cmi-20230331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023

Commission File Number 1-4949

CUMMINS INC.

(Exact name of registrant as specified in its charter)


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

500 Jackson Street

Box 3005

Columbus, Indiana 47202-3005

(Address of principal executive offices)

Telephone (812) 377-5000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, $2.50 par value

CMI

New York Stock Exchange

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

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

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

Large Accelerated Filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of March 31, 2023, there were 141,561,784 shares of common stock outstanding with a par value of $2.50 per share.

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CUMMINS INC. AND SUBSIDIARIES

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QUARTERLY REPORT ON FORM 10-Q


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

	Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and March 31, 2022	6
	Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three months ended March 31, 2023 and March 31, 2022	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	47
ITEM 4.	Controls and Procedures	47
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	48
ITEM 1A.	Risk Factors	48
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
ITEM 3.	Defaults Upon Senior Securities	49
ITEM 4.	Mine Safety Disclosures	49
ITEM 5.	Other Information	49
ITEM 6.	Exhibits	50
	Signatures	51

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PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)



	Three months ended
	March 31,
In millions, except per share amounts	2023		2022
NET SALES (Notes 1 and 2)	$	8,453	$	6,385
Cost of sales	6,424		4,853
GROSS MARGIN	2,029		1,532

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	753		615
Research, development and engineering expenses	350		298
Equity, royalty and interest income from investees (Note 4)	119		96



Other operating expense, net	19		111
OPERATING INCOME	1,026		604


Interest expense	87		17
Other income (expense), net	90		(9)
INCOME BEFORE INCOME TAXES	1,029		578

Income tax expense (Note 5)	223		155
CONSOLIDATED NET INCOME	806		423

Less: Net income attributable to noncontrolling interests	16		5
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	790	$	418

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	5.58	$	2.94
Diluted	$	5.55	$	2.92

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	141.5		142.2
Dilutive effect of stock compensation awards	0.9		0.9
Diluted	142.4		143.1

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



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

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

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


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

Marketable securities (Note 6)	459		472
Total cash, cash equivalents and marketable securities	2,439		2,573
Accounts and notes receivable, net	5,834		5,202


Inventories (Note 7)	5,878		5,603
Prepaid expenses and other current assets	1,217		1,073
Total current assets	15,368		14,451
Long-term assets
Property, plant and equipment	10,629		10,507
Accumulated depreciation	(5,039)		(4,986)
Property, plant and equipment, net	5,590		5,521
Investments and advances related to equity method investees	1,860		1,759
Goodwill	2,365		2,343
Other intangible assets, net	2,640		2,687
Pension assets (Note 3)	1,496		1,398
Other assets (Note 8)	2,114		2,140
Total assets	$	31,433	$	30,299

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	4,636	$	4,252
Loans payable (Note 9)	229		210
Commercial paper (Note 9)	2,545		2,574
Current maturities of long-term debt (Note 9)	569		573
Accrued compensation, benefits and retirement costs	510		617
Current portion of accrued product warranty (Note 10)	746		726
Current portion of deferred revenue (Note 2)	1,040		1,004

Other accrued expenses (Note 8)	1,648		1,465
Total current liabilities	11,923		11,421
Long-term liabilities
Long-term debt (Note 9)	4,409		4,498


Deferred revenue (Note 2)	937		844
Other liabilities (Note 8)	3,283		3,311
Total liabilities	$	20,552	$	20,074

Commitments and contingencies (Note 11)

Redeemable noncontrolling interests (Note 12)	$	261	$	258

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,230	$	2,243
Retained earnings	18,605		18,037
Treasury stock, at cost, 80.9 and 81.2 shares	(9,389)		(9,415)

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



Total Cummins Inc. shareholders’ equity	9,623		8,975
Noncontrolling interests	997		992
Total equity	$	10,620	$	9,967
Total liabilities, redeemable noncontrolling interests and equity	$	31,433	$	30,299

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended
	March 31,
In millions	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	806	$	423
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	246		161



Deferred income taxes	(38)		(66)
Equity in income of investees, net of dividends	(67)		(76)
Pension and OPEB expense (Note 3)	1		9
Pension contributions and OPEB payments (Note 3)	(92)		(43)





Russian suspension costs (Note 15)	—		158

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

Foreign currency remeasurement and transaction exposure	(11)		(7)
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(621)		(417)
Inventories	(263)		(289)
Other current assets	(142)		(57)
Accounts payable	381		484
Accrued expenses	151		(251)
Changes in other liabilities	64		70

Other, net	99		28
Net cash provided by operating activities	495		164

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(193)		(104)




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

Investments in marketable securities—acquisitions	(326)		(197)
Investments in marketable securities—liquidations (Note 6)	345		254



Other, net	(54)		(46)
Net cash used in investing activities	(228)		(10)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	43		14
Net payments of commercial paper	(29)		(2)
Payments on borrowings and finance lease obligations	(142)		(24)


Dividend payments on common stock	(222)		(207)
Repurchases of common stock	—		(311)



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

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

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CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(Unaudited)


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

Net income	(8)						790						790		24		814
Other comprehensive income, net of tax (Note 13)											67		67		3		70



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

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

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

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

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


Repurchases of common stock									(311)				(311)		—		(311)
Cash dividends on common stock, $1.45 per share							(207)						(207)		—		(207)
Distributions to noncontrolling interests													—		(14)		(14)
Share-based awards					(9)				18				9		—		9

Fair value adjustment of redeemable noncontrolling interests	30				(30)								(30)		—		(30)
Other shareholder transactions					(7)				4				(3)		17		14
BALANCE AT MARCH 31, 2022	$	392	$	556	$	1,497	$	16,952	$	(9,412)	$	(1,515)	$	8,078	$	893	$	8,971

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

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CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

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

Interim Condensed Financial Statements

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

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

Reclassifications

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

Use of Estimates in Preparation of Financial Statements

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

Weighted-Average Diluted Shares Outstanding

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


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

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Related Party Transactions

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

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


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

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


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

Supply Chain Financing

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

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

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

Deferred and Unbilled Revenue

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


In millions	March 31, 2023		December 31, 2022
Unbilled revenue	$	332	$	257
Deferred revenue	1,977		1,848

We recognized revenue of $206 million for the three months ended March 31, 2023, compared with $240 million for the comparable period in 2022, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during the three months ended March 31, 2023 or March 31, 2022.

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Disaggregation of Revenue

Consolidated Revenue

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


	Three months ended
	March 31,
In millions	2023		2022
United States	$	4,802	$	3,457

China	790		653


India	411		309

Other international	2,450		1,966
Total net sales	$	8,453	$	6,385

Segment Revenue

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

Components segment external sales by business were as follows:


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

Engine segment external sales by market were as follows:


	Three months ended
	March 31,
In millions	2023		2022
Heavy-duty truck	$	860	$	684
Medium-duty truck and bus	617		591
Light-duty automotive	441		487
Total on-highway	1,918		1,762
Off-highway	334		287
Total sales	$	2,252	$	2,049

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

Distribution segment external sales by region were as follows:


	Three months ended
	March 31,
In millions	2023		2022
North America	$	1,693	$	1,371
Asia Pacific	239		244
Europe	194		275
China	101		82
Africa and Middle East	62		50
India	57		48
Latin America	53		41

Total sales	$	2,399	$	2,111

Distribution segment external sales by product line were as follows:


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

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


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

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NOTE 3. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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


	Three months ended
	March 31,
In millions	2023		2022



Defined benefit pension contributions	$	88	$	33


OPEB payments, net	4		10


Defined contribution pension plans	43		36

We anticipate making additional defined benefit pension contributions during the remainder of 2023 of $20 million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2023 annual net periodic pension cost to be near zero.

The components of net periodic pension and OPEB expense (income) under our plans were as follows:


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

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

NOTE 4. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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


	Three months ended
	March 31,
In millions	2023		2022
Manufacturing entities
Dongfeng Cummins Engine Company, Ltd.	$	19	$	16
Beijing Foton Cummins Engine Co., Ltd.	16		14
Chongqing Cummins Engine Company, Ltd.	9		9
Tata Cummins, Ltd.	8		9
All other manufacturers	19		(10)		(1)


Distribution entities
Komatsu Cummins Chile, Ltda.	14		7
All other distributors	3		2


Cummins share of net income	88		47
Royalty and interest income	31		49
Equity, royalty and interest income from investees	$	119	$	96


(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 15, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

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NOTE 5. INCOME TAXES

Our effective tax rates for the three months ended March 31, 2023 and 2022, were 21.7 percent and 26.8 percent, respectively.

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

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

NOTE 6. MARKETABLE SECURITIES

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


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

Equity securities





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



Equity mutual funds	31		(2)		29		25		3		28

Debt securities	1		1		2		2		—		2







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

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

All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during the three months ended March 31, 2023, or the year ended December 31, 2022.

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

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

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

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

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

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


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

NOTE 7. INVENTORIES

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


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

NOTE 8. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:



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

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

Other accrued expenses included the following:

In millions

March 31,
2023

December 31,
2022

Income taxes payable