Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

DERIVATIVES (Tables)

DERIVATIVES (Tables)

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)

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


	Year ended December 31,
In millions	2022
Type of Derivative	Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings

Foreign exchange forwards	$	(22)	$	—

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


	Year ended December 31,
In millions	2022		2021				2020
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		Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Interest Expense

Interest rate locks	$	112	$	—	$	19		$	—	$	(22)	$	—

Schedule of Interest Rate Derivatives

The following table summarizes the gains and losses:


	Years ended December 31,
In millions	2022				2021				2020
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 Borrowings
Interest rate swaps(1)	$	(148)	$	145	$	(3)	$	2	$	7	$	(5)


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

Derivative Instruments, Gain (Loss)

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


	Years ended December 31,
In millions	2022		2021		2020
Gain (loss) reclassified from AOCL into income - Net sales(1)	$	(4)	$	(4)	$	3
Gain (loss) reclassified from AOCL into income - Cost of sales(1)(2)	1		6		—
Total	$	(3)	$	2	$	3


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

Derivatives Not Designated as Hedging Instruments

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


	Years ended December 31,
In millions	2022		2021		2020
Gain (loss) recognized in income - Cost of sales(1)	$	2	$	—	$	(1)
Gain (loss) recognized in income - Other income, net(1)	(5)		45		1
Total	$	(3)	$	45	$	—

(1) Includes foreign currency forward contracts.

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

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


	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
	December 31,				December 31,
In millions	2022		2021		2022		2021
Notional amount	$	3,051	$	2,558	$	2,900	$	1,888

Derivative assets
Prepaid expenses and other current assets	$	18	$	15	$	27	$	4

Other assets	80		—		—		—
Total derivative assets(1)	$	98	$	15	$	27	$	4

Derivative liabilities
Other accrued expenses	$	19	$	11	$	3	$	4
Other liabilities	151		19		—		—
Total derivative liabilities(1)	$	170	$	30	$	3	$	4

(1) Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during 2022 or 2021.