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

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

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

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

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

GOVERNMENT REGULATION

any adverse consequences resulting from entering into the Settlement Agreements, including required additional mitigation projects, adverse reputational impacts and potential resulting legal actions;
increased scrutiny from regulatory agencies, as well as unpredictability in the adoption, implementation and enforcement of emission standards around the world;
evolving environmental and climate change legislation and regulatory initiatives;
changes in international, national and regional trade laws, regulations and policies;
changes in taxation;
global legal and ethical compliance costs and risks;
future bans or limitations on the use of diesel-powered products;

BUSINESS CONDITIONS / DISRUPTIONS

failure to successfully integrate and / or failure to fully realize all of the anticipated benefits of the acquisition of Meritor, Inc.;
raw material, transportation and labor price fluctuations and supply shortages;
aligning our capacity and production with our demand;
the actions of, and income from, joint ventures and other investees that we do not directly control;
large truck manufacturers' and original equipment manufacturers' customers discontinuing outsourcing their engine supply needs or experiencing financial distress, or change in control;

PRODUCTS AND TECHNOLOGY

product recalls;
variability in material and commodity costs;
the development of new technologies that reduce demand for our current products and services;
lower than expected acceptance of new or existing products or services;
product liability claims;
our sales mix of products;

GENERAL

climate change, global warming, more stringent climate change regulations, accords, mitigation efforts, greenhouse gas regulations or other legislation designed to address climate change;
our plan to reposition our portfolio of product offerings through exploration of strategic acquisitions and divestitures and related uncertainties of entering such transactions;
increasing interest rates;
challenging markets for talent and ability to attract, develop and retain key personnel;
exposure to potential security breaches or other disruptions to our information technology environment and data security;
political, economic and other risks from operations in numerous countries including political, economic and social uncertainty and the evolving globalization of our business;
competitor activity;
increasing competition, including increased global competition among our customers in emerging markets;
failure to meet environmental, social and governance (ESG) expectations or standards, or achieve our ESG goals;
labor relations or work stoppages;
foreign currency exchange rate changes;
the performance of our pension plan assets and volatility of discount rates;
the price and availability of energy;
continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business; and
other risk factors described in Part II, Item 1A in this quarterly report and our 2023 Form 10-K, Part I, Item 1A, both under the caption "Risk Factors."

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

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2023 Form 10-K. Our MD&A is presented in the following sections:

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS
RESULTS OF OPERATIONS
OPERATING SEGMENT RESULTS
OUTLOOK
LIQUIDITY AND CAPITAL RESOURCES
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

Overview

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 have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Traton Group, Daimler Trucks North America and Stellantis N.V. 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.

Our segment 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.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, off-highway, power generation and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels, production schedules, stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry higher levels of these risks such as China, Brazil, India, Mexico and other countries in Europe, the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped

limit the impact from a drop in demand in any one industry, region, the economy of any single country or customer on our consolidated results.

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. The exchange resulted in a reduction of shares of our common stock outstanding by 5.6 million shares and a gain of approximately $1.3 billion. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to the Condensed Consolidated Financial Statements 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,” to our Condensed Consolidated Financial Statements for additional information.

2024 Third Quarter and Year-to-Date Results

A summary of our results is as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions, except per share amounts	2024		2023		2024		(1)	2023
Net sales	$	8,456	$	8,431	$	25,655		$	25,522
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

(1) Net income and earnings per common share included the non-taxable gain associated with the divestiture of Atmus for the nine months ended September 30, 2024.

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


	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions	2024		2023		Amount		Percent		2024		2023		Amount		Percent
United States and Canada	$	5,177	$	5,210	$	(33)	(1)	%	$	15,789	$	15,612	$	177	1	%
International	3,279		3,221		58		2	%	9,866		9,910		(44)		—	%
Total net sales	$	8,456	$	8,431	$	25	—	%	$	25,655	$	25,522	$	133	1	%

Worldwide revenues were relatively flat in the three months ended September 30, 2024, compared to the same period in 2023, as increased power generation demand (primarily data center markets) was mostly offset by the divestiture of Atmus. International sales (excludes the U.S. and Canada) improved 2 percent primarily due to higher sales in India and Asia Pacific, partially offset by lower sales in Latin America. The increase in international sales was primarily due to higher demand for power generation products (especially in China and India), partially offset by the divestiture of Atmus. Net sales in the U.S. and Canada declined 1 percent primarily due to the divestiture of Atmus, partially offset by higher demand in power generation markets. Unfavorable foreign currency fluctuations impacted international sales by 2 percent (primarily the Brazilian real).

Worldwide revenues increased by 1 percent in the nine months ended September 30, 2024, compared to the same period in 2023, due to increased power generation demand (mostly data center markets) and higher demand in North American medium-duty truck and bus markets, partially offset by the divestiture of Atmus, lower emission solutions demand (mainly in China) and weaker demand in global construction markets. Net sales in the U.S. and Canada improved 1 percent primarily due to higher demand in power generation markets and medium-duty truck and bus markets, partially offset by the divestiture of Atmus. International sales (excludes the U.S. and Canada) were relatively flat as lower sales in Europe and China were mostly offset with higher sales in Latin America and India. The decrease in international sales was primarily due to the divestiture of Atmus and lower emission solutions demand (mainly in China), largely offset by increased demand in power generation markets (mainly Europe, Asia Pacific, China and India). Unfavorable foreign currency fluctuations impacted international sales by 1 percent (primarily the Chinese renminbi, Brazilian real and Indian rupee).

The following tables contain sales and EBITDA (defined as earnings or losses before interest expense, income taxes, depreciation and amortization and noncontrolling interests) by operating segment for the three and nine months ended September 30, 2024 and 2023. See NOTE 16, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.


	Three months ended September 30,
Operating Segments	2024						2023							Percent change
			Percent						Percent					2024 vs. 2023
In millions	Sales		of Total		EBITDA		Sales		of Total		EBITDA			Sales		EBITDA
Components	$	2,724	32	%	$	351	$	3,236	38	%	$	441		(16)	%	(20)	%
Engine	2,913		35	%	427		2,931		35	%	395			(1)	%	8	%
Distribution	2,952		35	%	370		2,535		30	%	306			16	%	21	%
Power Systems	1,687		20	%	328		1,444		17	%	234			17	%	40	%
Accelera	110		1	%	(115)		103		1	%	(114)			7	%	(1)	%
Intersegment eliminations	(1,930)		(23)	%	28		(1,818)		(21)	%	(32)			6	%	NM

Total	$	8,456	100	%	$	1,389	$	8,431	100	%	$	1,230	(1)	—	%	13	%

"NM" - not meaningful information

(1) EBITDA included $26 million of costs associated with the IPO and divestiture of Atmus for the three months ended September 30, 2023.

Net income attributable to Cummins Inc. was $809 million, or $5.86 per diluted share, on sales of $8.5 billion for the three months ended September 30, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $656 million, or $4.59 per diluted share, on sales of $8.4 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by improved gross margin and favorable changes in corporate owned life insurance. The increase in gross margin was primarily due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus and higher compensation expenses.


	Nine months ended September 30,
Operating Segments	2024							2023							Percent change
			Percent							Percent					2024 vs. 2023
In millions	Sales		of Total		EBITDA			Sales		of Total		EBITDA			Sales		EBITDA
Components	$	9,038	35	%	$	1,230		$	10,218	40	%	$	1,434		(12)	%	(14)	%
Engine	8,992		35	%	1,286			8,905		35	%	1,277			1	%	1	%
Distribution	8,316		33	%	978			7,536		29	%	940			10	%	4	%
Power Systems	4,665		18	%	866			4,244		17	%	654			10	%	32	%
Accelera	314		1	%	(333)			273		1	%	(322)			15	%	(3)	%
Intersegment eliminations	(5,670)		(22)	%	1,279			(5,654)		(22)	%	(88)			—	%	NM
Total	$	25,655	100	%	$	5,306	(1)	$	25,522	100	%	$	3,895	(2)	1	%	36	%

"NM" - not meaningful information
(1) EBITDA included a $1.3 billion gain recognized on the divestiture of Atmus and $35 million of costs associated with the divestiture of Atmus for the nine months ended September 30, 2024.
(2) EBITDA included $67 million of costs associated with the IPO and divestiture of Atmus for the nine months ended September 30, 2023.

Net income attributable to Cummins Inc. was $3.5 billion, or $25.31 per diluted share, on sales of $25.7 billion for the nine months ended September 30, 2024, versus the comparable prior year period net income attributable to Cummins Inc. of $2.2 billion, or $15.19 per diluted share, on sales of $25.5 billion. The increases in net income attributable to Cummins Inc. and earnings per diluted share were driven by the gain recognized on the divestiture of Atmus. Diluted earnings per common share for the nine months ended September 30, 2024, benefited $0.71 from fewer weighted-average shares outstanding due to treasury shares reacquired in the Atmus divestiture.

2024 Highlights

We generated $65 million of cash from operations for the nine months ended September 30, 2024, compared to generating $2.5 billion for the comparable period in 2023. See the section titled "Cash Flows" in the "LIQUIDITY AND CAPITAL RESOURCES" section for a discussion of items impacting cash flows.

Our debt to capital ratio (total capital defined as debt plus equity) at September 30, 2024, was 40.1 percent, compared to 40.3 percent at December 31, 2023. The decrease was primarily due to the increased equity balance from strong earnings since December 31, 2023, partially offset by higher debt balances at September 30, 2024. At September 30, 2024, we had $2.3 billion in cash and marketable securities on hand and access to our $4.0 billion credit facilities (net of $1.6 billion of commercial paper outstanding), if necessary, to meet working capital, investment, acquisition and funding needs.

In July 2024, we settled the remaining $100 million of interest rate swaps and repaid the outstanding $100 million of our related term loan due in 2025. See NOTE 9, “DEBT,” and NOTE 13, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.

In July 2024, the Board of Directors (Board) authorized an increase to our quarterly dividend of approximately 8 percent from $1.68 per share to $1.82 per share.

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.

In May 2024, we entered into an accounts receivable sales agreement with Wells Fargo Bank, N.A., to sell certain accounts receivable up to $500 million. See NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," to our Condensed Consolidated Financial Statements for additional information.

In the second quarter of 2024, we made $1.9 billion of required payments towards the Settlement Agreements. See NOTE 11, “COMMITMENTS AND CONTINGENCIES,” to our Condensed Consolidated Financial Statements for additional information.

In the second quarter of 2024, we settled $400 million of interest rate swaps and paid $400 million of our related term loan due in 2025. See NOTE 9, “DEBT,” and NOTE 13, "DERIVATIVES," to our Condensed Consolidated Financial Statements for additional information.

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. See NOTE 9, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

In the first nine months of 2024, the investment gain on our U.S. pension trusts was 6.3 percent, while our U.K. pension trusts' loss was 3.3 percent. 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. We expect our 2024 annual net periodic pension cost to approximate $34 million.

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

RESULTS OF OPERATIONS



	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions, except per share amounts	2024		2023		Amount		Percent		2024		2023		Amount		Percent
NET SALES	$	8,456	$	8,431	$	25	—	%	$	25,655	$	25,522	$	133	1	%
Cost of sales	6,285		6,360		75		1	%	19,250		19,274		24		—	%
GROSS MARGIN	2,171		2,071		100		5	%	6,405		6,248		157		3	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	807		831		24		3	%	2,474		2,457		(17)		(1)	%
Research, development and engineering expenses	359		376		17		5	%	1,107		1,110		3		—	%
Equity, royalty and interest income from investees	99		118		(19)		(16)	%	325		370		(45)		(12)	%

Other operating expense, net	54		32		(22)		(69)	%	131		78		(53)		(68)	%
OPERATING INCOME	1,050		950		100		11	%	3,018		2,973		45		2	%

Interest expense	83		97		14		14	%	281		283		2		1	%
Other income, net	76		25		51		NM		1,504		166		1,338		NM
INCOME BEFORE INCOME TAXES	1,043		878		165		19	%	4,241		2,856		1,385		48	%
Income tax expense	200		188		(12)		(6)	%	618		623		5		1	%
CONSOLIDATED NET INCOME	843		690		153		22	%	3,623		2,233		1,390		62	%
Less: Net income attributable to noncontrolling interests	34		34		—		—	%	95		67		(28)		(42)	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	809	$	656	$	153	23	%	$	3,528	$	2,166	$	1,362	63	%
Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	5.86	$	4.59	$	1.27	28	%	$	25.31	$	15.19	$	10.12	67	%

"NM" - not meaningful information


	Three months ended				Favorable/ (Unfavorable)		Nine months ended				Favorable/ (Unfavorable)
	September 30,					September 30,
Percent of sales	2024		2023		Percentage Points		2024		2023		Percentage Points
Gross margin	25.7	%	24.6	%	1.1		25.0	%	24.5	%	0.5
Selling, general and administrative expenses	9.5	%	9.9	%	0.4		9.6	%	9.6	%	—
Research, development and engineering expenses	4.2	%	4.5	%	0.3		4.3	%	4.3	%	—

Net Sales

Net sales for the three months ended September 30, 2024, increased by $25 million versus the comparable period in 2023. The primary drivers were as follows:

Distribution segment sales increased 16 percent principally due to higher demand in power generation markets, especially in North America and Europe.
Power Systems segment sales increased 17 percent primarily due to higher demand in power generation markets, especially in China and North America.

These increases were partially offset by the following:

Components segment sales decreased 16 percent mainly due to the divestiture of Atmus on March 18, 2024.
Engine segment sales decreased 1 percent largely due to lower demand in North American heavy-duty and light-duty automotive truck markets, partially offset by stronger demand in North American medium-duty truck and bus markets.

Net sales for the nine months ended September 30, 2024, increased $133 million versus the comparable period in 2023. The primary drivers were as follows:

Distribution segment sales increased 10 percent principally due to higher demand in power generation markets, especially in North America and Europe.
Power Systems segment sales increased 10 percent primarily due to higher demand in power generation markets, especially in North America and China.
Engine segment sales increased 1 percent largely due to stronger demand in North American medium-duty truck markets, partially offset by lower demand in global construction markets and North American heavy-duty and light-duty automotive truck markets.

These increases were partially offset by decreased Components segment sales of 12 percent mainly due to the divestiture of Atmus on March 18, 2024.

Sales to international markets (excludes the U.S. and Canada), based on location of customers, for the three and nine months ended September 30, 2024, were 39 percent and 38 percent of total net sales compared with 38 percent and 39 percent of total net sales for the comparable periods in 2023. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Cost of Sales

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

Gross Margin

Gross margin increased $100 million for the three months ended September 30, 2024, and increased 1.1 points as a percentage of net sales versus the comparable period in 2023. The increases in gross margin and gross margin as a percentage of sales were primarily due to favorable pricing and higher volumes, partially offset by the divestiture of Atmus and higher compensation expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation.

Gross margin increased $157 million for the nine months ended September 30, 2024, and increased 0.5 points as a percentage of sales versus the comparable period in 2023. The increases in gross margin and gross margin as a percentage of sales were primarily due to favorable pricing, lower material costs and higher volumes, partially offset by higher compensation expenses, the divestiture of Atmus and increased product coverage.

The provision for base warranties issued as a percent of sales for the three and nine months ended September 30, 2024, was 1.9 percent and 1.9 percent, respectively, compared to 1.9 percent and 1.8 percent for the comparable periods in 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $24 million for the three months ended September 30, 2024, versus the comparable period in 2023, primarily due to lower consulting expenses. Selling, general and administrative expenses increased $17 million for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to higher compensation expenses. Compensation and related expenses included salaries, fringe benefits and variable compensation.

Research, Development and Engineering Expenses

Research, development and engineering expenses decreased $17 million for the three months ended September 30, 2024, versus the comparable period in 2023, primarily due to lower spending on prototypes and external testing and decreased compensation expenses, partially offset by lower expense recoveries. Research, development and engineering expenses decreased $3 million for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to lower spending on external testing. Compensation and related expenses included salaries, fringe benefits and variable compensation.

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

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees decreased $19 million for the three months ended September 30, 2024, versus the comparable period in 2023, primarily due to lower royalty and interest income from investees and start-up costs at Amplify Cell Technologies LLC, partially offset by higher earnings at Chongqing Cummins Engine Co., Ltd. See NOTE 4, "EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES," to the Condensed Consolidated Financial Statements for additional information.

Equity, royalty and interest income from investees decreased $45 million for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to lower royalty and interest income from investees, the absence of earnings from joint ventures associated with the divestiture of Atmus Filtration Technologies Inc. and start-up costs at Amplify Cell Technologies LLC, partially offset by higher earnings at Chongqing Cummins Engine Co., Ltd.

Other Operating Expense, Net

Other operating expense, net was as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023		2024		2023
Amortization of intangible assets	$	(32)	$	(34)	$	(97)	$	(100)
Flood damage expenses	(10)		—		(10)		—
Loss on write-off of assets	(2)		(1)		(15)		(3)
Royalty income, net	2		1		7		12


Other, net	(12)		2		(16)		13
Total other operating expense, net	$	(54)	$	(32)	$	(131)	$	(78)

Interest Expense

Interest expense was $83 million and $281 million for the three and nine months ended September 30, 2024, versus $97 million and $283 million for the comparable periods in 2023. Interest expense decreased $14 million for the three months ended September 30, 2024, primarily due to lower weighted-average interest rates on borrowings. Interest expense decreased $2 million for the nine months ended September 30, 2024, primarily due to lower average debt balances, partially offset by higher weighted-average interest rates.

Other Income, Net

Other income, net was as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
In millions	2024		2023			2024		2023

Non-service pension and OPEB income	$	30	$	32		$	82	$	94
Gain (loss) on corporate owned life insurance	29		(28)			30		(8)
Interest income	14		24			73		67
Gain on sale of marketable securities, net	6		—			10		8
Gain related to divestiture of Atmus (1)	—		—			1,333		—
Foreign currency loss, net	(10)		(5)			(33)		(4)
Other, net	7		2			9		9
Total other income, net	$	76	$	25		$	1,504	$	166





(1) See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to our Condensed Consolidated Financial Statements for additional information.

Income Tax Expense

Our effective tax rate for 2024, excluding discrete items, is expected to approximate 23.5 percent.

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.

Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three and nine months ended September 30, 2024, was flat and increased $28 million versus the comparable periods in 2023. For the three months ended September 30, 2024, higher earnings at Cummins India Limited were offset by the divestiture of Atmus. The increase for the nine months ended September 30, 2024, was primarily due to higher earnings at Cummins India Limited and the absence of losses at Hydrogenics Corporation resulting from the June 2023 acquisition, partially offset by lower earnings at Eaton Cummins Joint Venture and the divestiture of Atmus.

Comprehensive Income - Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net gain of $165 million and $22 million, for the three and nine months ended September 30, 2024, respectively, compared to a net loss of $163 million and $191 million, for the three and nine months ended September 30, 2023, respectively, driven by the following:


	Three months ended
	September 30,
	2024			2023
In millions	Translation adjustment		Primary currency driver vs. U.S. dollar	Translation adjustment		Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries	$	134	Chinese renminbi, Euro	$	(142)	British pound, Brazilian real, Chinese renminbi, Indian rupee
Equity method investments	29		Chinese renminbi	(14)		Chinese renminbi, Indian rupee, Brazilian real
Consolidated subsidiaries with a noncontrolling interest	2		Chinese renminbi	(7)		Indian rupee, Chinese renminbi
Total	$	165		$	(163)


	Nine months ended
	September 30,
	2024			2023
In millions	Translation adjustment		Primary currency driver vs. U.S. dollar	Translation adjustment		Primary currency driver vs. U.S. dollar
Wholly-owned subsidiaries	$	11	British pound, Euro, partially offset by Brazilian real	$	(141)	Chinese renminbi, partially offset by Brazilian real
Equity method investments	14		Indian rupee	(44)		Chinese renminbi, partially offset by Brazilian real
Consolidated subsidiaries with a noncontrolling interest	(3)		Indian rupee	(6)		Chinese renminbi, Indian rupee
Total	$	22		$	(191)

OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the Components, Engine, Distribution, Power Systems and Accelera segments. This reporting structure is organized according to the products and markets each segment serves. We use segment EBITDA as the basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable operating segments. We believe EBITDA is a useful measure of our operating performance as it assists investors and debt holders in comparing our performance on a consistent basis without regard to financing methods, capital structure, income taxes or depreciation and amortization methods, which can vary significantly depending upon many factors. Segment amounts exclude certain expenses not specifically identifiable to segments. See NOTE 16, "OPERATING SEGMENTS," to the Condensed Consolidated Financial Statements for additional information and a reconciliation of our segment information to the corresponding amounts in our Condensed Consolidated Statements of Net Income.

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

Components Segment Results

Financial data for the Components segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,						(Unfavorable)				September 30,						(Unfavorable)
In millions	2024			2023			Amount		Percent		2024			2023			Amount		Percent
External sales	$	2,287		$	2,780		$	(493)	(18)	%	$	7,647		$	8,747		$	(1,100)	(13)	%
Intersegment sales	437			456			(19)		(4)	%	1,391			1,471			(80)		(5)	%
Total sales	2,724			3,236			(512)		(16)	%	9,038			10,218			(1,180)		(12)	%

Research, development and engineering expenses	85			93			8		9	%	250			287			37		13	%
Equity, royalty and interest income from investees	12			26			(14)		(54)	%	51			71			(20)		(28)	%
Interest income	4			8			(4)		(50)	%	21			21			—		—	%

Segment EBITDA(1)	351			441			(90)		(20)	%	1,230			1,434			(204)		(14)	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	12.9		%	13.6		%			(0.7)		13.6		%	14.0		%			(0.4)



(1) 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, respectively.

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. See NOTE 14, "ATMUS INITIAL PUBLIC OFFERING (IPO) AND DIVESTITURE," to the Condensed Consolidated Financial Statements for additional information.

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.

Sales for our Components segment by business were as follows:


	Three months ended				Favorable/				Nine months ended					Favorable/
	September 30,				(Unfavorable)				September 30,					(Unfavorable)
In millions	2024		2023		Amount		Percent		2024			2023		Amount		Percent
Drivetrain and braking systems	$	1,131	$	1,177	$	(46)	(4)	%	$	3,619		$	3,698	$	(79)	(2)	%
Emission solutions	864		893		(29)		(3)	%	2,776			2,913		(137)		(5)	%
Components and software	581		583		(2)		—	%	1,815			1,832		(17)		(1)	%
Automated transmissions	148		187		(39)		(21)	%	475			545		(70)		(13)	%
Atmus	—		396		(396)		(100)	%	353		(1)	1,230		(877)		(71)	%
Total sales	$	2,724	$	3,236	$	(512)	(16)	%	$	9,038		$	10,218	$	(1,180)	(12)	%


(1) Included sales through the March 18, 2024, divestiture.

Sales

Components segment sales for the three months ended September 30, 2024, decreased $512 million versus the comparable period in 2023. The following were the primary drivers by business:

Sales decreased $396 million due to the Atmus divestiture on March 18, 2024.
Drivetrain and braking systems decreased $46 million primarily due to lower demand in North American heavy-duty truck markets.

Components segment sales for the nine months ended September 30, 2024, decreased $1.2 billion versus the comparable period in 2023. The following were the primary drivers by business:

Sales decreased $877 million due to the Atmus divestiture on March 18, 2024.
Emission solutions sales decreased $137 million principally due to lower demand in China.

Segment EBITDA

Components segment EBITDA for the three months ended September 30, 2024, decreased $90 million versus the comparable period in 2023, mainly due to the divestiture of Atmus and lower volumes.

Components segment EBITDA for the nine months ended September 30, 2024, decreased $204 million versus the comparable period in 2023, primarily due to the divestiture of Atmus, increased product coverage costs and higher compensation expenses, partially offset by lower material costs.

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,						(Unfavorable)				September 30,						(Unfavorable)
In millions	2024			2023			Amount		Percent		2024			2023			Amount		Percent
External sales	$	2,215		$	2,236		$	(21)	(1)	%	$	6,923		$	6,751		$	172	3	%
Intersegment sales	698			695			3		—	%	2,069			2,154			(85)		(4)	%
Total sales	2,913			2,931			(18)		(1)	%	8,992			8,905			87		1	%

Research, development and engineering expenses	147			159			12		8	%	468			441			(27)		(6)	%
Equity, royalty and interest income from investees	53			62			(9)		(15)	%	158			198			(40)		(20)	%

Interest income	2			4			(2)		(50)	%	16			14			2		14	%
Segment EBITDA	427			395			32		8	%	1,286			1,277			9		1	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	14.7		%	13.5		%			1.2		14.3		%	14.3		%			—

Sales for our Engine segment by market were as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,						(Unfavorable)				September 30,						(Unfavorable)
In millions	2024			2023			Amount		Percent		2024			2023			Amount		Percent
Heavy-duty truck	$	1,021		$	1,116		$	(95)	(9)	%	$	3,264		$	3,347		$	(83)	(2)	%
Medium-duty truck and bus	1,073			931			142		15	%	3,142			2,776			366		13	%
Light-duty automotive	395			455			(60)		(13)	%	1,294			1,339			(45)		(3)	%
Total on-highway	2,489			2,502			(13)		(1)	%	7,700			7,462			238		3	%
Off-highway	424			429			(5)		(1)	%	1,292			1,443			(151)		(10)	%
Total sales	$	2,913		$	2,931		$	(18)	(1)	%	$	8,992		$	8,905		$	87	1	%

							Percentage Points										Percentage Points
On-highway sales as percentage of total sales	85		%	85		%			—		86		%	84		%			2

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


	Three months ended		Favorable/			Nine months ended		Favorable/
	September 30,		(Unfavorable)			September 30,		(Unfavorable)
	2024	2023	Amount	Percent		2024	2023	Amount	Percent
Heavy-duty	32,400	36,300	(3,900)	(11)	%	103,500	107,400	(3,900)	(4)	%
Medium-duty	79,200	71,300	7,900	11	%	234,600	226,200	8,400	4	%
Light-duty	41,400	53,300	(11,900)	(22)	%	153,400	161,900	(8,500)	(5)	%
Total unit shipments	153,000	160,900	(7,900)	(5)	%	491,500	495,500	(4,000)	(1)	%

Sales

Engine segment sales for the three months ended September 30, 2024, decreased $18 million versus the comparable period in 2023. The following were the primary drivers by market:

Heavy-duty truck sales decreased $95 million mainly due to weaker demand in North America with shipments down 16 percent.
Light-duty automotive sales decreased $60 million primarily due to lower demand in North America with shipments down 31 percent, partially offset by a customer agreement providing for a price adjustment for certain units sold beginning January 1, 2024, and recorded in the third quarter.

These decreases were partially offset by increased medium-duty truck and bus sales of $142 million primarily in the North American truck market with shipments up 14 percent.

Engine segment sales for the nine months ended September 30, 2024, increased $87 million versus the comparable period in 2023. The primary driver by market was an increase in medium-duty truck and bus sales of $366 million principally due to higher medium-duty truck demand, especially in North America with shipments up 15 percent, and favorable pricing.

The increase was partially offset by the following:

Off-highway sales decreased $151 million mainly due to lower demand in global construction markets, especially in China and Western Europe.
Heavy-duty truck sales decreased $83 million primarily due to weaker demand in North America with shipments down 7 percent.
Light-duty automotive sales decreased $45 million principally due to lower demand in North America with shipments down 9 percent, partially offset by a customer agreement providing for a price adjustment for certain units sold beginning January 1, 2024 and recorded in the third quarter.

Segment EBITDA

Engine segment EBITDA for the three months ended September 30, 2024, increased $32 million versus the comparable period in 2023, primarily due to favorable pricing, partially offset by lower volumes, increased product coverage costs, higher compensation expenses and lower equity, royalty and interest income from investees.

Engine segment EBITDA for the nine months ended September 30, 2024, increased $9 million versus the comparable period in 2023, primarily due to favorable pricing and lower material costs, partially offset by higher compensation expenses, lower volumes, increased product coverage, higher managed expenses, lower equity, royalty and interest income from investees and unfavorable mix.

Distribution Segment Results

Financial data for the Distribution segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,						(Unfavorable)				September 30,						(Unfavorable)
In millions	2024			2023			Amount		Percent		2024			2023			Amount		Percent
External sales	$	2,942		$	2,519		$	423	17	%	$	8,292		$	7,494		$	798	11	%
Intersegment sales	10			16			(6)		(38)	%	24			42			(18)		(43)	%
Total sales	2,952			2,535			417		16	%	8,316			7,536			780		10	%

Research, development and engineering expenses	13			14			1		7	%	41			43			2		5	%
Equity, royalty and interest income from investees	25			22			3		14	%	73			70			3		4	%
Interest income	7			9			(2)		(22)	%	29			24			5		21	%

Segment EBITDA	370			306			64		21	%	978			940			38		4	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	12.5		%	12.1		%			0.4		11.8		%	12.5		%			(0.7)

Sales for our Distribution segment by region were as follows:


	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions	2024		2023		Amount		Percent		2024		2023		Amount		Percent
North America	$	1,950	$	1,731	$	219	13	%	$	5,574	$	5,223	$	351	7	%
Asia Pacific	343		292		51		17	%	938		798		140		18	%
Europe	310		200		110		55	%	835		608		227		37	%
China	120		112		8		7	%	352		327		25		8	%
Africa and Middle East	80		77		3		4	%	194		219		(25)		(11)	%
India	78		68		10		15	%	228		192		36		19	%
Latin America	71		55		16		29	%	195		169		26		15	%

Total sales	$	2,952	$	2,535	$	417	16	%	$	8,316	$	7,536	$	780	10	%

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


	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions	2024		2023		Amount		Percent		2024		2023		Amount		Percent
Power generation	$	1,091	$	606	$	485	80	%	$	2,752	$	1,712	$	1,040	61	%
Parts	1,004		995		9		1	%	2,995		3,071		(76)		(2)	%
Service	455		423		32		8	%	1,309		1,255		54		4	%
Engines	402		511		(109)		(21)	%	1,260		1,498		(238)		(16)	%
Total sales	$	2,952	$	2,535	$	417	16	%	$	8,316	$	7,536	$	780	10	%

Sales

Distribution segment sales for the three months ended September 30, 2024, increased $417 million versus the comparable period in 2023. The following were the primary drivers by region:

North American sales increased $219 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by lower demand for engines.
European sales increased $110 million mainly due to favorable demand in power generation markets.

Distribution segment sales for the nine months ended September 30, 2024, increased $780 million versus the comparable period in 2023. The following were the primary drivers by region:

North American sales increased $351 million principally due to higher demand in power generation markets, especially data center and commercial markets, partially offset by lower demand for engines and aftermarket products.
European sales increased $227 million mainly due to favorable demand in power generation markets.
Asia Pacific sales increased $140 million primarily due to strong demand in power generation markets, especially data center markets and service volume.

Segment EBITDA

Distribution segment EBITDA for the three months ended September 30, 2024, increased $64 million versus the comparable period in 2023, primarily due to increased volumes, partially offset by higher compensation expenses.

Distribution segment EBITDA for the nine months ended September 30, 2024, increased $38 million versus the comparable period in 2023, primarily due to favorable pricing, partially offset by higher compensation expenses and unfavorable mix.

Power Systems Segment Results

Financial data for the Power Systems segment was as follows:


	Three months ended						Favorable/				Nine months ended						Favorable/
	September 30,						(Unfavorable)				September 30,						(Unfavorable)
In millions	2024			2023			Amount		Percent		2024			2023			Amount		Percent
External sales	$	912		$	798		$	114	14	%	$	2,508		$	2,271		$	237	10	%
Intersegment sales	775			646			129		20	%	2,157			1,973			184		9	%
Total sales	1,687			1,444			243		17	%	4,665			4,244			421		10	%

Research, development and engineering expenses	57			60			3		5	%	180			189			9		5	%
Equity, royalty and interest income from investees	20			11			9		82	%	65			42			23		55	%
Interest income	1			3			(2)		(67)	%	7			7			—		—	%

Segment EBITDA	328			234			94		40	%	866			654			212		32	%

							Percentage Points										Percentage Points
Segment EBITDA as a percentage of total sales	19.4		%	16.2		%			3.2		18.6		%	15.4		%			3.2

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


	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions	2024		2023		Amount		Percent		2024		2023		Amount		Percent
Power generation	$	1,055	$	850	$	205	24	%	$	2,895	$	2,474	$	421	17	%
Industrial	508		475		33		7	%	1,406		1,398		8		1	%
Generator technologies	124		119		5		4	%	364		372		(8)		(2)	%
Total sales	$	1,687	$	1,444	$	243	17	%	$	4,665	$	4,244	$	421	10	%

Sales

Power Systems segment sales for the three and nine months ended September 30, 2024, increased $243 million and $421 million, respectively, versus the comparable periods in 2023, primarily due to an increase in global power generation sales (especially in data center markets).

Segment EBITDA

Power Systems segment EBITDA for the three and nine months ended September 30, 2024, increased $94 million and $212 million, respectively, versus the comparable periods in 2023, mainly due to favorable pricing and higher volumes, partially offset by higher compensation expenses.

Accelera Segment Results

Financial data for the Accelera segment was as follows:



	Three months ended				Favorable/				Nine months ended				Favorable/
	September 30,				(Unfavorable)				September 30,				(Unfavorable)
In millions	2024		2023		Amount		Percent		2024		2023		Amount		Percent
External sales	$	100	$	98	$	2	2	%	$	285	$	259	$	26	10	%
Intersegment sales	10		5		5		100	%	29		14		15		NM
Total sales	110		103		7		7	%	314		273		41		15	%

Research, development and engineering expenses	57		50		(7)		(14)	%	166		150		(16)		(11)	%
Equity, royalty and interest loss from investees	(11)		(3)		(8)		NM		(22)		(11)		(11)		(100)	%
Interest income	—		—		—		—	%	—		1		(1)		(100)	%
Segment EBITDA	(115)		(114)		(1)		(1)	%	(333)		(322)		(11)		(3)	%




"NM" - not meaningful information

Accelera segment sales for the three and nine months ended September 30, 2024, increased $7 million and $41 million versus the comparable periods in 2023 primarily due to improved sales of electrolyzers, partially offset by lower electrified powertrain sales.

OUTLOOK

Our outlook reflects the following positive trends and challenges to our business that could impact our revenue and earnings potential for the remainder of 2024.

Positive Trends

We expect demand for medium-duty trucks in North America to remain strong.
We believe market demand for trucks in India will continue to be strong.
We expect demand within our Power Systems business to remain strong, including the power generation and mining markets.
We anticipate demand in our aftermarket business will continue to be robust, driven primarily by strong demand in our Engine and Power Systems businesses.
We expect demand for trucks in China to remain stable in 2024.

Challenges

We expect demand for heavy-duty trucks in North America to weaken modestly during the remainder of 2024.
Increases in costs, as well as other inflationary pressures, could negatively impact earnings.
The financial implications resulting from our Settlement Agreements will result in incremental interest expense for debt utilized in funding the civil penalty.

LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

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


Dollars in millions	September 30, 2024			December 31, 2023
Working capital (1)	$	3,713		$	2,295
Current ratio	1.32			1.18
Accounts and notes receivable, net	$	5,387		$	5,583
Days' sales in receivables	59			58
Inventories	$	6,134		$	5,677
Inventory turnover	4.2			4.5
Accounts payable (principally trade)	$	4,206		$	4,260
Days' payable outstanding	61			62
Total debt	$	7,587		$	6,696
Total debt as a percent of total capital	40.1		%	40.3		%

(1) Working capital included cash and cash equivalents.

Cash Flows

Cash and cash equivalents were impacted as follows:


	Nine months ended
	September 30,
In millions	2024		2023		Change
Net cash provided by operating activities	$	65	$	2,507	$	(2,442)
Net cash used in investing activities	(1,069)		(860)		(209)
Net cash provided by (used in) financing activities	564		(1,069)		1,633
Effect of exchange rate changes on cash and cash equivalents	(6)		(67)		61
Net (decrease) increase in cash and cash equivalents	$	(446)	$	511	$	(957)

Net cash provided by operating activities decreased $2.4 billion for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to higher working capital requirements of $2.6 billion. The higher working capital requirements resulted in a cash outflow of $3.0 billion compared to a cash outflow of $370 million in the comparable period of 2023, mainly due to $1.9 billion of payments required by the Settlement Agreements.

Net cash used in investing activities increased $209 million for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to cash associated with the Atmus divestiture.

Net cash provided by financing activities increased $1.6 billion for the nine months ended September 30, 2024, versus the comparable period in 2023, primarily due to higher proceeds from borrowings of $1.8 billion (principally related to our 2024 note issuance) and increased net borrowings of commercial paper of $706 million, partially offset by higher payments on borrowings and finance lease obligations of $995 million (largely related to increased early payments of $950 million on our term loan, due 2025, compared to the prior year).

The effect of exchange rate changes on cash and cash equivalents for the nine months ended September 30, 2024, versus the comparable period in 2023, changed $61 million primarily due to favorable fluctuations in the British pound and Chinese renminbi.

Sources of Liquidity

We generate significant ongoing cash flow. Cash provided by operations is generally our principal source of liquidity. In February, we issued $2.25 billion in long-term debt to pay down higher cost debt, finance Settlement Agreement payments and improve our overall liquidity. Our sources of liquidity include the following:


	September 30, 2024
In millions	Total		U.S.		International		Primary location of international balances
Cash and cash equivalents	$	1,733	$	843	$	890	Singapore, Australia, Mexico, China, Belgium

Marketable securities (1)	518		87		431		India
Total	$	2,251	$	930	$	1,321
Available credit capacity
Revolving credit facilities (2)	$	2,364

International and other uncommitted domestic credit facilities	$	527




(1) The majority of marketable securities could be liquidated into cash within a few days.
(2) The five-year credit facility for $2.0 billion and the 364-day credit facility for $2.0 billion, maturing June 2029 and June 2025, respectively, are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At September 30, 2024, we had $1.6 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.4 billion.

Cash, Cash Equivalents and Marketable Securities

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

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

Debt Facilities and Other Sources of Liquidity

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. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. There were no outstanding borrowings under these facilities at September 30, 2024.

Our committed credit facilities provide access 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. The total combined borrowing capacity under the revolving credit facilities and commercial paper programs should not exceed $4.0 billion. At September 30, 2024, we had $1.6 billion of commercial paper outstanding, which effectively reduced our available capacity under our revolving credit facilities to $2.4 billion. See NOTE 9, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

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

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. 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, were $154 million.

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 approved limit of $500 million. There was no activity under the program during the nine months ended September 30, 2024. See NOTE 1, "NATURE OF OPERATIONS AND BASIS OF PRESENTATION," to the Condensed Consolidated Financial Statements for additional information.

Uses of Cash

Settlement Agreements

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 certain 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. See NOTE 11, "COMMITMENTS AND CONTINGENCIES," to the Condensed Consolidated Financial Statements for additional information.

Dividends

We paid dividends of $719 million during the nine months ended September 30, 2024. In July 2024, the Board authorized an increase to our quarterly dividend of approximately 8 percent from $1.68 per share to $1.82 per share.

Capital Expenditures

Capital expenditures for the nine months ended September 30, 2024, were $668 million versus $694 million in the comparable period in 2023. We continue to invest in new product lines and targeted capacity expansions. We plan to spend an estimated $1.2 billion to $1.3 billion in 2024 on capital expenditures with over 65 percent of these expenditures expected to be invested in North America.

Current Maturities of Short and Long-Term Debt

We had $1.6 billion of commercial paper outstanding at September 30, 2024, that matures in less than one year. The maturity schedule of our existing long-term debt requires significant cash outflows in 2025 when our 0.75 percent senior notes are due. Required annual long-term debt principal payments range from $60 million to $661 million over the next five years (including the remainder of 2024). We intend to retain our strong investment credit ratings. See NOTE 9, "DEBT," to the Condensed Consolidated Financial Statements for additional information.

Pensions

Our global pension plans, including our unfunded and non-qualified plans, were 113 percent funded at December 31, 2023. Our U.S. defined benefit plans (qualified and non-qualified), which represented approximately 69 percent of the worldwide pension obligation, were 113 percent funded, and our U.K. defined benefit plans were 113 percent funded at December 31, 2023. The funded status of our pension plans is dependent upon a variety of variables and assumptions including return on invested assets, market interest rates and levels of voluntary contributions to the plans. In the first nine months of 2024, the investment gain on our U.S. pension trusts was 6.3 percent, while our U.K. pension trusts' loss was 3.3 percent. 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.

Stock Repurchases

In December 2021, the Board authorized the acquisition of up to $2.0 billion of additional common stock upon completion of the $2.0 billion repurchase plan authorized in 2019. We did not make any repurchases of common stock in the first nine months of 2024. The dollar value remaining available for future purchases under the 2019 program at September 30, 2024, was $218 million.

Amplify Cell Technologies LLC Joint Venture

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. At September 30, 2024, our maximum remaining required contribution to the joint venture was $704 million, which could be reduced by future government incentives received by the joint venture. The majority of the contribution is expected to be made by the end of 2028. See NOTE 4, "EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES," to the Condensed Consolidated Financial Statements for additional information.

Credit Ratings

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



	Long-Term	Short-Term
Credit Rating Agency (1)	Senior Debt Rating	Debt Rating	Outlook
Standard and Poor’s Rating Services	A	A1	Stable

Moody’s Investors Service, Inc.	A2	P1	Stable

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

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to have ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our access to capital markets, our existing cash and marketable securities, operating cash flow and revolving credit facilities provide us with the financial flexibility needed to fund targeted capital expenditures, dividend payments, debt service obligations, projected pension obligations, common stock repurchases and fund joint venture contributions and acquisitions through 2024 and beyond. We continue to generate significant cash from operations and maintain access to our revolving credit facilities and commercial paper programs as noted above.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in NOTE 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our 2023 Form 10-K, which discusses accounting policies that we have selected from acceptable alternatives.

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

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

A discussion of our critical accounting estimates may be found in the “Management’s Discussion and Analysis” section of our 2023 Form 10-K under the caption “APPLICATION OF CRITICAL ACCOUNTING ESTIMATES.” Within the context of these critical accounting estimates, we are not currently aware of any reasonably likely events or circumstances that would result in different policies or estimates being reported in the first nine months of 2024.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See NOTE 17, "RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS," in the Notes to Condensed Consolidated Financial Statements for additional information.

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