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 ~~October 3, 2021~~June 30, 2022

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 ~~October 3, 2021,~~June 30, 2022, there were ~~143,031,848~~140,992,323 shares of common stock outstanding with a par value of $2.50 per share.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

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 and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021 ~~and September 27, 2020~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021 ~~and September 27, 2020~~	4

	Condensed Consolidated Balance Sheets at ~~October 3, 2021~~June 30, 2022 and December 31, ~~2020~~2021	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021 ~~and September 27, 2020~~	6
	Condensed Consolidated Statements of Changes in Equity for the three and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021 ~~and September 27, 2020~~	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2728
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	4852
ITEM 4.	Controls and Procedures	4952
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	4952
ITEM 1A.	Risk Factors	4953
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5054
ITEM 3.	Defaults Upon Senior Securities	5054
ITEM 4.	Mine Safety Disclosures	5054
ITEM 5.	Other Information	5054
ITEM 6.	Exhibits	5155
	Signatures	5256

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions, except per share amounts	In millions, except per share amounts	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions, except per share amounts	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
NET SALES (a) (Note 2)	NET SALES (a) (Note 2)	$	5,968	$	5,118	$	18,171	$	13,981	NET SALES (a) (Note 2)	$	6,586	$	6,111	$	12,971	$	12,203
Cost of sales		4,554		3,769		13,793		10,448
Cost of sales (Note 3)										Cost of sales (Note 3)	4,860		4,633		9,713		9,239
GROSS MARGIN	GROSS MARGIN	1,414		1,349		4,378		3,533		GROSS MARGIN	1,726		1,478		3,258		2,964

OPERATING EXPENSES AND INCOME	OPERATING EXPENSES AND INCOME									OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	Selling, general and administrative expenses	571		533		1,745		1,549		Selling, general and administrative expenses	622		600		1,237		1,174
Research, development and engineering expenses	Research, development and engineering expenses	266		224		802		651		Research, development and engineering expenses	299		276		597		536
Equity, royalty and interest income from investees (Note 4)		94		98		397		342
Equity, royalty and interest income from investees (Notes 3 and 5)										Equity, royalty and interest income from investees (Notes 3 and 5)	95		137		191		303

Other operating expense, net		(5)		(20)		(17)		(35)
Other operating expense, net (Note 3)										Other operating expense, net (Note 3)	3		4		114		12
OPERATING INCOME	OPERATING INCOME	666		670		2,211		1,640		OPERATING INCOME	897		735		1,501		1,545

Interest expense	Interest expense	28		25		85		71		Interest expense	34		29		51		57
Other income, net		37		41		111		134
Other (expense) income, net										Other (expense) income, net	(8)		73		(17)		74
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	675		686		2,237		1,703		INCOME BEFORE INCOME TAXES	855		779		1,433		1,562

Income tax expense (Note 5)		134		182		473		402
Income tax expense (Note 6)										Income tax expense (Note 6)	148		167		303		339
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	541		504		1,764		1,301		CONSOLIDATED NET INCOME	707		612		1,130		1,223

Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	7		3		27		13		Less: Net income attributable to noncontrolling interests	5		12		10		20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	702	$	600	$	1,120	$	1,203

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.	EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.									EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	Basic	$	3.72	$	3.39	$	11.96	$	8.69	Basic	$	4.97	$	4.14	$	7.90	$	8.24
Diluted	Diluted	$	3.69	$	3.36	$	11.86	$	8.65	Diluted	$	4.94	$	4.10	$	7.86	$	8.16

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING	WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING									WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	Basic	143.5		147.9		145.2		148.3		Basic	141.2		145.1		141.7		146.0
Dilutive effect of stock compensation awards	Dilutive effect of stock compensation awards	1.2		1.0		1.3		0.6		Dilutive effect of stock compensation awards	0.8		1.4		0.8		1.4
Diluted	Diluted	144.7		148.9		146.5		148.9		Diluted	142.0		146.5		142.5		147.4

(a) Includes sales to nonconsolidated equity investees of $385 million and $1,286 million for the three and nine months ended October 3, 2021, compared with $311 million and $906 million for the comparable periods in 2020.
(a) Includes sales to nonconsolidated equity investees of $281 million and $625 million for the three and six months ended June 30, 2022, compared with $423 million and $901 million for the comparable periods in 2021.										(a) Includes sales to nonconsolidated equity investees of $281 million and $625 million for the three and six months ended June 30, 2022, compared with $423 million and $901 million for the comparable periods in 2021.

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended Nine months ended
In millions October 3,
2021 September 27,
2020 October 3,
2021 September 27,
2020
CONSOLIDATED NET INCOME $ 541 $ 504 $ 1,764 $ 1,301
Other comprehensive income (loss), net of tax (Note 12)
Change in pension and other postretirement defined benefit plans 17 16 63 34
Foreign currency translation adjustments — 111 (34) (62)
Unrealized gain (loss) on derivatives 3 18 37 (63)
Total other comprehensive income (loss), net of tax 20 145 66 (91)
COMPREHENSIVE INCOME 561 649 1,830 1,210
Less: Comprehensive income attributable to noncontrolling interests 9 13 22 1
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC. $ 552 $ 636 $ 1,808 $ 1,209



	Three months ended				Six months ended
In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
CONSOLIDATED NET INCOME	$	707	$	612	$	1,130	$	1,223
Other comprehensive income (loss), net of tax (Note 13)
Change in pension and other postretirement defined benefit plans	6		17		22		46
Foreign currency translation adjustments	(245)		22		(241)		(34)

Unrealized gain (loss) on derivatives	43		(38)		71		34
Total other comprehensive (loss) income, net of tax	(196)		1		(148)		46
COMPREHENSIVE INCOME	511		613		982		1,269
Less: Comprehensive (loss) income attributable to noncontrolling interests	(10)		5		(13)		13
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	521	$	608	$	995	$	1,256

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


In millions, except par value	In millions, except par value	October 3, 2021		December 31, 2020		In millions, except par value	June 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,588	$	3,401	Cash and cash equivalents	$	2,462	$	2,592

Marketable securities (Note 6)		430		461
Marketable securities (Note 7)						Marketable securities (Note 7)	536		595
Total cash, cash equivalents and marketable securities	Total cash, cash equivalents and marketable securities	3,018		3,862		Total cash, cash equivalents and marketable securities	2,998		3,187
Accounts and notes receivable, net	Accounts and notes receivable, net					Accounts and notes receivable, net
Trade and other	Trade and other	3,752		3,440		Trade and other	3,869		3,565
Nonconsolidated equity investees	Nonconsolidated equity investees	400		380		Nonconsolidated equity investees	287		425
Inventories (Note 7)		4,322		3,425
Inventories (Note 8)						Inventories (Note 8)	4,765		4,355
Prepaid expenses and other current assets	Prepaid expenses and other current assets	828		790		Prepaid expenses and other current assets	843		777
Total current assets	Total current assets	12,320		11,897		Total current assets	12,762		12,309
Long-term assets	Long-term assets					Long-term assets
Property, plant and equipment	Property, plant and equipment	9,156		9,011		Property, plant and equipment	9,374		9,358
Accumulated depreciation	Accumulated depreciation	(4,971)		(4,756)		Accumulated depreciation	(4,985)		(4,936)
Property, plant and equipment, net	Property, plant and equipment, net	4,185		4,255		Property, plant and equipment, net	4,389		4,422
Investments and advances related to equity method investees (Note 4)		1,543		1,441
Investments and advances related to equity method investees						Investments and advances related to equity method investees	1,544		1,538
Goodwill	Goodwill	1,289		1,293		Goodwill	1,391		1,287
Other intangible assets, net	Other intangible assets, net	921		963		Other intangible assets, net	1,054		900
Pension assets (Note 3)		1,100		1,042
Other assets (Note 8)		1,705		1,733
Pension assets (Note 4)						Pension assets (Note 4)	1,461		1,488
Other assets (Note 9)						Other assets (Note 9)	1,876		1,766
Total assets	Total assets	$	23,063	$	22,624	Total assets	$	24,477	$	23,710

LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities	Current liabilities					Current liabilities
Accounts payable (principally trade)	Accounts payable (principally trade)	$	3,210	$	2,820	Accounts payable (principally trade)	$	3,405	$	3,021
Loans payable (Note 9)		85		169
Commercial paper (Note 9)		200		323
Loans payable (Note 10)						Loans payable (Note 10)	165		208
Commercial paper (Note 10)						Commercial paper (Note 10)	705		313
Accrued compensation, benefits and retirement costs	Accrued compensation, benefits and retirement costs	626		484		Accrued compensation, benefits and retirement costs	443		683
Current portion of accrued product warranty (Note 10)		694		674
Current portion of accrued product warranty (Note 11)						Current portion of accrued product warranty (Note 11)	796		755
Current portion of deferred revenue (Note 2)	Current portion of deferred revenue (Note 2)	806		691		Current portion of deferred revenue (Note 2)	871		855

Other accrued expenses (Note 8)		1,185		1,112
Current maturities of long-term debt (Note 9)		55		62
Other accrued expenses (Note 9)						Other accrued expenses (Note 9)	1,221		1,190
Current maturities of long-term debt (Note 10)						Current maturities of long-term debt (Note 10)	65		59
Total current liabilities	Total current liabilities	6,861		6,335		Total current liabilities	7,671		7,084
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt (Note 9)		3,602		3,610
Pensions and other postretirement benefits (Note 3)		623		630
Accrued product warranty (Note 10)		703		672
Long-term debt (Note 10)						Long-term debt (Note 10)	3,490		3,579
Pensions and other postretirement benefits (Note 4)						Pensions and other postretirement benefits (Note 4)	589		604
Accrued product warranty (Note 11)						Accrued product warranty (Note 11)	714		684
Deferred revenue (Note 2)	Deferred revenue (Note 2)	836		840		Deferred revenue (Note 2)	852		850
Other liabilities (Note 8)		1,435		1,548
Other liabilities (Note 9)						Other liabilities (Note 9)	1,506		1,508
Total liabilities	Total liabilities	$	14,060	$	13,635	Total liabilities	$	14,822	$	14,309

Commitments and contingencies (Note 11)		0		0
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)	0		0

EQUITY	EQUITY					EQUITY
Cummins Inc. shareholders’ equity	Cummins Inc. shareholders’ equity					Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued		$	2,412	$	2,404
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued						Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,423	$	2,427
Retained earnings	Retained earnings	16,555		15,419		Retained earnings	17,450		16,741
Treasury stock, at cost, 79.4 and 74.8 shares		(8,974)		(7,779)
Treasury stock, at cost, 81.5 and 80.0 shares						Treasury stock, at cost, 81.5 and 80.0 shares	(9,439)		(9,123)

Accumulated other comprehensive loss (Note 12)		(1,911)		(1,982)
Accumulated other comprehensive loss (Note 13)						Accumulated other comprehensive loss (Note 13)	(1,696)		(1,571)

Total Cummins Inc. shareholders’ equity	Total Cummins Inc. shareholders’ equity	8,082		8,062		Total Cummins Inc. shareholders’ equity	8,738		8,474
Noncontrolling interests	Noncontrolling interests	921		927		Noncontrolling interests	917		927
Total equity	Total equity	$	9,003	$	8,989	Total equity	$	9,655	$	9,401
Total liabilities and equity	Total liabilities and equity	$	23,063	$	22,624	Total liabilities and equity	$	24,477	$	23,710

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine months ended
In millions October 3,
2021 September 27,
2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 1,764 $ 1,301
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization 497 499
Deferred income taxes 44 (7)
Equity in income of investees, net of dividends (150) (136)
Pension and OPEB expense (Note 3) 62 81
Pension contributions and OPEB payments (Note 3) (86) (102)
Share-based compensation expense 25 22
Restructuring payments (1) (100)
Loss (gain) on corporate owned life insurance 11 (50)
Foreign currency remeasurement and transaction exposure 27 (7)
Changes in current assets and liabilities
Accounts and notes receivable (353) 47
Inventories (919) (50)
Other current assets (45) 73
Accounts payable 416 109
Accrued expenses 435 (236)
Changes in other liabilities (59) 208
Other, net (144) (72)
Net cash provided by operating activities 1,524 1,580
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (362) (268)
Investments in internal use software (36) (33)
Proceeds from sale of land 20 —
Investments in and advances to equity investees 3 (30)
Investments in marketable securities—acquisitions (569) (422)
Investments in marketable securities—liquidations (Note 6) 602 408
Cash flows from derivatives not designated as hedges 19 (15)
Other, net 45 23
Net cash used in investing activities (278) (337)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 35 1,999
Net payments of commercial paper (123) (344)
Payments on borrowings and finance lease obligations (57) (41)
Net (payments) borrowings under short-term credit agreements (93) 6
Distributions to noncontrolling interests (28) (26)
Dividend payments on common stock (601) (582)
Repurchases of common stock (1,228) (550)
Proceeds from issuing common stock 27 78
Other, net (11) 24
Net cash (used in) provided by financing activities (2,079) 564
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 20 31
Net (decrease) increase in cash and cash equivalents (813) 1,838
Cash and cash equivalents at beginning of year 3,401 1,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,588 $ 2,967


	Six months ended
In millions	June 30, 2022		July 4, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,130	$	1,223
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	328		337



Deferred income taxes	(112)		17
Equity in income of investees, net of dividends	(62)		(114)
Pension and OPEB expense (Note 4)	17		41
Pension contributions and OPEB payments (Note 4)	(55)		(68)
Share-based compensation expense	14		18




Russian suspension costs, net of recoveries (Note 3)	111		—
Asset impairments and other charges	36		—
Loss on corporate owned life insurance	85		12

Foreign currency remeasurement and transaction exposure	(10)		10
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(252)		(331)
Inventories	(498)		(628)
Other current assets	(65)		(18)
Accounts payable	426		377
Accrued expenses	(281)		169
Changes in other liabilities	(11)		(34)

Other, net	(38)		(56)
Net cash provided by operating activities	763		955

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(251)		(212)
Investments in internal use software	(24)		(22)

Proceeds from sale of land	—		20
Investments in and net advances (to) from equity investees	(53)		10
Acquisitions of businesses, net of cash acquired (Note 14)	(245)		—

Investments in marketable securities—acquisitions	(433)		(362)
Investments in marketable securities—liquidations (Note 7)	461		381


Cash flows from derivatives not designated as hedges	(32)		12
Other, net	1		27
Net cash used in investing activities	(576)		(146)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	56		20
Net borrowings (payments) of commercial paper	392		(123)
Payments on borrowings and finance lease obligations	(71)		(33)
Net payments under short-term credit agreements	(24)		(102)
Distributions to noncontrolling interests	(14)		(13)
Dividend payments on common stock	(411)		(394)
Repurchases of common stock	(347)		(1,090)
Proceeds from issuing common stock	19		26

Other, net	9		(13)
Net cash used in financing activities	(391)		(1,722)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	74		(7)
Net decrease in cash and cash equivalents	(130)		(920)
Cash and cash equivalents at beginning of year	2,592		3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,462	$	2,481

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


		Three months ended																			Three months ended
In millions, except per share amounts	In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Common Stock Held in Trust		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity		In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT JULY 4, 2021		$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793
BALANCE AT MARCH 31, 2022																				BALANCE AT MARCH 31, 2022	$	556	$	1,855	$	16,952	$	(9,412)	$	(1,515)	$	8,436	$	927	$	9,363

Net income	Net income					534								534		7		541		Net income					702						702		5		707
Other comprehensive income, net of tax (Note 12)										0		18		18		2		20

Other comprehensive loss, net of tax (Note 13)																				Other comprehensive loss, net of tax (Note 13)									(181)		(181)		(15)		(196)
Issuance of common stock																				Issuance of common stock			1								1		—		1

Repurchases of common stock	Repurchases of common stock			0				(138)				0		(138)		—		(138)		Repurchases of common stock			0				(36)		0		(36)		—		(36)
Cash dividends on common stock, $1.45 per share	Cash dividends on common stock, $1.45 per share					(207)								(207)		—		(207)		Cash dividends on common stock, $1.45 per share					(204)						(204)		—		(204)
Distributions to noncontrolling interests														—		(15)		(15)

Share-based awards	Share-based awards			0				1				0		1		—		1		Share-based awards			2				8		0		10		—		10

Other shareholder transactions	Other shareholder transactions			7				1						8		—		8		Other shareholder transactions			9				1				10		—		10
BALANCE AT OCTOBER 3, 2021		$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003
BALANCE AT JUNE 30, 2022																				BALANCE AT JUNE 30, 2022	$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

BALANCE AT JUNE 28, 2020		$	556	$	1,797	$	14,811	$	(7,729)	$	(1)	$	(2,242)	$	7,192	$	938	$	8,130
BALANCE AT APRIL 4, 2021																				BALANCE AT APRIL 4, 2021	$	556	$	1,837	$	15,825	$	(8,172)	$	(1,937)	$	8,109	$	922	$	9,031

Net income	Net income					501								501		3		504		Net income					600						600		12		612
Other comprehensive income, net of tax (Note 12)										0		135		135		10		145
Other comprehensive income (loss), net of tax (Note 13)																				Other comprehensive income (loss), net of tax (Note 13)									8		8		(7)		1
Issuance of common stock																				Issuance of common stock			1								1		—		1

Employee benefits trust activity				5				0		1				6		—		6
Repurchases of common stock																				Repurchases of common stock			0				(672)		0		(672)		—		(672)
Cash dividends on common stock, $1.35 per share																				Cash dividends on common stock, $1.35 per share					(197)						(197)		—		(197)

Cash dividends on common stock, $1.311 per share						(194)								(194)		—		(194)
Distributions to noncontrolling interests														—		(13)		(13)
Share-based awards	Share-based awards			13				33				0		46		—		46		Share-based awards			2				6		0		8		—		8

Other shareholder transactions	Other shareholder transactions			14										14		3		17		Other shareholder transactions			9								9		—		9
BALANCE AT SEPTEMBER 27, 2020		$	556	$	1,829	$	15,118	$	(7,696)	$	—	$	(2,107)	$	7,700	$	941	$	8,641
BALANCE AT JULY 4, 2021																				BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	(1,929)	$	7,866	$	927	$	8,793

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 EQUITY

(Unaudited)

Nine months ended
In millions, except per share amounts Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock Common
Stock
Held in
Trust Accumulated
Other
Comprehensive
Loss Total
Cummins Inc.
Shareholders’
Equity Noncontrolling
Interests Total
Equity
BALANCE AT DECEMBER 31, 2020 $ 556 $ 1,848 $ 15,419 $ (7,779) $ — $ (1,982) $ 8,062 $ 927 $ 8,989
Net income 1,737 1,737 27 1,764
Other comprehensive income (loss), net of tax (Note 12) 71 71 (5) 66
Issuance of common stock 1 1 — 1
Repurchases of common stock 0 (1,228) (1,228) — (1,228)
Cash dividends on common stock, $4.15 per share (601) (601) — (601)
Distributions to noncontrolling interests — (28) (28)
Share-based awards (4) 31 27 — 27
Other shareholder transactions 11 2 13 — 13
BALANCE AT OCTOBER 3, 2021 $ 556 $ 1,856 $ 16,555 $ (8,974) $ — $ (1,911) $ 8,082 $ 921 $ 9,003
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 1,288 1,288 13 1,301
Other comprehensive loss, net of tax (Note 12) (79) (79) (12) (91)
Issuance of common stock 10 10 — 10
Employee benefits trust activity 27 2 29 — 29
Repurchases of common stock 0 (550) (550) — (550)
Cash dividends on common stock, $3.933 per share (582) (582) — (582)
Distributions to noncontrolling interests — (26) (26)
Share-based awards (1) 79 78 — 78
Other shareholder transactions 3 3 8 11
BALANCE AT SEPTEMBER 27, 2020 $ 556 $ 1,829 $ 15,118 $ (7,696) $ — $ (2,107) $ 7,700 $ 941 $ 8,641



	Six months ended
In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2021	$	556	$	1,871	$	16,741	$	(9,123)	$	(1,571)	$	8,474	$	927	$	9,401

Net income					1,120						1,120		10		1,130
Other comprehensive loss, net of tax (Note 13)									(125)		(125)		(23)		(148)
Issuance of common stock			1								1		—		1

Repurchases of common stock			0				(347)				(347)		—		(347)
Cash dividends on common stock, $2.90 per share					(411)						(411)		—		(411)
Distributions to noncontrolling interests											—		(14)		(14)
Share-based awards			(7)				26				19		—		19

Other shareholder transactions			2				5				7		17		24
BALANCE AT JUNE 30, 2022	$	556	$	1,867	$	17,450	$	(9,439)	$	(1,696)	$	8,738	$	917	$	9,655

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

Net income					1,203						1,203		20		1,223
Other comprehensive income (loss), net of tax (Note 13)									53		53		(7)		46
Issuance of common stock			1								1		—		1

Repurchases of common stock			0				(1,090)				(1,090)		—		(1,090)
Cash dividends on common stock, $2.70 per share					(394)						(394)		—		(394)
Distributions to noncontrolling interests											—		(13)		(13)
Share-based awards			(4)				30				26		—		26

Other shareholder transactions			4				1				5		—		5
BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	(1,929)	$	7,866	$	927	$	8,793

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, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a service network of ~~over~~approximately 500 wholly-owned, joint venture and independent distributor locations and ~~over 9,000~~more than 10,000 Cummins certified dealer locations ~~with service to~~in approximately 190 countries and territories.

Reporting Period

Beginning in 2022, we transitioned to a Gregorian calendar with our reporting period ending on the last day of the quarterly calendar period. In 2021 and prior, our reporting period ended on the Sunday closest to the last day of the quarterly calendar period. The second quarters of 2022 and 2021 ended on June 30 and July 4, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

Interim Condensed Financial Statements

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

These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021. Our interim period financial results for the three and ~~nine~~six 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.

~~Reporting Period~~

Our reporting period usually ends on the Sunday closest to the last day of the quarterly calendar period. The third quarters of 2021 and 2020 ended on October 3 and September 27, respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

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 Nine months ended
October 3,
2021 September 27,
2020 October 3,
2021 September 27,
2020
Options excluded 7,813 2,405 4,577 858,651

Three months ended

Six months ended

June 30,
2022

July 4,
2021

June 30,
2022

July 4,
2021

Options excluded

33,100

3,137

26,782

2,958

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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 ~~October 3, 2021,~~June 30, 2022, was ~~$774~~$723 million. We expect to recognize the related revenue of ~~$134~~$128 million over the next 12 months and ~~$640~~$595 million over periods up to 10 years. See ~~Note 10,~~NOTE 11, "PRODUCT WARRANTY LIABILITY," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties.

Deferred and Unbilled Revenue

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


In millions	In millions	October 3, 2021		December 31, 2020		In millions	June 30, 2022		December 31, 2021
Unbilled revenue	Unbilled revenue	$	104	$	114	Unbilled revenue	$	128	$	100
Deferred revenue, primarily extended warranty	Deferred revenue, primarily extended warranty	1,642		1,531		Deferred revenue, primarily extended warranty	1,723		1,705

We recognized revenue of ~~$130~~$176 million and ~~$410~~$416 million for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, compared with ~~$84~~$133 million and ~~$290~~$302 million for the comparable periods in ~~2020,~~2021, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during the three and ~~nine~~six months ended ~~October 3, 2021~~June 30, 2022 or ~~September 27, 2020.~~July 4, 2021.

Disaggregation of Revenue

Consolidated Revenue

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


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
United States	United States	$	3,177	$	2,805	$	9,500	$	7,522	United States	$	3,788	$	3,263	$	7,245	$	6,323

China	China	679		705		2,468		2,037		China	520		832		1,173		1,789

India	India	294		166		841		406		India	311		217		620		547

Other international	Other international	1,818		1,442		5,362		4,016		Other international	1,967		1,799		3,933		3,544
Total net sales	Total net sales	$	5,968	$	5,118	$	18,171	$	13,981	Total net sales	$	6,586	$	6,111	$	12,971	$	12,203

Segment Revenue

Engine segment external sales by market were as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Heavy-duty truck	Heavy-duty truck	$	662	$	486	$	1,941	$	1,226	Heavy-duty truck	$	797	$	666	$	1,481	$	1,279
Medium-duty truck and bus	Medium-duty truck and bus	501		389		1,461		1,177		Medium-duty truck and bus	620		477		1,211		960
Light-duty automotive	Light-duty automotive	492		502		1,432		975		Light-duty automotive	425		466		912		940
Total on-highway	Total on-highway	1,655		1,377		4,834		3,378		Total on-highway	1,842		1,609		3,604		3,179
Off-highway	Off-highway	306		240		942		755		Off-highway	250		311		537		636
Total sales	Total sales	$	1,961	$	1,617	$	5,776	$	4,133	Total sales	$	2,092	$	1,920	$	4,141	$	3,815

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Distribution segment external sales by region were as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
North America	North America	$	1,237	$	1,126	$	3,631	$	3,409	North America	$	1,491	$	1,228	$	2,862	$	2,394
Asia Pacific	Asia Pacific	236		195		675		577		Asia Pacific	242		226		486		439
Europe	Europe	143		153		467		424		Europe	177		161		320		324
China										China	99		74		181		159
Russia	Russia	86		41		209		126		Russia	75		66		211		123
China		80		74		239		242
Latin America										Latin America	56		48		97		88
Africa and Middle East	Africa and Middle East	74		47		197		136		Africa and Middle East	55		69		101		123
India	India	48		42		138		101		India	52		41		100		90
Latin America		48		37		136		108
Total sales	Total sales	$	1,952	$	1,715	$	5,692	$	5,123	Total sales	$	2,247	$	1,913	$	4,358	$	3,740

Distribution segment external sales by product line were as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Parts	Parts	$	796	$	719	$	2,313	$	2,155	Parts	$	987	$	763	$	1,913	$	1,517
Power generation	Power generation	437		415		1,305		1,166		Power generation	440		452		838		868
Engines	Engines	376		278		1,058		876		Engines	428		349		866		682
Service	Service	343		303		1,016		926		Service	392		349		741		673
Total sales	Total sales	$	1,952	$	1,715	$	5,692	$	5,123	Total sales	$	2,247	$	1,913	$	4,358	$	3,740

Components segment external sales by business were as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Emission solutions	Emission solutions	$	699	$	612	$	2,466	$	1,576	Emission solutions	$	767	$	801	$	1,575	$	1,767
Filtration	Filtration	288		260		892		715		Filtration	319		303		627		604
Turbo technologies	Turbo technologies	177		163		609		463		Turbo technologies	195		207		392		432
Automated transmissions	Automated transmissions	112		90		374		215		Automated transmissions	143		147		277		262
Electronics and fuel systems	Electronics and fuel systems	71		76		286		223		Electronics and fuel systems	53		98		123		215
Total sales	Total sales	$	1,347	$	1,201	$	4,627	$	3,192	Total sales	$	1,477	$	1,556	$	2,994	$	3,280

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


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Power generation	Power generation	$	395	$	334	$	1,127	$	827	Power generation	$	408	$	381	$	807	$	732
Industrial	Industrial	209		167		621		477		Industrial	213		233		401		412
Generator technologies	Generator technologies	84		66		251		191		Generator technologies	113		85		209		167
Total sales	Total sales	$	688	$	567	$	1,999	$	1,495	Total sales	$	734	$	699	$	1,417	$	1,311

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NOTE 3. RUSSIAN OPERATIONS

On March 17, 2022, the Board of Directors (the Board) decided to indefinitely suspend our operations in Russia due to the ongoing conflict in Ukraine. At the time of suspension, our Russian operations included a wholly-owned distributor in Russia, an unconsolidated joint venture (the Unconsolidated JV) with KAMAZ Publicly Traded Company (KAMAZ), a Russian truck manufacturer with whom we share the Unconsolidated JV, and direct sales into Russia from our other business segments. As a result of the suspension of operations, we evaluated the recoverability of assets in Russia and assessed other potential liabilities. We experienced and expect to continue to experience, an inability to collect customer receivables and may be the subject of litigation as a consequence of our suspension of commercial operations in Russia. We recorded a charge of $158 million in the first quarter related to these actions. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. As of June 30, 2022, we had approximately $17 million of inventory and $26 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $84 million, some of which will be used to fund ongoing employee, tax and contract settlement obligations. The following summarizes the costs (recoveries) associated with the suspension of our Russian operations in our Condensed Consolidated Statements of Net Income:


	Three months ended		Six months ended
In millions	June 30, 2022		June 30, 2022		Statement of Net Income Location
Inventory write-downs	$	(40)	$	19	Cost of sales
Accounts receivable reserves	—		43		Other operating expense, net
Impairment and other joint venture costs	—		31		Equity, royalty and interest income from investees

Other	(7)		18		Other operating expense, net
Total	$	(47)	$	111

We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.

NOTE 3.4. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021

Defined benefit pension contributions	Defined benefit pension contributions	$	13	$	11	$	67	$	77	Defined benefit pension contributions	$	6	$	12	$	39	$	54

OPEB payments, net	OPEB payments, net	5		9		19		25		OPEB payments, net	6		5		16		14

Defined contribution pension plans	Defined contribution pension plans	20		18		72		70		Defined contribution pension plans	20		17		56		52

~~During the remainder of 2021, we~~We anticipate making ~~$6 million in~~ additional defined benefit pension contributions induring the ~~U.K. and $4~~remainder of 2022 of $10 million ~~in contributions to~~for our U.S. and U.K. qualified and non-qualified ~~benefit~~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 ~~2021~~2022 annual net periodic pension cost to approximate ~~$79~~$31 million.

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The components of net periodic pension and OPEB costs under our plans were as follows:


		Pension													Pension
		U.S. Plans				U.K. Plans				OPEB					U.S. Plans				U.K. Plans				OPEB
		Three months ended													Three months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Service cost	Service cost	$	35	$	33	$	8	$	8	$	—	$	—	Service cost	$	34	$	35	$	8	$	9	$	—	$	—
Interest cost	Interest cost	20		24		8		8		1		2		Interest cost	22		20		9		7		1		1
Expected return on plan assets	Expected return on plan assets	(49)		(49)		(22)		(19)		—		—		Expected return on plan assets	(52)		(50)		(20)		(22)		—		—
Amortization of prior service cost	Amortization of prior service cost	—		—		1		1		—		—		Amortization of prior service cost	—		—		—		1		—		—
Recognized net actuarial loss	Recognized net actuarial loss	11		10		8		9		—		—		Recognized net actuarial loss	6		12		—		8		—		—
Net periodic benefit cost		$	17	$	18	$	3	$	7	$	1	$	2
Net periodic benefit cost (credit)														Net periodic benefit cost (credit)	$	10	$	17	$	(3)	$	3	$	1	$	1


		Pension													Pension
		U.S. Plans				U.K. Plans				OPEB					U.S. Plans				U.K. Plans				OPEB
		Nine months ended													Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Service cost	Service cost	$	105	$	100	$	25	$	22	$	—	$	—	Service cost	$	68	$	70	$	16	$	17	$	—	$	—
Interest cost	Interest cost	59		71		23		26		3		5		Interest cost	44		39		18		15		2		2
Expected return on plan assets	Expected return on plan assets	(149)		(146)		(65)		(56)		—		—		Expected return on plan assets	(104)		(100)		(40)		(43)		—		—
Amortization of prior service cost	Amortization of prior service cost	—		1		2		2		—		—		Amortization of prior service cost	—		—		—		1		—		—
Recognized net actuarial loss	Recognized net actuarial loss	35		30		24		26		—		—		Recognized net actuarial loss	12		24		1		16		—		—
Net periodic benefit cost		$	50	$	56	$	9	$	20	$	3	$	5
Net periodic benefit cost (credit)														Net periodic benefit cost (credit)	$	20	$	33	$	(5)	$	6	$	2	$	2

~~Table of Contents~~

NOTE 4.5. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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


		Three months ended					Nine months ended						Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020			In millions	June 30, 2022		July 4, 2021		June 30, 2022			July 4, 2021
Manufacturing entities	Manufacturing entities											Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.	Beijing Foton Cummins Engine Co., Ltd.	$	23	$	30		$	108	$	81		Beijing Foton Cummins Engine Co., Ltd.	$	14	$	46	$	28		$	85
Dongfeng Cummins Engine Company, Ltd.	Dongfeng Cummins Engine Company, Ltd.	11		20			63		54			Dongfeng Cummins Engine Company, Ltd.	11		21		27			52
Chongqing Cummins Engine Company, Ltd.	Chongqing Cummins Engine Company, Ltd.	8		7			28		27			Chongqing Cummins Engine Company, Ltd.	7		10		16			20
Tata Cummins, Ltd.												Tata Cummins, Ltd.	5		1		14			7
All other manufacturers	All other manufacturers	27		22		(1)	117		100		(1)(2)	All other manufacturers	13		28		3		(1)	83

Distribution entities	Distribution entities											Distribution entities
Komatsu Cummins Chile, Ltda.	Komatsu Cummins Chile, Ltda.	8		6			23		23			Komatsu Cummins Chile, Ltda.	12		9		19			15
All other distributors	All other distributors	2		1			6		1			All other distributors	3		1		5			4

Cummins share of net income	Cummins share of net income	79		86			345		286			Cummins share of net income	65		116		112			266
Royalty and interest income	Royalty and interest income	15		12			52		56			Royalty and interest income	30		21		79			37
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	$	94	$	98		$	397	$	342		Equity, royalty and interest income from investees	$	95	$	137	$	191		$	303

(1) Includes impairment charges of $10 million and $13 million for the three and nine months ended September 27, 2020, respectively, for a joint venture in the Power Systems segment.

(2) Includes $37 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March 2020.
(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.												(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

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NOTE 5.6. INCOME TAXES

Our effective tax rates for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, were ~~19.9~~17.3 percent and 21.1 percent, respectively. Our effective tax rates for the three and ~~nine~~six months ended ~~September 27, 2020,~~July 4, 2021, were ~~26.5~~21.4 percent and ~~23.6~~21.7 percent, respectively.

The three months ended ~~October 3, 2021,~~June 30, 2022, contained favorable discrete tax items of ~~$11~~$36 million, primarily due to $36 million of favorable changes in tax reserves, $10 million of favorable changes associated with uncertainty in our Russian operations and $8 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business.

The six months ended June 30, 2022, contained favorable net discrete tax items of $5 million, primarily due to $27 million of favorable changes in tax reserves and $4 million of net favorable other discrete tax items, partially offset by $18 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and $8 million of unfavorable changes associated with uncertainty in our Russian operations.

The three months ended July 4, 2021, contained unfavorable discrete items of $7 million, primarily due to a ~~$16~~$10 million ~~favorable release of~~unfavorable statutory change in tax ~~reserves associated with~~rates (mostly in the ~~settlement of tax positions,~~UK), partially offset by $5$3 million of ~~unfavorable return to provision adjustments.~~other favorable discrete items.

The ~~nine~~six months ended ~~October 3,~~July 4, 2021, contained favorable discrete items of $8 million, primarily due to an $18 million favorable release of tax reserves associated with the settlement of tax positions, partially offset by $10 million of unfavorable statutory changes in tax rates, mostly in the U.K.

~~The three months ended September 27, 2020,~~ contained unfavorable discrete items of ~~$31~~$3 million, primarily due to ~~$17~~a $10 million ~~of changes~~unfavorable statutory change in tax ~~reserves, $8 million of provision to return adjustments relating to tax returns filed for 2019 and $6 million of net other discrete items.~~

~~The nine months ended September 27, 2020, contained $27 million of unfavorable net discrete tax items, primarily due to $34 million of unfavorable changes~~rates (mostly in ~~tax reserves and $8 million of provision to return adjustments,~~the UK), partially offset by ~~$15~~$7 million of other favorable ~~tax changes due to the India Tax Law Change passed in March of 2020. See~~ ~~Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K~~ ~~for additional information on India Tax Law Changes.~~

discrete items.

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NOTE 6.7. MARKETABLE SECURITIES

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


		October 3, 2021						December 31, 2020							June 30, 2022						December 31, 2021
In millions	In millions	Cost		Gross unrealized gains/(losses)(1)		Estimated fair value		Cost		Gross unrealized gains/(losses)(1)		Estimated fair value		In millions	Cost		Gross unrealized gains/(losses)(1)		Estimated fair value		Cost		Gross unrealized gains/(losses)(1)		Estimated fair value

Equity securities	Equity securities													Equity securities

Debt mutual funds		$	196	$	2	$	198	$	267	$	5	$	272
Certificates of deposit	Certificates of deposit	200		—		200		164		—		164		Certificates of deposit	$	296	$	—	$	296	$	299	$	—	$	299

Debt mutual funds														Debt mutual funds	220		(5)		215		254		2		256
Equity mutual funds	Equity mutual funds	22		9		31		19		5		24		Equity mutual funds	22		3		25		29		10		39

Debt securities	Debt securities	1		—		1		1		—		1		Debt securities	—		—		—		1		—		1

Total marketable securities	Total marketable securities	$	419	$	11	$	430	$	451	$	10	$	461	Total marketable securities	$	538	$	(2)	$	536	$	583	$	12	$	595

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

All debt securities are classified as available-for-sale. All marketable securities presented use a Level 2 fair value measure. The fair value of Level 2 securities is estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 securities, and there were no transfers between Level 2 or 3 during the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, or the year ended December 31, ~~2020.~~2021.

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 measure.

•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.

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

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


		Nine months ended						Six months ended
In millions	In millions		October 3, 2021		September 27, 2020		In millions		June 30, 2022		July 4, 2021
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities		$	428	$	283	Proceeds from sales of marketable securities		$	346	$	273
Proceeds from maturities of marketable securities	Proceeds from maturities of marketable securities		174		125		Proceeds from maturities of marketable securities		115		108
Investments in marketable securities - liquidations	Investments in marketable securities - liquidations		$	602	$	408	Investments in marketable securities - liquidations		$	461	$	381

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NOTE 7.8. INVENTORIES

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

In millions October 3,
2021 December 31,
2020
Finished products $ 2,494 $ 2,216
Work-in-process and raw materials 1,998 1,346
Inventories at FIFO cost 4,492 3,562
Excess of FIFO over LIFO (170) (137)
Total inventories $ 4,322 $ 3,425


In millions	June 30, 2022		December 31, 2021
Finished products	$	2,635	$	2,538
Work-in-process and raw materials	2,349		2,009
Inventories at FIFO cost	4,984		4,547
Excess of FIFO over LIFO	(219)		(192)
Total inventories	$	4,765	$	4,355

NOTE 8.9. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:

In millions October 3,
2021 December 31,
2020
Corporate owned life insurance $ 482 $ 508
Operating lease assets 455 438
Deferred income taxes 411 479
Other 357 308
Other assets $ 1,705 $ 1,733



In millions	June 30, 2022		December 31, 2021
Deferred income taxes	$	525	$	428
Operating lease assets	430		444
Corporate owned life insurance	407		492

Other	514		402
Other assets	$	1,876	$	1,766

Other accrued expenses included the following:

In millions October 3,
2021 December 31,
2020
Marketing accruals $ 290 $ 242
Other taxes payable 268 256
Current portion of operating lease liabilities 127 128
Income taxes payable 92 82
Other 408 404
Other accrued expenses $ 1,185 $ 1,112

~~Other liabilities included the following:~~

In millions October 3,
2021 December 31,
2020
Operating lease liabilities $ 327 $ 325
Deferred income taxes 327 325
One-time transition tax 255 289
Accrued compensation 201 203
Mark-to-market valuation on interest rate locks 5 41
Other long-term liabilities 320 365
Other liabilities $ 1,435 $ 1,548



In millions	June 30, 2022		December 31, 2021
Marketing accruals	$	297	$	303
Other taxes payable	195		234
Income taxes payable	152		107
Current portion of operating lease liabilities	120		128
Other	457		418
Other accrued expenses	$	1,221	$	1,190

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Other liabilities included the following:



In millions	June 30, 2022		December 31, 2021

Deferred income taxes	$	395	$	403
Operating lease liabilities	315		326
Long-term income taxes	192		263
Accrued compensation	162		177
Mark-to-market valuation on interest rate derivatives	114		19
Other long-term liabilities	328		320
Other liabilities	$	1,506	$	1,508

NOTE 9.10. DEBT

Loans Payable and Commercial Paper

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


In millions	In millions	October 3, 2021			December 31, 2020			In millions	June 30, 2022			December 31, 2021

Loans payable (1)	Loans payable (1)	$	85		$	169		Loans payable (1)	$	165		$	208

Commercial paper	Commercial paper	200		(2)	323		(3)	Commercial paper	705		(2)	313		(3)

(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.	(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.						(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was 0.14 percent at October 3, 2021 and included $200 million of borrowings under the U.S. program.
(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020 and included $123 million of borrowings under the Europe program that were negative 0.34 percent and $200 million of borrowings under the U.S. program at 0.19 percent.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was 1.33 percent at June 30, 2022. This included $105 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.20 percent and $600 million of borrowings under the U.S. program at a weighted-average interest rate of 1.60 percent.								(2) The weighted-average interest rate, inclusive of all brokerage fees, was 1.33 percent at June 30, 2022. This included $105 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.20 percent and $600 million of borrowings under the U.S. program at a weighted-average interest rate of 1.60 percent.
(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2021. This included $113 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.39 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.21 percent.								(3) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2021. This included $113 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.39 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.21 percent.

Revolving Credit Facilities

~~On August 18, 2021,~~As of June 30, 2022, we ~~entered into an amended and restated 5-year revolving~~had access to committed credit ~~agreement with a syndicate of lenders. The amended and restated credit agreement provides us with a $2~~facilities totaling $3.5 billion, ~~senior unsecured revolving credit facility until August 18, 2026. This credit agreement replaces~~including 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 October 3, 2021. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.

On August 18, 2021, 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 17, 2022. This credit agreement amended and restated the prior $1.5 billion 364-day ~~credit~~ facility that ~~matured~~expires August 17, 2022 and our $2.0 billion five-year facility that expires 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 October 3, 2021, we were in compliance with these covenants. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes.2026. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. There were no outstanding borrowings under these facilities at ~~October 3, 2021~~June 30, 2022 and December 31, ~~2020.~~2021.

At ~~October 3, 2021,~~June 30, 2022, the ~~$200~~$705 million of outstanding commercial paper effectively reduced the $3.5 billion of revolving credit capacity to ~~$3.3~~$2.8 billion.

At ~~October 3, 2021,~~June 30, 2022, we also had an additional ~~$268~~$271 million available for borrowings under our international and other domestic credit facilities.

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Long-term Debt

A summary of long-term debt was as follows:


In millions	In millions	Interest Rate	October 3, 2021		December 31, 2020		In millions	Interest Rate	June 30, 2022		December 31, 2021
Long-term debt	Long-term debt						Long-term debt
Senior notes, due 2023	Senior notes, due 2023	3.65%	$	500	$	500	Senior notes, due 2023	3.65%	$	500	$	500
Senior notes, due 2025(1)	Senior notes, due 2025(1)	0.75%	500		500		Senior notes, due 2025(1)	0.75%	500		500
Debentures, due 2027	Debentures, due 2027	6.75%	58		58		Debentures, due 2027	6.75%	58		58
Debentures, due 2028	Debentures, due 2028	7.125%	250		250		Debentures, due 2028	7.125%	250		250
Senior notes, due 2030(1)	Senior notes, due 2030(1)	1.50%	850		850		Senior notes, due 2030(1)	1.50%	850		850
Senior notes, due 2043	Senior notes, due 2043	4.875%	500		500		Senior notes, due 2043	4.875%	500		500
Senior notes, due 2050	Senior notes, due 2050	2.60%	650		650		Senior notes, due 2050	2.60%	650		650
Debentures, due 2098(2)	Debentures, due 2098(2)	5.65%	165		165		Debentures, due 2098(2)	5.65%	165		165

Other debt	Other debt		124		132		Other debt		149		110

Unamortized discount and deferred issuance costs	Unamortized discount and deferred issuance costs		(68)		(72)		Unamortized discount and deferred issuance costs		(65)		(68)
Fair value adjustments due to hedge on indebtedness	Fair value adjustments due to hedge on indebtedness		39		48		Fair value adjustments due to hedge on indebtedness		(85)		34
Finance leases	Finance leases		89		91		Finance leases		83		89
Total long-term debt	Total long-term debt		3,657		3,672		Total long-term debt		3,555		3,638
Less: Current maturities of long-term debt	Less: Current maturities of long-term debt		55		62		Less: Current maturities of long-term debt		65		59
Long-term debt	Long-term debt		$	3,602	$	3,610	Long-term debt		$	3,490	$	3,579

(1) In the third quarter of 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%.
(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.							(1) In 2021, we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate. See "Interest Rate Risk" below for additional information.
(2) The effective interest rate is 7.48 percent.							(2) The effective interest rate is 7.48 percent.

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


In millions	In millions	2021		2022		2023		2024		2025		In millions	2022		2023		2024		2025		2026
Principal payments	Principal payments	$	16	$	58	$	536	$	31	$	507	Principal payments	$	44	$	545	$	41	$	508	$	54

Interest Rate Risk

InBeginning in the ~~third quarter~~second half of 2021, we entered into a series of interest rate swaps to effectively convert ~~$400 million of~~ our ~~August 2020,~~ $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month LIBOR plus a spread, and we also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread.

The ~~swaps were designated,~~following table summarizes the gains 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 losses:


	Three months ended				Six months ended
In millions	June 30, 2022					June 30, 2022
Type of Swap	Gain (Loss) on Swaps		Gain (Loss) on Borrowings				Gain (Loss) on Swaps		Gain (Loss) on Borrowings
Interest rate swaps(1)	$	(39)	$	34			$	(111)	$	114

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

Table of Contents~~Condensed Consolidated Financial Statements~~ as "Interest expense." The loss on the interest rate swaps was less than $1 million and the offsetting gain on borrowing was less than $1 million for the three and nine month periods ended October 3, 2021.

We have interest rate lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity.

The following table summarizes the gains and ~~(losses),~~losses, net of tax, recognized in ~~"Other~~other comprehensive ~~income":~~income:

In millions Three months ended Nine months ended
Type of Swap October 3,
2021 September 27,
2020 October 3,
2021 September 27,
2020
Interest rate locks $ — $ 17 $ 28 $ (52)

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In millions	Three months ended				Six months ended
Type of Swap	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Interest rate locks	$	43	$	(33)	$	82	$	28

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	In millions	October 3, 2021		December 31, 2020		In millions	June 30, 2022		December 31, 2021
Fair value of total debt (1)	Fair value of total debt (1)	$	4,285	$	4,665	Fair value of total debt (1)	$	4,109	$	4,461
Carrying value of total debt	Carrying value of total debt	3,942		4,164		Carrying value of total debt	4,425		4,159

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

Shelf Registration

As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the SEC on February 8, 2022. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

NOTE ~~10.~~11. PRODUCT WARRANTY LIABILITY

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


		Nine months ended					Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		In millions	June 30, 2022			July 4, 2021
Balance, beginning of year	Balance, beginning of year	$	2,307	$	2,389	Balance, beginning of year	$	2,425		$	2,307
Provision for base warranties issued	Provision for base warranties issued	431		277		Provision for base warranties issued	267			302
Deferred revenue on extended warranty contracts sold	Deferred revenue on extended warranty contracts sold	210		172		Deferred revenue on extended warranty contracts sold	145			136
Provision for product campaigns issued	Provision for product campaigns issued	162		27		Provision for product campaigns issued	65			46
Payments made during period	Payments made during period	(409)		(424)		Payments made during period	(289)			(283)

Amortization of deferred revenue on extended warranty contracts	Amortization of deferred revenue on extended warranty contracts	(191)		(169)		Amortization of deferred revenue on extended warranty contracts	(146)			(124)
Changes in estimates for pre-existing product warranties	Changes in estimates for pre-existing product warranties	(131)		(41)		Changes in estimates for pre-existing product warranties	(47)			(74)
Foreign currency translation and other	Foreign currency translation and other	(4)		(6)		Foreign currency translation and other	106		(1)	(6)

Balance, end of period	Balance, end of period	$	2,375	$	2,225	Balance, end of period	$	2,526		$	2,304

(1) Includes $95 million of product warranty liability related to the acquisition of Cummins Westport Joint Venture. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.						(1) Includes $95 million of product warranty liability related to the acquisition of Cummins Westport Joint Venture. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

We recognized supplier recoveries of ~~$88~~$10 million and ~~$97~~$23 million for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, compared with $5 million and ~~$16~~$9 million for the comparable periods in ~~2020.~~2021.

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

In millions October 3,
2021 December 31,
2020 Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion $ 283 $ 261 Current portion of deferred revenue
Long-term portion 695 700 Deferred revenue
Total $ 978 $ 961
Product warranty
Current portion $ 694 $ 674 Current portion of accrued product warranty
Long-term portion 703 672 Accrued product warranty
Total $ 1,397 $ 1,346
Total warranty accrual $ 2,375 $ 2,307

~~Table of Contents~~


In millions	June 30, 2022		December 31, 2021		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	296	$	286	Current portion of deferred revenue
Long-term portion	720		700		Deferred revenue
Total	$	1,016	$	986

Product warranty
Current portion	$	796	$	755	Current portion of accrued product warranty
Long-term portion	714		684		Accrued product warranty
Total	$	1,510	$	1,439

Total warranty accrual	$	2,526	$	2,425

Engine System Campaign Accrual

During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component. In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population. The total engine system campaign charge, excluding supplier recoveries, was $410 million. In the fourth quarter of 2020, we recorded an additional $20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $430 million. At ~~October 3, 2021,~~June 30, 2022, the remaining accrual balance was ~~$94~~$63 million.

NOTE ~~11.~~12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are subject to numerous lawsuits and claims arising out of the ordinary course of our business, including actions related to product liability; personal injury; the use and performance of our products; warranty matters; product recalls; patent, trademark or other intellectual property infringement; contractual liability; the conduct of our business; tax reporting in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

We conduct significant business operations in Brazil that are subject to the Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they are complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.

On June 28, 2022, KAMAZ was designated to the List of Specially Designated Nationals and Blocked Persons by the U.S. Department of the Treasury’s Office of Foreign Assets Control. We filed blocked property reports for relevant assets and are seeking relevant authorizations to extricate ourselves from our relationship with KAMAZ and its subsidiaries, including the Unconsolidated JV, in compliance with U.S. law.

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On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors as we strive to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. 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 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. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our ongoing discussions, the regulators turned their attention to other model years and other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through 2018. ~~Due~~In connection with these and other ongoing discussions with the EPA and CARB, we are developing a new software calibration and will recall model years 2013 through 2018 RAM 2500 and 3500 trucks. We accrued $30 million for the recall during the first quarter of 2022, an amount that reflects our current estimate of the cost of the recall.

We will continue to work together closely with the ~~continuing nature~~relevant regulators to develop and implement recommendations for improvement and seek to reach further resolutions as part of our ~~formal review, our~~ ongoing ~~cooperation with our regulators and~~commitment to compliance. Due to the presence of many unknown facts and circumstances, we ~~cannot predict~~are not yet able to estimate any further financial impact of these matters. It is possible that the ~~final outcome~~consequences of ~~this~~any remediation plans resulting from our formal review and these regulatory processes ~~nor whether, or the extent to which, they~~ could have a material adverse impact on our results of operations and cash flows.

Guarantees and Commitments

Periodically, we enter into guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. At ~~October 3, 2021,~~June 30, 2022, the maximum potential loss related to these guarantees was ~~$49~~$41 million.

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We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At ~~October 3, 2021,~~June 30, 2022, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately ~~$90~~$126 million. These arrangements enable us to secure supplies of critical components and IT services. We do not currently anticipate paying any penalties under these contracts.

We enter into physical forward contracts with suppliers of platinum and palladium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At ~~October 3, 2021,~~June 30, 2022, the total commitments under these contracts were ~~$54~~$91 million. These arrangements enable us to guarantee the prices of these commodities, which otherwise are subject to market volatility.

We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were ~~$105~~$117 million at ~~October 3, 2021.~~June 30, 2022.

Indemnifications

Periodically, we enter into various contractual arrangements where we agree to indemnify a third-party against certain types of losses. Common types of indemnities include:

•product liability and license, patent or trademark indemnifications;

•asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and

•any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.

We regularly evaluate the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable. Because the indemnifications are not related to specified known liabilities and due to their uncertain nature, we are unable to estimate the maximum amount of the potential loss associated with these indemnifications.

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NOTE ~~12.~~13. ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component for the three months ended:


In millions	In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total		In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives			Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at July 4, 2021		$	(689)	$	(1,231)	$	(9)	$	(1,929)
Balance at March 31, 2022														Balance at March 31, 2022	$	(330)	$	(1,196)	$	11		$	(1,515)
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications													Other comprehensive income before reclassifications
Before-tax amount	Before-tax amount	1		(2)		5		4		$	2	$	6	Before-tax amount	—		(235)		59			(176)		$	(15)	$	(191)
Tax expense		(1)		—		(3)		(4)		—		(4)
Tax benefit (expense)														Tax benefit (expense)	1		5		(15)			(9)		—		(9)
After-tax amount	After-tax amount	—		(2)		2		—		2		2		After-tax amount	1		(230)		44			(185)		(15)		(200)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	Amounts reclassified from accumulated other comprehensive income (loss)(1)	17		—		1		18		—		18		Amounts reclassified from accumulated other comprehensive income (loss)(1)	5		—		(1)			4		—		4

Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	17		(2)		3		18		$	2	$	20	Net current period other comprehensive income (loss)	6		(230)		43		(2)	(181)		$	(15)	$	(196)
Balance at October 3, 2021		$	(672)	$	(1,233)	$	(6)	$	(1,911)
Balance at June 30, 2022														Balance at June 30, 2022	$	(324)	$	(1,426)	$	54		$	(1,696)

Balance at June 28, 2020		$	(716)	$	(1,436)	$	(90)	$	(2,242)
Balance at April 4, 2021														Balance at April 4, 2021	$	(706)	$	(1,260)	$	29		$	(1,937)
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications													Other comprehensive income before reclassifications
Before-tax amount	Before-tax amount	—		101		23		124		$	10	$	134	Before-tax amount	—		29		(45)			(16)		$	(7)	$	(23)
Tax expense		—		—		(5)		(5)		—		(5)
Tax benefit														Tax benefit	1		—		9			10		—		10
After-tax amount	After-tax amount	—		101		18		119		10		129		After-tax amount	1		29		(36)			(6)		(7)		(13)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	Amounts reclassified from accumulated other comprehensive income (loss)(1)	16		—		—		16		—		16		Amounts reclassified from accumulated other comprehensive income (loss)(1)	16		—		(2)			14		—		14
Net current period other comprehensive income		16		101		18		135		$	10	$	145
Balance at September 27, 2020		$	(700)	$	(1,335)	$	(72)	$	(2,107)
Net current period other comprehensive income (loss)														Net current period other comprehensive income (loss)	17		29		(38)		(2)	8		$	(7)	$	1
Balance at July 4, 2021														Balance at July 4, 2021	$	(689)	$	(1,231)	$	(9)		$	(1,929)

(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.
(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income and the related tax effects are immaterial for separate disclosure.														(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 10, "DEBT," for additional information.														(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 10, "DEBT," for additional information.

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Following are the changes in accumulated other comprehensive income (loss) by component for the ~~nine~~six months ended:

In millions Change in pensions
and other
postretirement
defined benefit plans Foreign currency
translation
adjustment Unrealized gain
(loss) on
derivatives Total
attributable to
Cummins Inc. Noncontrolling
interests Total
Balance at December 31, 2020 $ (735) $ (1,204) $ (43) $ (1,982)
Other comprehensive income before reclassifications
Before-tax amount 16 (33) 53 36 $ (5) $ 31
Tax (expense) benefit (3) 4 (16) (15) — (15)
After-tax amount 13 (29) 37 21 (5) 16
Amounts reclassified from accumulated other comprehensive income (loss)(1)
50 — — 50 — 50
Net current period other comprehensive income (loss) 63 (29) 37 (2) 71 $ (5) $ 66
Balance at October 3, 2021 $ (672) $ (1,233) $ (6) $ (1,911)
Balance at December 31, 2019 $ (734) $ (1,285) $ (9) $ (2,028)
Other comprehensive income before reclassifications
Before-tax amount (19) (54) (75) (148) $ (12) $ (160)
Tax benefit 5 4 16 25 — 25
After-tax amount (14) (50) (59) (123) (12) (135)
Amounts reclassified from accumulated other comprehensive income (loss)(1)
48 — (4) 44 — 44
Net current period other comprehensive income (loss) 34 (50) (63) (2) (79) $ (12) $ (91)
Balance at September 27, 2020 $ (700) $ (1,335) $ (72) $ (2,107)
(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 9 "DEBT" for additional information.




In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives			Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at December 31, 2021	$	(346)	$	(1,208)	$	(17)		$	(1,571)
Other comprehensive income before reclassifications
Before-tax amount	14		(224)		95			(115)		$	(23)	$	(138)
Tax (expense) benefit	(3)		6		(22)			(19)		—		(19)
After-tax amount	11		(218)		73			(134)		(23)		(157)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	11		—		(2)			9		—		9
Net current period other comprehensive income (loss)	22		(218)		71		(2)	(125)		$	(23)	$	(148)
Balance at June 30, 2022	$	(324)	$	(1,426)	$	54		$	(1,696)

Balance at December 31, 2020	$	(735)	$	(1,204)	$	(43)		$	(1,982)
Other comprehensive income before reclassifications
Before-tax amount	15		(31)		48			32		$	(7)	$	25
Tax (expense) benefit	(2)		4		(13)			(11)		—		(11)
After-tax amount	13		(27)		35			21		(7)		14
Amounts reclassified from accumulated other comprehensive income (loss)(1)	33		—		(1)			32		—		32
Net current period other comprehensive income (loss)	46		(27)		34		(2)	53		$	(7)	$	46
Balance at July 4, 2021	$	(689)	$	(1,231)	$	(9)		$	(1,929)










(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income and the related tax effects are immaterial for separate disclosure.
(2) Primarily related to interest rate lock activity. See the Interest Rate Risk section in NOTE 10, "DEBT," for additional information.

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NOTE 14. ACQUISITIONS

On February 7, 2022, we purchased Westport Fuel System Inc.'s stake in the Cummins Westport Joint Venture. We will continue to operate the business as the sole owner. The purchase price was $42 million and was allocated primarily to cash, warranty and deferred revenue related to extended coverage contracts. The results of the business were reported in our Engine segment. Pro forma financial information for the acquisition was not presented as the effects are not material to our Condensed Consolidated Financial Statements.

On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. Sales of this business were $194 million in 2021. The purchase price was $346 million in cash, subject to typical adjustments related to closing working capital and other amounts and does not contain any contingent consideration. Jacobs is a supplier of engine braking, cylinder deactivation and start and stop thermal management technologies. The acquisition furthers our investment in key technologies and capabilities to drive growth, while securing our supply base. The preliminary purchase price allocation was as follows:


In millions
Cash	$	18
Accounts receivable	24
Inventory	15
Fixed assets	70
Intangible assets
Customer relationships	108
Technology	31
Trade name	25
Goodwill	108
Accounts payable	(21)
Deferred tax liability, net	(27)
Other, net	(5)
Total purchase price	$	346

Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers, which we are amortizing over nine years. 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. This value is considered a level 3 measurement under the GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of 18 percent and (2) renewal probability assumptions. Technology assets primarily represent the associated patents and know how related to the engine braking and emission technology, which we are amortizing over a range of 7 to 12 years. Trade name represents the value of Jacobs trade names in the marketplace, which we are amortizing over 14 years. These assets were valued using the "relief-from-royalty" method, which is a combination of both 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 impacting these values include: (1) market royalty rates of 2 to 7 percent, (2) rates of return of 17 to 18 percent and (3) technology obsolescence of 7 to 10 percent. These values are considered a level 3 measurement under the GAAP fair value hierarchy. Annual amortization of the intangible assets for the next five years is expected to approximate $18 million.

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. Approximately $9 million of the goodwill is deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are Jacob’s expected future customers, new versions of technologies, an acquired workforce and other economic benefits that are anticipated to arise from future product sales and operational synergies from combining the business with Cummins.

Included in our second quarter results were revenues of $37 million and income of $2 million related to this business. The results of this business were reported in our Components segment. Pro forma financial information for the acquisition was not presented as the effects are not material to our Condensed Consolidated Financial Statements.

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On February 21, 2022, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Meritor, Inc. (Meritor) and Rose NewCo Inc. (Merger Sub) pursuant to which we agreed to acquire Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. At closing, Merger Sub will merge into Meritor with Meritor as the surviving entity and becoming our wholly-owned subsidiary. This acquisition will be reported in our Components and New Power segments. Pursuant to the terms of the Merger Agreement, we agreed to pay $36.50 in cash per share of Meritor common stock.

On May 26, 2022, Meritor's shareholders voted to approve the Merger Agreement. On August 3, 2022, we completed the acquisition of Meritor with a purchase price of $3.0 billion (including convertible debt). We repaid $250 million of Meritor's debt as part of the acquisition, and we intend to pay off an additional $310 million in the third quarter of 2022. The acquisition was funded with borrowings drawn under the $2.0 billion term loan agreement and $1.3 billion of additional commercial paper borrowings. The integration of Meritor's people, products and capabilities in axle and brake technology will position us as a leading provider of integrated powertrain solutions across internal combustion and electric power applications. See NOTE 16, “SUBSEQUENT EVENTS,” for additional information related to the $2.0 billion loan agreement. Due to the timing of the acquisition, the initial purchase accounting is not yet complete and will follow in the third quarter Form 10-Q filing.

NOTE ~~13.~~15. OPERATING SEGMENTS

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is the ~~President and~~ Chief ~~Operating~~Executive Officer.

Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ~~ranging from fully electric to hybrid along~~ with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

We use segment earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests (EBITDA) as the primary basis for the CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments.

The accounting policies of our operating segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance to individual segments. EBITDA may not be consistent with measures used by other companies.

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Summarized financial information regarding our reportable operating segments for the three months ended is shown in the table below:


In millions	In millions	Engine		Distribution		Components		Power Systems		New Power		Total Segments		In millions	Engine		Distribution		Components		Power Systems		New Power		Total Segments
Three months ended October 3, 2021
Three months ended June 30, 2022														Three months ended June 30, 2022
External sales	External sales	$	1,961	$	1,952	$	1,347	$	688	$	20	$	5,968	External sales	$	2,092	$	2,247	$	1,477	$	734	$	36	$	6,586
Intersegment sales	Intersegment sales	617		7		446		476		3		1,549		Intersegment sales	683		6		473		469		6		1,637
Total sales	Total sales	2,578		1,959		1,793		1,164		23		7,517		Total sales	2,775		2,253		1,950		1,203		42		8,223

Research, development and engineering expenses	Research, development and engineering expenses	97		10		78		55		26		266		Research, development and engineering expenses	116		13		73		58		39		299
Equity, royalty and interest income (loss) from investees	Equity, royalty and interest income (loss) from investees	61		15		10		11		(3)		94		Equity, royalty and interest income (loss) from investees	59		21		9		10		(4)		95

Interest income	Interest income	3		2		1		1		—		7		Interest income	1		3		2		1		—		7
EBITDA		391		192		253		134		(58)		912
Depreciation and amortization(1)		53		28		44		29		5		159

Russian suspension costs (recoveries)(1)														Russian suspension costs (recoveries)(1)	1		(45)		(2)		(1)		—		(47)

Segment EBITDA														Segment EBITDA	422		297		352		128		(80)		1,119
Depreciation and amortization(2)														Depreciation and amortization(2)	49		29		49		31		8		166

Three months ended September 27, 2020
Three months ended July 4, 2021														Three months ended July 4, 2021
External sales	External sales	$	1,617	$	1,715	$	1,201	$	567	$	18	$	5,118	External sales	$	1,920	$	1,913	$	1,556	$	699	$	23	$	6,111
Intersegment sales	Intersegment sales	495		6		340		414		—		1,255		Intersegment sales	571		7		438		444		1		1,461
Total sales	Total sales	2,112		1,721		1,541		981		18		6,373		Total sales	2,491		1,920		1,994		1,143		24		7,572

Research, development and engineering expenses	Research, development and engineering expenses	72		9		64		53		26		224		Research, development and engineering expenses	99		12		79		60		26		276
Equity, royalty and interest income (loss) from investees	Equity, royalty and interest income (loss) from investees	74		13		13		—		(2)		98		Equity, royalty and interest income (loss) from investees	104		15		12		9		(3)		137

Interest income	Interest income	1		1		1		1		—		4		Interest income	1		2		1		1		—		5
EBITDA		382		182		261		101		(40)		886
Depreciation and amortization(1)		51		30		47		32		5		165
Segment EBITDA														Segment EBITDA	402		201		301		139		(60)		983
Depreciation and amortization(2)														Depreciation and amortization(2)	50		30		46		33		7		166

(1) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." A portion of depreciation expense is included in "Research, development and engineering expenses."

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.														(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. A portion of depreciation expense is included in Research, development and engineering expenses.														(2) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. A portion of depreciation expense is included in Research, development and engineering expenses.

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Summarized financial information regarding our reportable operating segments for the ~~nine~~six months ended is shown in the table below:

In millions Engine Distribution Components Power Systems New Power Total Segments
Nine months ended October 3, 2021
External sales $ 5,776 $ 5,692 $ 4,627 $ 1,999 $ 77 $ 18,171
Intersegment sales 1,752 22 1,312 1,330 5 4,421
Total sales 7,528 5,714 5,939 3,329 82 22,592
Research, development and engineering expenses 288 35 232 172 75 802
Equity, royalty and interest income (loss) from investees 278 47 41 32 (1) 397
Interest income 7 5 3 3 — 18
EBITDA 1,147 553 975 399 (169) 2,905
Depreciation and amortization(1)
154 88 138 97 17 494
Nine months ended September 27, 2020
External sales $ 4,133 $ 5,123 $ 3,192 $ 1,495 $ 38 $ 13,981
Intersegment sales 1,560 17 1,001 1,147 — 3,725
Total sales 5,693 5,140 4,193 2,642 38 17,706
Research, development and engineering expenses 217 20 187 148 79 651
Equity, royalty and interest income (loss) from investees 236 45 46 18 (3) 342
Interest income 6 3 3 3 — 15
EBITDA 897 500 681 269 (121) 2,226
Depreciation and amortization(1)
155 91 142 96 13 497
(1) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $3 million and $2 million for the nine months ended October 3, 2021 and September 27, 2020, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."



In millions	Engine			Distribution		Components		Power Systems		New Power		Total Segments
Six months ended June 30, 2022
External sales	$	4,141		$	4,358	$	2,994	$	1,417	$	61	$	12,971
Intersegment sales	1,387			12		944		946		12		3,301
Total sales	5,528			4,370		3,938		2,363		73		16,272



Research, development and engineering expenses	225			26		149		122		75		597
Equity, royalty and interest income (loss) from investees	103		(1)	37		37		21		(7)		191

Interest income	5			5		3		2		—		15
Russian suspension costs(2)	33		(3)	55		4		19		—		111
Segment EBITDA	814			407		672		218		(147)		1,964
Depreciation and amortization(4)	100			57		92		62		15		326


Six months ended July 4, 2021
External sales	$	3,815		$	3,740	$	3,280	$	1,311	$	57	$	12,203
Intersegment sales	1,135			15		866		854		2		2,872
Total sales	4,950			3,755		4,146		2,165		59		15,075



Research, development and engineering expenses	191			25		154		117		49		536
Equity, royalty and interest income from investees	217			32		31		21		2		303

Interest income	4			3		2		2		—		11
Segment EBITDA	756			361		722		265		(111)		1,993
Depreciation and amortization(4)	101			60		94		68		12		335


(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income (loss) from investees line above.
(4) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as Interest expense. The amortization of debt discount and deferred costs was $2 million and $2 million for the six months ended June 30, 2022 and July 4, 2021, respectively. A portion of depreciation expense is included in Research, development and engineering expenses.

~~Table of Contents~~

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


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Total segment sales	Total segment sales	$	7,517	$	6,373	$	22,592	$	17,706	Total segment sales	$	8,223	$	7,572	$	16,272	$	15,075
Elimination of intersegment sales	Elimination of intersegment sales	(1,549)		(1,255)		(4,421)		(3,725)		Elimination of intersegment sales	(1,637)		(1,461)		(3,301)		(2,872)
Total net sales	Total net sales	$	5,968	$	5,118	$	18,171	$	13,981	Total net sales	$	6,586	$	6,111	$	12,971	$	12,203

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


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
TOTAL SEGMENT EBITDA	TOTAL SEGMENT EBITDA	$	912	$	886	$	2,905	$	2,226	TOTAL SEGMENT EBITDA	$	1,119	$	983	$	1,964	$	1,993

Intersegment elimination		(50)		(10)		(89)		45
Intersegment eliminations and other(1)										Intersegment eliminations and other(1)	(64)		(9)		(154)		(39)

Less:	Less:									Less:
Interest expense	Interest expense	28		25		85		71		Interest expense	34		29		51		57
Depreciation and amortization	Depreciation and amortization	159		165		494		497		Depreciation and amortization	166		166		326		335
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	675		686		2,237		1,703		INCOME BEFORE INCOME TAXES	855		779		1,433		1,562
Less: Income tax expense	Less: Income tax expense	134		182		473		402		Less: Income tax expense	148		167		303		339
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	541		504		1,764		1,301		CONSOLIDATED NET INCOME	707		612		1,130		1,223
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	7		3		27		13		Less: Net income attributable to noncontrolling interests	5		12		10		20
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	702	$	600	$	1,120	$	1,203

(1)Intersegment eliminations and other included $24 million and $41 million of costs associated with the planned separation of our Filtration business for the three and six months ended June 30, 2022.										(1)Intersegment eliminations and other included $24 million and $41 million of costs associated with the planned separation of our Filtration business for the three and six months ended June 30, 2022.

NOTE 16. SUBSEQUENT EVENTS

On August 3, 2022, we completed the acquisition of Meritor with a purchase price of $3.0 billion (including convertible debt). We borrowed an additional $1.3 billion under our commercial paper program to complete the acquisition. The acquisition reduced our borrowing capacity under the revolving credit facilities to $1.43 billion at the time of filing. See NOTE 14, "ACQUISITIONS," for additional information.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cummins Inc. and its consolidated subsidiaries are hereinafter sometimes referred to as “Cummins,” “we,” “our” or “us.”

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain parts of this quarterly report contain forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that are based on current expectations, estimates and projections about the industries in which we operate and management’s beliefs and assumptions. Forward-looking statements are generally accompanied by words such as "anticipates," "expects," "forecasts," "intends," "plans," "believes," "seeks," "estimates," "could," "should," "may" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:

GOVERNMENT REGULATION

•any adverse results of our internal review into our emissions certification process and compliance with emission standards;

•increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;

•~~policy~~ changes in international, ~~trade;~~national and regional trade laws, regulations and policies;

•any adverse effects of the U.S. government's COVID-19 vaccine mandates;

•~~the U.K.'s exit from the European Union;~~

•changes in taxation;

•global legal and ethical compliance costs and risks;

•increasingly stringent environmental laws and regulations;

•future bans or limitations on the use of diesel-powered products;

~~BUSINESS~~BUSINESS CONDITIONS / DISRUPTIONS

•~~supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic;~~

•~~market slowdown due to~~any adverse effects of the ~~impacts from~~conflict between Russia and Ukraine and the ~~COVID-19 pandemic, other public health crises, epidemics~~global response (including government bans or ~~pandemics;~~restrictions on doing business in Russia);

•~~impacts~~failure to ~~manufacturing~~successfully integrate the acquisition of Meritor, Inc.;

•failure to realize all of the anticipated benefits from our acquisition of Meritor, Inc.;

•raw material, transportation and labor price fluctuations and supply ~~chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic;~~shortages;

•aligning our capacity and production with our ~~demand, including impacts~~demand;

•the actions of, ~~COVID-19;~~and income from, joint ventures and other investees that we do not directly control;

•large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, ~~particularly related to the COVID-19 pandemic,~~ bankruptcy or change in ~~control;~~

•~~a slowdown in infrastructure development and/or depressed commodity prices;~~

•~~failure to realize expected results from our investment in Eaton Cummins Automated Transmission Technologies joint venture;~~

•~~the actions of, and income from, joint ventures and other investees that we do not directly~~ control;

PRODUCTS AND TECHNOLOGY

•product recalls;

•variability in material and commodity costs;

•the development of new technologies that reduce demand for our current products and services;

~~Table of Contents~~

•lower than expected acceptance of new or existing products or services;

•~~variability in material and commodity costs;~~

•product liability claims;

•our sales mix of products;

•~~protection and validity~~Table of ~~our patent and other intellectual property rights;~~Contents

GENERAL

•~~disruptions in global credit and financial markets as~~failure to complete, adverse results from or failure to realize the ~~result~~expected benefits of the ~~COVID-19 pandemic;~~

•~~labor relations or work stoppages;~~

•~~reliance on~~separation of our ~~executive leadership team and other key personnel;~~

•~~climate change and global warming;~~filtration business;

•our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;

•challenging markets for talent and ability to attract, develop and retain key personnel;

•climate change and global warming;

•exposure to potential security breaches or other disruptions to our information technology ~~systems~~environment and data security;

•political, economic and other risks from operations in numerous ~~countries;~~countries including political, economic and social uncertainty and the evolving globalization of our business;

•competitor activity;

•increasing competition, including increased global competition among our customers in emerging markets;

•labor relations or work stoppages;

•foreign currency exchange rate changes;

•the performance of our pension plan assets and volatility of discount ~~rates, particularly those related to the sustained slowdown of the global economy due to the COVID-19 pandemic;~~rates;

•the price and availability of energy;

•~~the outcome of pending and future litigation and governmental proceedings;~~

•continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and

•other risk factors described in Part II, Item 1A in this quarterly report and our ~~2020~~2021 Form 10-K, Part I, Item 1A., both under the caption "Risk Factors."

Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this quarterly report and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations section of our ~~2020~~2021 Form 10-K. Our MD&A is presented in the following sections:

•EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

•RESULTS OF OPERATIONS

•OPERATING SEGMENT RESULTS

•OUTLOOK

•LIQUIDITY AND CAPITAL RESOURCES

•APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Navistar International Corporation, Daimler Trucks North America and Stellantis N.V. We serve our customers through a service network of ~~over~~approximately 500 wholly-owned, joint venture and independent distributor locations and ~~over 9,000~~more than 10,000 Cummins certified dealer locations ~~with service to~~in approximately 190 countries and territories.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, construction and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules, stoppages and ~~stoppages.~~supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by geopolitical risks (such as the conflict between Russia and Ukraine), currency, political, economic, public health crises, epidemics or pandemics and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

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~~2021 Quarter-to-Date~~Russian Operations


	Three months ended		Six months ended
In millions	June 30, 2022		June 30, 2022
Inventory write-downs	$	(40)	$	19
Accounts receivable reserves	—		43
Impairment and other joint venture costs	—		31

Other	(7)		18
Total	$	(47)	$	111

We will continue to evaluate the situation as conditions evolve and may take additional actions as deemed necessary in future periods.

Supply Chain Disruptions

We continue to experience 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 supply chain issues. Should the supply chain issues continue for an extended period of time or worsen, the impact on our production and supply chain could have a material adverse effect on our results of operations, financial condition and cash flows. The Board continues to monitor and evaluate all of these factors and the related impacts on our business and operations, and we are diligently working to minimize the supply chain impacts to our business and to our customers.

2022 Second Quarter and Year-to-Date Results

A summary of our results is as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions, except per share amounts	In millions, except per share amounts	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions, except per share amounts	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
Net sales	Net sales	$	5,968	$	5,118	$	18,171	$	13,981	Net sales	$	6,586	$	6,111	$	12,971	$	12,203
Net income attributable to Cummins Inc.	Net income attributable to Cummins Inc.	534		501		1,737		1,288		Net income attributable to Cummins Inc.	702		600		1,120		1,203
Earnings per common share attributable to Cummins Inc.	Earnings per common share attributable to Cummins Inc.									Earnings per common share attributable to Cummins Inc.
Basic	Basic	$	3.72	$	3.39	$	11.96	$	8.69	Basic	$	4.97	$	4.14	$	7.90	$	8.24
Diluted	Diluted	3.69		3.36		11.86		8.65		Diluted	4.94		4.10		7.86		8.16

Our nine months ended results for 2020 were significantly impacted by COVID-19 and other related targeted shut-downs, which began in late March 2020 in response to both customer plant closures and government actions to slow the spread of the virus. Plants closed in China during the first quarter of 2020 were reopened in late March 2020; however, additional plants and distribution locations around the world were shut down or working at reduced capacities early in the second quarter of 2020. Although these actions did not have a material effect on our results of operations in the first quarter, these actions materially impacted our second quarter and continued to affect third quarter results in 2020.

Worldwide revenues increased 17 percent in the three months ended October 3, 2021, compared to the same period in 2020, due to higher demand in all operating segments and most geographic regions due to an improved economic environment and fewer effects from the COVID-19 pandemic. International demand (excludes the U.S. and Canada) improved 22 percent, with higherindustry's sales in all geographic regions except China. The increase in international sales was principally due to higher demand in industrial (especially mining) and power generation equipment, all distribution product lines, off-highway markets (mainly construction markets in Asia Pacific and Europe) and all components businesses (primarily in Europe, India and Latin America, partially offset by China). Favorable foreign currency fluctuations impacted international sales by 3 percent (primarily the Chinese renminbi, British pound and Australian dollar). Net sales in the U.S. and Canada improved 13 percent, primarily due to increased demand in North American on-highway markets, which positively impacted all components businesses, and most distribution product lines. Our industry continuescontinue 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 ~~slowing production.~~limiting full production capabilities.

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Worldwide revenues increased 308 percent in the ~~nine~~three months ended ~~October 3, 2021,~~June 30, 2022, compared to the same period in ~~2020, as we experienced~~2021, due to favorable pricing and higher demand in ~~all~~most operating segments and ~~all~~most geographic regions due to an improved economic environment and fewer effects from the COVID-19 pandemic. International demand (excludes the U.S. and Canada) improved by 36 percent, with higher sales in all geographic regions. The increase in international sales was principally due to higher demand in all components businesses (primarily emission solutions in India, China and Western Europe), industrial (especially mining) and power generation equipment (mainly in India and China), all distribution product lines and off-highway markets (principally construction markets in China, Europe and Asia Pacific). Favorable foreign currency fluctuations impacted international sales by 4 percent (primarily the Chinese renminbi, Euro, Australian dollar and British pound).except for China. Net sales in the U.S. and Canada improved 2615 percent, primarily due to favorable pricing and increased demand in North American on-highway markets, which positively impacted all components businesses, and most distribution product lines. International demand (excludes the U.S. and Canada) declined 2 percent, with lower sales in China (due to a sharp slowdown in truck and construction markets, exacerbated by COVID lockdowns) and Russia, partially offset by higher sales in all other geographic regions. The decrease in international sales was principally due to lower demand in China as the result of COVID-related lockdowns significantly reducing demand in most businesses. Unfavorable foreign currency fluctuations impacted international sales by 3 percent (primarily the Euro, British pound and Indian rupee).

Worldwide revenues increased 6 percent in the six months ended June 30, 2022, compared to the same period in 2021, due to favorable pricing and higher demand in most operating segments and most geographic regions except for China. Net sales in the U.S. and Canada improved 14 percent, primarily due to favorable pricing and increased demand in North American on-highway markets, which positively impacted all components businesses and all distribution product lines. ~~Our industry continues~~International demand (excludes the U.S. and Canada) declined by 3 percent, with lower sales in China (due to ~~be unfavorably~~a sharp slowdown in truck and construction markets, exacerbated by COVID lockdowns), partially offset by higher sales in all other geographic regions. The decrease in international sales was principally due to lower demand in China as the result of COVID-related lockdowns significantly reducing demand in most businesses. Unfavorable foreign currency fluctuations impacted international sales by ~~supply chain constraints leading to shortages across multiple components categories~~2 percent (primarily the Euro, British pound and ~~limiting our collective ability to meet end-user demand. Our customers are also experiencing other supply chain issues slowing production.~~Indian rupee).

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The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and ~~nine~~six months ended ~~October 3, 2021~~June 30, 2022 and ~~September 27, 2020.~~July 4, 2021. See ~~Note 13,~~NOTE 15, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.


		Three months ended																	Three months ended
Operating Segments	Operating Segments	October 3, 2021						September 27, 2020						Percent change				Operating Segments	June 30, 2022							July 4, 2021						Percent change
				Percent						Percent				2021 vs. 2020							Percent							Percent				2022 vs. 2021
In millions	In millions	Sales		of Total		EBITDA		Sales		of Total		EBITDA		Sales		EBITDA		In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA		Sales		EBITDA
Engine	Engine	$	2,578	43	%	$	391	$	2,112	41	%	$	382	22	%	2	%	Engine	$	2,775	42	%	$	422		$	2,491	41	%	$	402	11	%	5	%
Distribution	Distribution	1,959		33	%	192		1,721		34	%	182		14	%	5	%	Distribution	2,253		34	%	297			1,920		31	%	201		17	%	48	%
Components	Components	1,793		30	%	253		1,541		30	%	261		16	%	(3)	%	Components	1,950		30	%	352			1,994		33	%	301		(2)	%	17	%
Power Systems	Power Systems	1,164		20	%	134		981		19	%	101		19	%	33	%	Power Systems	1,203		18	%	128			1,143		19	%	139		5	%	(8)	%
New Power	New Power	23		—	%	(58)		18		—	%	(40)		28	%	(45)	%	New Power	42		1	%	(80)			24		—	%	(60)		75	%	(33)	%
Intersegment eliminations	Intersegment eliminations	(1,549)		(26)	%	(50)		(1,255)		(24)	%	(10)		23	%	NM		Intersegment eliminations	(1,637)		(25)	%	(64)			(1,461)		(24)	%	(9)		12	%	NM

Total	Total	$	5,968	100	%	$	862	$	5,118	100	%	$	876	17	%	(2)	%	Total	$	6,586	100	%	$	1,055	(1)	$	6,111	100	%	$	974	8	%	8	%

"NM" - not meaningful information	"NM" - not meaningful information																	"NM" - not meaningful information
(1) EBITDA includes $47 million of recoveries associated with the suspension of our Russian operations and $29 million of costs associated with the planned separation of our Filtration business.																		(1) EBITDA includes $47 million of recoveries associated with the suspension of our Russian operations and $29 million of costs associated with the planned separation of our Filtration business.

Cost of sales, selling, general and administrative and research development and engineering expenses increased due to higher compensation costs (primarily driven by the restoration of 2020 salary reductions and 2020 salary increases deferred until 2021), which impacted the variances in gross margin and net income as well as all of our reporting segments for the three months ended October 3, 2021.

Net income attributable to Cummins Inc. was ~~$534~~$702 million, or ~~$3.69~~$4.94 per diluted share, on sales of ~~$6.0~~$6.6 billion for the three months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable prior year period net income attributable to Cummins Inc. of ~~$501~~$600 million, or ~~$3.36~~$4.10 per diluted share, on sales of ~~$5.1~~$6.1 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by higher net sales, increased gross margin, ~~a lower effective tax rate~~recoveries associated with the suspension of our Russian operations and favorable ~~foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar),~~discrete tax items, partially offset by ~~higher compensation~~unfavorable changes in corporate owned life insurance, increased consulting expenses driven by acquisitions and ~~incremental costs associated with supply chain constraints.~~the work towards separation of the filtration business and lower equity, royalty and interest income from investees (primarily in China). See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information. The increase in gross margin was primarily due to favorable pricing and higher volumes, partially offset by higher ~~compensation expenses, increased freight costs due to supply chain constraints and higher~~ material costs. The 2.7 percentage point decrease in gross margin as a percentage of net sales was principally due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate than the increase in net sales.

Nine months ended
Operating Segments October 3,
2021 September 27,
2020 Percent change
Percent Percent 2021 vs. 2020
In millions Sales of Total EBITDA Sales of Total EBITDA Sales EBITDA
Engine $ 7,528 41 % $ 1,147 $ 5,693 41 % $ 897 32 % 28 %
Distribution 5,714 31 % 553 5,140 37 % 500 11 % 11 %
Components 5,939 33 % 975 4,193 30 % 681 42 % 43 %
Power Systems 3,329 18 % 399 2,642 19 % 269 26 % 48 %
New Power 82 1 % (169) 38 — % (121) NM (40) %
Intersegment eliminations (4,421) (24) % (89) (3,725) (27) % 45 19 % NM
Total $ 18,171 100 % $ 2,816 $ 13,981 100 % $ 2,271 30 % 24 %
"NM" - not meaningful information

Cost of sales, selling, general and administrative and research development and engineering expenses increased due to higher compensation costs (primarily driven by the restoration of 2020 salary reductions, higher variable compensation and 2020 salary increases deferred until 2021), which impacted the variances in gross margin and net income as well as all of our reporting segments for the nine months ended October 3, 2021.

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	Six months ended
Operating Segments	June 30, 2022							July 4, 2021						Percent change
			Percent							Percent				2022 vs. 2021
In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA		Sales		EBITDA
Engine	$	5,528	43	%	$	814		$	4,950	41	%	$	756	12	%	8	%
Distribution	4,370		34	%	407			3,755		31	%	361		16	%	13	%
Components	3,938		30	%	672			4,146		34	%	722		(5)	%	(7)	%
Power Systems	2,363		18	%	218			2,165		18	%	265		9	%	(18)	%
New Power	73		1	%	(147)			59		—	%	(111)		24	%	(32)	%
Intersegment eliminations	(3,301)		(26)	%	(154)			(2,872)		(24)	%	(39)		15	%	NM

Total	$	12,971	100	%	$	1,810	(1)	$	12,203	100	%	$	1,954	6	%	(7)	%

"NM" - not meaningful information
(1) EBITDA includes $111 million of costs associated with the suspension of our Russian operations and $46 million of costs associated with the planned separation of our Filtration business.

Net income attributable to Cummins Inc. was ~~$1,737~~$1,120 million, or ~~$11.86~~$7.86 per diluted share, on sales of ~~$18.2~~$13.0 billion for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable prior year period net income attributable to Cummins Inc. of ~~$1,288~~$1,203 million, or ~~$8.65~~$8.16 per diluted share, on sales of ~~$14.0~~$12.2 billion. The ~~increases~~decreases in net income attributable to Cummins Inc. and earnings per diluted share were driven by ~~higher net sales,~~costs associated with the suspension of our Russian operations, increased ~~gross margin, higher~~consulting expenses driven by acquisitions and the work towards separation of the filtration business, lower equity, royalty and interest income from investees (primarily in ~~China due to stronger demand for trucks~~China) and ~~construction equipment~~unfavorable changes in ~~the first half of the year), a lower effective tax rate and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar, partially offset by the Brazilian real),~~corporate owned life insurance, partially offset by higher ~~compensation expenses, incremental costs associated with supply chain constraints~~net sales and ~~mark-to-market losses on corporate owned life insurance.~~increased gross margin. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information. The increase in gross margin and gross margin as a percentage of sales was primarily due to ~~higher~~favorable pricing and increased volumes, partially offset by higher ~~compensation expenses,~~material costs, increased freight costs due to supply chain constraints and higher material costs. The 1.2 percentage point decrease in gross margin as a percentage of net sales was primarily due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate thanunfavorable foreign currency impacts (principally the ~~increase in net sales.~~Euro). Diluted earnings per common share for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, benefited ~~$0.23~~$0.06 from fewer weighted-average shares outstanding due to the stock repurchase program.

We generated ~~$1,524~~$763 million of cash from operations for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, compared to ~~$1,580~~$955 million for the comparable period in ~~2020. Refer to~~2021. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Our debt to capital ratio (total capital defined as debt plus equity) at ~~October 3, 2021,~~June 30, 2022, was ~~30.5~~31.4 percent, compared to ~~31.7~~30.7 percent at December 31, ~~2020.~~2021. The ~~decrease~~increase was primarily due to ~~$222 million of~~ lower debt balances since December 31, ~~2020.~~2021. At ~~October 3, 2021,~~June 30, 2022, we had $3.0 billion in cash and marketable securities on hand and access to our $3.5 billion credit facilities, if necessary, to meet ~~currently anticipated~~acquisition, working capital, investment and funding needs.

In the first ~~nine~~six months of ~~2021,~~2022, we purchased ~~$1,228~~$347 million, or ~~5.0~~1.7 million shares, of our common stock.

On August 3, 2022, we completed the acquisition of Meritor, Inc. (Meritor) with a purchase price of $3.0 billion (including convertible debt). See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

In July ~~2021,~~2022, the Board ~~of Directors (the Board)~~ authorized an increase to our quarterly dividend of ~~7.4~~approximately 8 percent from ~~$1.35~~$1.45 per share to ~~$1.45~~$1.57 per share.

On ~~August 3, 2021,~~April 8, 2022, we ~~announced~~completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp with a purchase price of $346 million.

On April 20, 2022, we filed a confidential registration statement announcing our ~~exploration of strategic alternatives for our filtration business. Potential strategic alternatives~~intent to ~~be explored include~~separate the ~~separation of our~~ filtration business into a stand-alone company. ~~The execution~~

As a well-known seasoned issuer, we filed an automatic shelf registration of ~~this exploration process is dependent upon business~~an undetermined amount of debt and ~~market conditions, along~~equity with ~~a number~~the Securities and Exchange Commission (SEC) on February 8, 2022.

Table of ~~other factors and considerations.~~Contents

On August 18, 2021, we entered into an amended and restated five-year revolving credit agreement with a syndicate of lenders. The amended and restated credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 18, 2026. On August 18, 2021, 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 17, 2022. This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that matured on August 18, 2021.

In the first ~~nine~~six months of ~~2021,~~2022, the investment ~~gain~~loss on our U.S. pension trust was ~~6.2~~5.0 percent while our U.K. pension trust ~~gain~~loss was ~~0.7~~17.8 percent. ~~During the remainder of 2021, we~~We anticipate making ~~$6 million in~~ additional defined benefit pension contributions induring the ~~U.K. and $4~~remainder of 2022 of $10 million ~~in contributions to~~for our U.S. and U.K. qualified and non-qualified ~~benefit~~pension plans. We expect our ~~2021~~2022 annual net periodic pension cost to approximate ~~$79~~$31 million.

As of the date of this filing, our credit ratings and outlooks from the credit rating agencies remain unchanged.

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RESULTS OF OPERATIONS

Three months ended Favorable/ Nine months ended Favorable/
October 3,
2021 September 27,
2020 (Unfavorable) October 3,
2021 September 27,
2020 (Unfavorable)
In millions, except per share amounts Amount Percent Amount Percent
NET SALES $ 5,968 $ 5,118 $ 850 17 % $ 18,171 $ 13,981 $ 4,190 30 %
Cost of sales 4,554 3,769 (785) (21) % 13,793 10,448 (3,345) (32) %
GROSS MARGIN 1,414 1,349 65 5 % 4,378 3,533 845 24 %
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 571 533 (38) (7) % 1,745 1,549 (196) (13) %
Research, development and engineering expenses 266 224 (42) (19) % 802 651 (151) (23) %
Equity, royalty and interest income from investees 94 98 (4) (4) % 397 342 55 16 %
Other operating expense, net (5) (20) 15 75 % (17) (35) 18 51 %
OPERATING INCOME 666 670 (4) (1) % 2,211 1,640 571 35 %
Interest expense 28 25 (3) (12) % 85 71 (14) (20) %
Other income, net 37 41 (4) (10) % 111 134 (23) (17) %
INCOME BEFORE INCOME TAXES 675 686 (11) (2) % 2,237 1,703 534 31 %
Income tax expense 134 182 48 26 % 473 402 (71) (18) %
CONSOLIDATED NET INCOME 541 504 37 7 % 1,764 1,301 463 36 %
Less: Net income attributable to noncontrolling interests 7 3 (4) NM 27 13 (14) NM
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 534 $ 501 $ 33 7 % $ 1,737 $ 1,288 $ 449 35 %
Diluted Earnings Per Common Share Attributable to Cummins Inc. $ 3.69 $ 3.36 $ 0.33 10 % $ 11.86 $ 8.65 $ 3.21 37 %
"NM" - not meaningful information



	Three months ended				Favorable/				Six months ended				Favorable/
	June 30, 2022		July 4, 2021		(Unfavorable)				June 30, 2022		July 4, 2021		(Unfavorable)
In millions, except per share amounts					Amount		Percent						Amount		Percent
NET SALES	$	6,586	$	6,111	$	475	8	%	$	12,971	$	12,203	$	768	6	%
Cost of sales	4,860		4,633		(227)		(5)	%	9,713		9,239		(474)		(5)	%
GROSS MARGIN	1,726		1,478		248		17	%	3,258		2,964		294		10	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	622		600		(22)		(4)	%	1,237		1,174		(63)		(5)	%
Research, development and engineering expenses	299		276		(23)		(8)	%	597		536		(61)		(11)	%
Equity, royalty and interest income from investees	95		137		(42)		(31)	%	191		303		(112)		(37)	%

Other operating expense, net	3		4		1		25	%	114		12		(102)		NM
OPERATING INCOME	897		735		162		22	%	1,501		1,545		(44)		(3)	%

Interest expense	34		29		(5)		(17)	%	51		57		6		11	%
Other (expense) income, net	(8)		73		(81)		NM		(17)		74		(91)		NM
INCOME BEFORE INCOME TAXES	855		779		76		10	%	1,433		1,562		(129)		(8)	%
Income tax expense	148		167		19		11	%	303		339		36		11	%
CONSOLIDATED NET INCOME	707		612		95		16	%	1,130		1,223		(93)		(8)	%
Less: Net income attributable to noncontrolling interests	5		12		7		58	%	10		20		10		50	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	702	$	600	$	102	17	%	$	1,120	$	1,203	$	(83)	(7)	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	4.94	$	4.10	$	0.84	20	%	$	7.86	$	8.16	$	(0.30)	(4)	%

"NM" - not meaningful information


		Three months ended								Favorable/ (Unfavorable)		Nine months ended						Favorable/ (Unfavorable)				Three months ended								Favorable/ (Unfavorable)		Six months ended							Favorable/ (Unfavorable)
		October 3, 2021				September 27, 2020					October 3, 2021			September 27, 2020						June 30, 2022			July 4, 2021						June 30, 2022			July 4, 2021
Percent of sales	Percent of sales							Percentage Points									Percentage Points		Percent of sales								Percentage Points								Percentage Points
Gross margin	Gross margin			23.7	%			26.4	%		(2.7)				24.1	%		25.3	%		(1.2)				Gross margin				26.2	%	24.2			%			2.0			25.1	%	24.3	%	0.8
Selling, general and administrative expenses	Selling, general and administrative expenses	9.6	%			10.4	%			0.8		9.6	%		11.1	%		1.5		Selling, general and administrative expenses		9.4		%		9.8		%		0.4		9.5	%			9.6		%	0.1
Research, development and engineering expenses	Research, development and engineering expenses	4.5	%			4.4	%			(0.1)		4.4	%		4.7	%		0.3		Research, development and engineering expenses		4.5		%		4.5		%		—		4.6	%			4.4		%	(0.2)

Net Sales

Net sales for the three months ended ~~October 3, 2021,~~June 30, 2022, increased by ~~$850~~$475 million versus the comparable period in ~~2020.~~2021. The primary drivers were as follows:

•~~Engine segment sales increased 22 percent due to higher volumes in the global medium-duty truck markets and North American heavy-duty truck markets.~~

•~~Components segment sales increased 16 percent largely due to higher emission solutions demand in North America, India, Western Europe and Asia Pacific.~~

•Distribution segment sales increased 1417 percent principally due to higher demand across most product lines in North America.

•Engine segment sales increased 11 percent due to favorable pricing and ~~improved~~increased on-highway demand (including higher aftermarket sales) in ~~Russia and Asia Pacific.~~North America.

•Power Systems segment sales increased 195 percent primarily due to higher demand in ~~global mining~~oil and gas markets (including higher aftermarket sales) in North America and ~~power generation~~India and generator technologies markets in ~~India~~Europe and ~~China.~~India.

These increases were partially offset by the following drivers:

•Components segment sales decreased 2 percent largely due to lower demand in all businesses in China, partially offset by higher demand in North America.

•~~Favorable~~Unfavorable foreign currency fluctuations of 1 percent of total sales, primarily in the ~~Chinese renminbi,~~Euro, British pound ~~Canadian dollar~~ and ~~Australian dollar.~~Indian rupee.

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Net sales for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$4,190~~$768 million versus the comparable period in ~~2020.~~2021. The primary drivers were as follows:

•Distribution segment sales increased 16 percent principally due to higher demand across most product lines in North America.

•Engine segment sales increased 3212 percent due to ~~increased volumes in the North American heavy-duty truck~~favorable pricing and ~~pick-up truck markets and global medium-duty truck markets.~~

•~~Components segment sales increased 42 percent largely due to~~stronger on-highway demand (including higher ~~emission solutions demand~~aftermarket sales) in North ~~America, India and China.~~America.

•Power Systems segment sales increased 269 percent primarily due to ~~increased~~higher demand in power generation markets in ~~North America,~~China and India ~~and China~~ and global mining ~~markets.~~markets and oil and gas markets (including higher aftermarket sales) in North America, China and India.

These increases were partially offset by the following drivers:

•Components segment sales decreased 5 percent largely due to lower demand in all businesses in China, partially offset by higher demand in North America.

•~~Distribution segment sales increased 11 percent principally due to higher demand across all product lines in North America and improved demand in Asia Pacific, Russia and Africa and Middle East.~~

•~~Favorable~~Unfavorable foreign currency fluctuations of 21 percent of total sales, primarily in the ~~Chinese renminbi,~~ Euro, ~~Australian dollar~~British pound and ~~British pound.~~Indian rupee.

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, were 4339 percent and 4440 percent of total net sales compared with 4143 percent and 4244 percent of total net sales for the comparable periods in ~~2020.~~2021. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Cost of Sales

The types of expenses included in cost of sales are the following: parts and material consumption, including direct and indirect materials; salaries, wages and benefits; depreciation on production equipment and facilities and amortization of technology intangibles; estimated costs of warranty programs and campaigns; production utilities; production-related purchasing; warehousing, including receiving and inspection; freight costs; engineering support costs; repairs and maintenance; production and warehousing facility property insurance; rent for production ~~facilities~~facilities; charges for the write-downs of inventories in Russia and other production overhead.

Gross Margin

Gross margin increased ~~$65~~$248 million for the three months ended ~~October 3, 2021~~June 30, 2022 and ~~decreased 2.7~~increased 2.0 points as a percentage of net sales versus the comparable period in ~~2020.~~2021. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing and higher volumes, partially offset by higher ~~compensation expenses,~~material costs.

Gross margin increased $294 million for the six months ended June 30, 2022 and increased 0.8 points as a percentage of sales versus the comparable period in 2021. The increase in gross margin and gross margin as a percentage of sales was primarily due to favorable pricing and increased volumes, partially offset by higher material costs, increased freight costs due to supply chain constraints and higher material costs. The 2.7 percent decrease in gross margin as a percentage of net sales was principally due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate thanunfavorable foreign currency impacts (principally the ~~increase in net sales.~~

Gross margin increased $845 million for the nine months ended October 3, 2021 and decreased 1.2 points as a percentage of net sales versus the comparable period in 2020. The increase in gross margin was primarily due to higher volumes, partially offset by higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs. The 1.2 percent decrease in gross margin as a percentage of net sales was primarily due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate than the increase in net sales.Euro).

The provision for base warranties issued as a percent of sales for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, was 2.2 percent and ~~2.4~~2.1 percent, respectively, compared to ~~2.3~~2.4 percent and ~~2.0~~2.5 percent for the comparable periods in ~~2020. A detailed discussion of gross margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.~~2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$38~~$22 million for the three months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher ~~compensation~~consulting expenses driven by acquisitions and the work towards separation of the filtration business, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses as a percentage of net sales decreased to ~~9.6~~9.4 percent in the three months ended ~~October 3, 2021,~~June 30, 2022, from ~~10.4~~9.8 percent in the comparable period in ~~2020.~~2021. The decrease in selling, general and administrative expenses as a percentage of net sales was mainly due to ~~net sales increasing at a faster rate than the increase in~~ selling, general and administrative ~~expenses.~~expenses increasing at a slower rate than the growth in net sales.

Selling, general and administrative expenses increased ~~$196~~$63 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher consulting expenses driven by acquisitions and the work towards the separation of the filtration business, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses, as a percentage of ~~net~~ sales, decreased to ~~9.6~~9.5 percent in the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, from ~~11.1~~9.6 percent in the comparable period in ~~2020.~~2021. The decrease in selling, general and administrative expenses as a percentage of net sales was ~~primarily~~mainly due to ~~net sales~~selling, general and administrative expenses increasing at a ~~faster~~slower rate than the increase in ~~selling, general and administrative expenses.~~net sales.

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Research, Development and Engineering Expenses

Research, development and engineering expenses increased ~~$42~~$23 million for the three months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020~~2021, primarily due to ~~higher compensation~~increased consulting expenses and ~~increased consulting expenses.~~higher spending on supplies. Overall, research, development and engineering expenses as a percentage of net sales ~~increased to~~remained flat at 4.5 percent in the three months ended ~~October 3, 2021, from 4.4 percent in~~June 30, 2022, and the comparable period in ~~2020.~~2021.

Research, development and engineering expenses increased ~~$151~~$61 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to ~~higher compensation~~increased consulting expenses and ~~increased~~higher spending on ~~prototypes.~~prototypes and supplies. Overall, research, development and engineering expenses as a percentage of ~~net~~ sales ~~decreased~~increased to ~~4.4~~4.6 percent in the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, from ~~4.7~~4.4 percent in the comparable period in ~~2020.~~2021. The ~~decrease~~increase in research, development and engineering expenses as a percentage of net sales was ~~primarily~~mainly due to ~~net sales~~research, development and engineering expenses increasing at a faster rate than the increase in ~~research, development and engineering expenses.~~ net sales.

Research activities continue to focus on development of new products to meet future emission standards around the world, improvements in fuel economy performance of diesel and natural gas powered engines and related components as well as development activities around ~~fully~~battery electric, ~~hybrid~~fuel cell electric and hydrogen ~~powertrain~~engine solutions.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees decreased $4$42 million for the three months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to decreased earnings at Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd. and ~~Beijing Foton~~the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins ~~Engine Co., Ltd., partially offset by the absence of $10 million in impairment charges~~Westport Joint Venture. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for ~~a joint venture in our Power Systems segment incurred in the third quarter of 2020 and increased earnings at Tata Cummins Ltd.~~additional information.

Equity, royalty and interest income from investees ~~increased $55~~decreased $112 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020, primarily~~2021, mainly due to ~~higher~~decreased earnings at Beijing Foton Cummins Engine Co., Ltd.~~, Tata Cummins Ltd. (excluding the 2020 benefits noted below),~~ and Dongfeng Cummins Engine Co., Ltd., ~~Guangxi Cummins Industrial Power Co., Ltd.~~the $28 million impairment of our Russian joint venture with KAMAZ and the ~~absence~~February 7, 2022, purchase of ~~$13 million of impairment charges. These increases were partially offset by the absence of a $37 million favorable adjustment ($18 million of which related~~Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to Tata Cummins Ltd.) as the result of tax changes within India's 2020-2021 Union Budget (India Tax Law Changes) passed in March 2020 and $18 million of technology fee revenue related to Tata Cummins Ltd., both recorded in the first quarter of 2020. Seeour ~~Note 4, "INCOME TAXES," of the Notes to the~~Condensed Consolidated Financial Statements ~~of our 2020 Form 10-K~~ for additional ~~information on India Tax Law Changes.~~information.

Other Operating Expense, Net

Other operating (expense) income, net was as follows:


		Three months ended				Nine months ended					Three months ended					Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	June 30, 2022			July 4, 2021		June 30, 2022			July 4, 2021
Amortization of intangible assets	Amortization of intangible assets	$	(6)	$	(5)	$	(17)	$	(16)	Amortization of intangible assets	$	(9)		$	(5)	$	(14)		$	(11)
Loss on write-off of assets	Loss on write-off of assets	(3)		(13)		(7)		(18)		Loss on write-off of assets	(3)			—		(8)			(4)
Asset impairments and other charges										Asset impairments and other charges	—			—		(36)			—
Gain (loss) on sale of assets, net	Gain (loss) on sale of assets, net	2		(2)		1		(8)		Gain (loss) on sale of assets, net	—			(2)		1			(1)
Royalty income, net	Royalty income, net	2		1		7		3		Royalty income, net	3			3		5			5
Russian suspension recoveries (costs)										Russian suspension recoveries (costs)	7		(1)	—		(61)		(1)	—
Other, net	Other, net	—		(1)		(1)		4		Other, net	(1)			—		(1)			(1)
Total other operating expense, net	Total other operating expense, net	$	(5)	$	(20)	$	(17)	$	(35)	Total other operating expense, net	$	(3)		$	(4)	$	(114)		$	(12)

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.										(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Interest Expense

Interest expense increased $3$5 million and ~~$14~~decreased $6 million for the three and ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable periods in ~~2020,~~2021. The three month increase is primarily due to ~~increased~~the overall increase in floating interest ~~expense associated with~~rates in the second quarter of 2022. The six month decrease is principally due to the performance on the fixed to floating swaps placed in 2021 for our ~~$2 billion senior unsecured notes issued in August of 2020.~~2030 and 2050 debt maturities.

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Other (Expense) Income, Net

Other (expense) income, ~~(expense),~~ net was as follows:


		Three months ended				Nine months ended					Three months ended				Six months ended
In millions	In millions	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020			In millions	June 30, 2022		July 4, 2021		June 30, 2022		July 4, 2021
(Loss) gain on corporate owned life insurance												(Loss) gain on corporate owned life insurance	$	(48)	$	20	$	(85)	$	(12)
(Loss) gain on marketable securities, net												(Loss) gain on marketable securities, net	(5)		3		(9)		3
Foreign currency (loss) gain, net												Foreign currency (loss) gain, net	(1)		3		(13)		(2)
Gain on sale of land												Gain on sale of land	—		18		—		18
Interest income												Interest income	7		5		15		11
Non-service pension and OPEB credit	Non-service pension and OPEB credit	$	23	$	16		$	72	$	48		Non-service pension and OPEB credit	32		25		65		49
Interest income		7		4			18		15
Foreign currency gain (loss), net		7		2			5		(1)
Gain on marketable securities, net		2		2			5		6
Gain (loss) on corporate owned life insurance		1		12			(11)		50
Gain on sale of land		—		—			18		—

Other, net	Other, net	(3)		5			4		16			Other, net	7		(1)		10		7
Total other income, net		$	37	$	41		$	111	$	134
Total other (expense) income, net												Total other (expense) income, net	$	(8)	$	73	$	(17)	$	74

Income Tax Expense

Our effective tax rate for ~~2021~~2022 is expected to approximate 21.5 percent, excluding any discrete items that may arise.

Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three and ~~nine~~six months ended ~~October 3, 2021, increased $4~~June 30, 2022, decreased $7 million and ~~$14~~$10 million, respectively, versus the comparable periods in ~~2020.~~2021. The ~~increase~~decrease for the three and six months ended ~~October 3, 2021,~~June 30, 2022, was primarily due to ~~higher earnings at Cummins India Limited. The increase for the nine months ended October 3, 2021, is principally due to higher~~lower earnings at Cummins India Limited and ~~Eaton Cummins Joint Venture, partially offset by the absence of a $19 million unfavorable adjustment as the results of India Tax Law Changes passed in March 2020. See~~ ~~Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K~~ ~~for additional information on India Tax Law Changes.~~Hydrogenics Corporation.

Net Income Attributable to Cummins Inc. and Diluted Earnings Per Common Share Attributable to Cummins Inc.

Net income and diluted earnings per common share attributable to Cummins Inc. for the three months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$33~~$102 million and ~~$0.33~~$0.84 per diluted share versus the comparable period in ~~2020,~~2021, primarily due to higher net sales, increased gross margin, ~~a lower effective tax rate~~recoveries associated with the suspension of our Russian operations and favorable ~~foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar),~~discrete tax items, partially offset by ~~higher compensation~~unfavorable changes in corporate owned life insurance, increased consulting expenses driven by acquisitions and ~~incremental costs associated with supply chain constraints.~~the work towards separation of the filtration business and lower equity, royalty and interest income from investees (primarily in China). See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

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Net income and diluted earnings per common share attributable to Cummins Inc. for the ~~nine~~six months ended ~~October 3, 2021, increased $449~~June 30, 2022, decreased $83 million and ~~$3.21~~$0.30 per diluted share versus the comparable period in ~~2020,~~2021, primarily due to ~~higher net sales,~~costs associated with the suspension of our Russian operations, increased ~~gross margin, higher~~consulting expenses driven by acquisitions and the work towards separation of the filtration business, lower equity, royalty and interest income from investees (primarily in ~~China due to stronger demand for trucks~~China) and ~~construction equipment~~unfavorable changes in ~~the first half of the year), a lower effective tax rate and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar, partially offset by the Brazilian real),~~corporate owned life insurance, partially offset by higher ~~compensation expenses, incremental costs associated with supply chain constraints~~net sales and ~~mark-to-market losses on corporate owned life insurance.~~increased gross margin. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information. Diluted earnings per common share for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, benefited ~~$0.23~~$0.06 from fewer weighted-average shares outstanding due to the stock repurchase program.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was ~~flat~~a net loss of $245 million and $241 million, respectively, for the three and six months ended June 30, 2022, compared to a net gain of $22 million and net loss of $34 million, respectively, for the three and ~~nine~~six months ended ~~October 3,~~July 4, 2021, ~~compared to a net gain of $111 million and a net loss of $62 million, respectively, for the three and nine months ended September 27, 2020,~~ driven by the following:

Three months ended

October 3,
2021

September 27,
2020

June 30,
2022

July 4,
2021

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

Wholly-owned subsidiaries

(8)

Brazilian real, offset by Indian rupee, Chinese renminbi

Chinese renminbi, Indian rupee

Wholly-owned subsidiaries

(175)

Chinese renminbi, Indian rupee

Brazilian real, Chinese renminbi, partially offset by Indian rupee, British pound

Equity method investments

Chinese renminbi, Indian rupee

Chinese renminbi

Equity method investments

(55)

Chinese renminbi

Chinese renminbi, partially offset by Indian rupee

Consolidated subsidiaries with a noncontrolling interest

Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(15)

Indian rupee

(7)

Indian rupee

Total

—

111

Total

(245)

Nine months ended

Six months ended

October 3,
2021

September 27,
2020

June 30,
2022

July 4,
2021

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

In millions

Translation adjustment

Primary currency driver vs. U.S. dollar

Translation adjustment

Primary currency driver vs. U.S. dollar

Wholly-owned subsidiaries

(36)

British pound, Brazilian real, Indian rupee, Euro, offset by Chinese renminbi

(62)

Brazilian real, Indian rupee, offset by Chinese renminbi

Wholly-owned subsidiaries

(159)

Chinese renminbi, Indian rupee

(28)

British pound, Indian rupee, partially offset by Chinese renminbi

Equity method investments

Chinese renminbi, offset by Indian rupee

Chinese renminbi

Equity method investments

(59)

Chinese renminbi

Chinese renminbi, partially offset by Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(5)

Indian rupee

(12)

Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(23)

Indian rupee

(7)

Indian rupee

Total

(34)

(62)

Total

(241)

(34)

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OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the Engine, Distribution, Components, Power Systems and New Power segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as a primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments. See ~~Note 13,~~NOTE 15, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

~~Following is a discussion~~We continue to experience supply chain disruptions and related financial impacts reflected as increased cost of ~~results for each of our operating segments.~~

~~Engine Segment Results~~

~~Financial data for the Engine segment was as follows:~~

Three months ended Favorable/ Nine months ended Favorable/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
In millions 2021 2020 Amount Percent 2021 2020 Amount Percent
External sales $ 1,961 $ 1,617 $ 344 21 % $ 5,776 $ 4,133 $ 1,643 40 %
Intersegment sales 617 495 122 25 % 1,752 1,560 192 12 %
Total sales 2,578 2,112 466 22 % 7,528 5,693 1,835 32 %
Research, development and engineering expenses 97 72 (25) (35) % 288 217 (71) (33) %
Equity, royalty and interest income from investees 61 74 (13) (18) % 278 236 42 18 %
Interest income 3 1 2 NM 7 6 1 17 %
Segment EBITDA 391 382 9 2 % 1,147 897 250 28 %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 15.2 % 18.1 % (2.9) 15.2 % 15.8 % (0.6)
"NM" - not meaningful information

~~Sales for our Engine segment by market were as follows:~~

Three months ended Favorable/ Nine months ended Favorable/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
In millions 2021 2020 Amount Percent 2021 2020 Amount Percent
Heavy-duty truck $ 861 $ 694 $ 167 24 % $ 2,527 $ 1,859 $ 668 36 %
Medium-duty truck and bus 713 492 221 45 % 2,075 1,501 574 38 %
Light-duty automotive 515 522 (7) (1) % 1,480 1,055 425 40 %
Total on-highway 2,089 1,708 381 22 % 6,082 4,415 1,667 38 %
Off-highway 489 404 85 21 % 1,446 1,278 168 13 %
Total sales $ 2,578 $ 2,112 $ 466 22 % $ 7,528 $ 5,693 $ 1,835 32 %
Percentage Points Percentage Points
On-highway sales as percentage of total sales 81 % 81 % — 81 % 78 % 3

~~Table of Contents~~

~~Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:~~

Three months ended Favorable/ Nine months ended Favorable/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
2021 2020 Amount Percent 2021 2020 Amount Percent
Heavy-duty 29,200 23,300 5,900 25 % 89,300 65,000 24,300 37 %
Medium-duty 65,200 50,100 15,100 30 % 205,800 156,200 49,600 32 %
Light-duty 73,900 67,200 6,700 10 % 210,500 146,400 64,100 44 %
Total unit shipments 168,300 140,600 27,700 20 % 505,600 367,600 138,000 38 %

~~Sales~~

~~Engine segment sales for the three months ended October 3, 2021, increased $466 million versus the comparable period in 2020. The following were the primary drivers by market:~~

•~~Medium-duty truck and bus sales increased $221 million~~ ~~mainly due to higher global medium-duty demand, especially in North America and Brazil.~~

•~~Heavy-duty truck sales increased $167 million principally due to higher volumes in North America with shipments up 32 percent.~~

•~~Off-highway sales increased $85 million primarily due to increased global construction demand, especially in North America, Asia Pacific and Europe.~~

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 slowing production.~~issues.

Following is a discussion of results for each of our operating segments.

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/				Six months ended							Favorable/
	June 30,			July 4,			(Unfavorable)				June 30,				July 4,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022				2021			Amount		Percent
External sales	$	2,092		$	1,920		$	172	9	%	$	4,141			$	3,815		$	326	9	%
Intersegment sales	683			571			112		20	%	1,387				1,135			252		22	%
Total sales	2,775			2,491			284		11	%	5,528				4,950			578		12	%

Research, development and engineering expenses	116			99			(17)		(17)	%	225				191			(34)		(18)	%
Equity, royalty and interest income from investees	59			104			(45)		(43)	%	103			(1)	217			(114)		(53)	%

Interest income	1			1			—		—	%	5				4			1		25	%

Russian suspension costs(2)	1			—			(1)		NM		33			(3)	—			(33)		NM

Segment EBITDA	422			402			20		5	%	814				756			58		8	%

							Percentage Points											Percentage Points
Segment EBITDA as a percentage of total sales	15.2		%	16.1		%			(0.9)		14.7		%		15.3		%			(0.6)


"NM" - not meaningful information

(1) Includes a $28 million impairment of our joint venture with KAMAZ and $3 million of royalty charges as part of our costs associated with the suspension of our Russian operations. In addition, on February 7, 2022, we purchased Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(3) Includes $31 million of Russian suspension costs reflected in the Equity, royalty and interest income from investees line above.

Table of Contents

Sales for our Engine segment by market were as follows:


	Three months ended						Favorable/				Six months ended						Favorable/
	June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
Heavy-duty truck	$	1,001		$	839		$	162	19	%	$	1,909		$	1,666		$	243	15	%
Medium-duty truck and bus	875			688			187		27	%	1,723			1,362			361		27	%
Light-duty automotive	456			484			(28)		(6)	%	954			965			(11)		(1)	%
Total on-highway	2,332			2,011			321		16	%	4,586			3,993			593		15	%
Off-highway	443			480			(37)		(8)	%	942			957			(15)		(2)	%
Total sales	$	2,775		$	2,491		$	284	11	%	$	5,528		$	4,950		$	578	12	%

							Percentage Points										Percentage Points
On-highway sales as percentage of total sales	84		%	81		%			3		83		%	81		%			2

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:


	Three months ended		Favorable/			Six months ended		Favorable/
	June 30,	July 4,	(Unfavorable)			June 30,	July 4,	(Unfavorable)
	2022	2021	Amount	Percent		2022	2021	Amount	Percent
Heavy-duty	30,900	29,400	1,500	5	%	59,500	60,100	(600)	(1)	%
Medium-duty	68,800	67,500	1,300	2	%	141,400	140,600	800	1	%
Light-duty	60,400	68,100	(7,700)	(11)	%	126,900	136,600	(9,700)	(7)	%
Total unit shipments	160,100	165,000	(4,900)	(3)	%	327,800	337,300	(9,500)	(3)	%

Sales

Engine segment sales for the ~~nine~~three months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$1,835~~$284 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by market:

•Medium-duty truck and bus sales increased $187 million mainly due to favorable pricing and higher demand (including higher aftermarket sales), especially in North America.

•Heavy-duty truck sales increased ~~$668~~$162 million principally due to favorable pricing and stronger demand (including higher ~~volumes~~aftermarket sales) in North America ~~with shipments up 64 percent.~~and Latin America.

These increases were partially offset by decreased off-highway sales of $37 million primarily due to lower demand in construction markets in China, partially offset by increased demand in Western Europe.

Engine segment sales for the six months ended June 30, 2022, increased $578 million versus the comparable period in 2021. The following were the primary drivers by market:

•Medium-duty truck and bus sales increased ~~$574~~$361 million mainly due to favorable pricing and higher ~~global medium-duty~~ demand (including higher aftermarket sales), especially in North America.

•Heavy-duty truck sales increased $243 million principally due to favorable pricing and stronger demand (including higher aftermarket sales), especially in North America ~~Brazil and Western Europe, partially offset by lower bus sales, mainly in North America and Western Europe.~~

•~~Light-duty truck automotive sales increased $425 million primarily due to~~with higher ~~pick-up sales in North America with~~ shipments ~~up 53~~of 5 percent.

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 slowing production.

Segment EBITDA

Engine segment EBITDA for the three months ended ~~October 3, 2021,~~June 30, 2022, increased $9$20 million versus the comparable period in ~~2020,~~2021, primarily due to ~~higher volumes,~~favorable pricing, partially offset by higher ~~freight~~material costs, ~~due to supply chain constraints and increased compensation expenses.~~

~~Engine segment EBITDA for the nine months ended October 3, 2021, increased $250 million versus the comparable period in 2020, mainly due to higher volumes and an increase in~~lower equity, royalty and interest income from investees ~~(largely due to increased earnings at~~(principally Beijing Foton Cummins Engine Co., Ltd.~~, Tata Cummins Ltd. (excluding the 2020 benefits noted below),~~ and Dongfeng Cummins Engine Co., Ltd.) and Guangxi Cummins Industrial Power Co., Ltd., partially offset by the absence of an $18 million favorable adjustment related to India Tax Law Changes passed in March 2020 and $18 million of technology fee revenue both recorded in the first quarter of 2020 in Tata Cummins Ltd.), partially offset by increased ~~compensation expenses, higher~~ freight costs due to supply chain ~~constraints, increased material costs and higher consulting expenses. See~~ ~~Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K~~ ~~for additional information on India Tax Law Changes.~~constraints.

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Table of Contents

Engine segment EBITDA for the six months ended June 30, 2022, increased $58 million versus the comparable period in 2021, mainly due to favorable pricing, partially offset by higher material costs, lower equity, royalty and interest income from investees (principally Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd.) and costs associated with the suspension of our Russian operations including a $28 million impairment of our joint venture with KAMAZ. See Note 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Distribution Segment Results

Financial data for the Distribution segment was as follows:


		Three months ended						Favorable/				Nine months ended						Favorable/					Three months ended						Favorable/				Six months ended						Favorable/
		October 3,			September 27,			(Unfavorable)				October 3,			September 27,			(Unfavorable)					June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)
In millions	In millions	2021			2020			Amount		Percent		2021			2020			Amount		Percent		In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
External sales	External sales	$	1,952		$	1,715		$	237	14	%	$	5,692		$	5,123		$	569	11	%	External sales	$	2,247		$	1,913		$	334	17	%	$	4,358		$	3,740		$	618	17	%
Intersegment sales	Intersegment sales	7			6			1		17	%	22			17			5		29	%	Intersegment sales	6			7			(1)		(14)	%	12			15			(3)		(20)	%
Total sales	Total sales	1,959			1,721			238		14	%	5,714			5,140			574		11	%	Total sales	2,253			1,920			333		17	%	4,370			3,755			615		16	%

Research, development and engineering expenses	Research, development and engineering expenses	10			9			(1)		(11)	%	35			20			(15)		(75)	%	Research, development and engineering expenses	13			12			(1)		(8)	%	26			25			(1)		(4)	%
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	15			13			2		15	%	47			45			2		4	%	Equity, royalty and interest income from investees	21			15			6		40	%	37			32			5		16	%
Interest income	Interest income	2			1			1		100	%	5			3			2		67	%	Interest income	3			2			1		50	%	5			3			2		67	%

Russian suspension (recoveries) costs(1)																						Russian suspension (recoveries) costs(1)	(45)			—			45		NM		55			—			(55)		NM
Segment EBITDA	Segment EBITDA	192			182			10		5	%	553			500			53		11	%	Segment EBITDA	297			201			96		48	%	407			361			46		13	%

								Percentage Points										Percentage Points											Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	Segment EBITDA as a percentage of total sales	9.8		%	10.6		%			(0.8)		9.7		%	9.7		%			—		Segment EBITDA as a percentage of total sales	13.2		%	10.5		%			2.7		9.3		%	9.6		%			(0.3)

"NM" - not meaningful information																						"NM" - not meaningful information

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.																						(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales for our Distribution segment by region were as follows:


		Three months ended				Favorable/				Nine months ended				Favorable/					Three months ended				Favorable/				Six months ended				Favorable/
		October 3,		September 27,		(Unfavorable)				October 3,		September 27,		(Unfavorable)					June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)
In millions	In millions	2021		2020		Amount		Percent		2021		2020		Amount		Percent		In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
North America	North America	$	1,236	$	1,125	$	111	10	%	$	3,637	$	3,412	$	225	7	%	North America	$	1,494	$	1,230	$	264	21	%	$	2,861	$	2,401	$	460	19	%
Asia Pacific	Asia Pacific	238		196		42		21	%	679		582		97		17	%	Asia Pacific	242		227		15		7	%	488		441		47		11	%
Europe	Europe	144		153		(9)		(6)	%	468		425		43		10	%	Europe	179		161		18		11	%	328		324		4		1	%
China																		China	99		77		22		29	%	182		164		18		11	%
Russia	Russia	87		42		45		NM		210		128		82		64	%	Russia	75		66		9		14	%	211		123		88		72	%
China		81		77		4		5	%	245		246		(1)		—	%
Latin America																		Latin America	56		48		8		17	%	97		88		9		10	%
Africa and Middle East	Africa and Middle East	74		49		25		51	%	197		138		59		43	%	Africa and Middle East	55		69		(14)		(20)	%	101		123		(22)		(18)	%
India	India	51		42		9		21	%	142		101		41		41	%	India	53		42		11		26	%	102		91		11		12	%
Latin America		48		37		11		30	%	136		108		28		26	%
Total sales	Total sales	$	1,959	$	1,721	$	238	14	%	$	5,714	$	5,140	$	574	11	%	Total sales	$	2,253	$	1,920	$	333	17	%	$	4,370	$	3,755	$	615	16	%

"NM" - not meaningful information

Sales for our Distribution segment by product line were as follows:


		Three months ended				Favorable/				Nine months ended				Favorable/					Three months ended				Favorable/				Six months ended				Favorable/
		October 3,		September 27,		(Unfavorable)				October 3,		September 27,		(Unfavorable)					June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)
In millions	In millions	2021		2020		Amount		Percent		2021		2020		Amount		Percent		In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Parts	Parts	$	800	$	722	$	78	11	%	$	2,322	$	2,163	$	159	7	%	Parts	$	990	$	765	$	225	29	%	$	1,914	$	1,522	$	392	26	%
Power generation	Power generation	438		416		22		5	%	1,310		1,169		141		12	%	Power generation	441		454		(13)		(3)	%	842		872		(30)		(3)	%
Engines	Engines	377		279		98		35	%	1,062		879		183		21	%	Engines	429		351		78		22	%	870		685		185		27	%
Service	Service	344		304		40		13	%	1,020		929		91		10	%	Service	393		350		43		12	%	744		676		68		10	%
Total sales	Total sales	$	1,959	$	1,721	$	238	14	%	$	5,714	$	5,140	$	574	11	%	Total sales	$	2,253	$	1,920	$	333	17	%	$	4,370	$	3,755	$	615	16	%

Table of Contents

Sales

Distribution segment sales for the three months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$238~~$333 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by region:

•North American sales increased ~~$111~~$264 million, representing 4779 percent of the total change in Distribution segment sales, mainly due to higher demand ~~in most product lines.~~for parts and vocational engines.

•~~Improved demand in Russia and Asia Pacific.~~

~~Table of Contents~~

•~~Favorable~~These increases were partially offset by unfavorable foreign currency fluctuations, primarily in the Euro, Australian dollar, Canadian dollar and ~~Chinese renminbi.~~Indian rupee.

Distribution segment sales for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$574~~$615 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by region:

•North American sales increased ~~$225~~$460 million, representing 3975 percent of the total change in Distribution segment sales, largely due to higher demand ~~in all product lines.~~for parts and vocational engines.

•~~Improved~~Russian sales increased $88 million as a result of increased demand for engines and parts following our announcement to indefinitely suspend our operations in ~~Asia Pacific, Russia and Africa and Middle East.~~Russia.

•~~Favorable~~These increases were partially offset by unfavorable foreign currency fluctuations, mainly in the Euro, Australian dollar ~~Canadian dollar~~ and ~~Euro.~~Japanese yen.

Segment EBITDA

Distribution segment EBITDA for the three months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$10~~$96 million versus the comparable period in ~~2020,~~2021, primarily due to higher volumes and recoveries associated with the suspension of our Russian operations, partially offset by unfavorable foreign currency fluctuations (principally in emerging market currencies and South African rand). See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Distribution segment EBITDA for the six months ended June 30, 2022, increased ~~compensation expenses~~$46 million versus the comparable period in 2021, mainly due to higher volumes and ~~higher~~favorable pricing, partially offset by costs associated with the suspension of our Russian operations, unfavorable foreign currency fluctuations (principally in the emerging market currencies and Australian dollar), increased freight costs due to supply chain ~~constraints.~~

~~Distribution segment EBITDA~~constraints and the absence of an $18 million gain on sale of land recorded in the second quarter of 2021. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for ~~the nine months ended October 3, 2021, increased $53 million versus the comparable period in 2020, primarily due to higher volumes, partially offset by higher compensation expenses.~~additional information.

Components Segment Results

Financial data for the Components segment was as follows:


		Three months ended						Favorable/				Nine months ended						Favorable/					Three months ended						Favorable/				Six months ended						Favorable/
		October 3,			September 27,			(Unfavorable)				October 3,			September 27,			(Unfavorable)					June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)
In millions	In millions	2021			2020			Amount		Percent		2021			2020			Amount		Percent		In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
External sales	External sales	$	1,347		$	1,201		$	146	12	%	$	4,627		$	3,192		$	1,435	45	%	External sales	$	1,477		$	1,556		$	(79)	(5)	%	$	2,994		$	3,280		$	(286)	(9)	%
Intersegment sales	Intersegment sales	446			340			106		31	%	1,312			1,001			311		31	%	Intersegment sales	473			438			35		8	%	944			866			78		9	%
Total sales	Total sales	1,793			1,541			252		16	%	5,939			4,193			1,746		42	%	Total sales	1,950			1,994			(44)		(2)	%	3,938			4,146			(208)		(5)	%

Research, development and engineering expenses	Research, development and engineering expenses	78			64			(14)		(22)	%	232			187			(45)		(24)	%	Research, development and engineering expenses	73			79			6		8	%	149			154			5		3	%
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	10			13			(3)		(23)	%	41			46			(5)		(11)	%	Equity, royalty and interest income from investees	9			12			(3)		(25)	%	37			31			6		19	%
Interest income	Interest income	1			1			—		—	%	3			3			—		—	%	Interest income	2			1			1		100	%	3			2			1		50	%

Russian suspension (recoveries) costs(1)																						Russian suspension (recoveries) costs(1)	(2)			—			2		NM		4			—			(4)		NM
Segment EBITDA	Segment EBITDA	253			261			(8)		(3)	%	975			681			294		43	%	Segment EBITDA	352			301			51		17	%	672			722			(50)		(7)	%

								Percentage Points										Percentage Points											Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	Segment EBITDA as a percentage of total sales	14.1		%	16.9		%			(2.8)		16.4		%	16.2		%			0.2		Segment EBITDA as a percentage of total sales	18.1		%	15.1		%			3.0		17.1		%	17.4		%			(0.3)

"NM" - not meaningful information																						"NM" - not meaningful information

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.																						(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

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Sales for our Components segment by business were as follows:
Three months ended Favorable/ Nine months ended Favorable/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
In millions 2021 2020 Amount Percent 2021 2020 Amount Percent
Emission solutions $ 793 $ 665 $ 128 19 % $ 2,710 $ 1,801 $ 909 50 %
Filtration 354 314 40 13 % 1,100 881 219 25 %
Turbo technologies 325 281 44 16 % 1,043 767 276 36 %
Electronics and fuel systems 210 187 23 12 % 714 525 189 36 %
Automated transmissions 111 94 17 18 % 372 219 153 70 %
Total sales $ 1,793 $ 1,541 $ 252 16 % $ 5,939 $ 4,193 $ 1,746 42 %


	Three months ended					Favorable/				Six months ended					Favorable/
	June 30,			July 4,		(Unfavorable)				June 30,			July 4,		(Unfavorable)
In millions	2022			2021		Amount		Percent		2022			2021		Amount		Percent
Emission solutions	$	863		$	882	$	(19)	(2)	%	$	1,773		$	1,917	$	(144)	(8)	%
Filtration	391			374		17		5	%	773			746		27		4	%
Turbo technologies	355		(1)	351		4		1	%	701		(1)	718		(17)		(2)	%
Electronics and fuel systems	198			241		(43)		(18)	%	414			504		(90)		(18)	%
Automated transmissions	143			146		(3)		(2)	%	277			261		16		6	%
Total sales	$	1,950		$	1,994	$	(44)	(2)	%	$	3,938		$	4,146	$	(208)	(5)	%

(1) The three and six months ended June 30, 2022, included revenues of $37 million related to the newly acquired Jacobs Vehicle Systems business. See NOTE 14, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales

Components segment sales for the three months ended ~~October 3, 2021, increased $252~~June 30, 2022, decreased $44 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by business:

•Electronics and fuel systems sales decreased by $43 million principally due to weaker demand in China.

•Unfavorable foreign currency fluctuations primarily in the Euro, British pound and Indian rupee.

•Emission solutions sales decreased $19 million primarily due to lower demand in China, partially offset by stronger demand in North America and India.

These decreases were partially offset by increased sales of $17 million in the filtration business mainly due to stronger demand in North America and Latin America, partially offset by lower demand in China.

Components segment sales for the six months ended June 30, 2022, decreased $208 million versus the comparable period in 2021. The following were the primary drivers by business:

•Emission solutions sales ~~increased $128~~decreased $144 million primarily due to lower demand in China, partially offset by stronger demand in North ~~America, India, Western Europe~~America.

•Electronics and ~~Asia Pacific,~~fuel systems sales decreased $90 million mainly due to weaker demand in China, partially offset by ~~lower demand in China.~~

~~Table of Contents~~

•~~Turbo technologies sales increased $44 million principally due to~~ higher demand in North ~~America, Western Europe~~America.

•Unfavorable foreign currency fluctuations, primarily in the Euro and ~~India,~~Indian rupee.

These decreases were partially offset by ~~lower demand~~increased sales of $27 million in ~~China.~~

•~~Filtration sales increased $40 million~~the filtration business mainly due to stronger demand in North America and Latin America, ~~Europe and Asia Pacific,~~ partially offset by ~~weaker~~lower demand in China.

•~~Favorable foreign currency fluctuations, primarily in the Chinese renminbi and British pound.~~

~~Components segment sales for the nine months ended October 3, 2021, increased $1,746 million versus the comparable period in 2020. The following were the primary drivers by business:~~

•~~Emission solutions sales increased $909 million principally due to stronger demand in North America, India and China.~~

•~~Turbo technologies sales increased $276 million mainly due to higher demand in North America and Western Europe.~~

•~~Filtration sales increased $219 million primarily due to stronger market demand in North America, Europe, Latin America, China and Asia Pacific.~~

•~~Favorable foreign currency fluctuations principally in the Chinese renminbi and Euro.~~

Segment EBITDA

Components segment EBITDA for the three months ended ~~October 3, 2021, decreased $8~~June 30, 2022, increased $51 million versus the comparable period in ~~2020,~~2021, mainly due to ~~higher compensation expenses, increased material~~favorable pricing and lower product coverage costs, ~~higher freight costs due to supply chain constraints and increased spending on prototypes,~~ partially offset by ~~higher volumes.~~increased material costs.

Components segment EBITDA for the ~~nine~~six months ended ~~October 3, 2021, increased $294~~June 30, 2022, decreased $50 million versus the comparable period in ~~2020,~~2021, primarily due to ~~higher~~lower volumes and ~~favorable mix,~~increased material costs, partially offset by ~~higher compensation expenses, increased material costs, higher freight costs due to supply chain constraints and lower equity, royalty and interest income in investees (mainly due to the absence~~favorable pricing.

Table of ~~a $14 million favorable adjustment related to India Tax Law Changes passed in March 2020 in Fleetguard Filters Private Ltd., partially offset by higher equity earnings). See~~ ~~Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K~~Contents ~~for additional information on India Tax Law Changes.~~

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:

Three months ended Favorable/ Nine months ended Favorable/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
In millions 2021 2020 Amount Percent 2021 2020 Amount Percent
External sales $ 688 $ 567 $ 121 21 % $ 1,999 $ 1,495 $ 504 34 %
Intersegment sales 476 414 62 15 % 1,330 1,147 183 16 %
Total sales 1,164 981 183 19 % 3,329 2,642 687 26 %
Research, development and engineering expenses 55 53 (2) (4) % 172 148 (24) (16) %
Equity, royalty and interest income from investees 11 — 11 NM 32 18 14 78 %
Interest income 1 1 — — % 3 3 — — %
Segment EBITDA 134 101 33 33 % 399 269 130 48 %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 11.5 % 10.3 % 1.2 12.0 % 10.2 % 1.8
"NM" - not meaningful information

~~Table of Contents~~


	Three months ended						Favorable/				Six months ended						Favorable/
	June 30,			July 4,			(Unfavorable)				June 30,			July 4,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
External sales	$	734		$	699		$	35	5	%	$	1,417		$	1,311		$	106	8	%
Intersegment sales	469			444			25		6	%	946			854			92		11	%
Total sales	1,203			1,143			60		5	%	2,363			2,165			198		9	%

Research, development and engineering expenses	58			60			2		3	%	122			117			(5)		(4)	%
Equity, royalty and interest income from investees	10			9			1		11	%	21			21			—		—	%
Interest income	1			1			—		—	%	2			2			—		—	%

Russian suspension (recoveries) costs(1)	(1)			—			1		NM		19			—			(19)		NM
Segment EBITDA	128			139			(11)		(8)	%	218			265			(47)		(18)	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	10.6		%	12.2		%			(1.6)		9.2		%	12.2		%			(3.0)

"NM" - not meaningful information



(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales for our Power Systems segment by product line were as follows:


		Three months ended				Favorable/				Nine months ended				Favorable/					Three months ended				Favorable/				Six months ended				Favorable/
		October 3,		September 27,		(Unfavorable)				October 3,		September 27,		(Unfavorable)					June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)
In millions	In millions	2021		2020		Amount		Percent		2021		2020		Amount		Percent		In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Power generation	Power generation	$	664	$	601	$	63	10	%	$	1,930	$	1,544	$	386	25	%	Power generation	$	657	$	655	$	2	—	%	$	1,321	$	1,266	$	55	4	%
Industrial	Industrial	412		309		103		33	%	1,135		896		239		27	%	Industrial	428		399		29		7	%	821		723		98		14	%
Generator technologies	Generator technologies	88		71		17		24	%	264		202		62		31	%	Generator technologies	118		89		29		33	%	221		176		45		26	%
Total sales	Total sales	$	1,164	$	981	$	183	19	%	$	3,329	$	2,642	$	687	26	%	Total sales	$	1,203	$	1,143	$	60	5	%	$	2,363	$	2,165	$	198	9	%

Sales

Power Systems segment sales for the three months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$183~~$60 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by product line:

•Industrial sales increased ~~$103~~$29 million due to stronger demand (including higher aftermarket sales) in ~~global mining markets and~~ oil and gas markets in ~~China.~~North America and India.

•~~Power generation~~Generator technologies sales increased ~~$63~~$29 million due to higher demand in ~~India~~Europe and ~~China,~~India.

These increases were partially offset by ~~weaker demand~~unfavorable foreign currency fluctuations, primarily in ~~Europe~~the Euro, British pound and ~~Russia.~~Indian rupee.

Power Systems segment sales for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, increased ~~$687~~$198 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by product line:

•Industrial sales increased $98 million due to stronger demand (including higher aftermarket sales) in oil and gas markets in North America and China and global mining markets.

•Power generation sales increased ~~$386~~$55 million due to higher demand in China and India, partially offset by weaker demand in North ~~America, India and China.~~America.

•~~Industrial~~Generator technologies sales increased ~~$239~~$45 million due to higher demand in ~~global mining markets.~~Europe and India.

•~~Favorable~~These increases were partially offset by unfavorable foreign currency fluctuations, primarily in the ~~Chinese renminbi~~Euro, British pound and ~~British pound.~~Indian rupee.

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Segment EBITDA

Power Systems segment EBITDA for the three months ended ~~October 3, 2021, increased $33~~June 30, 2022, decreased $11 million versus the comparable period in ~~2020,~~2021, mainly due to higher ~~volumes~~material costs, increased freight costs due to supply chain constraints and ~~the absence of $10 million in impairment charges for a joint venture incurred in the third quarter of 2020,~~higher product coverage costs, partially offset by ~~increased material costs, higher compensation expenses, increased consulting expenses and unfavorable mix.~~favorable pricing.

Power Systems segment EBITDA for the ~~nine~~six months ended ~~October 3, 2021, increased $130~~June 30, 2022, decreased $47 million versus the comparable period in ~~2020,~~2021, primarily due to higher ~~volumes~~material costs, increased freight costs due to supply chain constraints and costs associated with the ~~absence~~suspension of ~~$13 million in impairment charges for a joint venture,~~our Russian operations, partially offset by ~~higher compensation expenses, unfavorable mix and increased material costs.~~favorable pricing. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

New Power Segment Results

The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ~~ranging from fully electric to hybrid along~~ with innovative components and subsystems, including battery and fuel cell technologies. The New Power segment is currently in the development phase with a primary focus on research and development activities for our power systems, components and subsystems. Financial data for the New Power segment was as follows:


		Three months ended				Favorable/				Nine months ended				Favorable/					Three months ended				Favorable/				Six months ended				Favorable/
		October 3,		September 27,		(Unfavorable)				October 3,		September 27,		(Unfavorable)					June 30,		July 4,		(Unfavorable)				June 30,		July 4,		(Unfavorable)
In millions	In millions	2021		2020		Amount		Percent		2021		2020		Amount		Percent		In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
External sales	External sales	$	20	$	18	$	2	11	%	$	77	$	38	$	39	NM		External sales	$	36	$	23	$	13	57	%	$	61	$	57	$	4	7	%
Intersegment sales	Intersegment sales	3		—		3		NM		5		—		5		NM		Intersegment sales	6		1		5		NM		12		2		10		NM
Total sales	Total sales	23		18		5		28	%	82		38		44		NM		Total sales	42		24		18		75	%	73		59		14		24	%

Research, development and engineering expenses	Research, development and engineering expenses	26		26		—		—	%	75		79		4		5	%	Research, development and engineering expenses	39		26		(13)		(50)	%	75		49		(26)		(53)	%
Equity, royalty and interest (loss) from investees		(3)		(2)		(1)		50	%	(1)		(3)		2		67	%
Equity, royalty and interest (loss) income from investees																		Equity, royalty and interest (loss) income from investees	(4)		(3)		(1)		(33)	%	(7)		2		(9)		NM

Segment EBITDA	Segment EBITDA	(58)		(40)		(18)		(45)	%	(169)		(121)		(48)		(40)	%	Segment EBITDA	(80)		(60)		(20)		(33)	%	(147)		(111)		(36)		(32)	%

"NM" - not meaningful information	"NM" - not meaningful information																	"NM" - not meaningful information

4346

Table of Contents

OUTLOOK

~~COVID-19 Impact~~Supply Chain Disruptions

The acceleration of the COVID-19 vaccine distribution around the world is helping curb the spread of the virus and will hopefully allow the majority of our manufacturing facilities to remain open to meet increasing customer demand. While the vaccination effort continues to progress globally, many markets are still dealing with rising cases, new COVID variants and slower vaccination rollout. We continue to ~~take necessary precautions at all our facilities both in the U.S.~~experience supply chain disruptions and ~~abroad~~related financial impacts reflected as increased cost of sales. Our industry continues to mitigate the spread of the disease and prioritize the health and safety of our employees. While we are optimistic that continued vaccination distribution globally will minimize the impacts of the virus, there is still a risk of increased cases or new virus variants resulting in lower customer demand, additional facility shutdowns orbe unfavorably impacted by supply chain constraints inleading to shortages across multiple components categories and limiting our collective ability to meet end-user demand. Our customers are also experiencing supply chain issues. Should the ~~future.~~

~~In March 2021,~~supply chain issues continue for an extended period of time or worsen, the impact on our production and supply chain could have a material adverse effect on our results of operations, financial condition and cash flows. The Board continues to monitor and evaluate all of these factors and the related impacts on our business and operations, and we ~~gained approval as a COVID-19 vaccine administrator at several U.S. sites and began offering~~are diligently working to minimize the ~~vaccine~~supply chain impacts to our ~~employees~~business and ~~their families at certain facilities in the U.S. During the second quarter of 2021, we received approval and began providing vaccines~~ to our employees in other international locations as allowed. We continue to collaborate with health officials around the world to provide employees with access to COVID-19 vaccines. That work differs geographically due to the variability in vaccine accessibility and distribution. Our global network of medical professionals is always focused on efforts to ensure the safety of all Cummins employees, their families and our communities.

On September 9, 2021, President Biden issued an executive order for U.S. government contractors. We are taking steps to comply with the executive order for all U.S.-based employees, contractors and subcontractors that work on or in support of contracts with the U.S. government. In addition, on September 9, 2021, President Biden announced that he directed the Occupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either the full vaccination or weekly testing of employees for employers with 100 or more employees. Employees who are not subject to the executive order and who are not fully vaccinated may be subject to the ETS that will require them to get a COVID-19 test at least once a week. OSHA has not yet issued the ETS nor provided any additional information on its contents or requirements. See I ~~tem 1A.Risk Factors in this Form 10-Q, for a discussion of the risks associated with the potential adverse effects on our workforce of the U.S. Government vaccine mandate. Additionally, see the section titled~~ ~~Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020~~ ~~for a discussion of risks associated with the COVID-19 pandemic.~~customers.

Business Outlook

Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential for the remainder of ~~2021.~~2022.

Positive Trends

•We expect demand for pick-up trucks in North America to remain strong.

•We ~~estimate~~expect North American medium-duty and heavy-duty truck demand will ~~continue to improve from 2020 levels.~~remain strong.

•We believe market demand for trucks in India will ~~improve from 2020 levels.~~continue to improve.

•We anticipate demand in our aftermarket business will continue to ~~improve,~~be robust, driven primarily by increased truck utilization in North ~~America.~~America and improved demand in our Power Systems business.

•Our liquidity of ~~$6.3~~$5.8 billion in cash, marketable securities and available credit facilities ~~strengthens our~~puts us in a strong position to deal with any uncertainties that may arise in the remainder of ~~2021.~~2022.

Challenges

•Supply constraints driven by strong demand in multiple end markets and regions may lead to increased costs, including higher ~~premium freight.~~freight and conversion costs.

•Continued increases in material and commodity costs, as well as other inflationary pressures, could negatively impact earnings.

•Our ~~industry continues~~industry's sales continue 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 ~~slowing production.~~limiting full production capabilities.

•Resurgence of COVID-19 in China led to lockdowns in several cities that negatively impacted the economy and our end markets. Any continued lockdowns will also contribute to further disruptions in the global supply chain, negatively impacting both our revenues and profitability.

•We expect market demand in truck and construction markets in China to decline from ~~record levels in 2020.~~2021 full year levels.

•The indefinite suspension of our operations in Russia is expected to impact our revenue and profitability. The 2021 sales through our wholly-owned distributor in Russia and direct sales into Russia were 2.7 percent of net sales.

44•We expect to incur incremental expenses as a result of the completion of the Meritor, Inc. acquisition and its integration into our business.

~~Table~~•The completion of ~~Contents~~the Meritor, Inc. acquisition will impact our liquidity and result in incremental interest expense for debt utilized in funding the transaction.

~~Separation of Filtration Business~~

~~On August 3, 2021, we announced our exploration of strategic alternatives for our filtration business. Potential strategic alternatives to be explored include the~~•Planned separation of our filtration business into a stand-alone ~~company. The execution~~company is expected to result in incremental expenses.

Table of ~~this exploration process is dependent upon business and market conditions, along with a number of other factors and considerations.~~Contents

LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

We fund our working capital with cash from operations and short-term borrowings, including commercial paper, when necessary. Various assets and liabilities, including short-term debt, can fluctuate significantly from month to month depending on short-term liquidity needs. As a result, working capital is a prime focus of management's attention. Working capital and balance sheet measures are provided in the following table:


Dollars in millions	Dollars in millions	October 3, 2021			December 31, 2020			Dollars in millions	June 30, 2022			December 31, 2021
Working capital (1)	Working capital (1)	$	5,459		$	5,562		Working capital (1)	$	5,091		$	5,225
Current ratio	Current ratio	1.80			1.88			Current ratio	1.66			1.74
Accounts and notes receivable, net	Accounts and notes receivable, net	$	4,152		$	3,820		Accounts and notes receivable, net	$	4,156		$	3,990
Days' sales in receivables	Days' sales in receivables	60			69			Days' sales in receivables	57			59
Inventories	Inventories	$	4,322		$	3,425		Inventories	$	4,765		$	4,355
Inventory turnover	Inventory turnover	4.6			4.2			Inventory turnover	4.2			4.6
Accounts payable (principally trade)	Accounts payable (principally trade)	$	3,210		$	2,820		Accounts payable (principally trade)	$	3,405		$	3,021
Days' payable outstanding	Days' payable outstanding	58			68			Days' payable outstanding	59			57
Total debt	Total debt	$	3,942		$	4,164		Total debt	$	4,425		$	4,159
Total debt as a percent of total capital	Total debt as a percent of total capital	30.5		%	31.7		%	Total debt as a percent of total capital	31.4		%	30.7		%

(1) Working capital includes cash and cash equivalents.	(1) Working capital includes cash and cash equivalents.							(1) Working capital includes cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:


		Nine months ended							Six months ended
In millions	In millions	October 3, 2021		September 27, 2020		Change		In millions	June 30, 2022		July 4, 2021		Change
Net cash provided by operating activities	Net cash provided by operating activities	$	1,524	$	1,580	$	(56)	Net cash provided by operating activities	$	763	$	955	$	(192)
Net cash used in investing activities	Net cash used in investing activities	(278)		(337)		59		Net cash used in investing activities	(576)		(146)		(430)
Net cash (used in) provided by financing activities		(2,079)		564		(2,643)
Net cash used in financing activities								Net cash used in financing activities	(391)		(1,722)		1,331
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	20		31		(11)		Effect of exchange rate changes on cash and cash equivalents	74		(7)		81
Net (decrease) increase in cash and cash equivalents		$	(813)	$	1,838	$	(2,651)
Net decrease in cash and cash equivalents								Net decrease in cash and cash equivalents	$	(130)	$	(920)	$	790

Net cash provided by operating activities decreased ~~$56~~$192 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher working capital requirements of $409 million and changes in other liabilities of $267 million, partially offset by higher consolidated net income of $463 million, lower restructuring payments of $99 million and higher mark-to-market losses on corporate owned life insurances of $61$239 million. During the first ~~nine~~six months of ~~2021,~~2022, the higher working capital requirements resulted in a cash outflow of ~~$466~~$670 million compared to a cash outflow of ~~$57~~$431 million in the comparable period in ~~2020,~~2021, mainly due to higher variable compensation payouts in accrued expenses, partially offset by favorable changes in inventories and accounts ~~and notes receivable, partially offset by higher accrued expenses and accounts payable.~~receivable.

Net cash used in investing activities ~~decreased $59~~increased $430 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to the acquisition of Jacobs Vehicle Systems and Cummins Westport Joint Venture, net of cash acquired, of $245 million, higher investments in and net ~~liquidations~~advances to equity investees of ~~marketable securities of $47~~$63 million, unfavorable changes in cash flows from derivatives not designated as hedges of ~~$34 million, lower investments in and advances to equity investees of $33~~$44 million and ~~proceeds from sale of land of $20 million, partially offset by~~ higher capital ~~expenditures~~spending of ~~$94~~$39 million.

Net cash used in financing activities ~~increased $2,643~~decreased $1,331 million for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to lower ~~proceeds from borrowings of $1,964 million, mainly resulting from our $2 billion bond issuance in 2020, and higher~~ repurchases of common stock of ~~$678~~$743 million ~~partially offset by lower~~and higher net ~~payments~~borrowings of commercial paper of ~~$221~~$515 million.

~~Table of Contents~~

The effect of exchange rate changes on cash and cash equivalents for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, versus the comparable period in ~~2020, decreased $11~~2021, increased $81 million primarily due to ~~unfavorable~~favorable fluctuations in the British pound of ~~$11~~$124 million, partially offset by unfavorable fluctuations in the Chinese renminbi of $38 million.

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Sources of Liquidity

We generate significant ongoing cash flow. Cash provided by operations is ~~typically~~ our principal source of liquidity with ~~$1,524~~$763 million generated in the ~~nine~~six months ended ~~October 3, 2021.~~June 30, 2022. Our sources of liquidity include:


		October 3, 2021								June 30, 2022
In millions	In millions	Total		U.S.		International		Primary location of international balances	In millions	Total		U.S.		International		Primary location of international balances
Cash and cash equivalents	Cash and cash equivalents	$	2,588	$	1,278	$	1,310	China, Singapore, Belgium, Mexico, Australia, Canada	Cash and cash equivalents	$	2,462	$	732	$	1,730	China, Singapore, Belgium, Australia, Mexico, India

Marketable securities (1)	Marketable securities (1)	430		89		341		India	Marketable securities (1)	536		100		436		India
Total	Total	$	3,018	$	1,367	$	1,651		Total	$	2,998	$	832	$	2,166
Available credit capacity	Available credit capacity								Available credit capacity
Revolving credit facilities (2)	Revolving credit facilities (2)	$	3,300						Revolving credit facilities (2)	$	2,795
International and other uncommitted domestic credit facilities	International and other uncommitted domestic credit facilities	$	268						International and other uncommitted domestic credit facilities	$	271

(1) The majority of marketable securities could be liquidated into cash within a few days.	(1) The majority of marketable securities could be liquidated into cash within a few days.								(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2026 and August 2022, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At October 3, 2021, we had $200 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.3 billion.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2026 and August 2022, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At June 30, 2022, we had $705 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.8 billion.									(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $1.5 billion, maturing August 2026 and August 2022, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At June 30, 2022, we had $705 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.8 billion.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flow is generated outside the U.S. We manage our worldwide cash requirements considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. As a result, we do not anticipate any local liquidity restrictions to preclude us from funding our operating needs with local resources.

If we distribute our foreign cash balances to the U.S. or to other foreign subsidiaries, we could be required to accrue and pay withholding taxes, for example, if we repatriated cash from certain foreign subsidiaries whose earnings we asserted are completely or partially permanently reinvested. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China, India and Netherlands domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings for which we asserted permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested when it is cost effective to do so.

Debt Facilities and Other Sources of Liquidity

~~On August 18, 2021,~~As of June 30, 2022, we entered into an amended and restated five-year revolving credit agreement with a syndicate of lenders. The amended and restated credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 18, 2026. On August 18, 2021, 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 17, 2022. This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that matured on August 18, 2021. See Note 9, "DEBT," to our ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~We have~~had access to committed credit facilities ~~that total~~totaling $3.5 billion, including the $1.5 billion 364-day facility that expires August 17, 2022 and our $2.0 billion five-year facility that expires on August 18, 2026. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. 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 ~~October 3, 2021.~~June 30, 2022. We anticipate renewing our 364-day credit facility before expiration and adding another credit facility available for general corporate purposes in the near-term.

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~~These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial programs should not exceed $3.5 billion. See ~~Note 9,~~NOTE 10, "DEBT," to our Condensed Consolidated Financial Statements for additional information.

At June 30, 2022, we had $705 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.8 billion.

In July 2017, the U.K.'s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced it intends to phase out LIBOR by the end of 2021. The cessation date for submission and publication of rates for certain tenors of

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~~At October 3, 2021,~~LIBOR has since been extended until mid-2023. Various central bank committees and working groups continue to discuss replacement of benchmark rates, the process for amending existing LIBOR-based contracts and the potential economic impacts of different alternatives. The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for U.S. dollar LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. We have evaluated the potential impact of the replacement of the LIBOR benchmark interest rate including risk management, internal operational readiness and monitoring the Financial Accounting Standards Board standard-setting process to address financial reporting issues that might arise in connection with transition from LIBOR to a new benchmark rate. While we ~~had $200 million~~do not believe the change will materially impact us due to our operational and system readiness coupled with relevant contractual fallback language, we continue to evaluate all eventual transition risks. In anticipation of ~~commercial paper outstanding, which effectively reduced the available capacity under~~LIBOR's phase out, our most recent revolving credit ~~facilities~~agreements include a well-documented transition mechanism for selecting a benchmark replacement rate for LIBOR, subject to ~~$3.3 billion.~~our agreement. Additionally, with respect to our $1.3 billion in LIBOR-based fixed to variable rate swaps maturing in 2025 and 2030, we reviewed and believe our adherence to the 2020 LIBOR fallback protocol will allow for a smooth transition to the designated replacement rate when that transition occurs.

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 regularly scheduled due date. The maximum amount that we may have outstanding under the program is $457 million. We do not reimburse vendors for any costs they incur for participation in the program and their participation is completely voluntary. As a result, all amounts owed to the financial intermediaries are presented as ~~"Accounts payable"~~Accounts payable in our Condensed Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at June 30, 2022, were $336 million.

Uses of Cash

Stock Repurchases

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 December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In the first ~~nine~~six months of ~~2021,~~2022, we made the following purchases under the 2019 stock repurchase program:

In millions, except per share amounts Shares
Purchased Average Cost
Per Share Total Cost of
Repurchases
Remaining
Authorized
Capacity (1)
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
Total 5.0 248.30 $ 1,228
(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.


In millions, except per share amounts	Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Remaining Authorized Capacity (1)

March 31	1.6	$	199.27	$	311	$	2,281
June 30	0.1	194.00		36		2,245


Total	1.7	198.72		$	347

(1) The remaining $245 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 intend to repurchase outstanding shares from time to time during ~~2021~~2022 to enhance shareholder value.

Dividends

We paid dividends of $411 million during the six months ended June 30, 2022. In July ~~2021,~~2022, the Board authorized an increase to our quarterly dividend of ~~7.4~~approximately 8 percent from ~~$1.35~~$1.45 per share to ~~$1.45~~$1.57 per share.

~~We paid dividends of $601 million during the nine months ended October 3, 2021.~~

Capital Expenditures

Capital expenditures, including spending on internal use software, for the ~~nine~~six months ended ~~October 3, 2021,~~June 30, 2022, were ~~$398~~$275 million versus ~~$301~~$234 million in the comparable period in ~~2020.~~2021. We plan to spend an estimated ~~$725~~$850 million to ~~$775~~$900 million in ~~2021~~2022 on capital expenditures, excluding internal use software, with over 5060 percent of these expenditures expected to be invested in North America. In addition, we plan to spend an estimated ~~$50~~$60 million to ~~$60~~$70 million on internal use software in ~~2021.~~2022.

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Current Maturities of Short and Long-Term Debt

We had ~~$200~~$705 million of commercial paper outstanding at ~~October 3, 2021,~~June 30, 2022, that matures in less than one year. The maturity schedule of our existing long-term debt does not require significant cash outflows until 2023 when our ~~3.65%~~3.65 percent senior notes and 2025 when our ~~0.75%~~0.75 percent senior notes are due. Required annual long-term debt principal payments range from ~~$16~~$41 million to ~~$536~~$545 million over the next five years (including the remainder of ~~2021)~~2022). See ~~Note 9,~~NOTE 10, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were ~~112~~121 percent funded at December 31, ~~2020.~~2021. Our U.S. defined benefit plan, which represented approximately 52 percent of the worldwide pension obligation, was ~~128~~138 percent funded, and our U.K. defined benefit plan was ~~114~~127 percent funded at December 31, ~~2020.~~2021. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In the first ~~nine~~six months of ~~2021,~~2022, the investment ~~gain~~loss on our U.S. pension trust was ~~6.2~~5.0 percent while our U.K. pension trust ~~gain~~loss was ~~0.7~~17.8 percent. Approximately 6964 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 3136 percent of our plan assets are held in less liquid, but market valued investments, including real estate, private equity, venture capital, opportunistic credit and insurance contracts. ~~During the remainder of~~

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~~2021, we~~We anticipate making ~~$6 million in~~ additional defined benefit pension contributions induring the ~~U.K. and $4~~remainder of 2022 of $10 million ~~in contributions to~~for our U.S. and U.K. qualified and non-qualified ~~benefit~~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 ~~2021~~2022 annual net periodic pension cost to approximate ~~$79~~$31 million.

Credit Ratings

Our rating and outlook from each of the credit rating agencies as of the date of filing are shown in the table below:

Long-Term

Short-Term

Credit Rating Agency (1)

Senior Debt Rating

Debt Rating

Outlook

Standard and Poor’s Rating Services

A+

Stable

Moody’s Investors Service, Inc.

Stable

(1) Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating. In addition, we undertake no obligation to update disclosures concerning our credit ratings, whether as a result of new information, future events or otherwise.

Subsequent Events

On July 13, 2022, we entered into a loan agreement under which we may obtain delayed-draw loans in an amount up to $2.0 billion in the aggregate prior to October 13, 2022. We drew down the entire $2.0 billion balance on August 2, 2022, to help fund the acquisition of Meritor. The initial interest rate, based on the Secured Overnight Financing Rate for the one-month interest period plus the relevant spread, is 3.11 percent. The loan will mature on August 2, 2025. Borrowings under the agreement will not be secured by liens on any of our assets or assets of our subsidiaries. The agreement contains customary events of default and financial and other covenants, including maintaining a net debt to capital ratio of no more than 0.65 to 1.0.

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund acquisitions, common stock repurchases, dividend payments, targeted capital expenditures, projected pension obligations, ~~acquisitions,~~ working capital and debt service obligations through ~~2021~~2022 and beyond. We continue to generate significant cash from operations and maintain access to our revolving credit facilities and commercial paper programs as noted above.

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APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in ~~Note~~N OTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our ~~2020~~2021 Form 10-K, which discusses accounting policies that we have selected from acceptable alternatives.

Our Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles that often require management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts presented and disclosed in the financial statements. Management reviews these estimates and assumptions based on historical experience, changes in business conditions ~~including the impacts of COVID-19~~ and other relevant factors they believe to be reasonable under the circumstances. In any given reporting period, our actual results may differ from the estimates and assumptions used in preparing our Condensed Consolidated Financial Statements.

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of the Board. Our critical accounting estimates disclosed in the Form 10-K address estimating liabilities for warranty programs, assessing goodwill impairment, accounting for income taxes and pension benefits.

A discussion of our critical accounting estimates may be found in the “Management’s Discussion and Analysis” section of our ~~2020~~2021 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first ~~nine~~six months of ~~2021.~~2022.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A discussion of quantitative and qualitative disclosures about market risk may be found in Item 7A of our ~~2020~~2021 Form 10-K. There have been no material changes in this information since the filing of our ~~2020~~2021 Form 10-K.

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ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~October 3, 2021,~~June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The matters described under "Legal Proceedings" in ~~Note 11,~~NOTE 12, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements are incorporated herein by reference.

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ITEM 1A. Risk Factors

In addition to other information set forth in this report and the risk ~~factor~~factors noted below, you should consider other risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, which could materially affect our business, financial condition or future results. Other than noted below, there have been no material changes to our risks described in our ~~2020~~2021 Annual Report on Form 10-K or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly ~~report are not the only risks we face.~~report. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our business, financial condition or operating results.

GOVERNMENT REGULATION

We are conducting a formal internal review of our emission certification process and compliance with emission standards with respect to our pick-up truck applications and are working with the ~~U.S. Environmental Protection Agency (EPA)~~EPA and ~~California Air Resources Board (CARB)~~CARB to address their questions about these applications. Due to the continuing nature of our formal internal review and on-going discussions with the EPA and CARB, we cannot predict the final results of this formal review and these regulatory processes, nor whether, or the extent to which, they could have a material adverse impact on our results of operations and cash flows.

We previously announced that we are conducting a formal internal review of our emissions certification process and compliance with emission standards with respect to all of our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines for model year 2019 RAM 2500 and 3500 trucks. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators turned their attention to other model years and other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through 2018. In connection with these and other ongoing discussions with the EPA and CARB, we are developing a new software calibration and will recall model years 2013 through 2018 RAM 2500 and 3500 trucks. We accrued $30 million for the recall during the first quarter of 2022, an amount that reflects our current estimate of the cost of the recall.

We will continue to work together closely with the relevant regulators to develop and implement recommendations for improvement and seek to reach further resolutions as part of our ongoing commitment to compliance.

Due to ~~the continuing nature of the formal review, our ongoing cooperation with the regulators and~~ the presence of many unknown facts and circumstances, we are not yet able to estimate ~~the~~any further financial impact of these matters. It is possible that the consequences of any remediation plans resulting from our formal review and these regulatory processes could have a material adverse impact on our results of operations and cash flows.

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BUSINESS CONDITIONS / DISRUPTIONS

The ~~U.S. government’s pending rules~~ongoing conflict between Russia and ~~regulations concerning mandatory COVID-19 vaccination~~Ukraine, and the global response (including government bans or restrictions on doing business in Russia), could have a material adverse impact on our results of ~~U.S.-based employees~~operations, financial condition and cash flows.

Given the nature of ~~companies that work on or~~our business and our global operations, political, economic, and other conditions in ~~support of federal contracts, or have 100 or more employees, could materially~~foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine, may adversely affect our results of operations, financial condition and cash flows.

~~On September 9, 2021, President Biden issued~~ We have suspended our commercial operations in Russia indefinitely, which resulted in a $158 million charge in the first quarter of 2022. In the second quarter, we recovered certain inventory and other expense amounts reserved in the first quarter and incurred some small additional charges resulting in a net recovery of $47 million. We may incur additional charges as conditions continue to evolve including with respect to our planned extrication from our relationship with KAMAZ Publicly Traded Company and its subsidiaries, including the unconsolidated joint venture. In addition, we have experienced, and expect to continue to experience, an ~~executive order requiring all employers~~inability to collect customer receivables and may be the subject of litigation in connection with ~~U.S. government contracts to ensure that their U.S.-based employees, contractors~~our suspension of commercial operations in Russia. The broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and ~~subcontractors, that work on or in support of U.S. government contracts, are fully vaccinated against COVID-19 as required~~geopolitical shifts; potential retaliatory action by the ~~executive order. The executive order includes on-site~~Russian government against companies, including possible nationalization of foreign businesses in Russia; increased tensions between the United States and ~~remote U.S.-based employees, contractors~~countries in which we operate; and ~~subcontractors and provides for limited medical and religious exceptions.~~

~~In addition, on September 9, 2021, President Biden announced that he has directed Occupational Safety and Health Administration (OSHA) to develop an Emergency Temporary Standard (ETS) mandating either~~ the ~~full vaccination against COVID-19 or weekly testing~~extent of ~~employees for employers with 100 or more employees. OSHA has not yet issued~~ the ~~ETS nor provided any additional information on its contents or requirements.~~

~~It is currently not possible to predict with certainty the impact the executive order or the OSHA ETS will have~~conflict’s effect on our ~~workforce. As a U.S. government contractor, all U.S. based employees, contractors~~business and ~~subcontractors that service or support~~results of operations as well as the global economy, cannot be predicted. To the extent the current conflict between Russia and Ukraine adversely affects our ~~U.S. government contracts, which are subject to~~business, it may also have the ~~provisions~~effect of heightening many other risks disclosed in our Annual Report on Form 10-K for the executive order, will be required to be fully vaccinated against COVID-19. Employees who are not subject to this requirement and who are not fully vaccinated may be subject to the ETS that will require them to get a COVID-19 test at least once a week. Additional vaccine mandates may be announced in jurisdictions in which our businesses operate. Our implementationyear ended December 31, 2021, any of ~~these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs,~~ which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation, particularly with regard to raw material, transportation and labor price fluctuations; disruptions to our information technology environment, including through cyberattack, ransom attack, or cyber-intrusion; adverse

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changes in international trade policies and relations; disruptions in global supply chains; and our exposure to foreign currency exchange rate changes.

Failure to successfully integrate the acquisition of Meritor, Inc. (Meritor) could have a material adverse impact on our results of operations, financial condition and cash flows.

The acquisition of Meritor will involve the integration of Meritor’s operations with our existing operations, and there are uncertainties inherent in such an integration. We will be required to devote significant management attention and resources to integrating Meritor’s operations. A delay in the integration of Meritor could cause us to fail to realize some or all of the anticipated benefits within a reasonable period of time or at all, which could result in additional transaction costs or in other negative effects.

We may fail to fully realize all of the anticipated benefits, including enhanced revenue, earnings, and cash flow from our acquisition of Meritor.

Our ability to fully realize all of the anticipated benefits, including enhanced revenue, earnings, and cash flow, from our acquisition of Meritor will depend, in substantial part, on our ability to successfully integrate the products into our segments, launch the Meritor products around the world and achieve our projected market penetration. While we believe we will ultimately achieve these objectives, it is possible that we will be unable to achieve all of these objectives within our anticipated time frame or in the anticipated amounts. If we are not able to successfully complete the integration of the Meritor business or implement our Meritor strategy, we may not fully realize the anticipated benefits, including enhanced revenue, earnings, and cash flows, from this acquisition or such anticipated benefits may take longer to realize than expected.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following information is provided pursuant to Item 703 of Regulation S-K:


		Issuer Purchases of Equity Securities							Issuer Purchases of Equity Securities
Period	Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (2)		Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (2)
July 5 - August 8		—	$	—	—	$	904
August 9 - September 5		302,129	233.75		302,129	833
September 6 - October 3		294,388	229.34		294,388	766
April 1 - April 30								April 1 - April 30	—	$	—	—	$	2,281
May 1 - May 31								May 1 - May 31	—	—		—	2,281
June 1 - June 30								June 1 - June 30	184,243	194.00		184,243	2,245
Total	Total	596,517	231.57		596,517			Total	184,243	194.00		184,243

(1) Shares purchased represent shares under the Board authorized share repurchase program.	(1) Shares purchased represent shares under the Board authorized share repurchase program.							(1) Shares purchased represent shares under the Board authorized share repurchase program.
(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.	(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.							(2) Shares repurchased under our Key Employee Stock Investment Plan only occur in the event of a participant default, which cannot be predicted, and were excluded from this column.

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2019 repurchase plan. 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. During the three months ended ~~October 3, 2021,~~June 30, 2022, we repurchased ~~$138~~$36 million of common stock under the 2019 authorization. The dollar value remaining available for future purchases under the 2019 program at ~~October 3, 2021,~~June 30, 2022, was ~~$766~~$245 million.

Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. Shares associated with participants' sales are sold as open-market transactions via a third-party broker.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

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ITEM 6. Exhibits

The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

CUMMINS INC.

EXHIBIT INDEX


Exhibit No.						Description of Exhibit








10.1						~~Third Amended and Restated 364-Day Credit~~Loan Agreement, dated as of ~~August 18, 2021,~~July 13, 2022, by and among Cummins Inc., the ~~subsidiary borrowers referred~~lenders from time to ~~therein, the Lenders and Agents~~time party thereto, and ~~JPMorgan Chase~~Wells Fargo Bank, ~~N.A.,~~National Association, as Administrative Agent.(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on ~~August 18, 202~~1 July 19, 2022 (File No. 001-04949)).
~~10.2~~						Amended and Restated Credit Agreement, dated as of August 18, 2021, by and among Cummins Inc., the subsidiary borrowers referred to therein, the Lenders and Agents party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. ~~(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August~~ 18 ~~, 20~~21 ~~(File No. 001-04949)).~~




31(a)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed with this quarterly report on Form 10-Q are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Net Income for the three and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021, ~~and September 27, 2020,~~ (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021, ~~and September 27, 2020,~~ (iii) the Condensed Consolidated Balance Sheets at ~~October 3, 2021~~June 30, 2022 and December 31, ~~2020,~~2021, (iv) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021, ~~and September 27, 2020,~~ (v) the Condensed Consolidated Statements of Changes in Equity for the three and ~~nine~~six months ended ~~October 3,~~June 30, 2022 and July 4, 2021 ~~and September 27, 2020~~ and (vi) Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cummins Inc.

Date:

~~November 2, 2021~~August 3, 2022

By:

/s/ MARK A. SMITH

By:

/s/ ~~CHRISTOPHER C. CLULOW~~LUTHER E. PETERS

Mark A. Smith

~~Christopher C. Clulow~~Luther E. Peters

Vice President and Chief Financial Officer

Vice President-Controller

(Principal Financial Officer)

(Principal Accounting Officer)

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