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
	September 30,				September 30,
In millions, except per share amounts	2024		2023		2024		2023
NET SALES (Notes 1 and 2)	$	8,456	$	8,431	$	25,655	$	25,522
Cost of sales	6,285		6,360		19,250		19,274
GROSS MARGIN	2,171		2,071		6,405		6,248

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	807		831		2,474		2,457
Research, development and engineering expenses	359		376		1,107		1,110
Equity, royalty and interest income from investees (Note 4)	99		118		325		370



Other operating expense, net	54		32		131		78
OPERATING INCOME	1,050		950		3,018		2,973


Interest expense	83		97		281		283
Other income, net (Note 14)	76		25		1,504		166
INCOME BEFORE INCOME TAXES	1,043		878		4,241		2,856

Income tax expense (Note 5)	200		188		618		623
CONSOLIDATED NET INCOME	843		690		3,623		2,233

Less: Net income attributable to noncontrolling interests	34		34		95		67
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	809	$	656	$	3,528	$	2,166

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	5.90	$	4.63	$	25.47	$	15.29
Diluted	$	5.86	$	4.59	$	25.31	$	15.19

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
Basic	137.2		141.8		138.5		141.7
Dilutive effect of stock compensation awards	0.9		1.0		0.9		0.9
Diluted	138.1		142.8		139.4		142.6

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
	September 30,				September 30,
In millions	2024		2023		2024		2023
CONSOLIDATED NET INCOME	$	843	$	690	$	3,623	$	2,233
Other comprehensive income (loss), net of tax (Note 12)
Change in pension and other postretirement defined benefit plans	5		3		5		(4)
Foreign currency translation adjustments	165		(163)		22		(191)

Unrealized (loss) gain on derivatives	(7)		19		2		28
Total other comprehensive income (loss), net of tax	163		(141)		29		(167)
COMPREHENSIVE INCOME	1,006		549		3,652		2,066
Less: Comprehensive income attributable to noncontrolling interests	36		27		92		61
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	970	$	522	$	3,560	$	2,005

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	September 30, 2024		December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	1,733	$	2,179

Marketable securities (Note 6)	518		562
Total cash, cash equivalents and marketable securities	2,251		2,741
Accounts and notes receivable, net	5,387		5,583


Inventories (Note 7)	6,134		5,677
Prepaid expenses and other current assets	1,544		1,197
Total current assets	15,316		15,198
Long-term assets
Property, plant and equipment	11,603		11,674
Accumulated depreciation	(5,427)		(5,425)
Property, plant and equipment, net	6,176		6,249
Investments and advances related to equity method investees	1,922		1,800
Goodwill	2,412		2,499
Other intangible assets, net	2,462		2,519
Pension assets (Note 3)	1,208		1,197
Other assets (Note 8)	2,556		2,543
Total assets	$	32,052	$	32,005

LIABILITIES
Current liabilities
Accounts payable (principally trade)	$	4,206	$	4,260
Loans payable (Note 9)	441		280
Commercial paper (Note 9)	1,636		1,496
Current maturities of long-term debt (Note 9)	654		118
Accrued compensation, benefits and retirement costs	1,011		1,108
Current portion of accrued product warranty (Note 10)	685		667
Current portion of deferred revenue (Note 2)	1,225		1,220

Other accrued expenses (Note 8)	1,745		3,754
Total current liabilities	11,603		12,903
Long-term liabilities
Long-term debt (Note 9)	4,856		4,802


Deferred revenue (Note 2)	1,090		966
Other liabilities (Note 8)	3,162		3,430
Total liabilities	$	20,711	$	22,101

Commitments and contingencies (Note 11)



EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.5 and 222.5 shares issued	$	2,612	$	2,564
Retained earnings	20,660		17,851
Treasury stock, at cost, 85.4 and 80.7 shares	(10,783)		(9,359)

Accumulated other comprehensive loss (Note 12)	(2,174)		(2,206)



Total Cummins Inc. shareholders’ equity	10,315		8,850
Noncontrolling interests	1,026		1,054
Total equity	$	11,341	$	9,904
Total liabilities and equity	$	32,052	$	32,005

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
	September 30,
In millions	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income	$	3,623	$	2,233
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Gain related to divestiture of Atmus (Note 14)	(1,333)		—
Depreciation and amortization	794		760



Deferred income taxes	(106)		(238)
Equity in income of investees, net of dividends	(74)		(100)
Pension and OPEB expense (Note 3)	28		4
Pension contributions and OPEB payments (Note 3)	(72)		(115)










Changes in current assets and liabilities, net of acquisitions and divestiture
Accounts and notes receivable	109		(447)
Inventories	(726)		(318)
Other current assets	(370)		(191)
Accounts payable	27		43
Accrued expenses (Notes 1 and 11)	(2,000)		543


Other, net	165		333
Net cash provided by operating activities	65		2,507

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(668)		(694)




Acquisition of businesses, net of cash acquired (Note 15)	(58)		(127)

Investments in marketable securities—acquisitions	(1,062)		(976)
Investments in marketable securities—liquidations (Note 6)	1,113		1,002

Cash associated with Atmus divestiture	(174)		—

Other, net	(220)		(65)
Net cash used in investing activities	(1,069)		(860)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings	2,623		779
Net borrowings (payments) of commercial paper	140		(566)
Payments on borrowings and finance lease obligations	(1,386)		(391)


Dividend payments on common stock	(719)		(683)




Payments for purchase of redeemable noncontrolling interests (Note 15)	—		(175)
Other, net	(94)		(33)
Net cash provided by (used in) financing activities	564		(1,069)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(6)		(67)
Net (decrease) increase in cash and cash equivalents	(446)		511
Cash and cash equivalents at beginning of year	2,179		2,101
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,733	$	2,612

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

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(Unaudited)


	Three months ended
In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT JUNE 30, 2024	$	—	$	556	$	2,026	$	20,101	$	(10,797)	$	(2,335)	$	9,551	$	1,025	$	10,576

Net income							809						809		34		843
Other comprehensive income, net of tax (Note 12)											161		161		2		163
Issuance of common stock					7								7		—		7


Cash dividends on common stock, $1.82 per share							(250)						(250)		—		(250)

Distributions to noncontrolling interests													—		(35)		(35)
Share-based awards					2				13				15		—		15





Other shareholder transactions					21				1				22		—		22
BALANCE AT SEPTEMBER 30, 2024	$	—	$	556	$	2,056	$	20,660	$	(10,783)	$	(2,174)	$	10,315	$	1,026	$	11,341

BALANCE AT JUNE 30, 2023	$	—	$	556	$	1,976	$	19,102	$	(9,380)	$	(1,917)	$	10,337	$	1,019	$	11,356

Net income							656						656		34		690
Other comprehensive loss, net of tax (Note 12)											(134)		(134)		(7)		(141)
Issuance of common stock					1								1		—		1


Cash dividends on common stock, $1.68 per share							(238)						(238)		—		(238)
Distributions to noncontrolling interests													—		(26)		(26)
Share-based awards					3				10				13		—		13




Other shareholder transactions					22				1				23		—		23
BALANCE AT SEPTEMBER 30, 2023	$	—	$	556	$	2,002	$	19,520	$	(9,369)	$	(2,051)	$	10,658	$	1,020	$	11,678

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


	Nine months ended
In millions, except per share amounts	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Cummins Inc. Shareholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE AT DECEMBER 31, 2023	$	—	$	556	$	2,008	$	17,851	$	(9,359)	$	(2,206)	$	8,850	$	1,054	$	9,904

Net income							3,528						3,528		95		3,623
Other comprehensive loss, net of tax (Note 12)											(29)		(29)		(3)		(32)
Issuance of common stock					8								8		—		8
Cash dividends on common stock, $5.18 per share							(719)						(719)		—		(719)
Distributions to noncontrolling interests													—		(68)		(68)
Share-based awards					(6)				106				100		—		100



Divestiture of Atmus (Note 14)									(1,532)		61		(1,471)		(19)		(1,490)
Other shareholder transactions					46				2				48		(33)		15
BALANCE AT SEPTEMBER 30, 2024	$	—	$	556	$	2,056	$	20,660	$	(10,783)	$	(2,174)	$	10,315	$	1,026	$	11,341

BALANCE AT DECEMBER 31, 2022	$	258	$	556	$	1,687	$	18,037	$	(9,415)	$	(1,890)	$	8,975	$	992	$	9,967

Net income	(20)						2,166						2,166		87		2,253
Other comprehensive loss, net of tax (Note 12)											(161)		(161)		(6)		(167)
Issuance of common stock					3								3		—		3
Cash dividends on common stock, $4.82 per share							(683)						(683)		—		(683)
Distributions to noncontrolling interests													—		(50)		(50)
Share-based awards					(1)				42				41		—		41
Fair value adjustment of redeemable noncontrolling interests	33				(33)								(33)		—		(33)
Acquisition of redeemable noncontrolling interests (Note 15)	(271)												—		—		—
Sale of Atmus stock (Note 14)					285								285		(3)		282
Other shareholder transactions					61				4				65		—		65
BALANCE AT SEPTEMBER 30, 2023	$	—	$	556	$	2,002	$	19,520	$	(9,369)	$	(2,051)	$	10,658	$	1,020	$	11,678

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 solutions leader comprised of five business segments - Components, Engine, Distribution, Power Systems and Accelera - supported by our global manufacturing and extensive service and support network, skilled workforce and vast technical expertise. Our products range from advanced diesel, natural gas, electric and hybrid powertrains and powertrain-related components including aftertreatment, turbochargers, fuel systems, valvetrain technologies, controls systems, air handling systems, automated transmissions, axles, drivelines, brakes, suspension systems, electric power generation systems, batteries, electrified power systems, hydrogen production technologies and fuel cell products. We sell our products to original equipment manufacturers (OEMs), distributors, dealers and other customers worldwide. We serve our customers through a service network of approximately 450 wholly-owned, joint venture and independent distributor locations and more than 19,000 Cummins certified dealer locations in approximately 190 countries and territories.

Divestiture of Atmus

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus Filtration Technologies Inc. (Atmus) common stock through a tax-free split-off. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.

Settlement Agreements

In December 2023, we announced that we reached an agreement in principle with the U.S. Environmental Protection Agency (EPA), the California Air Resources Board (CARB), the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General's Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). In the second quarter of 2024, we made $1.9 billion of payments required by the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” for additional information.

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 consolidated 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, 2023. 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.

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
	September 30,		September 30,
	2024	2023	2024	2023
Options excluded	767	7,267	1,878	8,770

Related Party Transactions

In accordance with the provisions of various joint venture agreements, we may purchase products and components from our joint ventures, sell products and components to our joint ventures and our joint ventures may sell products and components to unrelated parties.

The following is a summary of sales to and purchases from nonconsolidated equity investees:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
Sales to nonconsolidated equity investees	$	351	$	315	$	1,036	$	1,011
Purchases from nonconsolidated equity investees	620		602		1,883		1,993

The following is a summary of accounts receivable from and accounts payable to nonconsolidated equity investees:


In millions	September 30, 2024		December 31, 2023		Balance Sheet Location
Accounts receivable from nonconsolidated equity investees	$	472	$	530	Accounts and notes receivable, net
Accounts payable to nonconsolidated equity investees	306		324		Accounts payable (principally trade)

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 original due date, which generally have 60 to 90 day payment terms. The maximum amount that we could have outstanding under these programs was $551 million at September 30, 2024. We do not reimburse vendors for any costs they incur for participation in the program, their participation is completely voluntary and there are no assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. As a result, all amounts owed to the financial intermediaries are presented as accounts payable in our Condensed Consolidated Balance Sheets. Amounts due to the financial intermediaries reflected in accounts payable at September 30, 2024, and December 31, 2023, were $154 million and $199 million, respectively.

Accounts Receivable Sales Program

In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to the Board of Directors (Board) approved limit of $500 million. We classify proceeds received from the sales of accounts receivable as an operating cash flow in the Condensed Consolidated Statements of Cash Flows, and we record the discount in other income, net in the Condensed Consolidated Statements of Net Income. There was no activity under the program during the nine months ended September 30, 2024.

NOTE 2. REVENUE FROM CONTRACTS WITH CUSTOMERS

Long-term Contracts

We have certain arrangements, primarily long-term maintenance agreements, construction contracts, product sales with associated performance obligations extending beyond a year, product sales with lead times extending beyond one year that are non-cancellable or for which the customer incurs a penalty for cancellation and extended warranty coverage arrangements that span a period in excess of one year. The aggregate amount of the transaction price for these contracts, excluding extended warranty coverage arrangements, as of September 30, 2024, was $3.8 billion. We expect to recognize the related revenue of $2.1 billion over the next 12 months and $1.7 billion 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	September 30, 2024		December 31, 2023
Unbilled revenue	$	346	$	303
Deferred revenue	2,315		2,186

We recognized revenue of $184 million and $682 million for the three and nine months ended September 30, 2024, compared with $126 million and $510 million for the comparable periods in 2023, that was included in the deferred revenue balance at the beginning of each year. We did not record any impairment losses on our unbilled revenues during the three and nine months ended September 30, 2024 or 2023.

Disaggregation of Revenue

Consolidated Revenue

The table below presents our consolidated net sales by geographic area based on the location of the customer:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
United States	$	4,825	$	4,886	$	14,729	$	14,625

China	727		721		2,197		2,273


India	416		374		1,285		1,198

Other international	2,488		2,450		7,444		7,426
Total net sales	$	8,456	$	8,431	$	25,655	$	25,522

Segment Revenue

As previous announced, beginning in the second quarter of 2024, we realigned certain businesses within our Components segment to be consistent with how our segment manager now monitors performance. We reorganized the businesses to combine the engine components and software and electronics businesses into the newly formed components and software business. In addition, we rebranded our axles and brakes business as drivetrain and braking systems. We began reporting results for these changes within our Components segment effective April 1, 2024, and reflected these changes in the historical periods presented. The change had no impact on our consolidated results.

Components segment external sales by business were as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024			2023
Drivetrain and braking systems	$	1,131	$	1,177	$	3,618		$	3,698
Emission solutions	759		803		2,437			2,584
Components and software	249		289		828			913
Automated transmissions	148		187		475			545
Atmus	—		324		289		(1)	1,007
Total sales	$	2,287	$	2,780	$	7,647		$	8,747

(1) Included sales through the March 18, 2024, divestiture. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.

Engine segment external sales by market were as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
Heavy-duty truck	$	781	$	885	$	2,560	$	2,601
Medium-duty truck and bus	806		656		2,336		1,960
Light-duty automotive	400		451		1,292		1,336
Total on-highway	1,987		1,992		6,188		5,897
Off-highway	228		244		735		854
Total sales	$	2,215	$	2,236	$	6,923	$	6,751

Distribution segment external sales by region were as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
North America	$	1,947	$	1,719	$	5,568	$	5,195
Asia Pacific	342		292		937		796
Europe	307		200		830		607
China	118		110		346		323
Africa and Middle East	80		77		194		219
India	77		66		223		186
Latin America	71		55		194		168

Total sales	$	2,942	$	2,519	$	8,292	$	7,494

Distribution segment external sales by product line were as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
Power generation	$	1,088	$	601	$	2,743	$	1,701
Parts	1,000		991		2,985		3,054
Service	453		420		1,305		1,249
Engines	401		507		1,259		1,490
Total sales	$	2,942	$	2,519	$	8,292	$	7,494

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


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
Power generation	$	499	$	420	$	1,349	$	1,247
Industrial	293		263		809		670
Generator technologies	120		115		350		354
Total sales	$	912	$	798	$	2,508	$	2,271

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
	September 30,				September 30,
In millions	2024		2023		2024		2023



Defined benefit pension contributions	$	9	$	8	$	56	$	102


OPEB payments, net	4		4		16		13


Defined contribution pension plans	27		29		101		102

We anticipate making additional defined benefit pension contributions during the remainder of 2024 of $14 million for our U.S. and U.K. qualified and non-qualified pension plans. These contributions may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. We expect our 2024 annual net periodic pension cost to approximate $34 million.

The components of net periodic pension and OPEB expense (income) under our plans were as follows:


	Pension
	U.S. Plans				U.K. Plans				OPEB
	Three months ended September 30,
In millions	2024		2023		2024		2023		2024		2023
Service cost	$	35	$	29	$	4	$	4	$	—	$	—
Interest cost	42		42		18		18		2		2
Expected return on plan assets	(72)		(69)		(26)		(27)		—		—
Amortization of prior service cost	—		—		1		1		—		—
Recognized net actuarial loss (gain)	3		2		3		—		(1)		(1)
Net periodic benefit expense (income)	$	8	$	4	$	—	$	(4)	$	1	$	1



	Pension
	U.S. Plans				U.K. Plans				OPEB
	Nine months ended September 30,
In millions	2024		2023		2024		2023		2024		2023
Service cost	$	106	$	87	$	13	$	12	$	—	$	—
Interest cost	125		126		53		53		5		6
Expected return on plan assets	(217)		(207)		(76)		(79)		—		—
Amortization of prior service cost	1		1		1		1		—		—
Recognized net actuarial loss (gain)	10		6		9		—		(2)		(2)
Net periodic benefit expense (income)	$	25	$	13	$	—	$	(13)	$	3	$	4

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
	September 30,				September 30,
In millions	2024		2023		2024		2023
Manufacturing entities
Chongqing Cummins Engine Company, Ltd.	$	15	$	7	$	51	$	29
Dongfeng Cummins Engine Company, Ltd.	14		15		51		52
Beijing Foton Cummins Engine Co., Ltd.	6		8		29		33
Tata Cummins, Ltd.	6		6		22		21
All other manufacturers	7		18		41		69


Distribution entities
Komatsu Cummins Chile, Ltda.	15		13		42		40
All other distributors	3		3		10		10


Cummins share of net income	66		70		246		254
Royalty and interest income	33		48		79		116
Equity, royalty and interest income from investees	$	99	$	118	$	325	$	370

In September 2023, our Accelera business signed an agreement to form a joint venture, Amplify Cell Technologies LLC, with Daimler Trucks and Buses US Holding LLC (Daimler Truck), PACCAR Inc. (PACCAR) and EVE Energy to accelerate and localize battery cell production and the battery supply chain in the U.S., including building a 21-gigawatt hour battery production facility in Marshall County, Mississippi. The joint venture will manufacture battery cells for electric commercial vehicles and industrial applications. The joint venture meets the definition of a variable interest entity since the equity-at-risk is not currently sufficient to support the future operations of the joint venture. Accelera, Daimler Truck and PACCAR will each own 30 percent of the joint venture and have two board positions, while EVE Energy will own 10 percent and have one board position. All significant decisions require majority or super-majority approval of the board. As a result, we are not the primary beneficiary of the joint venture, and the joint venture will not be consolidated. We will account for the joint venture using the equity method. Our maximum required contribution (the majority of which is expected to be contributed by 2028) to the joint venture is $830 million, which could be reduced by future government incentives received by the joint venture. As of September 30, 2024, we contributed $126 million. In addition, we are required to purchase 33 percent of the joint venture's output in the future or be subject to certain penalties. The joint venture received all government approvals and began operations in May 2024, but is not expected to begin production until 2027.

NOTE 5. INCOME TAXES

Our effective tax rates for the three and nine months ended September 30, 2024, were 19.2 percent and 14.6 percent, respectively. Our effective tax rates for the three and nine months ended September 30, 2023, were 21.4 percent and 21.8 percent, respectively.

The three months ended September 30, 2024, contained net favorable discrete tax items of $36 million, primarily due to $20 million of favorable adjustments from tax return amendments, $15 million of favorable return to provision adjustments and $2 million of favorable share-based compensation tax benefits, partially offset by $1 million of other unfavorable adjustments.

The nine months ended September 30, 2024, contained net favorable discrete tax items primarily due to the $1.3 billion non-taxable gain on the Atmus split-off. Other discrete tax items were net favorable by $66 million, primarily due to $21 million of favorable adjustments related to audit settlements, $20 million of favorable adjustments from tax return amendments, $18 million of favorable return to provision adjustments and $17 million of favorable share-based compensation tax benefits, partially offset by $7 million of unfavorable adjustments for uncertain tax positions and $3 million of other unfavorable adjustments.

The three months ended September 30, 2023, contained net favorable discrete tax items of $5 million, primarily due to $13 million of favorable return to provision adjustments and $1 million of favorable share-based compensation tax benefits, partially offset by $9 million of unfavorable adjustments for uncertain tax positions.

The nine months ended September 30, 2023, contained net favorable discrete tax items of $5 million, primarily due to $15 million of favorable return to provision adjustments and $5 million of favorable share-based compensation tax benefits, partially offset by $11 million of unfavorable adjustments for uncertain tax positions and $4 million of other unfavorable adjustments.

NOTE 6. MARKETABLE SECURITIES

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


	September 30, 2024						December 31, 2023
In millions	Cost		Gross unrealized gains/(losses) (1)		Estimated fair value		Cost		Gross unrealized gains/(losses) (1)		Estimated fair value

Equity securities
Level 1

Publicly-traded shares	$	7	$	(5)	$	2	$	—	$	—	$	—

Level 2
Certificates of deposit	260		—		260		246		—		246
Debt mutual funds	213		2		215		272		—		272


Equity mutual funds	17		9		26		22		6		28

Debt securities	15		—		15		16		—		16







Marketable securities	$	512	$	6	$	518	$	556	$	6	$	562

(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 our Condensed Consolidated Statements of Net Income.

The fair value of Level 1 securities is derived from the market price at the end of the period. 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 levels during the nine months ended September 30, 2024, or the year ended December 31, 2023. All debt securities are classified as available-for-sale.

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

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

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

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

*•*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
	September 30,
In millions		2024		2023
Proceeds from sales of marketable securities		$	1,008	$	812
Proceeds from maturities of marketable securities		105		190
Investments in marketable securities - liquidations		$	1,113	$	1,002

NOTE 7. INVENTORIES

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


In millions	September 30, 2024		December 31, 2023
Finished products	$	2,964	$	2,770
Work-in-process and raw materials	3,391		3,156
Inventories at FIFO cost	6,355		5,926
Excess of FIFO over LIFO	(221)		(249)
Inventories	$	6,134	$	5,677

NOTE 8. SUPPLEMENTAL BALANCE SHEET DATA

Other assets included the following:



In millions	September 30, 2024		December 31, 2023
Deferred income taxes	$	1,073	$	1,082
Operating lease assets	512		501
Corporate owned life insurance	446		417

Other	525		543
Other assets	$	2,556	$	2,543

Other accrued expenses included the following:



In millions	September 30, 2024		December 31, 2023
Marketing accruals	$	349	$	399
Income taxes payable	266		242
Other taxes payable	217		296
Current portion of operating lease liabilities	133		138
Settlement Agreements (1)	19		1,938
Other	761		741
Other accrued expenses	$	1,745	$	3,754

(1) See NOTE 11, "COMMITMENTS AND CONTINGENCIES," for additional information.

Other liabilities included the following:



In millions	September 30, 2024		December 31, 2023

Accrued product warranty (1)	$	847	$	777
Pensions	488		530
Operating lease liabilities	393		374
Deferred income taxes	386		530
Accrued compensation	187		213
Other postretirement benefits	120		131
Mark-to-market valuation on interest rate derivatives	81		117
Long-term income taxes	5		111
Other	655		647
Other liabilities	$	3,162	$	3,430

(1) See NOTE 10, "PRODUCT WARRANTY LIABILITY," for additional information.

NOTE 9. DEBT

Loans Payable and Commercial Paper

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


In millions	September 30, 2024		December 31, 2023


Loans payable (1)	$	441	$	280

Commercial paper (2)	1,636		1,496




(1) Loans payable consist primarily of notes payable to various international and domestic 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 5.25 percent and 5.43 percent at September 30, 2024, and December 31, 2023, respectively.

We can issue up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes.

Revolving Credit Facilities

On June 3, 2024, we entered into an amended and restated five-year credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 3, 2029. The credit agreement amended and restated the prior $2.0 billion five-year credit agreement that would have matured on August 18, 2026.

On June 3, 2024, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $2.0 billion of unsecured funds at any time prior to June 2, 2025. This credit agreement amended and restated the prior $2.0 billion 364-day credit facility that matured on June 3, 2024.

Our committed credit facilities provide access up to $4.0 billion, including our $2.0 billion 364-day facility that expires June 2, 2025, and our $2.0 billion five-year facility that expires on June 3, 2029. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. There were no outstanding borrowings under these facilities at September 30, 2024, and December 31, 2023. At September 30, 2024, the $1.6 billion of outstanding commercial paper effectively reduced the $4.0 billion of revolving credit capacity to $2.4 billion.

At September 30, 2024, we also had an additional $527 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	September 30, 2024		December 31, 2023
Long-term debt

Hydrogenics promissory notes, due 2024 and 2025	—%	$	160	$	160
Term loan, due 2025 (1) (2)	Variable	—		1,150
Senior notes, due 2025 (3)	0.75%	500		500

Atmus term loan, due 2027 (4)	Variable	—		600
Debentures, due 2027	6.75%	58		58
Debentures, due 2028	7.125%	250		250
Senior notes, due 2029	4.90%	500		—
Senior notes, due 2030 (3)	1.50%	850		850
Senior notes, due 2034	5.15%	750		—
Senior notes, due 2043	4.875%	500		500
Senior notes, due 2050	2.60%	650		650
Senior notes, due 2054	5.45%	1,000		—
Debentures, due 2098 (5)	5.65%	165		165

Other debt		165		94

Unamortized discount and deferred issuance costs		(92)		(72)
Fair value adjustments due to hedge on indebtedness		(70)		(96)
Finance leases		124		111
Total long-term debt		5,510		4,920
Less: Current maturities of long-term debt		654		118
Long-term debt		$	4,856	$	4,802

(1) During the first nine months of 2024, we repaid the outstanding balance of the term loan.
(2) In 2023, we entered into a series of interest rate swaps in order to trade a portion of the floating rate debt into fixed rate. See "Interest Rate Risk" in NOTE 13, "DERIVATIVES," for additional information.
(3) In 2021, we entered into a series of interest rate swaps to effectively convert debt from a fixed rate to floating rate. See "Interest Rate Risk" in NOTE 13, "DERIVATIVES," for additional information.
(4) See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.
(5) The effective interest rate is 7.48 percent.

On February 20, 2024, we issued $2.25 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 4.90 percent senior unsecured notes due in 2029, $750 million aggregate principal amount of 5.15 percent senior unsecured notes due in 2034 and $1.0 billion aggregate principal amount of 5.45 percent senior unsecured notes due in 2054. We received net proceeds of $2.2 billion. The senior unsecured notes pay interest semi-annually on February 20 and August 20, commencing on August 20, 2024. The indenture governing the senior unsecured notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions.

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



In millions	2024		2025		2026		2027		2028
Principal payments	$	60	$	661	$	66	$	100	$	290

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	September 30, 2024		December 31, 2023
Fair value of total debt (1)	$	7,426	$	6,375
Carrying value of total debt	7,587		6,696

(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
	September 30,
In millions	2024		2023
Balance at beginning of year	$	2,497	$	2,477
Provision for base warranties issued	490		458
Deferred revenue on extended warranty contracts sold	263		244
Provision for product campaigns issued	48		17
Payments made during period	(533)		(429)

Amortization of deferred revenue on extended warranty contracts	(222)		(226)
Changes in estimates for pre-existing product warranties and campaigns	94		19

Foreign currency translation adjustments and other	(7)		(2)

Balance at end of period	$	2,630	$	2,558

We recognized supplier recoveries of $4 million and $38 million for the three and nine months ended September 30, 2024, compared with $7 million and $19 million for the comparable periods in 2023.

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


In millions	September 30, 2024		December 31, 2023		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	287	$	279	Current portion of deferred revenue
Long-term portion	811		774		Deferred revenue
Total	$	1,098	$	1,053

Product warranty
Current portion	$	685	$	667	Current portion of accrued product warranty
Long-term portion	847		777		Other liabilities
Total	$	1,532	$	1,444

Total warranty accrual	$	2,630	$	2,497

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; environmental and regulatory matters, including the enforcement of environmental and emissions standards; and asbestos claims. We also have been identified as a potentially responsible party at multiple waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. We have denied liability with respect to many of these lawsuits, claims and proceedings and are vigorously defending such lawsuits, claims and proceedings. We carry various forms of commercial, property and casualty, product liability and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us with respect to these lawsuits, claims and proceedings. We do not believe that these lawsuits are material individually or in the aggregate. While we believe we have also established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

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

In December 2023, we announced that we reached an agreement in principle with the EPA, CARB, the Environmental and Natural Resources Division of the U.S. Department of Justice and the California Attorney General’s Office to resolve certain regulatory civil claims regarding our emissions certification and compliance process for certain engines primarily used in pick-up truck applications in the U.S., which became final and effective in April 2024 (collectively, the Settlement Agreements). As part of the Settlement Agreements, among other things, we agreed to pay civil penalties, complete recall requirements, undertake mitigation projects, provide extended warranties, undertake certain testing, take certain corporate compliance measures and make other payments. Failure to comply with the terms and conditions of the Settlement Agreements subjects us to stipulated penalties. We recorded a charge of $2.0 billion in the fourth quarter of 2023 to resolve the matters addressed by the Settlement Agreements involving approximately one million of our pick-up truck applications in the U.S. This charge was in addition to the previously announced charges of $59 million for the recalls of model years 2013 through 2018 RAM 2500 and 3500 trucks and model years 2016 through 2019 Titan trucks. We made $1.9 billion of payments required by the Settlement Agreements in the second quarter of 2024. In the third quarter of 2024, we have accrued immaterial amounts related to stipulated penalties we determined to be probable and estimable. Any further non-compliance with the Settlement Agreements will likely subject us to further stipulated penalties and other adverse consequences.

We have also been in communication with other non-U.S. regulators regarding matters related to the emission systems in our engines and may also become subject to additional regulatory review in connection with these matters.

In connection with our announcement of our entry into the agreement in principle, we became subject to shareholder, consumer and third-party litigation regarding the matters covered by the Settlement Agreements, and we may become subject to additional litigation in connection with these matters.

The consequences resulting from the resolution of the foregoing matters are uncertain and the related expenses and reputational damage could have a material adverse impact on our results of operations, financial condition 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 September 30, 2024, the maximum potential loss related to these guarantees was $52 million.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. At September 30, 2024, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $533 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, palladium and iridium to purchase certain volumes of the commodities at contractually stated prices for various periods, which generally fall within two years. At September 30, 2024, the total commitments under these contracts were $31 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 $252 million at September 30, 2024.

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 pension and OPEB plans		Foreign currency translation adjustment		Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at June 30, 2024	$	(848)	$	(1,595)	$	108	$	(2,335)
Other comprehensive income (loss) before reclassifications
Before-tax amount	1		142		(3)		140		$	2	$	142
Tax benefit	—		21		1		22		—		22
After-tax amount	1		163		(2)		162		2		164
Amounts reclassified from accumulated other comprehensive income (loss) (1)	4		—		(5)		(1)		—		(1)

Net current period other comprehensive income (loss)	5		163		(7)		161		$	2	$	163
Balance at September 30, 2024	$	(843)	$	(1,432)	$	101	$	(2,174)

Balance at June 30, 2023	$	(434)	$	(1,581)	$	98	$	(1,917)
Other comprehensive income (loss) before reclassifications
Before-tax amount	1		(154)		34		(119)		$	(7)	$	(126)
Tax expense	—		(2)		(9)		(11)		—		(11)
After-tax amount	1		(156)		25		(130)		(7)		(137)
Amounts reclassified from accumulated other comprehensive income (loss) (1)	2		—		(6)		(4)		—		(4)
Net current period other comprehensive income (loss)	3		(156)		19		(134)		$	(7)	$	(141)
Balance at September 30, 2023	$	(431)	$	(1,737)	$	117	$	(2,051)

(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 pension and OPEB plans		Foreign currency translation adjustment			Unrealized gain (loss) on derivatives		Total attributable to Cummins Inc.		Noncontrolling interests		Total
Balance at December 31, 2023	$	(848)	$	(1,457)		$	99	$	(2,206)
Other comprehensive income (loss) before reclassifications
Before-tax amount	(14)		(56)			23		(47)		$	(3)	$	(50)
Tax benefit (expense)	3		20			(5)		18		—		18
After-tax amount	(11)		(36)			18		(29)		(3)		(32)
Amounts reclassified from accumulated other comprehensive income (loss) (1)	16		61		(2)	(16)		61		—		61

Net current period other comprehensive (loss) income	5		25			2		32		$	(3)	$	29
Balance at September 30, 2024	$	(843)	$	(1,432)		$	101	$	(2,174)

Balance at December 31, 2022	$	(427)	$	(1,552)		$	89	$	(1,890)
Other comprehensive income (loss) before reclassifications
Before-tax amount	(12)		(190)			49		(153)		$	(6)	$	(159)
Tax benefit (expense)	2		5			(10)		(3)		—		(3)
After-tax amount	(10)		(185)			39		(156)		(6)		(162)
Amounts reclassified from accumulated other comprehensive income (loss) (1)	6		—			(11)		(5)		—		(5)
Net current period other comprehensive (loss) income	(4)		(185)			28		(161)		$	(6)	$	(167)
Balance at September 30, 2023	$	(431)	$	(1,737)		$	117	$	(2,051)

(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 the divestiture of Atmus. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.

NOTE 13. DERIVATIVES

We are exposed to financial risk resulting from volatility in foreign exchange rates, interest rates and commodity prices. This risk is closely monitored and managed through the use of physical forward contracts (which are not considered derivatives) and financial derivative instruments including foreign currency forward contracts, commodity swap contracts and interest rate swaps. Financial derivatives are used expressly for hedging purposes and under no circumstances are they used for speculative purposes. When material, we adjust the estimated fair value of our derivative contracts for counterparty or our credit risk. None of our derivative instruments are subject to collateral requirements. Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.

Foreign Currency Exchange Rate Risk

We had foreign currency forward contracts with notional amounts of $4.3 billion at September 30, 2024, with the following currencies comprising 84 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Australian dollar, Canadian dollar and Euro. We had foreign currency forward contracts with notional amounts of $4.5 billion at December 31, 2023, with the following currencies comprising 85 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Canadian dollar, Australian dollar and Swedish krona.

We are further exposed to foreign currency exchange risk as many of our subsidiaries are subject to fluctuations as the functional currencies of the underlying entities are not our U.S. dollar reporting currency. To help reduce volatility in the equity value of our subsidiaries, we enter into foreign exchange forwards designated as net investment hedges for certain of our investments. Under the current terms of our foreign exchange forwards, we agreed with third parties to sell British pounds, Chinese renminbi and Euros in exchange for U.S. dollar currency at a specified rate at the maturity of the contract. The notional amount of these hedges at September 30, 2024, was $1.6 billion.

The following table summarizes the net investment hedge activity in accumulated other comprehensive loss (AOCL):


	Three months ended									Nine months ended
	September 30,									September 30,
In millions	2024				2023					2024			2023
Type of Derivative	Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings			Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings			Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings		Gain (Loss) Recognized in AOCL		Gain (Loss) Reclassified from AOCL into Earnings

Foreign exchange forwards	$	(44)	$	—		$	22	$	—		$	(41)	$	—	$	(6)	$	—

Interest Rate Risk

In September 2023, we entered into a series of interest rate swaps with a total notional value of $500 million in order to trade a portion of the floating rate into a fixed rate on our term loan, due in 2025. The weighted-average interest rate of the interest rate swaps was 5.72 percent. We designated the swaps as cash flow hedges. The gains and losses on these derivative instruments are initially recorded in other comprehensive income and reclassified into earnings as interest expense in the Condensed Consolidated Financial Statements as each interest payment is accrued. We settled $400 million of interest rate swaps in the second quarter of 2024 and the remaining $100 million in the third quarter of 2024. The losses recognized on settlements were immaterial. The interest rate swap activity in AOCL was immaterial for the three and nine months ended September 30, 2023.

In 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month London Interbank Offered Rate (LIBOR) plus a spread (subsequently adjusted to Secured Overnight Financing Rate (SOFR) under a fallback protocol in our derivative agreements in the third quarter of 2023), and $400 million of the notional amount remained unsettled at September 30, 2024. We also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread (also similarly adjusted to SOFR). We designated the swaps 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 following table summarizes the gains and losses:


	Three months ended								Nine months ended
	September 30,								September 30,
In millions	2024				2023				2024				2023
Type of Swap	Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings		Gain (Loss) on Swaps		Gain (Loss) on Borrowings
Interest rate swaps (1)	$	38	$	(35)	$	(17)	$	19	$	31	$	(27)	$	(10)	$	13

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

Derivatives Not Designated as Hedging Instruments

The following table summarizes the effect on our Condensed Consolidated Statements of Net Income for derivative instruments not designated as hedging instruments:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
(Loss) gain recognized in income - Cost of sales (1)	$	(2)	$	1	$	(1)	$	(2)
Gain (loss) recognized in income - Other income (expense), net (1)	104		(60)		60		(77)


(1) Includes foreign currency forward contracts.

Fair Value Amount and Location of Derivative Instruments

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


	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
In millions	September 30, 2024		December 31, 2023		September 30, 2024		December 31, 2023
Notional amount	$	3,869	$	2,997	$	3,286	$	3,610

Derivative assets
Prepaid expenses and other current assets (1)	$	21	$	14	$	56	$	16




Derivative liabilities
Other accrued expenses	$	32	$	43	$	16	$	14
Other liabilities	86		117		—		—
Total derivative liabilities (1)	$	118	$	160	$	16	$	14

(1) Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the nine months ended September 30, 2024, or the year ended December 31, 2023.

We elected to present our derivative contracts on a gross basis in our Condensed Consolidated Balance Sheets. Had we chosen to present on a net basis, we would have derivatives in a net asset position of $31 million and $4 million and derivatives in a net liability position of $88 million and $148 million at September 30, 2024, and December 31, 2023, respectively.

NOTE 14. ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE

IPO

On May 23, 2023, in connection with the Atmus IPO, Cummins issued approximately $350 million of commercial paper with certain lenders. On May 26, 2023, Atmus shares began trading on the New York Stock Exchange under the symbol "ATMU." The IPO was completed on May 30, 2023, whereby Cummins exchanged 19.5 percent (approximately 16 million shares) of its ownership in Atmus, at $19.50 per share, to retire $299 million of the commercial paper as proceeds from the offering through a non-cash transaction.

In connection with the completion of the IPO, through a series of asset and equity contributions, we transferred the filtration business to Atmus. In exchange, Atmus transferred consideration of $650 million to Cummins, which consisted primarily of the net proceeds from a term loan facility and revolver executed by Atmus during May 2023. The commercial paper issued and retired through the IPO proceeds, coupled with the $650 million received, was used for the retirement of our historical debt and payment of dividends. The difference between the commercial paper retired from the IPO, other IPO related fees and the net book value of our divested interest was $285 million and recorded as an offset to additional paid-in capital. Of our consolidated cash and cash equivalents at December 31, 2023, $166 million was retained by Atmus for its working capital purposes.

Divestiture

On March 18, 2024, we completed the divestiture of our remaining 80.5 percent ownership of Atmus common stock through a tax-free split-off. The transaction involved the exchange of our shares in Atmus for shares of Cummins stock with a 7.0 percent discount on the exchange ratio for Atmus shares. The exchange ratio was determined based on each entity's respective stock price using the daily volume weighted-average stock price for three days preceding the final exchange offer date. Based on the final exchange ratio, we exchanged all 67 million of our Atmus shares for 5.6 million shares of Cummins stock, which was recorded as treasury stock based on the fair value of the Cummins shares obtained.

We evaluated the full divestiture of Atmus and determined the transaction did not qualify for discontinued operation presentation. We recognized a gain related to the divestiture of approximately $1.3 billion (based on the difference between the fair value of the Cummins shares obtained less the carrying value of our Atmus investment), which was recorded in other income, net in the Condensed Consolidated Statements of Net Income for the nine months ended September 30, 2024. Approximately $114 million of goodwill was included in the carrying value of the Atmus investment for purposes of calculating the gain. The operating results of Atmus were reported in the Condensed Consolidated Financial Statements through March 18, 2024, the date of divestiture.

As part of the divestiture, the $600 million term loan remained with Atmus after the split. In addition, a net $61 million of other comprehensive income and $19 million of noncontrolling interests related to Atmus were written-off and netted against the gain recognized upon the split.

We entered into a transitional services agreement (TSA) with Atmus that is designed to facilitate the orderly transfer of various services to Atmus. The TSA relates primarily to administrative services, which are generally to be provided over the next 24 months. This agreement is not material and does not confer upon us the ability to influence the operating and/or financial policies of Atmus subsequent to March 18, 2024.

NOTE 15. ACQUISITIONS

Acquisitions for the nine months ended September 30, 2024 and 2023, were as follows:


Entity Acquired (Dollars in millions)	Date of Acquisition	Additional Percent Interest Acquired	Payments to Former Owners		Acquisition Related Debt Retirements		Total Purchase Consideration			Type of Acquisition(1)	Goodwill Acquired		Intangibles Recognized(2)
2024
Engendren Corporation	02/16/24	100%	$	65	$	—	$	65		COMB	$	33	$	8
2023 (3)
Hydrogenics Corporation	06/29/23	19%	$	287	$	48	$	335	(4)	EQUITY	$	—	$	—
Teksid Hierro de Mexico, S.A. de C.V.	04/03/23	100%	143		—		143			COMB	18		—


















(1) All results from acquired entities were included in segment results subsequent to the acquisition date. Previously consolidated entities were accounted for as equity transactions (EQUITY). Newly consolidated entities were accounted for as business combinations (COMB).
(2) Intangible assets acquired in the business combination were mostly customer and trade name related.
(3) See NOTE 24, "ACQUISITIONS," of the Notes to the Consolidated Financial Statements of our 2023 Form 10-K for additional information on prior year acquisitions.
(4) Hydrogenics entered into three non-interest-bearing promissory notes with $175 million paid on July 31, 2023, and the remaining $160 million due in three installments through 2025.

NOTE 16. 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 Chief Executive Officer.

Our reportable operating segments consist of Components, Engine, Distribution, Power Systems and Accelera. This reporting structure is organized according to the products and markets each segment serves. The Components segment sells axles, drivelines, brakes and suspension systems for commercial diesel and natural gas applications, aftertreatment systems, turbochargers, fuel systems, valvetrain technologies, automated transmissions and electronics. 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 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 Accelera segment designs, manufactures, sells and supports hydrogen production technologies as well as electrified power systems with innovative components and subsystems, including battery, fuel cell and electric powertrain technologies. The Accelera segment is currently in the early stages of commercializing these technologies with efforts primarily focused on the development of our electrolyzers for hydrogen production and electrified power systems and related components and subsystems. We continue to serve all our markets as they adopt electrification and alternative power technologies, meeting the needs of our OEM partners and end customers.

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

The accounting policies of our operating segments are the same as those applied in our Condensed Consolidated Financial Statements. We prepared the financial results of our operating segments on a basis that is consistent with the manner in which we internally disaggregate financial information to assist in making internal operating decisions. We allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. We do not allocate gains or losses of corporate owned life insurance and the gain and certain costs related to the divestiture of Atmus. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information. EBITDA may not be consistent with measures used by other companies.

Summarized financial information regarding our reportable operating segments for the three and nine months ended September 30, 2024 and 2023 is shown in the table below:


In millions	Components			Engine		Distribution		Power Systems		Accelera		Total Segments
Three months ended September 30, 2024
External sales	$	2,287		$	2,215	$	2,942	$	912	$	100	$	8,456
Intersegment sales	437			698		10		775		10		1,930
Total sales	2,724			2,913		2,952		1,687		110		10,386



Research, development and engineering expenses	85			147		13		57		57		359
Equity, royalty and interest income (loss) from investees	12			53		25		20		(11)		99

Interest income	4			2		7		1		—		14



Segment EBITDA	351			427		370		328		(115)		1,361
Depreciation and amortization (1)	121			62		31		33		16		263



Three months ended September 30, 2023
External sales	$	2,780		$	2,236	$	2,519	$	798	$	98	$	8,431
Intersegment sales	456			695		16		646		5		1,818
Total sales	3,236			2,931		2,535		1,444		103		10,249



Research, development and engineering expenses	93			159		14		60		50		376
Equity, royalty and interest income (loss) from investees	26			62		22		11		(3)		118

Interest income	8			4		9		3		—		24
Segment EBITDA	441		(2)	395		306		234		(114)		1,262
Depreciation and amortization (1)	120			59		28		30		18		255



Nine months ended September 30, 2024
External sales	$	7,647		$	6,923	$	8,292	$	2,508	$	285	$	25,655
Intersegment sales	1,391			2,069		24		2,157		29		5,670
Total sales	9,038			8,992		8,316		4,665		314		31,325
Research, development and engineering expenses	250			468		41		180		166		1,105
Equity, royalty and interest income (loss) from investees	51			158		73		65		(22)		325
Interest income	21			16		29		7		—		73
Segment EBITDA	1,230		(2)	1,286		978		866		(333)		4,027
Depreciation and amortization (1)	367			181		92		99		45		784

Nine months ended September 30, 2023
External sales	$	8,747		$	6,751	$	7,494	$	2,271	$	259	$	25,522
Intersegment sales	1,471			2,154		42		1,973		14		5,654
Total sales	10,218			8,905		7,536		4,244		273		31,176
Research, development and engineering expenses	287			441		43		189		150		1,110
Equity, royalty and interest income (loss) from investees	71			198		70		42		(11)		370
Interest income	21			14		24		7		1		67
Segment EBITDA	1,434		(2)	1,277		940		654		(322)		3,983
Depreciation and amortization (1)	368			166		84		91		47		756








(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 $10 million and $4 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. A portion of depreciation expense is included in research, development and engineering expenses.
(2) Included $21 million of costs associated with the divestiture of Atmus for the nine months ended September 30, 2024. Included $20 million and $50 million of costs associated with the divestiture of Atmus for the three and nine months ended September 30, 2023. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.

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
	September 30,					September 30,
In millions	2024		2023			2024			2023
TOTAL SEGMENT EBITDA	$	1,361	$	1,262		$	4,027		$	3,983

Intersegment eliminations and other (1)	28		(32)		(2)	1,279		(3)	(88)		(2)

Less:
Interest expense	83		97			281			283
Depreciation and amortization	263		255			784			756
INCOME BEFORE INCOME TAXES	$	1,043	$	878		$	4,241		$	2,856





(1) Included intersegment sales, intersegment profit in inventory and unallocated corporate expenses.
(2) Included $6 million and $17 million of costs associated with the divestiture of Atmus for the three and nine months ended September 30, 2023.
(3) Included a $1.3 billion gain related the divestiture of Atmus and $14 million of costs associated with the divestiture of Atmus (included in corporate expenses) for the nine months ended September 30, 2024. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," for additional information.

NOTE 17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," to enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. The standard did not change the definition of a segment, the method for determining segments or the criteria for aggregating operating segments into reportable segments. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented in the financial statements. We plan to adopt the standard beginning with our 2024 Form 10-K. The adoption is not expected to have a material impact to our financial statements or disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures," to enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, under the amendment, entities are required to disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December 15, 2024. We will adopt this standard on a prospective basis as allowed by the standard beginning with our 2025 Form 10-K. The adoption of this standard is not expected to have a material impact on our Condensed Consolidated Financial Statements**.**

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