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.

~~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, 2019 $ (734) $ (1,285) $ (9) $ (2,028)
Other comprehensive income (loss) before reclassifications
Before-tax amount (19) (54) (75) (148) $ (12) $ (160)
Tax benefit (expense) 5 4 16 25 0 25
After-tax amount (14) (50) (59) (123) (12) (135)
Amounts reclassified from accumulated other comprehensive loss⁽¹⁾
48 0 (4) 44 0 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)
Balance at December 31, 2018 $ (671) $ (1,138) $ 2 $ (1,807)
Other comprehensive income (loss) before reclassifications
Before-tax amount (22) (194) (47) (263) $ (2) $ (265)
Tax benefit (expense) 5 (1) 11 15 0 15
After-tax amount (17) (195) (36) (248) (2) (250)
Amounts reclassified from accumulated other comprehensive loss⁽¹⁾
19 0 (4) 15 — 15
Net current period other comprehensive income (loss) 2 (195) (40) (233) $ (2) $ (235)
Balance at September 29, 2019 $ (669) $ (1,333) $ (38) $ (2,040)
⁽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.

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~~NOTE 14. RESTRUCTURING ACTIONS~~

In November 2019, we announced our intentions to reduce our global workforce in response to the continued deterioration in our global markets in the second half of 2019, as well as expected reductions in orders in most U.S. and international markets in 2020. In the fourth quarter of 2019, we began executing restructuring actions, primarily in the form of voluntary and involuntary employee separation programs. To the extent these programs involve voluntary separations, a liability is generally recorded at the time offers to employees are accepted. To the extent these programs provide separation benefits in accordance with pre-existing agreements or policies, a liability is recorded once the amount is probable and reasonably estimable. We incurred a charge of $119 million ($90 million after-tax) in the fourth quarter of 2019 for these actions which impacted approximately 2,300 employees. The voluntary actions were completed by December 31, 2019 and the involuntary actions were completed by June 28, 2020.

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


~~In millions~~	~~Restructuring Accrual~~
~~Balance at December 31, 2019~~	$	~~116~~

~~Cash payments~~	~~(100)~~
~~Change in estimate~~	~~(6)~~

~~Balance at September 27, 2020~~	$	10

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NOTE ~~15. ACQUISITION~~13. 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 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 ~~Hydrogenics Corporation acquisition~~Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell technologies. 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 ~~nine months ended September 29, 2019 was~~CODM to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as ~~follows:~~

Entity Acquired (Dollars in millions) Date of Acquisition Additional Percent Interest Acquired Payments to Former Owners Total Purchase Consideration
Type of Acquisition⁽¹⁾
Goodwill Acquired
Intangibles Recognized⁽²⁾
Net Sales Previous Fiscal Year Ended
2019
Hydrogenics Corporation 9/09/19 81% $ 235 $ 235 COMB $ 161 $ 161 $ 34
⁽¹⁾ The newly consolidated entity was accounted for as business combinations (COMB) and was included in the New Power segment on the date of acquisition.
⁽²⁾ Intangible assets acquired in the business combination were mostly technology and customer related, the majority of which will be amortized over a period of up to 20 years from the date of the acquisition.
it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments.

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

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~~Hydrogenics Corporation~~

On September 9, 2019, we acquired an 81 percent interest in Hydrogenics Corporation for total consideration of $235 million. The Hydrogen Company, a wholly-owned subsidiary of L’Air Liquide, S.A., maintains a 19 percent noncontrolling interest in Hydrogenics Corporation of $56 million, based on the publicly traded share price of Hydrogenics at the acquisition date, which was representative of its fair value. We accountedSummarized financial information regarding our reportable operating segments for the ~~transaction as a business combination and included it~~three months ended is shown in the ~~New Power segment~~table below:


In millions	Engine		Distribution		Components		Power Systems		New Power		Total Segments
Three months ended October 3, 2021
External sales	$	1,961	$	1,952	$	1,347	$	688	$	20	$	5,968
Intersegment sales	617		7		446		476		3		1,549
Total sales	2,578		1,959		1,793		1,164		23		7,517



Research, development and engineering expenses	97		10		78		55		26		266
Equity, royalty and interest income (loss) from investees	61		15		10		11		(3)		94

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





(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."

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Summarized financial information regarding our reportable operating segments for the nine months ended is shown in the ~~third quarter~~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."

Table of ~~2019. We assigned this business~~Contents

A reconciliation of our total segment sales to ~~our New Power reporting unit, which included both our electrified power and fuel cell businesses, for goodwill impairment purposes. As~~total net sales in the Condensed Consolidated Statements of ~~December 31, 2019, our purchase accounting was complete. The intangible assets will be amortized over periods ranging from 3 to 20 years. The final purchase price allocation~~ Net Income was as follows:


~~In millions~~
~~Inventory~~	$	21
~~Other current assets~~	25
~~Intangible assets~~
~~Technology assets~~	96
~~Customer relationships~~	29
~~In-process research and development~~	35
~~Other intangible assets~~	1
~~Goodwill~~	~~161~~
~~Other assets~~	18
~~Current liabilities~~	~~(53)~~
~~Other liabilities~~	~~(42)~~
~~Total business valuation~~	~~291~~
~~Less: Noncontrolling interest~~	56
~~Total purchase consideration~~	$	~~235~~


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Total segment sales	$	7,517	$	6,373	$	22,592	$	17,706
Elimination of intersegment sales	(1,549)		(1,255)		(4,421)		(3,725)
Total net sales	$	5,968	$	5,118	$	18,171	$	13,981

~~Technology assets represent~~A reconciliation of our segment information to the value of both the existing fuel cells and generation equipment. These assets were valued using the relief-from-royalty method, which is a combination of the income approach and market approach that values a subject asset based on an estimate of the relief from the royalty expense that would be incurred if the subject asset were licensed from a third-party. Key assumptions are expected revenue, the royalty rate, the estimated remaining useful life and the discount rate. This value is considered a level 3 measurement under the GAAP fair value hierarchy.

Customer relationship assets represent the value of the long-term strategic relationship the business has with its significant customers. The assets were valued using an income approach, specifically the multi-period excess earnings method, which identifies an estimated stream of revenues and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. Key assumptions are expected revenue, related expenses, the estimated remaining useful life and the discount rate. These assets are each being amortized over 15 to 20 years. Annual amortization of the intangible assets for the next five years was expected to approximate $8 million.

In-process research and development assets represent acquired research and development assets that have been initiated, achieved material progress, but have not yet resulted in a technologically feasible or commercially viable project. These assets were valued using the relief-from-royalty method, as described above. These assets will not be amortized until they have been completed, but will be tested annually for impairment until that time.

Goodwill was determined based on the residual difference between the fair value of consideration transferred and the value assigned to tangible and intangible assets and liabilities. The goodwill amount will not be deductible for tax purposes. Among the factors contributing to a purchase price resultingcorresponding amounts in the ~~recognition~~Condensed Consolidated Statements of ~~goodwill are the acquisition of engineering talent~~Net Income is shown in the ~~fuel cell space, the ability to be one~~table below:


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

Intersegment elimination	(50)		(10)		(89)		45

Less:
Interest expense	28		25		85		71
Depreciation and amortization	159		165		494		497
INCOME BEFORE INCOME TAXES	675		686		2,237		1,703
Less: Income tax expense	134		182		473		402
CONSOLIDATED NET INCOME	541		504		1,764		1,301
Less: Net income attributable to noncontrolling interests	7		3		27		13
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	1,737	$	1,288

Table of ~~the forerunners in the development of clean fuel cell energy and the continued opportunity to expand our position as a global power leader.~~Contents

~~NOTE 16. OPERATING SEGMENTS~~ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Operating segments under GAAP~~Cummins Inc. and its consolidated subsidiaries are ~~defined~~hereinafter sometimes referred to as ~~components~~“Cummins,” “we,” “our” or “us.”

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain parts of ~~an enterprise about which separate financial information is available that is evaluated regularly~~this quarterly report contain forward-looking statements intended to qualify for the safe harbors from liability established by the ~~Chief Operating Decision Maker (CODM),~~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 ~~decision-making group,~~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 ~~deciding how~~such forward-looking statements. Some future factors that could cause our results to ~~allocate resources~~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 ~~assessing performance. Our CODM is~~evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the ~~President~~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 ~~Chief Operating Officer.~~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;

•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 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 the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics;

•impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic;

•aligning our capacity and production with our demand, including impacts of COVID-19;

•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;

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

2427

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•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 of our patent and other intellectual property rights;

GENERAL

•disruptions in global credit and financial markets as the result of the COVID-19 pandemic;

•labor relations or work stoppages;

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

•climate change and global warming;

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

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

•political, economic and other risks from operations in numerous countries;

•competitor activity;

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

•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;

•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 our 2020 Form 10-K, Part I, Item 1A. under the caption "Risk Factors."

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

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ORGANIZATION OF INFORMATION

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

•EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

•RESULTS OF OPERATIONS

•OPERATING SEGMENT RESULTS

•OUTLOOK

•LIQUIDITY AND CAPITAL RESOURCES

•APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

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

Our reportable operating segments consist of Engine, Distribution, Components, Power Systems and New Power. This reporting structure is organized according to the products and markets each segment serves. The Engine segment produces engines (15 liters and smaller) and associated parts for sale to customers in on-highway and various off-highway markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, agriculture, power generation systems and other off-highway applications. The Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers, electronics, fuel systems and automated transmissions. The Power Systems segment is an integrated power provider, which designs, manufactures and sells engines (16 liters and larger) for industrial applications (including mining, oil and gas, marine and rail), standby and prime power generator sets, alternators and other power components. The New Power segment designs, manufactures, sells and supports hydrogen production solutions as well as electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery and fuel cell ~~and hydrogen production~~ technologies. 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~~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 and stoppages. 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 currency, political, economic, public health crises, epidemics or pandemics and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

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2021 Quarter-to-Date and Year-to-Date Results

A summary of our results is as follows:


	Three months ended				Nine months ended
In millions, except per share amounts	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Net sales	$	5,968	$	5,118	$	18,171	$	13,981
Net income attributable to Cummins Inc.	534		501		1,737		1,288
Earnings per common share attributable to Cummins Inc.
Basic	$	3.72	$	3.39	$	11.96	$	8.69
Diluted	3.69		3.36		11.86		8.65

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 higher 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 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.

Worldwide revenues increased 30 percent in the nine months ended October 3, 2021, compared to the same period in 2020, as we experienced higher demand in all operating segments and all geographic regions due to an improved economic environment and fewer effects from the COVID-19 pandemic. International demand (excludes the U.S. and Canada) improved by 36 percent, with higher sales in all geographic regions. The increase in international sales was principally due to higher demand in all components businesses (primarily emission solutions in India, China and Western Europe), industrial (especially mining) and power generation equipment (mainly in India and China), all distribution product lines and off-highway markets (principally construction markets in China, Europe and Asia Pacific). Favorable foreign currency fluctuations impacted international sales by 4 percent (primarily the Chinese renminbi, Euro, Australian dollar and British pound). Net sales in the U.S. and Canada improved 26 percent, primarily due to increased demand in North American on-highway markets, which positively impacted all components businesses, and all distribution product lines. 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.

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The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and nine months ended October 3, 2021 and September 27, 2020. See Note 13, "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
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	$	2,578	43	%	$	391	$	2,112	41	%	$	382	22	%	2	%
Distribution	1,959		33	%	192		1,721		34	%	182		14	%	5	%
Components	1,793		30	%	253		1,541		30	%	261		16	%	(3)	%
Power Systems	1,164		20	%	134		981		19	%	101		19	%	33	%
New Power	23		—	%	(58)		18		—	%	(40)		28	%	(45)	%
Intersegment eliminations	(1,549)		(26)	%	(50)		(1,255)		(24)	%	(10)		23	%	NM

Total	$	5,968	100	%	$	862	$	5,118	100	%	$	876	17	%	(2)	%

"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 and 2020 salary increases deferred until 2021), which impacted the variances in gross margin and net income as well as all of our reporting segments for the three months ended October 3, 2021.

Net income attributable to Cummins was $534 million, or $3.69 per diluted share, on sales of $6.0 billion for the three months ended October 3, 2021, versus the comparable prior year period net income attributable to Cummins of $501 million, or $3.36 per diluted share, on sales of $5.1 billion. The increases in net income and earnings per diluted share were driven by higher net sales, increased gross margin, a lower effective tax rate and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar), partially offset by higher compensation expenses and incremental costs associated with supply chain constraints. 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 2.7 percentage point decrease in gross margin as a percentage of net sales was principally due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate than the increase in net sales.



	Nine months ended
Operating Segments	October 3, 2021						September 27, 2020						Percent change
			Percent						Percent				2021 vs. 2020
In millions	Sales		of Total		EBITDA		Sales		of Total		EBITDA		Sales		EBITDA
Engine	$	7,528	41	%	$	1,147	$	5,693	41	%	$	897	32	%	28	%
Distribution	5,714		31	%	553		5,140		37	%	500		11	%	11	%
Components	5,939		33	%	975		4,193		30	%	681		42	%	43	%
Power Systems	3,329		18	%	399		2,642		19	%	269		26	%	48	%
New Power	82		1	%	(169)		38		—	%	(121)		NM		(40)	%
Intersegment eliminations	(4,421)		(24)	%	(89)		(3,725)		(27)	%	45		19	%	NM

Total	$	18,171	100	%	$	2,816	$	13,981	100	%	$	2,271	30	%	24	%

"NM" - not meaningful information

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

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Net income attributable to Cummins was $1,737 million, or $11.86 per diluted share, on sales of $18.2 billion for the nine months ended October 3, 2021, versus the comparable prior year period net income attributable to Cummins of $1,288 million, or $8.65 per diluted share, on sales of $14.0 billion. The increases in net income and earnings per diluted share were driven by higher net sales, increased gross margin, higher equity, royalty and interest income from investees (primarily in China due 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), partially offset by higher compensation expenses, incremental costs associated with supply chain constraints and mark-to-market losses on corporate owned life insurance. 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 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. Diluted earnings per common share for the nine months ended October 3, 2021, benefited $0.23 from fewer weighted-average shares outstanding due to the stock repurchase program.

We generated $1,524 million of cash from operations for the nine months ended October 3, 2021, compared to $1,580 million for the comparable period in 2020. Refer to 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, was 30.5 percent, compared to 31.7 percent at December 31, 2020. The decrease was primarily due to $222 million of lower debt balances since December 31, 2020. At October 3, 2021, we had $3.0 billion in cash and marketable securities on hand and access to our $3.5 billion credit facilities, if necessary, to meet currently anticipated working capital, investment and funding needs.

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

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

On August 3, 2021, we announced our exploration 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.

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

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

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

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RESULTS OF OPERATIONS



	Three months ended				Favorable/				Nine months ended				Favorable/
	October 3, 2021		September 27, 2020		(Unfavorable)				October 3, 2021		September 27, 2020		(Unfavorable)
In millions, except per share amounts					Amount		Percent						Amount		Percent
NET SALES	$	5,968	$	5,118	$	850	17	%	$	18,171	$	13,981	$	4,190	30	%
Cost of sales	4,554		3,769		(785)		(21)	%	13,793		10,448		(3,345)		(32)	%
GROSS MARGIN	1,414		1,349		65		5	%	4,378		3,533		845		24	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	571		533		(38)		(7)	%	1,745		1,549		(196)		(13)	%
Research, development and engineering expenses	266		224		(42)		(19)	%	802		651		(151)		(23)	%
Equity, royalty and interest income from investees	94		98		(4)		(4)	%	397		342		55		16	%

Other operating expense, net	(5)		(20)		15		75	%	(17)		(35)		18		51	%
OPERATING INCOME	666		670		(4)		(1)	%	2,211		1,640		571		35	%

Interest expense	28		25		(3)		(12)	%	85		71		(14)		(20)	%
Other income, net	37		41		(4)		(10)	%	111		134		(23)		(17)	%
INCOME BEFORE INCOME TAXES	675		686		(11)		(2)	%	2,237		1,703		534		31	%
Income tax expense	134		182		48		26	%	473		402		(71)		(18)	%
CONSOLIDATED NET INCOME	541		504		37		7	%	1,764		1,301		463		36	%
Less: Net income attributable to noncontrolling interests	7		3		(4)		NM		27		13		(14)		NM
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	534	$	501	$	33	7	%	$	1,737	$	1,288	$	449	35	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	3.69	$	3.36	$	0.33	10	%	$	11.86	$	8.65	$	3.21	37	%

"NM" - not meaningful information


	Three months ended				Favorable/ (Unfavorable)	Nine months ended				Favorable/ (Unfavorable)
	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020
Percent of sales					Percentage Points					Percentage Points
Gross margin	23.7	%	26.4	%	(2.7)	24.1	%	25.3	%	(1.2)
Selling, general and administrative expenses	9.6	%	10.4	%	0.8	9.6	%	11.1	%	1.5
Research, development and engineering expenses	4.5	%	4.4	%	(0.1)	4.4	%	4.7	%	0.3

Net Sales

Net sales for the three months ended October 3, 2021, increased by $850 millionversus the comparable period in 2020. The primary drivers were as follows:

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

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

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

•Power Systems segment sales increased 19 percent primarily due to higher demand in global mining markets and power generation markets in India and China.

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

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Net sales for the nine months ended October 3, 2021, increased $4,190 millionversus the comparable period in 2020. The primary drivers were as follows:

•Engine segment sales increased 32 percent due to increased volumes in the North American heavy-duty truck and pick-up truck markets and global medium-duty truck markets.

•Components segment sales increased 42 percent largely due to higher emission solutions demand in North America, India and China.

•Power Systems segment sales increased 26 percent primarily due to increased demand in power generation markets in North America, India and China and global mining markets.

•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 foreign currency fluctuations of 2 percent of total sales, primarily in the Chinese renminbi, Euro, Australian dollar and British pound.

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, were 43 percent and 44 percent of total net sales compared with 41 percent and 42 percent of total net sales for the comparable periods in 2020. 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 and other production overhead.

Gross Margin

Gross margin increased $65 million for the three months ended October 3, 2021 and decreased 2.7 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 2.7 percent decrease in gross margin as a percentage of net sales was principally due to higher compensation expenses, increased freight costs due to supply chain constraints and higher material costs which increased at a faster rate 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.

The provision for base warranties issued as a percent of sales for the three and nine months ended October 3, 2021, was 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $38 million for the three months ended October 3, 2021, versus the comparable period in 2020, primarily due to higher compensation expenses, partially offset by lower variable compensation expenses. Overall, selling, general and administrative expenses as a percentage of net sales decreased to 9.6 percent in the three months ended October 3, 2021, from 10.4 percent in the comparable period in 2020. The decrease in selling, general and administrative expenses as a percentage of net sales was mainly due to net sales increasing at a faster rate than the increase in selling, general and administrative expenses.

Selling, general and administrative expenses increased $196 million for the nine months ended October 3, 2021, versus the comparable period in 2020, primarily due to higher compensation expenses. Overall, selling, general and administrative expenses as a percentage of net sales decreased to 9.6 percent in the nine months ended October 3, 2021, from 11.1 percent in 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.

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Research, Development and Engineering Expenses

Research, development and engineering expenses increased $42 million for the three months ended October 3, 2021, versus the comparable period in 2020 primarily due to higher compensation expenses and increased consulting expenses. Overall, research, development and engineering expenses as a percentage of net sales increased to 4.5 percent in the three months ended October 3, 2021, from 4.4 percent in the comparable period in 2020.

Research, development and engineering expenses increased $151 million for the nine months ended October 3, 2021, versus the comparable period in 2020, primarily due to higher compensation expenses and increased spending on prototypes. Overall, research, development and engineering expenses as a percentage of net sales decreased to 4.4 percent in the nine months ended October 3, 2021, from 4.7 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. 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 electric, hybrid and hydrogen powertrain solutions.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees decreased $4 million for the three months ended October 3, 2021, versus the comparable period in 2020, primarily due to decreased earnings at Dongfeng Cummins Engine Co., Ltd. and Beijing Foton Cummins Engine Co., Ltd., partially offset by the absence of $10 million in impairment charges for a joint venture in 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 Consolidated Financial Statements of our 2020 Form 10-K for additional information on India Tax Law Changes.

Other Operating Expense, Net

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


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Amortization of intangible assets	$	(6)	$	(5)	$	(17)	$	(16)
Loss on write-off of assets	(3)		(13)		(7)		(18)
Gain (loss) on sale of assets, net	2		(2)		1		(8)
Royalty income, net	2		1		7		3
Other, net	—		(1)		(1)		4
Total other operating expense, net	$	(5)	$	(20)	$	(17)	$	(35)

Interest Expense

Interest expense increased $3 million and $14 million for the three and nine months ended October 3, 2021, versus the comparable periods in 2020, primarily due to increased interest expense associated with our $2 billion senior unsecured notes issued in August of 2020.

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Other Income, Net

Other income (expense), net was as follows:


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



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

Income Tax Expense

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

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 tax rates for the three and nine months ended September 27, 2020, were 26.5 percent and 23.6 percent, respectively.

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 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.

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, increased $4 million and $14 million, respectively, versus the comparable periods in 2020. The increase for the three months ended October 3, 2021, was primarily due to higher earnings at Cummins India Limited. The increase for the nine months ended October 3, 2021, is principally due to higher 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.

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 million and $0.33 per diluted share versus the comparable period in 2020, primarily due to higher net sales, increased gross margin, a lower effective tax rate and favorable foreign currency fluctuations (primarily the Chinese renminbi and Australian dollar), partially offset by higher compensation expenses and incremental costs associated with supply chain constraints.

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Net income and diluted earnings per common share attributable to Cummins Inc. for the nine months ended October 3, 2021, increased $449 million and $3.21 per diluted share versus the comparable period in 2020, primarily due to higher net sales, increased gross margin, higher equity, royalty and interest income from investees (primarily in China due 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), partially offset by higher compensation expenses, incremental costs associated with supply chain constraints and mark-to-market losses on corporate owned life insurance. Diluted earnings per common share for the nine months ended October 3, 2021, benefited $0.23 from fewer weighted-average shares outstanding due to the stock repurchase program.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was flat 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
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	$	69	Chinese renminbi, Indian rupee
Equity method investments	6		Chinese renminbi, Indian rupee	32		Chinese renminbi
Consolidated subsidiaries with a noncontrolling interest	2		Indian rupee	10		Indian rupee
Total	$	—		$	111


	Nine months ended
	October 3, 2021			September 27, 2020
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
Equity method investments	7		Chinese renminbi, offset by Indian rupee	12		Chinese renminbi
Consolidated subsidiaries with a noncontrolling interest	(5)		Indian rupee	(12)		Indian rupee
Total	$	(34)		$	(62)

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OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the Engine, Distribution, Components, Power Systems and New Power segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as a primary basis for the ~~CODM~~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, "OPERATING SEGMENTS," to the ~~The accounting policies~~Condensed Consolidated Financial Statements for additional information and a reconciliation of our ~~operating segments are~~segment information to the ~~same as those applied~~corresponding amounts in our Condensed Consolidated ~~Financial Statements.~~Statements of Net Income ~~We prepared the financial~~.

Following is a discussion of results for each of our operating ~~segments on a basis that is consistent~~segments.

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	October 3,			September 27,			(Unfavorable)				October 3,			September 27,			(Unfavorable)
In millions	2021			2020			Amount		Percent		2021			2020			Amount		Percent
External sales	$	1,961		$	1,617		$	344	21	%	$	5,776		$	4,133		$	1,643	40	%
Intersegment sales	617			495			122		25	%	1,752			1,560			192		12	%
Total sales	2,578			2,112			466		22	%	7,528			5,693			1,835		32	%

Research, development and engineering expenses	97			72			(25)		(35)	%	288			217			(71)		(33)	%
Equity, royalty and interest income from investees	61			74			(13)		(18)	%	278			236			42		18	%

Interest income	3			1			2		NM		7			6			1		17	%
Segment EBITDA	391			382			9		2	%	1,147			897			250		28	%

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


"NM" - not meaningful information

Sales for our Engine segment by market were as follows:


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

							Percentage Points										Percentage Points
On-highway sales as percentage of total sales	81		%	81		%			—		81		%	78		%			3

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


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

Sales

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

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

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

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

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.

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

•Heavy-duty truck sales increased $668 million principally due to ~~assist~~higher volumes in ~~making internal operating decisions. We allocate certain common~~North America with shipments up 64 percent.

•Medium-duty truck and bus sales increased $574 million mainly due to higher 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.

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 ~~expenses, primarily corporate functions, among segments differently than we would~~higher consulting expenses. See Note 4, "INCOME TAXES," of the Notes to the Consolidated Financial Statements of our 2020 Form 10-K for ~~stand-alone financial~~additional information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance to individual segments. EBITDA may not be consistent with measures used by other companies.on India Tax Law Changes.

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~~Summarized financial information regarding~~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 ~~reportable operating segments~~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 ~~is shown~~October 3, 2021, increased $238 million versus the comparable period in 2020. The following were the ~~table below:~~

In millions Engine Distribution Components Power Systems New Power Total Segments
Intersegment Eliminations ⁽¹⁾
Total
Three months ended September 27, 2020
External sales $ 1,617 $ 1,715 $ 1,201 $ 567 $ 18 $ 5,118 $ — $ 5,118
Intersegment sales 495 6 340 414 0 1,255 (1,255) —
Total sales 2,112 1,721 1,541 981 18 6,373 (1,255) 5,118
Research, development and engineering expenses 72 9 64 53 26 224 — 224
Equity, royalty and interest income (loss) from investees 74 13 13 0 (2) 98 — 98
Interest income 1 1 1 1 0 4 — 4
EBITDA 382 182 261 101 (40) 886 (10) 876
Depreciation and amortization ⁽²⁾
51 30 47 32 5 165 — 165
Three months ended September 29, 2019
External sales $ 1,822 $ 2,001 $ 1,253 $ 683 $ 9 $ 5,768 $ — $ 5,768
Intersegment sales 594 3 397 443 0 1,437 (1,437) —
Total sales 2,416 2,004 1,650 1,126 9 7,205 (1,437) 5,768
Research, development and engineering expenses 79 7 73 58 25 242 — 242
Equity, royalty and interest income from investees 34 12 9 13 0 68 — 68
Interest income 5 4 2 3 0 14 — 14
EBITDA 341 186 286 158 (36) 935 23 958
Depreciation and amortization ⁽²⁾
50 29 67 29 2 177 — 177
⁽¹⁾Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended September 27, 2020 and September 29, 2019.
⁽²⁾Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." A portion of depreciation expense is included in "Research, development and engineering expenses."
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.

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

~~Summarized financial information regarding our reportable operating segments~~Distribution segment sales for the nine months ended ~~is shown~~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 ~~table below:~~Australian dollar, Canadian dollar and Euro.

In millions Engine Distribution Components Power Systems New Power Total Segments
Intersegment Eliminations ⁽¹⁾
Total
Nine months ended September 27, 2020
External sales $ 4,133 $ 5,123 $ 3,192 $ 1,495 $ 38 $ 13,981 $ — $ 13,981
Intersegment sales 1,560 17 1,001 1,147 0 3,725 (3,725) —
Total sales 5,693 5,140 4,193 2,642 38 17,706 (3,725) 13,981
Research, development and engineering expenses 217 20 187 148 79 651 — 651
Equity, royalty and interest income (loss) from investees 236 45 46 18 (3) 342 — 342
Interest income 6 3 3 3 0 15 — 15
EBITDA 897 500 681 269 (121) 2,226 45 2,271
Depreciation and amortization⁽²⁾
155 91 142 96 13 497 — 497
Nine months ended September 29, 2019
External sales $ 5,879 $ 6,009 $ 4,055 $ 2,030 $ 20 $ 17,993 $ — $ 17,993
Intersegment sales 1,893 24 1,302 1,376 0 4,595 (4,595) —
Total sales 7,772 6,033 5,357 3,406 20 22,588 (4,595) 17,993
Research, development and engineering expenses 245 21 223 171 70 730 — 730
Equity, royalty and interest income from investees 152 35 30 39 0 256 — 256
Interest income 13 12 6 7 0 38 — 38
EBITDA 1,195 529 908 469 (98) 3,003 46 3,049
Depreciation and amortization⁽²⁾
151 86 160 88 6 491 — 491
⁽¹⁾Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended September 27, 2020 and September 29, 2019.
⁽²⁾Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $2 million and $2 million for the nine months ended September 27, 2020 and September 29, 2019, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."
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.

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•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.

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

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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

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~~A reconciliation~~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 ~~segment information~~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 ~~corresponding amounts~~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 ~~Condensed Consolidated Statements~~remainder of ~~Net Income~~ ~~is shown in the table below:~~2021.

Three months ended Nine months ended
In millions September 27,
2020 September 29,
2019 September 27,
2020 September 29,
2019
Total EBITDA $ 876 $ 958 $ 2,271 $ 3,049
Less:
Depreciation and amortization 165 177 497 491
Interest expense 25 26 71 87
Income before income taxes $ 686 $ 755 $ 1,703 $ 2,471
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.

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

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~~NOTE 17. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~Separation of Filtration Business

InOn August ~~2018, the Financial Accounting Standards Board (FASB) issued a new standard that aligns the accounting~~3, 2021, we announced our exploration of strategic alternatives for implementation costs incurred in a cloud computing arrangement accounted for as a service contract with the model currently used for internal use software costs. Under the new standard, costs that meet certain criteria will be requiredour filtration business. Potential strategic alternatives to be ~~capitalized~~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.

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 ~~the~~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	October 3, 2021			December 31, 2020
Working capital (1)	$	5,459		$	5,562
Current ratio	1.80			1.88
Accounts and notes receivable, net	$	4,152		$	3,820
Days' sales in receivables	60			69
Inventories	$	4,322		$	3,425
Inventory turnover	4.6			4.2
Accounts payable (principally trade)	$	3,210		$	2,820
Days' payable outstanding	58			68
Total debt	$	3,942		$	4,164
Total debt as a percent of total capital	30.5		%	31.7		%

(1) Working capital includes cash and cash equivalents.

Cash Flows

Cash and ~~subsequently amortized over the term of the hosting arrangement. We adopted the standard on January 1, 2020, on a prospective basis~~cash equivalents were impacted as ~~allowed~~follows:


	Nine months ended
In millions	October 3, 2021		September 27, 2020		Change
Net cash provided by operating activities	$	1,524	$	1,580	$	(56)
Net cash used in investing activities	(278)		(337)		59
Net cash (used in) provided by financing activities	(2,079)		564		(2,643)
Effect of exchange rate changes on cash and cash equivalents	20		31		(11)
Net (decrease) increase in cash and cash equivalents	$	(813)	$	1,838	$	(2,651)

Net cash provided by ~~the standard. The adoption is not expected to have a material impact on our~~ ~~Condensed Consolidated Financial Statements~~.

On January 1, 2020, we adopted the new FASB standard related to accounting for credit losses on financial instruments. This standard introduces new guidance for accounting for credit losses on instruments including trade receivables and held-to-maturity debt securities. The standard requires entities to record a cumulative effect adjustment to the statement of financial position. We recorded a net decrease to opening retained earnings of $4operating activities decreased $56 million net of tax, as of January 1, 2020, due to the cumulative impact of adopting the new standard. The impact to any individual financial statement line item as a result of applying the new standard, as compared to the old standard, was not material for the nine months ended ~~September 27, 2020.~~October 3, 2021, versus the comparable period in 2020, primarily due to higher working capital requirements of $409 million and changes in other liabilities of $267 million, partially offset by higher consolidated net income of $463 million, lower restructuring payments of $99 million and higher mark-to-market losses on corporate owned life insurances of $61 million. During the first nine months of 2021, the higher working capital requirements resulted in a cash outflow of $466 million compared to a cash outflow of $57 million in the comparable period in 2020, mainly due to higher inventories and accounts and notes receivable, partially offset by higher accrued expenses and accounts payable.

Net cash used in investing activities decreased $59 million for the nine months ended October 3, 2021, versus the comparable period in 2020, primarily due to higher net liquidations of marketable securities 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 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 our $2 billion bond issuance in 2020, and higher repurchases of common stock of $678 million, partially offset by lower net payments of commercial paper of $221 million.

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The effect of exchange rate changes on cash and cash equivalents for the nine months ended October 3, 2021, versus the comparable period in 2020, decreased $11 million primarily due to unfavorable fluctuations in the British pound of $11 million.

Sources of Liquidity

Cash provided by operations is typically our principal source of liquidity with $1,524 million generated in the nine months ended October 3, 2021. Our sources of liquidity include:


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

Marketable securities (1)	430		89		341		India
Total	$	3,018	$	1,367	$	1,651
Available credit capacity
Revolving credit facilities (2)	$	3,300
International and other uncommitted domestic credit facilities	$	268




(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.

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

~~In March 2020,~~On August 18, 2021, we entered into an amended and restated five-year revolving credit agreement with a syndicate of lenders. The amended and restated credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 18, 2026. On August 18, 2021, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $1.5 billion of unsecured funds at any time prior to August 17, 2022. This credit agreement amended and restated the ~~FASB amended its standard~~prior $1.5 billion 364-day credit facility that matured on August 18, 2021. See Note 9, "DEBT," to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendment allows entities to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. These expedients would apply to interest rate locks. The guidance was effective upon issuance and expires after December 31, 2022. The amendment did not have an effect on our Condensed Consolidated Financial Statements for additional information.

We have access to committed credit facilities that total $3.5 billion, including the $1.5 billion 364-day facility that expires August 17, 2022 and our $2.0 billion five-year facility that expires on August 18, 2026. We intend to maintain credit facilities at ~~September 27, 2020.~~ 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.

We ~~are still evaluating which contracts will be impacted by reference rate reform, but the expedients will allow us~~can issue up to ~~make permitted changes prior~~$3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the ~~expiration~~Board of Directors (the Board) authorized commercial paper programs. The programs facilitate the ~~amendments without resulting in an impact~~private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. The total combined borrowing capacity under the revolving credit facilities and commercial programs should not exceed $3.5 billion. See Note 9, "DEBT," to our Condensed Consolidated Financial Statements. for additional information.

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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.

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. 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" in our Condensed Consolidated Balance Sheets.

Uses of Cash

Stock Repurchases

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


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

April 4	1.7	$	247.35	$	418	$	1,576
July 4	2.7	252.66		672		904
October 3	0.6	231.57		138		766

Total	5.0	248.30		$	1,228

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

We intend to repurchase outstanding shares from time to time during 2021 to enhance shareholder value.

Dividends

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

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, were $398 million versus $301 million in the comparable period in 2020. We plan to spend an estimated $725 million to $775 million in 2021 on capital expenditures, excluding internal use software, with over 50 percent of these expenditures expected to be invested in North America. In addition, we plan to spend an estimated $50 million to $60 million on internal use software in 2021.

Current Maturities of Short and Long-Term Debt

We had $200 million of commercial paper outstanding at October 3, 2021, 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% senior notes and 2025 when our 0.75% senior notes are due. Required annual long-term debt principal payments range from $16 million to $536 million over the next five years (including the remainder of 2021). See Note 9, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were 112 percent funded at December 31, 2020. Our U.S. defined benefit plan, which represented approximately 52 percent of the worldwide pension obligation, was 128 percent funded, and our U.K. defined benefit plan was 114 percent funded at December 31, 2020. 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, the investment gain on our U.S. pension trust was 6.2 percent while our U.K. pension trust gain was 0.7 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

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2021, we anticipate making $6 million in additional defined benefit pension contributions in the U.K. and $4 million in contributions to our U.S. non-qualified benefit 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 annual net periodic pension cost to approximate $79 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 existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund common stock repurchases, dividend payments, targeted capital expenditures, projected pension obligations, acquisitions, working capital and debt service obligations through 2021 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.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in Note 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our 2020 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 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first nine months of 2021.

~~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" 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:

•~~market slowdown due to the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics;~~

•~~impacts to manufacturing and supply chain abilities from an extended shutdown or disruption of our operations due to the COVID-19 pandemic;~~

•~~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;~~

•~~aligning our capacity and production with our demand, including impacts of COVID-19;~~

•~~a major customer experiencing financial distress, particularly related to the COVID-19 pandemic;~~

•~~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;~~

•~~disruptions in global credit and financial markets as the result of the COVID-19 pandemic;~~

•~~adverse impacts from government actions to stabilize credit markets and financial institutions and other industries;~~

•~~product recalls;~~

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

•~~policy changes in international trade;~~

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

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

•~~labor relations or work stoppages;~~

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

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

•~~changes in the engine outsourcing practices of significant customers;~~

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

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

•~~challenges or unexpected costs in completing cost reduction actions and restructuring initiatives;~~

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

•~~political, economic and other risks from operations in numerous countries;~~

•~~competitor activity;~~

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

•~~foreign currency exchange rate changes;~~

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

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

•~~changes in taxation;~~

•~~global legal and ethical compliance costs and risks;~~

•~~product liability claims;~~

•~~increasingly stringent environmental laws and regulations;~~

•~~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;~~

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

•~~the price and availability of energy;~~

•~~our sales mix of products;~~

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

•~~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 under the caption "Risk Factors."~~

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~~ORGANIZATION OF INFORMATION~~

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our ~~Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2019 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~~

•~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

~~EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS~~

~~Overview~~

We are a global power leader that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Navistar International Corporation, Daimler Trucks North America and Fiat Chrysler Automobiles (Chrysler). We serve our customers through a network of approximately 600 wholly-owned, joint venture and independent distributor locations and over 7,600 Cummins certified dealer locations in more than 190 countries and territories.

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

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 and stoppages. 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 currency, political, economic, public health crises, epidemics or pandemics and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

~~COVID-19 Update~~

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impact market conditions through the end of the third quarter and these challenging market conditions could continue for an extended period of time. In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, match the reduced demand from our customers and in accordance with governmental requirements, we closed or partially shut down certain office, manufacturing, distribution and technical center facilities around the world in March 2020. Although most of our manufacturing, distribution and technical center facilities re-opened early in the second quarter of 2020, many operated at reduced capacities and most of our global office buildings remained closed through the third quarter. While the impacts of the pandemic and the resulting global recession are expected to be temporary, the duration of the production and supply chain disruptions, and related financial impacts, cannot be estimated at this time. Should the reduced manufacturing and distribution capacities 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. Our Board of Directors (the Board) continues to monitor and evaluate all of these factors along with the continuing impacts of the COVID-19 pandemic on our business and operations.

~~2020 Results~~

Our results for the first nine months of 2020 were significantly impacted by COVID-19, which caused manufacturing and supplier plant closures in China in early 2020 and other targeted shut-downs beginning 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 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. Although these actions did not have a material effect on our results of operations in the first quarter, they materially impacted our second quarter and continued to affect third quarter results, and we expect them to continue to impact our results of operations, financial condition and cash flows throughout the remainder of 2020.

Worldwide revenues decreased 11 percent in the three months ended September 27, 2020, compared to the same period in 2019, due to lower demand in all major operating segments and most geographic regions of the world as we experienced the anticipated 2020 down cycle in most of our markets and the continuing economic impacts of COVID-19. Net sales in the U.S. and Canada declined 18 percent, primarily due to COVID-19 impacts resulting in decreased demand in North American on-highway markets, which also negatively impacted our emission solutions and automated transmissions businesses and reduced sales in our distribution product lines. International demand (excludes the U.S. and Canada) was flat as lower sales in most geographic regions was offset by increased demand in China and a $44 million value added tax (VAT) recovery approved by the Brazilian tax authorities. Excluding the VAT recovery, the decrease in international sales was principally due to lower off-highway demand (mainly international mining markets, construction markets in Western Europe and Asia Pacific and oil and gas markets in China, partially offset by higher construction markets in China), lower demand for power generation equipment, reduced demand in all distribution product lines and unfavorable foreign currency impacts of 1 percent of international sales (primarily the Brazilian real), partially offset by higher demand in on-highway markets (mainly light commercial vehicle (LCV) and heavy-duty truck in China), which also positively impacted our emission solutions, electronics and fuel systems and turbo technologies businesses.

Worldwide revenues decreased 22 percent in the nine months ended September 27, 2020, compared to the same period in 2019, as we experienced lower demand in all major operating segments and all geographic regions, except China, due to the economic impacts of COVID-19 and the anticipated 2020 down cycle in most of our related markets. Net sales in the U.S. and Canada declined 28 percent, primarily due to COVID-19 impacts resulting in decreased demand in the North American on-highway markets, which also negatively impacted our emission solutions, automated transmissions and turbo technologies businesses, reduced sales in our distribution product lines, decreased demand for power generation equipment and lower demand in off-highway markets (especially construction and oil and gas). International demand (excludes the U.S. and Canada) declined by 14 percent, with lower sales in all geographic regions except China and a $44 million VAT recovery. The decrease in international sales was principally due to COVID-19 impacts resulting in lower off-highway demand (mainly international mining markets, construction markets in Western Europe and Asia Pacific, oil and gas markets in China and international marine markets, partially offset by higher construction market demand in China), decreased demand in on-highway markets (mainly medium-duty truck markets), which also negatively impacted our turbo technologies and emission solutions businesses, lower demand for power generation equipment, reduced demand in all distribution product lines and unfavorable foreign currency impacts of 2 percent of international sales (primarily the Chinese renminbi, Brazilian real, Australian dollar and Euro), partially offset by higher demand in the off-highway construction and the heavy-duty constructions markets in China.

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The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and nine months ended September 27, 2020 and September 29, 2019. See the section titled "OPERATING SEGMENT RESULTS" for a more detailed discussion of net sales and EBITDA by operating segment including the reconciliation of segment EBITDA to net income attributable to Cummins Inc.

Three months ended
Operating Segments September 27, 2020 September 29, 2019 Percent change
Percent Percent 2020 vs. 2019
In millions Sales of Total EBITDA Sales of Total EBITDA Sales EBITDA
Engine $ 2,112 41 % $ 382 $ 2,416 42 % $ 341 (13) % 12 %
Distribution 1,721 34 % 182 2,004 35 % 186 (14) % (2) %
Components 1,541 30 % 261 1,650 29 % 286 (7) % (9) %
Power Systems 981 19 % 101 1,126 19 % 158 (13) % (36) %
New Power 18 — % (40) 9 — % (36) 100 % (11) %
Intersegment eliminations (1,255) (24) % (10) (1,437) (25) % 23 (13) % NM
Total $ 5,118 100 % $ 876 $ 5,768 100 % $ 958 (11) % (9) %
"NM" - not meaningful information

Net income attributable to Cummins was $501 million, or $3.36 per diluted share, on sales of $5.1 billion for the three months ended September 27, 2020, versus the comparable prior year period net income attributable to Cummins of $622 million, or $3.97 per diluted share, on sales of $5.8 billion. The decreases in net income and earnings per diluted share were driven by lower net sales, decreased gross margin, higher variable compensation expenses, a higher effective tax rate, the absence of a $35 million gain from unwinding derivative instruments recognized in the third quarter of 2019 and unfavorable foreign currency impacts (primarily in the Brazilian real), partially offset by prior restructuring actions and temporary salary reductions resulting in lower compensation expenses and increased equity, royalty and interest income from investees primarily in China (due to stronger demand for trucks and construction equipment.) The decrease in gross margin was primarily due to lower volumes and unfavorable foreign currency impacts (primarily in the Brazilian real), partially offset by prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, a $44 million VAT recovery and lower material costs. The increase in gross margin as a percentage of sales was primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, a VAT recovery and lower material costs.

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Nine months ended
Operating Segments September 27, 2020 September 29, 2019 Percent change
Percent Percent 2020 vs. 2019
In millions Sales of Total EBITDA Sales of Total EBITDA Sales EBITDA
Engine $ 5,693 41 % $ 897 $ 7,772 43 % $ 1,195 (27) % (25) %
Distribution 5,140 37 % 500 6,033 34 % 529 (15) % (5) %
Components 4,193 30 % 681 5,357 30 % 908 (22) % (25) %
Power Systems 2,642 19 % 269 3,406 19 % 469 (22) % (43) %
New Power 38 — % (121) 20 — % (98) 90 % (23) %
Intersegment eliminations (3,725) (27) % 45 (4,595) (26) % 46 (19) % (2) %
Total $ 13,981 100 % $ 2,271 $ 17,993 100 % $ 3,049 (22) % (26) %

Net income attributable to Cummins was $1,288 million, or $8.65 per diluted share, on sales of $14.0 billion for the nine months ended September 27, 2020, versus the comparable prior year period net income attributable to Cummins of $1,960 million, or $12.45 per diluted share, on sales of $18.0 billion. The decreases in net income and earnings per diluted share were driven by lower net sales, decreased gross margin, a higher effective tax rate, the absence of a $35 million gain from unwinding derivative instruments recognized in the third quarter of 2019 and unfavorable foreign currency fluctuations (primarily the Brazilian real, Chinese renminbi and emerging market currencies), partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in lower compensation expenses, increased equity, royalty and interest income from investees in China (due to stronger demand for trucks and construction equipment) and favorable adjustments related to India Tax Law Changes in March 2020. The decreases in gross margin and gross margin as a percentage of sales were primarily due to lower volumes and unfavorable mix, partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses, lower material costs, reduced warranty costs and a $44 million VAT recovery. Diluted earnings per common share for the nine months ended September 27, 2020, benefited $0.16 from fewer weighted-average shares outstanding, primarily due to the stock repurchase programs in the first quarter of 2020.

We generated $1,223 million and $1,580 million of cash from operations for the three and nine months ended September 27, 2020, compared to $1,123 million and $2,343 million for the comparable periods in 2019. Refer to 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 September 27, 2020, was 32.2 percent, compared to 21.9 percent at December 31, 2019. The increase was primarily due to higher debt balances of $1,745 million since December 31, 2019, as the result of our August 2020 debt issuance. At September 27, 2020, we had $3.3 billion in cash and marketable securities on hand and access to our $3.5 billion credit facilities, if necessary, to meet currently anticipated working capital, investment and funding needs.

In the first half of 2020, we entered into additional 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.

~~In the first nine months of 2020, we purchased $550 million, or 3.5 million shares of common stock, which was all purchased in the first quarter of 2020.~~

On April 14, 2020, we were approved for the Federal Reserve Bank of New York's Commercial Paper Funding Facility to assure access to commercial paper funding during volatile market conditions. See NOTE 9, "DEBT" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

In June and July of 2020, we settled our February 2014 interest rate swap, which previously converted our $500 million debt issue, due in 2023, from fixed rate to floating rate based on a LIBOR spread. We will amortize the $24 million gain realized upon settlement over the remaining three year term of related debt.

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

On August 24, 2020, we issued $2 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 0.75% senior unsecured notes due in 2025, $850 million aggregate principal amount of 1.50% senior unsecured notes due in 2030 and $650 million aggregate principal amount of 2.60% senior unsecured notes due in 2050. We received net proceeds of $1.98 billion.

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~~On August 24, 2020, we terminated our 364-day credit facility that had been entered into on May 1, 2020, concurrent with the $2 billion bond issuance on August 24, 2020.~~

~~In October 2020, the Board authorized an increase to our quarterly dividend of 3 percent from $1.311 per share to $1.35 per share.~~

In the first nine months of 2020, the investment gain on our U.S. pension trust was 2.7 percent while our U.K. pension trust gain was 7.9 percent. Investment performance year-to-date in both trusts is still recovering from the negative impacts of COVID-19 on capital markets. During the remainder of 2020, we anticipate making $7 million in additional defined benefit pension contributions in the U.K. and $7 million in contributions to our U.S. non-qualified benefit plans. We expect our 2020 annual net periodic pension cost to approximate $102 million.

~~As of the date of this filing, our credit ratings and outlooks from the credit rating agencies were confirmed, with the $2 billion bond issuance on August 24, 2020, and remain unchanged.~~

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~~RESULTS OF OPERATIONS~~

Three months ended Favorable/ Nine months ended Favorable/
September 27,
2020 September 29,
2019 (Unfavorable) September 27,
2020 September 29,
2019 (Unfavorable)
In millions, except per share amounts Amount Percent Amount Percent
NET SALES $ 5,118 $ 5,768 $ (650) (11) % $ 13,981 $ 17,993 $ (4,012) (22) %
Cost of sales 3,769 4,274 505 12 % 10,448 13,326 2,878 22 %
GROSS MARGIN 1,349 1,494 (145) (10) % 3,533 4,667 (1,134) (24) %
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses 533 600 67 11 % 1,549 1,822 273 15 %
Research, development and engineering expenses 224 242 18 7 % 651 730 79 11 %
Equity, royalty and interest income from investees 98 68 30 44 % 342 256 86 34 %
Other operating expense, net (20) (21) 1 5 % (35) (25) (10) (40) %
OPERATING INCOME 670 699 (29) (4) % 1,640 2,346 (706) (30) %
Interest income 4 14 (10) (71) % 15 38 (23) (61) %
Interest expense 25 26 1 4 % 71 87 16 18 %
Other income, net 37 68 (31) (46) % 119 174 (55) (32) %
INCOME BEFORE INCOME TAXES 686 755 (69) (9) % 1,703 2,471 (768) (31) %
Income tax expense 182 139 (43) (31) % 402 501 99 20 %
CONSOLIDATED NET INCOME 504 616 (112) (18) % 1,301 1,970 (669) (34) %
Less: Net income (loss) attributable to noncontrolling interests 3 (6) (9) NM 13 10 (3) (30) %
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 501 $ 622 $ (121) (19) % $ 1,288 $ 1,960 $ (672) (34) %
Diluted Earnings Per Common Share Attributable to Cummins Inc. $ 3.36 $ 3.97 $ (0.61) (15) % $ 8.65 $ 12.45 $ (3.80) (31) %
"NM" - not meaningful information

Three months ended Favorable/
(Unfavorable) Nine months ended Favorable/
(Unfavorable)
September 27,
2020 September 29,
2019 September 27,
2020 September 29,
2019
Percent of sales Percentage Points Percentage Points
Gross margin 26.4 % 25.9 % 0.5 25.3 % 25.9 % (0.6)
Selling, general and administrative expenses 10.4 % 10.4 % — 11.1 % 10.1 % (1.0)
Research, development and engineering expenses 4.4 % 4.2 % (0.2) 4.7 % 4.1 % (0.6)

~~Net Sales~~

~~Net sales for the three months ended September 27, 2020, decreased by $650 millionversus the comparable period in 2019. The primary drivers were as follows:~~

•Engine segment sales decreased 13 percent due to lower volumes in the North American heavy-duty truck and medium-duty truck and bus markets, partially offset by increased light-commercial vehicle demand in China and Brazil.

•~~Distribution segment sales decreased 14 percent due to lower demand in all product lines.~~

•Power Systems segment sales decreased 13 percent primarily due to reduced industrial market demand in international mining markets and oil and gas markets in China and lower demand in power generation markets in India and North America.

•~~Components segment sales decreased 7 percent largely due to lower demand in North America, partially offset by higher demand in China.~~

•~~Unfavorable foreign currency fluctuations of 1 percent of total sales, primarily in the Brazilian real.~~

~~These decreases were partially offset by a $44 million VAT recovery.~~

~~Table of Contents~~

~~Net sales for the nine months ended September 27, 2020, decreased $4,012 millionversus the comparable period in 2019. The primary drivers were as follows:~~

•~~Engine segment sales decreased 27 percent due to lower volumes in all North American on-highway markets.~~

•~~Components segment sales decreased 22 percent largely due to lower demand in North America and Western Europe, partially offset by higher demand in China.~~

•~~Distribution segment sales decreased 15 percent due to lower demand in all product lines.~~

•Power Systems segment sales decreased 22 percent primarily due to reduced industrial demand in international mining markets and oil and gas market in China and lower demand in power generation markets in North America and India.

•~~Unfavorable foreign currency fluctuations of 1 percent of total sales, primarily in the Chinese renminbi, Brazilian real, Australian dollar and Euro.~~

~~These decreases were partially offset by a $44 million VAT recovery.~~

Sales to international markets (excluding the U.S. and Canada), based on location of customers, for the three and nine months ended September 27, 2020, were 41 percent and 42 percent of total net sales compared with 37 percent and 38 percent of total net sales for the comparable periods in 2019. 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; engineering support costs; repairs and maintenance; production and warehousing facility property insurance; rent for production facilities and other production overhead.

~~Gross Margin~~

Gross margin decreased $145 million for the three months ended September 27, 2020 and increased 0.5 points as a percentage of sales, versus the comparable period in 2019. The decrease in gross margin was primarily due to lower volumes and unfavorable foreign currency impacts (primarily in the Brazilian real), partially offset by prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, a $44 million VAT recovery and lower material costs. The increase in gross margin as a percentage of sales was primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, a VAT recovery and lower material costs.

Gross margin decreased $1,134 million for the nine months ended September 27, 2020 and decreased 0.6 points as a percentage of sales versus the comparable period in 2019. The decreases in gross margin and gross margin as a percentage of sales were primarily due to lower volumes and unfavorable mix, partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses, lower material costs, reduced warranty costs and a $44 million VAT recovery.

The provision for base warranties issued as a percent of sales for the three and nine months ended September 27, 2020, was 2.3 percent and 2.0 percent, respectively, compared to 1.8 percent and 2.0 percent for the comparable periods in 2019. A detailed discussion of gross margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses decreased $67 million for the three months ended September 27, 2020, versus the comparable period in 2019, primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, reduced travel expenses and lower consulting expenses, partially offset by increased variable compensation expenses. Overall, selling, general and administrative expenses, as a percentage of sales, remained flat at 10.4 percent in the three months ended September 27, 2020.

Selling, general and administrative expenses decreased $273 million for the nine months ended September 27, 2020, versus the comparable period in 2019, primarily due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced travel expenses. Overall, selling, general and administrative expenses, as a percentage of sales, increased to 11.1 percent in the nine months ended September 27, 2020, from 10.1 percent in the comparable period in 2019. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to sales declining faster than selling, general and administrative expenses.

~~Table of Contents~~

~~Research, Development and Engineering Expenses~~

Research, development and engineering expenses decreased $18 million for the three months ended September 27, 2020, versus the comparable period in 2019 primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses and reduced consulting expenses, partially offset by increased variable compensation expenses. Overall, research, development and engineering expenses as a percentage of sales increased to 4.4 percent in the three months ended September 27, 2020, from 4.2 percent in the comparable period in 2019, primarily due to sales declining faster than research, development and engineering expenses decreased, despite lower compensation expenses.

Research, development and engineering expenses decreased $79 million for the nine months ended September 27, 2020, versus the comparable period in 2019 primarily due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced consulting expenses. Overall, research, development and engineering expenses as a percentage of sales increased to 4.7 percent in the nine months ended September 27, 2020, from 4.1 percent in the comparable period in 2019, primarily due to sales declining faster than research, development and engineering expenses decreased, despite lower compensation expenses. 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 electric, hybrid and hydrogen powertrain solutions.

~~Equity, Royalty and Interest Income from Investees~~

Equity, royalty and interest income from investees increased $30 million for the three months ended September 27, 2020, versus the comparable period in 2019, primarily due to higher earnings at Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd., partially offset by $10 million of impairment charges for a joint venture in our Power Systems segment.

Equity, royalty and interest income from investees increased $86 million for the nine months ended September 27, 2020, versus the comparable period in 2019, primarily due to a $37 million adjustment as the result of tax changes within India's 2020-2021 Union Budget of India (India Tax Law Changes) passed in March 2020, higher earnings at Beijing Foton Cummins Engine Co., Ltd. and $18 million of technology fee revenue recorded in the first quarter of 2020, partially offset by $13 million of impairment charges. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information on India Tax Law Changes.~~

~~Other Operating Expense, Net~~

~~Other operating expense, net was as follows:~~

Three months ended Nine months ended
In millions September 27,
2020 September 29,
2019 September 27,
2020 September 29,
2019
Loss on write-off of assets $ (13) $ (20)
⁽¹⁾
$ (18) $ (20)
⁽¹⁾
Amortization of intangible assets (5) (5) (16) (15)
(Loss) gain on sale of assets, net (2) (2) (8) 3
Royalty income, net 1 3 3 12
Other, net (1) 3 4 (5)
Total other operating expense, net $ (20) $ (21) $ (35) $ (25)
⁽¹⁾Includes $19 million of charges related to ending production of the 5 liter ISV engine for the U.S. pick-up truck market during the three and nine months ended September 29, 2019.

~~Interest Income~~

Interest income decreased $10 million and $23 million for the three and nine months ended September 27, 2020, versus the comparable periods in 2019, primarily due to lower rates of return on higher average cash and marketable securities balances.

~~Interest Expense~~

Interest expense decreased $1 million and $16 million for the three and nine months ended September 27, 2020, versus the comparable periods in 2019, mainly due to lower interest rates despite an increase in the average short-term borrowings through the nine months ended September 27, 2020

~~Table of Contents~~

~~Other Income, Net~~

~~Other income, net was as follows:~~

Three months ended Nine months ended
In millions September 27,
2020 September 29,
2019 September 27,
2020 September 29,
2019
Non-service pension and other postretirement benefits credit $ 16 $ 18 $ 48 $ 54
Gain on corporate owned life insurance 12 9 50 64
Rental income 2 2 6 6
Foreign currency loss, net 2 36
⁽¹⁾
(1) 28
⁽¹⁾
Gain on marketable securities, net 2 1 6 8
Bank charges (5) (3) (15) (9)
Other, net 8 5 25 23
Total other income, net $ 37 $ 68 $ 119 $ 174
⁽¹⁾Includes $35 million in gains from unwinding derivative instruments not designated as hedges as a result of foreign dividends paid during the three and nine months ended September 29, 2019.

~~Income Tax Expense~~

~~Our effective tax rates for the three and nine months ended September 27, 2020, were 26.5 percent and 23.6 percent, respectively.~~

The three months ended September 27, 2020, contained unfavorable discrete items of $31 million, or $0.21 per share, consisting of $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, or $0.18 per share, 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 within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March of 2020. The India Tax Law Change eliminated the dividend distribution tax and replaced it with a lower rate withholding tax as the burden shifted from the dividend payor to the dividend recipient for a net favorable income statement impact of $35 million. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information on India Tax Law Changes.~~

Our effective tax rates for the three and nine months ended September 29, 2019, were 18.4 percent and 20.3 percent, respectively. The three months ended September 29, 2019, contained favorable discrete items of $23 million, or $0.14 per share, of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments. The nine months ended September 27, 2020, contained $30 million, or $0.19 per share, of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments.

~~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 September 27, 2020, increased $9 million and $3 million, respectively, versus the comparable periods in 2019. The increases for the three months ended September 27, 2020 are primarily due to increased earnings at Eaton Cummins Joint Venture. The increases for nine months ended September 27, 2020 are principally due to a $19 million unfavorable adjustment as the result of India Tax Law Changes passed in March 2020, partially offset by decreased earnings at Cummins India Limited. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information on India Tax Law Changes.~~

~~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 September 27, 2020, decreased $121 million and $0.61 per diluted share versus the comparable period in 2019, primarily due to lower net sales, decreased gross margin, higher variable compensation expenses, a higher effective tax rate, the absence of a $35 million gain from unwinding derivative instruments recognized in the third quarter of 2019 and unfavorable foreign currency impacts (primarily in the Brazilian real), partially offset by prior restructuring actions and temporary salary reductions resulting in lower compensation expenses and increased equity, royalty and interest income from investees primarily in China due to stronger demand for trucks and construction equipment.

~~Table of Contents~~

Net income and diluted earnings per common share attributable to Cummins Inc. for the nine months ended September 27, 2020, decreased $672 million and $3.80 per diluted share versus the comparable period in 2019, primarily due to lower net sales, decreased gross margin, a higher effective tax rate, the absence of a $35 million gain from unwinding derivative instruments recognized in the third quarter of 2019 and unfavorable foreign currency fluctuations (primarily the Brazilian real, Chinese renminbi and emerging market currencies), partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in lower compensation expenses, increased equity, royalty and interest income from investees in China (due to stronger demand for trucks and construction equipment) and favorable adjustments related to India Tax Law Changes in March 2020. Diluted earnings per common share for the nine months ended September 27, 2020, benefited $0.16 from fewer weighted-average shares outstanding, primarily due to the stock repurchase programs in the first quarter of 2020.

~~Comprehensive Income - Foreign Currency Translation Adjustment~~

The foreign currency translation adjustment was a net gain of $111 million and net loss of $62 million, respectively, for the three and nine months ended September 27, 2020, compared to a net loss of $182 million and $197 million, respectively, for the three and nine months ended September 29, 2019 and was driven by the following:

Three months ended
September 27, 2020 September 29, 2019
In millions Translation adjustment Primary currency driver vs. U.S. dollar Translation adjustment Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries $ 69 Chinese renminbi, Indian rupee $ (153) British pound, Chinese renminbi, Brazilian real
Equity method investments 32 Chinese renminbi (24) Chinese renminbi
Consolidated subsidiaries with a noncontrolling interest 10 Indian rupee (5) Indian rupee
Total $ 111 $ (182)
Nine months ended
September 27, 2020 September 29, 2019
In millions Translation adjustment Primary currency driver vs. U.S. dollar Translation adjustment Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries $ (62) Brazilian real, Indian rupee, offset by Chinese renminbi $ (161) British pound, Chinese renminbi, Brazilian real
Equity method investments 12 Chinese renminbi (34) Chinese renminbi, British pound
Consolidated subsidiaries with a noncontrolling interest (12) Indian rupee (2) Indian rupee
Total $ (62) $ (197)

~~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 16, "OPERATING SEGMENTS," to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~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/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
External sales $ 1,617 $ 1,822 $ (205) (11) % $ 4,133 $ 5,879 $ (1,746) (30) %
Intersegment sales 495 594 (99) (17) % 1,560 1,893 (333) (18) %
Total sales 2,112 2,416 (304) (13) % 5,693 7,772 (2,079) (27) %
Research, development and engineering expenses 72 79 7 9 % 217 245 28 11 %
Equity, royalty and interest income from investees 74 34 40 NM 236 152 84 55 %
Interest income 1 5 (4) (80) % 6 13 (7) (54) %
Segment EBITDA 382 341 41 12 % 897 1,195 (298) (25) %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 18.1 % 14.1 % 4.0 15.8 % 15.4 % 0.4
"NM" - not meaningful information

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
Heavy-duty truck $ 694 $ 851 $ (157) (18) % $ 1,859 $ 2,800 $ (941) (34) %
Medium-duty truck and bus 492 645 (153) (24) % 1,501 2,105 (604) (29) %
Light-duty automotive 522 478 44 9 % 1,055 1,340 (285) (21) %
Total on-highway 1,708 1,974 (266) (13) % 4,415 6,245 (1,830) (29) %
Off-highway 404 442 (38) (9) % 1,278 1,527 (249) (16) %
Total sales $ 2,112 $ 2,416 $ (304) (13) % $ 5,693 $ 7,772 $ (2,079) (27) %
Percentage Points Percentage Points
On-highway sales as percentage of total sales 81 % 82 % (1) 78 % 80 % (2)

~~Table of Contents~~

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
2020 2019 Amount Percent 2020 2019 Amount Percent
Heavy-duty 23,300 28,000 (4,700) (17) % 65,000 96,900 (31,900) (33) %
Medium-duty 50,100 63,200 (13,100) (21) % 156,200 218,600 (62,400) (29) %
Light-duty 67,200 62,600 4,600 7 % 146,400 183,100 (36,700) (20) %
Total unit shipments 140,600 153,800 (13,200) (9) % 367,600 498,600 (131,000) (26) %

~~Sales~~

~~Engine segment sales for the three months ended September 27, 2020, decreased $304 million versus the comparable period in 2019. The following were the primary drivers by market:~~

•~~Heavy-duty truck sales decreased $157 million principally due to lower volumes in North America with lower shipments of 29 percent.~~

•~~Medium-duty truck and bus sales decreased $153 million mainly due to lower demand in North America with decreased unit shipments of 30 percent.~~

•Off-highway sales decreased $38 million primarily due to lower demand in construction markets in North America, Western Europe and Asia Pacific, partially offset by higher construction demand in China.

•~~Unfavorable foreign currency fluctuations, primarily in the Brazilian real.~~

~~These decreases were partially offset by increased light-duty automotive sales of $44 million primarily due to higher light commercial vehicle demand in China and a $30 million VAT recovery.~~

~~Engine segment sales for the nine months ended September 27, 2020, decreased $2,079 million versus the comparable period in 2019. The following were the primary drivers by market:~~

•~~Heavy-duty truck sales decreased $941 million principally due to lower volumes in North America with lower shipments of 47 percent.~~

•~~Medium-duty truck and bus sales decreased $604 million mainly due to lower demand in North America with decreased shipments of 34 percent.~~

•~~Light-duty truck automotive sales decreased $285 million primarily due to lower pick-up sales in North America.~~

•Off-highway sales decreased $249 million principally due to lower demand in construction markets in North America, Western Europe and Asia Pacific, partially offset by higher construction demand in China.

~~Segment EBITDA~~

Engine segment EBITDA for the three months ended September 27, 2020, increased $41 million versus the comparable period in 2019, primarily due to increased equity, royalty and interest income from investees, the absence of a $33 million charge related to ending production of the 5 liter ISV engine for the U.S. pick-up truck market in the third quarter of 2019 and lower selling, general and administrative expenses, partially offset by lower gross margin. The decrease in gross margin was mainly due to lower volumes, partially offset by a $30 million VAT recovery, prior restructuring actions and temporary salary reductions resulting in lower compensation expenses, decreased warranty expenses and lower material costs. The increase in gross margin as a percentage of sales was primarily due to a VAT recovery, prior restructuring actions and temporary salary reductions resulting in lower compensation expenses, decreased warranty expenses, lower material costs and the absence of a charge related to ending production of the 5 liter ISV engine for the U.S. pick-up truck market in the third quarter of 2019. The decrease in selling, general and administrative expenses was primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, reduced consulting expenses and lower travel expenses, partially offset by increased variable compensation expenses. The increase in equity, royalty and interest income from investees was principally due to higher earnings at Beijing Foton Cummins Engine Co., Ltd. and Dongfeng Cummins Engine Co., Ltd.

~~Table of Contents~~

Engine segment EBITDA for the nine months ended September 27, 2020, decreased $298 million versus the comparable period in 2019, primarily due to lower gross margin, partially offset by increased equity, royalty and interest income from investees, lower selling, general and administrative expenses and decreased research, development and engineering expenses. The decrease in gross margin and gross margin as a percentage of sales was mainly due to lower volumes, partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in lower compensation expenses, decreased material costs, reduced warranty expenses and a $30 million VAT recovery. Selling, general and administrative expenses and research, development and engineering expenses decreased principally due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced consulting expenses. The increase in equity, royalty and interest income from investees was largely due to higher earnings at Beijing Foton Cummins Engine Co., Ltd., increased earnings at Tata Cummins Ltd., mainly due to an $18 million adjustment related to India Tax Law Changes passed in March 2020 and $18 million of technology fee revenue recorded in the first quarter of 2020, and higher earnings at Dongfeng Cummins Engine Co., Ltd. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information on India Tax Law Changes.~~

~~Distribution Segment Results~~

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
External sales $ 1,715 $ 2,001 $ (286) (14) % $ 5,123 $ 6,009 $ (886) (15) %
Intersegment sales 6 3 3 100 % 17 24 (7) (29) %
Total sales 1,721 2,004 (283) (14) % 5,140 6,033 (893) (15) %
Research, development and engineering expenses 9 7 (2) (29) % 20 21 1 5 %
Equity, royalty and interest income from investees 13 12 1 8 % 45 35 10 29 %
Interest income 1 4 (3) (75) % 3 12 (9) (75) %
Segment EBITDA 182 186 (4) (2) % 500 529 (29) (5) %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 10.6 % 9.3 % 1.3 9.7 % 8.8 % 0.9

~~Sales for our Distribution segment by region were as follows:~~

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
North America $ 1,125 $ 1,374 $ (249) (18) % $ 3,412 $ 4,157 $ (745) (18) %
Asia Pacific 196 224 (28) (13) % 582 667 (85) (13) %
Europe 153 135 18 13 % 425 382 43 11 %
China 77 82 (5) (6) % 246 266 (20) (8) %
Africa and Middle East 49 60 (11) (18) % 138 170 (32) (19) %
Russia 42 34 8 24 % 128 114 14 12 %
India 42 47 (5) (11) % 101 143 (42) (29) %
Latin America 37 48 (11) (23) % 108 134 (26) (19) %
Total sales $ 1,721 $ 2,004 $ (283) (14) % $ 5,140 $ 6,033 $ (893) (15) %

~~Table of Contents~~

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
Parts $ 722 $ 798 $ (76) (10) % $ 2,163 $ 2,475 $ (312) (13) %
Power generation 416 467 (51) (11) % 1,169 1,297 (128) (10) %
Service 304 376 (72) (19) % 929 1,112 (183) (16) %
Engines 279 363 (84) (23) % 879 1,149 (270) (23) %
Total sales $ 1,721 $ 2,004 $ (283) (14) % $ 5,140 $ 6,033 $ (893) (15) %

~~Sales~~

Distribution segment sales for the three months ended September 27, 2020, decreased $283 million versus the comparable period in 2019. The primary regional driver was decreased North American sales of $249 million, representing 88 percent of the total change in Distribution segment sales, due to decreased demand in all product lines.

~~Distribution segment sales for the nine months ended September 27, 2020, decreased $893 million versus the comparable period in 2019. The following were the primary drivers by region:~~

•North American sales decreased $745 million, representing 83 percent of the total change in Distribution segment sales, primarily due to decreased demand in all product lines, especially parts and engines sales in oil and gas markets.

•~~Unfavorable foreign currency fluctuations, principally in the Australian dollar, Brazilian real, Chinese renminbi and South African rand.~~

~~Segment EBITDA~~

Distribution segment EBITDA for the three months ended September 27, 2020, decreased $4 million versus the comparable period in 2019, primarily due to lower gross margin and unfavorable foreign currency fluctuations (especially Indian rupee and emerging market currencies), partially offset by lower selling, general and administrative expenses. The decrease in gross margin was mainly due to lower volumes, partially offset by prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses. The increase in gross margin as a percentage of sales was primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses and favorable pricing. The decrease in selling, general and administrative expenses was due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses and reduced travel expenses, partially offset by higher variable compensation expenses and increased consulting expenses.

Distribution segment EBITDA for the nine months ended September 27, 2020, decreased $29 million versus the comparable period in 2019, primarily due to lower gross margin and unfavorable foreign currency fluctuations (especially the Australian dollar and emerging market currencies), partially offset by decreased selling, general and administrative expenses and higher equity, royalty and interest income from investees. The decrease in gross margin was mainly due to lower volumes, partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and favorable pricing. The increase in gross margin as a percentage of sales was primarily due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and favorable pricing. The decrease in selling, general and administrative expenses was due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced travel expenses, partially offset by higher consulting expenses. The increase in equity, royalty and interest income from investees was principally due to higher earnings at Komatsu Cummins Chile, Ltda. and Valvoline Cummins Ltd. due to a $5 million adjustment related to India Tax Law Changes passed in March 2020. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information on India Tax Law Changes.~~

~~Table of Contents~~

~~Components Segment Results~~

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
External sales $ 1,201 $ 1,253 $ (52) (4) % $ 3,192 $ 4,055 $ (863) (21) %
Intersegment sales 340 397 (57) (14) % 1,001 1,302 (301) (23) %
Total sales 1,541 1,650 (109) (7) % 4,193 5,357 (1,164) (22) %
Research, development and engineering expenses 64 73 9 12 % 187 223 36 16 %
Equity, royalty and interest income from investees 13 9 4 44 % 46 30 16 53 %
Interest income 1 2 (1) (50) % 3 6 (3) (50) %
Segment EBITDA 261 286 (25) (9) % 681 908 (227) (25) %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 16.9 % 17.3 % (0.4) 16.2 % 16.9 % (0.7)

~~Sales for our Components segment by business were as follows:~~

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
Emission solutions $ 665 $ 745 $ (80) (11) % $ 1,801 $ 2,427 $ (626) (26) %
Filtration 314 310 4 1 % 881 966 (85) (9) %
Turbo technologies 281 279 2 1 % 767 933 (166) (18) %
Electronics and fuel systems 187 170 17 10 % 525 580 (55) (9) %
Automated transmissions 94 146 (52) (36) % 219 451 (232) (51) %
Total sales $ 1,541 $ 1,650 $ (109) (7) % $ 4,193 $ 5,357 $ (1,164) (22) %

~~Sales~~

~~Components segment sales for the three months ended September 27, 2020, decreased $109 million versus the comparable period in 2019. The following were the primary drivers by business:~~

•~~Emission solutions sales decreased $80 million primarily due to weaker demand in North America, partially offset by stronger demand in China.~~

•~~Automated transmissions sales decreased $52 million primarily due to lower heavy-duty truck demand in North America.~~

~~These decreases were partially offset by increased demand in electronics and fuel systems of $17 million, mostly in China, partially offset by lower demand in North America.~~

~~Components segment sales for the nine months ended September 27, 2020, decreased $1,164 million versus the comparable period in 2019. The following were the primary drivers by business:~~

•~~Emission solutions sales decreased $626 million primarily due to weaker demand in North America and Western Europe, partially offset by stronger demand in China.~~

•~~Automated transmissions sales decreased $232 million primarily due to lower heavy-duty truck demand in North America.~~

•~~Turbo technologies sales decreased $166 million primarily due to lower demand in North America and Western Europe, partially offset by higher demand in China.~~

•~~Unfavorable foreign currency fluctuations, primarily in the Chinese renminbi and Brazilian real.~~

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~~Segment EBITDA~~

Components segment EBITDA for the three months ended September 27, 2020, decreased $25 million versus the comparable period in 2019, mainly due to lower gross margin, the absence of a gain from unwinding derivative instruments recognized in the third quarter of 2019 and unfavorable foreign currency fluctuations (primarily in the Brazilian real), partially offset by lower selling, general and administrative expenses. The decrease in gross margin was mainly due to lower volumes, partially offset by prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, lower material costs, a VAT recovery and reduced warranty expenses. The increase in gross margin as a percentage of sales was primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, lower material costs and a VAT recovery. Selling, general and administrative expenses decreased due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses and reduced consulting expenses, partially offset by higher variable compensation expenses.

Components segment EBITDA for the nine months ended September 27, 2020, decreased $227 million versus the comparable period in 2019, mainly due to lower gross margin and unfavorable foreign currency fluctuations (primarily in the Brazilian real and Chinese renminbi), partially offset by lower selling, general and administrative expenses, decreased research, development and engineering expenses and higher equity, royalty and interest income from investees. The decrease in gross margin and gross margin as a percentage of sales was mainly due to lower volumes, unfavorable mix and unfavorable foreign currency fluctuations (primarily in the Brazilian real and Chinese renminbi), partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses, reduced warranty expenses and lower material costs. Selling, general and administrative expenses and research, development and engineering expenses decreased due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced consulting expenses. The increase in equity, royalty and interest income from investees was principally due to higher earnings at Fleetguard Filtration Systems India Pvt. due to a $14 million adjustment related to India Tax Law Changes passed in March 2020. See NOTE 6, "INCOME TAXES" to the ~~Condensed Consolidated Financial Statements~~ ~~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/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
External sales $ 567 $ 683 $ (116) (17) % $ 1,495 $ 2,030 $ (535) (26) %
Intersegment sales 414 443 (29) (7) % 1,147 1,376 (229) (17) %
Total sales 981 1,126 (145) (13) % 2,642 3,406 (764) (22) %
Research, development and engineering expenses 53 58 5 9 % 148 171 23 13 %
Equity, royalty and interest income from investees — 13 (13) (100) % 18 39 (21) (54) %
Interest income 1 3 (2) (67) % 3 7 (4) (57) %
Segment EBITDA 101 158 (57) (36) % 269 469 (200) (43) %
Percentage Points Percentage Points
Segment EBITDA as a percentage of total sales 10.3 % 14.0 % (3.7) 10.2 % 13.8 % (3.6)

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

Three months ended Favorable/ Nine months ended Favorable/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
Power generation $ 601 $ 647 $ (46) (7) % $ 1,544 $ 1,882 $ (338) (18) %
Industrial 309 392 (83) (21) % 896 1,244 (348) (28) %
Generator technologies 71 87 (16) (18) % 202 280 (78) (28) %
Total sales $ 981 $ 1,126 $ (145) (13) % $ 2,642 $ 3,406 $ (764) (22) %

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~~Sales~~

~~Power Systems segment sales for the three months ended September 27, 2020, decreased $145 million versus the comparable period in 2019. The following were the primary drivers by product line:~~

•~~Industrial sales decreased $83 million due to lower demand in international mining markets and decreased demand in oil and gas markets in China.~~

•~~Power generation sales decreased $46 million due to lower demand in India and North America.~~

~~These decreases were partially offset by a $7 million VAT recovery.~~

~~Power Systems segment sales for the nine months ended September 27, 2020, decreased $764 million versus the comparable period in 2019. The following were the primary drivers by product line:~~

•~~Industrial sales decreased $348 million due to lower demand in international mining markets and decreased demand in oil and gas markets in China and North America.~~

•~~Power generation sales decreased $338 million due to lower demand in North America and India.~~

•~~Unfavorable foreign currency fluctuations, primarily in the Chinese renminbi, British pound and Indian rupee.~~

~~These decreases were partially offset by a $7 million VAT recovery.~~

~~Segment EBITDA~~

Power Systems segment EBITDA for the three months ended September 27, 2020, decreased $57 million versus the comparable period in 2019, primarily due to lower gross margin, decreased equity, royalty and interest income from investees and the absence of a gain from unwinding derivative instruments recognized in the third quarter of 2019, partially offset by lower selling, general and administrative expenses. The decrease in gross margin and gross margin as a percentage of sales was mainly due to lower volumes and unfavorable mix, partially offset by prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses. Selling, general and administrative expenses decreased primarily due to prior restructuring actions and temporary salary reductions resulting in decreased compensation expenses, lower travel expenses and reduced consulting expenses, partially offset by higher variable compensation expenses. The decrease in equity, royalty and interest income from investees was largely due to $10 million of impairment charges.

Power Systems segment EBITDA for the nine months ended September 27, 2020, decreased $200 million versus the comparable period in 2019, primarily due to lower gross margin and lower equity, royalty and interest income from investees, partially offset by lower selling, general and administrative expenses and decreased research, development and engineering expenses. The decrease in gross margin and gross margin as a percentage of sales was mainly due to lower volumes, partially offset by prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and lower warranty expenses. Selling, general and administrative expenses decreased primarily due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses, reduced travel expenses and lower consulting expenses. Research, development and engineering expenses decreased principally due to prior restructuring actions, temporary salary reductions and lower variable compensation resulting in decreased compensation expenses and reduced consulting expenses. The decrease in equity, royalty and interest income from investees was largely due to a $13 million impairment charge of a joint venture and lower earnings at Chongqing Cummins Engine Co., Ltd.

~~New Power Segment Results~~

The New Power segment designs, manufactures, sells and supports electrified power systems ranging from fully electric to hybrid along with innovative components and subsystems, including battery, fuel cell and hydrogen production 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/
September 27, September 29, (Unfavorable) September 27, September 29, (Unfavorable)
In millions 2020 2019 Amount Percent 2020 2019 Amount Percent
Total external sales $ 18 $ 9 $ 9 100 % $ 38 $ 20 $ 18 90 %
Research, development and engineering expenses 26 25 (1) (4) % 79 70 (9) (13) %
Segment EBITDA (40) (36) (4) (11) % (121) (98) (23) (23) %

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~~Reconciliation of Segment EBITDA to Net Income Attributable to Cummins Inc.~~

~~The table below reconciles the segment information to the corresponding amounts in the~~ ~~Condensed Consolidated Statements of Net Income:~~

Three months ended Nine months ended
In millions September 27,
2020 September 29,
2019 September 27,
2020 September 29,
2019
TOTAL SEGMENT EBITDA $ 886 $ 935 $ 2,226 $ 3,003
Intersegment eliminations ⁽¹⁾
(10) 23 45 46
TOTAL EBITDA 876 958 2,271 3,049
Less:
Interest expense 25 26 71 87
Depreciation and amortization ⁽²⁾
165 177 497 491
INCOME BEFORE INCOME TAXES 686 755 1,703 2,471
Less: Income tax expense 182 139 402 501
CONSOLIDATED NET INCOME 504 616 1,301 1,970
Less: Net income (loss) attributable to noncontrolling interests 3 (6) 13 10
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 501 $ 622 $ 1,288 $ 1,960
⁽¹⁾Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three and nine months ended September 27, 2020 and September 29, 2019.
⁽²⁾Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $2 million and $2 million for the nine months ended September 27, 2020 and September 29, 2019, respectively.

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~~OUTLOOK~~

Our outlook reflects the following positive trends and challenges to our business, primarily with respect to the ongoing pandemic, that could impact our revenue and earnings potential for the remainder of 2020.

~~Positive Trends~~

As a result of actions taken throughout 2020 our liquidity of $6.5 billion in cash, marketable securities and available credit facilities puts us in a strong position to deal with any uncertainties that may arise in the fourth quarter.

~~Challenges~~

•~~The tiered payroll cut across our workforce ended at September 30 and will add approximately $90 million to our fourth quarter expenses.~~

•~~The risk of customer shutdowns and the impact of lower economic activity, driven by COVID-19, may continue to negatively impact our results of operations, financial position and cash flows.~~

•~~Supply chain constraints related to COVID-19 may negatively impact our revenues and result in increased costs.~~

•In response to the pandemic we closed or slowed certain global manufacturing facilities in the first nine months of 2020. At the end of the third quarter our global manufacturing facilities remained open; however, it is possible these facilities may be closed again in response to future outbreaks.

•We may close or restructure additional manufacturing and distribution facilities as we evaluate the appropriate size and structure of our manufacturing and distribution capacity, which could result in additional charges.

•In response to COVID-19, we will continue to incur additional operating costs as we implement safety and sanitization procedures to protect our employees, customers, vendors and other stakeholders utilizing our facilities, which could limit our ability to further reduce operating costs.

•~~Uncertainty in the U.K. surrounding its ability to negotiate trade agreements as a sovereign country could have material negative impacts on our European operations in the long-term.~~

~~COVID-19 Impacts~~

The COVID-19 pandemic negatively impacted our financial performance in the first nine months of 2020 and may continue to do so in the future. Because the magnitude and duration of the pandemic and its economic consequences are unclear, the pandemic’s impact on our performance is difficult to predict. The three principle areas where COVID-19 may negatively impact our financial performance are through its impact on customer demand, the impact on our ability to procure parts from suppliers and our ability to operate our manufacturing and distribution facilities.

~~Customer Demand –~~ The majority of our major customers, including PACCAR, Navistar, Daimler and FCA experienced extended production shutdowns related to the pandemic in the second quarter. Many customers ramped up their production in the third quarter as they reopened their facilities. Levels of future production remain uncertain and will be determined by supply chain constraints, market demand and government decisions to keep economies open.

~~Supply Chain Impact~~ – Supplier shutdowns may result in parts shortages and negatively impact our ability to manufacture products and meet aftermarket demand. In addition, industry parts shortages may impact the timing of when customer facilities reopen and the speed at which customers ramp up production, negatively impacting demand for our products. Lower demand increases the risk that certain suppliers will face financial issues, potentially impacting their ability to supply parts.

~~Operations Impact~~ - Our manufacturing and distribution locations are generally considered critical services and the majority of our facilities remain open to meet customer demand. In an effort to contain the spread of COVID-19, maintain the well-being of our employees, ensure compliance with governmental requirements or respond to declines in demand from customers, we closed or partially shut down certain office, manufacturing and distribution facilities around the world at the end of the first quarter and into the third quarter. We have taken, and will continue to take, a variety of steps to reduce the risk of employees contracting COVID-19 at work. These steps include social distancing, expanded cleaning and sanitization, adjusting work hours and temperature checks. All manufacturing and distribution facilities are now opened, but many of them are operating at reduced capacities and remain subject to future closure if deemed necessary for the safety of our employees or to comply with future government mandates.

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~~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 September 27,
2020 December 31,
2019
Working capital ⁽¹⁾
$ 5,353 $ 3,127
Current ratio 1.94 1.50
Accounts and notes receivable, net $ 3,628 $ 3,670
Days' sales in receivables 71 58
Inventories $ 3,470 $ 3,486
Inventory turnover 3.9 4.7
Accounts payable (principally trade) $ 2,597 $ 2,534
Days' payable outstanding 69 58
Total debt $ 4,112 $ 2,367
Total debt as a percent of total capital 32.2 % 21.9 %
⁽¹⁾Working capital includes cash and cash equivalents.

~~Cash Flows~~

~~Cash and cash equivalents were impacted as follows:~~

Nine months ended
In millions September 27,
2020 September 29,
2019 Change
Net cash provided by operating activities $ 1,580 $ 2,343 $ (763)
Net cash used in investing activities (337) (829) 492
Net cash provided by (used in) financing activities 564 (1,198) 1,762
Effect of exchange rate changes on cash and cash equivalents 31 (59) 90
Net increase in cash and cash equivalents $ 1,838 $ 257 $ 1,581

Net cash provided by operating activities decreased $763 million for the nine months ended September 27, 2020, versus the comparable period in 2019, primarily due to lower consolidated net income of $669 million, restructuring payments of $100 million and higher equity in income of investees, net of dividends of $92 million, partially offset by lower working capital requirements of $135 million. During the first nine months of 2020, the lower working capital requirements resulted in a cash outflow of $57 million compared to a cash outflow of $192 million in the comparable period in 2019, mainly due to lower accounts and notes receivable and higher accounts payable, partially offset by lower accrued expenses.

Net cash used in investing activities decreased $492 million for the nine months ended September 27, 2020, versus the comparable period in 2019, primarily due to the prior year acquisition of Hydrogenics for $235 million, lower capital expenditures of $127 million, lower cash flows from derivatives not designated as hedges of $71 million and lower net investments in marketable securities of $57 million.

Net cash provided by financing activities increased $1,762 million for the nine months ended September 27, 2020, versus the comparable period in 2019, primarily due to higher proceeds from borrowings of $1,989 million and lower repurchases of common stock of $256 million, partially offset by higher net payments of commercial paper of $466 million.

The effect of exchange rate changes on cash and cash equivalents for the nine months ended September 27, 2020, versus the comparable period in 2019, increased $90 million primarily due to favorable fluctuations in the British pound of $75 million.

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~~Sources of Liquidity~~

~~Cash provided by operations is typically our principal source of liquidity with $1,580 million generated in the nine months ended September 27, 2020. Our sources of liquidity include:~~

September 27, 2020
In millions Total U.S. International Primary location of international balances
Cash and cash equivalents $ 2,967 $ 1,793 $ 1,174 China, Mexico, Singapore, Belgium, Australia, Netherlands, Canada
Marketable securities ⁽¹⁾
345 75 270 India
Total $ 3,312 $ 1,868 $ 1,444
Available credit capacity
Revolving credit facilities ⁽²⁾
$ 3,184
International and other uncommitted domestic credit facilities $ 191
⁽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 2023 and August 2021, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At September 27, 2020, we had $316 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.

~~Cash, Cash Equivalents and Marketable Securities~~

~~Debt Facilities and Other Sources of Liquidity~~

On April 14, 2020, we were approved for the Federal Reserve Bank of New York’s Commercial Paper Funding Facility (CPFF) program to assure access to the commercial paper funding markets during volatile credit market conditions. The CPFF was intended to provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV). The facility allows us, based on our current short-term credit rating, to issue three-month unsecured commercial paper at a rate equal to a + 110 basis point spread over the three-month overnight index swap rate on the date of issuance. The maximum amount of commercial paper that we may issue at any time through this program is $1.5 billion less the total principal amount of all other outstanding commercial paper that we have issued. We retain full access to our Board authorized $3.5 billion commercial paper program, as reduced by any amounts issued under this facility. The SPV is currently scheduled to cease purchasing commercial paper on March 17, 2021. At September 27, 2020, there were no outstanding borrowings under the CPFF program.

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~~On August 24, 2020, we terminated our 364-day credit facility that had been entered into on May 1, 2020, concurrent with the $2 billion bond issuance on August 24, 2020.~~

We have access to committed credit facilities that total $3.5 billion, including the new $1.5 billion 364-day facility that expires August 18, 2021 and our $2.0 billion five-year facility that expires on August 22, 2023. We maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes.

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

~~At September 27, 2020, we had $316 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facilities to $3.2 billion.~~

~~Supply Chain Financing~~

~~Uses of Cash~~

~~Stock Repurchases~~

In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. In October 2018, the Board authorized the acquisition of up to $2.0 billion of additional common stock. In the first nine months of 2020, we made the following purchases under the 2018 stock repurchase program:

In millions, except per share amounts Shares
Purchased Average Cost
Per Share Total Cost of
Repurchases
Remaining
Authorized
Capacity ⁽¹⁾
March 29 3.5 $ 156.90 $ 550 $ 85
June 28 — — — 85
September 27 — — — 85
Total 3.5 156.90 $ 550
⁽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.

~~We suspended share repurchases during the second and third quarters of 2020 to conserve cash.~~

~~Dividends~~

~~In October 2020, the Board authorized an increase to our quarterly dividend of 3 percent from $1.311 per share to $1.35 per share.~~

~~We paid dividends of $582 million during the nine months ended September 27, 2020.~~

~~Restructuring Actions~~

In November 2019, we announced our intentions to reduce our global workforce in response to the continued deterioration in our global markets in the second half of 2019, as well as expected reductions in orders in most U.S. and international markets in 2020. In the fourth quarter of 2019, we began executing restructuring actions, primarily in the form of voluntary and involuntary employee separation programs. We incurred a charge of $119 million ($90 million after-tax) in the fourth quarter of 2019 for these actions which impacted approximately 2,300 employees. Restructuring payments were substantially complete at September 27, 2020. See Note 14, "RESTRUCTURING ACTIONS," to the ~~Condensed Consolidated Financial Statements,~~ ~~for additional information~~.

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~~Capital Expenditures~~

Capital expenditures, including spending on internal use software, for the nine months ended September 27, 2020, were $301 million versus $445 million in the comparable period in 2019. While we continue to make targeted investments, we reduced our planned 2020 spending (previously estimated at $675 million to $700 million) in response to the weaker outlook for global growth due to the impact of COVID-19. We plan to spend an estimated $500 million to $525 million in 2020 on capital expenditures, excluding internal use software, with over 50 percent of these expenditures expected to be invested in North America. In addition, we plan to spend an estimated $50 million to $60 million on internal use software in 2020.

~~Pensions~~

Our global pension plans, including our unfunded and non-qualified plans, were 113 percent funded at December 31, 2019. Our U.S. defined benefit plan, which represents approximately 53 percent of the worldwide pension obligation, was 133 percent funded, and our U.K. defined benefit plan was 109 percent funded. 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 2020, the investment gain on our U.S. pension trust was 2.7 percent while our U.K. pension trust gain was 7.9 percent. Investment performance year-to-date in both trusts is still recovering from the negative impacts of COVID-19 on capital markets. Approximately 73 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 27 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 2020, we anticipate making $7 million in additional defined benefit pension contributions in the U.K. and $7 million in contributions to our U.S. non-qualified benefit 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 2020 annual net periodic pension cost to approximate $102 million.

~~Current Maturities of Short and Long-Term Debt~~

We had $316 million of commercial paper outstanding at September 27, 2020, 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% senior notes are due. Required annual long-term debt principal payments range from $22 million to $525 million over the next five years (including the remainder of 2020). See Note 9, "DEBT," to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~Credit Ratings~~

In August of 2020, concurrent with our new $2 billion debt issuance, both Standard and Poor's Rating Services and Moody's Investors Service, Inc. reviewed and reaffirmed their respective credit rating and stable outlook. 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~~

Despite the global recession and volatility in the capital markets due to the pandemic, our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to the credit and capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund working capital, targeted capital expenditures, dividend payments, projected pension obligations and debt service obligations through 2020 and beyond. We continue to generate cash from operations and maintain access to our expanded revolving credit facilities and commercial paper programs as noted above.

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~~APPLICATION OF CRITICAL ACCOUNTING ESTIMATES~~

~~A summary of our significant accounting policies is included in~~ ~~Note 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our 2019 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 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 our Board of Directors. Our critical accounting estimates disclosed in the ~~Form 10-K~~ ~~address the estimation of liabilities for warranty programs, accounting for income taxes, pension benefits and goodwill impairment.~~

~~A discussion of our critical accounting estimates may be found in the~~ ~~“Management’s Discussion and Analysis” section of our 2019 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.~~” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first nine months of 2020.

~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

~~See Note 17, "RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS," in the~~ ~~Notes to Condensed Consolidated Financial Statements~~ ~~for additional information.~~

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 ~~2019~~2020 Form 10-K. There have been no material changes in this information since the filing of our ~~2019~~2020 Form 10-K.

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ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~September 27, 2020,~~October 3, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. 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 reportingThe matters described under "Legal Proceedings" in foreign jurisdictions; distributor termination; workplace safety; and environmental matters. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals pursuant to U.S. generally accepted accounting principles 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~~Note 11, "COMMITMENTS AND CONTINGENCIES," to the ~~Brazilian federal, state and local labor, social security, tax and customs laws. While we believe we comply with such laws, they~~ Condensed Consolidated Financial Statements are ~~complex, subject to varying interpretations and we are often engaged in litigation regarding the application of these laws to particular circumstances.~~

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 U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. In addition, we voluntarily disclosed our formal internal review to the regulators and to other government agencies, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), and have been working cooperatively with them to ensure a complete and thorough review. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators have asked us to look at other model years and other engines, though the primary focus of our review has been the model year 2019 RAM. We are also fully cooperating with the DOJ's and the SEC's information requests and inquiries. Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and other government agencies, and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory and agency processes, and we cannot provide assurance that the matter will not have a materially adverse impact on our results of operations and cash flows.incorporated herein by reference.

ITEM 1A. Risk Factors

~~Set~~In addition to other information set forth ~~below and elsewhere~~ in this ~~Quarterly Report on Form 10-Q are some of~~report and the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements contained in this Report and could individually, or in combination, have a material adverse effect on our results of operations, financial position and cash flows. Theserisk factor noted below, you should consider other risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for our products and trends in our business that involve a number of risks and uncertainties. Our separate section above, “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION,” should be considered in addition to the following statements. The risk factors below amend and supersede the risk factors previously discloseddiscussed in ~~Item 1A to the~~Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K ~~of Cummins Inc.~~ for the year ended December 31, ~~2019~~2020.

A sustained market slowdown due to the impacts from the COVID-19 pandemic, other public health crises, epidemics or pandemics or otherwise, could have a material and adverse effect on our results of operations, financial condition and cash flows.

The coronavirus disease of 2019 (COVID-19) pandemic triggered a significant downturn in our markets globally and these challenging market conditions could continue for an extended period of time. Most global economies slowed and there is still much uncertainty as to when these global markets will fully recover. If any or all of these major markets were to endure a sustained

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slowdown or recession due to the impacts of the COVID-19 pandemic, other public health crises, epidemics or pandemics or otherwise decline, it could have a material adverse effect on our results of operations, financial condition and cash flows.

~~Our manufacturing and supply chain abilities may be materially and adversely impacted by an extended shutdown or disruption of our operations due to the COVID-19 pandemic~~, 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 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. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our ~~results of operations,~~business, financial condition ~~and cash flows.~~or operating results.

The outbreak of COVID-19 spread throughout the world and became a global pandemic with the resultant economic impacts evolving into a worldwide recession. The pandemic triggered a significant downturn in our markets globally, which continued to unfavorably impact market conditions through the end of the third quarter and these challenging market conditions could continue for an extended period of time. In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, match the reduced demand from our customers and in accordance with governmental requirements, we closed or partially shut down certain office, manufacturing, distribution and technical center facilities around the world in March 2020. Although most of our manufacturing, distribution and technical center facilities re-opened early in the second quarter of 2020, many operated at reduced capacities and most of our global office buildings remained closed through the third quarter. While the impacts of the pandemic and the resulting global recession are expected to be temporary, the duration of the production and supply chain disruptions, and related financial impacts, cannot be estimated at this time. Should the reduced manufacturing and distribution capacities 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.

We are vulnerable to supply shortages from single-sourced suppliers, including suppliers that may be impacted by the COVID-19 pandemic, and any delay in receiving critical supplies could have a material adverse effect on our results of operations, financial condition and cash flows.

During 2019, we single sourced approximately 19 percent of the total types of parts in our product designs, compared to approximately 20 percent in 2018. Any delay in our suppliers' deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers (including the COVID-19 pandemic, capacity constraints, labor disputes, economic downturns, availability of credit or impaired financial condition), suppliers' allocations to other purchasers, weather emergencies, natural disasters, or acts of war or terrorism. In particular, if the COVID-19 pandemic continues and results in extended periods of travel, commercial and other restrictions, we could continue to incur global supply disruptions. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and have a material adverse effect on our results of operations, financial condition and cash flows.

~~We face the challenge of accurately aligning our capacity with our demand.~~

Our markets are cyclical in nature and we face periods when demand fluctuates significantly higher or lower than our normal operating levels, including COVID-19 related shut-downs. Accurately forecasting our expected volumes and appropriately adjusting our capacity are important factors in determining our results of operations and cash flows. We manage our capacity by adjusting our manufacturing workforce, capital expenditures and purchases from suppliers. In periods of weak demand we may face under-utilized capacity and un-recovered overhead costs, while in periods of strong demand we may experience unplanned costs and could fail to meet customer demand. We cannot guarantee that we will be able to adequately adjust our manufacturing capacity in response to significant changes in customer demand, which could harm our business. In addition, the COVID-19 pandemic and related reductions in demand forced certain of our customer’s facilities around the world to close or partially shut down operations, inhibiting our ability to forecast demand and caused related closures and partial shut-downs of certain of our manufacturing facilities. If we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and we may experience reduced margins. If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations, financial condition and cash flows.

Financial distress, particularly related to the COVID-19 pandemic, or a change-in-control of one of our large truck OEM customers could have a material adverse impact on our results of operations, financial condition and cash flows.

We recognize significant sales of engines and components to a few large on-highway truck OEM customers in North America which have been an integral part of our positive business results for several years. If one of our large truck OEM customers experiences financial distress due to the COVID-19 pandemic, bankruptcy or a change-in-control, such circumstance could likely lead to significant reductions in our sales volumes, commercial disputes, receivable collection issues, and other negative consequences that could have a material adverse impact on our results of operations, financial condition and cash flows.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 ~~EPA~~U.S. Environmental Protection Agency (EPA) and ~~CARB, as well as the Department of Justice (DOJ) and SEC,~~California Air Resources Board (CARB) to address their questions about these applications. ~~The~~Due to the continuing nature of our formal internal review and on-going discussions with EPA and CARB, we cannot predict the final results of this formal review and these regulatory ~~and government~~

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~~agency~~ processes, nor whether, or the ~~discovery of any noncompliance issues,~~extent to which, they could have a material adverse impact on our results of operations and cash flows.

We previously announced that we are conducting a formal internal review of our emissions certification process and compliance with emission standards with respect to all of our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines for model year 2019 RAM 2500 and 3500 trucks. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our discussions, the regulators ~~have asked us~~turned their attention to ~~look at~~ other model years and other engines, ~~though the primary focus of~~most notably our ~~review has been the~~pick-up truck applications for RAM 2500 and 3500 trucks for model ~~year 2019 RAM.~~years 2013 through 2018. We will continue to work together closely with the relevant regulators to develop and implement recommendations for improvement as part of our ongoing commitment to compliance. ~~We are also fully cooperating with the DOJ's and the SEC's information requests and inquiries.~~

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

Our products are subject to extensive statutory and regulatory requirements that can significantly increase our costs and, along with increased scrutiny from regulatory agencies and unpredictability in the adoption, implementation and enforcement of increasingly stringent emission standards by multiple jurisdictions around the world, could have a material adverse impact on our results of operations, financial condition and cash flows.

Our engines are subject to extensive statutory and regulatory requirements governing emissions and noise, including standards imposed by the EPA, the EU, state regulatory agencies (such as the CARB) and other regulatory agencies around the world. Regulatory agencies are making certification and compliance with emissions and noise standards more stringent and subjecting diesel engine products to an increasing level of scrutiny. The discovery of noncompliance issues could have a material adverse impact on our results of operations, financial condition and cash flows.

Developing engines and components to meet more stringent and changing regulatory requirements, with different implementation timelines and emission requirements, makes developing engines efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. While we have met previous deadlines, our ability to comply with existing and future regulatory standards will be essential for us to maintain our competitive advantage in the engine markets we serve. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.

In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards in our worldwide markets are unpredictable and subject to change. Any delays in implementation or enforcement could result in a loss of our competitive advantage and could have a material adverse impact on our results of operations, financial condition and cash flows.

The COVID-19 pandemic created disruptions and turmoil in global credit and financial markets and ongoing impacts could have a material adverse effect on our results of operations, financial condition and cash flows.

The COVID-19 pandemic created disruptions and turmoil in the global credit and financial markets and made it more difficult and costly for us to access capital on favorable terms to meet our liquidity needs. The disruptions to the global credit and financial markets could also have material negative impacts on business operations and financial positions of our customers and suppliers, which may negatively impact our orders, sales and supply chain. If the impacts of the COVID-19 pandemic on global credit and financial markets continue, or worsen, it could negatively impact our business, along with the financial condition of our customers and suppliers, and it could have a material adverse impact on our results of operations, financial condition and cash flows.

~~Government actions to stabilize credit markets and financial institutions or other industries may not be effective.~~

The U.S. government recently enacted legislation, and created several programs, to help preserve and stabilize credit markets and financial institutions and restore liquidity, including the Emergency Economic Stabilization Act of 2008, the Federal Reserve’s Commercial Paper Funding Facility (CPFF) and Money Market Investor Funding Facility and the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program. There is no assurance that these programs will have beneficial effects

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~~in the credit markets or on general economic conditions, will address credit or liquidity issues~~The U.S. government’s pending rules and regulations concerning mandatory COVID-19 vaccination of U.S.-based employees of companies that ~~participate~~work on or in ~~the programs~~support of federal contracts, or ~~will reduce volatility~~have 100 or uncertainty in the financial markets. The failure of these programs to have their intended effects could have a material adverse effect on the financial markets and economies in general, which in turn could have a material adverse effect on our financial condition and cash flows. To the extent that we participate in these programs or other programs, there is no assurance that we will continue to be eligible or qualify to participate or that such programs will remain available for sufficient periods of time or on acceptable terms to benefit us, and the expiration of such programs could have unintended material adverse effects on us. Further, as a condition to participating in any such program, we may need to accept terms and limitations that could adversely affect us in other ways.

~~Our products are subject to recall for performance or safety-related issues.~~

Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to known or suspected performance or safety issues. Any significant product recalls could have material adverse effects on our results of operations, financial condition and cash flows. See Note 10, "PRODUCT WARRANTY LIABILITY" to the ~~Condensed Consolidated Financial Statements~~ ~~for additional information.~~

~~The development of new technologies may materially reduce the demand for our current products and services.~~

We are investing in new products and technologies, including electrified powertrains, hydrogen generation and fuel cells, for planned introduction into certain existing and new markets. Given the early stages of development of some of these new products and technologies, there can be no guarantee of the future market acceptance and investment returns with respect to these planned products. The increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and components and, over time, reduce the demand for related parts and service revenues from diesel or natural gas powertrains. Furthermore, it is possible that we may not be successful in developing segment-leading electrified powertrains and some of our existing customers could choose to develop their own electrified or alternate fuel powertrains, or source from other manufacturers, and any of these factors could have a material adverse impact on our results of operations, financial condition and cash flows.

~~We operate our business on a global basis and policy changes affecting international trade could adversely impact the demand for our products and our competitive position.~~

We manufacture, sell and service products globally and rely upon a global supply chain to deliver the raw materials, components, systems and parts that we need to manufacture and service our products. Changes in government policies on foreign trade and investment can affect the demand for our products and services, cause non-U.S. customers to shift preferences toward domestically manufactured or branded products and impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from free trade agreements, such as the new United States-Mexico-Canada Agreement and the U.S. trade relationship with China, Brazil and France and efforts to withdraw from, or substantially modify such agreements or arrangements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs (including, but not limited to, additional tariffs on the import of steel or aluminum), import or export licensing requirements, exchange controls or new barriers to entry, could adversely impact our production costs, customer demand and our relationships with customers and suppliers. Any of these consequences could have a material adverse effect on our results of operations, financial condition and cash flows.

~~A slowdown in infrastructure development and/or depressed commodity prices could adversely affect our business.~~

Infrastructure development and strong commodity prices have been significant drivers of our historical growth, but as the pace of investment in infrastructure slowed in recent years (especially in China and Brazil), commodity prices were significantly lower and demand for our products in off-highway markets was weak. Weakness in commodity prices, including any negative impacts on commodity prices such as oil, gas and coal, adversely impacted mining industry participants’ demand for vehicles and equipment that contain our engines and other products over the past several years. Continued deterioration in infrastructure and commodities markets, including the impacts from COVID-19, could adversely affect our customers’ demand for vehicles and equipment and, as a result, could adversely affect our business.

~~The U.K.’s exit from the European Union (EU)~~employees, could materially and adversely ~~impact~~affect our results of operations, financial condition and cash flows.

On ~~January 31, 2020,~~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 and subcontractors, that work on or in support of U.S. government contracts, are fully vaccinated against COVID-19 as required by the ~~U.K. exited from~~executive order. The executive order includes on-site and remote U.S.-based employees, contractors 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 ~~EU (BREXIT). Additionally,~~full vaccination against COVID-19 or weekly testing of employees for employers with 100 or more employees. OSHA has not yet issued the ~~results~~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 on our workforce. As a U.S. government contractor, all U.S. based employees, contractors and subcontractors that service or support our U.S. government contracts, which are subject to the provisions of the U.K.’s BREXIT has caused, and may continue to cause, volatility in global stock markets, currency exchange rate fluctuations and global economic uncertainty. Although it is unknown what the terms of the U.K.’s future relationship with the EUexecutive order, will be ~~it is possible~~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 ~~there~~ will require them to get a COVID-19 test at least once a week. Additional vaccine mandates may be ~~higher tariffs or greater restrictions on imports and exports between the U.K. and the EU and increased regulatory complexities. The effects of BREXIT will~~

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depend on any agreements the U.K. makes to retain access to EU markets either during a transitional period or on a permanent basis. These measures could potentially disrupt our supply chain, including delays of imports and exports, limited access to human capital within some of the target markets andannounced in jurisdictions in which we operate and adverse changes to tax benefits or liabilities in these or other jurisdictions. In addition, BREXIT could lead to legal uncertainty and potentially divergent national laws and regulations, including with respect to emissions and similar certifications granted to us by the EU, as the U.K. determines which EU laws to replace or replicate. Anyour businesses operate. Our implementation of these ~~effects~~requirements may result in attrition, including attrition of ~~BREXIT, among others,~~critically skilled labor, and difficulty securing future labor needs, which could ~~have a material adverse impact on~~materially and adversely affect our results of operations, financial condition and cash flows.

~~We may be adversely impacted by work stoppages and other labor matters.~~

At December 31, 2019, we employed approximately 61,615 persons worldwide. Approximately 19,048 of our employees worldwide were represented by various unions under collective bargaining agreements that expire between 2020 and 2024. While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, there can be no assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slowdowns experienced by us, our customers or suppliers, including any work stoppages or slowdowns related to the COVID-19 pandemic, could result in slowdowns or closures that would have a material adverse effect on our results of operations, financial condition and cash flow.

~~We rely on our executive leadership team and other key personnel.~~

We depend on the skills, institutional knowledge, working relationships, and continued services and contributions of key personnel, including our executive leadership team. In addition, our ability to achieve our operating and strategic goals depends on our ability to identify, hire, train and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel and we may lose key personnel or fail to attract, train and retain other talented personnel. Any such loss or failure could have material adverse effects on our results of operations, financial condition and cash flows.

In particular, our continued success will depend in part on our ability to retain the talents and dedication of key employees. If key employees terminate their employment or become ill as a result of the COVID-19 pandemic or otherwise, our business activities may be adversely affected and our management team’s attention may be diverted. In addition, we may not be able to locate suitable replacements for any key employees who leave.

Lower-than-anticipated market acceptance of our new or existing products or services, including reductions in demand for diesel engines, could have a material adverse impact on our results of operations, financial condition and cash flows.

Although we conduct market research before launching new or refreshed engines and introducing new services, many factors both within and outside our control affect the success of new or existing products and services in the marketplace. Offering engines and services that customers desire and value can mitigate the risks of increasing price competition and declining demand, but products and services that are perceived to be less than desirable (whether in terms of price, quality, overall value, fuel efficiency or other attributes) can exacerbate these risks. With increased consumer interconnectedness through the internet, social media and other media, mere allegations relating to poor quality, safety, fuel efficiency, corporate responsibility or other key attributes can negatively impact our reputation or market acceptance of our products or services, even if such allegations prove to be inaccurate or unfounded.

~~Our truck manufacturers and OEM customers may discontinue outsourcing their engine supply needs.~~

Several of our engine customers, including PACCAR, Volvo, Navistar, Chrysler, Daimler, Dongfeng and Tata, are truck manufacturers or OEMs that manufacture engines for some of their own vehicles. Despite their own engine manufacturing abilities, these customers have historically chosen to outsource certain types of engine production to us due to the quality of our engine products, our emission compliance capabilities, our systems integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus. However, there can be no assurance that these customers will continue to outsource, or outsource as much of, their engine production in the future. In addition, increased levels of OEM vertical integration could result from a number of factors, such as shifts in our customers' business strategies, acquisition by a customer of another engine manufacturer, the inability of third-party suppliers to meet product specifications and the emergence of low-cost production opportunities in foreign countries. Any significant reduction in the level of engine production outsourcing from our truck manufacturer or OEM customers could have a material adverse effect on our results of operations, financial condition and cash flows.

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~~Our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures may expose us to additional costs and risks.~~

Part of our strategic plan is to improve our revenue growth, gross margins and earnings by exploring the repositioning of our portfolio of product line offerings through the pursuit of potential strategic acquisitions and/or divestitures to provide future strategic, financial and operational benefits and improve shareholder value. There can be no assurance that we will be able to identify suitable candidates or consummate these transactions on favorable terms. The successful identification and completion of any strategic transaction depends on a number of factors that are not entirely within our control, including the availability of suitable candidates and our ability to negotiate terms acceptable to all parties involved, conclude satisfactory agreements and obtain all necessary regulatory approvals. Accordingly, we may not be able to successfully negotiate and complete specific transactions. The exploration, negotiation and consummation of strategic transactions may involve significant expenditures by us, which may adversely affect our results of operations at the time such expenses are incurred, and may divert management’s attention from our existing business. Strategic transactions also may have adverse effects on our existing business relationships with suppliers and customers.

If required, the financing for strategic acquisitions could result in an increase in our indebtedness, dilute the interests of our shareholders or both. Any acquisition may not be accretive to us for a significant period of time following the completion of such acquisition. Also, our ability to effectively integrate any potential acquisition into our existing business and culture may not be successful, which could jeopardize future financial and operational performance for the combined businesses. In addition, if an acquisition results in any additional goodwill or increase in other intangible assets on our balance sheet and subsequently becomes impaired, we would be required to record a non-cash impairment charge, which could result in a material adverse effect on our financial condition.

Similarly, any strategic divestiture of a product line or business may reduce our revenue and earnings, reduce the diversity of our business, result in substantial costs and expenses and cause disruption to our employees, customers, vendors and communities in which we operate.

Our information technology systems and our products are exposed to potential security breaches or other disruptions which may adversely impact our competitive position, reputation, results of operations, financial condition and cash flows.

We rely on the capacity, reliability and security of our information technology systems and data security infrastructure in connection with various aspects of our business activities. We also rely on our ability to expand and continually update these systems and related infrastructure in response to the changing needs of our business. As we implement new systems, they may not perform as expected. We face the challenge of supporting our older systems and implementing necessary upgrades. In addition, some of these systems are managed by third-party service providers and are not under our direct control. If we experience a problem with an important information technology system, including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on our business and reputation. As customers adopt and rely on cloud-based digital technologies and services we offer, any disruption of the confidentiality, integrity or availability of those services could have an adverse effect on our business and reputation.

The data handled by our information technology systems is vulnerable to security threats. Our operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to our business, customers, dealers, suppliers, employees and other sensitive matters. While we continually work to safeguard our systems and mitigate potential risks, there is no assurance that these actions will be sufficient to prevent information technology security threats, such as security breaches, computer malware, computer viruses and other "cyber attacks," which are increasing in both frequency and sophistication, along with power outages or hardware failures. These threats could result in unauthorized public disclosures of information, create financial liability, subject us to legal or regulatory sanctions, disrupt our ability to conduct our business, result in the loss of intellectual property or damage our reputation with customers, dealers, suppliers and other stakeholders. As a result of the COVID-19 pandemic and resulting government actions to restrict movement, a large percentage of our salaried employees are working remotely. This remote working environment may pose a heightened risk for security breaches or other disruptions of our information technology systems.

In addition, our products, including our engines, contain interconnected and increasingly complex systems that control various processes and these systems are potentially subject to "cyber attacks" and disruption. The impact of a significant information technology event on either of our information technology systems or our products could have a material adverse effect on our competitive position, reputation, results of operations, financial condition and cash flows.

We may experience difficulties and delays or unexpected costs in completing our cost reduction actions and announced restructuring initiatives, including achieving any anticipated savings and other benefits of these initiatives.

During the fourth quarter of 2019 and continuing into 2020 we are undertaking cost reduction actions and announced restructuring initiatives to respond to the slowdown in our global markets. As we implement these initiatives, we may not realize anticipated savings or other benefits from one or more of the initiatives in the amounts or within the time periods we expect. Other events or

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circumstances, such as implementation difficulties and delays or unexpected costs, may occur which could result in us not realizing our targeted cost reductions. We are also subject to the risks of negative publicity and business disruption in connection with our restructuring and other cost reduction initiatives. If we are unable to realize the expected savings or benefits from these initiatives, certain aspects of our business may be adversely affected. If we experience any of these circumstances or otherwise fail to realize the anticipated savings or benefits from our restructuring and cost reduction initiatives, our results of operations could be materially and adversely affected.

~~We may fail to realize all of the expected enhanced revenue, earnings and cash flow from our investment in the Eaton Cummins Automated Transmission Technologies joint venture.~~

Our ability to realize all of the expected enhanced revenue, earnings, and cash flow from our 2017 investment in the Eaton Cummins Automated Transmission Technologies joint venture will depend, in substantial part, on our ability to successfully launch the automated transmission products in North America and China and achieve our projected market penetration in those regions. While we believe we will ultimately achieve these objectives, it is possible that we will be unable to achieve all of the goals within our anticipated time frame or in the anticipated amounts. If we are not able to successfully complete our automated transmission strategy, the anticipated enhanced revenue, earnings, and cash flows resulting from this joint venture may not be realized fully or may take longer to realize than expected.

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

~~We are exposed to political, economic and other risks that arise from operating a multinational business.~~

~~Our business is subject to the political, economic and other risks that are inherent in operating in numerous countries. These risks include:~~

•~~public health crises, including the spread of a contagious disease, such as COVID-19, and other catastrophic events;~~

•~~the difficulty of enforcing agreements and collecting receivables through foreign legal systems;~~

•~~trade protection measures and import or export licensing requirements;~~

•~~the imposition of taxes on foreign income and tax rates in certain foreign countries that exceed those in the U.S.;~~

•~~the imposition of tariffs, exchange controls or other restrictions;~~

•~~difficulty in staffing and managing widespread operations and the application of foreign labor regulations;~~

•~~required compliance with a variety of foreign laws and regulations; and~~

•~~changes in general economic and political conditions in countries where we operate, particularly in emerging markets.~~

As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have a material adverse effect upon us.

~~We face significant competition in the markets we serve.~~

The markets in which we operate are highly competitive. We compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. We primarily compete in the market with diesel engines and related diesel products; however, new technologies continue to be developed for gasoline, natural gas, electrification and other technologies and we will continue to face new competition from these expanding technologies. Our products primarily compete on the basis of price, performance, fuel economy, emissions compliance, speed of delivery, quality and customer support. We also face competitors in some emerging markets who have established local practices and long standing relationships with participants in these markets. There can be no assurance that our products will be able to compete successfully with the products of other companies and in other markets.

~~Increasing global competition among our customers may affect our existing customer relationships and restrict our ability to benefit from some of our customers' growth.~~

As our customers in emerging markets continue to grow in size and scope, they are increasingly seeking to export their products to other countries. This has meant greater demand for our advanced engine technologies to help these customers meet the more stringent emissions requirements of developed markets, as well as greater demand for access to our distribution systems for purposes of equipment servicing. As these emerging market customers enter into, and begin to compete in more developed markets, they may

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increasingly begin to compete with our existing customers in these markets. Our further aid to emerging market customers could adversely affect our relationships with developed market customers. In addition, to the extent the competition does not correspond to overall growth in demand, we may see little or no benefit from this type of expansion by our emerging market customers.

~~We are subject to foreign currency exchange rate and other related risks.~~

We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations, financial condition and cash flows. The U.S. dollar strengthened in recent years resulting in material unfavorable impacts on our revenues in those years. If the U.S. dollar continues strengthening against other currencies, we will experience additional volatility in our financial statements.

While we customarily enter into financial transactions that attempt to address these risks and many of our supply agreements with customers include foreign currency exchange rate adjustment provisions, there can be no assurance that foreign currency exchange rate fluctuations will not adversely affect our future results of operations and cash flows. In addition, while the use of currency hedging instruments may provide us with some protection from adverse fluctuations in foreign currency exchange rates, by utilizing these instruments we potentially forego the benefits that might result from favorable fluctuations in foreign currency exchange rates.

We also face risks arising from the imposition of foreign exchange controls and currency devaluations. Foreign exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. See Management's Discussion and Analysis for additional information.

~~Our products are exposed to variability in material and commodity costs.~~

Our businesses establish prices with our customers in accordance with contractual time frames; however, the timing of material and commodity market price increases may prevent us from passing these additional costs on to our customers through timely pricing actions. Additionally, higher material and commodity costs around the world may offset our efforts to reduce our cost structure. While we customarily enter into financial transactions and contractual pricing adjustment provisions with our customers that attempt to address some of these risks (notably with respect to copper, platinum and palladium), there can be no assurance that commodity price fluctuations will not adversely affect our results of operations and cash flows. In addition, while the use of commodity price hedging instruments and contractual pricing adjustments may provide us with some protection from adverse fluctuations in commodity prices, by utilizing these instruments, we potentially forego the benefits that might result from favorable fluctuations in price. As a result, higher material and commodity costs, as well as hedging these commodity costs during periods of decreasing prices, could result in declining margins.

~~We derive significant earnings from investees that we do not directly control, with more than 50 percent of these earnings from our China-based investees.~~

For 2019, we recognized $330 million of equity, royalty and interest income from investees, compared to $394 million in 2018. Approximately half of our equity, royalty and interest income from investees is from four of our 50 percent owned joint ventures in China - Beijing Foton Cummins Engine Co., Ltd., Dongfeng Cummins Engine Company, Ltd., Chongqing Cummins Engine Company, Ltd. and Dongfeng Cummins Emission Solutions Co. Ltd. As a result, although a significant percentage of our net income is derived from these unconsolidated entities, we do not unilaterally control their management or their operations, which puts a substantial portion of our net income at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our results of operations and cash flows.

~~Unanticipated changes in our effective tax rate, the adoption of new tax legislation or exposure to additional income tax liabilities could adversely affect our profitability.~~

We are subject to income taxes in the U.S. and numerous international jurisdictions. Our income tax provision and cash tax liability in the future could be adversely affected by changes in earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. The carrying value of deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate future taxable income in the U.S. We are also subject to ongoing tax audits. These audits can involve complex issues, which may require an extended period of time to resolve and can be highly judgmental. Tax authorities may disagree with certain tax reporting positions taken by us and, as a result, assess additional taxes against us. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. The amounts ultimately paid upon resolution of these or subsequent tax audits

~~Table of Contents~~

~~could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our tax provision.~~

~~Our global operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.~~

Due to the international scope of our operations, we are subject to a complex system of commercial and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance and anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries, as well as new regulatory requirements regarding data privacy, such as the European Union General Data Protection Regulation. Our numerous foreign subsidiaries, affiliates and joint venture partners are governed by laws, rules and business practices that differ from those of the U.S. The activities of these entities may not comply with U.S. laws or business practices or our Code of Business Conduct. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business and result in an adverse effect on our reputation, business and results of operations, financial condition and cash flows. We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

~~Our business is exposed to potential product liability claims.~~

We face an inherent business risk of exposure to product liability claims in the event that our products' failure to perform to specification results, or is alleged to result, in property damage, bodily injury and/or death. At any given time, we are subject to various and multiple product liability claims, any one of which, if decided adversely to us, may have a material adverse effect on our reported results of operation in the period in which our liability with respect to any such claim is recognized. While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims. In addition, product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. Furthermore, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us.

~~Our operations are subject to increasingly stringent environmental laws and regulations.~~

Our plants and operations are subject to increasingly stringent environmental laws and regulations in all of the countries in which we operate, including laws and regulations governing air emission, discharges to water and the generation, handling, storage, transportation, treatment and disposal of waste materials. While we believe that we are in compliance in all material respects with these environmental laws and regulations, there can be no assurance that we will not be adversely impacted by costs, liabilities or claims with respect to existing or subsequently acquired operations, under either present laws and regulations or those that may be adopted or imposed in the future. We are also subject to laws requiring the cleanup of contaminated property. If a release of hazardous substances occurs at or from any of our current or former properties or at a landfill or another location where we have disposed of hazardous materials, we may be held liable for the contamination and the amount of such liability could be material.

Significant declines in future financial and stock market conditions, particularly those related to the global recession due to the COVID-19 pandemic, could diminish our pension plan asset performance and adversely impact our results of operations, financial condition and cash flow.

We sponsor both funded and unfunded domestic and foreign defined benefit pension and other retirement plans. Our pension cost and the required contributions to our pension plans are directly affected by the value of plan assets, the projected and actual rates of return on plan assets and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the discount rate at which future projected and accumulated pension obligations are discounted to a present value. We could experience increased pension cost due to a combination of factors, including the decreased investment performance of pension plan assets, decreases in the discount rate and changes in our assumptions relating to the expected return on plan assets.

Significant declines in current and future financial and stock market conditions related to the COVID-19 pandemic could cause material losses in our pension plan assets, which could result in increased pension cost in future years and adversely impact our results of operations, financial condition and cash flow. Depending upon the severity and length of market declines and government regulatory changes, we may be legally obligated to make pension payments in the U.S. and perhaps other countries and these contributions could be material.

~~Future bans or limitations on the use of diesel-powered vehicles or other applications could have a material adverse impact on our business over the long term.~~

In an effort to limit greenhouse gas emissions and combat climate change, multiple countries and cities have announced that they plan to implement a ban on the use in their cities or countries of diesel-powered products in the near or distant future. These countries

~~Table of Contents~~

include China, India and Germany. In addition, California government officials have called for the state to phase out sales of diesel-powered certain vehicles by 2035. To the extent that these types of bans are actually implemented in the future on a broad basis, or in one or more of our key markets, our business over the long-term could experience material adverse impacts.

~~We are exposed to risks arising from the price and availability of energy.~~

The level of demand for our products and services is influenced in multiple ways by the price and availability of energy. High energy costs generally drive greater demand for better fuel economy in almost all countries in which we operate. Some of our engine products have been developed with a primary purpose of offering fuel economy improvements, and if energy costs decrease or increase less than expected, demand for these products may likewise decrease. The relative unavailability of electricity in some emerging market countries also influences demand for our electricity generating products, such as our diesel generators. If these countries add energy capacity by expanding their power grids at a rate equal to or faster than the growth in demand for energy, the demand for our generating products could also decrease or increase less than would otherwise be the case.

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~~

~~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⁾

~~June 29 - August 2~~

—

~~2,085~~

~~August 3 - August 30~~

—

~~2,085~~

~~August 31 - September 27~~

—

~~2,085~~

~~Total~~

—

⁽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.~~


	Issuer Purchases of Equity Securities
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
Total	596,517	231.57		596,517

(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.

In December 2019, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the 2018 repurchase plan. ~~In October 2018, the Board authorized the acquisition of up to $2.0 billion of additional common stock.~~ During the three months ended ~~September 27, 2020,~~October 3, 2021, we ~~did not repurchase any~~repurchased $138 million of common stock under the ~~2018~~2019 authorization. The dollar value remaining available for future purchases under the ~~2018~~2019 program at ~~September 27, 2020,~~October 3, 2021, was ~~$85~~$766 million.

Our Key Employee Stock Investment Plan allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. We hold participants’ shares as security for the loans and would, in effect, repurchase shares only if the participant defaulted in repayment of the loan. ~~Effective May 1, 2020, we no longer repurchase shares of common stock~~Shares associated with participants' ~~sales. Shares~~sales are ~~now~~ 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.

6450

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ITEM 6. Exhibits

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

CUMMINS INC.

EXHIBIT INDEX


Exhibit No.						Description of Exhibit


~~4.1~~						Third Supplemental Indenture, dated as of August 24, 2020, between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August 24, 2020 (File No. 001-04949)).
~~4.2~~						~~Fourth Supplemental Indenture, dated as of August 24, 2020, between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on~~ ~~August 24, 2020 (File No. 001-04949)).~~
~~4.3~~						Fifth Supplemental Indenture, dated as of August 24, 2020, between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August 24, 2020 (File No. 001-04949)).





10.1						~~Amendment No. 1 to Supplemental L~~i ~~fe Insurance and Deferred Income Plan, effective as of July 14, 2020.~~
~~10.2~~						~~Second~~Third Amended and Restated 364-Day Credit Agreement, dated as of August ~~19, 2020,~~18, 2021, by and among Cummins Inc., the subsidiary borrowers referred to therein, the ~~lenders~~Lenders and Agents party thereto and JPMorgan Chase Bank, N.A., as Administrative ~~Agent (incorporated~~Agent.(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August 18 , 202 1 (File No. 001-04949)).
10.2						Amended and Restated Credit Agreement, dated as of August 18, 2021, by and among Cummins Inc., the subsidiary borrowers referred to therein, the Lenders and Agents party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Cummins Inc. with the Securities and Exchange Commission on August ~~25, 2020~~18 , 20 21 (File ~~No.001-04949)~~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 October 3, 2021 and September 27, 2020, ~~and September 29, 2019,~~ (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2021 and September 27, 2020, ~~and September 29, 2019,~~ (iii) the Condensed Consolidated Balance Sheets at ~~September 27, 2020~~October 3, 2021 and December 31, ~~2019,~~2020, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2021 and September 27, 2020, ~~and September 29, 2019,~~ (v) the Condensed Consolidated Statements of Changes in Equity for the three and nine months ended October 3, 2021 and September 27, 2020 ~~and September 29, 2019~~ and (vi) Notes to Condensed Consolidated Financial Statements.

6551

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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:

~~October 27, 2020~~November 2, 2021

By:

/s/ MARK A. SMITH

By:

/s/ CHRISTOPHER C. CLULOW

Mark A. Smith

Christopher C. Clulow

Vice President and Chief Financial Officer

Vice ~~President-Corporate Controller~~President-Controller

(Principal Financial Officer)

(Principal Accounting Officer)

6652


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


In millions, except par value	In millions, except par value	September 27, 2020		December 31, 2019		In millions, except par value	October 3, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,967	$	1,129	Cash and cash equivalents	$	2,588	$	3,401

Marketable securities (Note 7)		345		341
Marketable securities (Note 6)						Marketable securities (Note 6)	430		461
Total cash, cash equivalents and marketable securities	Total cash, cash equivalents and marketable securities	3,312		1,470		Total cash, cash equivalents and marketable securities	3,018		3,862
Accounts and notes receivable, net	Accounts and notes receivable, net					Accounts and notes receivable, net
Trade and other	Trade and other	3,291		3,387		Trade and other	3,752		3,440
Nonconsolidated equity investees	Nonconsolidated equity investees	337		283		Nonconsolidated equity investees	400		380
Inventories (Note 8)		3,470		3,486
Inventories (Note 7)						Inventories (Note 7)	4,322		3,425
Prepaid expenses and other current assets	Prepaid expenses and other current assets	652		761		Prepaid expenses and other current assets	828		790
Total current assets	Total current assets	11,062		9,387		Total current assets	12,320		11,897
Long-term assets	Long-term assets					Long-term assets
Property, plant and equipment	Property, plant and equipment	8,753		8,699		Property, plant and equipment	9,156		9,011
Accumulated depreciation	Accumulated depreciation	(4,666)		(4,454)		Accumulated depreciation	(4,971)		(4,756)
Property, plant and equipment, net	Property, plant and equipment, net	4,087		4,245		Property, plant and equipment, net	4,185		4,255
Investments and advances related to equity method investees		1,418		1,237
Investments and advances related to equity method investees (Note 4)						Investments and advances related to equity method investees (Note 4)	1,543		1,441
Goodwill	Goodwill	1,288		1,286		Goodwill	1,289		1,293
Other intangible assets, net	Other intangible assets, net	990		1,003		Other intangible assets, net	921		963
Pension assets		1,010		1,001
Other assets		1,713		1,578
Pension assets (Note 3)						Pension assets (Note 3)	1,100		1,042
Other assets (Note 8)						Other assets (Note 8)	1,705		1,733
Total assets	Total assets	$	21,568	$	19,737	Total assets	$	23,063	$	22,624

LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities	Current liabilities					Current liabilities
Accounts payable (principally trade)	Accounts payable (principally trade)	$	2,597	$	2,534	Accounts payable (principally trade)	$	3,210	$	2,820
Loans payable (Note 9)	Loans payable (Note 9)	129		100		Loans payable (Note 9)	85		169
Commercial paper (Note 9)	Commercial paper (Note 9)	316		660		Commercial paper (Note 9)	200		323
Accrued compensation, benefits and retirement costs	Accrued compensation, benefits and retirement costs	433		560		Accrued compensation, benefits and retirement costs	626		484
Current portion of accrued product warranty (Note 10)	Current portion of accrued product warranty (Note 10)	646		803		Current portion of accrued product warranty (Note 10)	694		674
Current portion of deferred revenue (Note 3)		540		533
Current portion of deferred revenue (Note 2)						Current portion of deferred revenue (Note 2)	806		691

Other accrued expenses (Note 11)		990		1,039
Other accrued expenses (Note 8)						Other accrued expenses (Note 8)	1,185		1,112
Current maturities of long-term debt (Note 9)	Current maturities of long-term debt (Note 9)	58		31		Current maturities of long-term debt (Note 9)	55		62
Total current liabilities	Total current liabilities	5,709		6,260		Total current liabilities	6,861		6,335
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt (Note 9)	Long-term debt (Note 9)	3,609		1,576		Long-term debt (Note 9)	3,602		3,610
Pensions and other postretirement benefits		571		591
Pensions and other postretirement benefits (Note 3)						Pensions and other postretirement benefits (Note 3)	623		630
Accrued product warranty (Note 10)	Accrued product warranty (Note 10)	635		645		Accrued product warranty (Note 10)	703		672
Deferred revenue (Note 3)		837		821
Other liabilities (Note 11)		1,566		1,379
Deferred revenue (Note 2)						Deferred revenue (Note 2)	836		840
Other liabilities (Note 8)						Other liabilities (Note 8)	1,435		1,548
Total liabilities	Total liabilities	$	12,927	$	11,272	Total liabilities	$	14,060	$	13,635

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

EQUITY	EQUITY					EQUITY
Cummins Inc. shareholders’ equity	Cummins Inc. shareholders’ equity					Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued	Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued	$	2,385	$	2,346	Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.4 shares issued	$	2,412	$	2,404
Retained earnings	Retained earnings	15,118		14,416		Retained earnings	16,555		15,419
Treasury stock, at cost, 74.4 and 71.7 shares		(7,696)		(7,225)
Common stock held by employee benefits trust, at cost, 0.0 and 0.2 shares		0		(2)
Accumulated other comprehensive loss (Note 13)		(2,107)		(2,028)
Treasury stock, at cost, 79.4 and 74.8 shares						Treasury stock, at cost, 79.4 and 74.8 shares	(8,974)		(7,779)

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

Total Cummins Inc. shareholders’ equity	Total Cummins Inc. shareholders’ equity	7,700		7,507		Total Cummins Inc. shareholders’ equity	8,082		8,062
Noncontrolling interests	Noncontrolling interests	941		958		Noncontrolling interests	921		927
Total equity	Total equity	$	8,641	$	8,465	Total equity	$	9,003	$	8,989
Total liabilities and equity	Total liabilities and equity	$	21,568	$	19,737	Total liabilities and equity	$	23,063	$	22,624


	Three 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 JULY 4, 2021	$	556	$	1,849	$	16,228	$	(8,838)	$	—	$	(1,929)	$	7,866	$	927	$	8,793

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


Repurchases of common stock			0				(138)				0		(138)		—		(138)
Cash dividends on common stock, $1.45 per share					(207)								(207)		—		(207)
Distributions to noncontrolling interests													—		(15)		(15)
Share-based awards			0				1				0		1		—		1

Other shareholder transactions			7				1						8		—		8
BALANCE AT OCTOBER 3, 2021	$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003

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


	Three 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 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 13)											135		135		10		145

Employee benefits trust activity			5						1				6		—		6

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

Other shareholder transactions			14										14		3		17
BALANCE AT SEPTEMBER 27, 2020	$	556	$	1,829	$	15,118	$	(7,696)	$	0	$	(2,107)	$	7,700	$	941	$	8,641

BALANCE AT JUNE 30, 2019	$	556	$	1,751	$	13,897	$	(6,082)	$	(4)	$	(1,840)	$	8,278	$	918	$	9,196

Net income					622								622		(6)		616
Other comprehensive loss, net of tax (Note 13)											(200)		(200)		(5)		(205)

Employee benefits trust activity			6						1				7		—		7
Repurchases of common stock							(706)						(706)		—		(706)
Cash dividends on common stock, $1.311 per share					(204)								(204)		—		(204)
Distributions to noncontrolling interests													—		(20)		(20)
Stock-based awards			1				4						5		—		5

Other shareholder transactions			8										8		56		64
BALANCE AT SEPTEMBER 29, 2019	$	556	$	1,766	$	14,315	$	(6,784)	$	(3)	$	(2,040)	$	7,810	$	943	$	8,753


		Nine months ended					Nine months ended
In millions	In millions	September 27, 2020		September 29, 2019		In millions	October 3, 2021		September 27, 2020
Proceeds from sales of marketable securities	Proceeds from sales of marketable securities	$	283	$	179	Proceeds from sales of marketable securities	$	428	$	283
Proceeds from maturities of marketable securities	Proceeds from maturities of marketable securities	125		117		Proceeds from maturities of marketable securities	174		125
Investments in marketable securities - liquidations	Investments in marketable securities - liquidations	$	408	$	296	Investments in marketable securities - liquidations	$	602	$	408


		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 October 3, 2021 and September 27, 2020 ~~and September 29, 2019~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2021 and September 27, 2020 ~~and September 29, 2019~~	4

	Condensed Consolidated Balance Sheets at ~~September 27, 2020~~October 3, 2021 and December 31, ~~2019~~2020	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2021 and September 27, 2020 ~~and September 29, 2019~~	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended October 3, 2021 and September 27, 2020 ~~and September 29, 2019~~	7
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2927
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5448
ITEM 4.	Controls and Procedures	5449
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	5549
ITEM 1A.	Risk Factors	5549
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6450
ITEM 3.	Defaults Upon Senior Securities	6450
ITEM 4.	Mine Safety Disclosures	6450
ITEM 5.	Other Information	6450
ITEM 6.	Exhibits	6551
	Signatures	6652



	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, 2019	$	556	$	1,790	$	14,416	$	(7,225)	$	(2)	$	(2,028)	$	7,507	$	958	$	8,465
Adoption of new accounting standards (Note 17)					(4)								(4)		—		(4)
Net income					1,288								1,288		13		1,301
Other comprehensive loss, net of tax (Note 13)											(79)		(79)		(12)		(91)
Issuance of common stock			10										10		—		10
Employee benefits trust activity			27						2				29		—		29
Repurchases of common stock							(550)						(550)		—		(550)
Cash dividends on common stock, $3.933 per share					(582)								(582)		—		(582)
Distributions to noncontrolling interests													—		(26)		(26)
Stock-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)	$	0	$	(2,107)	$	7,700	$	941	$	8,641

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

Net income					1,960								1,960		10		1,970
Other comprehensive loss, net of tax (Note 13)											(233)		(233)		(2)		(235)
Issuance of common stock			2										2		—		2
Employee benefits trust activity			26						2				28		—		28
Repurchases of common stock							(806)						(806)		—		(806)
Cash dividends on common stock, $3.591 per share					(562)								(562)		—		(562)
Distributions to noncontrolling interests													—		(33)		(33)
Stock-based awards			(2)				50						48		—		48

Other shareholder transactions			25										25		57		82
BALANCE AT SEPTEMBER 29, 2019	$	556	$	1,766	$	14,315	$	(6,784)	$	(3)	$	(2,040)	$	7,810	$	943	$	8,753


		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	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019		In millions		October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Service cost	Service cost	$	33	$	29	$	8	$	6	$	0	$	0	Service cost		$	35	$	33	$	8	$	8	$	—	$	—
Interest cost	Interest cost	24		27		8		10		2		3		Interest cost		20		24		8		8		1		2
Expected return on plan assets	Expected return on plan assets	(49)		(47)		(19)		(16)		0		0		Expected return on plan assets		(49)		(49)		(22)		(19)		—		—
Amortization of prior service cost	Amortization of prior service cost	0		0		1		0		0		0		Amortization of prior service cost		—		—		1		1		—		—
Recognized net actuarial loss	Recognized net actuarial loss	10		4		9		3		0		0		Recognized net actuarial loss		11		10		8		9		—		—
Net periodic benefit cost	Net periodic benefit cost	$	18	$	13	$	7	$	3	$	2	$	3	Net periodic benefit cost		$	17	$	18	$	3	$	7	$	1	$	2


In millions	Interest Rate	September 27, 2020		December 31, 2019
Long-term debt
Senior notes, due 2023⁽¹⁾	3.65%	$	500	$	500
Senior notes, due 2025	0.75%	500		—
Debentures, due 2027	6.75%	58		58
Debentures, due 2028	7.125%	250		250
Senior notes, due 2030	1.50%	850		—
Senior notes, due 2043	4.875%	500		500
Senior notes, due 2050	2.60%	650		—
Debentures, due 2098⁽²⁾	5.65%	165		165

Other debt		130		59

Unamortized discount and deferred issuance costs		(73)		(50)
Fair value adjustments due to hedge on indebtedness		50		35
Finance leases		87		90
Total long-term debt		3,667		1,607
Less: Current maturities of long-term debt		58		31
Long-term debt		$	3,609	$	1,576

⁽¹⁾ In June and July 2020, we settled our February 2014 interest rate swap. See "Interest Rate Risk" below for additional information.
⁽²⁾ The effective interest rate is 7.48%.



In millions	2021		2022		2023		2024		2025
Principal payments	$	16	$	58	$	536	$	31	$	507



In millions	September 27, 2020		December 31, 2019
Marketing accruals	$	220	$	176
Other taxes payable	203		228
Current portion of operating lease liabilities	133		131
Income taxes payable	102		52
Other	332		452
Other accrued expenses	$	990	$	1,039


In millions	In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total		In millions	Change in pensions and other postretirement defined benefit plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at June 28, 2020		$	(716)	$	(1,436)	$	(90)	$	(2,242)
Balance at July 4, 2021														Balance at July 4, 2021	$	(689)	$	(1,231)	$	(9)	$	(1,929)
Other comprehensive income before reclassifications	Other comprehensive income before reclassifications													Other comprehensive income before reclassifications
Before-tax amount	Before-tax amount	0		101		23		124		$	10	$	134	Before-tax amount	1		(2)		5		4		$	2	$	6
Tax benefit (expense)		0		0		(5)		(5)		0		(5)
Tax expense														Tax expense	(1)		—		(3)		(4)		—		(4)
After-tax amount	After-tax amount	0		101		18		119		10		129		After-tax amount	—		(2)		2		—		2		2
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	16		0		0		16		0		16		Amounts reclassified from accumulated other comprehensive income (loss)(1)	17		—		1		18		—		18

Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	16		101		18		135		$	10	$	145	Net current period other comprehensive income (loss)	17		(2)		3		18		$	2	$	20
Balance at September 27, 2020		$	(700)	$	(1,335)	$	(72)	$	(2,107)
Balance at October 3, 2021														Balance at October 3, 2021	$	(672)	$	(1,233)	$	(6)	$	(1,911)

Balance at June 30, 2019		$	(675)	$	(1,156)	$	(9)	$	(1,840)
Other comprehensive income (loss) before reclassifications
Balance at June 28, 2020														Balance at June 28, 2020	$	(716)	$	(1,436)	$	(90)	$	(2,242)
Other comprehensive income before reclassifications														Other comprehensive income before reclassifications
Before-tax amount	Before-tax amount	0		(177)		(39)		(216)		$	(5)	$	(221)	Before-tax amount	—		101		23		124		$	10	$	134
Tax benefit (expense)		0		0		8		8		0		8
Tax expense														Tax expense	—		—		(5)		(5)		—		(5)
After-tax amount	After-tax amount	0		(177)		(31)		(208)		(5)		(213)		After-tax amount	—		101		18		119		10		129
Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	Amounts reclassified from accumulated other comprehensive income (loss)⁽¹⁾	6		0		2		8		0		8		Amounts reclassified from accumulated other comprehensive income (loss)(1)	16		—		—		16		—		16
Net current period other comprehensive income (loss)		6		(177)		(29)		(200)		$	(5)	$	(205)
Balance at September 29, 2019		$	(669)	$	(1,333)	$	(38)	$	(2,040)
Net current period other comprehensive income														Net current period other comprehensive income	16		101		18		135		$	10	$	145
Balance at September 27, 2020														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.	⁽¹⁾ Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.																							(1) Amounts are net of tax. Reclassifications out of accumulated other comprehensive income (loss) and the related tax effects are immaterial for separate disclosure.


Entity Acquired (Dollars in millions)	Date of Acquisition	Additional Percent Interest Acquired	Payments to Former Owners		Total Purchase Consideration		Type of Acquisition⁽¹⁾	Goodwill Acquired		Intangibles Recognized⁽²⁾		Net Sales Previous Fiscal Year Ended
2019
Hydrogenics Corporation	9/09/19	81%	$	235	$	235	COMB	$	161	$	161	$	34












⁽¹⁾ The newly consolidated entity was accounted for as business combinations (COMB) and was included in the New Power segment on the date of acquisition.
⁽²⁾ Intangible assets acquired in the business combination were mostly technology and customer related, the majority of which will be amortized over a period of up to 20 years from the date of the acquisition.


	Three months ended
	September 27, 2020					September 29, 2019
In millions	Translation adjustment		Primary currency driver vs. U.S. dollar	Translation adjustment		Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries	$	69	Chinese renminbi, Indian rupee	$	(153)	British pound, Chinese renminbi, Brazilian real
Equity method investments	32		Chinese renminbi	(24)		Chinese renminbi
Consolidated subsidiaries with a noncontrolling interest	10		Indian rupee	(5)		Indian rupee
Total	$	111		$	(182)


	Nine months ended
	September 27, 2020					September 29, 2019
In millions	Translation adjustment		Primary currency driver vs. U.S. dollar	Translation adjustment		Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries	$	(62)	Brazilian real, Indian rupee, offset by Chinese renminbi	$	(161)	British pound, Chinese renminbi, Brazilian real
Equity method investments	12		Chinese renminbi	(34)		Chinese renminbi, British pound
Consolidated subsidiaries with a noncontrolling interest	(12)		Indian rupee	(2)		Indian rupee
Total	$	(62)		$	(197)