portfolio should reflect a long-term horizon.

To achieve these objectives we have established the following targets:

To achieve these objectives we established the following targets:

Asset Class Target

1 unchanged sentence

Private markets/secure income assets 12.0 %

Credit 16.0 %

Diversifying strategies 5.0 %

6 unchanged sentences

The 56 percent fixed income component is structured in a way that covers approximately 90 percent of the plan's exposure to changes in its discount rate.

Based on the above discussion, we have elected an assumption of 4.0 percent in 2021.

Based on the above discussion, we elected an assumption of 3.75 percent in 2022.

Fair Value of U.S.

12 unchanged sentences

Corporate debt

Asset/mortgaged backed securities — 3 — 3

Net cash equivalents (1)

1 unchanged sentence

Net plan assets subject to leveling $ 460 $ 595 $ 551 $ 1,606

Pending trade/purchases/sales 2

Investments measured at net asset value 1,934

5 unchanged sentences

observable inputs

(Level 2) Significant unobservable inputs (Level 3) Total

(Level 2) Significant

unobservable inputs

(Level 3) Total

$ 194 $ — $ — $ 194

53 unchanged sentences

Fair Value Measurements at December 31, 2020

In millions Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total

In millions Quoted prices in active

markets for identical assets

(Level 1) Significant other

observable inputs

(Level 2) Significant

unobservable inputs

(Level 3) Total

$ — $ 56 $ — $ 56

27 unchanged sentences

Actual return on plan assets

Unrealized gains on assets still held at the reporting date 34 5 14 53

Unrealized gains (losses) on assets still held at the reporting date 80 ( 2 ) 22 100

Purchases, sales and settlements, net — ( 2 ) 5 3

1 unchanged sentence

Actual return on plan assets

Unrealized gains (losses) on assets still held at the reporting date 80 ( 2 ) 22 100

Unrealized (losses) gains on assets still held at the reporting date ( 42 ) 2 114 74

Purchases, sales and settlements, net — — ( 9 ) ( 9 )

3 unchanged sentences

These financial statements are audited at least annually.

In conjunction with our investment consultant, we monitor the fair value of the insurance contract as periodically reported by our insurer and their counterparty risk.

In conjunction with our investment consultant and actuary, we monitor the fair value of the insurance contract as periodically reported by our insurer and their counterparty risk.

The fair value of all real estate properties, held in the partnerships, are valued at least once per year by an independent professional real estate valuation firm.

19 unchanged sentences

Obligations and Funded Status

Benefit obligation balances presented below reflect the accumulated postretirement benefit obligations (APBO) for our OPEB plans.

Benefit obligation balances presented below reflect the accumulated postretirement benefit obligations for our OPEB plans.

The changes in the benefit obligations, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant OPEB plans were as follows:

4 unchanged sentences

Plan participants' contributions 14 9

Actuarial loss 14 —

Actuarial (gain) loss ( 8 ) 14

Benefits paid directly by employer ( 38 ) ( 38 )

19 unchanged sentences

Net periodic OPEB cost $ 5 $ 6 $ 10

Other changes in benefit obligations recognized in other comprehensive loss (income) for the years ended December 31 were as follows:

Other changes in benefit obligations recognized in other comprehensive (income) loss for the years ended December 31 were as follows:

Years ended December 31,

1 unchanged sentence

Recognized net actuarial gain $ — $ 1 $ —

Incurred actuarial loss (gain) 14 ( 1 ) ( 51 )

Total recognized in other comprehensive loss (income) $ 15 $ ( 1 ) $ ( 51 )

Total recognized in net periodic OPEB cost and other comprehensive loss (income) $ 21 $ 9 $ ( 40 )

Incurred actuarial (gain) loss ( 8 ) 14 ( 1 )

Total recognized in other comprehensive (income) loss $ ( 8 ) $ 15 $ ( 1 )

Total recognized in net periodic OPEB cost and other comprehensive (income) loss $ ( 3 ) $ 21 $ 9

The table below presents assumptions used in determining the OPEB obligation for each year and reflects weighted-average percentages for our other OPEB plans as follows:

10 unchanged sentences

Expected benefit payments $ 19 $ 18 $ 18 $ 17 $ 16 $ 65

SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:

In millions 2021 2020

Corporate owned life insurance $ 492 $ 508

Operating lease assets 444 438

Deferred income taxes 428 479

Other 402 308

Other assets $ 1,766 $ 1,733

Other accrued expenses included the following:

In millions 2021 2020

Marketing accruals $ 303 $ 242

Other taxes payable 234 256

Current portion of operating lease liabilities 128 128

Income taxes payable 107 82

Other 418 404

Other accrued expenses $ 1,190 $ 1,112

Other liabilities included the following:

In millions 2021 2020

Deferred income taxes $ 403 $ 325

Operating lease liabilities 326 325

Long-term income taxes 263 289

Accrued compensation 177 203

Mark-to-market valuation on interest rate swaps and locks 19 41

Other long-term liabilities 320 365

Other liabilities $ 1,508 $ 1,548

Loans Payable and Commercial Paper

Loans payable at December 31, 2021 and 2020 were $ 208 million and $ 169 million, respectively, and consisted primarily of notes payable to financial institutions.

The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31 was as follows:

Weighted-average interest rate 2.71 % 2.53 %

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

The programs facilitate the private placement of unsecured short-term debt through third-party brokers.

We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes.

We had $ 313 million and $ 323 million in outstanding borrowings under our commercial paper programs at December 31, 2021 and 2020, respectively.

The weighted-average interest rate for commercial paper at December 31 was as follows:

Weighted-average interest rate ( 0.01 ) % (1)

( 0.01 ) % (2)

(1) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2021.

This included $ 113 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.39 percent and $ 200 million of borrowings under the U.S.

program at a weighted-average interest rate of 0.21 percent.

(2) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020.

This included $ 123 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.34 percent and $ 200 million of borrowings under the U.S.

program at a weighted-average interest rate of 0.19 percent.

Revolving Credit Facilities

On August 18, 2021, we entered into an amended and restated 5 -year revolving credit agreement, which allows us to borrow up to $ 2 billion of unsecured funds at any time prior to August 18, 2026.

This credit agreement replaces the prior $ 2 billion 5 -year credit agreement that would have matured on August 22, 2023.

Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness.

Up to $ 300 million under this credit facility is available for swingline loans.

Based on our current long-term debt ratings, the applicable margin on LIBOR rate loans was 0.75 percent per annum as of December 31, 2021.

Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.

On August 18, 2021, we also entered into an amended and restated 364 -day credit agreement, which allows us to borrow up to $ 1.5 billion of unsecured funds at any time prior to August 17, 2022.

This credit agreement amended and restated the prior $ 1.5 billion 364 -day credit facility that matured on August 18, 2021.

Both credit agreements include various covenants, including, among others, maintaining a net debt to total capital ratio of no more than 0.65 to 1.0.

At December 31, 2021, we were in compliance with the financial debt covenants.

We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration.

These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes.

There were no outstanding borrowings under these facilities at December 31, 2021.

At December 31, 2021, our $ 313 million of commercial paper outstanding effectively reduced the $ 3.5 billion available capacity under our revolving credit facilities to $ 3.2 billion.

At December 31, 2021, we also had $ 234 million available for borrowings under our international and other domestic credit facilities.

Long-term Debt

A summary of long-term debt was as follows:

In millions Interest Rate 2021 2020

Long-term debt

Senior notes, due 2023 3.65 % $ 500 $ 500

Senior notes, due 2025 (1)

0.75 % 500 500

Debentures, due 2027 6.75 % 58 58

Debentures, due 2028 7.125 % 250 250

Senior notes, due 2030 (1)

1.50 % 850 850

Senior notes, due 2043 4.875 % 500 500

Senior notes, due 2050 2.60 % 650 650

Debentures, due 2098 (2)

5.65 % 165 165

Other debt 110 132

Unamortized discount and deferred issuance costs ( 68 ) ( 72 )

Fair value adjustments due to hedge on indebtedness 34 48

Finance leases 89 91

Total long-term debt 3,638 3,672

Current maturities of long-term debt 59 62

Long-term debt $ 3,579 $ 3,610

(1) In 2021 we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate.

See "Interest Rate Risk" below for additional information.

(2) The effective interest rate is 7.48 %.

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

In millions 2022 2023 2024 2025 2026

Principal payments $ 59 $ 536 $ 31 $ 507 $ 24

On August 24, 2020, we issued $ 2 billion aggregate principal amount of senior unsecured notes consisting of $ 500 million aggregate principal amount of 0.75 percent senior unsecured notes due in 2025, $ 850 million aggregate principal amount of 1.50 percent senior unsecured notes due in 2030 and $ 650 million aggregate principal amount of 2.60 percent senior unsecured notes due in 2050.

We received net proceeds of $ 1.98 billion.

The senior unsecured notes pay interest semi-annually on March 1 and September 1, commencing on March 1, 2021.

The $ 250 million 7.125 percent debentures and $ 165 million 5.65 percent debentures are unsecured and are not subject to any sinking fund requirements.

Our debt agreements contain several restrictive covenants.

At December 31, 2021, we were in compliance with all of the financial debt covenants under our borrowing agreements.

Shelf Registration

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission (SEC) on February 13, 2019.

Our current shelf is scheduled to expire in February 2022.

We have begun the renewal process and plan to file a new automatic shelf registration statement in the first quarter of 2022.

Interest Expense

For the years ended December 31, 2021, 2020 and 2019, total interest incurred was $ 113 million, $ 102 million and $ 112 million, respectively, and interest capitalized was $ 2 million, $ 2 million and $ 3 million, respectively.

Interest Rate Risk

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

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 will be accounted for, as fair value hedges.

The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as "Interest expense." The net swap settlements that accrue each period are also reported in the Consolidated Financial Statements as "Interest expense."

The debt is included in the Consolidated Balance Sheets as "Long-term debt." The terms of the swaps mirrored those of the debt, with interest paid semi-annually.

The swaps were designated, and were accounted for, as fair value hedges.

The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in current income as "Interest expense." The net swap settlements that accrued each period were also reported in the Consolidated Financial Statements as "Interest expense." A basis adjustment related to credit risk, excluded from the assessment of effectiveness, was being amortized over the life of the hedge using a straight-line method and was considered de minimis.

The $ 24 million gain realized upon settlement is being amortized over the remaining three -year term of the related debt.

The following table summarizes the gains and losses:

Years ended December 31,

In millions 2021 2020 2019

Type of Swap Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on

Swaps Gain (Loss) on

Interest rate swaps (1)

$ ( 3 ) $ 2 $ 7 $ ( 5 ) $ 16 $ ( 14 )

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

The terms of the rate locks mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt.

The gains and losses on these derivative instruments will be initially recorded in other comprehensive income and will be released to earnings in "Interest expense" in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance.

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

Year ended December 31,

In millions 2021 2020 2019

Type of Swap Gain (Loss)

Recognized in AOCL Gain (Loss) Reclassified from AOCL into Interest Expense Gain (Loss)

Recognized in AOCL Gain (Loss) Reclassified from AOCL into Interest Expense

Interest rate locks $ 19 $ — ( 22 ) — ( 10 ) —

Fair Value of Debt

In millions 2021 2020

Fair values of total debt (1)

$ 4,461 $ 4,665

Carrying value of total debt 4,159 4,164

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

PRODUCT WARRANTY LIABILITY

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

In millions 2021 2020 2019

Balance, beginning of year $ 2,307 $ 2,389 $ 2,208

Provision for base warranties issued 503 443 458

Deferred revenue on extended warranty contracts sold 288 248 356

Provision for product campaigns issued 346 90 210

Payments made during period ( 530 ) ( 589 ) ( 590 )

Amortization of deferred revenue on extended warranty contracts ( 260 ) ( 227 ) ( 230 )

Changes in estimates for pre-existing product warranties ( 228 ) ( 52 ) ( 24 )

Foreign currency translation and other ( 1 ) 5 1

Balance, end of year $ 2,425 $ 2,307 $ 2,389

We recognized supplier recoveries of $ 170 million, $ 20 million and $ 67 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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

In millions 2021 2020 Balance Sheet Location

Deferred revenue related to extended coverage programs

Current portion $ 286 $ 261 Current portion of deferred revenue

Long-term portion 700 700 Deferred revenue

Total $ 986 $ 961

Product warranty

Current portion $ 755 $ 674 Current portion of accrued product warranty

Long-term portion 684 672 Accrued product warranty

Total $ 1,439 $ 1,346

Total warranty accrual $ 2,425 $ 2,307

Engine System Campaign Accrual

During 2017, the California Air Resources Board (CARB) and the U.S.

Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing.

Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component.

In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations.

From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population.

The total engine system campaign charge, excluding supplier recoveries, was $ 410 million.

At December 31, 2021, the remaining accrual balance was $ 82 million.

COMMITMENTS AND CONTINGENCIES

22 unchanged sentences

On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks.

This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws.

In addition, we voluntarily disclosed our formal internal review to the regulators and to other government agencies, the Department of Justice (DOJ) and the SEC, and worked cooperatively with them to ensure a complete and thorough review.

We fully cooperated with the DOJ's and the SEC's information requests and inquiries and, based on recent communications with these agencies, we do not expect further inquiries.

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.

This review is being conducted with external advisors as we strive to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws.

our emissions control systems and thereby act as defeat devices.

As a result, our internal review focuses, in part, on the regulators’ concerns.

We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements.

Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019.

During our discussions, the regulators have asked us to look at other model years and other engines.

Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory processes, and we cannot provide assurance that the matter will not have a materially adverse impact on our results of operations and cash flows.

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.

Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this 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.

Guarantees and Commitments

4 unchanged sentences

At December 31, 2021, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $ 73 million.

Most of these arrangements enable us to secure supplies of critical components.

These arrangements enable us to secure supplies of critical components and IT services.

We do not currently anticipate paying any penalties under these contracts.

16 unchanged sentences

We can determine the number of shares of each series, and the rights, preferences and limitations of each series.

At December 31, 2020, there was no preferred or preference stock outstanding.

At December 31, 2021 and 2020, there was no preferred or preference stock outstanding.

Changes in shares of common stock, treasury stock and common stock held in trust for employee benefit plans were as follows:

22 unchanged sentences

In December 2021, the Board authorized the acquisition of up to $ 2.0 billion of additional common stock upon completion of the 2019 repurchase plan.

In October 2018, the Board authorized the acquisition of up to $ 2.0 billion of additional common stock upon completion of the 2016 repurchase plan.

For the year ended December 31, 2020, we made the following purchases under the stock repurchase programs:

In December 2019, the Board authorized the acquisition of up to $ 2.0 billion of additional common stock upon completion of the 2018 repurchase plan.

For the year ended December 31, 2021, we made the following purchases under the stock repurchase program:

In millions (except per share amounts)

2 unchanged sentences

Repurchases Remaining

October 2018, $2 billion repurchase program

March 29 3.5 $ 156.92 $ 550 $ 85

June 28 — — — 85

September 27 — — — 85

December 31 0.4 219.15 85 —

Subtotal 3.9 163.11 635 —

December 2019, $2 billion repurchase program

April 4 1.7 $ 247.35 $ 418 $ 1,576

July 4 2.7 252.66 672 904

October 3 0.6 231.57 138 766

December 31 0.7 222.14 174 2,592

218.97 6 1,994

Total 5.7 244.73 $ 1,402

(1) The remaining authorized capacity under these plans was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan.

(2) The shares purchased under the 2019 repurchase program rounded to zero.

In 2018, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co.

LLC to repurchase $ 500 million of our common stock under our previously announced share repurchase plans and received 3.5 million shares at an average price of $ 144.02 per share.

(1) The remaining $ 592 million authorized capacity under the 2019 plan was calculated based on the cost to purchase the shares, but excludes commission expenses in accordance with the authorized plan.

We repurchased $ 1,402 million, $ 641 million and $ 1,271 million of our common stock in the years ended December 31, 2021, 2020 and 2019, respectively.

2 unchanged sentences

We expect to fund dividend payments with cash from operations.

In October 2020, the Board authorized an increase to our quarterly dividend of 3.0 percent from $ 1.311 per share to $ 1.35 per share.

In July 2019, the Board authorized a 15.0 percent increase to our quarterly cash dividend on our common stock from $ 1.14 per share to $ 1.311 per share.

In July 2021, the Board authorized an increase to our quarterly dividend of 7.4 percent from $ 1.35 per share to $ 1.45 per share.

In October 2020, the Board authorized a 3.0 percent increase to our quarterly cash dividend on our common stock from $ 1.311 per share to $ 1.35 per share.

In July 2019, the Board approved a 15.0 percent increase to our quarterly dividend on our common stock from $ 1.14 per share to $ 1.311 per share.

7 unchanged sentences

Total $ 5.60 $ 5.28 $ 4.90

Employee Benefits Trust

In 1997, we established the Employee Benefits Trust (EBT) funded with common stock for use in meeting our future obligations under employee benefit and compensation plans.

The primary sources of cash for the EBT were dividends received on unallocated shares of our common stock held by the EBT.

Shares of Cummins stock and cash in the EBT were used to fund the accounts of participants in the Cummins Retirement and Savings Plan who elected to receive company matching funds in Cummins stock.

In addition, at times we directed the trustee to sell shares in the EBT on the open market and swept cash from the EBT to fund other employee benefit plans.

Matching contributions charged to income for the years ended December 31, 2020, 2019 and 2018 were $ 2 million, $ 10 million and $ 12 million, respectively.

At December 31, 2020, the EBT was fully depleted.

ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component:

In millions Change in

In millions Change in pensions

postretirement

defined benefit

plans Foreign

defined benefit plans Foreign

adjustment Unrealized gain

(loss) on debt

securities Unrealized gain

derivatives Total

5 unchanged sentences

Before-tax amount ( 106 ) ( 153 ) ( 12 ) ( 271 ) $ ( 5 ) $ ( 276 )

Tax benefit (expense) 7 7 — ( 7 ) 7 — 7

Tax benefit 16 6 5 27 — 27

After-tax amount ( 90 ) ( 147 ) ( 7 ) ( 244 ) ( 5 ) ( 249 )

1 unchanged sentence

27 — ( 4 ) 23 — 23

Net current period other comprehensive income (loss) 18 ( 326 ) ( 1 ) 5 ( 304 ) $ ( 29 ) $ ( 333 )

Net current period other comprehensive loss ( 63 ) ( 147 ) ( 11 ) ( 221 ) $ ( 5 ) $ ( 226 )

Balance at December 31, 2019 $ ( 734 ) $ ( 1,285 ) $ ( 9 ) $ ( 2,028 )

1 unchanged sentence

Before-tax amount ( 92 ) 73 ( 41 ) ( 60 ) $ ( 10 ) $ ( 70 )

Tax benefit (expense) 16 6 — 5 27 — 27

Tax benefit 26 8 9 43 — 43

After-tax amount ( 66 ) 81 ( 32 ) ( 17 ) ( 10 ) ( 27 )

1 unchanged sentence

65 — ( 2 ) 63 — 63

Net current period other comprehensive loss ( 63 ) ( 147 ) — ( 11 ) ( 221 ) $ ( 5 ) $ ( 226 )

Net current period other comprehensive (loss) income ( 1 ) 81 ( 34 ) 46 $ ( 10 ) $ 36

Balance at December 31, 2020 $ ( 735 ) $ ( 1,204 ) $ ( 43 ) $ ( 1,982 )

1 unchanged sentence

Before-tax amount 425 ( 5 ) 38 458 $ ( 5 ) $ 453

Tax benefit (expense) 26 8 — 9 43 — 43

Tax (expense) benefit ( 103 ) 1 ( 12 ) ( 114 ) — ( 114 )

After-tax amount 322 ( 4 ) 26 344 ( 5 ) 339

1 unchanged sentence

67 — — 67 — 67

Net current period other comprehensive (loss) income ( 1 ) 81 — ( 34 ) 46 $ ( 10 ) $ 36

Net current period other comprehensive income (loss) 389 ( 4 ) 26 411 $ ( 5 ) $ 406

Balance at December 31, 2021 $ ( 346 ) $ ( 1,208 ) $ ( 17 ) $ ( 1,571 )

8 unchanged sentences

Total $ 927 $ 927

(1) See Note 20, "ACQUISITIONS," for additional information.

(1) See Note 20, "ACQUISITION," for additional information.

STOCK INCENTIVE AND STOCK OPTION PLANS

17 unchanged sentences

Restricted common stock is awarded from time to time at no cost to certain employees.

Participants are entitled to cash dividends and voting rights.

Most awards are entitled to cash dividends and voting rights.

Restrictions limit the sale or transfer of the shares during a defined period.

6 unchanged sentences

The excess tax benefit associated with our employee share-based plans for the years ended December 31, 2021, 2020 and 2019, was $ 9 million, $ 4 million and $ 4 million, respectively.

The total unrecognized compensation expense (net of estimated forfeitures) related to nonvested awards for our employee share-based plans was approximately $ 27 million at December 31, 2020 and is expected to be recognized over a weighted-average period of less than two years .

The total unrecognized compensation expense (net of estimated forfeitures) related to nonvested awards for our employee share-based plans was approximately $ 55 million at December 31, 2021 and is expected to be recognized over a weighted-average period of approximately two years .

The table below summarizes the employee share-based activity in the Plan:

41 unchanged sentences

The total vesting date fair value of performance shares vested during the years ended December 31, 2021, 2020 and 2019, was $ 35 million, $ 41 million and $ 27 million, respectively.

The total fair value of restricted shares vested was less than $ 1 million, less than $ 1 million and $ 1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

There were no restricted shares vested for the year ended December 31, 2021.

The total fair value of restricted shares vested was less than $ 1 million and less than $ 1 million for the years ended December 31, 2020 and 2019, respectively.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

13 unchanged sentences

The calculation of diluted EPS assumes the issuance of common stock for all potentially dilutive share equivalents outstanding.

We exclude shares of common stock held in the EBT (see Note 15, "CUMMINS INC.

SHAREHOLDERS' EQUITY") from the calculation of the weighted-average common shares outstanding until those shares are distributed from the EBT to the Retirement Savings Plan.

We excluded shares of common stock held in the Employee Benefits Trust (EBT) from the calculation of the weighted-average common shares outstanding until those shares are distributed from the EBT to the Retirement Savings Plan.

The EBT was fully depleted at December 31, 2021.

Following are the computations for basic and diluted earnings per share:

15 unchanged sentences

Options excluded 6,463 645,334 473,845

Acquisitions for the years ended December 31, 2019 and 2018, were as follows:

The acquisition for the year ended December 31, 2019, was as follows:

Entity Acquired (Dollars in millions) Date of Acquisition Percent Interest Acquired Payments to Former Owners Acquisition Related Debt Retirements Total Purchase Consideration (1)

2 unchanged sentences

Hydrogenics Corporation 9/09/19 81 % $ 235 $ — $ 235 $ 161 $ 161 $ 34

Efficient Drivetrains, Inc.

8/15/18 100 % $ 62 $ 2 $ 64 $ 49 $ 15 $ 3

(1) All results from acquired entities were included in segment results subsequent to the acquisition date.

Newly consolidated entities were accounted for as business combinations and were included in the New Power segment on the date of acquisition.

(2) Intangible assets acquired in business combinations were mostly customer and technology related, the majority of which will be amortized over a period of up to 20 years from the date of the acquisition.

Hydrogenics Corporation

On September 9, 2019, we acquired an 81 percent interest in Hydrogenics Corporation for total consideration of $ 235 million.

The Hydrogen Company, a wholly-owned subsidiary of L’Air Liquide, S.A., maintains a 19 percent noncontrolling interest in Hydrogenics Corporation of $ 56 million, based on the publicly traded share price of Hydrogenics at the acquisition date, which was representative of its fair value.

We accounted for the transaction as a business combination and included it in the New Power segment in the third quarter of 2019.

We assigned this business to our New Power reporting unit, which included our electrified power, fuel cell and hydrogen technologies businesses, for goodwill impairment purposes.

As of December 31, 2019, our purchase accounting was complete.

The intangible assets will be amortized over periods ranging from 3 to 20 years.

The purchase price allocation was as follows:

Inventory $ 21

Other current assets 25

Intangible assets

Technology assets 96

Customer relationships 29

In-process research and development 35

Other intangible assets 1

Other assets 18

Current liabilities ( 53 )

Other liabilities ( 42 )

Total business valuation 291

Noncontrolling interest 56

Total purchase consideration $ 235

Technology assets represent the value of both the existing fuel cells and generation equipment.

These assets were valued using the relief-from-royalty method, which is a combination of the income approach and market approach that values a subject asset based on an estimate of the relief from the royalty expense that would be incurred if the subject asset were licensed from a third-party.

Key assumptions are expected revenue, the royalty rate, the estimated remaining useful life and the discount rate.

This value is considered a level 3 measurement under the fair value hierarchy.

Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers.

The assets were valued using an income approach, specifically the multi-period excess earnings method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset.

Key assumptions are expected revenue, related expenses, the estimated remaining useful life and the discount rate.

These assets are each being amortized over 15 to 20 years.

As of December 31, 2019, annual amortization of the intangible assets for the next five years was expected to approximate $ 8 million.

In-process research and development assets represent acquired research and development assets that have been initiated, achieved material progress, but have not yet resulted in a technologically feasible or commercially viable project.

These assets were valued using the relief-from-royalty method, as described above.

These assets will not be amortized until they have been completed, but will be tested annually for impairment until that time.

Approximately $ 10 million of this amount began to be amortized in 2020, and the remainder will begin amortization once the related projects are completed.

Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities.

The goodwill amount will not be deductible for tax purposes.

Among the factors contributing to a purchase price resulting in the recognition of goodwill are the acquisition of engineering talent in the fuel cell space, the ability to be one of the forerunners in the development of clean fuel cell energy and the continued opportunity to expand our position as a global power leader.

(1) All results from the acquired entity were included in segment results subsequent to the acquisition date, and the acquisition was accounted for as a business combination and included in the New Power segment on the date of acquisition.

(2) Intangible assets acquired in the business combination were mostly customer and technology related, the majority of which will be amortized over a period of up to 20 years from the date of the acquisition.

No material acquisitions occurred during the years ended December 31, 2021 or 2020.

RESTRUCTURING ACTIONS

In November 2019, we announced our intentions to reduce our global workforce in response to the continued deterioration in our global markets in the second half of 2019, as well as expected reductions in orders in most U.S.

We executed restructuring actions in the form of voluntary and involuntary employee separation programs in the fourth quarter of 2019.

These actions were in response to the continued deterioration in our global markets in the second half of 2019, as well as expected reductions in orders in most U.S.

and international markets in 2020.

In the fourth quarter of 2019, we began executing restructuring actions, primarily in the form of voluntary and involuntary employee separation programs.

To the extent these programs involved voluntary separations, a liability was recorded at the time offers to employees were accepted.

To the extent these programs provided separation benefits in accordance with pre-existing agreements or policies, a liability was recorded once the amount was probable and reasonably estimable.

We incurred a charge of $ 119 million ($ 90 million after-tax) in the fourth quarter of 2019 for these actions which impacted approximately 2,300 employees.

We reduced our worldwide workforce by approximately 2,300 employees.

We incurred a charge of $ 119 million ($ 90 million after-tax) in the fourth quarter of 2019 for these actions.

The voluntary actions were completed by December 31, 2019 and the involuntary actions were completed by June 28, 2020.

Restructuring actions were included in our segment and non-segment operating results as follows:

In millions Year ended December 31, 2019

Distribution 37

Components 20

Power Systems 12

Non-segment 31

Restructuring actions $ 119

The table below summarizes the activity and balance of accrued restructuring, which is included in "Other accrued expenses" in our Consolidated Balance Sheets :

In millions Restructuring Accrual

Workforce reductions $ 119

Cash payments ( 4 )

Foreign currency loss 1

Balance at December 31, 2019 116

Cash payments ( 110 )

Change in estimate ( 4 )

Foreign currency gain ( 1 )

Balance at December 31, 2020 $ 1

OPERATING SEGMENTS

9 unchanged sentences

The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies.

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

The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems.

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

We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments.

8 unchanged sentences

Summarized financial information regarding our reportable operating segments at December 31, is shown in the table below:

In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1)

In millions Engine Distribution Components Power Systems New Power Total Segments

External sales $ 7,589 $ 7,742 $ 5,932 $ 2,650 $ 108 $ 24,021

4 unchanged sentences

Interest income 8 7 5 5 — 25

EBITDA 1,235 665 961 343 ( 172 ) 3,032 76 3,108

Segment EBITDA 1,411 731 1,180 496 ( 223 ) 3,595

Depreciation and amortization (1)

7 unchanged sentences

Research, development and engineering expenses 290 31 264 212 109 906

Equity, royalty and interest income from investees 200 52 40 38 — 330 — 330

Equity, royalty and interest income (loss) from investees 312 62 61 21 ( 4 ) 452

Interest income 9 4 4 4 — 21

EBITDA (excluding restructuring actions) 1,472 693 1,117 524 ( 148 ) 3,658 73 3,731

Restructuring actions (3)

18 37 20 12 1 88 31 119

EBITDA 1,454 656 1,097 512 ( 149 ) 3,570 42 3,612

Segment EBITDA 1,235 665 961 343 ( 172 ) 3,032

Depreciation and amortization (1)

4 unchanged sentences

(Table continued on next page)

In millions Engine Distribution Components Power Systems New Power Total Segments Intersegment Eliminations (1)

In millions Engine Distribution Components Power Systems New Power Total Segments

External sales $ 7,570 $ 8,040 $ 5,253 $ 2,670 $ 38 $ 23,571

4 unchanged sentences

Interest income 15 15 8 8 — 46

EBITDA 1,446 563 1,030 614 ( 90 ) 3,563 ( 87 ) 3,476

Segment EBITDA (excluding restructuring actions) 1,472 693 1,117 524 ( 148 ) 3,658

Restructuring actions (2)

18 37 20 12 1 88

Segment EBITDA 1,454 656 1,097 512 ( 149 ) 3,570

Depreciation and amortization (1)

202 115 222 118 12 669

Net assets 1,265 2,677 2,878 2,262 138 9,220 — 9,220

Investments and advances to equity investees 561 278 206 177 — 1,222 — 1,222

Capital expenditures 240 136 191 107 26 700

(1) Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses.

The year ended December 31, 2019, includes a $ 31 million restructuring charge related to corporate functions.

There were no significant unallocated corporate expenses for the years ended December 31, 2020 and 2018.

(1) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs were $ 3 million, $ 3 million and $ 3 million for the years ended 2021, 2020 and 2019, respectively.

1 unchanged sentence

(2) See Note 21 "RESTRUCTURING ACTIONS," for additional information.

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

Years ended December 31,

In millions 2021 2020 2019

Total segment sales $ 29,922 $ 24,885 $ 29,539

Elimination of intersegment sales ( 5,901 ) ( 5,074 ) ( 5,968 )

Total net sales $ 24,021 $ 19,811 $ 23,571

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

3 unchanged sentences

Intersegment elimination ( 74 ) 76 42

TOTAL EBITDA 3,108 3,612 3,476

Interest expense 111 100 109

11 unchanged sentences

Net liabilities deducted in arriving at net assets (1)

8,947 8,498 7,836

Pension and OPEB adjustments excluded from net assets 966 67

14 unchanged sentences

Canada 163 149

Brazil 79 106 104

Other international countries 554 545

1 unchanged sentence

Our largest customer is PACCAR Inc.

Worldwide sales to this customer were $ 2,900 million, $ 3,937 million and $ 3,643 million for the years ended December 31, 2020, 2019 and 2018, representing 15 percent, 17 percent and 15 percent, respectively, of our consolidated net sales.

Worldwide sales to this customer were approximately $ 3.6 billion, $ 2.9 billion and $ 3.9 billion for the years ended December 31, 2021, 2020 and 2019, representing 15 percent, 15 percent and 17 percent, respectively, of our consolidated net sales.

No other customer accounted for more than 10 percent of consolidated net sales.

SELECTED QUARTERLY FINANCIAL DATA

Quarter Second

Quarter Third

Quarter Fourth

In millions, except per share amounts 2020

Net sales $ 5,011 $ 3,852 $ 5,118 $ 5,830

Gross margin 1,294 890 1,349 1,361

Net income attributable to Cummins Inc.

511 276 501 501

Earnings per common share attributable to Cummins Inc.—basic $ 3.42 $ 1.87 $ 3.39 $ 3.39

Earnings per common share attributable to Cummins Inc.—diluted (1)

3.41 1.86 3.36 3.36

Cash dividends per share 1.311 1.311 1.311 1.35

Stock price per share

High $ 180.88 $ 184.94 $ 215.43 $ 244.67

Low 101.03 127.30 170.19 203.51

Net sales $ 6,004 $ 6,221 $ 5,768 $ 5,578

Gross margin 1,532 1,641 1,494 1,313

Net income attributable to Cummins Inc.

663 675 622 300 (2)

Earnings per common share attributable to Cummins Inc.—basic (1)

$ 4.22 $ 4.29 $ 3.99 $ 1.98 (2)

Earnings per common share attributable to Cummins Inc.—diluted (1)

4.20 4.27 3.97 1.97 (2)

Cash dividends per share 1.14 1.14 1.311 1.311

Stock price per share

High $ 162.34 $ 171.84 $ 175.91 $ 186.73

Low 130.03 150.48 141.14 151.15

(1) Earnings per share in each quarter is computed using the weighted-average number of shares outstanding during that quarter while earnings per share for the full year is computed using the weighted-average number of shares outstanding during the year.

Thus, the sum of the four quarters earnings per share may not equal the full year earnings per share.

(2) Net income attributable to Cummins Inc.

and earnings per share were negatively impacted by $ 119 million ($ 90 million after-tax) of restructuring actions in the fourth quarter of 2019 ($ 0.59 per basic share and $ 0.59 per diluted share).

At December 31, 2020, there were approximately 2,637 holders of record of Cummins Inc.'s $ 2.50 par value common stock.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data