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~~September 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,~~September 30, 2022, there were ~~143,031,848~~141,022,462 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 months ended September 30, 2022 and October 3, 2021 ~~and September 27, 2020~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and October 3, 2021 ~~and September 27, 2020~~	4

	Condensed Consolidated Balance Sheets at ~~October 3, 2021~~September 30, 2022 and December 31, ~~2020~~2021	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and October 3, 2021 ~~and September 27, 2020~~	6
	Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three and nine months ended September 30, 2022 and October 3, 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	2733
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	4858
ITEM 4.	Controls and Procedures	4958
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	4960
ITEM 1A.	Risk Factors	4960
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5061
ITEM 3.	Defaults Upon Senior Securities	5062
ITEM 4.	Mine Safety Disclosures	5062
ITEM 5.	Other Information	5062
ITEM 6.	Exhibits	5162
	Signatures	5264

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				Nine 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	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
NET SALES (a) (Note 2)	NET SALES (a) (Note 2)	$	5,968	$	5,118	$	18,171	$	13,981	NET SALES (a) (Note 2)	$	7,333	$	5,968	$	20,304	$	18,171
Cost of sales		4,554		3,769		13,793		10,448
Cost of sales (Note 3)										Cost of sales (Note 3)	5,691		4,554		15,404		13,793
GROSS MARGIN	GROSS MARGIN	1,414		1,349		4,378		3,533		GROSS MARGIN	1,642		1,414		4,900		4,378

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	708		571		1,945		1,745
Research, development and engineering expenses	Research, development and engineering expenses	266		224		802		651		Research, development and engineering expenses	348		266		945		802
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)	70		94		261		397

Other operating expense, net		(5)		(20)		(17)		(35)
Other operating expense, net (Note 3)										Other operating expense, net (Note 3)	30		5		144		17
OPERATING INCOME	OPERATING INCOME	666		670		2,211		1,640		OPERATING INCOME	626		666		2,127		2,211

Interest expense	Interest expense	28		25		85		71		Interest expense	61		28		112		85
Other income, net	Other income, net	37		41		111		134		Other income, net	43		37		26		111
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	675		686		2,237		1,703		INCOME BEFORE INCOME TAXES	608		675		2,041		2,237

Income tax expense (Note 5)		134		182		473		402
Income tax expense (Note 6)										Income tax expense (Note 6)	199		134		502		473
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	541		504		1,764		1,301		CONSOLIDATED NET INCOME	409		541		1,539		1,764

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	9		7		19		27
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	400	$	534	$	1,520	$	1,737

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	$	2.83	$	3.72	$	10.74	$	11.96
Diluted	Diluted	$	3.69	$	3.36	$	11.86	$	8.65	Diluted	$	2.82	$	3.69	$	10.68	$	11.86

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	141.1		143.5		141.5		145.2
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	0.9		1.2		0.8		1.3
Diluted	Diluted	144.7		148.9		146.5		148.9		Diluted	142.0		144.7		142.3		146.5

(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 $295 million and $920 million for the three and nine months ended September 30, 2022, compared with $385 million and $1,286 million for the comparable periods in 2021.										(a) Includes sales to nonconsolidated equity investees of $295 million and $920 million for the three and nine months ended September 30, 2022, compared with $385 million and $1,286 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				Nine months ended
In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
CONSOLIDATED NET INCOME	$	409	$	541	$	1,539	$	1,764
Other comprehensive income (loss), net of tax (Note 15)
Change in pension and other postretirement defined benefit plans	6		17		28		63
Foreign currency translation adjustments	(379)		—		(620)		(34)

Unrealized gain on derivatives	41		3		112		37
Total other comprehensive (loss) income, net of tax	(332)		20		(480)		66
COMPREHENSIVE INCOME	77		561		1,059		1,830
Less: Comprehensive (loss) income attributable to noncontrolling interests	(6)		9		(19)		22
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	83	$	552	$	1,078	$	1,808

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	September 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	$	2,499	$	2,592

Marketable securities (Note 6)		430		461
Marketable securities (Note 7)						Marketable securities (Note 7)	466		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	2,965		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	4,450		3,565
Nonconsolidated equity investees	Nonconsolidated equity investees	400		380		Nonconsolidated equity investees	349		425
Inventories (Note 7)		4,322		3,425
Inventories (Note 8)						Inventories (Note 8)	5,543		4,355
Prepaid expenses and other current assets	Prepaid expenses and other current assets	828		790		Prepaid expenses and other current assets	1,091		777
Total current assets	Total current assets	12,320		11,897		Total current assets	14,398		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	10,231		9,358
Accumulated depreciation	Accumulated depreciation	(4,971)		(4,756)		Accumulated depreciation	(5,030)		(4,936)
Property, plant and equipment, net	Property, plant and equipment, net	4,185		4,255		Property, plant and equipment, net	5,201		4,422
Investments and advances related to equity method investees (Note 4)		1,543		1,441
Goodwill		1,289		1,293
Other intangible assets, net		921		963
Pension assets (Note 3)		1,100		1,042
Other assets (Note 8)		1,705		1,733
Investments and advances related to equity method investees						Investments and advances related to equity method investees	1,826		1,538
Goodwill (Note 9)						Goodwill (Note 9)	2,229		1,287
Other intangible assets, net (Note 9)						Other intangible assets, net (Note 9)	2,602		900
Pension assets (Note 4)						Pension assets (Note 4)	1,536		1,488
Other assets (Note 10)						Other assets (Note 10)	1,977		1,766
Total assets	Total assets	$	23,063	$	22,624	Total assets	$	29,769	$	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)	$	4,000	$	3,021
Loans payable (Note 9)		85		169
Commercial paper (Note 9)		200		323
Loans payable (Note 11)						Loans payable (Note 11)	217		208
Commercial paper (Note 11)						Commercial paper (Note 11)	2,393		313
Accrued compensation, benefits and retirement costs	Accrued compensation, benefits and retirement costs	626		484		Accrued compensation, benefits and retirement costs	575		683
Current portion of accrued product warranty (Note 10)		694		674
Current portion of accrued product warranty (Note 12)						Current portion of accrued product warranty (Note 12)	801		755
Current portion of deferred revenue (Note 2)	Current portion of deferred revenue (Note 2)	806		691		Current portion of deferred revenue (Note 2)	921		855

Other accrued expenses (Note 8)		1,185		1,112
Current maturities of long-term debt (Note 9)		55		62
Other accrued expenses (Note 10)						Other accrued expenses (Note 10)	1,568		1,190
Current maturities of long-term debt (Note 11)						Current maturities of long-term debt (Note 11)	55		59
Total current liabilities	Total current liabilities	6,861		6,335		Total current liabilities	10,530		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 11)						Long-term debt (Note 11)	5,450		3,579
Pensions and other postretirement benefits (Note 4)						Pensions and other postretirement benefits (Note 4)	678		604
Accrued product warranty (Note 12)						Accrued product warranty (Note 12)	742		684
Deferred revenue (Note 2)	Deferred revenue (Note 2)	836		840		Deferred revenue (Note 2)	867		850
Other liabilities (Note 8)		1,435		1,548
Other liabilities (Note 10)						Other liabilities (Note 10)	1,892		1,508
Total liabilities	Total liabilities	$	14,060	$	13,635	Total liabilities	$	20,159	$	14,309

Commitments and contingencies (Note 11)		0		0
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)
Redeemable noncontrolling interests (Notes 1 and 14)						Redeemable noncontrolling interests (Notes 1 and 14)	$	252	$	366

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	$	2,214	$	2,099
Retained earnings	Retained earnings	16,555		15,419		Retained earnings	17,628		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	(9,449)		(9,123)

Accumulated other comprehensive loss (Note 12)		(1,911)		(1,982)
Accumulated other comprehensive loss (Note 15)						Accumulated other comprehensive loss (Note 15)	(2,013)		(1,571)

Total Cummins Inc. shareholders’ equity	Total Cummins Inc. shareholders’ equity	8,082		8,062		Total Cummins Inc. shareholders’ equity	8,380		8,146
Noncontrolling interests	Noncontrolling interests	921		927		Noncontrolling interests	978		889
Total equity	Total equity	$	9,003	$	8,989	Total equity	$	9,358	$	9,035
Total liabilities and equity		$	23,063	$	22,624
Total liabilities, redeemable noncontrolling interests and equity						Total liabilities, redeemable noncontrolling interests and equity	$	29,769	$	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


	Nine months ended
In millions	September 30, 2022		October 3, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,539	$	1,764
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	544		497



Deferred income taxes	(194)		44
Equity in income of investees, net of dividends	(30)		(150)
Pension and OPEB expense (Note 4)	23		62
Pension contributions and OPEB payments (Note 4)	(71)		(86)
Share-based compensation expense	24		25




Russian suspension costs, net of recoveries (Note 3)	112		—
Asset impairments and other charges	36		—
Loss on corporate owned life insurance	114		11

Foreign currency remeasurement and transaction exposure	(136)		27
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(333)		(353)
Inventories	(597)		(919)
Other current assets	(18)		(45)
Accounts payable	353		416
Accrued expenses	(124)		435
Changes in other liabilities	(41)		(59)

Other, net	(56)		(145)
Net cash provided by operating activities	1,145		1,524

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(453)		(362)
Investments in internal use software	(44)		(36)

Proceeds from sale of land	—		20
Investments in and net advances from (to) equity investees	(50)		3
Acquisitions of businesses, net of cash acquired (Note 16)	(3,008)		—

Investments in marketable securities—acquisitions	(738)		(569)
Investments in marketable securities—liquidations (Note 7)	819		602


Cash flows from derivatives not designated as hedges	(29)		19
Other, net	7		45
Net cash used in investing activities	(3,496)		(278)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings (Notes 11 and 16)	2,076		35
Net borrowings (payments) of commercial paper	2,080		(123)
Payments on borrowings and finance lease obligations	(1,070)		(57)
Net borrowings (payments) under short-term credit agreements	21		(93)
Distributions to noncontrolling interests	(38)		(28)
Dividend payments on common stock	(633)		(601)
Repurchases of common stock	(370)		(1,228)
Proceeds from issuing common stock	36		27

Other, net	9		(11)
Net cash provided by (used in) financing activities	2,111		(2,079)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	147		20
Net decrease in cash and cash equivalents	(93)		(813)
Cash and cash equivalents at beginning of year	2,592		3,401
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,499	$	2,588

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 REDEEMABLE NONCONTROLLING INTERESTS AND 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	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT JUNE 30, 2022																				BALANCE AT JUNE 30, 2022	$	226	$	556	$	1,668	$	17,450	$	(9,439)	$	(1,696)	$	8,539	$	890	$	9,429

Net income																				Net income	(7)						400						400		16		416
Other comprehensive loss, net of tax (Note 15)																				Other comprehensive loss, net of tax (Note 15)											(317)		(317)		(15)		(332)
Issuance of common stock																				Issuance of common stock					7								7		—		7

Repurchases of common stock																				Repurchases of common stock									(23)				(23)		—		(23)
Cash dividends on common stock, $1.57 per share																				Cash dividends on common stock, $1.57 per share							(222)						(222)		—		(222)
Distributions to noncontrolling interests																				Distributions to noncontrolling interests													—		(24)		(24)
Share-based awards																				Share-based awards					4				13				17		—		17
Acquisition of business																				Acquisition of business													—		111		111
Fair value adjustment of redeemable noncontrolling interests																				Fair value adjustment of redeemable noncontrolling interests	33				(33)								(33)		—		(33)
Other shareholder transactions																				Other shareholder transactions					12								12		—		12
BALANCE AT SEPTEMBER 30, 2022																				BALANCE AT SEPTEMBER 30, 2022	$	252	$	556	$	1,658	$	17,628	$	(9,449)	$	(2,013)	$	8,380	$	978	$	9,358

BALANCE AT JULY 4, 2021	BALANCE AT JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793	BALANCE AT JULY 4, 2021	$	346	$	556	$	1,548	$	16,228	$	(8,838)	$	(1,929)	$	7,565	$	882	$	8,447

Net income	Net income					534								534		7		541		Net income	(3)						534						534		10		544
Other comprehensive income, net of tax (Note 12)										0		18		18		2		20
Other comprehensive income, net of tax (Note 15)																				Other comprehensive income, net of tax (Note 15)											18		18		2		20

Repurchases of common stock	Repurchases of common stock			0				(138)				0		(138)		—		(138)		Repurchases of common stock									(138)				(138)		—		(138)
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							(207)						(207)		—		(207)
Distributions to noncontrolling interests	Distributions to noncontrolling interests													—		(15)		(15)		Distributions to noncontrolling interests													—		(15)		(15)
Share-based awards	Share-based awards			0				1				0		1		—		1		Share-based awards									1				1		—		1

Fair value adjustment of redeemable noncontrolling interests																				Fair value adjustment of redeemable noncontrolling interests	(42)				42								42		—		42
Other shareholder transactions	Other shareholder transactions			7				1						8		—		8		Other shareholder transactions					7				1				8		—		8
BALANCE AT OCTOBER 3, 2021	BALANCE AT OCTOBER 3, 2021	$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003	BALANCE AT OCTOBER 3, 2021	$	301	$	556	$	1,597	$	16,555	$	(8,974)	$	(1,911)	$	7,823	$	879	$	8,702

BALANCE AT JUNE 28, 2020		$	556	$	1,797	$	14,811	$	(7,729)	$	(1)	$	(2,242)	$	7,192	$	938	$	8,130

Net income						501								501		3		504
Other comprehensive income, net of tax (Note 12)										0		135		135		10		145

Employee benefits trust activity				5				0		1				6		—		6

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

Other shareholder transactions				14										14		3		17
BALANCE AT SEPTEMBER 27, 2020		$	556	$	1,829	$	15,118	$	(7,696)	$	—	$	(2,107)	$	7,700	$	941	$	8,641

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 REDEEMABLE NONCONTROLLING INTERESTS AND 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



	Nine months ended
In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2021	$	366	$	556	$	1,543	$	16,741	$	(9,123)	$	(1,571)	$	8,146	$	889	$	9,035

Net income	(18)						1,520						1,520		37		1,557
Other comprehensive loss, net of tax (Note 15)											(442)		(442)		(38)		(480)
Issuance of common stock					8								8		—		8

Repurchases of common stock									(370)				(370)		—		(370)
Cash dividends on common stock, $4.47 per share							(633)						(633)		—		(633)
Distributions to noncontrolling interests													—		(38)		(38)
Share-based awards					(3)				39				36		—		36
Acquisition of business													—		111		111
Fair value adjustment of redeemable noncontrolling interests	(96)				96								96		—		96
Other shareholder transactions					14				5				19		17		36
BALANCE AT SEPTEMBER 30, 2022	$	252	$	556	$	1,658	$	17,628	$	(9,449)	$	(2,013)	$	8,380	$	978	$	9,358

BALANCE AT DECEMBER 31, 2020	$	282	$	556	$	1,617	$	15,419	$	(7,779)	$	(1,982)	$	7,831	$	876	$	8,707

Net income	(9)						1,737						1,737		36		1,773
Other comprehensive income (loss), net of tax (Note 15)											71		71		(5)		66
Issuance of common stock					1								1		—		1

Repurchases of common stock									(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

Fair value adjustment of redeemable noncontrolling interests	28				(28)								(28)		—		(28)
Other shareholder transactions					11				2				13		—		13
BALANCE AT OCTOBER 3, 2021	$	301	$	556	$	1,597	$	16,555	$	(8,974)	$	(1,911)	$	7,823	$	879	$	8,702

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

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

Meritor Acquisition

On August 3, 2022, we completed the acquisition of Meritor, Inc. (Meritor) with a purchase price of $2.9 billion (including debt repaid concurrent with the acquisition). Our consolidated results and segment results include Meritor's activity since the date of acquisition. The results are included in our Components segment in the axles and brakes business while the electric powertrain portion is included in our New Power segment. See NOTE 16, "ACQUISITIONS," for additional information.

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 third quarters of 2022 and 2021 ended on September 30 and October 3, 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 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.

Table of Contents

Revisions

During the third quarter of 2022, we determined that a put right held by a minority shareholder in one of our subsidiaries, which became exercisable in September 2022, was incorrectly classified as noncontrolling interests (NCI) as opposed to mezzanine equity in our Condensed Consolidated Balance Sheets. Because the put right was exercisable at fair value (as defined in the governing documents of the subsidiary), the NCI should have also been reflected at fair value at each balance sheet date with an offset to additional paid-in-capital (APIC). As a result, we have revised our historical financial statements to reflect the NCI at its estimated fair value as redeemable noncontrolling interests in our Condensed Consolidated Balance Sheets with a corresponding offset in NCI and APIC. This error did not impact our Condensed Consolidated Statements of Net Income, Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Cash Flows for any period. The amount reclassified from NCI and APIC was as follows:


In millions	Noncontrolling Interests		Additional Paid-in Capital		Total Correction to Mezzanine Equity
December 31, 2019	$	58	$	—	$	58
December 31, 2020	51		231		282
April 4, 2021	48		297		345
July 4, 2021	45		301		346
October 3, 2021	42		259		301
December 31, 2021	38		328		366
March 31, 2022	34		358		392
June 30, 2022	27		199		226

See NOTE 14, "REDEEMABLE NONCONTROLLING INTERESTS," for further information regarding the put right. We have concluded the correction of this error does not have a material impact to our previously issued annual and interim consolidated financial statements.

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

Nine months ended

September 30,
2022

October 3,
2021

September 30,
2022

October 3,
2021

Options excluded

22,307

7,813

25,290

4,577

~~Table of Contents~~

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,~~September 30, 2022, was ~~$774~~$695 million. We expect to recognize the related revenue of ~~$134~~$125 million over the next 12 months and ~~$640~~$570 million over periods up to 10 years. See ~~Note 10,~~NOTE 12, "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.

Table of Contents

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	September 30, 2022		December 31, 2021
Unbilled revenue	Unbilled revenue	$	104	$	114	Unbilled revenue	$	244	$	100
Deferred revenue, primarily extended warranty	Deferred revenue, primarily extended warranty	1,642		1,531		Deferred revenue, primarily extended warranty	1,788		1,705

We recognized revenue of ~~$130~~$123 million and ~~$410~~$539 million for the three and nine months ended ~~October 3, 2021,~~September 30, 2022, compared with ~~$84~~$130 million and ~~$290~~$432 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 months ended September 30, 2022 or October 3, ~~2021 or September 27, 2020.~~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				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
United States	United States	$	3,177	$	2,805	$	9,500	$	7,522	United States	$	4,116	$	3,177	$	11,361	$	9,500

China	China	679		705		2,468		2,037		China	601		679		1,774		2,468

India	India	294		166		841		406		India	358		294		978		841

Other international	Other international	1,818		1,442		5,362		4,016		Other international	2,258		1,818		6,191		5,362
Total net sales	Total net sales	$	5,968	$	5,118	$	18,171	$	13,981	Total net sales	$	7,333	$	5,968	$	20,304	$	18,171

Segment Revenue

Engine segment external sales by market were as follows:


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Heavy-duty truck	Heavy-duty truck	$	662	$	486	$	1,941	$	1,226	Heavy-duty truck	$	751	$	662	$	2,232	$	1,941
Medium-duty truck and bus	Medium-duty truck and bus	501		389		1,461		1,177		Medium-duty truck and bus	583		501		1,794		1,461
Light-duty automotive	Light-duty automotive	492		502		1,432		975		Light-duty automotive	465		492		1,377		1,432
Total on-highway	Total on-highway	1,655		1,377		4,834		3,378		Total on-highway	1,799		1,655		5,403		4,834
Off-highway	Off-highway	306		240		942		755		Off-highway	264		306		801		942
Total sales	Total sales	$	1,961	$	1,617	$	5,776	$	4,133	Total sales	$	2,063	$	1,961	$	6,204	$	5,776

1011

Table of Contents

Distribution segment external sales by region were as follows:


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
North America	North America	$	1,237	$	1,126	$	3,631	$	3,409	North America	$	1,512	$	1,237	$	4,374	$	3,631
Asia Pacific	Asia Pacific	236		195		675		577		Asia Pacific	258		236		744		675
Europe	Europe	143		153		467		424		Europe	174		143		494		467
Russia		86		41		209		126
China	China	80		74		239		242		China	89		80		270		239
Africa and Middle East	Africa and Middle East	74		47		197		136		Africa and Middle East	73		74		174		197
Latin America										Latin America	58		48		155		136
India	India	48		42		138		101		India	55		48		155		138
Latin America		48		37		136		108
Russia(1)										Russia(1)	13		86		224		209
Total sales	Total sales	$	1,952	$	1,715	$	5,692	$	5,123	Total sales	$	2,232	$	1,952	$	6,590	$	5,692

(1) The Distribution segment is organized and managed by geographic regions. The Russia region contains sales to several countries in the geographic area.										(1) The Distribution segment is organized and managed by geographic regions. The Russia region contains sales to several countries in the geographic area.

Distribution segment external sales by product line were as follows:


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Parts	Parts	$	796	$	719	$	2,313	$	2,155	Parts	$	942	$	796	$	2,855	$	2,313
Engines										Engines	449		376		1,315		1,058
Power generation	Power generation	437		415		1,305		1,166		Power generation	428		437		1,266		1,305
Engines		376		278		1,058		876
Service	Service	343		303		1,016		926		Service	413		343		1,154		1,016
Total sales	Total sales	$	1,952	$	1,715	$	5,692	$	5,123	Total sales	$	2,232	$	1,952	$	6,590	$	5,692

Components segment external sales by business were as follows:


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Emission solutions	Emission solutions	$	699	$	612	$	2,466	$	1,576	Emission solutions	$	748	$	699	$	2,323	$	2,466
Axles and brakes										Axles and brakes	732		—		732		—
Filtration	Filtration	288		260		892		715		Filtration	322		288		949		892
Turbo technologies	Turbo technologies	177		163		609		463		Turbo technologies	205		177		597		609
Automated transmissions	Automated transmissions	112		90		374		215		Automated transmissions	159		112		436		374
Electronics and fuel systems	Electronics and fuel systems	71		76		286		223		Electronics and fuel systems	54		71		177		286
Total sales	Total sales	$	1,347	$	1,201	$	4,627	$	3,192	Total sales	$	2,220	$	1,347	$	5,214	$	4,627

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


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Power generation	Power generation	$	395	$	334	$	1,127	$	827	Power generation	$	425	$	395	$	1,232	$	1,127
Industrial	Industrial	209		167		621		477		Industrial	226		209		627		621
Generator technologies	Generator technologies	84		66		251		191		Generator technologies	122		84		331		251
Total sales	Total sales	$	688	$	567	$	1,999	$	1,495	Total sales	$	773	$	688	$	2,190	$	1,999

1112

Table of Contents

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, 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. In the third quarter, we incurred $4 million of additional contract termination charges, and we recovered certain bad debt expenses and inventory amounts reserved in the first quarter for a net charge of $1 million. As of September 30, 2022, we had approximately $13 million of inventory and $15 million of receivables in Russia, all of which are fully reserved. In addition, we have cash balances of $71 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		Nine months ended
In millions	September 30, 2022		September 30, 2022		Statement of Net Income Location
Inventory write-downs	$	(2)	$	17	Cost of sales
Accounts receivable reserves	(1)		42		Other operating expense, net
Impairment and other joint venture costs	—		31		Equity, royalty and interest income from investees

Other	4		22		Other operating expense, net
Total	$	1	$	112

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. Prior to the acquisition, Meritor provided a range of benefits to its employees and retirees, including pension benefits and postretirement healthcare benefits. As part of the acquisition, we assumed the assets and liabilities associated with these plans. Accordingly, on August 3, 2022, we recorded assets of $147 million and liabilities of $105 million on our Condensed Consolidated Balance Sheets related to Meritor's postretirement benefit plans.

Contributions to these plans were as follows:


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021

Defined benefit pension contributions	Defined benefit pension contributions	$	13	$	11	$	67	$	77	Defined benefit pension contributions	$	7	$	13	$	46	$	67

OPEB payments, net	OPEB payments, net	5		9		19		25		OPEB payments, net	9		5		25		19

Defined contribution pension plans	Defined contribution pension plans	20		18		72		70		Defined contribution pension plans	26		20		82		72

~~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 $7 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~~$20 million.

Table of Contents

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	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Service cost	Service cost	$	35	$	33	$	8	$	8	$	—	$	—	Service cost	$	35	$	35	$	7	$	8	$	—	$	—
Interest cost	Interest cost	20		24		8		8		1		2		Interest cost	27		20		10		8		2		1
Expected return on plan assets	Expected return on plan assets	(49)		(49)		(22)		(19)		—		—		Expected return on plan assets	(60)		(49)		(22)		(22)		—		—
Amortization of prior service cost	Amortization of prior service cost	—		—		1		1		—		—		Amortization of prior service cost	1		—		—		1		—		—
Recognized net actuarial loss	Recognized net actuarial loss	11		10		8		9		—		—		Recognized net actuarial loss	5		11		1		8		—		—
Net periodic benefit cost		$	17	$	18	$	3	$	7	$	1	$	2
Net periodic benefit cost (credit)														Net periodic benefit cost (credit)	$	8	$	17	$	(4)	$	3	$	2	$	1


		Pension													Pension
		U.S. Plans				U.K. Plans				OPEB					U.S. Plans				U.K. Plans				OPEB
		Nine months ended													Nine 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	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Service cost	Service cost	$	105	$	100	$	25	$	22	$	—	$	—	Service cost	$	103	$	105	$	23	$	25	$	—	$	—
Interest cost	Interest cost	59		71		23		26		3		5		Interest cost	71		59		28		23		4		3
Expected return on plan assets	Expected return on plan assets	(149)		(146)		(65)		(56)		—		—		Expected return on plan assets	(164)		(149)		(62)		(65)		—		—
Amortization of prior service cost	Amortization of prior service cost	—		1		2		2		—		—		Amortization of prior service cost	1		—		—		2		—		—
Recognized net actuarial loss	Recognized net actuarial loss	35		30		24		26		—		—		Recognized net actuarial loss	17		35		2		24		—		—
Net periodic benefit cost		$	50	$	56	$	9	$	20	$	3	$	5
Net periodic benefit cost (credit)														Net periodic benefit cost (credit)	$	28	$	50	$	(9)	$	9	$	4	$	3

~~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				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020			In millions	September 30, 2022		October 3, 2021		September 30, 2022			October 3, 2021
Manufacturing entities	Manufacturing entities											Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.		$	23	$	30		$	108	$	81
Dongfeng Cummins Engine Company, Ltd.	Dongfeng Cummins Engine Company, Ltd.	11		20			63		54			Dongfeng Cummins Engine Company, Ltd.	$	8	$	11	$	35		$	63
Chongqing Cummins Engine Company, Ltd.	Chongqing Cummins Engine Company, Ltd.	8		7			28		27			Chongqing Cummins Engine Company, Ltd.	7		8		23			28
Beijing Foton Cummins Engine Co., Ltd.												Beijing Foton Cummins Engine Co., Ltd.	6		23		34			108
Tata Cummins, Ltd.												Tata Cummins, Ltd.	5		6		19			13
All other manufacturers	All other manufacturers	27		22		(1)	117		100		(1)(2)	All other manufacturers	11		21		14		(1)	104

Distribution entities	Distribution entities											Distribution entities
Komatsu Cummins Chile, Ltda.	Komatsu Cummins Chile, Ltda.	8		6			23		23			Komatsu Cummins Chile, Ltda.	13		8		32			23
All other distributors	All other distributors	2		1			6		1			All other distributors	3		2		8			6

Cummins share of net income	Cummins share of net income	79		86			345		286			Cummins share of net income	53		79		165			345
Royalty and interest income	Royalty and interest income	15		12			52		56			Royalty and interest income	17		15		96			52
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	$	70	$	94	$	261		$	397

(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 16, "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 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Table of Contents

NOTE 5.6. INCOME TAXES

Our effective tax rates for the three and nine months ended September 30, 2022, were 32.7 percent and 24.6 percent, respectively. Our effective tax rates for the three and nine months ended October 3, 2021, were 19.9 percent and 21.1 percent, respectively. ~~Our effective~~

The three months ended September 30, 2022, contained unfavorable discrete tax ~~rates for~~items of $57 million, primarily due to $51 million of unfavorable tax costs associated with internal restructuring ahead of the ~~three~~planned separation of our filtration business and $10 million of unfavorable return to provision adjustments, partially offset by $4 million of net favorable other discrete tax items.

The nine months ended September ~~27, 2020, were 26.5 percent~~30, 2022, contained unfavorable net discrete tax items of $52 million, primarily due to $69 million of unfavorable tax costs associated with internal restructuring ahead of the planned separation of our filtration business and ~~23.6 percent, respectively.~~$10 million of unfavorable return to provision adjustments, partially offset by $27 million of favorable changes in tax reserves.

The three months ended October 3, 2021, contained favorable discrete items of $11 million, primarily due to a $16 million favorable release of tax reserves associated with the settlement of tax positions, partially offset by $5 million of unfavorable return to provision adjustments.

The nine months ended October 3, 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~~(mostly in the U.K.

The three months ended September 27, 2020, contained unfavorable discrete items of $31 million, primarily due to $17 million of changes 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 in tax reserves and $8 million of provision to return adjustments, partially offset by $15 million of 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.~~

~~Table of Contents~~

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							September 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	$	229	$	—	$	229	$	299	$	—	$	299

Debt mutual funds														Debt mutual funds	215		(7)		208		254		2		256
Equity mutual funds	Equity mutual funds	22		9		31		19		5		24		Equity mutual funds	28		1		29		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	$	472	$	(6)	$	466	$	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 months ended ~~October 3, 2021,~~September 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.

Table of Contents

•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						Nine months ended
In millions	In millions		October 3, 2021		September 27, 2020		In millions		September 30, 2022		October 3, 2021
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities		$	428	$	283	Proceeds from sales of marketable securities		$	576	$	428
Proceeds from maturities of marketable securities	Proceeds from maturities of marketable securities		174		125		Proceeds from maturities of marketable securities		243		174
Investments in marketable securities - liquidations	Investments in marketable securities - liquidations		$	602	$	408	Investments in marketable securities - liquidations		$	819	$	602

~~Table of Contents~~

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	September 30, 2022		December 31, 2021
Finished products	$	2,914	$	2,538
Work-in-process and raw materials	2,860		2,009
Inventories at FIFO cost	5,774		4,547
Excess of FIFO over LIFO	(231)		(192)
Total inventories	$	5,543	$	4,355

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2022:


In millions	Components		New Power		Distribution		Power Systems		Engine		Total




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

Acquisitions(1)	799		159		—		—		—		958
Translation and other	(15)		—		—		(1)		—		(16)

Balance at September 30, 2022	$	1,718	$	416	$	79	$	10	$	6	$	2,229



(1)See NOTE 16, "ACQUISITIONS," for additional information on acquisition goodwill.

Intangible assets that have finite useful lives are amortized over their estimated useful lives. The following table summarizes our other intangible assets with finite useful lives that are subject to amortization:



In millions	September 30, 2022		December 31, 2021
Software	$	652	$	586
Less: Accumulated amortization	(378)		(314)
Software, net	274		272

Trademarks, patents, customer relationships and other(1)	2,711		957
Less: Accumulated amortization	(383)		(329)
Trademarks, patents, customer relationships and other, net	2,328		628
Total other intangible assets, net	$	2,602	$	900

(1)See NOTE 16, "ACQUISITIONS," for additional information on acquired intangible assets.

Table of Contents

NOTE 8.10. 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	September 30, 2022		December 31, 2021
Deferred income taxes	$	472	$	428
Operating lease assets	471		444
Corporate owned life insurance	378		492

Other	656		402
Other assets	$	1,977	$	1,766

Other accrued expenses included the following:


In millions	In millions	October 3, 2021		December 31, 2020		In millions	September 30, 2022		December 31, 2021
Marketing accruals	Marketing accruals	$	290	$	242	Marketing accruals	$	307	$	303
Income taxes payable						Income taxes payable	231		107
Other taxes payable	Other taxes payable	268		256		Other taxes payable	210		234
Current portion of operating lease liabilities	Current portion of operating lease liabilities	127		128		Current portion of operating lease liabilities	126		128
Income taxes payable		92		82
Other	Other	408		404		Other	694		418
Other accrued expenses	Other accrued expenses	$	1,185	$	1,112	Other accrued expenses	$	1,568	$	1,190

Other liabilities included the following:


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

Deferred income taxes						Deferred income taxes	$	570	$	403
Operating lease liabilities	Operating lease liabilities	$	327	$	325	Operating lease liabilities	347		326
Deferred income taxes		327		325
One-time transition tax		255		289
Accrued compensation	Accrued compensation	201		203		Accrued compensation	201		177
Mark-to-market valuation on interest rate locks		5		41
Long-term income taxes						Long-term income taxes	192		263
Mark-to-market valuation on interest rate derivatives						Mark-to-market valuation on interest rate derivatives	161		19
Other long-term liabilities	Other long-term liabilities	320		365		Other long-term liabilities	421		320
Other liabilities	Other liabilities	$	1,435	$	1,548	Other liabilities	$	1,892	$	1,508

~~Table of Contents~~

NOTE 9.11. 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	September 30, 2022			December 31, 2021

Loans payable (1)	Loans payable (1)	$	85		$	169		Loans payable (1)	$	217		$	208

Commercial paper	Commercial paper	200		(2)	323		(3)	Commercial paper	2,393		(2)(3)	313		(4)

(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 2.82 percent at September 30, 2022. This included $97 million of borrowings under the Europe program at a weighted-average interest rate of 0.87 percent and $2,296 million of borrowings under the U.S. program at a weighted-average interest rate of 2.91 percent.								(2) The weighted-average interest rate, inclusive of all brokerage fees, was 2.82 percent at September 30, 2022. This included $97 million of borrowings under the Europe program at a weighted-average interest rate of 0.87 percent and $2,296 million of borrowings under the U.S. program at a weighted-average interest rate of 2.91 percent.
(3) Additional commercial paper borrowings were primarily used for the Meritor acquisition. See NOTE 16, "ACQUISITIONS," for additional information.								(3) Additional commercial paper borrowings were primarily used for the Meritor acquisition. See NOTE 16, "ACQUISITIONS," for additional information.
(4) 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.								(4) 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.

Table of Contents

We can issue up to ~~$3.5~~$4.0 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.

Revolving Credit Facilities

On August 18, 2021, we entered into an amended and restated 5-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. This credit agreement replaces the prior $2 billion 5-year credit agreement that would have matured on August 22, 2023. Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Up to $300 million under this credit facility is available for swingline loans. Based on our current long-term debt ratings, the applicable margin on LIBOR rate loans was 0.75 percent per annum as of October 3, 2021. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.

~~On August 18, 2021,~~17, 2022, we entered into an amended and restated 364-day credit agreement, ~~that~~which allows us to borrow up to $1.5 billion of unsecured funds at any time prior to August ~~17, 2022.~~16, 2023. This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that matured on August ~~18, 2021.~~17, 2022.

~~Both~~On August 17, 2022, we also entered into an incremental 364-day credit ~~agreements include various covenants, including, among others, maintaining a net debt~~agreement, which allows us to ~~total capital ratio~~borrow up to $500 million of ~~no more than 0.65~~unsecured funds at any time prior to ~~1.0. At October 3, 2021, we were in compliance with these covenants. These revolving~~August 16, 2023.

We have access to committed credit facilities ~~are maintained primarily to provide backup liquidity for~~totaling $4.0 billion, including the $1.5 billion 364-day facility that expires August 16, 2023, $500 million incremental 364-day facility that expires August 16, 2023, and our ~~commercial paper borrowings and for general corporate purposes.~~$2.0 billion five-year facility that expires on August 18, 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~~September 30, 2022 and December 31, ~~2020.~~

2021. At ~~October 3, 2021,~~September 30, 2022, the ~~$200~~$2,393 million of outstanding commercial paper effectively reduced the ~~$3.5~~$4.0 billion of revolving credit capacity to ~~$3.3~~$1.6 billion.

At ~~October 3, 2021,~~September 30, 2022, we also had an additional ~~$268~~$230 million available for borrowings under our international and other domestic credit facilities.

~~Table of Contents~~

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	September 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
Term loan, due 2025							Term loan, due 2025	Variable	2,000		—
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		1.50%	850		850
Senior notes, due 2030(1)							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		121		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		(133)		34
Finance leases	Finance leases		89		91		Finance leases		109		89
Total long-term debt	Total long-term debt		3,657		3,672		Total long-term debt		5,505		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		55		59
Long-term debt	Long-term debt		$	3,602	$	3,610	Long-term debt		$	5,450	$	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.

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 interest rate is based on Secured Overnight Financing Rate (SOFR) for the one-month interest period plus the relevant spread. The loan will mature on August 1, 2025. 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.

Table of Contents

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	$	13	$	563	$	43	$	2,509	$	55

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 ~~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.losses:


	Three months ended								Nine months ended
In millions	September 30, 2022				October 3, 2021				September 30, 2022				October 3, 2021
Type of Swap	Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings
Interest rate swaps(1)	$	(47)	$	45	$	—	$	—	$	(158)	$	159	$	—	$	—

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

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),~~ 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)

~~Table of Contents~~


In millions	Three months ended				Nine months ended
Type of Swap	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Interest rate locks	$	21	$	—	$	103	$	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	September 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)	$	7,635	$	4,461
Carrying value of total debt	Carrying value of total debt	3,942		4,164		Carrying value of total debt	8,115		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.

Filtration Contingent Debt Agreement

On September 30, 2022, certain of our subsidiaries entered into a $1.0 billion credit agreement (Credit Agreement), consisting of a $400 million revolving credit facility and a $600 million term loan facility (Facilities), in anticipation of the separation of our filtration business. Borrowings under the Credit Agreement will not become available under the Credit Agreement unless and until, among other things, there is a sale to the public of shares in our subsidiary that holds the filtration business (Parent Borrower). The Credit Agreement will automatically terminate if no such public sale of shares of Parent Borrower occurs on or prior to March 30, 2023. Borrowings under the Credit Agreement would be available to Parent Borrower and one or more of its subsidiaries (Borrower). If borrowings become available under the Credit Agreement, the Facilities would mature on September 30, 2027.

Table of Contents

Borrowings under the Credit Agreement would bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable Borrower’s election. Generally, U.S. dollar-denominated loans would bear interest at adjusted term SOFR (which includes a 0.10 percent credit spread adjustment to term SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Parent Borrower's net leverage ratio.

NOTE ~~10.~~12. 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					Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 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	395		431
Deferred revenue on extended warranty contracts sold	Deferred revenue on extended warranty contracts sold	210		172		Deferred revenue on extended warranty contracts sold	215		210
Provision for product campaigns issued	Provision for product campaigns issued	162		27		Provision for product campaigns issued	132		162
Payments made during period	Payments made during period	(409)		(424)		Payments made during period	(476)		(409)

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	(220)		(191)
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	(80)		(131)
Acquisitions(1)						Acquisitions(1)	144		—
Foreign currency translation and other	Foreign currency translation and other	(4)		(6)		Foreign currency translation and other	19		(4)

Balance, end of period	Balance, end of period	$	2,375	$	2,225	Balance, end of period	$	2,554	$	2,375

(1) See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.						(1) See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

We recognized supplier recoveries of ~~$88~~$10 million and ~~$97~~$33 million for the three and nine months ended ~~October 3, 2021,~~September 30, 2022, compared with $5$88 million and ~~$16~~$97 million for the comparable periods in ~~2020.~~2021.

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	September 30, 2022		December 31, 2021		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	295	$	286	Current portion of deferred revenue
Long-term portion	716		700		Deferred revenue
Total	$	1,011	$	986

Product warranty
Current portion	$	801	$	755	Current portion of accrued product warranty
Long-term portion	742		684		Accrued product warranty
Total	$	1,543	$	1,439

Total warranty accrual	$	2,554	$	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~~

Table of Contents

$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,~~September 30, 2022, the remaining accrual balance was ~~$94~~$54 million.

NOTE ~~11.~~13. 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; environmental matters; and ~~environmental matters.~~asbestos claims. 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.

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.~~2018 and Titan trucks for model years 2016 through 2019. 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 RAM recall during the first quarter of 2022, an amount that reflected our current estimate of the cost of that recall. We are also developing a new software calibration and hardware fix and will recall model years 2016 through 2019 Titan trucks. We accrued $29 million for the Titan recall during the third quarter of 2022, an amount that reflected our current estimate of the cost of that recall.

We will continue to work together closely with the relevant regulators to develop and implement recommendations for improvement and seek to reach further resolutions as part of our ongoing commitment to compliance. Due to ~~the continuing nature of our formal review, our ongoing cooperation with our regulators and~~ the presence of many unknown facts and circumstances, we ~~cannot predict~~are not yet able to estimate any further financial impact of these matters. It is possible that the ~~final outcome of this~~consequences 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,~~September 30, 2022, the maximum potential loss related to these guarantees was ~~$49~~$48 million.

1921

Table of Contents

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At ~~October 3, 2021,~~September 30, 2022, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately ~~$90~~$138 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,~~September 30, 2022, the total commitments under these contracts were ~~$54~~$42 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~~$118 million at ~~October 3, 2021.~~September 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.

Accounts Receivable Factoring

We assumed an accounts receivable factoring program from the acquisition of Meritor for trade receivables as follows:


	Current Expiration	Total Facility Size at September 30, 2022				Utilized at September 30, 2022
In millions		EUR		USD		EUR		USD



Off-balance sheet arrangements
Committed Swedish factoring facility(1)(2)	March 2024	€	155	$	151	€	144	$	139
Committed U.S. factoring facility(1)	February 2023	N/A		75		—		76
Uncommitted U.K. factoring facility(3)	February 2025	25		24		2		2
Uncommitted Italy factoring facility	June 2025	30		29		11		11
Other uncommitted factoring facilities(4)	None	N/A		N/A		7		7
Total off-balance sheet arrangements		€	210	$	279	€	164	$	235


(1) Actual amounts may exceed the bank's commitment at the bank's discretion.
(2) The factoring program is supported by a 364-day committed credit facility through June 22, 2023.
(3) The U.K. factoring facility enables the factoring of British pound and Euro denominated accounts receivable.
(4) There is no explicit facility size under the agreement, but the counterparty approves the purchase of receivable tranches as its discretion.

We received $108 million of proceeds from receivables sold, and costs associated with all of the off-balance sheet arrangements described above were $1 million since the August 3, 2022, acquisition date.

Table of Contents

NOTE 14. REDEEMABLE NONCONTROLLING INTERESTS

A 19 percent minority shareholder in one of our businesses, Hydrogenics Corporation (Hydrogenics), has, among other rights and subject to related obligations and restrictive covenants, rights that are exercisable between September 2022 and September 2026 to require us to (1) purchase such shareholder's shares (Put Option) at an amount up to the fair market value (calculated pursuant to a process outlined in the shareholders' agreement) and (2) sell to such shareholder Hydrogenics' electrolyzer business at an amount up to the fair market value of the electrolyzer business (calculated pursuant to a process outlined in the shareholders’ agreement). We recorded the estimated fair value of the Put Option as redeemable noncontrolling interests in our Condensed Consolidated Financial Statements with an offset to additional paid-in capital. At September 30, 2022, the redeemable noncontrolling interest balance was $252 million.

Table of Contents

NOTE ~~12.~~15. ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component for the three 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 July 4, 2021 $ (689) $ (1,231) $ (9) $ (1,929)
Other comprehensive income before reclassifications
Before-tax amount 1 (2) 5 4 $ 2 $ 6
Tax expense (1) — (3) (4) — (4)
After-tax amount — (2) 2 — 2 2
Amounts reclassified from accumulated other comprehensive income (loss)(1)
17 — 1 18 — 18
Net current period other comprehensive income (loss) 17 (2) 3 18 $ 2 $ 20
Balance at October 3, 2021 $ (672) $ (1,233) $ (6) $ (1,911)
Balance at June 28, 2020 $ (716) $ (1,436) $ (90) $ (2,242)
Other comprehensive income before reclassifications
Before-tax amount — 101 23 124 $ 10 $ 134
Tax expense — — (5) (5) — (5)
After-tax amount — 101 18 119 10 129
Amounts reclassified from accumulated other comprehensive income (loss)(1)
16 — — 16 — 16
Net current period other comprehensive income 16 101 18 135 $ 10 $ 145
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.

~~Table of Contents~~

~~Following are the changes in accumulated other comprehensive income (loss) by component for the nine 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 June 30, 2022	$	(324)	$	(1,426)	$	54	$	(1,696)
Other comprehensive income (loss) before reclassifications
Before-tax amount	—		(365)		51		(314)		$	(15)	$	(329)
Tax benefit (expense)			1		(13)		(12)		—		(12)
After-tax amount	—		(364)		38		(326)		(15)		(341)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	6		—		3		9		—		9

Net current period other comprehensive income (loss)	6		(364)		41		(317)		$	(15)	$	(332)
Balance at September 30, 2022	$	(318)	$	(1,790)	$	95	$	(2,013)

Balance at July 4, 2021	$	(689)	$	(1,231)	$	(9)	$	(1,929)
Other comprehensive income (loss) before reclassifications
Before-tax amount	1		(2)		5		4		$	2	$	6
Tax expense	(1)		—		(3)		(4)		—		(4)
After-tax amount	—		(2)		2		—		2		2
Amounts reclassified from accumulated other comprehensive income (loss)(1)	17		—		1		18		—		18
Net current period other comprehensive income (loss)	17		(2)		3		18		$	2	$	20
Balance at October 3, 2021	$	(672)	$	(1,233)	$	(6)	$	(1,911)

(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.

2224

Table of Contents

Following are the changes in accumulated other comprehensive income (loss) by component for the nine 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, 2021	$	(346)	$	(1,208)	$	(17)	$	(1,571)
Other comprehensive income (loss) before reclassifications
Before-tax amount	14		(589)		146		(429)		$	(38)	$	(467)
Tax (expense) benefit	(3)		7		(35)		(31)		—		(31)
After-tax amount	11		(582)		111		(460)		(38)		(498)
Amounts reclassified from accumulated other comprehensive income (loss)(1)	17		—		1		18		—		18
Net current period other comprehensive income (loss)	28		(582)		112		(442)		$	(38)	$	(480)
Balance at September 30, 2022	$	(318)	$	(1,790)	$	95	$	(2,013)

Balance at December 31, 2020	$	(735)	$	(1,204)	$	(43)	$	(1,982)
Other comprehensive income (loss) 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		71		$	(5)	$	66
Balance at October 3, 2021	$	(672)	$	(1,233)	$	(6)	$	(1,911)










(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.

Table of Contents

NOTE 16. ACQUISITIONS

Acquisitions for the nine months ended September 30, 2022, were as follows.


Entity Acquired (Dollars in millions)	Date of Acquisition	Additional Percent Interest Acquired	Payments to Former Owners		Acquisition Related Debt Retirements		Total Purchase Consideration(1)		Goodwill Acquired		Intangibles Recognized(2)

Meritor, Inc.	08/03/22	100%	$	2,613	$	248	$	2,861	$	850	$	1,610
Jacobs Vehicle Systems	04/08/22	100%	346		—		346		108		164
Cummins Westport Joint Venture	02/07/22	50%	42		—		42		—		20














(1) The newly consolidated entities were accounted for as business combinations. On the date of acquisition, Meritor, Inc. was included in the Components and New Power segments, Jacobs Vehicle Systems was included in the Components segment and Cummins Westport Joint Venture was included in the Engine segment.
(2) Intangible assets acquired in the business combination were mostly technology and customer related.

Meritor, Inc.

On August 3, 2022, we completed the acquisition of Meritor whereby we paid $36.50 per share for each outstanding share of Meritor, a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for commercial vehicle and industrial markets. The total purchase price, including debt that was retired on the closing date of $248 million, was $2.9 billion. In addition, we assumed $1.0 billion of additional debt, of which $0.9 billion was retired prior to the end of the third quarter. The acquisition was funded with a combination of $2.0 billion in new debt (see NOTE 11, "DEBT" for additional details), cash on hand and additional commercial paper borrowings. The integration of Meritor’s people, technology and capabilities position us as one of the few companies able to provide integrated powertrain solutions across combustion and electric power applications at a time when demand for decarbonized solutions is continuing to accelerate. The majority of this business will be included within our Components segment with the exception of the electric powertrain business, which will be included in our New Power segment. The values assigned to individual assets acquired and liabilities assumed are preliminary based on management’s current best estimate and subject to change as certain matters are finalized. The primary areas that are preliminary include, but are not limited to, valuation of intangibles, legal and other contingent liabilities and deferred taxes. The preliminary purchase price allocation was as follows:


In millions
Cash and cash equivalents	$	98
Accounts and notes receivable, net	640
Inventories	752
Property, plant and equipment	846
Intangible assets	1,610



Investments and advances related to equity method investees	382
Goodwill	850
Pension assets	147
Other current and long-term assets	364
Accounts payable (principally trade)	(711)
Net deferred taxes	(325)
Pensions and other postretirement benefits	(129)
Long-term debt	(962)
Other current and long-term liabilities	(590)
Noncontrolling interests	(111)
Total purchase price	$	2,861

Table of Contents

The estimated fair values (all considered Level 3 measurements) of the identifiable intangible assets acquired, their weighted-average useful lives, the related valuation methodology and key assumptions are as follows:

Fair Value (in millions)

Weighted-Average Useful Life (in years)

Valuation Methodology

Key Assumptions

Customer relationships

960

Multi-period excess earnings

Revenue, EBITDA, rate of return, renewal rates

Technology

345

Relief-from-royalty

Royalty rate, rate of return, obsolescence factor

Trade name

305

Relief-from-royalty

Royalty rate, rate of return

Annual amortization of the intangible assets for the next five years is expected to approximate $142 million per year.

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. Goodwill was allocated to the Components segment ($691 million) and the New Power segment ($159 million) based on the relative value of those businesses compared to the assets and liabilities assigned to them. We do not expect any of the goodwill to be deductible for tax purposes. Among the factors contributing to a purchase price resulting in the recognition of goodwill are Meritor’s expected future customers, new versions of technologies, an acquired workforce, other economic benefits that are anticipated to arise from future product sales and operational synergies from combining the business with Cummins.

Included in our third quarter results were revenues of $737 million and net loss of $37 million related to this business. In addition, on a year-to-date basis we have incurred acquisition related costs of $30 million included in selling, general and administrative expenses in our Condensed Consolidated Statements of Net Income.

The following table presents the supplemental consolidated results of the Company for the three and nine months ended September 30, 2022 and October 3, 2021, on an unaudited pro-forma basis as if the acquisition had been consummated on January 1, 2021. The primary adjustments reflected in the pro-forma results related to (1) increase in interest expense for debt used to fund the acquisition, (2) removal of acquisition related costs from 2022 (and included in 2021) and (3) changes related to purchase accounting primarily related to amortization of intangibles, fixed assets and joint ventures. The unaudited pro forma financial information presented below does not purport to represent the actual results of operations that Cummins and Meritor would have achieved had the companies been combined during the periods presented and was not intended to project the future results of operations that the combined company could achieve after the acquisition. The unaudited pro forma financial information does not reflect any potential cost savings, operating efficiencies, long-term debt pay down estimates, financial synergies or other strategic benefits as a result of the acquisition or any restructuring costs to achieve those benefits.


(Unaudited)	Three months ended				Nine months ended
In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Net sales	$	7,734	$	6,913	$	23,071	$	21,115
Net income	397		544		1,565		1,662

The Meritor acquisition increased net assets in the Components segment by $3.8 billion and New Power segment by $0.3 billion.

Jacobs Vehicle Systems

On April 8, 2022, we completed the acquisition of Jacobs Vehicle Systems business (Jacobs) from Altra Industrial Motion Corp. 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.

Table of Contents

The preliminary purchase price allocation was as follows:


In millions
Cash and cash equivalents	$	18
Accounts and notes receivable, net	24
Inventories	15
Property, plant and equipment	70
Intangible assets	164



Goodwill	108
Accounts payable (principally trade)	(21)
Net deferred taxes	(27)
Other, net	(5)
Total purchase price	$	346

Fair Value (in millions)

Weighted-Average Useful Life (in years)

Valuation Methodology

Key Assumptions

Customer relationships

108

Multi-period excess earnings

Rate of return, renewal rates

Technology

Relief-from-royalty

Royalty rate, rate of return, obsolescence factor

Trade name

Relief-from-royalty

Royalty rate, rate of return

Annual amortization of the intangible assets for the next five years is expected to approximate $18 million per year.

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 results for the three and nine months ended September 30, 2022, were revenues of $43 million and $80 million, respectively, and loss of $2 million and break-even, respectively, 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.

Cummins Westport Joint Venture

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.

Pending Acquisition

Prior to our acquisition of Meritor, Meritor signed an agreement with Siemens to purchase its Commercial Vehicles business for approximately €190 million, subject to working capital and other customary adjustments. This business develops, designs and produces electric drive systems including electric motors, inverters, software and related services for the transit, off-highway and specialty markets. We expect the acquisition to close in the fourth quarter of 2022. This acquisition will be included in our New Power segment.

Table of Contents

NOTE ~~13.~~17. 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, automated transmissions, axles, drivelines, brakes and ~~automated transmissions.~~suspension systems. 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 and electric powertrain technologies. The New Power segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electroloyzers for hydrogen production and electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

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 and certain filtration separation costs to individual segments. EBITDA may not be consistent with measures used by other companies.

2329

Table of Contents

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 September 30, 2022														Three months ended September 30, 2022
External sales														External sales	$	2,063	$	2,232	$	2,220		$	773	$	45	$	7,333
Intersegment sales														Intersegment sales	716		7		483			576		5		1,787
Total sales														Total sales	2,779		2,239		2,703			1,349		50		9,120

Research, development and engineering expenses														Research, development and engineering expenses	140		13		87			62		46		348
Equity, royalty and interest income (loss) from investees														Equity, royalty and interest income (loss) from investees	28		20		17			10		(5)		70

Interest income														Interest income	3		4		4			3		—		14

Russian suspension costs(1)														Russian suspension costs(1)	—		—		1			—		—		1

Segment EBITDA														Segment EBITDA	363		225		297		(2)	193		(96)		982
Depreciation and amortization(3)														Depreciation and amortization(3)	51		29		95			30		10		215

Three months ended October 3, 2021	Three months ended October 3, 2021													Three months ended October 3, 2021
External sales	External sales	$	1,961	$	1,952	$	1,347	$	688	$	20	$	5,968	External sales	$	1,961	$	1,952	$	1,347		$	688	$	20	$	5,968
Intersegment sales	Intersegment sales	617		7		446		476		3		1,549		Intersegment sales	617		7		446			476		3		1,549
Total sales	Total sales	2,578		1,959		1,793		1,164		23		7,517		Total sales	2,578		1,959		1,793			1,164		23		7,517

Research, development and engineering expenses	Research, development and engineering expenses	97		10		78		55		26		266		Research, development and engineering expenses	97		10		78			55		26		266
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	61		15		10			11		(3)		94

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

Three months ended September 27, 2020
External sales		$	1,617	$	1,715	$	1,201	$	567	$	18	$	5,118
Intersegment sales		495		6		340		414		—		1,255
Total sales		2,112		1,721		1,541		981		18		6,373

Research, development and engineering expenses		72		9		64		53		26		224
Equity, royalty and interest income (loss) from investees		74		13		13		—		(2)		98

Interest income		1		1		1		1		—		4
EBITDA		382		182		261		101		(40)		886
Depreciation and amortization(1)		51		30		47		32		5		165
Segment EBITDA														Segment EBITDA	391		192		253			134		(58)		912
Depreciation and amortization(3)														Depreciation and amortization(3)	53		28		44			29		5		159

(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) Includes $45 million of costs related to the acquisition and integration of Meritor and $10 million of costs associated with the planned separation of our filtration business.														(2) Includes $45 million of costs related to the acquisition and integration of Meritor and $10 million of costs associated with the planned separation of our filtration business.
(3) 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.														(3) 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.

2430

Table of Contents

Summarized financial information regarding our reportable operating segments for the nine 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
Nine months ended September 30, 2022
External sales	$	6,204		$	6,590	$	5,214		$	2,190	$	106	$	20,304
Intersegment sales	2,103			19		1,427			1,522		17		5,088
Total sales	8,307			6,609		6,641			3,712		123		25,392



Research, development and engineering expenses	365			39		236			184		121		945
Equity, royalty and interest income (loss) from investees	131		(1)	57		54			31		(12)		261

Interest income	8			9		7			5		—		29
Russian suspension costs(2)	33		(3)	55		5			19		—		112
Segment EBITDA	1,177			632		969		(4)	411		(243)		2,946
Depreciation and amortization(5)	151			86		187			92		25		541


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
Segment EBITDA	1,147			553		975			399		(169)		2,905
Depreciation and amortization(5)	154			88		138			97		17		494


(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) Includes $56 million of costs related to the acquisition and integration of Meritor and $15 million of costs associated with the planned separation of our filtration business.
(5) 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 $3 million for the nine months ended September 30, 2022 and October 3, 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				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Total segment sales	Total segment sales	$	7,517	$	6,373	$	22,592	$	17,706	Total segment sales	$	9,120	$	7,517	$	25,392	$	22,592
Elimination of intersegment sales	Elimination of intersegment sales	(1,549)		(1,255)		(4,421)		(3,725)		Elimination of intersegment sales	(1,787)		(1,549)		(5,088)		(4,421)
Total net sales	Total net sales	$	5,968	$	5,118	$	18,171	$	13,981	Total net sales	$	7,333	$	5,968	$	20,304	$	18,171

Table of Contents

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				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
TOTAL SEGMENT EBITDA	TOTAL SEGMENT EBITDA	$	912	$	886	$	2,905	$	2,226	TOTAL SEGMENT EBITDA	$	982	$	912	$	2,946	$	2,905

Intersegment elimination		(50)		(10)		(89)		45
Intersegment eliminations and other(1)										Intersegment eliminations and other(1)	(98)		(50)		(252)		(89)

Less:	Less:									Less:
Interest expense	Interest expense	28		25		85		71		Interest expense	61		28		112		85
Depreciation and amortization	Depreciation and amortization	159		165		494		497		Depreciation and amortization	215		159		541		494
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	675		686		2,237		1,703		INCOME BEFORE INCOME TAXES	608		675		2,041		2,237
Less: Income tax expense	Less: Income tax expense	134		182		473		402		Less: Income tax expense	199		134		502		473
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	541		504		1,764		1,301		CONSOLIDATED NET INCOME	409		541		1,539		1,764
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	9		7		19		27
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	400	$	534	$	1,520	$	1,737

(1)Intersegment eliminations and other included $6 million and $47 million of costs associated with the planned separation of our Filtration business for the three and nine months ended September 30, 2022.										(1)Intersegment eliminations and other included $6 million and $47 million of costs associated with the planned separation of our Filtration business for the three and nine months ended September 30, 2022.

NOTE 18. SUBSEQUENT EVENT

In October 2022, we signed an agreement to purchase all of the equity ownership interest of Teksid Hierro de Mexico, S.A. de C.V. (Teksid MX) and Teksid, Inc. from Stellantis N.V. for approximately €115 million, subject to certain adjustments set forth in the agreement. Teksid MX operates a cast iron foundry located in Monclova, Mexico, which primarily forges blocks and heads used in Cummins and other manufacturers’ engines. Teksid, Inc. facilitates the commercialization of Teksid MX products in North America. The transaction, which is subject to customary closing conditions and receipt of applicable regulatory approvals, is expected to close as soon as December 2022. Since Cummins is the primary customer of the foundry, the acquisition is not expected to result in material incremental sales to our business. This business will be included in our Engine segment.

2632

Table of Contents

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.

2834

Table of Contents

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, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, electric powertrains, hydrogen production and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Traton Group (formerly Navistar International ~~Corporation,~~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~~higher 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.

2935

Table of Contents

~~2021 Quarter-to-Date~~Meritor Acquisition

Russian Operations


	Three months ended		Nine months ended
In millions	September 30, 2022		September 30, 2022
Inventory write-downs	$	(2)	$	17
Accounts receivable reserves	(1)		42
Impairment and other joint venture costs	—		31

Other	4		22
Total	$	1	$	112

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 Third Quarter and Year-to-Date Results

A summary of our results is as follows:


		Three months ended				Nine months ended					Three months ended				Nine 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	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Net sales	Net sales	$	5,968	$	5,118	$	18,171	$	13,981	Net sales	$	7,333	$	5,968	$	20,304	$	18,171
Net income attributable to Cummins Inc.	Net income attributable to Cummins Inc.	534		501		1,737		1,288		Net income attributable to Cummins Inc.	400		534		1,520		1,737
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	$	2.83	$	3.72	$	10.74	$	11.96
Diluted	Diluted	3.69		3.36		11.86		8.65		Diluted	2.82		3.69		10.68		11.86

Table of Contents

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.

Worldwide revenues increased 3023 percent in the ~~nine~~three months ended ~~October 3, 2021,~~September 30, 2022, compared to the same period in ~~2020, as we experienced~~2021, due to Meritor sales of $737 million since the date of acquisition, favorable pricing and higher demand in all operating segments and most geographic regions except for Russia and China. Net sales in the U.S. and Canada improved 29 percent, primarily due to incremental sales of brakes and axles in North America since the acquisition of Meritor in addition to favorable pricing and increased demand in North American on-highway markets, which positively impacted most components businesses, and all ~~geographic regions due to an improved economic environment and fewer effects from the COVID-19 pandemic.~~distribution product lines. International demand (excludes the U.S. and Canada) improved ~~by 36~~15 percent, with lower sales in Russia (due to suspension of our Russian operations) and China (due to a slowdown in construction markets, exacerbated by COVID lockdowns) more than offset by higher sales in ~~all~~most other geographic regions. The increase in international sales was principally due to ~~higher demand~~incremental sales of brakes and axles 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~~Latin America since the acquisition of Meritor. Unfavorable foreign currency fluctuations impacted international sales by 47 percent (primarily the Euro, British pound, Chinese renminbi ~~Euro, Australian dollar~~ and ~~British pound)~~Indian rupee).

Worldwide revenues increased 12 percent in the nine months ended September 30, 2022, compared to the same period in 2021, due to Meritor sales of $737 million since the date of acquisition, favorable pricing and higher demand in most operating segments and most geographic regions except for China and Russia. Net sales in the U.S. and Canada improved 2619 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, as well as incremental sales of brakes and axles in North America since the acquisition of Meritor. International demand (excludes the U.S. and Canada) improved by 3 percent, with lower sales in China (due to a sharp slowdown in truck and construction markets, exacerbated by COVID lockdowns) more than offset by higher sales in most other geographic regions. The increase in international sales was principally due to incremental sales of brakes and axles in Western Europe and Latin America since the acquisition of Meritor, favorable pricing and higher demand for power generation and industrial equipment (especially oil and gas) and most distribution product lines. ~~Our industry continues to be unfavorably~~Unfavorable foreign currency fluctuations impacted international sales by ~~supply chain constraints leading to shortages across multiple components categories~~4 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).

~~Table of Contents~~

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 months ended September 30, 2022 and October 3, ~~2021 and September 27, 2020.~~2021. See ~~Note 13,~~NOTE 17, "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	September 30, 2022							October 3, 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	$	2,779	38	%	$	363		$	2,578	43	%	$	391	8	%	(7)	%
Distribution	Distribution	1,959		33	%	192		1,721		34	%	182		14	%	5	%	Distribution	2,239		30	%	225			1,959		33	%	192		14	%	17	%
Components	Components	1,793		30	%	253		1,541		30	%	261		16	%	(3)	%	Components	2,703		37	%	297			1,793		30	%	253		51	%	17	%
Power Systems	Power Systems	1,164		20	%	134		981		19	%	101		19	%	33	%	Power Systems	1,349		18	%	193			1,164		20	%	134		16	%	44	%
New Power	New Power	23		—	%	(58)		18		—	%	(40)		28	%	(45)	%	New Power	50		1	%	(96)			23		—	%	(58)		NM		(66)	%
Intersegment eliminations	Intersegment eliminations	(1,549)		(26)	%	(50)		(1,255)		(24)	%	(10)		23	%	NM		Intersegment eliminations	(1,787)		(24)	%	(98)			(1,549)		(26)	%	(50)		15	%	96	%

Total	Total	$	5,968	100	%	$	862	$	5,118	100	%	$	876	17	%	(2)	%	Total	$	7,333	100	%	$	884	(1)	$	5,968	100	%	$	862	23	%	3	%

"NM" - not meaningful information	"NM" - not meaningful information																	"NM" - not meaningful information
(1) EBITDA includes $45 million of costs related to the acquisition and integration of Meritor, $16 million of costs associated with the planned separation of our Filtration business and $1 million of costs associated with the suspension of our Russian operations.																		(1) EBITDA includes $45 million of costs related to the acquisition and integration of Meritor, $16 million of costs associated with the planned separation of our Filtration business and $1 million of costs associated with the suspension of our Russian operations.

~~Cost~~

Table 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.Contents

Net income attributable to Cummins Inc. was ~~$534 million,~~$0.4 billion, or ~~$3.69~~$2.82 per diluted share, on sales of ~~$6.0~~$7.3 billion for the three months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable prior year period net income attributable to Cummins Inc. of ~~$501 million,~~$0.53 billion, or ~~$3.36~~$3.69 per diluted share, on sales of ~~$5.1~~$6.0 billion. The ~~increases~~decreases in net income attributable to Cummins Inc. and earnings per diluted share were driven by unfavorable discrete tax items, Meritor acquisition and integration costs, one-time employee recognition expenses, higher ~~net sales, increased gross margin,~~interest expense related to new borrowings, losses in corporate owned life insurance, lower equity, royalty and interest income from investees (principally in China) and a ~~lower~~higher effective tax rate, ~~and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar),~~ partially offset by higher ~~compensation expenses~~net sales and ~~incremental costs associated with supply chain constraints.~~lower variable compensation. The increase in gross margin was primarily due to favorable pricing, higher volumes and lower variable compensation expenses, partially offset by higher ~~compensation expenses,~~material costs, increased freight costs ~~due to supply chain constraints~~ and ~~higher material costs.~~one-time employee recognition expenses. The ~~2.7~~1.3 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~~the addition of Meritor activity since the date of acquisition which ~~increased at~~had 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 inlower gross margin ~~and net income as well as all of~~percentage than our ~~reporting segments for the nine months ended October 3, 2021.~~legacy business.



	Nine months ended
Operating Segments	September 30, 2022							October 3, 2021						Percent change
			Percent							Percent				2022 vs. 2021
In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA		Sales		EBITDA
Engine	$	8,307	41	%	$	1,177		$	7,528	41	%	$	1,147	10	%	3	%
Distribution	6,609		32	%	632			5,714		31	%	553		16	%	14	%
Components	6,641		33	%	969			5,939		33	%	975		12	%	(1)	%
Power Systems	3,712		18	%	411			3,329		18	%	399		12	%	3	%
New Power	123		1	%	(243)			82		1	%	(169)		50	%	(44)	%
Intersegment eliminations	(5,088)		(25)	%	(252)			(4,421)		(24)	%	(89)		15	%	NM

Total	$	20,304	100	%	$	2,694	(1)	$	18,171	100	%	$	2,816	12	%	(4)	%

"NM" - not meaningful information
(1) EBITDA includes $112 million of costs associated with the suspension of our Russian operations, $62 million of costs associated with the planned separation of our Filtration business and $56 million of costs related to the acquisition and integration of Meritor.

~~Table of Contents~~

Net income attributable to Cummins Inc. was ~~$1,737 million,~~$1.52 billion, or ~~$11.86~~$10.68 per diluted share, on sales of ~~$18.2~~$20.3 billion for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable prior year period net income attributable to Cummins Inc. of ~~$1,288 million,~~$1.74 billion, or ~~$8.65~~$11.86 per diluted share, on sales of ~~$14.0~~$18.2 billion. The ~~increases~~decreases in net income attributable to Cummins Inc. and earnings per diluted share were driven by ~~higher net sales, increased gross margin, higher~~lower equity, royalty and interest income from investees (primarily in ~~China due~~China), losses in corporate owned life insurance, costs associated with the suspension of our Russian operations, costs associated with the planned separation of our filtration business, Meritor acquisition and integration costs, one-time employee recognition expenses, unfavorable discrete tax items, higher consulting expenses and increased interest expense related to stronger demand for trucks and construction equipment 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),new borrowings, 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 was primarily due to ~~higher~~favorable pricing, increased volumes and lower variable compensation expenses, 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 than the increase in net sales.one-time employee recognition expenses. Diluted earnings per common share for the nine months ended ~~October 3, 2021,~~September 30, 2022, benefited ~~$0.23~~$0.10 from fewer weighted-average shares outstanding due to the stock repurchase program.

We generated ~~$1,524 million~~$1.15 billion of cash from operations for the nine months ended ~~October 3, 2021,~~September 30, 2022, compared to ~~$1,580 million~~$1.52 billion 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,~~September 30, 2022, was ~~30.5~~46.4 percent, compared to ~~31.7~~31.5 percent at December 31, ~~2020.~~2021. The ~~decrease~~increase was primarily due to ~~$222 million of lower~~higher debt balances since December 31, ~~2020.~~2021, resulting from funding the acquisition of Meritor, Inc. (Meritor). At ~~October 3, 2021,~~September 30, 2022, we had $3.0 billion in cash and marketable securities on hand and access to our ~~$3.5~~$4.0 billion credit facilities, if necessary, to meet ~~currently anticipated~~acquisition, working capital, investment and funding needs.

In the first nine months of ~~2021,~~2022, we purchased ~~$1,228~~$370 million, or ~~5.0~~1.9 million shares, of our common stock.

~~In July 2021, the Board~~On September 30, 2022, certain of ~~Directors (the Board) authorized an increase to~~ our ~~quarterly dividend~~subsidiaries entered into a $1.0 billion credit agreement, consisting of ~~7.4 percent from $1.35 per share to $1.45 per share.~~

~~On August 3, 2021, we announced our exploration~~a $400 million revolving credit facility and a $600 million term loan facility, in anticipation of ~~strategic alternatives for our filtration business. Potential strategic alternatives to be explored include~~ the separation of our filtration ~~business into a stand-alone company. The execution of this exploration process is dependent upon business and market conditions, along with a number of other factors and considerations.~~business. See NOTE 11, "DEBT," to our Condensed Consolidated Financial Statements for additional information.

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, 2021,17, 2022, we entered into an amended and restated 364-day credit agreement ~~that allows~~and an incremental 364-day credit agreement, which allow us to borrow up to $1.5 billion and $500 million, respectively, of unsecured funds at any time prior to August ~~17,~~16, 2023.

Table of Contents

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. ~~This credit agreement amended and restated~~We drew down the ~~prior $1.5~~entire $2.0 billion ~~364-day credit facility that matured~~balance on August ~~18, 2021.~~2, 2022, to fund the acquisition of Meritor.

In July 2022, the Board authorized an increase to our quarterly dividend of approximately 8 percent from $1.45 per share to $1.57 per share.

In the first nine months of ~~2021,~~2022, the investment ~~gain~~loss on our U.S. pension trust was ~~6.2~~5.1 percent while our U.K. pension trust ~~gain~~loss was ~~0.7~~21.7 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 $7 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~~$20 million.

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

3239

Table of Contents

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/				Nine months ended				Favorable/
	September 30, 2022		October 3, 2021		(Unfavorable)				September 30, 2022		October 3, 2021		(Unfavorable)
In millions, except per share amounts					Amount		Percent						Amount		Percent
NET SALES	$	7,333	$	5,968	$	1,365	23	%	$	20,304	$	18,171	$	2,133	12	%
Cost of sales	5,691		4,554		(1,137)		(25)	%	15,404		13,793		(1,611)		(12)	%
GROSS MARGIN	1,642		1,414		228		16	%	4,900		4,378		522		12	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	708		571		(137)		(24)	%	1,945		1,745		(200)		(11)	%
Research, development and engineering expenses	348		266		(82)		(31)	%	945		802		(143)		(18)	%
Equity, royalty and interest income from investees	70		94		(24)		(26)	%	261		397		(136)		(34)	%

Other operating expense, net	30		5		(25)		NM		144		17		(127)		NM
OPERATING INCOME	626		666		(40)		(6)	%	2,127		2,211		(84)		(4)	%

Interest expense	61		28		(33)		NM		112		85		(27)		(32)	%
Other income, net	43		37		6		16	%	26		111		(85)		(77)	%
INCOME BEFORE INCOME TAXES	608		675		(67)		(10)	%	2,041		2,237		(196)		(9)	%
Income tax expense	199		134		(65)		(49)	%	502		473		(29)		(6)	%
CONSOLIDATED NET INCOME	409		541		(132)		(24)	%	1,539		1,764		(225)		(13)	%
Less: Net income attributable to noncontrolling interests	9		7		(2)		(29)	%	19		27		8		30	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	400	$	534	$	(134)	(25)	%	$	1,520	$	1,737	$	(217)	(12)	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	2.82	$	3.69	$	(0.87)	(24)	%	$	10.68	$	11.86	$	(1.18)	(10)	%

"NM" - not meaningful information


		Three months ended								Favorable/ (Unfavorable)		Nine months ended						Favorable/ (Unfavorable)				Three months ended								Favorable/ (Unfavorable)		Nine months ended							Favorable/ (Unfavorable)
		October 3, 2021				September 27, 2020					October 3, 2021			September 27, 2020						September 30, 2022			October 3, 2021						September 30, 2022			October 3, 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				22.4	%	23.7			%			(1.3)			24.1	%	24.1	%	—
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		9.7		%		9.6		%		(0.1)		9.6	%			9.6		%	—
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		4.7		%		4.5		%		(0.2)		4.7	%			4.4		%	(0.3)

Meritor Acquisition

On August 3, 2022, we completed the acquisition of Meritor. Our results of operations include all activity of Meritor since the acquisition date.

Net Sales

Net sales for the three months ended ~~October 3, 2021,~~September 30, 2022, increased by ~~$850~~$1,365 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 1651 percent largely due to ~~higher emission solutions demand in North America, India, Western Europe~~axles and ~~Asia Pacific.~~brakes sales since the completion of the Meritor acquisition.

•Distribution segment sales increased 14 percent principally due to higher demand across most product lines in North America.

•Engine segment sales increased 8 percent due to favorable pricing and ~~improved~~stronger on-highway demand (including higher aftermarket sales) in ~~Russia and Asia Pacific.~~North America.

•Power Systems segment sales increased 1916 percent primarily due to favorable pricing and higher demand in ~~global mining markets and~~ power generation markets and stronger demand in ~~India~~industrial markets with higher aftermarket sales and ~~China.~~

•~~Favorable foreign currency fluctuations of 1 percent of total sales, primarily~~increased oil and gas demand in ~~the Chinese renminbi, British pound, Canadian dollar and Australian dollar.~~

North America.

3340

Table of Contents

These increases were partially offset by unfavorable foreign currency fluctuations of 3 percent of total sales, primarily in the Euro, British pound, Chinese renminbi and Indian rupee.

Net sales for the nine months ended ~~October 3, 2021,~~September 30, 2022, increased ~~$4,190~~$2,133 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 3210 percent due to ~~increased volumes~~favorable pricing and stronger on-highway demand (including higher aftermarket sales) in ~~the~~ North ~~American heavy-duty truck and pick-up truck markets and global medium-duty truck markets.~~America.

•Components segment sales increased 4212 percent largely due to ~~higher emission solutions demand in North America, India~~axles and ~~China.~~brakes sales since the completion of the Meritor acquisition.

•Power Systems segment sales increased 2612 percent primarily due to stronger demand in industrial markets with higher aftermarket sales and increased oil and gas demand in North America and China and favorable pricing and higher demand in power generation markets in ~~North~~Latin America, India and ~~China and global mining markets.~~China.

•~~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~~These increases were partially offset by unfavorable foreign currency fluctuations of 2 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 months ended ~~October 3, 2021,~~September 30, 2022, were 4340 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~~$228 million for the three months ended ~~October 3, 2021~~September 30, 2022 and decreased ~~2.7~~1.3 points as a percentage of net sales versus the comparable period in ~~2020.~~2021. The increase in gross margin was primarily due to favorable pricing, higher volumes and lower variable compensation expenses, partially offset by higher ~~compensation expenses,~~material costs, increased freight costs ~~due to supply chain constraints~~ and ~~higher material costs.~~one-time employee recognition expenses. The ~~2.7 percent~~1.3 percentage point decrease in gross margin as a percentage of net sales was principally due to ~~higher~~the addition of Meritor activity since the date of acquisition which had a lower gross margin percentage than our legacy business.

Gross margin increased $522 million for the nine months ended September 30, 2022 and remained flat at 24.1 points as a percentage of sales versus the comparable period in 2021. The increase in gross margin was primarily due to favorable pricing, increased volumes and lower variable compensation expenses, partially offset by higher material costs, increased freight costs due to supply chain constraints and ~~higher material costs which increased at a faster rate than 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.one-time employee recognition expenses.

The provision for base warranties issued as a percent of sales for the three and nine months ended ~~October 3, 2021,~~September 30, 2022, was 1.7 percent and 1.9 percent, respectively, compared to 2.2 percent and 2.4 ~~percent, respectively, compared to 2.3 percent and 2.0~~ 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~~$137 million for the three months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to Meritor acquisition and integration costs, higher ~~compensation~~consulting expenses driven by acquisitions and the work towards separation of the filtration business, increased travel expenses and one-time employee recognition expenses, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses as a percentage of net sales ~~decreased~~increased to ~~9.6~~9.7 percent in the three months ended ~~October 3, 2021,~~September 30, 2022, from ~~10.4~~9.6 percent in the comparable period in ~~2020. The decrease in selling, general and administrative expenses as a percentage~~2021.

Table of ~~net sales was mainly due to net sales increasing at a faster rate than the increase in selling, general and administrative expenses.~~Contents

Selling, general and administrative expenses increased ~~$196~~$200 million for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher consulting expenses driven by acquisitions, integration and the work towards the separation of the filtration business, increased travel expenses and one-time employee recognition expenses, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses, as a percentage of ~~net~~ sales, ~~decreased to~~remained flat at 9.6 percent ~~in the nine months ended October 3, 2021, from 11.1 percent in~~versus the comparable period in 2020. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to net sales increasing at a faster rate than the increase in selling, general and administrative expenses.

~~Table of Contents~~

2021.

Research, Development and Engineering Expenses

Research, development and engineering expenses increased ~~$42~~$82 million for the three months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020~~2021, primarily due to increased compensation costs including one-time employee recognition expenses, Meritor expenses since the date of acquisition, higher ~~compensation expenses~~spending on prototypes and testing, and increased consulting expenses. Overall, research, development and engineering expenses as a percentage of net sales increased to ~~4.5~~4.7 percent in the three months ended ~~October 3, 2021,~~September 30, 2022, from ~~4.4~~4.5 percent in the comparable period in ~~2020.~~2021.

Research, development and engineering expenses increased ~~$151~~$143 million for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher compensation costs including one-time employee recognition expenses, increased consulting expenses, Meritor expenses since the date of acquisition and ~~increased~~higher spending on ~~prototypes.~~prototypes, testing and supplies. Overall, research, development and engineering expenses as a percentage of ~~net~~ sales ~~decreased~~increased to ~~4.4~~4.7 percent in the nine months ended ~~October 3, 2021,~~September 30, 2022, from ~~4.7~~4.4 percent in the comparable period in 2020. The decrease in research, development and engineering expenses as a percentage of net sales was primarily due to net sales increasing at a faster rate than the increase in research, development and engineering expenses. 2021.

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$24 million for the three months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to decreased earnings at Beijing Foton Cummins Engine Co., Ltd. and the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture. See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Equity, royalty and interest income from investees decreased $136 million for the nine months ended September 30, 2022, versus the comparable period in 2021, mainly due to decreased earnings at Beijing Foton Cummins Engine Co., Ltd., the $28 million impairment of our Russian joint venture with KAMAZ, lower earnings at 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 for a joint venture in~~Westport Joint Venture. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 16, "ACQUISITIONS," to our ~~Power Systems segment incurred in the third quarter of 2020 and increased earnings at Tata Cummins Ltd.~~

Equity, royalty and interest income from investees increased $55 million for the nine months ended October 3, 2021, versus the comparable period in 2020, primarily due to higher earnings at Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the 2020 benefits noted below), Dongfeng Cummins Engine Co., Ltd., Guangxi Cummins Industrial Power Co., Ltd. and the absence 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 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. See ~~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					Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		In millions	September 30, 2022			October 3, 2021		September 30, 2022			October 3, 2021
Amortization of intangible assets	Amortization of intangible assets	$	(6)	$	(5)	$	(17)	$	(16)	Amortization of intangible assets	$	(25)		$	(6)	$	(39)		$	(17)
Russian suspension costs										Russian suspension costs	(3)		(1)	—		(64)		(1)	—
Asset impairments and other charges										Asset impairments and other charges	—			—		(36)			—
Loss on write-off of assets	Loss on write-off of assets	(3)		(13)		(7)		(18)		Loss on write-off of assets	—			(3)		(8)			(7)
Gain (loss) on sale of assets, net		2		(2)		1		(8)
Gain on sale of assets, net										Gain on sale of assets, net	—			2		1			1
Royalty income, net	Royalty income, net	2		1		7		3		Royalty income, net	1			2		6			7
Other, net	Other, net	—		(1)		(1)		4		Other, net	(3)			—		(4)			(1)
Total other operating expense, net	Total other operating expense, net	$	(5)	$	(20)	$	(17)	$	(35)	Total other operating expense, net	$	(30)		$	(5)	$	(144)		$	(17)

(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$33 million and ~~$14~~$27 million for the three and nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable periods in ~~2020,~~2021. The overall increase in debt in the third quarter was primarily related to the Meritor acquisition. The three and nine month increases were primarily due to ~~increased~~the overall increase in floating interest ~~expense associated with our $2 billion senior unsecured notes issued in August of 2020.~~rates, new term loan borrowings and higher short-term borrowings, including commercial paper.

3542

Table of Contents

Other Income, Net

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


		Three months ended				Nine months ended					Three months ended				Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020			In millions	September 30, 2022		October 3, 2021		September 30, 2022		October 3, 2021
Non-service pension and OPEB credit	Non-service pension and OPEB credit	$	23	$	16		$	72	$	48		Non-service pension and OPEB credit	$	37	$	23	$	102	$	72
Foreign currency gain, net												Foreign currency gain, net	20		7		7		5
Interest income	Interest income	7		4			18		15			Interest income	14		7		29		18
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		—
(Loss) gain on marketable securities, net												(Loss) gain on marketable securities, net	(3)		2		(12)		5
(Loss) gain on corporate owned life insurance												(Loss) gain on corporate owned life insurance	(29)		1		(114)		(11)

Other, net	Other, net	(3)		5			4		16			Other, net	4		(3)		14		22
Total other income, net	Total other income, net	$	37	$	41		$	111	$	134		Total other income, net	$	43	$	37	$	26	$	111

Income Tax Expense

Our effective tax rate for ~~2021~~2022 is expected to approximate ~~21.5~~22.0 percent (increased 0.5 percent from prior quarter), excluding any discrete items that may arise.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 into law effective beginning in 2023. The ~~three months ended September 27, 2020, contained unfavorable discrete items of $31 million, primarily due to $17 million of changes in~~bill includes numerous tax ~~reserves, $8 million of provision to return adjustments relating to~~provisions, including a 15 percent corporate minimum 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~~as well as a one percent excise tax ~~items, primarily due to $34 million of unfavorable changes in tax reserves and $8 million of provision to return adjustments, partially offset by $15 million of favorable tax changes due to~~on share repurchases. We are evaluating the ~~India Tax Law Change passed in March of 2020. See~~ ~~Note 4, "INCOME TAXES,"~~potential impacts of the ~~Notes to~~Act on our financial results but do not currently expect the ~~Consolidated Financial Statements~~legislation will have a material effect on our results of ~~our 2020 Form 10-K~~ ~~for additional information on India Tax Law Changes.~~operations or liquidity.

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 months ended ~~October 3, 2021,~~September 30, 2022, increased $4$2 million and ~~$14~~decreased $8 million, respectively, versus the comparable periods in ~~2020.~~2021. The increase for the three months ended ~~October 3, 2021,~~September 30, 2022, was primarily due to higher earnings at Eaton Cummins ~~India Limited.~~Joint Venture. The ~~increase~~decrease for the nine months ended ~~October 3, 2021, is~~September 30, 2022, was 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, increased $33~~September 30, 2022, decreased $134 million and ~~$0.33~~$0.87 per diluted share versus the comparable period in ~~2020,~~2021, primarily due to unfavorable discrete tax items, Meritor acquisition and integration costs, one-time employee recognition expenses, higher ~~net sales, increased gross margin,~~interest expense related to new borrowings, losses in corporate owned life insurance, lower equity, royalty and interest income from investees (principally in China) and a ~~lower~~higher effective tax rate, ~~and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar),~~ partially offset by higher ~~compensation expenses~~net sales and ~~incremental costs associated with supply chain constraints.~~lower variable compensation.

3643

Table of Contents

Net income and diluted earnings per common share attributable to Cummins Inc. for the nine months ended ~~October 3, 2021, increased $449~~September 30, 2022, decreased $217 million and ~~$3.21~~$1.18 per diluted share versus the comparable period in ~~2020,~~2021, primarily due to ~~higher net sales, increased gross margin, higher~~lower equity, royalty and interest income from investees (primarily in ~~China due~~China), losses in corporate owned life insurance, costs associated with the suspension of our Russian operations, costs associated with the planned separation of our filtration business, Meritor acquisition and integration costs, one-time employee recognition expenses, unfavorable discrete tax items, higher consulting expenses and increased interest expense related to stronger demand for trucks and construction equipment 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),new borrowings, 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 months ended ~~October 3, 2021,~~September 30, 2022, benefited ~~$0.23~~$0.10 from fewer weighted-average shares outstanding due to the stock repurchase program.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net loss of $379 million and $620 million, respectively, for the three and nine months ended September 30, 2022, compared to flat and a net loss of $34 million, respectively, for the three and nine months ended October 3, 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

September 30,
2022

October 3,
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

(306)

Chinese renminbi, British pound, Indian rupee

(8)

Brazilian real, partially offset by Indian rupee, Chinese renminbi

Equity method investments

Chinese renminbi, Indian rupee

Chinese renminbi

Equity method investments

(58)

Chinese renminbi

Chinese renminbi, Indian rupee

Consolidated subsidiaries with a noncontrolling interest

Indian rupee

Consolidated subsidiaries with a noncontrolling interest

(15)

Indian rupee

Total

—

111

Total

(379)

—

Nine months ended

October 3,
2021

September 27,
2020

September 30,
2022

October 3,
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

(465)

Chinese renminbi, British pound, Indian rupee

(36)

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

Equity method investments

Chinese renminbi, offset by Indian rupee

Chinese renminbi

Equity method investments

(117)

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

(38)

Indian rupee

(5)

Indian rupee

Total

(34)

(62)

Total

(620)

(34)

3744

Table of Contents

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 17, "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.

On August 3, 2022, we completed the acquisition of Meritor. Segment results include Meritor's activity since the date of acquisition. The results are included in our Components segment in the axles and brakes business while the electric powertrain portion is included in our New Power segment.

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/				Nine months ended						Favorable/					Three months ended						Favorable/				Nine months ended							Favorable/
		October 3,			September 27,			(Unfavorable)				October 3,			September 27,			(Unfavorable)					September 30,			October 3,			(Unfavorable)				September 30,				October 3,			(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	$	1,961		$	1,617		$	344	21	%	$	5,776		$	4,133		$	1,643	40	%	External sales	$	2,063		$	1,961		$	102	5	%	$	6,204			$	5,776		$	428	7	%
Intersegment sales	Intersegment sales	617			495			122		25	%	1,752			1,560			192		12	%	Intersegment sales	716			617			99		16	%	2,103				1,752			351		20	%
Total sales	Total sales	2,578			2,112			466		22	%	7,528			5,693			1,835		32	%	Total sales	2,779			2,578			201		8	%	8,307				7,528			779		10	%

Research, development and engineering expenses	Research, development and engineering expenses	97			72			(25)		(35)	%	288			217			(71)		(33)	%	Research, development and engineering expenses	140			97			(43)		(44)	%	365				288			(77)		(27)	%
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	61			74			(13)		(18)	%	278			236			42		18	%	Equity, royalty and interest income from investees	28			61			(33)		(54)	%	131			(1)	278			(147)		(53)	%

Interest income	Interest income	3			1			2		NM		7			6			1		17	%	Interest income	3			3			—		—	%	8				7			1		14	%

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

Segment EBITDA	Segment EBITDA	391			382			9		2	%	1,147			897			250		28	%	Segment EBITDA	363			391			(28)		(7)	%	1,177				1,147			30		3	%

								Percentage Points										Percentage Points											Percentage Points											Percentage Points
Segment EBITDA as a percentage of total sales	Segment EBITDA as a percentage of total sales	15.2		%	18.1		%			(2.9)		15.2		%	15.8		%			(0.6)		Segment EBITDA as a percentage of total sales	13.1		%	15.2		%			(2.1)		14.2		%		15.2		%			(1.0)

"NM" - not meaningful information	"NM" - not meaningful information																					"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 16, "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 16, "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.																						(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.																						(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/ 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~~


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,			October 3,			(Unfavorable)				September 30,			October 3,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
Heavy-duty truck	$	972		$	861		$	111	13	%	$	2,881		$	2,527		$	354	14	%
Medium-duty truck and bus	868			713			155		22	%	2,591			2,075			516		25	%
Light-duty automotive	466			515			(49)		(10)	%	1,420			1,480			(60)		(4)	%
Total on-highway	2,306			2,089			217		10	%	6,892			6,082			810		13	%
Off-highway	473			489			(16)		(3)	%	1,415			1,446			(31)		(2)	%
Total sales	$	2,779		$	2,578		$	201	8	%	$	8,307		$	7,528		$	779	10	%

							Percentage Points										Percentage Points
On-highway sales as percentage of total sales	83		%	81		%			2		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/			Nine months ended		Favorable/				Three months ended		Favorable/			Nine months ended		Favorable/
		October 3,	September 27,	(Unfavorable)			October 3,	September 27,	(Unfavorable)				September 30,	October 3,	(Unfavorable)			September 30,	October 3,	(Unfavorable)
		2021	2020	Amount	Percent		2021	2020	Amount	Percent			2022	2021	Amount	Percent		2022	2021	Amount	Percent
Heavy-duty	Heavy-duty	29,200	23,300	5,900	25	%	89,300	65,000	24,300	37	%	Heavy-duty	30,200	29,200	1,000	3	%	89,700	89,300	400	—	%
Medium-duty	Medium-duty	65,200	50,100	15,100	30	%	205,800	156,200	49,600	32	%	Medium-duty	69,800	65,200	4,600	7	%	211,200	205,800	5,400	3	%
Light-duty	Light-duty	73,900	67,200	6,700	10	%	210,500	146,400	64,100	44	%	Light-duty	58,300	73,900	(15,600)	(21)	%	185,200	210,500	(25,300)	(12)	%
Total unit shipments	Total unit shipments	168,300	140,600	27,700	20	%	505,600	367,600	138,000	38	%	Total unit shipments	158,300	168,300	(10,000)	(6)	%	486,100	505,600	(19,500)	(4)	%

Sales

Engine segment sales for the three months ended ~~October 3, 2021,~~September 30, 2022, increased ~~$466~~$201 million versus the comparable period in ~~2020.~~2021. The following were the primary drivers by market:

•Medium-duty truck and bus sales increased ~~$221~~$155 million mainly due to favorable pricing and higher ~~global medium-duty~~ demand (including higher aftermarket sales), especially in North ~~America and Brazil.~~America.

•Heavy-duty truck sales increased ~~$167~~$111 million principally due to favorable pricing and stronger demand (including higher aftermarket sales) in North America with higher shipments of 16 percent.

These increases were partially offset by decreased light-duty automotive sales of $49 million primarily due to our indefinite suspension of operations in Russia and lower sales to Stellantis.

Engine segment sales for the nine months ended September 30, 2022, increased $779 million versus the comparable period in 2021. The following were the primary drivers by market:

•Medium-duty truck and bus sales increased $516 million mainly due to favorable pricing and higher demand (including higher aftermarket sales), especially in North America.

•Heavy-duty truck sales increased $354 million principally due to favorable pricing and stronger demand (including higher aftermarket sales), especially in North America with higher shipments of 9 percent.

Segment EBITDA

Engine segment EBITDA for the three months ended September 30, 2022, decreased $28 million versus the comparable period in 2021, primarily due to higher material costs, increased research, development and engineering expenses, increased product coverage, lower equity, royalty and interest income from investees (principally Beijing Foton Cummins Engine Co., Ltd. and the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture) and manufacturing inefficiencies, partially offset by favorable pricing. See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Table of Contents

Engine segment EBITDA for the nine months ended September 30, 2022, increased $30 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 decreased earnings at Beijing Foton Cummins Engine Co., Ltd., the $28 million impairment of our Russian joint venture with KAMAZ, lower earnings at Dongfeng Cummins Engine Co., Ltd. and the February 7, 2022, purchase of Westport Fuel System Inc.'s stake in Cummins Westport Joint Venture) and increased research, development and engineering expenses. See NOTE 3, "RUSSIAN OPERATIONS," and NOTE 16, "ACQUISITIONS," 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/
	September 30,			October 3,			(Unfavorable)				September 30,			October 3,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
External sales	$	2,232		$	1,952		$	280	14	%	$	6,590		$	5,692		$	898	16	%
Intersegment sales	7			7			—		—	%	19			22			(3)		(14)	%
Total sales	2,239			1,959			280		14	%	6,609			5,714			895		16	%

Research, development and engineering expenses	13			10			(3)		(30)	%	39			35			(4)		(11)	%
Equity, royalty and interest income from investees	20			15			5		33	%	57			47			10		21	%
Interest income	4			2			2		100	%	9			5			4		80	%

Russian suspension costs(1)	—			—			—		—	%	55			—			(55)		NM
Segment EBITDA	225			192			33		17	%	632			553			79		14	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	10.0		%	9.8		%			0.2		9.6		%	9.7		%			(0.1)

"NM" - not meaningful 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/
	September 30,		October 3,		(Unfavorable)				September 30,		October 3,		(Unfavorable)
In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
North America	$	1,512	$	1,236	$	276	22	%	$	4,373	$	3,637	$	736	20	%
Asia Pacific	260		238		22		9	%	748		679		69		10	%
Europe	175		144		31		22	%	503		468		35		7	%
China	92		81		11		14	%	274		245		29		12	%
Africa and Middle East	73		74		(1)		(1)	%	174		197		(23)		(12)	%
Latin America	58		48		10		21	%	155		136		19		14	%
India	56		51		5		10	%	158		142		16		11	%
Russia(1)	13		87		(74)		(85)	%	224		210		14		7	%
Total sales	$	2,239	$	1,959	$	280	14	%	$	6,609	$	5,714	$	895	16	%


(1) The Distribution segment is organized and managed by geographic regions. The Russia region contains sales to several countries in the geographic area.

Table of Contents

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


	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,		October 3,		(Unfavorable)				September 30,		October 3,		(Unfavorable)
In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Parts	$	945	$	800	$	145	18	%	$	2,859	$	2,322	$	537	23	%
Engines	449		377		72		19	%	1,319		1,062		257		24	%
Power generation	431		438		(7)		(2)	%	1,273		1,310		(37)		(3)	%
Service	414		344		70		20	%	1,158		1,020		138		14	%
Total sales	$	2,239	$	1,959	$	280	14	%	$	6,609	$	5,714	$	895	16	%

Sales

Distribution segment sales for the three months ended September 30, 2022, increased $280 million versus the comparable period in 2021. The following were the primary drivers by region:

•North American sales increased $276 million, representing 99 percent of the total change in Distribution segment sales, mainly due to higher demand for parts and vocational engines.

The increase was partially offset by the following:

•Russian sales decreased $74 million as a result of our indefinite suspension of operations in Russia.

•Unfavorable foreign currency fluctuations, primarily in the Euro, Australian dollar, South African rand, Indian rupee and Japanese yen.

Distribution segment sales for the nine months ended September 30, 2022, increased $895 million versus the comparable period in 2021. The following were the primary drivers by region:

•North American sales increased $736 million, representing 82 percent of the total change in Distribution segment sales, largely due to higher demand for parts and vocational engines.

The increase was partially offset by unfavorable foreign currency fluctuations, mainly in the Euro, Australian dollar, Japanese yen and Indian rupee.

Segment EBITDA

Distribution segment EBITDA for the three months ended September 30, 2022, increased $33 million versus the comparable period in 2021, primarily due to higher volumes, partially offset by higher compensation expenses, unfavorable foreign currency fluctuations (principally in the South African rand, Japanese yen, Euro, Australian dollar and Indian rupee) and an inventory write-off.

Distribution segment EBITDA for the nine months ended September 30, 2022, increased $79 million versus the comparable period in 2021, mainly due to higher volumes, partially offset by unfavorable foreign currency fluctuations (principally in emerging market currencies, South African rand, Australian dollar and Japanese yen), costs associated with the suspension of our Russian operations, increased freight costs due to supply chain constraints, an inventory write-off and higher compensation expenses. See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.

Table of Contents

Components Segment Results

Financial data for the Components segment was as follows:


	Three months ended							Favorable/				Nine months ended							Favorable/
	September 30,				October 3,			(Unfavorable)				September 30,				October 3,			(Unfavorable)
In millions	2022				2021			Amount		Percent		2022				2021			Amount		Percent
External sales	$	2,220			$	1,347		$	873	65	%	$	5,214			$	4,627		$	587	13	%
Intersegment sales	483				446			37		8	%	1,427				1,312			115		9	%
Total sales	2,703				1,793			910		51	%	6,641				5,939			702		12	%

Research, development and engineering expenses	87				78			(9)		(12)	%	236				232			(4)		(2)	%
Equity, royalty and interest income from investees	17				10			7		70	%	54				41			13		32	%
Interest income	4				1			3		NM		7				3			4		NM

Russian suspension costs(1)	1				—			(1)		NM		5				—			(5)		NM
Segment EBITDA	297			(2)	253			44		17	%	969			(3)	975			(6)		(1)	%

								Percentage Points											Percentage Points
Segment EBITDA as a percentage of total sales	11.0		%		14.1		%			(3.1)		14.6		%		16.4		%			(1.8)

"NM" - not meaningful information

(1) See NOTE 3, "RUSSIAN OPERATIONS," to our Condensed Consolidated Financial Statements for additional information.
(2) Includes $45 million of costs related to the acquisition and integration of Meritor and $10 million of costs associated with the planned separation of our filtration business.
(3) Includes $56 million of costs related to the acquisition and integration of Meritor and $15 million of costs associated with the planned separation of our filtration business.

Sales for our Components segment by business were as follows:


	Three months ended					Favorable/				Nine months ended					Favorable/
	September 30,			October 3,		(Unfavorable)				September 30,			October 3,		(Unfavorable)
In millions	2022			2021		Amount		Percent		2022			2021		Amount		Percent
Emission solutions	$	853		$	793	$	60	8	%	$	2,626		$	2,710	$	(84)	(3)	%
Axles and brakes	732			—		732		NM		732			—		732		NM
Filtration	399			354		45		13	%	1,172			1,100		72		7	%
Turbo technologies	367		(1)	325		42		13	%	1,068		(1)	1,043		25		2	%
Electronics and fuel systems	193			210		(17)		(8)	%	607			714		(107)		(15)	%
Automated transmissions	159			111		48		43	%	436			372		64		17	%
Total sales	$	2,703		$	1,793	$	910	51	%	$	6,641		$	5,939	$	702	12	%

"NM" - not meaningful information
(1) The three and nine months ended September 30, 2022, included sales of $43 million and $80 million, respectively, related to the newly acquired Jacobs Vehicle Systems business. See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Sales

Components segment sales for the three months ended September 30, 2022, increased $910 million versus the comparable period in 2021. The following were the primary drivers by business:

•Axles and brakes sales added $732 million in sales since the completion of the Meritor acquisition.

•Emission solutions sales increased $60 million primarily due to stronger demand in North America.

•Automated transmissions sales increased $48 million principally due to higher ~~volumes~~demand in North America.

•Filtration sales increased $45 million mainly due to stronger demand in North America ~~with shipments up 32 percent.~~and Latin America.

•~~Off-highway~~Turbo technologies sales increased ~~$85~~$42 million largely due to higher demand in North America, partially offset by weaker demand in China.

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

Table of Contents

Components segment sales for the nine months ended September 30, 2022, increased $702 million versus the comparable period in 2021. The following were the primary drivers by business:

•Axles and brakes sales added $732 million in sales since the completion of the Meritor acquisition.

•Filtration sales increased $72 million mainly due to stronger demand in North America and Latin America, partially offset by lower demand in China.

These increases were partially offset by the following:

•Electronics and fuel systems sales decreased $107 million principally due to weaker demand in China, partially offset by higher demand in North America.

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

Segment EBITDA

Components segment EBITDA for the three months ended September 30, 2022, increased $44 million versus the comparable period in 2021, mainly due to favorable pricing and higher volumes, partially offset by Meritor acquisition and integration costs.

Components segment EBITDA for the nine months ended September 30, 2022, decreased $6 million versus the comparable period in 2021, primarily due to higher material costs and Meritor acquisition and integration costs, partially offset by favorable pricing.

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,			October 3,			(Unfavorable)				September 30,			October 3,			(Unfavorable)
In millions	2022			2021			Amount		Percent		2022			2021			Amount		Percent
External sales	$	773		$	688		$	85	12	%	$	2,190		$	1,999		$	191	10	%
Intersegment sales	576			476			100		21	%	1,522			1,330			192		14	%
Total sales	1,349			1,164			185		16	%	3,712			3,329			383		12	%

Research, development and engineering expenses	62			55			(7)		(13)	%	184			172			(12)		(7)	%
Equity, royalty and interest income from investees	10			11			(1)		(9)	%	31			32			(1)		(3)	%
Interest income	3			1			2		NM		5			3			2		67	%

Russian suspension costs(1)	—			—			—		—	%	19			—			(19)		NM
Segment EBITDA	193			134			59		44	%	411			399			12		3	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	14.3		%	11.5		%			2.8		11.1		%	12.0		%			(0.9)

"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/
	September 30,		October 3,		(Unfavorable)				September 30,		October 3,		(Unfavorable)
In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
Power generation	$	739	$	664	$	75	11	%	$	2,060	$	1,930	$	130	7	%
Industrial	483		412		71		17	%	1,304		1,135		169		15	%
Generator technologies	127		88		39		44	%	348		264		84		32	%
Total sales	$	1,349	$	1,164	$	185	16	%	$	3,712	$	3,329	$	383	12	%

Table of Contents

Sales

Power Systems segment sales for the three months ended September 30, 2022, increased $185 million versus the comparable period in 2021. The following were the primary drivers by product line:

•Power generation sales increased $75 million primarily due to ~~increased global construction~~higher demand ~~especially~~ in North America, Latin America, the Middle East and Asia Pacific and ~~Europe.~~favorable pricing, partially offset by weaker demand in China.

•Industrial sales increased $71 million principally due to stronger aftermarket demand and improved oil and gas sales in North America.

•Generator technologies sales increased $39 million mainly due to higher demand in Europe, China, India and North America.

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

Power Systems segment sales for the nine months ended September 30, 2022, increased $383 million versus the comparable period in 2021. The following were the primary drivers by product line:

•Industrial sales increased $169 million due to stronger aftermarket demand and improved oil and gas sales in North America and China.

•Power generation sales increased $130 million due to improved pricing and higher demand in Latin America, India and the Middle East.

•Generator technologies sales increased $84 million due to higher demand in Europe and India.

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

Segment EBITDA

Power Systems segment EBITDA for the three months ended September 30, 2022, increased $59 million versus the comparable period in 2021, mainly due to favorable pricing, partially offset by higher material costs.

Power Systems segment EBITDA for the nine months ended September 30, 2022, increased $12 million versus the comparable period in 2021, primarily due to favorable pricing, partially offset by higher material costs, increased freight costs due to supply chain constraints and costs associated with the suspension of our Russian operations.

New Power Segment Results

The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The New Power segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electroloyzers for hydrogen production and electrified power systems and related components and subsystems.

Financial data for the New Power segment was as follows:



	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,		October 3,		(Unfavorable)				September 30,		October 3,		(Unfavorable)
In millions	2022		2021		Amount		Percent		2022		2021		Amount		Percent
External sales	$	45	$	20	$	25	NM		$	106	$	77	$	29	38	%
Intersegment sales	5		3		2		67	%	17		5		12		NM
Total sales	50		23		27		NM		123		82		41		50	%

Research, development and engineering expenses	46		26		(20)		(77)	%	121		75		(46)		(61)	%
Equity, royalty and interest loss from investees	(5)		(3)		(2)		(67)	%	(12)		(1)		(11)		NM

Segment EBITDA	(96)		(58)		(38)		(66)	%	(243)		(169)		(74)		(44)	%




"NM" - not meaningful information

Table of Contents

OUTLOOK

Supply Chain Disruptions

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 2022.

Positive Trends

•We expect demand for pick-up, medium-duty and heavy-duty trucks in North America to remain strong.

•We believe market demand for trucks in India will continue to be strong.

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

Challenges

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

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

•Our 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.~~

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

•~~Heavy-duty truck sales increased $668 million principally due to higher volumes in North America with shipments up 64 percent.~~limiting full production capabilities.

•~~Medium-duty truck~~Resurgence of COVID-19 lockdowns in several cities in China negatively impacted the economy and ~~bus sales increased $574 million mainly due~~our end markets. Future lockdowns will contribute to ~~higher~~further disruptions in the global ~~medium-duty demand, 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 higher pick-up sales in North America with shipments up 53 percent.~~

~~Our industry continues to be unfavorably impacted by~~ supply chain, ~~constraints leading to shortages across multiple components categories~~reducing both our revenues 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, increased $9 million versus the comparable period in 2020, primarily due to higher volumes, partially offset by higher freight 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 equity, royalty and interest income from investees (largely due to increased earnings at Beijing Foton Cummins Engine Co., Ltd., Tata Cummins Ltd. (excluding the 2020 benefits noted below), 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.~~

~~Table of Contents~~

~~Distribution Segment Results~~

~~Financial data for the Distribution 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 $ 1,952 $ 1,715 $ 237 14 % $ 5,692 $ 5,123 $ 569 11 %
Intersegment sales 7 6 1 17 % 22 17 5 29 %
Total sales 1,959 1,721 238 14 % 5,714 5,140 574 11 %
Research, development and engineering expenses 10 9 (1) (11) % 35 20 (15) (75) %
Equity, royalty and interest income from investees 15 13 2 15 % 47 45 2 4 %
Interest income 2 1 1 100 % 5 3 2 67 %
Segment EBITDA 192 182 10 5 % 553 500 53 11 %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 9.8 % 10.6 % (0.8) 9.7 % 9.7 % —

~~Sales for our Distribution segment by region 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
North America $ 1,236 $ 1,125 $ 111 10 % $ 3,637 $ 3,412 $ 225 7 %
Asia Pacific 238 196 42 21 % 679 582 97 17 %
Europe 144 153 (9) (6) % 468 425 43 10 %
Russia 87 42 45 NM 210 128 82 64 %
China 81 77 4 5 % 245 246 (1) — %
Africa and Middle East 74 49 25 51 % 197 138 59 43 %
India 51 42 9 21 % 142 101 41 41 %
Latin America 48 37 11 30 % 136 108 28 26 %
Total sales $ 1,959 $ 1,721 $ 238 14 % $ 5,714 $ 5,140 $ 574 11 %
"NM" - not meaningful information

~~Sales for our Distribution segment by product line 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
Parts $ 800 $ 722 $ 78 11 % $ 2,322 $ 2,163 $ 159 7 %
Power generation 438 416 22 5 % 1,310 1,169 141 12 %
Engines 377 279 98 35 % 1,062 879 183 21 %
Service 344 304 40 13 % 1,020 929 91 10 %
Total sales $ 1,959 $ 1,721 $ 238 14 % $ 5,714 $ 5,140 $ 574 11 %

~~Sales~~

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

•~~North American sales increased $111 million, representing 47 percent of the total change in Distribution segment sales, due to higher demand in most product lines.~~

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

~~Table of Contents~~

•~~Favorable foreign currency fluctuations, primarily in the Australian dollar, Canadian dollar and Chinese renminbi.~~

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

•~~North American sales increased $225 million, representing 39 percent of the total change in Distribution segment sales, due to higher demand in all product lines.~~

•~~Improved demand in Asia Pacific, Russia and Africa and Middle East.~~

•~~Favorable foreign currency fluctuations, mainly in the Australian dollar, Canadian dollar and Euro.~~

~~Segment EBITDA~~

Distribution segment EBITDA for the three months ended October 3, 2021, increased $10 million versus the comparable period in 2020, primarily due to higher volumes, partially offset by increased compensation expenses and higher freight costs due to supply chain constraints.

Distribution segment EBITDA 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.

~~Components Segment Results~~

~~Financial data for the Components 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 $ 1,347 $ 1,201 $ 146 12 % $ 4,627 $ 3,192 $ 1,435 45 %
Intersegment sales 446 340 106 31 % 1,312 1,001 311 31 %
Total sales 1,793 1,541 252 16 % 5,939 4,193 1,746 42 %
Research, development and engineering expenses 78 64 (14) (22) % 232 187 (45) (24) %
Equity, royalty and interest income from investees 10 13 (3) (23) % 41 46 (5) (11) %
Interest income 1 1 — — % 3 3 — — %
Segment EBITDA 253 261 (8) (3) % 975 681 294 43 %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 14.1 % 16.9 % (2.8) 16.4 % 16.2 % 0.2

~~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 %

~~Sales~~

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

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

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

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

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.

~~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 million versus the comparable period in 2020, mainly due to higher compensation expenses, increased material costs, higher freight costs due to supply chain constraints and increased spending on prototypes, partially offset by higher volumes.

Components segment EBITDA for the nine months ended October 3, 2021, increased $294 million versus the comparable period in 2020, primarily due to higher volumes and favorable mix, 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 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~~ ~~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~~

~~Sales for our Power Systems segment by product line 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
Power generation $ 664 $ 601 $ 63 10 % $ 1,930 $ 1,544 $ 386 25 %
Industrial 412 309 103 33 % 1,135 896 239 27 %
Generator technologies 88 71 17 24 % 264 202 62 31 %
Total sales $ 1,164 $ 981 $ 183 19 % $ 3,329 $ 2,642 $ 687 26 %

~~Sales~~

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

•~~Industrial sales increased $103 million due to stronger demand in global mining markets and oil and gas markets in China.~~

•~~Power generation sales increased $63 million due to higher demand in India and China, partially offset by weaker demand in Europe and Russia.~~

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

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

•~~Industrial sales increased $239 million due to higher demand in global mining markets.~~

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

~~Segment EBITDA~~

Power Systems segment EBITDA for the three months ended October 3, 2021, increased $33 million versus the comparable period in 2020, mainly due to higher volumes and the absence of $10 million in impairment charges for a joint venture incurred in the third quarter of 2020, partially offset by increased material costs, higher compensation expenses, increased consulting expenses and unfavorable mix.

Power Systems segment EBITDA for the nine months ended October 3, 2021, increased $130 million versus the comparable period in 2020, primarily due to higher volumes and the absence of $13 million in impairment charges for a joint venture, partially offset by higher compensation expenses, unfavorable mix and increased material costs.

~~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/
October 3, September 27, (Unfavorable) October 3, September 27, (Unfavorable)
In millions 2021 2020 Amount Percent 2021 2020 Amount Percent
External sales $ 20 $ 18 $ 2 11 % $ 77 $ 38 $ 39 NM
Intersegment sales 3 — 3 NM 5 — 5 NM
Total sales 23 18 5 28 % 82 38 44 NM
Research, development and engineering expenses 26 26 — — % 75 79 4 5 %
Equity, royalty and interest (loss) from investees (3) (2) (1) 50 % (1) (3) 2 67 %
Segment EBITDA (58) (40) (18) (45) % (169) (121) (48) (40) %
"NM" - not meaningful information

~~Table of Contents~~

~~OUTLOOK~~

~~COVID-19 Impact~~

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. and abroad 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 or supply chain constraints in the future.

In March 2021, we gained approval as a COVID-19 vaccine administrator at several U.S. sites and began offering the vaccine to our employees 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.~~

~~Business Outlook~~

~~Our outlook reflects the following positive trends and challenges to our business for the remainder of 2021.~~

~~Positive Trends~~

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

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

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

•~~We anticipate our aftermarket business will continue to improve, driven primarily by increased truck utilization in North America.~~

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

~~Challenges~~

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

•~~Continued increases in material and commodity costs could negatively impact earnings.~~

•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.profitability.

•We expect market demand in truck and construction markets in China to ~~decline from record~~remain at low levels ~~in 2020.~~through the remainder of 2022, impacting our revenues, joint venture earnings and net income.

•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 continue 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 impacted our liquidity and resulted in incremental interest expense for debt utilized in funding the transaction, which will negatively impact future net income.

~~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~~•We expect the planned separation of our filtration business, into a stand-alone ~~company. The execution~~company, will 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	September 30, 2022			December 31, 2021
Working capital (1)	Working capital (1)	$	5,459		$	5,562		Working capital (1)	$	3,868		$	5,225
Current ratio	Current ratio	1.80			1.88			Current ratio	1.37			1.74
Accounts and notes receivable, net	Accounts and notes receivable, net	$	4,152		$	3,820		Accounts and notes receivable, net	$	4,799		$	3,990
Days' sales in receivables	Days' sales in receivables	60			69			Days' sales in receivables	59			59
Inventories	Inventories	$	4,322		$	3,425		Inventories	$	5,543		$	4,355
Inventory turnover	Inventory turnover	4.6			4.2			Inventory turnover	4.0			4.6
Accounts payable (principally trade)	Accounts payable (principally trade)	$	3,210		$	2,820		Accounts payable (principally trade)	$	4,000		$	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	$	8,115		$	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	46.4		%	31.5		%

(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							Nine months ended
In millions	In millions	October 3, 2021		September 27, 2020		Change		In millions	September 30, 2022		October 3, 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	$	1,145	$	1,524	$	(379)
Net cash used in investing activities	Net cash used in investing activities	(278)		(337)		59		Net cash used in investing activities	(3,496)		(278)		(3,218)
Net cash (used in) provided by financing activities		(2,079)		564		(2,643)
Net cash provided by (used in) financing activities								Net cash provided by (used in) financing activities	2,111		(2,079)		4,190
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	147		20		127
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	$	(93)	$	(813)	$	720

Net cash provided by operating activities decreased ~~$56~~$379 million for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to higher working capital requirements of ~~$409~~$253 million and ~~changes in other liabilities~~lower net income of ~~$267~~$225 million, partially offset by ~~higher consolidated net income~~$107 million of ~~$463 million, lower restructuring payments of $99 million and higher mark-to-market losses on corporate owned life insurances of $61 million. During the first nine months of 2021, the~~increases in other miscellaneous items. The higher working capital requirements resulted in a cash outflow of ~~$466~~$719 million compared to a cash outflow of ~~$57~~$466 million in the comparable period in ~~2020,~~2021, mainly due to ~~higher inventories and accounts and notes receivable,~~decreased accrued expenses as a result of lower variable compensation accruals in 2022, partially offset by ~~higher accrued expenses and accounts payable.~~a lower spend in inventories.

Net cash used in investing activities ~~decreased $59 million~~increased $3.2 billion for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020,~~2021, primarily due to the acquisitions of Meritor, Jacobs Vehicle Systems and Cummins Westport Joint Venture, net of cash acquired, of $3.0 billion.

Net cash provided by financing activities decreased $4.2 billion for the nine months ended September 30, 2022, versus the comparable period in 2021, primarily due to higher net ~~liquidations~~borrowings of ~~marketable securities~~commercial paper of $47 million, changes in cash flows from derivatives not designated as hedges of $34 million, lower investments in and advances to equity investees of $33 million and proceeds from sale of land of $20 million, partially offset by higher capital expenditures of $94 million.

~~Net cash used in financing activities~~$2.2 billion, increased ~~$2,643 million for the nine months ended October 3, 2021, versus the comparable period in 2020, primarily due to lower~~ proceeds from borrowings of ~~$1,964 million, mainly resulting from~~$2.0 billion (principally our $2$2.0 billion ~~bond issuance in 2020,~~term loan) and ~~higher~~lower repurchases of common stock of ~~$678 million,~~$0.9 billion, partially offset by ~~lower net~~higher payments on borrowings and finance lease obligations of ~~commercial paper~~$1.0 billion ($0.9 billion of ~~$221 million.~~

~~Table~~which relates to debt assumed in the Meritor acquisition that was retired during the third quarter of ~~Contents~~

2022).

The effect of exchange rate changes on cash and cash equivalents for the nine months ended ~~October 3, 2021,~~September 30, 2022, versus the comparable period in ~~2020, decreased $11~~2021, increased $127 million primarily due to ~~unfavorable~~favorable fluctuations in the British pound, partially offset by unfavorable fluctuations in the Chinese renminbi.

Table of ~~$11 million.~~Contents

Sources of Liquidity

We generate significant ongoing cash flow. Cash provided by operations is ~~typically~~ our principal source of liquidity with ~~$1,524~~$1,145 million generated in the nine months ended ~~October 3, 2021.~~September 30, 2022. Our sources of liquidity include:


		October 3, 2021								September 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	$	2,499	$	866	$	1,633	China, Singapore, Belgium, Australia, Mexico, Canada

Marketable securities (1)	Marketable securities (1)	430		89		341		India	Marketable securities (1)	466		96		370		India
Total	Total	$	3,018	$	1,367	$	1,651		Total	$	2,965	$	962	$	2,003
Available credit capacity	Available credit capacity								Available credit capacity
Revolving credit facilities (2)	Revolving credit facilities (2)	$	3,300						Revolving credit facilities (2)	$	1,607
International and other uncommitted domestic credit facilities	International and other uncommitted domestic credit facilities	$	268						International and other uncommitted domestic credit facilities	$	230

(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, the 364-day credit facility for $1.5 billion and the $500 million incremental 364-day credit facility, maturing August 2026 and August 2023, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At September 30, 2022, we had $2,393 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $1.6 billion.									(2) The five-year credit facility for $2.0 billion, the 364-day credit facility for $1.5 billion and the $500 million incremental 364-day credit facility, maturing August 2026 and August 2023, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At September 30, 2022, we had $2,393 million of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $1.6 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,~~July 13, 2022, we entered into a loan agreement under which we may obtain delayed-draw loans in an ~~amended~~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 interest rate is based on SOFR for the one-month interest period plus the relevant spread. The loan will mature on August 1, 2025. The agreement contains customary events of default and ~~restated five-year revolving credit agreement with~~financial and other covenants, including maintaining a ~~syndicate~~net debt to capital ratio of ~~lenders. The amended and restated credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 18, 2026.~~ no more than 0.65 to 1.0.

On August ~~18, 2021,~~17, 2022, we entered into an amended and restated 364-day credit agreement, ~~that~~which allows us to borrow up to $1.5 billion of unsecured funds at any time prior to August ~~17, 2022.~~16, 2023. 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,"~~17, 2022. On August 17, 2022, we also entered into an incremental 364-day credit agreement, which allows us to borrow up to $500 million of unsecured funds at any time prior to August 16, 2023.

In connection with the new credit agreements, on August 17, 2022, we entered into an amendment to our ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~$2.0 billion five-year facility to replace LIBOR with SOFR as an interest rate benchmark and to make other conforming changes to interest rate determinations.

We have access to committed credit facilities ~~that total $3.5~~totaling $4.0 billion, including the $1.5 billion 364-day facility that expires August ~~17, 2022~~16, 2023, $500 million incremental 364-day facility that expires August 16, 2023, 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.~~September 30, 2022.

Table of Contents

We can issue up to $~~3.5~~4.0 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~~$4.0 billion. ~~See Note 9, "DEBT," to our~~ ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~Table of Contents~~

At ~~October 3, 2021,~~September 30, 2022, we had ~~$200 million~~$2.4 billion of commercial paper outstanding, which effectively reduced ~~the~~our available capacity under our revolving credit facilities to ~~$3.3~~$1.6 billion.

As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the Securities and Exchange Commission (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.

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 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 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 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 LIBOR's phase out, our most recent revolving credit agreements include a well-documented transition mechanism for selecting a benchmark replacement rate for LIBOR, subject to 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 $495 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 September 30, 2022, were $227 million.

Accounts Receivable Factoring Arrangements

We assumed an accounts receivable factoring program from the acquisition of Meritor with a total amount utilized at September 30, 2022, of $235 million, of which $215 million was attributable to committed factoring facilities. The remaining amount of $20 million was related to factoring by certain of Meritor's European subsidiaries under uncommitted factoring facilities with financial institutions. The receivables under all of these programs are sold at face value and are excluded from the Condensed Consolidated Balance Sheets. Total facility size, utilized amounts, readily available amounts and expiration dates for each of these programs are shown in the table below.

Table of Contents


	Current Expiration	Total Facility Size at September 30, 2022				Utilized at September 30, 2022
In millions		EUR		USD		EUR		USD



Off-balance sheet arrangements
Committed Swedish factoring facility(1)(2)	March 2024	€	155	$	151	€	144	$	139
Committed U.S. factoring facility(1)	February 2023	N/A		75		—		76
Uncommitted U.K. factoring facility(3)	February 2025	25		24		2		2
Uncommitted Italy factoring facility	June 2025	30		29		11		11
Other uncommitted factoring facilities(4)	None	N/A		N/A		7		7
Total off-balance sheet arrangements		€	210	$	279	€	164	$	235


(1) Actual amounts may exceed the bank's commitment at the bank's discretion.
(2) The factoring program is supported by a 364-day committed credit facility through June 22, 2023.
(3) The U.K. factoring facility enables the factoring of British pound and Euro denominated accounts receivable.
(4) There is no explicit facility size under the agreement, but the counterparty approves the purchase of receivable tranches as its discretion.

The Swedish facility is backed by a 364-day liquidity commitment, which was renewed through June 22, 2023. Commitments under all of Meritor's factoring facilities are subject to standard terms and conditions for these types of arrangements (including, in the case of the U.K. and Italy commitments, a sole discretion clause whereby the bank retains the right to not purchase receivables, which has not been invoked since the inception of the respective programs).

We intend to wind down existing Meritor factoring programs into 2023.

Uses of Cash

Meritor Acquisition

On August 3, 2022, we completed the acquisition of Meritor, Inc. (Meritor). The total purchase price, including debt that was retired on the closing date, was $2.9 billion. In addition, we assumed $1.0 billion of additional debt, of which $0.9 billion was retired prior to the end of the third quarter. See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

Dividends

We paid dividends of $633 million during the nine months ended September 30, 2022. In July 2022, the Board authorized an increase to our quarterly dividend of approximately 8 percent from $1.45 per share to $1.57 per share.

Stock Repurchases

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
September 30	0.2	197.72		23		2,222

Total	1.9	198.65		$	370

(1) The remaining $222 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~~

~~In July 2021, the Board authorized an increase to our quarterly dividend~~

Table of ~~7.4 percent from $1.35 per share to $1.45 per share.~~Contents

~~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 months ended ~~October 3, 2021,~~September 30, 2022, were ~~$398~~$497 million versus ~~$301~~$398 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 related to our legacy Cummins businesses and an additional $40 million to $50 million for Meritor, 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~~$55 million to ~~$60~~$65 million on internal use software in ~~2021.~~2022.

Current Maturities of Short and Long-Term Debt

We had ~~$200 million~~$2.4 billion of commercial paper outstanding at ~~October 3, 2021,~~September 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%~~term loan and 0.75 percent senior notes are due. Required annual long-term debt principal payments range from ~~$16~~$13 million to ~~$536 million~~$2.5 billion over the next five years (including the remainder of ~~2021)~~2022). See ~~Note 9,~~NOTE 11, "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. As part of the Meritor acquisition, we recorded assets of $147 million and liabilities of $105 million on our Condensed Consolidated Balance Sheets related to Meritor's postretirement benefit plans. 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 months of ~~2021,~~2022, the investment ~~gain~~loss on our U.S. pension trust was ~~6.2~~5.1 percent while our U.K. pension trust ~~gain~~loss was ~~0.7~~21.7 percent. Approximately 69 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 31 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

~~Table of Contents~~

~~2021, we~~We anticipate making ~~$6 million in~~ additional defined benefit pension contributions induring the ~~U.K. and $4~~remainder of 2022 of $7 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~~$20 million.

Redeemable Noncontrolling Interests

A .19 minority shareholder in one of our businesses, Hydrogenics Corporation (Hydrogenics), has, among other rights and subject to related obligations and restrictive covenants, rights that are exercisable between September 2022 and September 2026 to require us to (1) purchase such shareholder's shares (Put Option) at an amount up to the fair market value (calculated pursuant to a process outlined in the shareholders' agreement) and (2) sell to such shareholder Hydrogenics' electrolyzer business at an amount up to the fair market value of the electrolyzer business (calculated pursuant to a process outlined in the shareholders’ agreement). We recorded the estimated fair value of the Put Option as redeemable noncontrolling interests in our Condensed Consolidated Financial Statements with an offset to additional paid-in capital. At September 30, 2022, the redeemable noncontrolling interest balance was $252 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.

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 access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund acquisitions, 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.

Table of Contents

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in ~~Note~~NOTE 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, other than noted below 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 months of ~~2021.~~2022.

Fair Value of Intangible Assets

We make strategic acquisitions that may have a material impact on our consolidated results of operations or financial position. We allocate the purchase price of acquired businesses to the assets acquired and liabilities assumed in the transaction at their estimated fair values. The determination of the fair value of intangible assets, which represent a significant portion of the purchase price in many of our acquisitions can be complex and requires the use of significant judgment with regard to (i) the fair value and (ii) the period and the method by which the intangible asset will be amortized. We use information available to us to make fair value determinations and engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired intangibles. We estimate the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses, which includes estimates of discount rates, revenue growth rates, EBITDA, royalty rates, customer attrition rates and technology obsolesce rates. The projected cash flows are discounted to determine the present value of the assets at the dates of acquisition. Although we believe the projections, assumptions and estimates made were reasonable and appropriate, these estimates require significant judgment by management, are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments subsequent to the measurement period are recorded to our consolidated statements of income. See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information about our recent business combinations.

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.

~~Table of Contents~~

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). As permitted by SEC guidance for newly acquired businesses, the evaluation did not include an assessment of those disclosure controls and procedures that are subsumed by and did not include an assessment of internal control over financial reporting as it relates to Meritor, Inc. (Meritor), which was acquired on August 3, 2022. 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.

Table of Contents

Changes in Internal Control over Financial Reporting

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

On August 3, 2022, we completed the acquisition of Meritor. As part of our ongoing integration of the Meritor business, we are continuing to incorporate our controls and procedures into Meritor and to augment our company-wide controls to reflect the risks inherent in an acquisition of this type. As permitted by the SEC guidance for newly acquired businesses, our report on our internal control over financial reporting in the Annual Report on Form 10-K for the year ending December 31, 2022, will include a scope exception that excludes the acquired Meritor business in order for management to have sufficient time to evaluate and implement our internal control structure over the operations of the Meritor business.

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The matters described under "Legal Proceedings" in ~~Note 11,~~NOTE 13, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements are incorporated herein by reference.

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 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.~~ 2018 and Titan trucks for model years 2016 through 2019. 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 RAM recall during the first quarter of 2022, an amount that reflected our current estimate of the cost of that recall. We are also developing a new software calibration and hardware fix and will recall model years 2016 through 2019 Titan trucks. We accrued $29 million for the Titan recall during the third quarter of 2022, an amount that reflected our current estimate of the cost of that recall.

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

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.

~~Table of Contents~~

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. 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. In the third quarter, we incurred $4 million of additional contract termination charges, and we recovered certain bad debt expenses and inventory amounts reserved in the first quarter for a net charge of $1 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 inability to collect customer receivables and may be the subject of litigation in connection with our suspension of commercial operations in Russia. The

~~On September 9, 2021, President Biden issued an executive order requiring all employers with U.S. government contracts to ensure that their U.S.-based employees, contractors~~

Table of Contents

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 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 sales goals. 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. As part of the purchase accounting associated with the acquisition, significant goodwill and intangible asset balances were recorded on the consolidated balance sheet. If cash flows from the acquisition fall short of our anticipated amounts, these assets could be subject to non-cash impairment charges, negatively impacting our earnings.

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
July 1 - July 31								July 1 - July 31	73,856	$	193.02	73,856	$	2,231
August 1 - August 31								August 1 - August 31	—	—		—	2,231
September 1 - September 30								September 1 - September 30	42,589	205.86		42,589	2,222
Total	Total	596,517	231.57		596,517			Total	116,445	197.72		116,445

(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,~~September 30, 2022, we repurchased ~~$138~~$23 million of common stock under the 2019 authorization. The dollar value remaining available for future purchases under the 2019 program at ~~October 3, 2021,~~September 30, 2022, was ~~$766~~$222 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,

Table of Contents

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.

~~Table of Contents~~

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~~Fourth Amended and Restated 364-Day Credit Agreement, dated as of August ~~18, 2021,~~17, 2022, 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.~~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 ~~August 18, 202~~1 19, 2022 (File No. 001-04949)).
10.2						~~Amended and Restated~~Incremental 364-Day Credit Agreement, dated as of August ~~18, 2021,~~17, 2022, 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 19, 2022 (File No. 001-04949)).


10.3						Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 17, 2022, by and among Cummins Inc., the subsidiary borrowers referred to therein, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August 19, 2022 (File No.001-04949)).

10.4						Credit Agreement, dated as of September 30, 2022, among FILT Red, Inc., Cummins Filtration Inc., the lenders party thereto, and Bank of America, N.A., 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 September 30, 2022 (File No.001-04949)).
10.5						Guaranty, dated as of September 30, 2022, by Cummins Inc. in favor of Bank of America, N.A., as administrative agent for the lenders party to the Credit Agreement. (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 September 30, 2022 (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 months ended September 30, 2022 and October 3, 2021, ~~and September 27, 2020,~~ (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and October 3, 2021, ~~and September 27, 2020,~~ (iii) the Condensed Consolidated Balance Sheets at ~~October 3, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and

Table of Contents

October 3, 2021, ~~and September 27, 2020,~~ (v) the Condensed Consolidated Statements of Changes in Redeemable Noncontrolling Interests and Equity for the three and nine months ended September 30, 2022 and October 3, 2021 ~~and September 27, 2020~~ and (vi) Notes to Condensed Consolidated Financial Statements.

5163

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~~4, 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)

5264