Item 1. Condensed Consolidated Financial Statements

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Item 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)



	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 (a) (Note 2)	$	5,968	$	5,118	$	18,171	$	13,981
Cost of sales	4,554		3,769		13,793		10,448
GROSS MARGIN	1,414		1,349		4,378		3,533

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	571		533		1,745		1,549
Research, development and engineering expenses	266		224		802		651
Equity, royalty and interest income from investees (Note 4)	94		98		397		342



Other operating expense, net	(5)		(20)		(17)		(35)
OPERATING INCOME	666		670		2,211		1,640


Interest expense	28		25		85		71
Other income, net	37		41		111		134
INCOME BEFORE INCOME TAXES	675		686		2,237		1,703

Income tax expense (Note 5)	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

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

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	143.5		147.9		145.2		148.3
Dilutive effect of stock compensation awards	1.2		1.0		1.3		0.6
Diluted	144.7		148.9		146.5		148.9



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

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
CONSOLIDATED NET INCOME	$	541	$	504	$	1,764	$	1,301
Other comprehensive income (loss), net of tax (Note 12)
Change in pension and other postretirement defined benefit plans	17		16		63		34
Foreign currency translation adjustments	—		111		(34)		(62)

Unrealized gain (loss) on derivatives	3		18		37		(63)
Total other comprehensive income (loss), net of tax	20		145		66		(91)
COMPREHENSIVE INCOME	561		649		1,830		1,210
Less: Comprehensive income attributable to noncontrolling interests	9		13		22		1
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	552	$	636	$	1,808	$	1,209

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


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

Marketable securities (Note 6)	430		461
Total cash, cash equivalents and marketable securities	3,018		3,862
Accounts and notes receivable, net
Trade and other	3,752		3,440
Nonconsolidated equity investees	400		380
Inventories (Note 7)	4,322		3,425
Prepaid expenses and other current assets	828		790
Total current assets	12,320		11,897
Long-term assets
Property, plant and equipment	9,156		9,011
Accumulated depreciation	(4,971)		(4,756)
Property, plant and equipment, net	4,185		4,255
Investments and advances related to equity method investees (Note 4)	1,543		1,441
Goodwill	1,289		1,293
Other intangible assets, net	921		963
Pension assets (Note 3)	1,100		1,042
Other assets (Note 8)	1,705		1,733
Total assets	$	23,063	$	22,624

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	3,210	$	2,820
Loans payable (Note 9)	85		169
Commercial paper (Note 9)	200		323
Accrued compensation, benefits and retirement costs	626		484
Current portion of accrued product warranty (Note 10)	694		674
Current portion of deferred revenue (Note 2)	806		691

Other accrued expenses (Note 8)	1,185		1,112
Current maturities of long-term debt (Note 9)	55		62
Total current liabilities	6,861		6,335
Long-term liabilities
Long-term debt (Note 9)	3,602		3,610
Pensions and other postretirement benefits (Note 3)	623		630
Accrued product warranty (Note 10)	703		672
Deferred revenue (Note 2)	836		840
Other liabilities (Note 8)	1,435		1,548
Total liabilities	$	14,060	$	13,635

Commitments and contingencies (Note 11)

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

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



Total Cummins Inc. shareholders’ equity	8,082		8,062
Noncontrolling interests	921		927
Total equity	$	9,003	$	8,989
Total liabilities and equity	$	23,063	$	22,624

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended
In millions	October 3, 2021		September 27, 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	1,764	$	1,301
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization	497		499



Deferred income taxes	44		(7)
Equity in income of investees, net of dividends	(150)		(136)
Pension and OPEB expense (Note 3)	62		81
Pension contributions and OPEB payments (Note 3)	(86)		(102)
Share-based compensation expense	25		22

Restructuring payments	(1)		(100)


Loss (gain) on corporate owned life insurance	11		(50)

Foreign currency remeasurement and transaction exposure	27		(7)
Changes in current assets and liabilities
Accounts and notes receivable	(353)		47
Inventories	(919)		(50)
Other current assets	(45)		73
Accounts payable	416		109
Accrued expenses	435		(236)
Changes in other liabilities	(59)		208

Other, net	(144)		(72)
Net cash provided by operating activities	1,524		1,580

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(362)		(268)
Investments in internal use software	(36)		(33)

Proceeds from sale of land	20		—
Investments in and advances to equity investees	3		(30)


Investments in marketable securities—acquisitions	(569)		(422)
Investments in marketable securities—liquidations (Note 6)	602		408


Cash flows from derivatives not designated as hedges	19		(15)
Other, net	45		23
Net cash used in investing activities	(278)		(337)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	35		1,999
Net payments of commercial paper	(123)		(344)
Payments on borrowings and finance lease obligations	(57)		(41)
Net (payments) borrowings under short-term credit agreements	(93)		6
Distributions to noncontrolling interests	(28)		(26)
Dividend payments on common stock	(601)		(582)
Repurchases of common stock	(1,228)		(550)
Proceeds from issuing common stock	27		78

Other, net	(11)		24
Net cash (used in) provided by financing activities	(2,079)		564
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	20		31
Net (decrease) increase in cash and cash equivalents	(813)		1,838
Cash and cash equivalents at beginning of year	3,401		1,129
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,588	$	2,967

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	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)											18		18		2		20


Repurchases of common stock							(138)						(138)		—		(138)
Cash dividends on common stock, $1.45 per share					(207)								(207)		—		(207)
Distributions to noncontrolling interests													—		(15)		(15)
Share-based awards							1						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)											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)
Share-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)	$	—	$	(2,107)	$	7,700	$	941	$	8,641

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)



	Nine months ended
In millions, except per share amounts	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Common Stock Held in Trust		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2020	$	556	$	1,848	$	15,419	$	(7,779)	$	—	$	(1,982)	$	8,062	$	927	$	8,989

Net income					1,737								1,737		27		1,764
Other comprehensive income (loss), net of tax (Note 12)											71		71		(5)		66
Issuance of common stock			1										1		—		1

Repurchases of common stock							(1,228)						(1,228)		—		(1,228)
Cash dividends on common stock, $4.15 per share					(601)								(601)		—		(601)
Distributions to noncontrolling interests													—		(28)		(28)
Share-based awards			(4)				31						27		—		27

Other shareholder transactions			11				2						13		—		13
BALANCE AT OCTOBER 3, 2021	$	556	$	1,856	$	16,555	$	(8,974)	$	—	$	(1,911)	$	8,082	$	921	$	9,003

BALANCE AT DECEMBER 31, 2019	$	556	$	1,790	$	14,416	$	(7,225)	$	(2)	$	(2,028)	$	7,507	$	958	$	8,465
Adoption of new accounting standards					(4)								(4)		—		(4)
Net income					1,288								1,288		13		1,301
Other comprehensive loss, net of tax (Note 12)											(79)		(79)		(12)		(91)
Issuance of common stock			10										10		—		10
Employee benefits trust activity			27						2				29		—		29
Repurchases of common stock							(550)						(550)		—		(550)
Cash dividends on common stock, $3.933 per share					(582)								(582)		—		(582)
Distributions to noncontrolling interests													—		(26)		(26)
Share-based awards			(1)				79						78		—		78

Other shareholder transactions			3										3		8		11
BALANCE AT SEPTEMBER 27, 2020	$	556	$	1,829	$	15,118	$	(7,696)	$	—	$	(2,107)	$	7,700	$	941	$	8,641

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

CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

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

Interim Condensed Financial Statements

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

These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Our interim period financial results for the three and nine month periods presented are not necessarily indicative of results to be expected for any other interim period or for the entire year. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all required annual disclosures.

Reclassifications

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

Use of Estimates in Preparation of Financial Statements

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

Reporting Period

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

Weighted-Average Diluted Shares Outstanding

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


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

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

The majority of our contracts are for a period of less than one year. We have certain long-term maintenance agreements, construction contracts and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for long-term maintenance agreements and construction contracts allocated to performance obligations that were not satisfied as of October 3, 2021, was $774 million. We expect to recognize the related revenue of $134 million over the next 12 months and $640 million over periods up to 10 years. See Note 10, "PRODUCT WARRANTY LIABILITY," for additional disclosures on extended warranty coverage arrangements. Our other contracts generally are for a duration of less than one year, include payment terms that correspond to the timing of costs incurred when providing goods and services to our customers or represent sales-based royalties.

Deferred and Unbilled Revenue

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


In millions	October 3, 2021		December 31, 2020
Unbilled revenue	$	104	$	114
Deferred revenue, primarily extended warranty	1,642		1,531

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

Disaggregation of Revenue

Consolidated Revenue

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


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
United States	$	3,177	$	2,805	$	9,500	$	7,522

China	679		705		2,468		2,037


India	294		166		841		406

Other international	1,818		1,442		5,362		4,016
Total net sales	$	5,968	$	5,118	$	18,171	$	13,981

Segment Revenue

Engine segment external sales by market were as follows:


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Heavy-duty truck	$	662	$	486	$	1,941	$	1,226
Medium-duty truck and bus	501		389		1,461		1,177
Light-duty automotive	492		502		1,432		975
Total on-highway	1,655		1,377		4,834		3,378
Off-highway	306		240		942		755
Total sales	$	1,961	$	1,617	$	5,776	$	4,133

Distribution segment external sales by region were as follows:


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
North America	$	1,237	$	1,126	$	3,631	$	3,409
Asia Pacific	236		195		675		577
Europe	143		153		467		424
Russia	86		41		209		126
China	80		74		239		242
Africa and Middle East	74		47		197		136
India	48		42		138		101
Latin America	48		37		136		108
Total sales	$	1,952	$	1,715	$	5,692	$	5,123

Distribution segment external sales by product line were as follows:


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Parts	$	796	$	719	$	2,313	$	2,155
Power generation	437		415		1,305		1,166
Engines	376		278		1,058		876
Service	343		303		1,016		926
Total sales	$	1,952	$	1,715	$	5,692	$	5,123

Components segment external sales by business were as follows:


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Emission solutions	$	699	$	612	$	2,466	$	1,576
Filtration	288		260		892		715
Turbo technologies	177		163		609		463
Automated transmissions	112		90		374		215
Electronics and fuel systems	71		76		286		223
Total sales	$	1,347	$	1,201	$	4,627	$	3,192

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


	Three months ended				Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Power generation	$	395	$	334	$	1,127	$	827
Industrial	209		167		621		477
Generator technologies	84		66		251		191
Total sales	$	688	$	567	$	1,999	$	1,495

NOTE 3. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

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


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



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


OPEB payments, net	5		9		19		25


Defined contribution pension plans	20		18		72		70

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. 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.

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


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



	Pension
	U.S. Plans				U.K. Plans				OPEB
	Nine months ended
In millions	October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020		October 3, 2021		September 27, 2020
Service cost	$	105	$	100	$	25	$	22	$	—	$	—
Interest cost	59		71		23		26		3		5
Expected return on plan assets	(149)		(146)		(65)		(56)		—		—
Amortization of prior service cost	—		1		2		2		—		—
Recognized net actuarial loss	35		30		24		26		—		—
Net periodic benefit cost	$	50	$	56	$	9	$	20	$	3	$	5

NOTE 4. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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


	Three months ended					Nine months ended
In millions	October 3, 2021		September 27, 2020			October 3, 2021		September 27, 2020
Manufacturing entities
Beijing Foton Cummins Engine Co., Ltd.	$	23	$	30		$	108	$	81
Dongfeng Cummins Engine Company, Ltd.	11		20			63		54
Chongqing Cummins Engine Company, Ltd.	8		7			28		27
All other manufacturers	27		22		(1)	117		100		(1)(2)



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


Cummins share of net income	79		86			345		286
Royalty and interest income	15		12			52		56
Equity, royalty and interest income from investees	$	94	$	98		$	397	$	342

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

(2) Includes $37 million in favorable adjustments related to tax changes within India's 2020-2021 Union Budget of India (India Tax Law Change) passed in March 2020.

NOTE 5. INCOME TAXES

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.

NOTE 6. MARKETABLE SECURITIES

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


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

Equity securities





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

Equity mutual funds	22		9		31		19		5		24

Debt securities	1		—		1		1		—		1







Total marketable securities	$	419	$	11	$	430	$	451	$	10	$	461

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

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

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

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

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

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

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

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


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

NOTE 7. INVENTORIES

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


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

NOTE 8. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:



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

Other	357		308
Other assets	$	1,705	$	1,733

Other accrued expenses included the following:



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

Other liabilities included the following:



In millions	October 3, 2021		December 31, 2020

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

NOTE 9. DEBT

Loans Payable and Commercial Paper

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


In millions	October 3, 2021			December 31, 2020


Loans payable (1)	$	85		$	169

Commercial paper	200		(2)	323		(3)




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

We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The 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.

Revolving Credit Facilities

On August 18, 2021, we entered into an amended and restated 5-year revolving credit agreement with a syndicate of lenders. The amended and restated credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 18, 2026. This credit agreement replaces the prior $2 billion 5-year credit agreement that would have matured on August 22, 2023. Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Up to $300 million under this credit facility is available for swingline loans. Based on our current long-term debt ratings, the applicable margin on LIBOR rate loans was 0.75 percent per annum as of October 3, 2021. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.

On August 18, 2021, 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.

Both credit agreements include various covenants, including, among others, maintaining a net debt to total capital ratio of no more than 0.65 to 1.0. At October 3, 2021, we were in compliance with these covenants. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. There were no outstanding borrowings under these facilities at October 3, 2021 and December 31, 2020.

At October 3, 2021, the $200 million of outstanding commercial paper effectively reduced the $3.5 billion of revolving credit capacity to $3.3 billion.

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

Long-term Debt

A summary of long-term debt was as follows:


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

Other debt		124		132

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

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

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



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

Interest Rate Risk

In the third quarter of 2021, we entered into a series of interest rate swaps to effectively convert $400 million of our August 2020, $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to LIBOR plus a spread. The swaps were designated, and will be accounted for, as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as "Interest expense." The net swap settlements that accrue each period are also reported in the Condensed Consolidated Financial Statements as "Interest expense." The loss on the interest rate swaps was less than $1 million and the offsetting gain on borrowing was less than $1 million for the three and nine month periods ended October 3, 2021.

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

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


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

Fair Value of Debt

Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:


In millions	October 3, 2021		December 31, 2020
Fair value of total debt (1)	$	4,285	$	4,665
Carrying value of total debt	3,942		4,164

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

NOTE 10. PRODUCT WARRANTY LIABILITY

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


	Nine months ended
In millions	October 3, 2021		September 27, 2020
Balance, beginning of year	$	2,307	$	2,389
Provision for base warranties issued	431		277
Deferred revenue on extended warranty contracts sold	210		172
Provision for product campaigns issued	162		27
Payments made during period	(409)		(424)

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

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

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

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


In millions	October 3, 2021		December 31, 2020		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	283	$	261	Current portion of deferred revenue
Long-term portion	695		700		Deferred revenue
Total	$	978	$	961

Product warranty
Current portion	$	694	$	674	Current portion of accrued product warranty
Long-term portion	703		672		Accrued product warranty
Total	$	1,397	$	1,346

Total warranty accrual	$	2,375	$	2,307

Engine System Campaign Accrual

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

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

NOTE 11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

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

On April 29, 2019, we announced that we were conducting a formal internal review of our emissions certification process and compliance with emission standards for our pick-up truck applications, following conversations with the EPA and CARB regarding certification of our engines in model year 2019 RAM 2500 and 3500 trucks. This review is being conducted with external advisors to ensure the certification and compliance processes for all of our pick-up truck applications are consistent with our internal policies, engineering standards and applicable laws. In addition, we voluntarily disclosed our formal internal review to the regulators and to other government agencies, the Department of Justice (DOJ) and the SEC, and worked cooperatively with them to ensure a complete and thorough review. We fully cooperated with the DOJ's and the SEC's information requests and inquiries and, based on communications with these agencies, we do not expect further inquiries. During conversations with the EPA and CARB about the effectiveness of our pick-up truck applications, the regulators raised concerns that certain aspects of our emissions systems may reduce the effectiveness of our emissions control systems and thereby act as defeat devices. As a result, our internal review focuses, in part, on the regulators’ concerns. We are working closely with the regulators to enhance our emissions systems to improve the effectiveness of all of our pick-up truck applications and to fully address the regulators’ requirements. Based on discussions with the regulators, we have developed a new calibration for the engines in model year 2019 RAM 2500 and 3500 trucks that has been included in all engines shipped since September 2019. During our ongoing discussions, the regulators turned their attention to other model years and other engines, most notably our pick-up truck applications for RAM 2500 and 3500 trucks for model years 2013 through 2018. Due to the continuing nature of our formal review, our ongoing cooperation with our regulators and the presence of many unknown facts and circumstances, we cannot predict the final outcome of this review and these regulatory processes, nor whether, or the extent to which, they could have a material adverse impact on our results of operations and cash flows.

Guarantees and Commitments

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

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

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

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

Indemnifications

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

product liability and license, patent or trademark indemnifications;
asset sale agreements where we agree to indemnify the purchaser against future environmental exposures related to the asset sold; and
any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.

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

NOTE 12. ACCUMULATED OTHER COMPREHENSIVE LOSS

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



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

Net current period other comprehensive income (loss)	17		(2)		3		18		$	2	$	20
Balance at October 3, 2021	$	(672)	$	(1,233)	$	(6)	$	(1,911)

Balance at June 28, 2020	$	(716)	$	(1,436)	$	(90)	$	(2,242)
Other comprehensive income before reclassifications
Before-tax amount	—		101		23		124		$	10	$	134
Tax expense	—		—		(5)		(5)		—		(5)
After-tax amount	—		101		18		119		10		129
Amounts reclassified from accumulated other comprehensive income (loss)(1)	16		—		—		16		—		16
Net current period other comprehensive income	16		101		18		135		$	10	$	145
Balance at September 27, 2020	$	(700)	$	(1,335)	$	(72)	$	(2,107)

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

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.

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

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

Summarized financial information regarding our reportable operating segments for the three months ended is shown in the 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."

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



In millions	Engine		Distribution		Components		Power Systems		New Power		Total Segments
Nine months ended October 3, 2021
External sales	$	5,776	$	5,692	$	4,627	$	1,999	$	77	$	18,171
Intersegment sales	1,752		22		1,312		1,330		5		4,421
Total sales	7,528		5,714		5,939		3,329		82		22,592



Research, development and engineering expenses	288		35		232		172		75		802
Equity, royalty and interest income (loss) from investees	278		47		41		32		(1)		397

Interest income	7		5		3		3		—		18
EBITDA	1,147		553		975		399		(169)		2,905
Depreciation and amortization(1)	154		88		138		97		17		494


Nine months ended September 27, 2020
External sales	$	4,133	$	5,123	$	3,192	$	1,495	$	38	$	13,981
Intersegment sales	1,560		17		1,001		1,147		—		3,725
Total sales	5,693		5,140		4,193		2,642		38		17,706



Research, development and engineering expenses	217		20		187		148		79		651
Equity, royalty and interest income (loss) from investees	236		45		46		18		(3)		342

Interest income	6		3		3		3		—		15
EBITDA	897		500		681		269		(121)		2,226
Depreciation and amortization(1)	155		91		142		96		13		497


(1) Depreciation and amortization, as shown on a segment basis, excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Net Income as "Interest expense." The amortization of debt discount and deferred costs was $3 million and $2 million for the nine months ended October 3, 2021 and September 27, 2020, respectively. A portion of depreciation expense is included in "Research, development and engineering expenses."

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


	Three months ended				Nine months ended
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

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


	Three months ended				Nine months ended
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

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