UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 29, 2013~~March 30, 2014

Commission File Number 1-4949

CUMMINS INC.

(Exact name of registrant as specified in its charter)



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

500 Jackson Street

Box 3005

Columbus, Indiana 47202-3005

(Address of principal executive offices)

Telephone (812) 377-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~September 29, 2013~~March 30, 2014, there were ~~187,364,208~~183,886,610 shares of common stock outstanding with a par value of $2.50 per share.

Website Access to Company’s Reports

Cummins maintains an internet website at www.cummins.com. Investors can obtain copies of our filings from this website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished, to the Securities and Exchange Commission.

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q



		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~	4
	Condensed Consolidated Balance Sheets at ~~September 29, 2013~~March 30, 2014 and December 31, ~~2012~~ 2013	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~	6
	Condensed Consolidated Statements of Changes in Equity for the ~~nine~~three months ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3020
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5541
ITEM 4.	Controls and Procedures	5541
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	5642
ITEM 1A.	Risk Factors	5642
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5849
ITEM 3.	Defaults Upon Senior Securities	5850
ITEM 4.	Mine Safety Disclosures	5950
ITEM 5.	Other Information	5950
ITEM 6.	Exhibits	5950
	Signatures	6051
	Cummins Inc. Exhibit Index	6152

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three months ended Nine months ended
In millions, except per share amounts September 29, 2013 September 30, 2012 September 29, 2013 September 30, 2012
NET SALES ^(a)
$ 4,266
$ 4,118
$ 12,713
$ 13,042
Cost of sales 3,157
3,076
9,494
9,592
GROSS MARGIN 1,109
1,042
3,219
3,450

OPERATING EXPENSES AND INCOME

Selling, general and administrative expenses 492
456
1,420
1,418
Research, development and engineering expenses 173
186
532
554
Equity, royalty and interest income from investees (Note 5) 91
94
281
302
Gain on sale of businesses (Note 3) —
—
—
6
Other operating income (expense), net (11 ) (1 ) —
3
OPERATING INCOME 524
493
1,548
1,789

Interest income 6
5
21
20
Interest expense 8
9
22
25
Other income (expense), net 6
(2 ) 25
14
INCOME BEFORE INCOME TAXES 528
487
1,572
1,798

Income tax expense (Note 6) 154
117
445
458
CONSOLIDATED NET INCOME 374
370
1,127
1,340

Less: Net income attributable to noncontrolling interests 19
18
76
64
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 355
$ 352
$ 1,051
$ 1,276

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.

Basic $ 1.91
$ 1.87
$ 5.61
$ 6.73
Diluted $ 1.90
$ 1.86
$ 5.60
$ 6.72

WEIGHTED AVERAGE SHARES OUTSTANDING

Basic 186.0
188.6
187.4
189.6
Dilutive effect of stock compensation awards 0.5
0.4
0.4
0.4
Diluted 186.5
189.0
187.8
190.0

CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.625
$ 0.50
$ 1.625
$ 1.30



	Three months ended
In millions, except per share amounts	March 30, 2014			March 31, 2013
NET SALES ^(a)	$	4,406		$	3,922
Cost of sales	3,290			2,965
GROSS MARGIN	1,116			957

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	502			444
Research, development and engineering expenses	190			182
Equity, royalty and interest income from investees (Note 5)	90			82
Other operating income (expense), net	(1		)	1
OPERATING INCOME	513			414

Interest income	5			5
Interest expense	17			6
Other income (expense), net	10			18
INCOME BEFORE INCOME TAXES	511			431

Income tax expense (Note 6)	153			119
CONSOLIDATED NET INCOME	358			312

Less: Net income attributable to noncontrolling interests	20			30
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	338		$	282

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	1.83		$	1.50
Diluted	$	1.83		$	1.49

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	184.3			188.4
Dilutive effect of stock compensation awards	0.4			0.4
Diluted	184.7			188.8

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.625		$	0.50

^(a)Includes sales to nonconsolidated equity investees of $~~553~~592 million and $~~1,681 million~~ ~~and~~ ~~$579 million~~ ~~and~~ ~~$1,870~~552 million for the three ~~and nine~~ month periods ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~, respectively.

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended				Nine months ended					Three months ended
In millions	September 29, 2013		September 30, 2012		September 29, 2013			September 30, 2012		March 30, 2014			March 31, 2013
CONSOLIDATED NET INCOME	$	374	$	370	$	1,127		$	1,340	$	358		$	312
Other comprehensive income (loss), net of tax (Note 14)
Other comprehensive income (loss), net of tax (Note 13)
Foreign currency translation adjustments	95		131		(101		)	78		31			(150		)
Unrealized gain (loss) on derivatives	10		13		(2		)	24		2			(6		)
Change in pension and other postretirement defined benefit plans	16		9		56			30		4			19
Unrealized gain (loss) on marketable securities	1		2		(2		)	1		(2		)	(10		)
Total other comprehensive income (loss), net of tax	122		155		(49		)	133		35			(147		)
COMPREHENSIVE INCOME	496		525		1,078			1,473		393			165
Less: Comprehensive income attributable to noncontrolling interest	10		35		45			67		26			28
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	486	$	490	$	1,033		$	1,406	$	367		$	137

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)	CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)							CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

In millions, except par value		September 29, 2013			December 31, 2012				March 30, 2014			December 31, 2013
ASSETS
Current assets
Cash and cash equivalents		$	2,499		$	1,369			$	2,178		$	2,699
Marketable securities (Note 7)		162			247				129			150
Total cash, cash equivalents and marketable securities		2,661			1,616				2,307			2,849
Accounts and notes receivable, net
Trade and other		2,449			2,235				2,661			2,362
Nonconsolidated equity investees		260			240				288			287
Inventories (Note 9)		2,513			2,221
Inventories (Note 8)									2,580			2,381
Prepaid expenses and other current assets		643			855				663			760
Total current assets		8,526			7,167				8,499			8,639
Long-term assets
Property, plant and equipment		6,182			5,876				6,563			6,410
Accumulated depreciation		(3,234		)	(3,152		)		(3,331		)	(3,254		)
Property, plant and equipment, net		2,948			2,724				3,232			3,156
Investments and advances related to equity method investees		966			897
Investments and advances related to equity method investees (Note 5)									966			931
Goodwill		457			445				464			461
Other intangible assets, net		362			369				357			357
Prepaid pensions									622			514
Other assets		1,077			946				611			670
Total assets		$	14,336		$	12,548			$	14,751		$	14,728

LIABILITIES
Current liabilities
Loans payable		$	15		$	16			$	24		$	17
Accounts payable (principally trade)		1,613			1,339				1,887			1,557
Current maturities of long-term debt (Note 10)		47			61
Current portion of accrued product warranty (Note 11)		374			386
Current maturities of long-term debt (Note 9)									37			51
Current portion of accrued product warranty (Note 10)									345			360
Accrued compensation, benefits and retirement costs		413			400				323			433
Deferred revenue		269			215				295			285
Taxes payable (including taxes on income)		112			173				69			99
Other accrued expenses		547			546				575			566
Total current liabilities		3,390			3,136				3,555			3,368
Long-term liabilities
Long-term debt (Note 10)		1,731			698
Long-term debt (Note 9)									1,632			1,672
Pensions									232			232
Postretirement benefits other than pensions		407			432				347			356
Other liabilities and deferred revenue		1,344			1,308				1,251			1,230
Total liabilities		6,872			5,574				7,017			6,858

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

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.4 shares issued		2,095			2,058
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued									2,101			2,099
Retained earnings		8,089			7,343				8,629			8,406
Treasury stock, at cost, 34.9 and 32.6 shares		(2,104		)	(1,830		)
Common stock held by employee benefits trust, at cost, 1.3 and 1.5 shares		(16		)	(18		)
Accumulated other comprehensive loss (Note 14)
Treasury stock, at cost, 38.4 and 35.6 shares									(2,600		)	(2,195		)
Common stock held by employee benefits trust, at cost, 1.2 and 1.3 shares									(15		)	(16		)
Accumulated other comprehensive loss (Note 13)
Defined benefit postretirement plans		(738		)	(794		)		(607		)	(611		)
Other		(230		)	(156		)		(148		)	(173		)
Total accumulated other comprehensive loss		(968		)	(950		)		(755		)	(784		)
Total Cummins Inc. shareholders’ equity		7,096			6,603				7,360			7,510
Noncontrolling interests		368			371				374			360
Total equity		7,464			6,974				7,734			7,870
Total liabilities and equity		$	14,336		$	12,548			$	14,751		$	14,728

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)							CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		Nine months ended							Three months ended
In millions		September 29, 2013			September 30, 2012				March 30, 2014			March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	1,127		$	1,340			$	358		$	312
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Depreciation and amortization		305			262				105			98
Restructuring payments, net (Note 15)		(25		)	—
Gain on sale of businesses (Note 3)		—			(6		)
Gain on fair value adjustment for consolidated investees (Note 3)		(12		)	(7		)		(6		)	(7		)
Deferred income taxes		78			91				22			5
Equity in income of investees, net of dividends		(98		)	(51		)		(52		)	(36		)
Pension contributions in excess of expense (Note 4)		(96		)	(74		)		(100		)	(54		)
Other post-retirement benefits payments in excess of expense (Note 4)		(20		)	(16		)		(8		)	(8		)
Stock-based compensation expense		29			29				10			7
Excess tax benefits on stock-based awards		(13		)	(12		)		(5		)	(7		)
Translation and hedging activities		26			16				(3		)	(5		)
Changes in current assets and liabilities, net of acquisitions:
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable		(216		)	66				(232		)	(29		)
Inventories		(206		)	(367		)		(135		)	(177		)
Other current assets		182			(54		)		2			158
Accounts payable		252			(145		)		302			204
Accrued expenses		(146		)	(398		)		(95		)	(142		)
Changes in other liabilities and deferred revenue		147			154				50			47
Other, net		19			(41		)		50			62
Net cash provided by operating activities		1,333			787				263			428

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(417		)	(424		)		(107		)	(114		)
Investments in internal use software		(43		)	(62		)		(14		)	(12		)
Investments in and advances to equity investees		(12		)	(92		)		(6		)	(24		)
Acquisition of businesses, net of cash acquired (Note 3)		(145		)	(215		)
Proceeds from sale of business, net of cash sold		—			10
Acquisitions of businesses, net of cash acquired (Note 3)									(90		)	(17		)
Investments in marketable securities—acquisitions (Note 7)		(360		)	(433		)		(84		)	(133		)
Investments in marketable securities—liquidations (Note 7)		433			475				108			187
Cash flows from derivatives not designated as hedges		(15		)	13				5			(30		)
Other, net		14			9				1			—
Net cash used in investing activities		(545		)	(719		)		(187		)	(143		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings (Note 10)		987			64
Proceeds from borrowings									7			—
Payments on borrowings and capital lease obligations		(62		)	(120		)		(25		)	(27		)
Net borrowings under short-term credit agreements		34			5
Net borrowings (payments) under short-term credit agreements									(39		)	15
Distributions to noncontrolling interests		(53		)	(50		)		(13		)	(19		)
Dividend payments on common stock		(305		)	(246		)		(115		)	(95		)
Repurchases of common stock		(289		)	(231		)		(419		)	—
Excess tax benefits on stock-based awards		13			12				5			7
Other, net		19			16				(3		)	16
Net cash provided by (used in) financing activities		344			(550		)
Net cash used in financing activities									(602		)	(103		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(2		)	31				5			(68		)
Net increase (decrease) in cash and cash equivalents		1,130			(451		)		(521		)	114
Cash and cash equivalents at beginning of year		1,369			1,484				2,699			1,369
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,499		$	1,033			$	2,178		$	1,483

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


In millions	Common Stock		Additional paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Common Stock Held in Trust			Total Cummins Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity			Common Stock		Additional paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Common Stock Held in Trust			Total Cummins Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity
BALANCE AT DECEMBER 31, 2011	$	555	$	1,446	$	6,038		$	(938	)	$	(1,587	)	$	(22	)	$	5,492		$	339		$	5,831
BALANCE AT DECEMBER 31, 2012																										$	556	$	1,502		$	7,343		$	(950	)	$	(1,830	)	$	(18	)	$	6,603		$	371		$	6,974
Net income																															282												282			30			312
Other comprehensive income (loss)																																		(145		)							(145		)	(2		)	(147		)
Issuance of shares																												1															1			—			1
Employee benefits trust activity																												8												1			9			—			9
Cash dividends on common stock																															(95		)										(95		)	—			(95		)
Distribution to noncontrolling interests																																											—			(19		)	(19		)
Stock based awards																																					3						3			—			3
Other shareholder transactions																												(3		)													(3		)	10			7
BALANCE AT MARCH 31, 2013																										$	556	$	1,508		$	7,530		$	(1,095	)	$	(1,827	)	$	(17	)	$	6,655		$	390		$	7,045

BALANCE AT DECEMBER 31, 2013																										$	556	$	1,543		$	8,406		$	(784	)	$	(2,195	)	$	(16	)	$	7,510		$	360		$	7,870
Net income					1,276												1,276			64			1,340								338												338			20			358
Other comprehensive income (loss)								130									130			3			133											29									29			6			35
Issuance of shares	1		5														6			—			6					1															1			—			1
Employee benefits trust activity			22											3			25			—			25					9												1			10			—			10
Acquisition of shares											(231		)				(231		)	—			(231		)												(419		)				(419		)	—			(419		)
Cash dividends on common stock					(246		)										(246		)	—			(246		)						(115		)										(115		)	—			(115		)
Distribution to noncontrolling interests																	—			(71		)	(71		)																		—			(13		)	(13		)
Stock option exercises											9						9			—			9
Stock based awards																												(8		)							14						6			—			6
Other shareholder transactions			17														17			21			38																				—			1			1
BALANCE AT SEPTEMBER 30, 2012	$	556	$	1,490	$	7,068		$	(808	)	$	(1,809	)	$	(19	)	$	6,478		$	356		$	6,834

BALANCE AT DECEMBER 31, 2012	$	556	$	1,502	$	7,343		$	(950	)	$	(1,830	)	$	(18	)	$	6,603		$	371		$	6,974
Net income					1,051												1,051			76			1,127
Other comprehensive income (loss)								(18		)							(18		)	(31		)	(49		)
Issuance of shares			5														5			—			5
Employee benefits trust activity			18											2			20			—			20
Acquisition of shares											(289		)				(289		)	—			(289		)
Cash dividends on common stock					(305		)										(305		)	—			(305		)
Distribution to noncontrolling interests																	—			(53		)	(53		)
Stock option exercises			1								15						16			—			16
Other shareholder transactions			13														13			5			18
BALANCE AT SEPTEMBER 29, 2013	$	556	$	1,539	$	8,089		$	(968	)	$	(2,104	)	$	(16	)	$	7,096		$	368		$	7,464
BALANCE AT MARCH 30, 2014																										$	556	$	1,545		$	8,629		$	(755	)	$	(2,600	)	$	(15	)	$	7,360		$	374		$	7,734

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

Table of Contents

CUMMINS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS

Cummins Inc. (“Cummins,” “we,” “our” or “us”) was founded in 1919 as a corporation in Columbus, Indiana, as one of the first diesel engine manufacturers. We are a global power leader that designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. We sell our products to original equipment manufacturers (OEMs), distributors and other customers worldwide.We serve our customers through a network of ~~approximately~~over 600 company-owned and independent distributor locations and ~~approximately 6,500~~over 6,800 dealer locations in more than 190 countries and territories.

NOTE 2. BASIS OF PRESENTATION

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 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ~~(SEC)~~ and in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted as permitted by such rules and regulations. Certain reclassifications have been made to prior period amounts to conform to the presentation of the current period condensed financial statements.

Our reporting period usually ends on the Sunday closest to the last day of the quarterly calendar period. The ~~third~~first quarters of ~~2013~~2014 and ~~2012~~2013 ended on ~~September 29~~March 30 and ~~September 30,~~March 31, respectively. The interim periods for both ~~2013~~2014 and ~~2012~~2013 contained 13 ~~weeks, while the nine month periods both contained 39~~ weeks. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the Condensed Consolidated Financial Statements. Significant estimates and assumptions in theseCondensed Consolidated Financial Statements require the exercise of judgment and are used for, but not limited to, allowance for doubtful accounts, estimates of future cash flows and other assumptions associated with goodwill and long-lived asset impairment tests, useful lives for depreciation and amortization, warranty programs, determination of discount and other rate assumptions for pension and other postretirement benefit expenses, income taxes and deferred tax valuation allowances, lease classifications and contingencies. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates.

The weighted-average diluted common shares outstanding exclude the anti-dilutive effect of certain stock options since such options had an exercise price in excess of the monthly average market value of our common stock. The options excluded from diluted earnings per share for the three ~~and nine~~ month periods ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~, were as follows:

Three months ended Nine months ended
September 29, 2013 September 30, 2012 September 29, 2013 September 30, 2012
Options excluded 184,775
599,637
479,276
412,318



	Three months ended
	March 30, 2014	March 31, 2013
Options excluded	1,430	563,350

You should read these interim condensed financial statements in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~2013. Our interim period financial results for the three ~~and nine~~ month interim 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 disclosures required by GAAP.

NOTE 3. ACQUISITIONS

In September 2013, we announced our intention to acquire the equity that we do not already own in most of our partially-owned United States and Canadian distributors over the next three to five years.

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~~NOTE 3. ACQUISITIONS AND DIVESTITURES~~

Cummins ~~Rocky Mountain~~Mid-South LLC

~~In May 2013,~~On February 14, 2014, we acquired the remaining 6762.2 percent interest in Cummins ~~Rocky Mountain~~Mid-South LLC ~~(Rocky Mountain)~~(Mid-South) from the former ~~principal for~~distributor principal. The preliminary purchase consideration ~~of approximately~~ ~~$62~~was $116 million, which included $32 million in cash and an additional ~~$74~~$61 million ~~in cash~~ paid to ~~creditors~~eliminate outstanding debt. The remaining $23 million will be paid in future periods, subject to ~~eliminate all debt related to the entity. The~~customary purchase price ~~was approximately~~ ~~$136 million~~ ~~as presented below. The intangible assets are primarily customer related and are being amortized over periods ranging from one to four years.~~adjustments. The acquisition was accounted for as a business combination ~~with~~and the results of the acquired entity were included in the Distribution operating segment insubsequent to the ~~second~~acquisition date. As a result of this transaction, first quarter ~~of 2013.~~

2014 Distribution segment results ~~also~~ included a $5$6 million gain, as we were required to re-measure our pre-existing 3337.8 percent ownership interest in ~~Rocky Mountain~~Mid-South to fair value in accordance with GAAP. The transaction generated $3 million of goodwill based on the preliminary purchase price allocation. Net sales for ~~Rocky Mountain~~Mid-South were ~~$384~~$368 million for the ~~12 months~~year ended December 31, ~~2012.~~2013. This amount is not fully incremental to ~~Cummins Inc.~~our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity. ~~Approximately~~ ~~$11 million~~ ~~of the~~ ~~$14 million~~ ~~deferred purchase price was distributed in the third quarter of 2013. The remaining balance is expected to be paid in future quarters.~~

~~The updated purchase price allocation at September 29, 2013, was as follows:~~

In millions
Accounts receivable $ 48
Inventory 100
Fixed assets 34
Intangible assets 8
Goodwill 9
Other assets 8
Current liabilities (40 )
Total business valuation 167
Fair value of pre-existing 33 percent interest (31 )
Purchase price $ 136

Cummins Northwest LLC

In January 2013, we acquired ~~an additional~~ the remaining 50 percent interest in Cummins Northwest LLC (Northwest) from the former principal for consideration of approximately ~~$18 million~~.$18 million. We immediately formed a new partnership with a new distributor ~~principal. We owned~~ ~~79.99~~principal and sold 20.01 percent ~~of Northwest and~~ to the new distributor ~~principal owned~~ ~~20.01 percent~~.principal. We retained a new ownership in Northwest of 79.99 percent. The acquisition was accounted for as a business combination, with the results of the acquired entity included in the Distribution segment insubsequent to the ~~first quarter of 2013.~~acquisition date. Distribution segment results also included a $7$7 million gain, as we were required to re-measure our pre-existing 50 percent ownership interest in Northwest to fair value in accordance with GAAP. The transaction generated $3$3 million of goodwill. Net sales for Northwest were ~~$137~~$137 million for the ~~12 months~~year ended December 31, 2012. This amount is not fully incremental to ~~Cummins Inc.~~our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.

In July 2013, we acquired the remaining 20.01 percent from the ~~former~~new distributor principal for an additional ~~$4 million~~.$4 million. Since the entity was already consolidated, this was accounted for as an equity transaction.

~~Hilite Germany GmbH~~

In July 2012, we purchased the doser technology and business assets from Hilite Germany GmbH (Hilite) in a cash transaction. Dosers are products that enable compliance with emission standards in certain aftertreatment systems and complement our current product offerings. The purchase price was ~~$176 million~~ ~~and is summarized below. There was no contingent consideration associated with this transaction. During the first nine months of 2012, we expensed approximately~~ ~~$4 million~~ ~~of acquisition related costs.~~

~~Table of Contents~~

The acquisition of Hilite was accounted for as a business combination, with the results of the acquired entity and the goodwill included in the Components segment in the third quarter of 2012. The majority of the purchase price was allocated to technology and customer related intangible assets and goodwill, most of which was fully deductible for tax purposes. We expect the Hilite acquisition to strengthen our aftertreatment product offerings. This acquisition enhances our technical capabilities and keeps us in a strong position to meet the needs of current customers and grow into new markets, especially as an increasing number of regions around the world adopt tougher emission standards.

~~Intangible assets by asset class, including weighted average amortization life, were as follows:~~

Dollars in millions Purchase price allocation Weighted average amortization life in years
Technology $ 52
10.6
Customer 23
4.5
License arrangements 8
6.0
Total intangible assets $ 83
8.5

~~The purchase price allocation was as follows:~~

In millions
Inventory $ 5
Fixed assets 5
Intangible assets 83
Goodwill 91
Liabilities (8 )
Total purchase price $ 176

~~Cummins Central Power~~

~~In July 2012, we acquired an additional~~ ~~45 percent~~ ~~interest in Cummins Central Power from the former principal for consideration of approximately~~ ~~$20 million~~. The acquisition was accounted for as a business combination, with the results of the acquired entity included in the Distribution segment in the third quarter of 2012. Distribution segment results also included a ~~$7 million~~ ~~gain, as we were required to re-measure our pre-existing~~ ~~35 percent~~ ~~ownership interest in Cummins Central Power to fair value in accordance with GAAP. Net sales for Cummins Central Power were~~ ~~$209 million~~ ~~for the 12 months ended December 31, 2011. This amount is not fully incremental to Cummins Inc. as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.~~

~~Divestitures~~

~~In the second quarter of 2012, we recorded an additional~~ ~~$6 million~~ ~~gain ($4 million~~ after-tax) related to final purchase price adjustments for our 2011 divestitures. The gain was excluded from segment results as it was not considered in our evaluation of operating results for the nine months ended September 30, 2012.

NOTE 4. PENSION AND OTHER POSTRETIREMENT BENEFITS

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

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	Three months ended				Nine months ended				Three months ended
In millions	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012		March 30, 2014		March 31, 2013
Defined benefit pension and other postretirement plans
Voluntary contribution	$	33	$	34	$	110	$	107	$	39	$	39
Mandatory contribution	7		4		51		15		75		37
Defined benefit pension contributions	40		38		161		122		114		76
Other postretirement plans	11		14		37		31		12		14
Total defined benefit plans	$	51	$	52	$	198	$	153	$	126	$	90

Defined contribution pension plans	$	14	$	15	$	50	$	59	$	26	$	22

We ~~made~~ ~~$161 million~~ ofanticipate making additional defined benefit pension contributions ~~in the~~ ~~nine~~ ~~months ended~~ ~~September 29, 2013~~and ~~we anticipate making an additional~~ ~~$9 million~~ ~~of contributions~~other postretirement benefit payments during the remainder of ~~2013. We paid~~ ~~$37 million~~2014 of ~~claims~~$91 million and ~~premiums for other postretirement benefits in the~~ ~~nine~~ ~~months ended~~ ~~September 29, 2013; payments for the remainder of~~ ~~2013~~ ~~are expected to be~~ $1031 million., respectively. The $~~170~~205 million of pension contributions for the full year include voluntary contributions of approximately $~~115~~111 million. These contributions and payments may be made from trusts or company funds either to increase pension assets or to make direct benefit payments to plan participants. ~~Our expected pension expense for 2013 was reduced by~~ ~~$10 million, to~~ ~~$87 million, from the amount we had expected at December 31, 2012, due to a remeasurement~~

Table of ~~the U.S. plan for changes in employee census data in the first quarter of 2013.~~Contents

The components of net periodic pension and other postretirement benefit costs under our plans were as follows:


	Pension																	Pension
	U.S. Plans						U.K. Plans						Other Postretirement Benefits					U.S. Plans						U.K. Plans						Other Postretirement Benefits
	Three months ended																	Three months ended
In millions	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012			September 29, 2013		September 30, 2012			March 30, 2014			March 31, 2013			March 30, 2014			March 31, 2013			March 30, 2014		March 31, 2013
Service cost	$	17		$	15		$	5		$	5		$	—	$	—		$	17		$	17		$	6		$	5		$	—	$	—
Interest cost	23			25			14			15			4		6			26			24			16			14			4		4
Expected return on plan assets	(42		)	(40		)	(17		)	(20		)	—		—			(44		)	(42		)	(22		)	(18		)	—		—
Amortization of prior service credit	—			—			—			—			—		(1		)
Recognized net actuarial loss	16			12			6			4			2		—			8			16			7			6			—		2
Net periodic benefit cost	$	14		$	12		$	8		$	4		$	6	$	5		$	7		$	15		$	7		$	7		$	4	$	6

Pension
U.S. Plans U.K. Plans Other Postretirement Benefits
Nine months ended
In millions September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012
Service cost $ 52
$ 44
$ 15
$ 16
$ —
$ —
Interest cost 70
77
42
44
12
16
Expected return on plan assets (126 ) (118 ) (53 ) (61 ) —
—
Amortization of prior service credit —
—
—
—
—
(3 )
Recognized net actuarial loss 47
35
18
11
5
2
Net periodic benefit cost $ 43
$ 38
$ 22
$ 10
$ 17
$ 15

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NOTE 5. EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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


	Three months ended					Nine months ended					Three months ended
In millions	September 29, 2013		September 30, 2012			September 29, 2013		September 30, 2012			March 30, 2014			March 31, 2013
Distribution Entities
North American distributors	$	34	$	37		$	98	$	115		$	32		$	35
Komatsu Cummins Chile, Ltda.	6		9			17		20			6			5
All other distributors	1		—			1		3			1			—
Manufacturing Entities
Dongfeng Cummins Engine Company, Ltd.											14			12
Chongqing Cummins Engine Company, Ltd.	15		14			44		49			11			12
Dongfeng Cummins Engine Company, Ltd.	13		9			45		42
Beijing Foton Cummins Engine Co., Ltd.	4		3			14		3
Beijing Foton Cummins Engine Co., Ltd. (Light-duty)											6			1
Shanghai Fleetguard Filter Co., Ltd.	4		3			11		10			3			3
Tata Cummins, Ltd.											2			1
Cummins Westport, Inc.	2		2			5		11			1			—
Tata Cummins, Ltd.	1		—			4		7
Komatsu manufacturing alliances	—		(1		)	3		(1		)
Valvoline Cummins, Ltd.	—		2			5		6
Xian Cummins Engine Company Ltd.	—		1			1		(5		)
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)											(6		)	(3		)
All other manufacturers	3		6			6		12			9			7
Cummins share of net income	83		85			254		272			79			73
Royalty and interest income	8		9			27		30			11			9
Equity, royalty and interest income from investees	$	91	$	94		$	281	$	302		$	90		$	82

NOTE 6. INCOME TAXES

Our effective tax rate for the year is expected to approximate 28.5 percent, excluding any one-time items that may arise. The research tax credit expired December 31, 2013 and has not yet been renewed by Congress. Our tax rate is generally less than the 35 percent U.S. statutory income tax rate primarily due to lower tax rates on foreign ~~income and research~~income. The effective tax ~~credits. The tax rates~~rate for the three months ended March 30, 2014, was ~~three and nine month periods ended September 29, 2013, were~~ ~~29.2~~29.9 percent ~~and~~ ~~28.3 percent, respectively. These tax rates include a~~ ~~$7 million~~ ~~discrete net tax expense for the third quarter tax adjustments:~~ ~~$4 million~~ ~~expense attributable to prior year tax return true-up adjustments,~~ ~~$1 million~~ ~~benefit related to release of prior year tax reserves and a discrete tax charge for~~ ~~$4 million~~ ~~related to a third quarter enactment of U.K. tax law changes. In addition, the nine month~~. This tax rate includes a $12 million discrete tax expense attributable primarily to state deferred tax adjustments, as well as a $5 million discrete net tax benefit resulting from a $70 million dividend paid from China earnings generated prior to 2012.

Our effective tax rate for the three months ended March 30, 2014, was 27.6 percent. This tax rate included a discrete tax benefit ~~in the first quarter of 2013~~ of $28 million attributable to the ~~reinstatement of the~~2012 research credit ~~back to 2012,~~reinstated in January 2013, as well as a discrete tax expense ~~in the first quarter of 2013~~ of $17 million, which primarily ~~relates~~related to the write-off of a deferred tax asset deemed unrecoverable. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and reinstated the research tax credit. As tax law changes are accounted for in the period of enactment, we recognized the discrete tax benefit in the first quarter of 2013.

~~Our tax rates for the~~ ~~three and nine month periods ended September 30, 2012, were~~ ~~24.1 percent~~ ~~and~~ ~~25.5 percent, respectively. These tax rates include a~~ ~~$16 million~~ ~~tax benefit for third quarter discrete tax adjustments,~~ ~~$6 million~~ ~~of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of~~ ~~$13 million~~ ~~for prior year tax return true-up adjustments and a discrete tax charge of~~ ~~$3 million~~ ~~related to the third quarter enactment of U.K. tax law changes.~~ The increase in the three month effective tax rate from 2013 ~~effective tax rates compared~~ to ~~2012~~2014 is attributable primarily to one-time discrete tax benefits in 2013 that did not repeat in 2014 and changes in U.S. state tax legislation that unfavorably impacted our 2014 effective tax rate.

We anticipate that we may resolve tax matters related primarily to certain tax credits presently under examination in U.S. federal and state tax jurisdictions. As of March 30, 2014, we estimate that it is reasonably possible that unrecognized tax

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benefits may decrease in an amount ranging from $0 to $75 million in the next twelve months due to ~~unfavorable changes in~~ the ~~pre-tax mix~~resolution of ~~income taxed in higher rate jurisdictions and discrete tax items.~~

In September 2013, the Internal Revenue Service released final tangible personal property regulations regarding the deduction and capitalization of expenditures related to tangible property. The new rules will become effective for taxable years beginning on or after January 1, 2014. While we are still finalizing our analysis, wethese issues. We do not ~~believe that these regulations will~~expect this resolution to have a material impact on our ~~Consolidated Financial Statements~~.results of operations.

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NOTE 7. MARKETABLE SECURITIES

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


	September 29, 2013						December 31, 2012						March 30, 2014						December 31, 2013
In millions	Cost		Gross unrealized gains/(losses)		Estimated fair value		Cost		Gross unrealized gains/(losses)		Estimated fair value		Cost		Gross unrealized gains/(losses)		Estimated fair value		Cost		Gross unrealized gains/(losses)			Estimated fair value
Available-for-sale
Debt mutual funds⁽¹⁾	$	91	$	1	$	92	$	139	$	3	$	142
Level 1⁽¹⁾
Debt mutual funds													$	61	$	—	$	61	$	72	$	—		$	72
Equity securities and other													17		13		30		10		13			23
Total level 1													78		13		91		82		13			95
Level 2⁽²⁾
Debt mutual funds													30		1		31		27		2			29
Bank debentures	9		—		9		45		—		45		—		—		—		2		—			2
Certificates of deposit	36		—		36		47		—		47		4		—		4		22		—			22
Government debt securities-non-U.S.	3		—		3		3		—		3		3		—		3		3		(1		)	2
Corporate debt securities	—		—		—		1		—		1
Equity securities and other⁽²⁾	12		10		22		—		9		9
Total level 2													37		1		38		54		1			55
Total marketable securities	$	151	$	11	$	162	$	235	$	12	$	247	$	115	$	14	$	129	$	136	$	14		$	150

~~______________________________________________________~~________________________________________________________________________________________

⁽¹⁾~~Contractual maturities are only applicable to debt mutual funds that utilize a~~The fair value of Level ~~2 fair value.~~1 securities is estimated primarily by referencing quoted prices in active markets for identical assets.

⁽²⁾InThe fair value of Level 2 securities is estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. We do not currently have any Level 3 securities, and there were no transfers into or out of Level 2 or 3 during the first ~~quarter~~three months of ~~2013, we realized a $9 million gain on the sale of equity securities.~~2014 and 2013.

The proceeds from sales and maturities of marketable securities and gross realized gains and losses from the sale of available-for-sale securities were as follows:


	Three months ended				Nine months ended				Three months ended
In millions	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012		March 30, 2014		March 31, 2013
Proceeds from sales and maturities of marketable securities	$	153	$	195	$	433	$	475	$	108	$	187
Gross realized gains from the sale of available-for-sale securities	1		1		12		4		1		10

At ~~September 29, 2013~~March 30, 2014, the fair value of available-for-sale investments ~~with~~in debt securities that utilize a Level 2 fair value measure by contractual ~~maturities~~maturity was as follows:

Fair value
Maturity date (in millions)
1 year or less $ 68
1-5 years 1
5-10 years 10
Total $ 79

~~NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

The majority of the assets and liabilities we carry at fair value are available-for-sale (AFS) securities and derivatives. AFS securities are derived from Level 1 or Level 2 inputs. Derivative assets and liabilities are derived from Level 2 inputs. The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When material, we adjust the values of our derivative contracts for counter-party or our credit risk. There were no transfers into or out of Levels 2 or 3 in the first ~~nine~~ ~~months of~~ ~~2013~~ ~~and~~ ~~2012~~.



Maturity date	Fair value (in millions)
1 year or less	$	35
1 - 5 years	2
5 - 10 years	1
Total	$	38

1311

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~~The following table summarizes our financial instruments recorded at fair value in our~~ ~~Condensed Consolidated Balance Sheets~~ at ~~September 29, 2013~~:

Fair Value Measurements Using

Quoted prices in
active markets for
identical assets

Significant other
observable inputs

Significant
unobservable inputs

In millions (Level 1) (Level 2) (Level 3) Total
Available-for-sale debt securities

Debt mutual funds $ 61
$ 31
$ —
$ 92
Bank debentures —
9
—
9
Certificates of deposit —
36
—
36
Government debt securities-non-U.S. —
3
—
3

Available-for-sale equity securities

Information technology industry 22
—
—
22

Derivative assets

Interest rate contracts —
54
—
54
Foreign currency forward contracts —
5
—
5
Commodity call option contracts —
1
—
1
Total assets $ 83
$ 139
$ —
$ 222

Derivative liabilities

Commodity swap contracts —
5
—
5
Foreign currency forward contracts —
2
—
2
Commodity put option contracts —
1
—
1
Total liabilities $ —
$ 8
$ —
$ 8

~~Table of Contents~~

~~The following table summarizes our financial instruments recorded at fair value in our~~ ~~Condensed Consolidated Balance Sheets~~ at ~~December 31, 2012~~:NOTE 8. INVENTORIES

Inventories are stated at the lower of cost or market. Inventories included the following:

Fair Value Measurements Using
Quoted prices in
active markets for
identical assets Significant other
observable inputs Significant
unobservable inputs
In millions (Level 1) (Level 2) (Level 3) Total
Available-for-sale debt securities

Debt mutual funds $ 100
$ 42
$ —
$ 142
Bank debentures —
45
—
45
Certificates of deposit —
47
—
47
Government debt securities-non-U.S. —
3
—
3
Corporate debt securities —
1
—
1

Available-for-sale equity securities

Financial services industry 9
—
—
9

Derivative assets

Interest rate contracts —
88
—
88
Foreign currency forward contracts —
3
—
3
Commodity swap contracts —
1
—
1
Commodity call option contracts —
1
—
1
Total assets $ 109
$ 231
$ —
$ 340

Derivative liabilities

Commodity swap contracts —
2
—
2
Commodity put option contracts —
1
—
1
Total liabilities $ —
$ 3
$ —
$ 3



In millions	March 30, 2014			December 31, 2013
Finished products	$	1,598		$	1,487
Work-in-process and raw materials	1,102			1,005
Inventories at FIFO cost	2,700			2,492
Excess of FIFO over LIFO	(120		)	(111		)
Total inventories	$	2,580		$	2,381

NOTE 9. DEBT

~~The substantial majority~~A summary of ~~our assets were valued utilizing a market approach. A description of the valuation techniques and inputs used for our level 2 fair value measures~~long-term debt was as follows:



In millions	March 30, 2014			December 31, 2013
Long-term debt
Senior notes, 3.65%, due 2023⁽¹⁾	$	500		$	500
Debentures, 6.75%, due 2027	58			58
Debentures, 7.125%, due 2028 ⁽¹⁾	250			250
Senior notes, 4.875%, due 2043	500			500
Debentures, 5.65%, due 2098 (effective interest rate 7.48%)	165			165
Credit facilities related to consolidated joint ventures	56			92
Other	49			65
	1,578			1,630
Unamortized discount	(48		)	(48		)
Fair value adjustments due to hedge on indebtedness	46			49
Capital leases	93			92
Total long-term debt	1,669			1,723
Less: Current maturities of long-term debt	(37		)	(51		)
Long-term debt	$	1,632		$	1,672

~~Debt mutual funds~~⁽¹⁾ ~~— Assets~~In February 2014, we settled our November 2005 interest rate swap which previously converted our $250 million debt issue, due in ~~Level 2 consist of exchange traded mutual funds that lack sufficient trading volume~~2028, from a fixed rate to ~~be classified at Level 1. The fair value measure for these investments is the daily net asset value published~~a floating rate based on a ~~regulated governmental website. Daily quoted prices are available~~LIBOR spread. We will amortize the $52 million gain realized upon settlement over the remaining 14-year term of related debt. Also, in February 2014, we entered into a series of interest rate swaps to effectively convert our September 2013, $500 million debt issue, due in 2023, from ~~the issuing brokerage and are used on a test basis to corroborate this Level 2 input.~~

~~Bank debentures and Certificates of deposit— These investments provide us with~~ a fixed rate of ~~return and generally range in maturity from~~3.65 percent to a floating rate equal to the one-month LIBOR ~~six months~~plus a spread.to See Note 12, "DERIVATIVES" for further details.

Principal payments required on long-term debt during the next five ~~years. The counter-parties to these investments~~years 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 institutions’ month-end statement.as follows:



	Required Principal Payments
In millions	2014		2015		2016		2017		2018
Payment	$	32	$	56	$	44	$	9	$	15

~~Government debt securities-non-U.S. and Corporate debt securities~~— The fair value measure for these securities are broker quotes received from reputable firms. These securities are infrequently traded on a national stock exchange and these values are used on a test basis to corroborate our Level 2 input measure.

~~Foreign currency forward contracts~~— The fair value measure for these contracts are determined based on forward foreign exchange rates received from third-party pricing services. These rates are based upon market transactions and are periodically corroborated by comparing to third-party broker quotes.

~~Commodity swap contracts~~— The fair value measure for these contracts are current spot market data adjusted for the appropriate current forward curves provided by external financial institutions. The current spot price is the most

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significant component of this valuation and is based upon market transactions. We use third-party pricing services for the spot price component of this valuation which is periodically corroborated by market data from broker quotes.

~~Commodity call and put option contracts~~— We utilize the month-end statement from the issuing financial institution as our fair value measure for this investment. We corroborate this valuation through the use of a third-party pricing service for similar assets and liabilities.

~~Interest rate contracts— We currently have onlyone~~interest rate contract. We utilize the month-end statement from the issuing financial institution as our fair value measure for this investment. We corroborate this valuation through the use of a third-party pricing service for similar assets and liabilities.

Fair Value of ~~Other Financial Instruments~~Debt

Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair value and carrying value of total debt, including current maturities, ~~at September 29, 2013 and December 31, 2012, are set forth in the table below. The carrying values of all other receivables and liabilities approximated fair values.~~ was as follows:



In millions	March 30, 2014		December 31, 2013
Fair value of total debt⁽¹⁾	$	1,918	$	1,877
Carrying value of total debt	1,693		1,740

⁽¹⁾The fair value of ~~financial instruments~~debt is derived from Level 2 inputs.

In millions September 29,
2013 December 31,
2012
Fair value of total debt $ 1,952
$ 926
Carrying value of total debt 1,793
775

~~NOTE 9. INVENTORIES~~

~~Inventories are stated at the lower of cost or market. Inventories included the following:~~

In millions September 29,
2013 December 31,
2012
Finished products $ 1,581
$ 1,393
Work-in-process and raw materials 1,045
939
Inventories at FIFO cost 2,626
2,332
Excess of FIFO over LIFO (113 ) (111 )
Total inventories $ 2,513
$ 2,221

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~~NOTE 10. DEBT~~

As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on September 16, 2013. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units.

~~In September 2013, we issued $1 billion aggregate principal amount of senior notes consisting of $500 millionaggregate principal amount of 3.65% senior unsecured notes due in 2023 and $500 millionaggregate principal amount of 4.875% senior unsecured notes due in 2043.We received net proceeds of $979 million~~. The senior notes pay interest semi-annually on April 1 and October 1, commencing on April 1, 2014. The indenture governing the senior 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.

~~A summary of long-term debt was as follows:~~

In millions September 29,
2013 December 31,
2012
Long-term debt

Export financing loan, 4.5%, due 2013 $ —
$ 23
Senior notes, 3.65%, due 2023 500
—
Debentures, 6.75%, due 2027 58
58
Debentures, 7.125%, due 2028 ⁽¹⁾
250
250
Senior notes, 4.875%, due 2043 500
—
Debentures, 5.65%, due 2098 (effective interest rate 7.48%) 165
165
Credit facilities related to consolidated joint ventures 129
88
Other 73
69
1,675
653
Unamortized discount (48 ) (35 )
Fair value adjustments due to hedge on indebtedness 54
88
Capital leases 97
53
Total long-term debt 1,778
759
Less: Current maturities of long-term debt (47 ) (61 )
Long-term debt $ 1,731
$ 698

⁽¹⁾~~In November 2005, we entered into an interest rate swap to effectively convert our $250 million debt issue, due in 2028, from a fixed rate of 7.125 percent to a floating rate based on a LIBOR~~ ~~spread (see Note 13).~~

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

Required Principal Payments
In millions 2013 2014 2015 2016 2017
Payment $ 16
$ 45
$ 85
$ 63
$ 14

NOTE ~~11.~~10. PRODUCT WARRANTY LIABILITY

We charge the estimated costs of warranty programs, other than product recalls, to income atwhen the ~~time products are shipped to customers.~~sale is recorded. We use historical claims experience to develop the estimated liability. We review product recall programs on a quarterly basis and, if necessary, record a liability when we commit to an action, or when they become probable and estimable, which is reflected in the provision for warranties issued line. We also sell extended warranty coverage on several engines. ~~The following is a~~A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued recall ~~programs:~~programs was as follows:

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	Nine months ended						Three months ended
In millions	September 29, 2013			September 30, 2012			March 30, 2014			March 31, 2013
Balance, beginning of year	$	1,088		$	1,014		$	1,129		$	1,088
Provision for warranties issued	317			320			84			116
Deferred revenue on extended warranty contracts sold	138			154			53			49
Payments	(312		)	(294		)	(102		)	(102		)
Amortization of deferred revenue on extended warranty contracts	(84		)	(77		)	(34		)	(27		)
Changes in estimates for pre-existing warranties	(26		)	(36		)	2			(9		)
Foreign currency translation	(3		)	2			1			(5		)
Balance, end of period	$	1,118		$	1,083		$	1,133		$	1,110

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our ~~September 29, 2013,~~March 30, 2014, balance sheet were as follows:


In millions	September 29, 2013		Balance Sheet Location	March 30, 2014		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	133	Deferred revenue	$	151	Deferred revenue
Long-term portion	341		Other liabilities and deferred revenue	362		Other liabilities and deferred revenue
Total	$	474		$	513

Receivables related to estimated supplier recoveries
Current portion	$	6	Trade and other receivables	$	9	Trade and other receivables
Long-term portion	5		Other assets	5		Other assets
Total	$	11		$	14

Long-term portion of warranty liability	$	270	Other liabilities and deferred revenue	$	275	Other liabilities and deferred revenue

NOTE ~~12.~~11. COMMITMENTS AND CONTINGENCIES

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

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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.

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U.S. Distributor Commitments

Our distribution agreements with independent and partially-owned distributors generally have a renewable three-year term and are restricted to specified territories. Our distributors develop and maintain a network of dealers with which we have no direct relationship. Our distributors are permitted to sell other, noncompetitive products only with our consent. We license all of our distributors to use our name and logo in connection with the sale and service of our products, with no right to assign or sublicense the trademarks, except to authorized dealers, without our consent. Products are sold to the distributors at standard domestic or international distributor net prices, as applicable. Net prices are wholesale prices we establish to permit our distributors an adequate margin on their sales. Subject to local laws, we can generally refuse to renew these agreements upon expiration or terminate them upon written notice for inadequate sales, change in principal ownership and certain other reasons. Distributors also have the right to terminate the agreements upon 60-day notice without cause, or 30-day notice for cause. Upon termination or failure to renew, we are required to purchase the distributor’s current inventory, signage and special tools and may, at our option purchase other assets of the distributor, but are under no obligation to do so.

Other Guarantees and Commitments

In addition to the matters discussed above, from time to time we ~~periodically~~ enter into other guarantee arrangements, including guarantees of non-U.S. distributor financing, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of third-party obligations. As of ~~September 29, 2013,~~March 30, 2014, the maximum potential loss related to these other guarantees was $8 million.~~The amount of liabilities related to the guarantees was less than $1 million~~.

We have arrangements with certain suppliers that require us to purchase minimum volumes or be subject to monetary penalties. The penalty amounts are less than our purchase commitments and essentially allow the supplier to recover their tooling costs in most instances. As of ~~September 29, 2013,~~March 30, 2014, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately ~~$109~~$105 million, of which $6757 million relates to a contract with an engine parts supplier that extends to 2016. These arrangements enable us to secure critical components. We do not currently anticipate paying any penalties under these contracts.

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 $6669 million at ~~September 29, 2013~~March 30, 2014 and $7066 million at December 31, ~~2012~~2013.

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 counter-party 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.

Joint Venture Commitments

As of ~~September 29, 2013,~~March 30, 2014, we have committed to invest an additional $5954 million ~~into~~in existing joint ventures, of which ~~$11~~the entire $54 million is expected to be funded in ~~2013.~~2014.

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NOTE ~~13.~~12. DERIVATIVES

We are exposed to financial risk resulting from volatility in foreign exchange rates, commodity prices and interest rates. This risk is closely monitored and managed through the use of financial derivative instruments including foreign currency forward contracts, commodity swap contracts, commodity zero-cost collars and interest rate swaps. ~~As stated in our policies and procedures, financial~~These instruments, as further described below, are accounted for as cashflow or fair value hedges or as economic hedges not designated as hedges for accounting purposes. 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 counter-party 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 Exchange Rates~~

As a result of our international business presence, we are exposed to foreign currency exchange risks. We transact business in foreign currencies and, as a result, our income experiences some volatility related to movements in foreign currency exchange rates. To help manage our exposure to exchange rate volatility, we use foreign currency forward contracts on a regular basis to hedge forecasted intercompany and third-party sales and purchases denominated in non-functional currencies. Our internal policy allows for managing anticipated foreign currency cash flows for up to one year. These foreign currency forward contracts are designated and qualify as foreign currency cash flow hedges under GAAP. The effective portion of the unrealized gain or loss on the forward contract is deferred and reported as a component of “Accumulated other comprehensive loss” (AOCL). When the hedged forecasted transaction (sale or purchase) occurs, the unrealized gain or loss is reclassified into income in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects income. The ineffective portion of the hedge, if any, is recognized in current income during the period of change. As of September 29, 2013, the amount we expect to reclassify from AOCL to income over the next year is an unrealized net gain of $2 million~~. For the~~ ~~nine~~ ~~month periods ended~~ ~~September 29, 2013~~ ~~and~~ ~~September 30, 2012,there were no circumstances that would have resulted in the discontinuance of a foreign currency cash flow hedge.~~

To minimize the income volatility resulting from the remeasurement of net monetary assets and payables denominated in a currency other than the functional currency, we enter into foreign currency forward contracts, which are considered economic hedges. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. These derivative instruments are not designated as hedges under GAAP.

The table below summarizes our outstanding foreign currency forward contracts. Only the U.S. dollar forward contracts are designated and qualify for hedge accounting as of each period presented below. The currencies in this table represent~~93 percentand 95 percentof the notional amounts of contracts outstanding as ofSeptember 29, 2013~~ ~~and~~ ~~December 31, 2012, respectively.~~

Notional amount in millions
Currency denomination September 29,
2013 December 31,
2012
United States Dollar (USD) 105
110
British Pound Sterling (GBP) 193
227
Euro (EUR) 30
28
Singapore Dollar (SGD) —
3
Indian Rupee (INR) 3,025
1,943
Japanese Yen (JPY) 1,987
384
Canadian Dollar (CAD) 65
59
South Korea Won (KRW) 32,822
35,266
Chinese Renmimbi (CNY) 74
45
Brazilian Real (BRL) 92
—

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~~Commodity Price Risk~~

We are exposed to fluctuations in commodity prices due to contractual agreements with component suppliers. In order to protect ourselves against future price volatility and, consequently, fluctuations in gross margins, we periodically enter into commodity swap contracts with designated banks to fix the cost of certain raw material purchases with the objective of minimizing changes in inventory cost due to market price fluctuations. Certain commodity swap contracts are derivative contracts that are designated as cash flow hedges under GAAP. We also have commodity swap contracts that represent an economic hedge, but are not designated for hedge accounting and are marked to market through earnings. For those contracts that qualify for hedge accounting, the effective portion of the unrealized gain or loss is deferred and reported as a component of AOCL. When the hedged forecasted transaction (purchase) occurs, the unrealized gain or loss is reclassified into income in the same line item associated with the hedged transaction in the same period or periods during which the hedged transaction affects income. The ineffective portion of the hedge, if any, is recognized in current income in the period in which the ineffectiveness occurs. As of September 29, 2013, we expect to reclassify an unrealized net loss of $3 million~~from AOCL to income over the next year. Our internal policy allows for managing these cash flow hedges for up to three years~~.

~~The following table summarizes our outstanding commodity swap contracts that were entered into to hedge the cost of certain raw material purchases:~~

Dollars in millions September 29, 2013 December 31, 2012
Commodity Notional Amount Quantity Notional Amount Quantity
Copper $ —
—
⁽¹⁾
$ 24
3,025 metric tons
⁽¹⁾
Platinum 62
41,076 troy ounces
⁽²⁾
71
45,126 troy ounces
⁽²⁾
Palladium 18
24,251 troy ounces
⁽²⁾
10
14,855 troy ounces
⁽²⁾

⁽¹⁾~~A metric ton is a measurement of mass equal to 1,000 kilograms.~~

⁽²⁾~~A troy ounce is a measurement of mass equal to approximately 31 grams.~~

In 2012, we began to use a combination of call and put option contracts for copper in net-zero-cost collar arrangements (zero-cost collars) that establish ceiling and floor prices for copper. These contracts are used strictly for hedging and not for speculative purposes. For these zero-cost collars, if the average price of the copper during the calculation period is within the call and put price, the call and put contracts expire at no cost to us. If the price falls below the floor, the counter-party to the collar receives the difference from us and if the price rises above the ceiling, the counter-party pays the difference to us. We believe that these zero-cost collars will act as economic hedges; however we have chosen not to designate them as hedges for accounting purposes, therefore we present the calls and puts on a gross basis on our ~~Condensed Consolidated Balance Sheets.~~

~~The following table summarizes our outstanding commodity zero-cost collar contracts that were entered into to hedge the cost of copper purchases:~~

September 29, 2013 December 31, 2012
Commodity Average Floor
or Cap Quantity in
metric tons (1) Average Floor
or Cap Quantity in
metric tons (1)
Copper call options $ 7,852
5,062
$ 8,196
4,100
Copper put options 7,052
5,062
7,005
4,100

⁽¹⁾~~A metric ton is a measurement of mass equal to 1,000 kilograms.~~

Interest Rate Risk

We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to more effectively balance our borrowing costs and interest rate risk.

~~Table of Contents~~

In February 2014, we settled our November 2005 ~~we entered into an~~ interest rate swap ~~to effectively convert~~which previously converted our $250 million debt issue, due in 2028, from a fixed rate ~~of 7.125 percent~~ to a floating rate based on a LIBOR spread. We will amortize the $52 million gain realized upon settlement over the remaining 14-year term of related debt.

Also, in February 2014, we entered into a series of interest rate swaps to effectively convert our September 2013, $500 million debt issue, due in 2023, from a fixed rate of 3.65 percent to a floating rate equal to the one-month LIBOR plus a spread. The terms of the ~~swap~~swaps mirror those of the debt, with interest paid semi-annually. ~~This swap qualifies~~The swaps were designated, and will be accounted for, as a fair value ~~hedge~~hedges under GAAP. The gain or loss on ~~this~~these derivative ~~instrument~~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 following table summarizes these gains and losses for the three ~~and nine~~ month ~~periods~~period presented below:


	Three months ended										Nine months ended										Three months ended
In millions(1)	September 29, 2013					September 30, 2012					September 29, 2013					September 30, 2012					March 30, 2014					March 31, 2013
Income Statement Classification	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			Gain/(Loss) on Swaps			Gain/(Loss) on Borrowings		Gain/(Loss) on Swaps			Gain/(Loss) on Borrowings
Interest expense	$	(6	)	$	6	$	1	$	(1	)	$	(34	)	$	34	$	6	$	(6	)	$	(2	)	$	3	$	(11	)	$	11

⁽¹⁾The table does not include amounts related to ineffectiveness as it was not material for the periods presented.

Cash Flow Hedging

The following table summarizes the effect on our Condensed Consolidated Statements of Income for derivative instruments classified as cash flow hedges for the three ~~and nine~~ month periods presented below:



In millions⁽¹⁾	Three months ended
Derivatives in cash flow hedging relationships	March 30, 2014			March 31, 2013
Gain/(loss) reclassified from AOCL into income - Net sales⁽²⁾	$	2		$	—
Gain/(loss) reclassified from AOCL into income - Cost of sales⁽³⁾	(2		)	2
Total	$	—		$	2

⁽¹⁾The table does not include amounts related to ineffectiveness or the effective portion of gain (loss) recognized in AOCL as ~~it was~~they were not material for the periods presented.

⁽²⁾Includes foreign currency forward contracts.

⁽³⁾Includes commodity swap contracts.

Three months ended Nine months ended

Location of
Gain/(Loss)
Amount of Gain/(Loss)
Recognized in
AOCL on Derivative Amount of Gain/(Loss)
Reclassified from
AOCL into Income Amount of Gain/(Loss)
Recognized in
AOCL on Derivative Amount of Gain/(Loss)
Reclassified from
AOCL into Income
In millions Reclassified (Effective Portion) (Effective Portion) (Effective Portion) (Effective Portion)
Derivatives in Cash Flow Hedging Relationships into Income(Effective Portion) September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012
Foreign currency forward contracts Net sales $ 5
$ 5
$ (2 ) $ (1 ) $ (3 ) $ 8
$ (4 ) $ (3 )
Commodity swap contracts Cost of sales 5
10
(2 ) (3 ) (4 ) 13
1
(8 )
Total $ 10
$ 15
$ (4 ) $ (4 ) $ (7 ) $ 21
$ (3 ) $ (11 )

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Derivatives Not Designated as Hedging Instruments

The following table summarizes the effect on our Condensed Consolidated Statements of Incomefor derivative instruments not classified as cash flow hedges for the three ~~and nine~~ month periods presented below:

Three months ended Nine months ended
In millions Amount of Gain/(Loss) Recognized in Income on Derivatives Amount of Gain/(Loss) Recognized in Income on Derivatives
Derivatives Not Designated as
Hedging Instruments Location of Gain/(Loss)
Recognized in Income
on Derivatives September 29,
2013 September 30, 2012 September 29, 2013 September 30, 2012
Foreign currency forward contracts Cost of sales $ (3 ) $ (1 ) $ —
$ (4 )
Foreign currency forward contracts Other income (expense), net 19
13
(3 ) 18
Commodity swap contracts Cost of sales —
2
—
1
Commodity zero-cost collars Cost of sales 2
1
(2 ) 1



In millions	Three months ended
Derivatives not designated as hedging instruments	March 30, 2014			March 31, 2013
Gain/(loss) recognized in income - Cost of sales⁽¹⁾	$	(2	)	$	1
Gain/(loss) recognized in income - Other income (expense), net⁽²⁾	(1		)	(27		)
Total	$	(3	)	$	(26	)

⁽¹⁾ Includes foreign currency forward contracts and commodity zero-cost collars.

⁽²⁾ Includes foreign currency forward contracts.

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Fair Value Amount and Location of Derivative Instruments

The following ~~tables summarize~~table summarizes the location and fair value of ~~derivative instruments~~interest rate swap contracts, foreign currency forward contracts, commodity swap contracts and commodity zero-cost collars on our Condensed Consolidated Balance Sheets:

Derivative Assets
Fair Value
In millions September 29, 2013 December 31, 2012 Balance Sheet Location
Derivatives designated as hedging instruments

Interest rate contract $ 54
$ 88
Other assets
Foreign currency forward contracts 4
2
Prepaid expenses and other current assets
Commodity swap contracts —
1
Prepaid expenses and other current assets
Total derivatives designated as hedging instruments 58
91

Derivatives not designated as hedging instruments

Foreign currency forward contracts 1
1
Prepaid expenses and other current assets
Commodity call option contracts 1
1
Other assets
Total derivatives not designated as hedging instruments 2
2

Total derivative assets $ 60
$ 93



	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
In millions	March 30, 2014		December 31, 2013		March 30, 2014		December 31, 2013
Notional amount⁽¹⁾	$	679	$	425	$	634	$	547

Derivative assets recorded in:
Prepaid expenses and other current assets	4		5		2		6
Other assets	—		49		—		—
Total derivative assets⁽²⁾	$	4	$	54	$	2	$	6

Derivative liabilities recorded in:
Other accrued expenses	2		5		4		5
Other liabilities and deferred revenue	6		—		—		—
Total derivative liabilities⁽²⁾	$	8	$	5	$	4	$	5

⁽¹⁾Commodity zero-cost collars are not designated as hedging instruments and had a notional quantity of5,104and5,421 metric tons of copper at March 30, 2014 and December 31, 2013, respectively. These instruments are not included in the notional amounts above as they were subject to a USD denominated cap and floor; however, they are included in the total asset and liability balances as appropriate. The average cap and floor at March 30, 2014 and December 31, 2013 were $7,468and$6,841 and $7,639and$6,978, respectively.

⁽²⁾Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. 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 first three months of 2014 and 2013.

Derivative Liabilities
Fair Value
In millions September 29,
2013 December 31,
2012 Balance Sheet Location
Derivatives designated as hedging instruments

Commodity swap contracts $ 5
$ 2
Other accrued expenses
Total derivatives designated as hedging instruments 5
2

Derivatives not designated as hedging instruments

Foreign currency forward contracts 2
—
Other accrued expenses
Commodity put option contracts 1
1
Other accrued expenses
Total derivatives not designated as hedging instruments 3
1

Total derivative liabilities $ 8
$ 3

We have 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 $552 million and derivatives in a net liability position of $3$8 million.

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NOTE ~~14.~~13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

component:


	Three months ended																					Three months ended
In millions	Change in pensions and other postretirement defined benefit plans			Foreign currency translation adjustment			Unrealized gain (loss) on marketable securities			Unrealized gain (loss) on derivatives			Total attributable to Cummins Inc.			Noncontrolling interests			Total			Change in pensions and other postretirement defined benefit plans			Foreign currency translation adjustment			Unrealized gain (loss) on marketable securities			Unrealized gain (loss) on derivatives			Total attributable to Cummins Inc.			Noncontrolling interests			Total
Balance at July 1, 2012	$	(703	)	$	(237	)	$	3		$	(9	)	$	(946	)
Balance at December 31, 2012																						$	(794	)	$	(161	)	$	5		$	—		$	(950	)
Other comprehensive income before reclassifications
Before tax amount	—			152			4			15			171			$	16		$	187		5			(154		)	(1		)	(6		)	(156		)	$	3		$	(153	)
Tax (provision) benefit	—			(37		)	(2		)	(4		)	(43		)	—			(43		)	(2		)	1			—			1			—			—			—
After tax amount	—			115			2			11			128			16			144			3			(153		)	(1		)	(5		)	(156		)	3			(153		)
Amounts reclassified from accumulated other comprehensive income⁽¹⁾⁽²⁾	9			—			(1		)	2			10			1			11			16			—			(4		)	(1		)	11			(5		)	6
Net current period other comprehensive income (loss)	9			115			1			13			138			$	17		$	155		19			(153		)	(5		)	(6		)	(145		)	$	(2	)	$	(147	)
Balance at September 30, 2012	$	(694	)	$	(122	)	$	4		$	4		$	(808	)
Balance at March 31, 2013																						$	(775	)	$	(314	)	$	—		$	(6	)	$	(1,095	)

Balance at June 30, 2013	$	(754	)	$	(338	)	$	5		$	(12	)	$	(1,099	)
Balance at December 31, 2013																						$	(611	)	$	(179	)	$	7		$	(1	)	$	(784	)
Other comprehensive income before reclassifications
Before tax amount	—			105			2			10			117			$	(9	)	$	108		(7		)	24			(1		)	3			19			$	7		$	26
Tax (provision) benefit	—			(1		)	1			(3		)	(3		)	—			(3		)	1			—			—			(1		)	—			—			—
After tax amount	—			104			3			7			114			(9		)	105			(6		)	24			(1		)	2			19			7			26
Amounts reclassified from accumulated other comprehensive income⁽¹⁾⁽²⁾	16			—			(2		)	3			17			—			17			10			—			—			—			10			(1		)	9
Net current period other comprehensive income (loss)	16			104			1			10			131			$	(9	)	$	122		4			24			(1		)	2			29			$	6		$	35
Balance at September 29, 2013	$	(738	)	$	(234	)	$	6		$	(2	)	$	(968	)
Balance at March 30, 2014																						$	(607	)	$	(155	)	$	6		$	1		$	(755	)

⁽¹⁾Amounts are net of tax.

⁽²⁾See reclassifications out of accumulated other comprehensive income (loss) disclosure below for ~~details.~~

~~Table of Contents~~

Nine months ended
In millions Change in
pensions and
other
postretirement
defined benefit
plans Foreign
currency
translation
adjustment Unrealized gain
(loss) on
marketable
securities Unrealized gain
(loss) on
derivatives Total
attributable to
Cummins Inc. Noncontrolling
interests Total
Balance at December 31, 2011 $ (724 ) $ (198 ) $ 4
$ (20 ) $ (938 )

Other comprehensive income before reclassifications

Before tax amount 2
90
6
21
119
$ 2
$ 121
Tax (provision) benefit (1 ) (14 ) (3 ) (6 ) (24 ) —
(24 )
After tax amount 1
76
3
15
95
2
97
Amounts reclassified from accumulated other comprehensive income⁽¹⁾
29
—
(3 ) 9
35
1
36
Net current period other comprehensive income (loss) 30
76
—
24
130
$ 3
$ 133
Balance at September 30, 2012 $ (694 ) $ (122 ) $ 4
$ 4
$ (808 )

Balance at December 31, 2012 $ (794 ) $ (161 ) $ 5
$ —
$ (950 )

Other comprehensive income before reclassifications

Before tax amount 13
(86 ) 10
(7 ) (70 ) $ (28 ) $ (98 )
Tax (provision) benefit (5 ) 13
(1 ) 2
9
—
9
After tax amount 8
(73 ) 9
(5 ) (61 ) (28 ) (89 )
Amounts reclassified from accumulated other comprehensive income⁽¹⁾⁽²⁾
48
—
(8 ) 3
43
(3 ) 40
Net current period other comprehensive income (loss) 56
(73 ) 1
(2 ) (18 ) $ (31 ) $ (49 )
Balance at September 29, 2013 $ (738 ) $ (234 ) $ 6
$ (2 ) $ (968 )

⁽¹⁾~~Amounts are net of tax.~~

⁽²⁾~~See reclassifications out of accumulated other comprehensive income (loss) disclosure for~~further details.

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Following are the items reclassified out of accumulated other comprehensive income (loss) and the related tax effects:


In millions	September 29, 2013							Three months ended
(Gain)/Loss Components	Three months ended			Nine months ended			Statement of Income Location	March 30, 2014			March 31, 2013			Statement of Income Location

Realized (gain) loss on marketable securities	$	(1	)	$	(12	)	Other income (expense), net	$	(1	)	$	(10	)	Other income (expense), net
Income tax expense	(1		)	1			Income tax expense	—			1			Income tax expense
Net realized (gain) loss on marketable securities	(2		)	(11		)		(1		)	(9		)

Realized (gain) loss on derivatives
Foreign currency forward contracts	2			4			Net sales	(2		)	—			Net sales
Commodity swap contracts	2			(1		)	Cost of sales	2			(2		)	Cost of sales
Total before taxes	4			3				—			(2		)
Income tax expense	(1		)	—			Income tax expense	—			1			Income tax expense
Net realized (gain) loss on derivatives	3			3				—			(1		)

Change in pension and other postretirement defined benefit plans
Recognized actuarial loss	24			71			⁽¹⁾	15			24			⁽¹⁾
Total before taxes	24			71				15			24
Income tax expense	(8		)	(23		)	Income tax expense	(5		)	(8		)	Income tax expense
Net change in pensions and other postretirement defined benefit plans	16			48				10			16

Total reclassifications for the period	$	17		$	40			$	9		$	6

⁽¹⁾ These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 4).

~~NOTE 15. RESTRUCTURING AND OTHER CHARGES~~

We executed restructuring actions primarily in the form of involuntary separation programs in the fourth quarter of 2012. These actions were in response to reduced demand in our U.S. businesses and most key markets around the world in the second half of 2012, as well as a reduction in orders in most U.S. and global markets for 2013. We reduced our worldwide professional workforce by approximately 650~~employees, or 3 percent. We also reduced our hourly workforce by approximately 650employees. During 2012, we incurred a pre-tax charge related to the professional and hourly workforce reductions of approximately $49 million~~.

Employee termination and severance costs were recorded based on approved plans developed by the businesses and corporate management which specified positions to be eliminated, benefits to be paid under existing severance plans or statutory requirements and the expected timetable for completion of the plan. Estimates of restructuring were made based on information available at the time charges were recorded.

~~At September 29, 2013, of the approximately 1,300 employees affected by this plan, substantially all terminations have been completed.~~

~~During 2012, we recorded restructuring and other charges of $52 million~~ (~~$35 millionafter-tax). The restructuring related accruals were recorded in “Other accrued expenses” in our~~ ~~Condensed Consolidated Balance Sheets.~~ ~~The following table summarizes the changes in the balance of accrued restructuring charges:~~

Workforce
In millions reductions
Balance at December 31, 2012 $ 25
Cash payments for 2012 actions (22 )
Change in estimate (3 )
Balance at September 29, 2013 $ —

~~Table of Contents~~

NOTE ~~16.~~14. 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, or decision-making group, in deciding how to allocate resources and in assessing performance. ~~Cummins~~Cummins' chief operating decision-maker (CODM) is the Chief Executive Officer.

Our reportable operating segments consist of the following: Engine, Components, Power Generation and Distribution. This reporting structure is organized according to the products and markets each segment serves and allows management to focus its efforts on providing enhanced service to a wide range of customers. The Engine segment produces engines and parts for sale to customers in on-highway and various industrial markets. Our engines are used in trucks of all sizes, buses and recreational vehicles, as well as in various industrial applications, including construction, mining, agriculture, marine, oil and gas, rail and military equipment. The Components segment sells filtration products, aftertreatment systems, turbochargers and fuel systems. The Power Generation segment is an integrated provider of power systems, which sells engines, generator sets and alternators. 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.

We use segment EBIT (defined as earnings before interest expense, taxes and noncontrolling interests) as a primary basis for the CODM to evaluate the performance of each of our operating segments. 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 have allocated 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 and finance. We also do not allocate debt-related items, actuarial gains or losses, prior service costs or credits, changes in cash surrender value of corporate owned life insurance, divestiture gains or losses or income taxes to individual segments. Segment EBIT may not be consistent with measures used by other companies.

Table of Contents

Summarized financial information regarding our reportable operating segments for the three ~~and nine~~ month periods is shown in the table below:

~~Table of Contents~~


In millions	Engine		Components		Power Generation		Distribution			Non-segment Items ⁽¹⁾			Total		Engine		Components		Power Generation		Distribution			Non-segment Items ⁽¹⁾			Total
Three months ended September 29, 2013
Three months ended March 30, 2014
External sales	$	2,045	$	784	$	499	$	938		$	—		$	4,266	$	2,090	$	922	$	452	$	942		$	—		$	4,406
Intersegment sales	447		288		213		6			(954		)	—		473		308		187		8			(976		)	—
Total sales	2,492		1,072		712		944			(954		)	4,266		2,563		1,230		639		950			(976		)	4,406
Depreciation and amortization⁽²⁾	53		24		13		15			—			105		51		26		12		16			—			105
Research, development and engineering expenses	103		51		18		1			—			173		116		53		19		2			—			190
Equity, royalty and interest income from investees	31		5		13		42			—			91		32		9		8		41			—			90
Interest income	4		1		1		—			—			6		2		1		1		1			—			5
Segment EBIT	272		132		45		86			1			536		269		167		25		76		⁽³⁾	(9		)	528

Three months ended September 30, 2012
Three months ended March 31, 2013
External sales	$	2,131	$	663	$	526	$	798		$	—		$	4,118	$	1,885	$	722	$	539	$	776		$	—		$	3,922
Intersegment sales	396		275		288		3			(962		)	—		418		296		207		2			(923		)	—
Total sales	2,527		938		814		801			(962		)	4,118		2,303		1,018		746		778			(923		)	3,922
Depreciation and amortization⁽²⁾	48		21		12		8			—			89		52		24		12		10			—			98
Research, development and engineering expenses	115		51		19		1			—			186		105		57		18		2			—			182
Equity, royalty and interest income from investees	25		7		12		50			—			94		23		7		7		45			—			82
Interest income	2		1		2		—			—			5		2		1		2		—			—			5
Segment EBIT	239		89		73		99		⁽³⁾	(4		)	496		195		119		51		95		⁽³⁾	(23		)	437

Nine months ended September 29, 2013
External sales	$	6,139	$	2,292	$	1,621	$	2,661		$	—		$	12,713
Intersegment sales	1,312		915		651		15			(2,893		)	—
Total sales	7,451		3,207		2,272		2,676			(2,893		)	12,713
Depreciation and amortization⁽²⁾	156		71		37		40			—			304
Research, development and engineering expenses	310		165		53		4			—			532
Equity, royalty and interest income from investees	106		21		30		124			—			281
Interest income	13		2		5		1			—			21
Segment EBIT	806		387		172		281		⁽³⁾	(52		)	1,594

Nine months ended September 30, 2012
External sales	$	6,924	$	2,147	$	1,614	$	2,357		$	—		$	13,042
Intersegment sales	1,303		926		889		13			(3,131		)	—
Total sales	8,227		3,073		2,503		2,370			(3,131		)	13,042
Depreciation and amortization⁽²⁾	142		59		34		23			—			258
Research, development and engineering expenses	341		153		56		4			—			554
Equity, royalty and interest income from investees	100		23		32		147			—			302
Interest income	9		3		7		1			—			20
Segment EBIT	996		348		243		285		⁽³⁾	(49		)	1,823

⁽¹⁾Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. ~~The three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2012,~~ ~~included a~~ ~~$6 million~~ ~~gain ($4 million~~ after-tax) related to adjustments from our 2011 divestitures. The gain has been excluded from segment results as it was not considered in our evaluation of operating results for the corresponding periods. There were no ~~other~~ significant unallocated corporate expenses for the three ~~and~~ ~~nine~~months ended ~~September 29, 2013~~March 30, 2014 and ~~September 30, 2012~~March 31, 2013.

⁽²⁾Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount ~~that is~~and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense."

⁽³⁾Distribution segment EBIT for the ~~nine~~three months ended ~~September 29, 2013~~March 30, 2014, included a $7$6 million ~~gain and~~ ~~$5 million~~ gain on the fair value adjustment resulting from the ~~acquisitions~~acquisition of a controlling interest in ~~Northwest and Rocky Mountain, respectively.~~Mid-South. Distribution segment EBIT for the ~~three and~~ ~~nine~~three months ended ~~September 30, 2012~~,March 31, 2013, included a $7 million gain on the fair value adjustment resulting from the acquisition of a controlling interest in ~~Cummins Central Power.~~Northwest.

~~Table of Contents~~

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


	Three months ended				Nine months ended				Three months ended
In millions	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012		March 30, 2014		March 31, 2013
Total EBIT	$	536	$	496	$	1,594	$	1,823	$	528	$	437
Less: Interest expense	8		9		22		25		17		6
Income before income taxes	$	528	$	487	$	1,572	$	1,798	$	511	$	431

NOTE ~~17. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~15. SUBSEQUENT EVENT

Acquisition of Cummins Southern Plains LLC

~~In February 2013,~~On March 31, 2014, we acquired the ~~Financial Accounting Standards Board (FASB) amended its standards on comprehensive income by requiring disclosure~~remaining 50 percent interest in Cummins Southern Plains LLC (Southern Plains) from the former distributor principal for consideration of approximately $40 million in cash and an additional $48 million paid to creditors to eliminate all debt related to the entity, or total consideration of $88 million, subject to customary purchase price adjustments.

The acquisition will be accounted for as a business combination and the results of the acquired entity will be included in the footnotes of information about amounts reclassified out of accumulated other comprehensive income by component. Specifically, the amendment requires disclosure of the line items on net income in which the item was reclassified only if it is reclassified to net income in its entirety in the same reporting period. It also requires cross reference to other disclosures for amounts that are not reclassified in their entirety in the same reporting period. The new rules became effective for usDistribution operating segment beginning ~~January 1, 2013 and were adopted prospectively in accordance~~ with the ~~standard. The standard resulted in new disclosures in NOTE 14, "OTHER COMPREHENSIVE INCOME (LOSS)."~~

In December 2011, the FASB amended its standards related to offsetting assets and liabilities. This amendment requires entities to disclose both gross and net information about certain instruments and transactions eligible for offset in the statementsecond quarter of financial position and certain instruments and transactions subject to an agreement similar to a master netting agreement. This information enables users of the financial statements to understand the effect of those arrangements on our financial position. The new rules became effective on January 1, 2013. In January 2013, the FASB further amended this standard to limit its scope to derivatives, repurchase and reverse repurchase agreements, securities borrowings and lending transactions. This standard resulted in new disclosures in NOTE 13, "DERIVATIVES."

2014.

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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”~~"anticipates," "expects," "forecasts," "intends," "plans," "believes," "seeks," "estimates," "could," "should" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as ~~“future~~"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:

a sustained slowdown or significant downturn in our markets;

a slowdown in infrastructure development;

unpredictability in the adoption, implementation and enforcement of emission standards around the world;

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

changes in the engine outsourcing practices of significant customers;

a downturn in the North American truck industry or financial distress of a major truck customer;

a major customer experiencing financial distress;

any significant problems in our new engine platforms;

~~currency exchange rate changes;~~

supply shortages and supplier financial risk, particularly from any of our single-sourced suppliers;

•variability in material and commodity costs;

product recalls;

competitor pricing activity;

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

exposure to information technology security threats and sophisticated"cyber attacks;"

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

changes in taxation;

~~the price and availability of energy;~~

global legal and ethical compliance costs and risks;

aligning our capacity and production with our demand;

product liability claims;

the development of new technologies;

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~~the development of new technologies;~~

obtaining additional customers for our new light-duty diesel engine platform and avoiding any related write-down in our investments in such platform;

increasingly stringent environmental laws and regulations;

foreign currency exchange rate changes;

the price and availability of energy;

the performance of our pension plan assets;

labor relations;

changes in accounting standards;

our sales mix of products;

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

technological implementation and cost/financial risks in our increasing use of large, multi-year contracts;

the cyclical nature of some of our markets;

the outcome of pending and future litigation and governmental proceedings;

continued availability of financing, financial instruments and financial resources in the amounts, at the times and on the terms required to support our future business;

the consummation and integration of the planned acquisitions of our partially-owned United States and Canadian ~~distributors~~distributors; and

other risk factors described in our Form 10-K, Part I, Item 1A under the caption “Risk Factors” and in this Form 10-Q, Part II, Item 1A under the caption "Risk Factors."

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

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ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements in the “Financial Statements” section of our ~~2012~~2013 Form 10-K. Our MD&A is presented in the following sections:

•Executive Summary and Financial Highlights

•Outlook

•Results of Operations

•Operating Segment Results

•Liquidity and Capital Resources

•Application of Critical Accounting Estimates

•~~Recently Adopted Accounting Pronouncements~~

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EXECUTIVE SUMMARY AND FINANCIAL HIGHLIGHTS

We are a global power leader that designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. We sell our products to original equipment manufacturers (OEMs), distributors and other customers worldwide. We have long-standing relationships with many of the leading manufacturers in the markets we serve, including PACCAR Inc, Daimler Trucks North America, Chrysler Group, LLC (Chrysler), Volvo AB, Komatsu, Navistar International Corporation, Aggreko plc, Ford Motor Company and MAN Nutzfahrzeuge AG.We serve our customers through a network of ~~approximately~~over 600 company-owned and independent distributor locations and ~~approximately 6,500~~over 6,800 dealer locations in more than 190 countries and territories.

Our financial performance depends, in large part, on varying conditions in the markets we serve, particularly the on-highway, construction and general industrial markets. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be impacted by OEM inventory levels and production schedules and stoppages. Economic downturns in markets we serve generally result in reductions in sales and pricing of our products. As a worldwide business, our operations are also affected by currency, political, economic and regulatory matters, including adoption and enforcement of environmental and emission standards, in the countries we serve. As part of our growth strategy, we invest in businesses in certain countries that carry high levels of these risks such as China, Brazil, India, Mexico, Russia and countries in the Middle East and Africa. At the same time, our geographic diversity and broad product and service offerings have helped limit the impact from a drop in demand in any one industry or customer or the economy of any single country on our consolidated results.

Worldwide revenues increased 412 percent in the three months ended ~~September 29, 2013,~~March 30, 2014, as compared to the same period in ~~2012~~2013, ~~despite continued global economic uncertainty.~~primarily due to improvements in North American demand. Revenue in the U.S. and Canada improved by 1125 percent driven primarily by increased demand in the North American on-highway markets driving sales in both the Engine and Components segments, as well as improved Distribution segment sales related to the consolidation of ~~two~~ partially-owned North American distributors since ~~June of 2012 and an increase in Components segment sales driven by improved demand in the North American on-highway market.~~December 31, 2012. These increases were ~~mostly~~partially offset by the reduced demand in the ~~on-highway light-duty automotive and medium-duty bus~~North American power generation markets as well as the ~~off-highway construction~~mining market. International economic uncertainty continued in the first quarter of 2014 and ~~mining markets with reduced unit shipments of 23 percent, 1 percent, 31 percent and 9 percent, respectively, compared to the same period last year. International~~our international (excludes the United States and Canada) revenues declined by 4less than 1 percent ~~primarily due to global economic uncertainty~~ with sales down or relatively flat in most ~~international~~ markets. Declines were led by the reduced power generation equipment demand and reduced off-highway mining ~~market~~engine demand with ~~reduced unit shipments of 43 percent, partially offset by growth in the medium-duty Brazilian truck market resulting in improved engine and component demand.~~

~~Worldwide revenues declined~~ ~~3 percent~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~as compared to the same period in~~ ~~2012~~, as global economic uncertainty continued during the period. International revenues declined by 6 percent primarily due to global economic uncertainty with sales down or relatively flat in most international markets. Declines were led by the off-highway mining market with reduced unit shipments of 39 percent, partially offset by growth in the medium-duty Brazilian truck market resulting in improved engine and component demand. Revenue in the U.S. and Canada improved by 1 percent driven by improved Distribution segment sales related to the consolidation of two partially-owned North American distributors since June of 2012 and an increase in Components segment sales driven by the acquisition of the doser technology from Hilite Germany GmbH (Hilite) in the third quarter of 2012. These increases were mostly offset by the reduced demand in the on-highway heavy-duty truck and medium-duty bus markets as well as the off-highway oil and gas and mining markets with reduceddecreased unit shipments of 19 percent 21and 43 percent, ~~41 percent and 28 percent, respectively, compared to the same period last year.~~ respectively. These decreases were partially offset by improved demand in China.

The European economy remains uncertain, however volatility in the Euro zone countries stabilized somewhat in the third quarter of 2013. Although we do not have any significant direct exposure to European sovereign debt, we generated approximately ~~8 percent~~ ~~of our net sales from Euro zone countries in~~ ~~2012~~ ~~and approximately~~ ~~8 percent~~ ~~in the first~~ ~~nine~~ ~~months of~~ ~~2013~~.

~~Table of Contents~~

~~The~~ following ~~tables contain~~table contains sales and earnings before interest expense, income taxes and noncontrolling interests (EBIT) results by operating segment for the three ~~and nine~~ month periods ended ~~September 29,~~March 30, 2014 and March 31, 2013 ~~and September 30, 2012~~. Refer to the section titled “Operating Segment Results” for a more detailed discussion of net sales and EBIT by operating segment, including the reconciliation of segment EBIT to income before taxes.

Three months ended
Operating Segments September 29, 2013 September 30, 2012 Percent change
Percent Percent 2013 vs. 2012
In millions Sales of Total EBIT Sales of Total EBIT Sales EBIT
Engine $ 2,492
58 % $ 272
$ 2,527
61 % $ 239
(1 )% 14 %
Components 1,072
25 % 132
938
23 % 89
14 % 48 %
Power Generation 712
17 % 45
814
20 % 73
(13 )% (38 )%
Distribution 944
22 % 86
801
19 % 99
18 % (13 )%
Intersegment eliminations (954 ) (22 )% —
(962 ) (23 )% —
(1 )% —
Non-segment —
—
1
—
—
(4 ) —
NM
Total $ 4,266
100 % $ 536
$ 4,118
100 % $ 496
4 % 8 %

Table of Contents



	Three months ended
Operating Segments	March 30, 2014								March 31, 2013								Percent change
				Percent								Percent					2014 vs. 2013
In millions	Sales			of Total		EBIT			Sales			of Total		EBIT			Sales		EBIT
Engine	$	2,563		58	%	$	269		$	2,303		59	%	$	195		11	%	38	%
Components	1,230			28	%	167			1,018			26	%	119			21	%	40	%
Power Generation	639			14	%	25			746			19	%	51			(14	)%	(51	)%
Distribution	950			22	%	76			778			20	%	95			22	%	(20	)%
Intersegment eliminations	(976		)	(22	)%	—			(923		)	(24	)%	—			6	%	—
Non-segment	—			—		(9		)	—			—		(23		)	—		(61	)%
Total	$	4,406		100	%	$	528		$	3,922		100	%	$	437		12	%	21	%

~~"NM" - not meaningful information~~

Net income attributable to Cummins was $~~355~~338 million, or $~~1.90~~1.83 per diluted share, on sales of $~~4.3~~4.4 billion for the three month interim reporting period ended ~~September 29, 2013~~March 30, 2014, versus the comparable prior year period with net income attributable to Cummins of $~~352~~282 million, or $~~1.86~~1.49 per diluted share, on sales of $~~4.1~~3.9 billion. The increase in net income and earnings per share was driven by improved gross margin as a percentage of sales, partially offset by higher selling, general and administrative expenses and a higher effective tax rate of ~~29.2~~29.9 percent versus ~~24.1~~27.6 percent in the comparable prior year ~~period and higher selling, general and administrative expenses.~~period. The improved gross margin was the result of ~~favorable price realization,~~higher volumes and lower material and commodity costs, ~~and higher volumes,~~ partially offset by unfavorable ~~product mix.~~

Nine months ended
Operating Segments September 29, 2013 September 30, 2012 Percent change
Percent Percent 2013 vs. 2012
In millions Sales of Total EBIT Sales of Total EBIT Sales EBIT
Engine $ 7,451
59 % $ 806
$ 8,227
63 % $ 996
(9 )% (19 )%
Components 3,207
25 % 387
3,073
24 % 348
4 % 11 %
Power Generation 2,272
18 % 172
2,503
19 % 243
(9 )% (29 )%
Distribution 2,676
21 % 281
2,370
18 % 285
13 % (1 )%
Intersegment eliminations (2,893 ) (23 )% —
(3,131 ) (24 )% —
(8 )% —
Non-segment —
—
(52 ) —
—
(49 ) —
6 %
Total $ 12,713
100 % $ 1,594
$ 13,042
100 % $ 1,823
(3 )% (13 )%

~~Net income attributable to Cummins was~~ ~~$1,051 million, or~~ ~~$5.60 per diluted share, on sales of~~ ~~$12.7 billion~~ ~~for the~~ ~~nine~~ ~~month interim reporting period ended~~ ~~September 29, 2013, versus the comparable prior year period with net income attributable to Cummins of~~ ~~$1,276 million, or~~ ~~$6.72 per diluted share, on sales of~~ ~~$13.0 billion. The~~ ~~decrease~~ ~~in income was driven by lower gross margin as a percentage of sales, a higher effective tax rate of~~ ~~28.3 percent~~ ~~versus~~ ~~25.5 percent~~ in the comparable prior year period and lower equity, royalty and interest income from investees. The decrease in gross margin was due to unfavorable product mix and lower volumes, partially offset by favorable price realization and lower material and commodity costs.

foreign currency fluctuations. Diluted earnings per share for the ~~nine~~three months ended ~~September 29, 2013,~~March 30, 2014, benefited ~~$0.04~~$0.01 from lower shares outstanding ~~primarily~~ due to first quarter 2014 purchases under the stock repurchase program.

We generated $~~1,333~~263 million of operating cash flows for the ~~nine~~three months ended ~~September 29, 2013~~March 30, 2014, compared to $~~787~~428 million for the ~~nine~~three months ended ~~September 30, 2012~~March 31, 2013. Refer to the section titled “Operating Activities” in the “Liquidity and Capital Resources” section for a discussion of items impacting cash flows.

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In September 2013, we announced our intention to acquire the ~~second~~equity that we do not already own in most of our partially-owned United States and Canadian distributors over the next three to five years. We plan to spend approximately $400 million to $500 million on distributor acquisitions and debt retirements in 2014.

In the first quarter of ~~2013,~~2014, we ~~repurchased~~acquired the remaining ~~$226~~62.2 percent interest in Cummins Mid-South LLC (Mid-South) from the former distributor principal. The preliminary purchase consideration was $116 million, ~~of common stock under the February 2011, $1 billion Board of Directors authorization, completing the program.~~ which included $32 million in cash, $61 million to eliminate outstanding debt, and $23 million payable in future periods.

In December 2012, ~~the~~our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon completion of the 2011 repurchase plan. We repurchased $63419 million under this ~~new~~ plan during ~~2013.~~

~~On September 16, 2013, we filed an automatic shelf registration for an undetermined amount~~the first quarter of ~~debt and equity securities.~~2014.On September 19, 2013, we issued $1 billion aggregate principal amount of senior notes consisting of $500 million of 3.65% senior unsecured notes due in 2023 and $500 million of 4.875% senior unsecured notes due in 2043.Standard & Poor’s Rating Services, Fitch Ratings and Moody’s Investors Service, Inc. confirmed our credit ratings as 'A', 'A' and 'A3', respectively, subsequent to the third quarter issuance of $1 billion in senior notes.

Our debt to capital ratio (total capital defined as debt plus equity) at ~~September 29, 2013~~March 30, 2014, was ~~19.4~~18.0 percent, compared to ~~10.0~~18.1 percent at December 31, ~~2012~~2013. As of the date of filing this Quarterly Report on Form 10-Q, we had an 'A' credit rating with a 'Stable' outlook from Standard & Poor’s Rating Services, an 'A' credit rating with a 'Stable' outlook from Fitch Ratings and a 'A3' credit rating with a 'Stable' outlook from Moody’s Investors Service, Inc. In addition to the $~~2.7~~2.3 billion in cash and marketable securities on hand, we also have access to our credit facilities, if necessary, to meet currently anticipated investment and funding needs.

~~In July 2013, the Board of Directors authorized a dividend increase of 25 percent from $0.50 per share to $0.625 per share on a quarterly basis.~~

Our global pension plans, including our unfunded and non-qualified plans, were 98107 percent funded at December 31, ~~2012.~~2013. Our U.S. qualified plan, which represents approximately 6055 percent of the worldwide pension obligation, was ~~106~~121 percent funded and our United Kingdom (U.K.) plan was ~~104~~106 percent funded. We expect to contribute $~~170~~205 million to our global pension plans in 2014. We anticipate pension and other postretirement benefit cost in 2014 to decrease by approximately $36 million pre-tax, or approximately $0.12 per diluted share, when compared to 2013 due to reduced loss amortizations resulting from improved U.S. asset performance and a higher discount rate, Refer to Note 4, "PENSION AND OTHER POSTRETIREMENT BENEFITS" for additional information regarding our pension plans.

We expect our effective tax rate for the full year of 2014 to approximate 28.5 percent, excluding any one-time tax items that may arise, compared to 25.1 percent for 2013.

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OUTLOOK

Near-Term

In the ~~third~~first quarter of ~~2013~~2014, demand continued to improve in several end markets in North America compared to the same period in the prior year, led by ~~increased demand in our emission solutions business and~~ market share gains in the North American medium-duty truck ~~market.~~market and increased demand in our emission solutions business. Demand remained weak in most international markets due to lower demand for power generation equipment and engines for mining applications.

We currently expect the following positive trends for the remainder of ~~2013~~2014:

~~Our market~~Market share gains in the North American medium-duty truck market are expected to continue ~~through the remainder of the year~~in 2014 and should positively impact sales in both the Engine ~~segment~~ and Components ~~businesses.~~

segments.

Demand in ~~our~~the North American ~~on-highway markets~~heavy-duty truck market is expected to ~~remain steady.~~continue to improve in 2014.

We plan to continue acquiring our partially-owned North American distributors, which will increase our Distribution segment revenues and profitability.

The new Euro VI regulations, effective January 1, 2014, are expected to continue to positively impact sales for aftertreatment products.

We currently expect the following challenges to our business that may reduce our earnings potential for the remainder of ~~2013~~2014:

~~Demand for engines for mining applications will~~Power generation markets are expected to remain weak.

Demand in most end markets in India is expected to remain weak.

~~Demand for~~Weak economic growth in Brazil could continue to negatively impact our on-highway and power generation ~~equipment in our international markets is expected to remain weak.~~

businesses.

Demand in certain European markets could ~~continue to~~ remain ~~sluggish~~weak due to continued economic uncertainty.

Growth in emerging markets could be negatively impacted if emission regulations are not strictly enforced.

~~Currency~~Foreign currency volatility could continue to put pressure on earnings.

Domestic and international mining markets could continue to deteriorate.

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Long-Term

We believe that, over the longer term, there will be economic improvements in most of our current markets and that our opportunities for long-term profitable growth will continue ~~in the future~~ as the result of the following four macroeconomic trends that should benefit our businesses:

tightening emissions ~~standards~~controls across the world;

infrastructure needs in emerging markets;

energy availability and cost issues and

globalization of industries like ours.

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RESULTS OF OPERATIONS



	Three months ended					Favorable/ (Unfavorable)
	March 30, 2014			March 31, 2013		Favorable/ (Unfavorable)
In millions (except per share amounts)	March 30, 2014			March 31, 2013		Amount			Percent
NET SALES	$	4,406		$	3,922	$	484		12	%
Cost of sales	3,290			2,965		(325		)	(11	)%
GROSS MARGIN	1,116			957		159			17	%
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	502			444		(58		)	(13	)%
Research, development and engineering expenses	190			182		(8		)	(4	)%
Equity, royalty and interest income from investees	90			82		8			10	%
Other operating income (expense), net	(1		)	1		(2		)	NM
OPERATING INCOME	513			414		99			24	%
Interest income	5			5		—			—	%
Interest expense	17			6		(11		)	NM
Other income (expense), net	10			18		(8		)	(44	)%
INCOME BEFORE INCOME TAXES	511			431		80			19	%
Income tax expense	153			119		(34		)	(29	)%
CONSOLIDATED NET INCOME	358			312		46			15	%
Less: Net income attributable to noncontrolling interests	20			30		10			33	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	338		$	282	$	56		20	%
Diluted earnings per common share attributable to Cummins Inc.	$	1.83		$	1.49	$	0.34		23	%

"NM" - not meaningful information

Three months ended Favorable/ Nine months ended Favorable/
September 29, September 30, (Unfavorable) September 29, September 30, (Unfavorable)
In millions (except per share amounts) 2013 2012 Amount Percent 2013 2012 Amount Percent
NET SALES $ 4,266
$ 4,118
$ 148
4 % $ 12,713
$ 13,042
$ (329 ) (3 )%
Cost of sales 3,157
3,076
(81 ) (3 )% 9,494
9,592
98
1 %
GROSS MARGIN 1,109
1,042
67
6 % 3,219
3,450
(231 ) (7 )%
OPERATING EXPENSES AND INCOME

Selling, general and administrative expenses 492
456
(36 ) (8 )% 1,420
1,418
(2 ) — %
Research, development and engineering expenses 173
186
13
7 % 532
554
22
4 %
Equity, royalty and interest income from investees 91
94
(3 ) (3 )% 281
302
(21 ) (7 )%
Gain on sale of businesses —
—
—
— % —
6
(6 ) (100 )%
Other operating income (expense), net (11 ) (1 ) (10 ) NM
—
3
(3 ) (100 )%
OPERATING INCOME 524
493
31
6 % 1,548
1,789
(241 ) (13 )%
Interest income 6
5
1
20 % 21
20
1
5 %
Interest expense 8
9
1
11 % 22
25
3
12 %
Other income (expense), net 6
(2 ) 8
NM
25
14
11
79 %
INCOME BEFORE INCOME TAXES 528
487
41
8 % 1,572
1,798
(226 ) (13 )%
Income tax expense 154
117
(37 ) (32 )% 445
458
13
3 %
CONSOLIDATED NET INCOME 374
370
4
1 % 1,127
1,340
(213 ) (16 )%
Less: Net income attributable to noncontrolling interests 19
18
(1 ) (6 )% 76
64
(12 ) (19 )%
NET INCOME ATTRIBUTABLE TO CUMMINS INC. $ 355
$ 352
$ 3
1 % $ 1,051
$ 1,276
$ (225 ) (18 )%
Diluted earnings per common share attributable to Cummins Inc. $ 1.90
$ 1.86
$ 0.04
2 % $ 5.60
$ 6.72
$ (1.12 ) (17 )%


	Three months ended				Favorable/		Nine months ended				Favorable/		Three months ended					Favorable/ (Unfavorable)
	September 29,		September 30,		(Unfavorable)		September 29,		September 30,		(Unfavorable)		March 30, 2014			March 31, 2013		Favorable/ (Unfavorable)
Percent of sales	2013		2012		Percentage Points		2013		2012		Percentage Points				Percentage Points
Gross margin	26.0	%	25.3	%	0.7		25.3	%	26.5	%	(1.2	)	March 30, 2014		25.3	March 31, 2013	%	24.4	%	0.9
Selling, general and administrative expenses	11.5	%	11.1	%	(0.4	)	11.2	%	10.9	%	(0.3	)	11.4	%		11.3	%	(0.1	)
Research, development and engineering expenses	4.1	%	4.5	%	0.4		4.2	%	4.2	%	—		4.3	%		4.6	%	0.3

Net Sales

Net sales for the three months ended ~~September 29, 2013~~March 30, 2014, increased ~~slightly~~ versus the comparable period in ~~2012~~2013, primarily due to increased demand and the ~~impacts~~impact from the acquisitions of ~~two~~the partially-owned North American distributors ~~Cummins Northwest LLC (Northwest) in the first quarter of 2013 and Cummins Rocky Mountain LLC (Rocky Mountain) in the second quarter of~~since March 31, 2013. The primary drivers by segment were as follows:

Engine segment sales increased by 11 percent due to increased demand in the North American on-highway markets, partially offset by lower demand in power generation and industrial markets.

Components segment sales increased by 21 percent and increased in all businesses and in most markets primarily due to increased demand in the North American on-highway markets and increased demand in Europe and China.

Distribution segment sales increased by 1822 percent primarily due to the acquisitions of ~~two~~the North American distributors.

~~Components segment sales~~ ~~increased by~~ ~~14 percent~~ ~~due to improved demand in the North American on-highway markets and the impact from the 2012 acquisition of Hilite.~~

These increases were partially offset by the following:

~~Engine segment sales~~ ~~decreased by~~ ~~1 percent~~ ~~due to lower demand in power generation markets and industrial markets, primarily in global mining and North American construction markets, partially offset by increased demand in~~

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~~the North American, European and Brazilian medium-duty truck markets and the North American heavy-duty truck markets.~~

Power Generation segment sales decreased by 1314 percent ~~across~~and decreased in all ~~business,~~businesses, mainly due to lower volumes within the power systems and the power ~~solutions~~products businesses.

Foreign currency fluctuations unfavorably impacted sales.

~~Net sales for the~~ ~~nine~~ ~~months ended~~ ~~September 29, 2013~~, ~~decreased versus the comparable period in~~ ~~2012. The~~ ~~decrease~~ ~~in sales by segment was primarily driven by the following:~~

~~Engine segment sales~~ ~~decreased by~~ ~~9 percent~~ due to weakness in industrial demand, especially in global mining and North American oil and gas markets, weaker demand in the North American heavy-duty truck market and lower demand in power generation markets.

~~Power Generation segment sales~~ ~~decreased by~~ ~~9 percent~~ due to lower demand in the power solutions business, primarily in the U.K., and lower demand in the power systems and the generator technologies businesses, which were partially offset by improvements in the North American power products business.

~~These~~ ~~decreases were partially offset by the following:~~

~~Distribution segment sales increased~~ ~~13 percent~~ ~~primarily due to the acquisitions of two North American distributors.~~

~~Components segment sales~~ ~~increased by~~ ~~4 percent~~ due to sales related to the 2012 acquisition of Hilite and improved demand in the emissions solutions business, as the result of increased on-highway OEM and aftermarket demand in North America and higher demand in Brazil and Russia.

A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Sales to international markets, based on location of customers, for the three ~~and nine month periods~~months ended ~~September 29, 2013~~,March 30, 2014, were 4644 percent ~~and~~ ~~48 percent, respectively,~~ of total net sales compared with 50 percent of total net sales for ~~both of~~ the comparable ~~periods~~period in ~~2012~~.2013.

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Gross Margin

Gross margin increased for the three months ended ~~September 29, 2013~~March 30, 2014, versus the comparable period in ~~2012~~2013, and increased as a percentage of sales by ~~0.7~~0.9 percentage points as ~~improved price realization,~~higher volumes, lower material and commodity costs and ~~higher volumes~~lower product coverage were partially offset by unfavorable ~~product mix. Gross margin~~ ~~decreased~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 29, 2013, versus the comparable period in~~ ~~2012, and~~ ~~decreased~~ ~~as a percentage of sales by~~ ~~1.2 percentage points~~ ~~as unfavorable product mix and lower volumes were partially offset by improved price realization and lower material and commodity costs.~~foreign currency fluctuations.

The provision for base warranties issued as a percent of sales for the three ~~and nine month periods~~months ended ~~September 29, 2013, were~~ ~~2.0~~March 30, 2014, was 1.8 percent ~~and~~ ~~2.2 percent, respectively,~~ compared to ~~2.0~~2.5 percent ~~and~~ ~~2.3 percent~~ for the comparable ~~periods~~period in ~~2012~~.2013. This change was primarily driven by a reduction in base warranty provisions for products sold, partially offset by higher engine volumes in the first quarter of 2014. A more detailed discussion of margin by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three ~~month period~~months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013, primarily due to increased compensation and related expenses of $18 million, ~~and~~ higher consulting ~~of $6 million.~~expenses and acquisitions in our Distribution segment. Compensation and related expenses include salaries, fringe benefits and variable compensation.

Research, Development and Engineering Expenses

~~Selling, general~~Research, development and ~~administrative~~engineering expenses for the ~~nine~~ ~~month period~~three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013, primarily due to increased compensation and related expenses of ~~$46~~$8 million, partially offset by ~~lower consulting of $22 million, reduced discretionary spending and lower variable compensation.~~

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~~Research, Development and Engineering Expenses~~

~~Research, development and engineering expenses for the three and~~ ~~nine~~ ~~month periods ended~~ ~~September 29, 2013~~, ~~decreased~~ ~~versus the comparable periods in~~ ~~2012, primarily due to a decreased number of engineering programs of $18 million and $23 million, respectively and~~ decreased consulting expenses of ~~$10 million and $23 million, respectively, partially offset by increases of $12 million and $41 million, respectively, in compensation related expenses.~~$3 million. Compensation and related expenses include salaries, fringe benefits and variable compensation. Research activities continue to focus on development of new products to meet future emission standards around the world and improvements in fuel economy performance.

Equity, Royalty and Interest Income From Investees

Equity, royalty and interest income from investees ~~decrease~~increased for the three months ended ~~September 29, 2013~~March 30, 2014, versus the comparable period in ~~2012~~2013. ~~Equity, royalty and interest income from investees~~ ~~decreased for the~~ ~~nine months ended September 29, 2013, versus the comparable period in~~ ~~2012~~. The primarily drivers were as follows:

Increase/(Decrease)
September 29, 2013 vs. September 30, 2012
In millions Three months ended Nine months ended
North American distributors $ (3 ) $ (17 )
Komatsu Cummins Chile, Ltda. (3 ) (3 )
Valvoline Cummins, Ltd. (2 ) (1 )
Xian Cummins Engine Company Ltd. (1 ) 6
Cummins Westport, Inc. —
(6 )
Beijing Foton Cummins Engine Co., Ltd. 1
11
Chongqing Cummins Engine Company, Ltd. 1
(5 )
Tata Cummins, Ltd. 1
(3 )
Komatsu manufacturing alliances 1
4
Dongfeng Cummins Engine Company, Ltd. 4
3
Other equity income (1 ) (7 )
Cummins share of net income (2 ) (18 )
Royalty and interest income (1 ) (3 )
Equity, royalty and interest income from investees $ (3 ) $ (21 )



	Increase/(Decrease)
	March 30, 2014 vs. March 31, 2013
In millions	Three months ended
Beijing Foton Cummins Engine Co., Ltd. (Light-duty)	$	5
Dongfeng Cummins Engine Company, Ltd.	2
North American distributors	(3		)
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)	(3		)
Other equity income	5
Cummins share of net income	6
Royalty and interest income	2
Equity, royalty and interest income from investees	$	8

The overall ~~decrease~~increase for the three months ended ~~September 29, 2013~~March 30, 2014, was primarily due to ~~the consolidation of two partially-owned North American distributors and decreased demand at Komatsu Cummins Chile, Ltda., partially offset by increased demand at Dongfeng Cummins Engine Company, Ltd.~~

~~The overall~~ ~~decrease~~ ~~for the~~ ~~nine months ended September 29, 2013, was primarily due to the consolidation of two partially-owned North American distributors, partially offset by~~ increased demand at Beijing Foton Cummins Engine Co., Ltd. (Light-duty) and Dongfeng Cummins Engine Comapany, Ltd., partially offset by the consolidation of the partially-owned North American distributors since March 31, 2013 and increased expenses at Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) as we continue to launch this new joint venture.

As we execute our plan to acquire partially-owned distributors, ~~over the next three to five years, over time~~ equity earnings for our North American distributors will ~~decrease.~~

continue to decrease as the earnings are now included in our consolidated results. See Note 3, “ACQUISITIONS ~~AND DIVESTITURES~~,” to the Condensed Consolidated Financial Statements for further information.

~~Gain on Sale of Businesses~~

In the second quarter of 2012, we recorded an additional $6 million gain ($4 million after-tax) related to final purchase adjustments for our 2011 divestitures. The gain was excluded from segment results as it was not considered in our evaluation of operating results for the nine months ended September 30, 2012.

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Other Operating Income (Expense), net

Other operating income (expense) was as follows:


	Three months ended						Nine months ended						Three months ended
In millions	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012			March 30, 2014			March 31, 2013
Legal settlement	$	(8	)	$	—		$	(2	)	$	—
Royalty income													$	6		$	4
Amortization of intangible assets	(3		)	(2		)	(8		)	(5		)	(3		)	(2		)
Royalty expense	(2		)	(1		)	(3		)	(3		)	(4		)	—
Gain (loss) on sale of fixed assets	(2		)	—			(2		)	—			—			(1		)
Royalty income	5			3			15			11
Other, net	(1		)	(1		)	—			—
Total other operating income (expense), net	$	(11	)	$	(1	)	$	—		$	3		$	(1	)	$	1

Interest Income

Interest income ~~was relatively~~remained flat for ~~both~~ the three ~~and~~ ~~nine~~ months ended ~~September 29, 2013~~,March 30, 2014, versus the comparable periods in ~~2012~~2013.

Interest Expense

Interest expense ~~was relatively flat~~increased for the three months ended ~~September 29, 2013~~March 30, 2014, versus the comparable period in ~~2012. Interest expense for the~~ ~~nine months ended September 29,~~ 2013, ~~decreased~~ ~~versus the comparable period in~~ ~~2012, primarily due~~ and will continue to ~~the $45 million repayment of Brazilian debt in the second half of 2012 and lower amortization of prepaid revolver fees. Interest expense will~~ increase in future periods as a result of the $1 billion debt issuance in September 2013.

Other Income (Expense), net

Other income (expense) was as follows:


	Three months ended						Nine months ended						Three months ended
In millions	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012			March 30, 2014			March 31, 2013
Change in cash surrender value of corporate owned life insurance	$	7		$	(7	)	$	5		$	3		$	7		$	5
Gain on fair value adjustment for consolidated investee⁽¹⁾													6			7
Gain (loss) on marketable securities, net	1			1			12			4			1			10
Dividend income	1			2			4			5			1			2
Gain on fair value adjustment for consolidated investee (1)	—			7			12			7
Bank charges	(3		)	(4		)	(8		)	(12		)	(2		)	(2		)
Foreign currency gains (losses), net	(6		)	(8		)	(21		)	(9		)	(5		)	(9		)
Other, net	6			7			21			16			2			5
Total other income (expense), net	$	6		$	(2	)	$	25		$	14		$	10		$	18

⁽¹⁾ See Note 3, “ACQUISITIONS ~~AND DIVESTITURES~~,” to the Condensed Consolidated Financial Statements for further information.

Income Tax Expense

Our effective tax rate for the ~~third quarter~~three months ended March 31, 2013, was 27.6 percent. This tax ~~adjustments: $4 million expense attributable to prior year tax return true-up adjustments, $1 million benefit related to release of prior year tax reserves and~~rate included a discrete tax ~~charge for $4 million related to a third quarter enactment of U.K. tax law changes. In addition,~~

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~~the nine month tax rate includes a discrete tax~~ benefit ~~in the first quarter of 2013~~ of $28 million attributable to the ~~reinstatement of the~~2012 research credit ~~back to 2012,~~reinstated in January 2013 as well as a discrete tax expense ~~in the first quarter of 2013~~ of $17 million, which primarily ~~relates~~related to the write-off of a deferred tax asset deemed unrecoverable. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law and reinstated the research tax credit. As tax law changes are accounted for in the period of enactment, we recognized the discrete tax benefit in the first quarter of 2013.

Our tax rates for the three and nine month periods ended September 30, 2012, were 24.1 percent and 25.5 percent, respectively. These tax rates include a $16 million tax benefit for third quarter discrete tax adjustments, $6 million of which related to a dividend distribution of accumulated foreign income earned in prior years. These discrete tax adjustments also included a discrete tax benefit of $13 million for prior year tax return true-up adjustments and a discrete tax charge of $3 million related to the third quarter enactment of U.K. tax law changes. The increase in the ~~2013~~three month effective tax ~~rates compared~~rate from 2013 to ~~2012~~2014 is attributable primarily ~~due~~ to ~~unfavorable~~one-time discrete tax benefits in 2013 that did not repeat in 2014 and changes in ~~the pre-tax mix of income taxed in higher rate jurisdictions and discrete~~U.S. state tax ~~items.~~legislation that unfavorably impacted our 2014 effective tax rate.

~~In September 2013, the Internal Revenue Service released final tangible personal property regulations regarding the deduction and capitalization~~

Table of expenditures related to tangible property. The new rules will become effective for taxable years beginning on or after January 1, 2014. While we are still finalizing our analysis, we do not believe that these regulations will have a material impact on our Consolidated Financial Statements.Contents

Net Income Attributable to Cummins Inc. and Diluted Earnings Per Share Attributable to Cummins Inc.

Net income and diluted earnings per share attributable to Cummins for the three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013, primarily due to higher gross margin, ~~as a percentage of sales,~~ mainly driven by higher ~~price realization, favorable changes in cash surrender value of corporate owned life insurance~~volumes and lower ~~research, development~~material and ~~engineering expenses, which~~commodity costs, particularly in the Engine and Components segments. These increases were partially offset by increased selling, general and administrative expenses, a higher effective tax rate of 29.9 percent in the first quarter of 2014 versus 27.6 percent in the first quarter of 2013 and ~~a legal settlement.~~

~~Net income and diluted earnings per share attributable to Cummins for the~~ ~~nine months ended September 29, 2013~~, ~~decreased versus the comparable period in~~ ~~2012, primarily due to lower gross margin as a percentage of sales, mainly driven by~~ unfavorable product mix and lower volumes, a higher effective tax rate and lower equity, royalty and interest income from investees. These decreases were partially offset by lower research, development and engineering expenses. foreign currency fluctuations. Diluted earnings per share for the ~~nine~~three months ended ~~September 29, 2013,~~March 30, 2014, benefited ~~$0.04~~$0.01 from lower shares outstanding ~~primarily~~ due to first quarter 2014 purchases under the stock repurchase program.

OPERATING SEGMENT RESULTS

Our reportable operating segments consist of the following: Engine, Components, Power Generation and Distribution. This reporting structure is organized according to the products and markets each segment serves. We use segment EBIT as the primary basis for the chief operating decision-maker to evaluate the performance of each operating segment.

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

~~Table of Contents~~

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/					Nine months ended						Favorable/					Three months ended						Favorable/
	September 29,			September 30,			(Unfavorable)					September 29,			September 30,			(Unfavorable)					March 30,			March 31,			(Unfavorable)
In millions	2013			2012			Amount			Percent		2013			2012			Amount			Percent		2014			2013			Amount			Percent
External sales	$	2,045		$	2,131		$	(86	)	(4	)%	$	6,139		$	6,924		$	(785	)	(11	)%	$	2,090		$	1,885		$	205		11	%
Intersegment sales	447			396			51			13	%	1,312			1,303			9			1	%	473			418			55			13	%
Total sales	2,492			2,527			(35		)	(1	)%	7,451			8,227			(776		)	(9	)%	2,563			2,303			260			11	%
Depreciation and amortization	53			48			(5		)	(10	)%	156			142			(14		)	(10	)%	51			52			1			2	%
Research, development and engineering expenses	103			115			12			10	%	310			341			31			9	%	116			105			(11		)	(10	)%
Equity, royalty and interest income from investees	31			25			6			24	%	106			100			6			6	%	32			23			9			39	%
Interest income	4			2			2			100	%	13			9			4			44	%	2			2			—			—	%
Segment EBIT	272			239			33			14	%	806			996			(190		)	(19	)%	269			195			74			38	%

							Percentage Points											Percentage Points											Percentage Points
Segment EBIT as a percentage of total sales	10.9		%	9.5		%				1.4		10.8		%	12.1		%				(1.3	)	10.5		%	8.5		%				2.0

Engine segment net sales by market were as follows:


	Three months ended				Favorable/					Nine months ended				Favorable/					Three months ended				Favorable/
	September 29,		September 30,		(Unfavorable)					September 29,		September 30,		(Unfavorable)					March 30,		March 31,		(Unfavorable)
In millions	2013		2012		Amount			Percent		2013		2012		Amount			Percent		2014		2013		Amount			Percent
Heavy-duty truck	$	690	$	656	$	34		5	%	$	2,067	$	2,355	$	(288	)	(12	)%	$	722	$	654	$	68		10	%
Medium-duty truck and bus	570		478		92			19	%	1,613		1,516		97			6	%	601		448		153			34	%
Light-duty automotive and RV	330		353		(23		)	(7	)%	935		936		(1		)	—	%	361		260		101			39	%
Total on-highway	1,590		1,487		103			7	%	4,615		4,807		(192		)	(4	)%	1,684		1,362		322			24	%
Industrial	709		766		(57		)	(7	)%	2,185		2,486		(301		)	(12	)%	700		714		(14		)	(2	)%
Stationary power	193		274		(81		)	(30	)%	651		934		(283		)	(30	)%	179		227		(48		)	(21	)%
Total sales	$	2,492	$	2,527	$	(35	)	(1	)%	$	7,451	$	8,227	$	(776	)	(9	)%	$	2,563	$	2,303	$	260		11	%

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Unit shipments by engine classification (including unit shipments to Power Generation) were as follows:


	Three months ended		Favorable/				Nine months ended		Favorable/				Three months ended		Favorable/
	September 29,	September 30,	(Unfavorable)				September 29,	September 30,	(Unfavorable)				March 30,	March 31,	(Unfavorable)
	2013	2012	Amount		Percent		2013	2012	Amount		Percent		2014	2013	Amount		Percent
Midrange	113,800	113,000	800		1	%	330,300	332,000	(1,700	)	(1	)%	118,900	94,600	24,300		26	%
Heavy-duty	26,500	26,000	500		2	%	79,700	95,000	(15,300	)	(16	)%	28,800	24,900	3,900		16	%
High-horsepower	3,500	4,600	(1,100	)	(24	)%	11,300	15,900	(4,600	)	(29	)%	3,400	4,200	(800	)	(19	)%
Total unit shipments	143,800	143,600	200		—	%	421,300	442,900	(21,600	)	(5	)%	151,100	123,700	27,400		22	%

Sales

Engine segment sales for the three months ended ~~September 29, 2013~~March 30, 2014, ~~decrease~~increased ~~slightly~~ versus the comparable period in ~~2012~~2013. The following were the primary drivers by market:

Medium-duty truck and bus sales increased primarily due to market share gains in the North American medium-duty truck market and increased demand in the North American bus markets due to market share gains and lower sales in the first quarter of 2013, as a result of pre-buy activity in 2012 ahead of the implementation of the emission regulations beginning in the first quarter of 2013.

Light-duty automotive and RV sales increased primarily due to a 31 percent improvement of units shipped to Chrysler and increased recreational vehicle engine sales.

Heavy-duty truck engine sales increased due to improved demand in North America.

The increases above were partially offset by the following:

Stationary power engine sales decreased due to lower demand in power generation markets.

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Industrial market sales decreased primarily due to a 3840 percent reduction in global mining ~~shipments due to lower commodity prices and a 31 percent decline in engine shipments to the North American construction markets.~~

~~The~~ ~~decreases above were~~shipments. partially offset by ~~the following:~~improved commercial marine shipments.

~~Medium-duty truck sales~~ ~~increased due to market share gains in the North American medium-duty truck market and increased demand in the Brazilian and European truck markets.~~

~~Heavy-duty truck engine sales~~ ~~increased due to higher demand in North America and East Asia on-highway markets, which were partially offset by decreased sales in Mexico.~~

Total on-highway-related sales for the three months ended ~~September 29, 2013~~March 30, 2014, were 6466 percent of total engine segment sales, compared to 59 percent for the comparable period in ~~2012~~.

~~Engine segment sales for the~~ ~~nine months ended September 29,~~ 2013, ~~decreased versus the comparable period in~~ ~~2012. The following were the primary drivers:~~

~~Industrial market sales~~ ~~decreased primarily due to a 37 percent reduction in global mining shipments due to lower commodity prices and a 41 percent decline in engine shipments to the North American oil and gas markets.~~

~~Heavy-duty truck engine sales~~ ~~decreased due to weaker demand in North American on-highway markets during the first half of the year.~~

~~Stationary power engine sales~~ ~~decreased due to lower demand in power generation markets.~~

~~These~~ ~~decreases were partially offset by~~ ~~increase~~d medium-duty truck sales due to market share gains in the North American medium-duty truck market and improved demand in the Brazilian and European truck markets. The improved sales in Brazil were due to lower sales in the second quarter of 2012 as the result of pre-buy activity in 2011 ahead of the implementation of the Euro V emission regulations beginning in the first quarter of 2012.

~~Total on-highway-related sales for the~~ ~~nine months ended September 29, 2013, were~~ ~~62 percent~~ ~~of total engine segment sales, compared to~~ ~~58 percent~~ ~~for the comparable period in~~ ~~2012~~.

Segment EBIT

Engine segment EBIT for the three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013. Higher gross margin ~~lower research, development and engineering expenses~~ and higher equity, royalty and interest income from investees were partially offset by higher selling, general and administrative ~~expenses. Engine segment EBIT for the~~ ~~nine months ended September 29, 2013~~, ~~decreased versus the comparable period in~~ ~~2012, primarily due to lower gross margin, partially offset by lower~~expenses and higher research, development and engineering ~~expenses, higher equity, royalty~~expenses. Major components of EBIT and ~~interest income from investees and lower selling, general and administrative expenses. Changes in Engine~~related changes to segment EBIT and EBIT as a percentage of sales were as follows:


	Three months ended							Nine months ended							Three months ended
	September 29, 2013 vs. September 30, 2012							September 29, 2013 vs. September 30, 2012							March 30, 2014 vs. March 31, 2013
	Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales
Gross margin	$	39		8	%	1.8		$	(240	)	(13	)%	(0.9	)	$	105		23	%	2.1
Selling, general and administrative expenses	(18		)	(10	)%	(0.8	)	4			1	%	(0.7	)	(20		)	(11	)%	—
Research, development and engineering expenses	12			10	%	0.5		31			9	%	(0.1	)	(11		)	(10	)%	0.1
Equity, royalty and interest income from investees	6			24	%	0.2		6			6	%	0.2		9			39	%	0.2

The increase in gross margin for the three months ended ~~September 29, 2013~~March 30, 2014, versus the comparable period in ~~2012~~2013, was primarily due to ~~improved price realization,~~increased volumes, lower material and commodity costs, lower product coverage ~~costs~~ and favorable foreign currency ~~fluctuations, partially offset by unfavorable product mix.~~fluctuations. The increase in selling, general and administrative expenses was primarily due to increased headcount, higher ~~variable compensation~~discretionary spending and higher ~~discretionary spending.~~variable compensation. The ~~decrease~~increase in research, development and engineering expenses was primarily due to ~~lower~~higher discretionary spending ~~in the third~~

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~~quarter of 2013, partially offset by~~to support new product initiatives and higher variable ~~compensation and increased headcount. The~~ ~~increase~~ ~~in equity, royalty and interest income from investees was primarily due to increased earnings at Dongfeng Cummins Engine Company, Ltd.~~

~~The~~ ~~decrease~~ ~~in gross margin for the~~ ~~nine months ended September 29, 2013, versus the comparable period in~~ ~~2012~~, was primarily due to unfavorable product mix and decreased volumes, partially offset by improved price realization, decreased material and commodity costs, lower product coverage costs and favorable foreign currency fluctuations. The ~~decrease~~ ~~in selling, general and administrative expenses was primarily due to lower discretionary spending and decreased variable compensation, partially offset by increased headcount. The~~ ~~decrease~~ ~~in research, development and engineering expenses was primarily due to lower discretionary spending in 2013.~~compensation. The increase in equity, royalty and interest income from investees was primarily due to increased earnings at Beijing Foton Cummins Engine ~~Co., Ltd., Xian Cummins Engine~~ Company, ~~Ltd.~~Ltd (Light-duty) and Dongfeng Cummins Engine Company, Ltd.

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Components Segment Results

Financial data for the Components segment was as follows:



	Three months ended						Favorable/
	March 30,			March 31,			(Unfavorable)
In millions	2014			2013			Amount			Percent
External sales	$	922		$	722		$	200		28	%
Intersegment sales	308			296			12			4	%
Total sales	1,230			1,018			212			21	%
Depreciation and amortization	26			24			(2		)	(8	)%
Research, development and engineering expenses	53			57			4			7	%
Equity, royalty and interest income from investees	9			7			2			29	%
Interest income	1			1			—			—	%
Segment EBIT	167			119			48			40	%

							Percentage Points
Segment EBIT as a percentage of total sales	13.6		%	11.7		%				1.9

Three months ended Favorable/ Nine months ended Favorable/
September 29, September 30, (Unfavorable) September 29, September 30, (Unfavorable)
In millions 2013 2012 Amount Percent 2013 2012 Amount Percent
External sales $ 784
$ 663
$ 121
18 % $ 2,292
$ 2,147
$ 145
7 %
Intersegment sales 288
275
13
5 % 915
926
(11 ) (1 )%
Total sales 1,072
938
134
14 % 3,207
3,073
134
4 %
Depreciation and amortization 24
21
(3 ) (14 )% 71
59
(12 ) (20 )%
Research, development and engineering expenses 51
51
—
— % 165
153
(12 ) (8 )%
Equity, royalty and interest income from investees 5
7
(2 ) (29 )% 21
23
(2 ) (9 )%
Interest income 1
1
—
— % 2
3
(1 ) (33 )%
Segment EBIT 132
89
43
48 % 387
348
39
11 %

Percentage Points Percentage Points
Segment EBIT as a percentage of total sales 12.3 % 9.5 %
2.8
12.1 % 11.3 %
0.8

Sales for our Components segment by business were as follows:


	Three months ended				Favorable/					Nine months ended				Favorable/					Three months ended				Favorable/
	September 29,		September 30,		(Unfavorable)					September 29,		September 30,		(Unfavorable)					March 30,		March 31,		(Unfavorable)
In millions	2013		2012		Amount			Percent		2013		2012		Amount			Percent		2014		2013		Amount		Percent
Emission solutions	$	458	$	325	$	133		41	%	$	1,302	$	1,078	$	224		21	%	$	543	$	400	$	143	36	%
Turbo technologies	263		257		6			2	%	823		852		(29		)	(3	)%	313		266		47		18	%
Filtration	248		260		(12		)	(5	)%	774		796		(22		)	(3	)%	265		255		10		4	%
Fuel systems	103		96		7			7	%	308		347		(39		)	(11	)%	109		97		12		12	%
Total sales	$	1,072	$	938	$	134		14	%	$	3,207	$	3,073	$	134		4	%	$	1,230	$	1,018	$	212	21	%

Sales

Components segment sales for the three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013 ~~as emission~~in all lines of businesses and across most markets. The following were the primary drivers by market:

Emission solutions business sales increased primarily due to improved demand in the North American ~~and international~~ on-highway markets and ~~the impact~~increased demand for our products in Europe and China to meet new emissions requirements.

Turbo technologies business sales increased as a result of ~~our 2012 acquisition of Hilite.~~ improved on-highway demand in North America, Europe and China.

These increases were partially offset by unfavorable foreign currency fluctuations. ~~Acquisition related sales were $36 million in the~~ ~~third~~ ~~quarter of~~ ~~2013, compared to $21 million recognized in the third quarter of 2012 following the Hilite acquisition.~~

~~The~~ Segment EBIT~~increase~~ in the emission solutions business was partially offset by lower filtration business sales, primarily due to weaker aftermarket demand in Brazil, Australia, Europe and North America and unfavorable foreign currency fluctuations.

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Components segment ~~sales~~EBIT for the ~~nine~~three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~ ~~as emission solutions business sales~~ ~~increase~~d primarily due to the impact of our 2012 acquisition of Hilite, improved on-highway OEM and aftermarket demand in North America and increased demand in Russia and Brazil, partially offset by unfavorable foreign currency fluctuations. Incremental Hilite related sales were $70 million in the first ~~nine~~ ~~months of~~ 2013~~, compared to the same period in 2012.~~

~~The~~ ~~increase~~ ~~in the emission solutions business was partially offset by the following:~~

~~Fuel systems business sales~~ ~~decreased primarily due to lower demand in North American on-highway markets and lower demand in Europe, partially offset by increased aftermarket demand.~~

~~Turbo technologies business sales~~ ~~decreased primarily due to a decline in North American OEM demand, partially offset by higher demand in China and Brazil.~~

~~Filtration business sales~~ ~~decreased primarily due to unfavorable foreign currency fluctuations and lower aftermarket demand.~~

~~Segment EBIT~~

~~Components segment EBIT for the~~ ~~three months ended September 29, 2013~~, ~~increased versus the comparable period in~~ ~~2012~~, primarily due to higher gross margin, lower research, development and engineering expenses and higher equity, royalty and interest income from investees, partially offset by higher selling, general and administrative ~~expenses~~expenses. Major components of EBIT and ~~lower equity, royalty and interest income. Components segment EBIT for the~~ ~~nine months ended September 29, 2013~~, ~~increased versus the comparable period in~~ ~~2012, primarily due~~related changes to higher gross margin and lower selling, general and administrative expenses, partially offset by higher research, development and engineering expenses, lower equity, royalty and interest income and unfavorable currency fluctuations. Changes in Components segment EBIT and EBIT as a percentage of sales were as follows:


	Three months ended							Nine months ended							Three months ended
	September 29, 2013 vs. September 30, 2012							September 29, 2013 vs. September 30, 2012							March 30, 2014 vs. March 31, 2013
	Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales
Gross margin	$	47		24	%	1.7		$	53		8	%	0.8		$	48		21	%	(0.1	)
Selling, general and administrative expenses	(3		)	(4	)%	0.6		7			3	%	0.5		(11		)	(17	)%	0.2
Research, development and engineering expenses	—			—	%	0.6		(12		)	(8	)%	(0.1	)	4			7	%	1.3
Equity, royalty and interest income from investees	(2		)	(29	)%	(0.2	)	(2		)	(9	)%	—		2			29	%	—

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The increase in gross margin for the three months ended ~~September 29,~~ March 30, 2014, versus the comparable period in 2013, was primarily due to higher volumes, mainly in the emission solutions ~~business~~ and turbo technologies businesses, lower material and commodity costs, partially offset by ~~increased product coverage costs and~~ unfavorable foreign currency fluctuations. The increase in selling, general and administrative expenses ~~for the~~ ~~three months ended September 29, 2013~~, was primarily due to ~~higher variable compensation.~~

~~The~~ ~~increase~~ ~~in gross margin for the~~ ~~nine months ended September 29, 2013, was primarily due to lower material and commodity costs~~increased headcount and higher ~~volumes in the emissions solutions business, partially offset by increased product coverage costs and unfavorable foreign currency fluctuations.~~discretionary spending. The decrease in selling, general and administrative expenses was primarily due to lower discretionary spending in the first nine months of 2013, partially offset by increased headcount to support our strategic growth initiatives. The ~~increase~~ in research, development and engineering expenses was primarily due to ~~increased headcount to support our strategic growth initiatives and new product development~~lower discretionary spending, partially offset by ~~lower consulting expenses.~~increased headcount. The increase in equity, royalty and interest income from investees was primarily due to increased earnings at Dongfeng Cummins Emission Solutions Co., Ltd.

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Power Generation Segment Results

Financial data for the Power Generation segment was as follows:


	Three months ended						Favorable/					Nine months ended						Favorable/					Three months ended						Favorable/
	September 29,			September 30,			(Unfavorable)					September 29,			September 30,			(Unfavorable)					March 30,			March 31,			(Unfavorable)
In millions	2013			2012			Amount			Percent		2013			2012			Amount			Percent		2014			2013			Amount			Percent
External sales	$	499		$	526		$	(27	)	(5	)%	$	1,621		$	1,614		$	7		—	%	$	452		$	539		$	(87	)	(16	)%
Intersegment sales	213			288			(75		)	(26	)%	651			889			(238		)	(27	)%	187			207			(20		)	(10	)%
Total sales	712			814			(102		)	(13	)%	2,272			2,503			(231		)	(9	)%	639			746			(107		)	(14	)%
Depreciation and amortization	13			12			(1		)	(8	)%	37			34			(3		)	(9	)%	12			12			—			—	%
Research, development and engineering expenses	18			19			1			5	%	53			56			3			5	%	19			18			(1		)	(6	)%
Equity, royalty and interest income from investees	13			12			1			8	%	30			32			(2		)	(6	)%	8			7			1			14	%
Interest income	1			2			(1		)	(50	)%	5			7			(2		)	(29	)%	1			2			(1		)	(50	)%
Segment EBIT	45			73			(28		)	(38	)%	172			243			(71		)	(29	)%	25			51			(26		)	(51	)%

							Percentage Points											Percentage Points											Percentage Points
Segment EBIT as a percentage of total sales	6.3		%	9.0		%				(2.7	)	7.6		%	9.7		%				(2.1	)	3.9		%	6.8		%				(2.9	)

Sales for our Power Generation segment by business were as follows:


	Three months ended				Favorable/					Nine months ended				Favorable/					Three months ended				Favorable/
	September 29,		September 30,		(Unfavorable)					September 29,		September 30,		(Unfavorable)					March 30,		March 31,		(Unfavorable)
In millions	2013		2012		Amount			Percent		2013		2012		Amount			Percent		2014		2013		Amount			Percent
Power products	$	421	$	425	$	(4	)	(1	)%	$	1,304	$	1,259	$	45		4	%	$	373	$	409	$	(36	)	(9	)%
Generator technologies	126		138		(12		)	(9	)%	377		439		(62		)	(14	)%
Power systems	122		174		(52		)	(30	)%	488		579		(91		)	(16	)%	137		179		(42		)	(23	)%
Alternators																			105		126		(21		)	(17	)%
Power solutions	43		77		(34		)	(44	)%	103		226		(123		)	(54	)%	24		32		(8		)	(25	)%
Total sales	$	712	$	814	$	(102	)	(13	)%	$	2,272	$	2,503	$	(231	)	(9	)%	$	639	$	746	$	(107	)	(14	)%

Sales

Power Generation segment sales for the three months ended ~~September 29, 2013~~March 30, 2014, decreased versus the comparable period in ~~2012~~2013 in all lines of businesses and across ~~all~~most markets. The following were the primary drivers by business:

Power systems sales decreased primarily due to reduced demand in ~~China,~~North America, Asia and India, ~~the Middle East~~partially offset by increased demand in Russia.

Power products sales decreased primarily due to lower demand in India and North ~~America.~~America and unfavorable foreign currency fluctuations, partially offset by increased demand in Europe.

Alternators sales decreased primarily due to lower demand in Western Europe and India.

Power solutions sales decreased primarily due to lower volumes in ~~the U.K., partially offset by increased sales in Asia.~~Africa.

~~Generator technologies sales~~ ~~decreased primarily due to lower demand in Europe, India and the U.K., partially offset by increases in North America.~~

~~Power products sales~~ ~~decrease~~d ~~primarily due to lower demand in India, Asia, Mexico and Africa, partially offset by increased demand in North America and improved price realization.~~

Segment EBIT

Power Generation segment ~~sales~~EBIT for the ~~nine~~three months ended ~~September 29, 2013~~March 30, 2014, decreased versus the comparable period in ~~2012. The following were the primary drivers:~~

~~Power solutions sales~~ ~~decreased primarily due to lower volumes in the U.K.~~

~~Power systems sales~~ ~~decreased primarily due to reduced demand in the Middle East, India, China and Russia, partially offset by stronger demand in Western Europe.~~

~~Table of Contents~~

~~Generator technologies sales~~ ~~decreased primarily due to demand reductions in Europe, the U.K. and India.~~

~~The~~ ~~decreases above were partially offset by an~~ ~~increase~~ ~~in power product sales primarily due to higher volumes in North America and improved price realization.~~

~~Segment EBIT~~

~~Power Generation segment EBIT for the~~ ~~three months ended September 29,~~ 2013, ~~decreased versus the comparable period in~~ ~~2012~~ ~~primarily due to lower gross margin. Power Generation segment EBIT for the~~ ~~nine months ended September 29, 2013~~, ~~decreased versus the comparable period in~~ ~~2012~~ primarily due to lower gross margin ~~partially offset by lower~~and higher selling, general and administrative ~~expenses.~~expenses, partially offset by increased equity, royalty and interest income from investees. Major components of EBIT ~~results for the three~~ and ~~nine months ended September 29, 2013, included an $8 million legal settlement. Changes in Power Generation~~related changes to segment EBIT and EBIT as a percentage of sales were as follows:

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	Three months ended							Nine months ended							Three months ended
	September 29, 2013 vs. September 30, 2012							September 29, 2013 vs. September 30, 2012							March 30, 2014 vs. March 31, 2013
	Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales
Gross margin	$	(27	)	(17	)%	(1.0	)	$	(84	)	(17	)%	(1.7	)	$	(18	)	(14	)%	0.1
Selling, general and administrative expenses	—			—	%	(1.3	)	19			8	%	(0.1	)	(5		)	(7	)%	(2.4	)
Research, development and engineering expenses	1			5	%	(0.2	)	3			5	%	(0.1	)	(1		)	(6	)%	(0.6	)
Equity, royalty and interest income from investees	1			8	%	0.3		(2		)	(6	)%	—		1			14	%	0.4

The decrease in gross margin for the three months ended ~~September 29,~~ March 30, 2014, versus the comparable period in 2013, was primarily due to lower volumes and unfavorable ~~product mix, and higher warranty accruals,~~foreign currency fluctuations, partially offset by ~~improved price realization~~lower warranty accruals and favorable ~~foreign currency fluctuations.~~

product mix. The ~~decrease~~ ~~in gross margin for the~~ ~~nine months ended September 29, 2013, was due to lower volumes, unfavorable product mix and higher absorption costs, partially offset by improved price realization and favorable foreign currency fluctuations. The~~ ~~decrease~~sincrease in selling, general and administrative expenses ~~and research, development and engineering expenses were~~was primarily due to ~~lower discretionary~~a one-time legal reserve released in the first quarter of 2013 and higher spending ~~to align with slowing demand in key markets. Equity, royalty and interest income from investees~~ ~~decreased primarily due to lower profitability at Chongqing Cummins Engine Company, Ltd.~~on strategic projects.

Distribution Segment Results

Financial data for the Distribution segment was as follows:


	Three months ended						Favorable/					Nine months ended						Favorable/					Three months ended						Favorable/
	September 29,			September 30,			(Unfavorable)					September 29,			September 30,			(Unfavorable)					March 30,			March 31,			(Unfavorable)
In millions	2013			2012			Amount			Percent		2013			2012			Amount			Percent		2014			2013			Amount			Percent
External sales	$	938		$	798		$	140		18	%	$	2,661		$	2,357		$	304		13	%	$	942		$	776		$	166		21	%
Intersegment sales	6			3			3			100	%	15			13			2			15	%	8			2			6			NM
Total sales	944			801			143			18	%	2,676			2,370			306			13	%	950			778			172			22	%
Depreciation and amortization	15			8			(7		)	(88	)%	40			23			(17		)	(74	)%	16			10			(6		)	(60	)%
Research, development and engineering expenses	1			1			—			—	%	4			4			—			—	%	2			2			—			—	%
Equity, royalty and interest income from investees	42			50			(8		)	(16	)%	124			147			(23		)	(16	)%	41			45			(4		)	(9	)%
Interest income	—			—			—			—	%	1			1			—			—	%	1			—			1			NM
Segment EBIT ⁽¹⁾	86			99			(13		)	(13	)%	281			285			(4		)	(1	)%	76			95			(19		)	(20	)%

							Percentage Points											Percentage Points											Percentage Points
Segment EBIT as a percentage of total sales	9.1		%	12.4		%				(3.3	)	10.5		%	12.0		%				(1.5	)	8.0		%	12.2		%				(4.2	)

~~Table of Contents~~

⁽¹⁾ Segment EBIT for the ~~nine~~three months ended ~~September 29, 2013,~~March 30, 2014, included ~~gains~~a gain of $5$6 million ~~and $7 million gain~~ related to the remeasurement of our pre-existing ~~33 percent and 50~~37.8 percent ownership in ~~Rocky Mountain and Northwest, respectively,~~Mid-South to fair value in accordance with accounting ~~principles~~principals generally accepted in the United States of America (GAAP). Segment EBIT for the three ~~and nine~~ months ended ~~September 30, 2012,~~March 31, 2013, included a $7 million gain related to the remeasurement of our pre-existing 3550 percent ownership in Cummins ~~Central Power~~Northwest LLC (Northwest) to fair value in accordance ~~with~~ GAAP. See Note 3, “ACQUISITIONS ~~AND DIVESTITURES~~,” to the Condensed Consolidated Financial Statements for further information.

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Sales for our Distribution segment by region were as follows:


	Three months ended				Favorable/					Nine months ended				Favorable/					Three months ended				Favorable/
	September 29,		September 30,		(Unfavorable)					September 29,		September 30,		(Unfavorable)					March 30,		March 31,		(Unfavorable)
In millions	2013		2012		Amount			Percent		2013		2012		Amount			Percent		2014		2013		Amount			Percent
North & Central America	$	395	$	235	$	160		68	%	$	1,028	$	629	$	399		63	%	$	444	$	273	$	171		63	%
Europe and Middle East	185		168		17			10	%	542		563		(21		)	(4	)%	176		162		14			9	%
Other Asia/Australia	174		200		(26		)	(13	)%	548		602		(54		)	(9	)%
NE/SE Asia / South Pacific																			162		175		(13		)	(7	)%
China	77		85		(8		)	(9	)%	220		233		(13		)	(6	)%	59		61		(2		)	(3	)%
India	40		47		(7		)	(15	)%	127		132		(5		)	(4	)%	34		40		(6		)	(15	)%
Latin America	40		36		4			11	%	112		99		13			13	%
South America																			34		33		1			3	%
Africa	33		30		3			10	%	99		112		(13		)	(12	)%	41		34		7			21	%
Total sales	$	944	$	801	$	143		18	%	$	2,676	$	2,370	$	306		13	%	$	950	$	778	$	172		22	%

Sales for our Distribution segment by product were as follows:


	Three months ended				Favorable/				Nine months ended				Favorable/				Three months ended				Favorable/
	September 29,		September 30,		(Unfavorable)				September 29,		September 30,		(Unfavorable)				March 30,		March 31,		(Unfavorable)
In millions	2013		2012		Amount		Percent		2013		2012		Amount		Percent		2014		2013		Amount		Percent
Parts and filtration	$	377	$	326	$	51	16	%	$	1,068	$	916	$	152	17	%	$	382	$	322	$	60	19	%
Service																	201		141		60		43	%
Power generation	234		178		56		31	%	638		565		73		13	%	193		163		30		18	%
Engines	170		157		13		8	%	505		470		35		7	%	174		152		22		14	%
Service	163		140		23		16	%	465		419		46		11	%
Total sales	$	944	$	801	$	143	18	%	$	2,676	$	2,370	$	306	13	%	$	950	$	778	$	172	22	%

Sales

Distribution segment sales for the three months ended ~~September 29, 2013~~March 30, 2014, increased versus the comparable period in ~~2012~~2013 primarily due to ~~$130~~$151 million of segment sales related to the consolidation of partially-owned North American ~~distributors. This~~ ~~increase~~ ~~was~~distributors since December 31, 2012, $10 million of segment sales related to the 2013 acquisition of a partially-owned international distributor and $53 million of increased sales in North America and Europe. These increases were partially offset by decreased demand in ~~Other~~NE/SE Asia/~~Australia~~South Pacific and unfavorable foreign currency fluctuations.

Segment EBIT

Distribution segment ~~sales~~EBIT for the ~~nine~~three months ended ~~September 29, 2013~~March 30, 2014, , ~~increase~~decreased versus the comparable period in ~~2012~~ ~~primarily due to $369 million of segment sales related to the consolidation of partially-owned North American distributors. This~~ ~~increase~~ ~~was partially offset by decreased demand in most international markets and unfavorable foreign currency impacts.~~

~~Segment EBIT~~

~~Distribution segment EBIT for the three and~~ ~~nine months ended September 29,~~ 2013, ~~decreased versus the comparable periods in~~ ~~2012~~, primarily due to ~~the acquisition of two North American distributors since September 2012 and~~ unfavorable foreign currency fluctuations. The consolidation of North American distributors increased gross margin, increased selling, general and administrative expenses and reduced equity, royalty and interest income from ~~investees and increased selling, general and administrative expenses.~~investees. Amortization of acquisition related intangible assets also negatively impacted EBIT for the three ~~and nine~~ months ended ~~September 29, 2013.~~March 30, 2014. These acquisitions resulted in a ~~$12~~$6 million gain for the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, related to the remeasurement of our pre-existing 37.8 percent ownership interest in Mid-South in the ~~distributors acquired in 2013,~~first quarter of 2014, compared to a $7 million gain related to the remeasurement of our pre-exisiting 3550 percent ownership interest in ~~Cummins Central Power~~Northwest in the three ~~and nine~~ months ended ~~September 30, 2012.~~

~~Table of Contents~~

March 31, 2013. The gains are included in Other income (expense), net in the Condensed Consolidated Statements of Income. EBIT as a percentage of sales for the three months ~~and~~ ~~nine months~~ ended ~~September 29, 2013~~,March 30, 2014, was ~~9.1~~8.0 percent ~~and~~ ~~10.5 percent, respectively as~~ compared to ~~12.4 percent~~ ~~and~~ ~~12.0~~12.2 percent for the comparable ~~periods~~period in ~~2012~~2013. ~~Changes in Distribution~~Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:


	Three months ended							Nine months ended							Three months ended
	September 29, 2013 vs. September 30, 2012							September 29, 2013 vs. September 30, 2012							March 30, 2014 vs. March 31, 2013
	Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales		Amount			Percent		Percentage point change as a percent of sales
Gross margin	$	17		10	%	(1.4	)	$	45		9	%	(0.7	)	$	13		8	%	(2.6	)
Selling, general and administrative expenses	(14		)	(11	)%	0.9		(31		)	(8	)%	0.6		(22		)	(17	)%	0.7
Equity, royalty and interest income from investees	(8		)	(16	)%	(1.8	)	(23		)	(16	)%	(1.6	)	(4		)	(9	)%	(1.5	)

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Reconciliation of Segment EBIT to Income Before Income Taxes

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


	Three months ended					Nine months ended						Three months ended
In millions	September 29, 2013		September 30, 2012			September 29, 2013			September 30, 2012			March 30, 2014			March 31, 2013
Total segment EBIT	$	535	$	500		$	1,646		$	1,872		$	537		$	460
Non-segment EBIT ⁽¹⁾	1		(4		)	(52		)	(49		)	(9		)	(23		)
Total EBIT	536		496			1,594			1,823			528			437
Less: Interest expense	8		9			22			25			17			6
Income before income taxes	$	528	$	487		$	1,572		$	1,798		$	511		$	431

⁽¹⁾ Includes intersegment sales and profit in inventory eliminations and unallocated corporate expenses. The nine months ended September 30, 2012, include a $6 million gain ($4 million after-tax) related to adjustments from our 2011 divestitures. The gain has been excluded from segment results as it was not considered in our evaluation of operating results for the corresponding periods. There were no ~~other~~ significant unallocated corporate expenses for the three ~~and nine~~ months ended ~~September 29, 2013~~March 30, 2014 and ~~September 30, 2012.~~March 31, 2013.

4935

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LIQUIDITY AND CAPITAL RESOURCES

Management’s Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable us to continue to have ready access to credit and the capital markets.

In September 2013, we issued $1 billion aggregate principal amount of senior notes consisting of $500 million aggregate principal amount of 3.65% senior unsecured notes due in 2023 and $500 million aggregate principal amount of 4.875% senior unsecured notes due in 2043.~~We received net proceeds of~~ ~~$979 million~~. The senior notes pay interest semi-annually on April 1 and October 1, commencing on April 1, 2014. The indenture governing the senior 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. We currently anticipate using a portion of the net proceeds from the sale of the notes for the planned acquisitions of the equity that we do not already own in our partially-owned United States and Canadian distributors, as well as for general corporate purposes.

We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We generate significant ongoing cash flow, which has been used, in part, to fund capital expenditures, pay dividends on our common stock, fund repurchases of common stock and make acquisitions. Cash provided by operations is our principal source of liquidity. As of ~~September 29, 2013~~March 30, 2014, other sources of liquidity include:

cash and cash equivalents of $~~2.5~~2.2 billion, of which approximately 5849 percent is located in the U.S. and 4251 percent is located primarily in the U.K., China, Singapore ~~India~~ and ~~Brazil,~~Belgium,

marketable securities of $~~162~~129 million, of which 7776 percent is located in India and 1824 percent is located in the U.S. ~~and~~ ~~5 percent~~ ~~is located in Brazil~~ and the majority of which could be liquidated into cash within a few days,

revolving credit facility with $1.7 billion available, net of letters of credit and

international and other domestic credit facilities with $~~279~~318 million available.

We have a current shelf registration with the Securities Exchange Commission under which 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.

We believe our liquidity provides us with the financial flexibility needed to fund working capital, capital expenditures, projected pension obligations, dividend payments, common stock repurchases, acquisitions of our North American distributors and debt service obligations. We continue to generate cash from operations in the U.S. and maintain access to $1.7 billion of our revolver as noted above.

A significant portion of our cash flows is generated outside the U.S. As of ~~September 29, 2013~~March 30, 2014, the total of cash, cash equivalents and marketable securities held by foreign subsidiaries was $1.2 billion, the majority of which was located in the U.K., China, Singapore, India ~~Singapore~~ and ~~Brazil.~~Belgium. The geographic location of our cash and marketable securities aligns well with our business growth strategy. 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 targeted expansion or 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 U.S. taxes. For example, we would be required to accrue and pay additional U.S. taxes if we repatriated cash from certain foreign subsidiaries whose earnings we have asserted are permanently reinvested outside of the U.S. Foreign earnings for which we assert permanent reinvestment outside the U.S. consist primarily of earnings of our China and U.K. domiciled subsidiaries. At present, we do not foresee a need to repatriate any earnings from these subsidiaries for which we have asserted permanent reinvestment. However, to help fund cash needs of the U.S. or other international subsidiaries as they arise, we repatriate available cash from certain foreign subsidiaries whose earnings are not permanently reinvested when it is cost effective to do so. ~~Our 2012 and subsequent earnings~~Earnings generated after 2011 from our China operations are considered permanently reinvested, while earnings generated prior to 2012, for which U.S. deferred tax liabilities have been recorded, are expected to be repatriated in future years. In the first quarter of 2014, we repatriated $70 million of China earnings generated prior to 2012 through a dividend.

~~Table~~The maturity schedule of ~~Contents~~our existing long-term debt does not require significant cash outflows in the intermediate term. Required annual principal payments range from $9 million to $56 million over each of the next five years.

Working Capital Summary

We fund our working capital with cash from operations and short-term borrowings 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 attention.

In millions September 29,
2013 December 31,
2012 Change
Cash and cash equivalents $ 2,499
$ 1,369
$ 1,130
Marketable securities 162
247
(85 )
Accounts and notes receivable 2,709
2,475
234
Inventories 2,513
2,221
292
Other current assets 643
855
(212 )
Current assets 8,526
7,167
1,359

Current maturity of long-term debt, accounts and loans payable 1,675
1,416
259
Current portion of accrued product warranty 374
386
(12 )
Accrued compensation, benefits and retirement costs 413
400
13
Taxes payable (including taxes on income) 112
173
(61 )
Other accrued expenses 816
761
55
Current liabilities 3,390
3,136
254

Working capital $ 5,136
$ 4,031

Current ratio 2.52
2.29

Days’ sales in receivables 56
53

Inventory turnover 5.2
5.7

Table of Contents



					Change since December 31, 2013
In millions	March 30, 2014		December 31, 2013		Amount			Percent
Cash and cash equivalents	$	2,178	$	2,699	$	(521	)	(19	)%
Marketable securities	129		150		(21		)	(14	)%
Accounts and notes receivable, net	2,949		2,649		300			11	%
Inventories	2,580		2,381		199			8	%
Prepaid expenses and other current assets	663		760		(97		)	(13	)%
Current assets	8,499		8,639		(140		)	(2	)%

Current maturity of long-term debt, accounts and loans payable	1,948		1,625		323			20	%
Current portion of accrued product warranty	345		360		(15		)	(4	)%
Accrued compensation, benefits and retirement costs	323		433		(110		)	(25	)%
Taxes payable (including taxes on income)	69		99		(30		)	(30	)%
Other accrued expenses	870		851		19			2	%
Current liabilities	3,555		3,368		187			6	%

Working capital	$	4,944	$	5,271
Current ratio	2.39		2.57
Days’ sales in receivables	58		54
Inventory turnover	5.2		5.4

Current assets ~~increase~~decreased 192 percent compared to December 31, ~~2012~~2013, primarily due to ~~increases~~decreases in cash and cash equivalents as a result of ~~the $1 billion debt issuance in September~~$419 million of ~~2013, inventories and accounts and notes receivable, partially offset by a decline in other current assets (primarily related to refundable income taxes received~~share repurchases in the first quarter of ~~2013)~~2014 and ~~marketable securities.~~a decrease in prepaid expenses and other current assets, partially offset by increases in accounts and notes receivable and inventories.

Current liabilities increased 86 percent compared to December 31, ~~2012~~2013, primarily due to an increase in accounts payable trade, ~~and an increase in other accrued expenses,~~ partially offset by a decrease in ~~taxes payable.~~accrued compensation, benefits and retirement costs.

Days’ sales in receivables increased 34 days versus ~~the comparable period in~~December 31, ~~2012~~2013. The increase was primarily due to ~~lower sales in the first nine months of 2013.~~higher accounts receivable balances.

Inventory turnover decreased ~~0.5~~0.2 turns versus ~~the comparable period in~~December 31, ~~2012~~2013. The decrease was due to inventory acquired as part of the ~~acquisitions~~acquisition of ~~Rocky Mountain and Northwest~~Mid-South in ~~2013 and~~the first quarter of 2014, certain businesses restocking from lower inventory levels in ~~December.~~December and some businesses increasing inventory for anticipated demand improvements in the second quarter of 2014.

Cash Flows

Cash and cash equivalents ~~increase~~decreased $~~1,130~~521 million during the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, compared to a $~~451~~114 million ~~decrease~~increase in cash and cash equivalents during the comparable period in ~~2012~~2013. Cash and cash equivalents were impacted as follows.

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Operating Activities


	Nine months ended									Three months ended
In millions	September 29, 2013			September 30, 2012			Change			March 30, 2014			March 31, 2013			Change
Consolidated net income	$	1,127		$	1,340		$	(213	)	$	358		$	312		$	46
Depreciation and amortization	305			262			43			105			98			7
Restructuring payments, net	(25		)	—			(25		)
Gain on sale of businesses	—			(6		)	6
Gain on fair value adjustment for consolidated investees	(12		)	(7		)	(5		)	(6		)	(7		)	1
Deferred income taxes	78			91			(13		)	22			5			17
Equity in income of investees, net of dividends	(98		)	(51		)	(47		)	(52		)	(36		)	(16		)
Pension contributions in excess of expense	(96		)	(74		)	(22		)	(100		)	(54		)	(46		)
Other post-retirement benefits payments in excess of expense	(20		)	(16		)	(4		)	(8		)	(8		)	—
Stock-based compensation expense	29			29			—			10			7			3
Excess tax benefits on stock-based awards	(13		)	(12		)	(1		)	(5		)	(7		)	2
Translation and hedging activities	26			16			10			(3		)	(5		)	2
Changes in current assets and liabilities, net of acquisitions:
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable	(216		)	66			(282		)	(232		)	(29		)	(203		)
Inventories	(206		)	(367		)	161			(135		)	(177		)	42
Other current assets	182			(54		)	236			2			158			(156		)
Accounts payable	252			(145		)	397			302			204			98
Accrued expenses	(146		)	(398		)	252			(95		)	(142		)	47
Changes in other liabilities and deferred revenue	147			154			(7		)	50			47			3
Other, net	19			(41		)	60			50			62			(12		)
Net cash provided by operating activities	$	1,333		$	787		$	546		$	263		$	428		$	(165	)

Net cash provided by operating activities ~~increase~~decreased for the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, versus the comparable period in ~~2012~~2013, primarily due to ~~favorable~~unfavorable working capital fluctuations and higher pension contributions in excess of expense, partially offset by ~~lower~~higher consolidated net income. During the first ~~nine~~three months of ~~2013~~2014, the ~~lower~~higher working capital requirements resulted in a cash outflow of $~~134~~158 million compared to a cash ~~outflow~~inflow of $~~898~~14 million in the comparable period in ~~2012~~2013. This ~~positive~~ change of $~~764~~172 million was primarily driven by an increase in accounts and notes receivable and a smaller decrease in other current assets, partially offset by an increase in accounts payable in the three months ended March 30, 2014 versus the comparable period in 2013. The change in other current assets was largely due to lower net tax payments of ~~$322~~$192 million ~~due to~~as the result of the receipt of an income tax refund ~~which was partially offset by our tax payments~~ in ~~the first~~ ~~nine~~ ~~months of~~ ~~2013, a smaller decrease in accrued expenses and a smaller increase in inventories, partially offset by an increase in accounts and notes receivable in the~~ ~~nine months ended September 29, 2013, versus the comparable period in~~ ~~2012~~.2013.

Pensions

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~~three months of ~~2013~~2014, the investment return ~~for~~on our U.S. ~~plan~~pension trust was ~~3.7~~4.7 percent while our U.K. ~~plan~~pension trust return was ~~7.8~~1.8 percent. Approximately 7677 percent of our pension plan assets are invested in highly liquid investments such as ~~equity~~fixed income and ~~fixed income~~equity securities. The remaining 2423 percent of our plan assets are invested in less liquid, but market valued investments, including real estate, private equity and insurance contracts. We made $~~161~~114 million of pension contributions in the ~~nine~~three months ended ~~September 29, 2013~~, and we anticipate making total contributions of approximately $~~170~~205 million to our pension plans in ~~2013~~2014, which include voluntary contributions of approximately $~~115~~111 million. Expected contributions to our defined benefit pension plans in ~~2013~~2014 will meet or exceed the current funding requirements. Claims and premiums for other postretirement benefits are expected to approximate $4743 million in ~~2013.~~2014. The $~~161~~114 million of pension contributions in the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, included voluntary contributions of $~~110~~39 million. These contributions and payments include payments from our funds either to increase pension plan assets or to make direct payments to plan participants.

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Investing Activities


	Nine months ended									Three months ended
In millions	September 29, 2013			September 30, 2012			Change			March 30, 2014			March 31, 2013			Change
Capital expenditures	$	(417	)	$	(424	)	$	7		$	(107	)	$	(114	)	$	7
Investments in internal use software	(43		)	(62		)	19			(14		)	(12		)	(2		)
Investments in and advances to equity investees	(12		)	(92		)	80			(6		)	(24		)	18
Acquisition of businesses, net of cash acquired	(145		)	(215		)	70
Proceeds from sale of business, net of cash sold	—			10			(10		)
Acquisitions of businesses, net of cash acquired										(90		)	(17		)	(73		)
Investments in marketable securities—acquisitions	(360		)	(433		)	73			(84		)	(133		)	49
Investments in marketable securities—liquidations	433			475			(42		)	108			187			(79		)
Cash flows from derivatives not designated as hedges	(15		)	13			(28		)	5			(30		)	35
Other, net	14			9			5			1			—			1
Net cash used in investing activities	$	(545	)	$	(719	)	$	174		$	(187	)	$	(143	)	$	(44	)

Net cash used in investing activities ~~decrease~~increased for the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, versus the comparable period in ~~2012~~2013, primarily due to ~~lower investments in and advances to equity investees, lower~~higher cash investment for the acquisition of businesses in 2014 and lower net investments in marketable securities, partially offset by ~~unfavorable~~favorable settlement of derivatives not designated as ~~hedges.~~hedges and lower investments in and advances to equity investees.

OnIn September ~~17,~~ 2013, we announced our intention to acquire the equity that we do not already own in most of our partially-owned United States and Canadian distributors over the next three to five years. We plan to spend approximately $400 million to $500 million on distributor acquisitions and debt retirements in 2014.

Capital expenditures for the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, were $~~417~~107 million compared to $~~424~~114 million in the comparable period in ~~2012~~2013. Despite the challenging economies around the world, we continue to invest in new product lines and targeted capacity expansions. We ~~now~~ plan to spend ~~approximately~~between $700 million and $800 million in ~~2013~~2014 as we continue with product launches and facility improvements and prepare for future emission standards. Over 50 percent of our capital expenditures ~~will~~are expected to be invested outside of the U.S. in ~~2013.~~2014. As of ~~September 29, 2013,~~March 30, 2014, we have committed to invest an additional $5954 million~~into~~ in existing joint ventures, of which the entire $1154 millionis expected to be funded in ~~2013.~~2014.

Financing Activities

Nine months ended
In millions September 29, 2013 September 30, 2012 Change
Proceeds from borrowings $ 987
$ 64
$ 923
Payments on borrowings and capital lease obligations (62 ) (120 ) 58
Net borrowings under short-term credit agreements 34
5
29
Distributions to noncontrolling interests (53 ) (50 ) (3 )
Dividend payments on common stock (305 ) (246 ) (59 )
Repurchases of common stock (289 ) (231 ) (58 )
Excess tax benefits on stock-based awards 13
12
1
Other, net 19
16
3
Net cash provided by (used in) financing activities $ 344
$ (550 ) $ 894



	Three months ended
In millions	March 30, 2014			March 31, 2013			Change
Proceeds from borrowings	$	7		$	—		$	7
Payments on borrowings and capital lease obligations	(25		)	(27		)	2
Net borrowings (payments) under short-term credit agreements	(39		)	15			(54		)
Distributions to noncontrolling interests	(13		)	(19		)	6
Dividend payments on common stock	(115		)	(95		)	(20		)
Repurchases of common stock	(419		)	—			(419		)
Excess tax benefits on stock-based awards	5			7			(2		)
Other, net	(3		)	16			(19		)
Net cash used in financing activities	$	(602	)	$	(103	)	$	(499	)

Net cash ~~provided by~~used in financing activities increased for the ~~nine~~three months ended ~~September 29, 2013~~, March 30, 2014, versus the comparable period in ~~2012~~2013, primarily due to the ~~proceeds from our issuance~~repurchase of ~~senior notes~~common stock and ~~lower~~ payments on ~~borrowings and capital lease obligations, partially offset by higher dividend payments and higher repurchases of common stock.~~short-term borrowings.

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~~In July 2013, the Board of Directors authorized a dividend increase of 25 percent from $0.50 per share to $0.625 per share on a quarterly basis.~~

Our total debt was $~~1,793 million~~1.7 billion as of ~~September 29, 2013~~March 30, 2014, compared with $~~775 million~~1.7 billion as of December 31, ~~2012~~2013. Total debt as a percent of our total capital (total capital defined as debt plus equity) was ~~19.4~~18.0 percent at ~~September 29, 2013~~March 30, 2014, compared with ~~10.0~~18.1 percent at December 31, ~~2012~~2013.

~~In February 2011, the Board of Directors approved a share repurchase program and authorized the acquisition of up to $1 billion of our common stock, which was completed in June 2013.~~In December 2012, ~~the~~our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon completion of the 2011 repurchase plan. In ~~2013,~~2014, we made the following quarterly purchases under the 2012 repurchase ~~programs~~program as indicated:

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Remaining
In millions (except per share amounts) Shares Average Cost Total Cost of Authorized
For each quarter ended Purchased Per Share Repurchases Capacity
February 2011, $1 billion repurchase program

March 31 —
$ —
$ —
$ 226
June 30 2.0
113.44
226
—
Subtotal 2.0
113.44
226
—

December 2012, $1 billion repurchase program

June 30 0.6
$ 107.74
$ 63
$ 937
September 29 —
—
—
$ 937
Subtotal 0.6
107.74
63
$ 937

Total 2.6
112.15
$ 289
$ 937

Remaining

In millions (except per share amounts)

Average Cost

Total Cost of

Authorized

For each quarter ended

Purchased

Per Share

Repurchases

Capacity⁽¹⁾

March 30

3.0

139.70

419

425

⁽¹⁾ The remaining authorized capacity is calculated based on the cost to purchase the shares, but excludes commission expenses according to the Board authorization.

We may continue to repurchase outstanding shares from time to time during ~~2013~~2014 to offset the dilutive impact of employee stock based compensation plans and to enhance shareholder value.

Credit Ratings

A number of our contractual obligations and financing agreements, such as our revolving credit facility have restrictive covenants and/or pricing modifications that may be triggered in the event of downward revisions to our corporate credit rating. There were no downgrades of our credit ratings in the ~~third~~first quarter of ~~2013~~2014 that have impacted these covenants or pricing modifications. ~~Standard & Poor’s Rating Services,~~In April 2014, Fitch ~~Ratings and Moody’s Investors Service, Inc. confirmed~~reaffirmed our ~~credit ratings as 'A', 'A' and 'A3', respectively, subsequent to the third quarter issuance of $1 billion in senior notes.~~rating.

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



	~~Senior L-T~~
Credit Rating Agency	Senior L-T Debt Rating	Outlook
Standard & Poor’s Rating Services	A	Stable
Fitch Ratings	A	Stable
Moody’s Investors Service, Inc.	A3	Stable

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APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

A summary of our significant accounting policies is included in Note 1, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” of the Notes to the Consolidated Financial Statements of our ~~2012~~2013 Form 10-K which discusses accounting policies that we have selected from acceptable alternatives.

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

Critical accounting estimates are defined as follows: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate are reasonably likely to occur from period to period and the change would have a material impact on our financial condition or results of operations. Our senior management has discussed the development and selection of our accounting policies, related accounting estimates and the disclosures set forth below with the Audit Committee of our Board of Directors. We believe our critical accounting estimates include those addressing the estimation of liabilities for warranty programs, ~~recoverability of investment related to new products,~~ 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 ~~2012~~2013 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~~three months of ~~2013.~~2014.

~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

~~See Note 17, “RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS,” in the~~ ~~Notes to Condensed Consolidated Financial Statements~~.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A discussion of quantitative and qualitative disclosures about market risk may be found in Item 7A of our ~~2012~~2013 Form 10-K. There have been no material changes in this information since the filing of our ~~2012~~2013 Form 10-K. Further information regarding financial instruments and risk management is discussed in Note ~~13, “DERIVATIVES,~~12, “DERIVATIVES,” in the Notes to the Condensed Consolidated Financial Statements.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended ~~September 29, 2013,~~March 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.Legal Proceedings

ITEM 1A. Risk Factors

~~In addition to other information set~~Set forth below and elsewhere in this ~~report, including the risk factors below, you should consider other risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual~~Quarterly Report on Form ~~10-K~~10-Q are some of the principal risks and uncertainties that could cause our actual business results to differ materially from any forward-looking statements contained in this Report and could individually, or in combination, have a material adverse effect on our results of operations, financial position or cash flows. These risk factors should be considered in addition to our cautionary comments concerning forward-looking statements in this Report, including statements related to markets for ~~the year ended December 31, 2012, which could materially affect~~our products and trends in our business ~~financial condition or future results. The~~that involve a number of risks ~~described in our Annual Report on Form 10-K or the~~and uncertainties. Our separate section above, "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING ~~INFORMATION"~~INFORMATION," should be considered in ~~this Quarterly report are not~~addition to the ~~only risks we face. Additional risks~~following statements.

A sustained slowdown or significant downturn in our markets could materially and ~~uncertainties not currently known to us or that we currently judge to be immaterial also may materially~~ adversely affect our ~~business,~~results of operations, financial condition or ~~operating results.~~cash flows.

Global economic uncertainty continued throughout 2013 as we experienced declining or relatively flat demand in many global markets. If the global economy or some of our significant markets encounter a sustained slowdown; depending upon the length, duration and severity of such a slowdown, our results of operations, financial condition and cash flow would almost certainly be materially adversely affected. Specifically, our revenues would likely decrease, we may be forced to consider further restructuring actions, we may need to increase our allowance for doubtful accounts, our days sales outstanding may increase and we could experience impairments to assets of certain of our businesses.

A slowdown in infrastructure development could adversely affect our business.

Infrastructure development has been a significant driver of our business in recent years, especially in the emerging markets of China and Brazil. General weakness in economic growth or the perception that infrastructure has been overbuilt could lead to a decline in infrastructure spending. Any sustained downturns in infrastructure development that result from these or other circumstances could adversely affect our business.

Unpredictability in the adoption, implementation and enforcement of increasingly stringent emission standards by multiple jurisdictions around the world could adversely affect our business.

Our engines are subject to extensive statutory and regulatory requirements governing emission and noise, including standards imposed by the EPA, the European Union, state regulatory agencies (such as the CARB) and other regulatory agencies around the world. We have made, and will be required to continue to make, significant capital and research expenditures to comply with these emission standards. Developing engines to meet numerous changing government regulatory requirements, with different implementation timelines and emission requirements, makes developing engines efficiently for multiple markets complicated and could result in substantial additional costs that may be difficult to recover in certain markets. In some cases, we may be required to develop new products to comply with new regulations, particularly those relating to air emission. While we have met previous deadlines, our ability to comply with other existing and future regulatory standards will be essential for

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us to maintain our position in the engine markets we serve. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties.

In addition to these risks, the nature and timing of government implementation and enforcement of increasingly stringent emission standards in emerging markets are unpredictable and subject to change, or delays which could result in the products we developed or modified to comply with these standards becoming unnecessary or becoming necessary later than expected and in some cases negating our competitive advantage. This in turn can delay, diminish or eliminate the expected return on capital and research expenditures that we have invested in such products and may adversely affect our perceived competitive advantage in being an early, advanced developer of compliant engines.

We derive significant income from investees that we do not directly control.

Our net income includes significant equity, royalty and interest income from investees that we do not directly control. For 2013, we recognized $361 million of equity, royalty and interest income from investees, compared to $384 million in 2012. The majority of our equity, royalty and interest income from investees is from our nine unconsolidated North American distributors and from two of our joint ventures in China, Dongfeng Cummins Engine Company, Ltd. (DCEC) and Chongqing Cummins Engine Company, Ltd. (CCEC) at December 31, 2013. Our equity ownership interests in our unconsolidated North American distributors ranged from 37 percent to 50 percent at December 31, 2013. We have 50 percent equity ownership interests in DCEC and CCEC. As a result, although a significant percentage of our net income is derived from these unconsolidated entities, we do not unilaterally control their management or their operations, which puts a substantial portion of our net income at risk from the actions or inactions of these entities. A significant reduction in the level of contribution by these entities to our net income would likely have a material adverse effect on our results of operations.

Our truck manufacturers and original equipment manufacturers (OEMs) customers may not continue to outsource their engine supply needs.

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

A downturn in the North American truck industry or other factors negatively affecting any of our truck OEM customers could materially adversely impact our results of operations.

We make significant sales of engines and components to a few large truck OEMs in North America. If the North American truck market suffers a significant downturn, or if one of our large truck OEM customers experienced financial distress or bankruptcy, such circumstance would likely lead to significant reductions in our revenues and earnings, commercial disputes, receivable collection issues, and other negative consequences that could have a material adverse impact on our results of operations.

The discovery of any significant problems with our recently-introduced engine platforms in North America could materially adversely impact our results of operations, financial condition and cash flow.

The EPA and CARB have certified all of our 2012/2013 on-highway and off-highway engines, which utilize SCR technology to meet requisite emission levels. We introduced SCR technology into our engine platforms in 2010. The effective performance of SCR technology and the overall performance of these engine platforms impact a number of our operating segments and remain crucial to our success in North America. While these 2010 and 2013 engine platforms have performed well in the field, the discovery of any significant problems in these platforms could result in recall campaigns, increased warranty costs, reputational risk and brand risk, and could materially adversely impact our results of operations, financial condition and cash flow.

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We are vulnerable to supply shortages from single-sourced suppliers.

During 2013, we single sourced approximately 60 to 70 percent of the total types of parts in our product designs. Any delay in our suppliers' deliveries may adversely affect our operations at multiple manufacturing locations, forcing us to seek alternative supply sources to avoid serious disruptions. Delays may be caused by factors affecting our suppliers, including capacity constraints, labor disputes, economic downturns, availability of credit, the impaired financial condition of a particular supplier, suppliers' allocations to other purchasers, weather emergencies, natural disasters or acts of war or terrorism. Any extended delay in receiving critical supplies could impair our ability to deliver products to our customers and our results of operations.

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

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

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

Our products may be subject to recall for performance or safety-related issues. Product recalls subject us to harm to our reputation, loss of current and future customers, reduced revenue and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return of specific products due to a known or suspected performance issue. Any significant product recalls could have a material adverse effect on our results of operations, financial condition and cash flows.

Failure to successfully integrate the planned acquisitions of the equity we do not already own of our partially-owned United States and Canadian distributors could have an adverse impact on our realization of expected benefits to our financial condition and results of operations.

The completion of our plan to acquire all of the equity we do not already own of our partially- owned United States and Canadian distributors (each, an ''Acquisition,'' and collectively, the ''Acquisitions''), is subject to various risks, including, among other things, our ability to realize the full extent of the incremental revenue, earnings, cash flow, cost savings and other benefits that we expect to realize as a result of the completion of the Acquisitions within the anticipated time frame, or at all; the costs that are expected to be incurred in connection with evaluating, negotiating, consummating and integrating the Acquisitions; the ability of management to focus adequate time and attention on evaluating, negotiating, consummating and integrating the Acquisitions; and diversion of management's attention from base strategies and objectives, both during and after the acquisition process. Further, as with all merger and acquisition activity, there can be no assurance that we will be able to negotiate, consummate and integrate the Acquisitions in accordance with our plans. Those persons holding the third-party ownership of our partially-owned United States and Canadian distributors may not agree to our acquisition proposals, including the terms and conditions thereof, and may claim that our proposals to exercise certain contractual rights that we have with respect to acquiring such distributors may violate applicable state franchise and distributor laws, which may ~~result in~~prohibit, delay or otherwise adversely affect the consummation of such Acquisitions on terms and conditions that are less favorable to us than we currently anticipate, or not at all.

After completion of the Acquisitions, we may fail to realize the expected enhanced revenue, earnings, cash flow, cost savings and other benefits.

The financial success of the Acquisitions will depend, in substantial part, on our ability to successfully combine our business with the businesses of our partially-owned United States and Canadian distributors, transition operations and realize the expected enhanced revenue, earnings, cash flow, cost savings and other benefits from such Acquisitions. While we currently believe that these enhanced revenue, earnings, cash flow, cost savings and other benefits estimates are achievable, it is possible

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that we will be unable to achieve these objectives within the anticipated time frame, or at all. Our enhanced revenue, earnings, cash flow, cost savings and other benefits estimates also depend on our ability to execute and integrate the Acquisitions in a manner that permits those benefits to be realized. If these estimates turn out to be incorrect or we are not able to execute our integration strategy successfully, the anticipated enhanced revenue, earnings, cash flow, cost savings and other benefits, resulting from the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

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Specifically, issues that must be addressed in integration in order to realize the anticipated benefits and costs savings of the Acquisitions include, among other things:

maintaining and improving management and employee engagement, morale, motivation and productivity;

recruiting and retaining executives and key employees;

retaining and strengthening relationships with existing customers and attracting new customers;

conforming standards, controls, procedures and policies, business cultures and compensation structures among the companies;

consolidating and streamlining corporate and administrative infrastructures;

consolidating sales, customer service and marketing operations;

identifying and eliminating redundant and underperforming operations and assets;

integrating the distribution, sales, customer service and administrative support activities among the companies;

integrating information technology systems, including those systems managing data security for sensitive employee, customer and vendor information, and diverse network applications across the companies;

managing the broadened competitive landscape, including responding to the actions taken by competitors in response to the Acquisitions;

coordinating geographically dispersed organizations;

managing the additional business risks of businesses that we have not previously directly managed; and

managing tax costs or inefficiencies associated with integrating our operations following completion of the Acquisitions.

Delays encountered in the process of integrating the Acquisitions could negatively impact our revenues, expenses, operating results, cash flow and financial condition after completion of the Acquisitions, including through the loss of current customers or suppliers. Although significant benefits, such as enhanced revenue, earnings, cash flow and cost savings, are expected to result from the Acquisitions, there can be no assurance that we will realize any of these anticipated benefits after completion of any or all of the Acquisitions.

Additionally, significant costs are expected to be incurred in connection with the integration of the Acquisitions. We continue to assess the magnitude of these costs and additional unanticipated costs may be incurred, including costs associated with assuming our partially-owned United States and Canadian distributors' exposure to outstanding and anticipated legal claims and other liabilities. Although we believe that the elimination of duplicative costs, as well as the realization of other synergies and efficiencies related to the integration of the Acquisitions, will offset incremental integration-related costs over time, no assurances can be given that this net benefit will be achieved in the near term, or at all. In addition, the process of integrating the operations of our partially- owned United States and Canadian distributors may distract management and employees from delivering against base strategies and objectives, which could negatively impact other segments of our business following the completion of the Acquisitions.

Furthermore, the Acquisitions and the related integration efforts, could result in the departure of key managers and employees, and we may fail to identify managerial resources to fill both executive-level and lower-level managerial positions and replace key employees, including those who oversee customer relationships, any of which could have a negative impact on our

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business, and, prior to the completion of the Acquisitions, the businesses of our partially-owned United States and Canadian distributors.

The completion of the Acquisitions may be subject to the receipt of certain required clearances or approvals from governmental entities that could prevent or delay their completion or impose conditions that could have an adverse effect on us.

Completion of each of the Acquisitions may be conditioned upon the receipt of certain governmental clearances or approvals, including, but not limited to, the expiration or termination of any applicable waiting periods under U.S. competition and trade laws with respect to such ~~Acquisitions.~~Acquisitions as well as applicable state regulations and restrictions. There can be no assurance that these clearances and approvals will be obtained, and, additionally, government authorities from which these clearances and approvals are required may impose conditions on the completion of any, or all, of the Acquisitions or require changes to their respective terms. If, in order to obtain any clearances or approvals required to complete any of the Acquisitions, we become

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subject to any material conditions after completion of any of such Acquisitions, our business and results of operations after completion of any of such Acquisitions may be adversely affected.

We face significant competition in the markets we serve.

The markets in which we operate are highly competitive. We compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. We primarily compete in the market with diesel engines and related diesel products; however, new technologies continue to be developed for gasoline, natural gas and other technologies and we will continue to face new competition from these expanding technologies. Our products primarily compete on the basis of price, performance, fuel economy, speed of delivery, quality and customer support. We also face competitors in some emerging markets who have established local practices and long standing relationships with participants in these markets. There can be no assurance that our products will be able to compete successfully with the products of other companies and in other markets. For a more complete discussion of the competitive environment in which each of our segments operates, see “Operating Segments” in “Item 1 Business” in our 2013 Form 10-K.

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

As our customers in emerging markets continue to grow in size and scope, they are increasingly seeking to export their products to other countries. This has meant greater demand for our advanced engine technologies to help these customers meet the more stringent emissions requirements of developed markets, as well as greater demand for access to our distribution systems for purposes of equipment servicing. As these emerging market customers enter into and begin to compete in more developed markets, they may increasingly begin to compete with our existing customers in these markets. Our further aid to emerging market customers could adversely affect our relationships with developed market customers and, as a result, we may be pressured to restrict sale or support of some of our products in the areas of increased competition. In addition, to the extent the competition does not correspond to overall growth in demand, we may see little or no benefit from this type of expansion by our emerging market customers.

We are exposed to, and may be adversely affected by, information technology security threats and sophisticated "cyber attacks."

We rely on our information technology systems and networks in connection with various of our business activities. Some of these networks and systems are managed by third party service providers and are not under our direct control. Our operations routinely involve receiving, storing, processing and transmitting sensitive information pertaining to our business, customers, dealers, suppliers, employees and other sensitive matters. Information technology security threats, including security breaches, computer malware and other “cyber attacks” are increasing in both frequency and sophistication. These threats could create financial liability, subject us to legal or regulatory sanctions or damage our reputation with customers, dealers, suppliers and other stakeholders. We continuously seek to maintain a robust program of information security and controls, but the impact of a material information technology event could have a material adverse effect on our competitive position, reputation, results of operations, financial condition and cash flow.

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

Approximately 52 percent of our net sales for 2013 and 53 percent in 2012 were attributable to customers outside the U.S. Accordingly, our business is subject to the political, economic and other risks that are inherent in operating in numerous countries. These risks include:

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

trade protection measures and import or export licensing requirements;

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

the imposition of tariffs, exchange controls or other restrictions;

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

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

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

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

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

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

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

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

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

We can experience capacity constraints and longer lead times for certain products in times of growing demand while we can also experience idle capacity as economies slow or demand for certain products decline. Accurately forecasting our expected volumes and appropriately adjusting our capacity have been, and will continue to be, important factors in determining our results of operations. We cannot guarantee that we will be able to increase manufacturing capacity to a level that meets demand for our products, which could prevent us from meeting increased customer demand and could harm our business. However, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and we may experience reduced margins. If we do not accurately align our manufacturing capabilities with demand it could have a material adverse effect on our results of operations.

Our business is exposed to risks of product liability claims.

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

We may need to write off significant investments in our new North American light-duty diesel engine platform if customer commitments deteriorate.

We began development of a new North American light-duty diesel engine platform in July 2006 to be used in a variety of on- and off-highway applications. Since that time, and as of December 31, 2013, we have capitalized investments of approximately $242 million. Market uncertainty due to the global recession resulted in some customers delaying or cancelling their vehicle programs, while others remained active. In August 2013, we reached an agreement to supply Nissan Motor Co. Ltd. with our light-duty diesel engine beginning in 2015, however, if customer expectations or volume projections deteriorate from our current expected levels and we do not identify new customers, we may need to recognize an impairment charge and write the assets down to net realizable value.

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

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

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

We conduct operations in many areas of the world involving transactions denominated in a variety of currencies. We are subject to foreign currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. While we customarily enter into financial transactions that attempt to address these risks and many of our supply agreements with customers include foreign currency exchange rate adjustment provisions, there can be no assurance that foreign currency exchange rate fluctuations will not adversely affect our results of operations. In addition, while the use of currency hedging instruments may provide us with some protection from adverse fluctuations in foreign currency exchange rates, by utilizing these instruments we potentially forego the benefits that might result from favorable fluctuations in foreign currency exchange rates.

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

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

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

Significant declines in future financial and stock market conditions could diminish our pension plan asset performance and adversely impact our results of operations, financial condition and cash flow.

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

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

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

As of December 31, 2013, we employed approximately 47,900 persons worldwide. Approximately 15,650 of our employees worldwide are represented by various unions under collective bargaining agreements that expire between 2014 and 2016. While we have no reason to believe that we will be materially impacted by work stoppages or other labor matters, there can be no assurance that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. Any of these consequences may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers and suppliers have unionized work forces. Work stoppages or slow-downs experienced by our customers or suppliers could result in slow-downs or closures that would have a material adverse effect on our results of operations, financial condition and cash flow.

Our financial statements are subject to changes in accounting standards that could adversely impact our profitability or financial position.

Our financial statements are subject to the application of accounting principles generally accepted in the United States of America (GAAP), which are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board. Recently, accounting standard setters issued new guidance which further interprets or seeks to revise accounting pronouncements related to revenue recognition and lease accounting as well as to issue new standards expanding disclosures. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in our annual and quarterly reports on Form 10-K and Form 10-Q. An assessment of proposed standards is not provided, as such proposals are subject to change through the exposure process and, therefore, their effects on our financial statements cannot be meaningfully assessed. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse effect on the reported results of operations and financial position.

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following information is provided pursuant to Item 703 of Regulation S-K:

Issuer Purchases of Equity Securities
Period
(a) Total
Number of
Shares
Purchased⁽¹⁾
(b) Average
Price Paid
per Share (c) Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans or Programs
(d) Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plans or Programs⁽²⁾
July 1 - August 4, 2013 2,297
$ 121.43
—
93,071
August 5 - September 1, 2013 4,744
124.96
—
88,203
September 2 - September 29, 2013 10,303
130.61
—
77,030
Total 17,344
127.85
—



	Issuer Purchases of Equity Securities
Period	(a) Total Number of Shares Purchased⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
January 1 - February 2, 2014	139	$	137.79	—	60,657
February 3 - March 2, 2014	2,747,030	139.17		2,742,147	56,363
March 3 - March 30, 2014	258,973	145.63		257,853	57,981
Total	3,006,142	139.73		3,000,000

_______________________________________________________________________

⁽¹⁾ Shares purchased represent shares under our Key Employee Stock Investment Plan established in 1969 (there is no maximum repurchase limitation in this plan) and ~~our~~the 2012 Board of Directors authorized $1 billion share repurchase ~~plan.~~program.

⁽²⁾ These values reflect the sum of shares held in loan status under our Key Employee Stock Investment Plan. The repurchase program authorized by the Board of Directors does not limit the number of shares that may be purchased and was excluded from this column.

In ~~February 2011, the Board of Directors approved a share repurchase program and authorized the acquisition of up to $1 billion of our common stock, which was completed in June 2013.~~

In December 2012, ~~the~~our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon completion of the 2011 repurchase plan. As of ~~September 29, 2013,~~March 30, 2014, we have ~~$937~~$425 million available for purchase under this authorization.

During the three months ended ~~September 29, 2013,~~March 30, 2014, we repurchased ~~17,344~~ 6,142shares from employees in connection with the Key Employee Stock Investment Plan which allows certain employees, other than officers, to purchase shares of common stock on an installment basis up to an established credit limit. Loans are issued for five-year terms at a fixed interest rate established at the date of purchase and may be refinanced after its initial five-year period for an additional five-year period. Participants must hold shares for a minimum of six months from date of purchase and after shares are sold must wait six months before another share purchase may be made. We hold participants’ shares as security for the loans and would, in effect repurchase shares if the participant defaulted in repayment of the loan. There is no maximum amount of shares that we may purchase under this plan.

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ITEM 3.Defaults Upon Senior Securities

Not applicable.

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ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

Not applicable.

ITEM 6.Exhibits

See Exhibit Index at the end of this Quarterly Report on Form 10-Q.

5950

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Cummins Inc.
Date:	~~October~~April 30, ~~2013~~2014

	By:	/s/ PATRICK J. WARD	By:	/s/ MARSHA L. HUNT
		Patrick J. Ward		Marsha L. Hunt
		Vice President and Chief Financial Officer		Vice President-Corporate Controller
		(Principal Financial Officer)		(Principal Accounting Officer)

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CUMMINS INC.

EXHIBIT INDEX



Exhibit No.		Description of Exhibit
~~4(a)~~		Indenture, dated as of September 16, 2013, by and between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 filed with the SEC on September 26, 2013 (Registration Statement No. 333-191189)).
~~4(b)~~		First Supplemental Indenture, dated as of September 24, 2013, between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Current Report on 8-K, filed by Cummins Inc. with the SEC on September 24, 2013 (File No. 001-04949)).
~~4(c)~~		Second Supplemental Indenture, dated as of September 24, 2013, between Cummins Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.2 of the Current Report on 8-K, filed by Cummins Inc. with the SEC on September 24, 2013 (File No. 001-04949)).
12		Calculation of Ratio of Earnings to Fixed Charges.
31(a)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

6152



In millions
Accounts receivable	$	48
Inventory	100
Fixed assets	34
Intangible assets	8
Goodwill	9
Other assets	8
Current liabilities	(40		)
Total business valuation	167
Fair value of pre-existing 33 percent interest	(31		)
Purchase price	$	136



Dollars in millions	Purchase price allocation		Weighted average amortization life in years
Technology	$	52	10.6
Customer	23		4.5
License arrangements	8		6.0
Total intangible assets	$	83	8.5



	Fair value
Maturity date	(in millions)
1 year or less	$	68
1-5 years	1
5-10 years	10
Total	$	79



	Fair Value Measurements Using
	Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
In millions	(Level 1)		(Level 2)		(Level 3)		Total
Available-for-sale debt securities
Debt mutual funds	$	61	$	31	$	—	$	92
Bank debentures	—		9		—		9
Certificates of deposit	—		36		—		36
Government debt securities-non-U.S.	—		3		—		3

Available-for-sale equity securities
Information technology industry	22		—		—		22

Derivative assets
Interest rate contracts	—		54		—		54
Foreign currency forward contracts	—		5		—		5
Commodity call option contracts	—		1		—		1
Total assets	$	83	$	139	$	—	$	222

Derivative liabilities
Commodity swap contracts	—		5		—		5
Foreign currency forward contracts	—		2		—		2
Commodity put option contracts	—		1		—		1
Total liabilities	$	—	$	8	$	—	$	8



In millions	September 29, 2013		December 31, 2012
Fair value of total debt	$	1,952	$	926
Carrying value of total debt	1,793		775



	Notional amount in millions
Currency denomination	September 29, 2013	December 31, 2012
United States Dollar (USD)	105	110
British Pound Sterling (GBP)	193	227
Euro (EUR)	30	28
Singapore Dollar (SGD)	—	3
Indian Rupee (INR)	3,025	1,943
Japanese Yen (JPY)	1,987	384
Canadian Dollar (CAD)	65	59
South Korea Won (KRW)	32,822	35,266
Chinese Renmimbi (CNY)	74	45
Brazilian Real (BRL)	92	—



	September 29, 2013			December 31, 2012
Commodity	Average Floor or Cap		Quantity in metric tons (1)	Average Floor or Cap		Quantity in metric tons (1)
Copper call options	$	7,852	5,062	$	8,196	4,100
Copper put options	7,052		5,062	7,005		4,100



		Three months ended										Nine months ended
	Location of Gain/(Loss)	Amount of Gain/(Loss) Recognized in AOCL on Derivative				Amount of Gain/(Loss) Reclassified from AOCL into Income						Amount of Gain/(Loss) Recognized in AOCL on Derivative					Amount of Gain/(Loss) Reclassified from AOCL into Income
In millions	Reclassified	(Effective Portion)				(Effective Portion)						(Effective Portion)					(Effective Portion)
Derivatives in Cash Flow Hedging Relationships	into Income(Effective Portion)	September 29, 2013		September 30, 2012		September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012		September 29, 2013			September 30, 2012
Foreign currency forward contracts	Net sales	$	5	$	5	$	(2	)	$	(1	)	$	(3	)	$	8	$	(4	)	$	(3	)
Commodity swap contracts	Cost of sales	5		10		(2		)	(3		)	(4		)	13		1			(8		)
Total		$	10	$	15	$	(4	)	$	(4	)	$	(7	)	$	21	$	(3	)	$	(11	)



	Workforce
In millions	reductions
Balance at December 31, 2012	$	25
Cash payments for 2012 actions	(22		)
Change in estimate	(3		)
Balance at September 29, 2013	$	—



						Remaining
In millions (except per share amounts)	Shares	Average Cost		Total Cost of		Authorized
For each quarter ended	Purchased	Per Share		Repurchases		Capacity
February 2011, $1 billion repurchase program
March 31	—	$	—	$	—	$	226
June 30	2.0	113.44		226		—
Subtotal	2.0	113.44		226		—

December 2012, $1 billion repurchase program
June 30	0.6	$	107.74	$	63	$	937
September 29	—	—		—		$	937
Subtotal	0.6	107.74		63		$	937

Total	2.6	112.15		$	289	$	937