Table of Contents

 
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 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 March 30, 2014, there were 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
 
 
 
Condensed Consolidated Statements of Income for the three months ended March 30, 2014 and March 31, 2013
 
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 30, 2014 and March 31, 2013
 
Condensed Consolidated Balance Sheets at March 30, 2014 and December 31, 2013
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 30, 2014 and March 31, 2013
 
Condensed Consolidated Statements of Changes in Equity for the three months ended March 30, 2014 and March 31, 2013
 
 
 
 
 

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PART I.  FINANCIAL INFORMATION
 
ITEM 1.  Condensed Consolidated Financial Statements
 
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
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 $592 million and $552 million for the three month periods ended March 30, 2014 and March 31, 2013, respectively.
 
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

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CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three months ended
In millions 
 
March 30, 2014
 
March 31, 2013
CONSOLIDATED NET INCOME
 
$
358

 
$
312

Other comprehensive income (loss), net of tax (Note 13)
 
 

 
 

Foreign currency translation adjustments
 
31

 
(150
)
Unrealized gain (loss) on derivatives
 
2

 
(6
)
Change in pension and other postretirement defined benefit plans
 
4

 
19

Unrealized gain (loss) on marketable securities
 
(2
)
 
(10
)
Total other comprehensive income (loss), net of tax
 
35

 
(147
)
COMPREHENSIVE INCOME
 
393

 
165

Less: Comprehensive income attributable to noncontrolling interest
 
26

 
28

COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
367

 
$
137

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

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CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In millions, except par value
 
March 30, 2014
 
December 31, 2013
ASSETS
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
2,178

 
$
2,699

Marketable securities (Note 7)
 
129

 
150

Total cash, cash equivalents and marketable securities
 
2,307

 
2,849

Accounts and notes receivable, net
 
 

 
 

Trade and other
 
2,661

 
2,362

Nonconsolidated equity investees
 
288

 
287

Inventories (Note 8)
 
2,580

 
2,381

Prepaid expenses and other current assets
 
663

 
760

Total current assets
 
8,499

 
8,639

Long-term assets
 
 

 
 

Property, plant and equipment
 
6,563

 
6,410

Accumulated depreciation
 
(3,331
)
 
(3,254
)
Property, plant and equipment, net
 
3,232

 
3,156

Investments and advances related to equity method investees (Note 5)
 
966

 
931

Goodwill
 
464

 
461

Other intangible assets, net
 
357

 
357

Prepaid pensions
 
622

 
514

Other assets
 
611

 
670

Total assets
 
$
14,751

 
$
14,728

 
 
 
 
 
LIABILITIES
 
 

 
 

Current liabilities
 
 

 
 

Loans payable
 
$
24

 
$
17

Accounts payable (principally trade)
 
1,887

 
1,557

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
 
323

 
433

Deferred revenue
 
295

 
285

Taxes payable (including taxes on income)
 
69

 
99

Other accrued expenses
 
575

 
566

Total current liabilities
 
3,555

 
3,368

Long-term liabilities
 
 

 
 

Long-term debt (Note 9)
 
1,632

 
1,672

Pensions
 
232

 
232

Postretirement benefits other than pensions
 
347

 
356

Other liabilities and deferred revenue
 
1,251

 
1,230

Total liabilities
 
7,017

 
6,858

 
 
 
 
 
Commitments and contingencies (Note 11)
 

 

 
 
 

 
 

EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 

 
 

Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued
 
2,101

 
2,099

Retained earnings
 
8,629

 
8,406

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
 
(607
)
 
(611
)
Other
 
(148
)
 
(173
)
Total accumulated other comprehensive loss
 
(755
)
 
(784
)
Total Cummins Inc. shareholders’ equity
 
7,360

 
7,510

Noncontrolling interests
 
374

 
360

Total equity
 
7,734

 
7,870

Total liabilities and equity
 
$
14,751

 
$
14,728

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

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CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three months ended
In millions
 
March 30, 2014
 
March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Consolidated net income
 
$
358

 
$
312

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 

 
 

Depreciation and amortization
 
105

 
98

Gain on fair value adjustment for consolidated investees (Note 3)
 
(6
)
 
(7
)
Deferred income taxes
 
22

 
5

Equity in income of investees, net of dividends
 
(52
)
 
(36
)
Pension contributions in excess of expense (Note 4)
 
(100
)
 
(54
)
Other post-retirement benefits payments in excess of expense (Note 4)
 
(8
)
 
(8
)
Stock-based compensation expense
 
10

 
7

Excess tax benefits on stock-based awards
 
(5
)
 
(7
)
Translation and hedging activities
 
(3
)
 
(5
)
Changes in current assets and liabilities, net of acquisitions
 
 
 
 

Accounts and notes receivable
 
(232
)
 
(29
)
Inventories
 
(135
)
 
(177
)
Other current assets
 
2

 
158

Accounts payable
 
302

 
204

Accrued expenses
 
(95
)
 
(142
)
Changes in other liabilities and deferred revenue
 
50

 
47

Other, net
 
50

 
62

Net cash provided by operating activities
 
263

 
428

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(107
)
 
(114
)
Investments in internal use software
 
(14
)
 
(12
)
Investments in and advances to equity investees
 
(6
)
 
(24
)
Acquisitions of businesses, net of cash acquired (Note 3)
 
(90
)
 
(17
)
Investments in marketable securities—acquisitions (Note 7)
 
(84
)
 
(133
)
Investments in marketable securities—liquidations (Note 7)
 
108

 
187

Cash flows from derivatives not designated as hedges
 
5

 
(30
)
Other, net
 
1

 

Net cash used in investing activities
 
(187
)
 
(143
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Proceeds from borrowings
 
7

 

Payments on borrowings and capital lease obligations
 
(25
)
 
(27
)
Net borrowings (payments) under short-term credit agreements
 
(39
)
 
15

Distributions to noncontrolling interests
 
(13
)
 
(19
)
Dividend payments on common stock
 
(115
)
 
(95
)
Repurchases of common stock
 
(419
)
 

Excess tax benefits on stock-based awards
 
5

 
7

Other, net
 
(3
)
 
16

Net cash used in financing activities
 
(602
)
 
(103
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
5

 
(68
)
Net increase (decrease) in cash and cash equivalents
 
(521
)
 
114

Cash and cash equivalents at beginning of year
 
2,699

 
1,369

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
2,178

 
$
1,483

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

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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
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
 

 
 

 
338

 
 

 
 

 
 

 
338

 
20

 
358

Other comprehensive income (loss)
 

 
 

 
 

 
29

 
 

 
 

 
29

 
6

 
35

Issuance of shares
 

 
1

 
 

 
 

 
 

 
 

 
1

 

 
1

Employee benefits trust activity
 

 
9

 
 

 
 

 
 

 
1

 
10

 

 
10

Acquisition of shares
 

 
 

 
 

 
 

 
(419
)
 
 

 
(419
)
 

 
(419
)
Cash dividends on common stock
 

 
 

 
(115
)
 
 

 
 

 
 

 
(115
)
 

 
(115
)
Distribution to noncontrolling interests
 

 
 

 
 

 
 

 
 

 
 

 

 
(13
)
 
(13
)
Stock based awards
 

 
(8
)
 
 

 
 

 
14

 
 

 
6

 

 
6

Other shareholder transactions
 

 


 
 

 
 

 
 

 
 

 

 
1

 
1

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.

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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 over 600 company-owned and independent distributor locations and 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 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 first quarters of 2014 and 2013 ended on March 30 and March 31, respectively.  The interim periods for both 2014 and 2013 contained 13 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 these Condensed 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 month periods ended March 30, 2014 and March 31, 2013, were as follows:
 
 
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, 2013.  Our interim period financial results for the three 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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Cummins Mid-South LLC
On February 14, 2014, we acquired the remaining 62.2 percent interest in Cummins Mid-South LLC (Mid-South) from the former distributor principal. The preliminary purchase consideration was $116 million, which included $32 million in cash and an additional $61 million paid to eliminate outstanding debt. The remaining $23 million will be paid in future periods, subject to customary purchase price adjustments. The acquisition was accounted for as a business combination and the results of the acquired entity were included in the Distribution operating segment subsequent to the acquisition date. As a result of this transaction, first quarter 2014 Distribution segment results included a $6 million gain, as we were required to re-measure our pre-existing 37.8 percent ownership interest in 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 Mid-South were $368 million for the year ended December 31, 2013. This amount is not fully incremental to our consolidated sales as the amount would be reduced by the elimination of sales to the previously unconsolidated entity.
 
Cummins Northwest LLC
In January 2013, we acquired the remaining 50 percent interest in Cummins Northwest LLC (Northwest) from the former principal for consideration of approximately $18 million.  We immediately formed a new partnership with a new distributor principal and sold 20.01 percent to the new distributor 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 subsequent to the acquisition date.  Distribution segment results also included a $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 million of goodwill.  Net sales for Northwest were $137 million for the year ended December 31, 2012.  This amount is not fully incremental to 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 new distributor principal for an additional $4 million. Since the entity was already consolidated, this was accounted for as an equity transaction.

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:
 
 
 
Three months ended
In millions
 
March 30, 2014
 
March 31, 2013
Defined benefit pension and other postretirement plans
 
 

 
 

Voluntary contribution
 
$
39

 
$
39

Mandatory contribution
 
75

 
37

Defined benefit pension contributions
 
114

 
76

Other postretirement plans
 
12

 
14

Total defined benefit plans
 
$
126

 
$
90

 
 
 
 
 
Defined contribution pension plans
 
$
26

 
$
22

We anticipate making additional defined benefit pension contributions and other postretirement benefit payments during the remainder of 2014 of $91 million and $31 million, respectively.  The $205 million of pension contributions for the full year include voluntary contributions of approximately $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. 


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The components of net periodic pension and other postretirement benefit costs under our plans were as follows:
 
 
Pension
 
 
 
 
 
 
U.S. Plans
 
U.K. Plans
 
Other Postretirement Benefits
 
 
Three months ended
In millions
 
March 30,
2014
 
March 31,
2013
 
March 30,
2014
 
March 31,
2013
 
March 30,
2014
 
March 31,
2013
Service cost
 
$
17

 
$
17

 
$
6

 
$
5

 
$

 
$

Interest cost
 
26

 
24

 
16

 
14

 
4

 
4

Expected return on plan assets
 
(44
)
 
(42
)
 
(22
)
 
(18
)
 

 

Recognized net actuarial loss
 
8

 
16

 
7

 
6

 

 
2

Net periodic benefit cost
 
$
7

 
$
15

 
$
7

 
$
7

 
$
4

 
$
6

 
 
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
In millions
 
March 30, 2014
 
March 31, 2013
Distribution Entities
 
 
 
 
North American distributors
 
$
32

 
$
35

Komatsu Cummins Chile, Ltda.
 
6

 
5

All other distributors
 
1

 

Manufacturing Entities
 
 
 
 
Dongfeng Cummins Engine Company, Ltd.
 
14

 
12

Chongqing Cummins Engine Company, Ltd.
 
11

 
12

Beijing Foton Cummins Engine Co., Ltd. (Light-duty)
 
6

 
1

Shanghai Fleetguard Filter Co., Ltd.
 
3

 
3

Tata Cummins, Ltd.
 
2

 
1

Cummins Westport, Inc.
 
1

 

Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)
 
(6
)
 
(3
)
All other manufacturers
 
9

 
7

Cummins share of net income
 
79

 
73

Royalty and interest income
 
11

 
9

Equity, royalty and interest income from investees
 
$
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.  The effective tax rate for the three months ended March 30, 2014, was 29.9 percent.  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 of $28 million attributable to the 2012 research credit reinstated in January 2013, as well as a discrete tax expense of $17 million, which primarily related to the write-off of a deferred tax asset deemed unrecoverable. The increase in the three month effective tax rate from 2013 to 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 the resolution of these issues. We do not expect this resolution to have a material impact on our results of operations.

NOTE 7. MARKETABLE SECURITIES
 
A summary of marketable securities, all of which are classified as current, was as follows:
 
 
 
March 30, 2014
 
December 31, 2013
In millions
 
Cost
 
Gross unrealized
gains/(losses)
 
Estimated
fair value
 
Cost
 
Gross unrealized
gains/(losses)
 
Estimated
fair value
Available-for-sale
 
 

 
 

 
 

 
 

 
 

 
 

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
 

 

 

 
2

 

 
2

Certificates of deposit
 
4

 

 
4

 
22

 

 
22

Government debt securities-non-U.S.
 
3

 

 
3

 
3

 
(1
)
 
2

Total level 2
 
37


1


38


54


1


55

Total marketable securities
 
$
115

 
$
14

 
$
129

 
$
136

 
$
14

 
$
150

 ________________________________________________________________________________________
(1) The fair value of Level 1 securities is estimated primarily by referencing quoted prices in active markets for identical assets.  
(2) The 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 three months of 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
In millions
 
March 30, 2014
 
March 31, 2013
Proceeds from sales and maturities of marketable securities
 
$
108

 
$
187

Gross realized gains from the sale of available-for-sale securities
 
1

 
10


At March 30, 2014, the fair value of available-for-sale investments in debt securities that utilize a Level 2 fair value measure by contractual maturity was as follows:
 
Maturity date
 
Fair value
(in millions)
1 year or less
 
$
35

1 - 5 years
 
2

5 - 10 years
 
1

Total
 
$
38


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NOTE 8. INVENTORIES
 
Inventories are stated at the lower of cost or market.  Inventories included the following:
 
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
A summary of 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

_________________________________________________________________________
(1) In February 2014, we settled our November 2005 interest rate swap which previously converted our $250 million debt issue, due in 2028, from a fixed rate 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. See Note 12, "DERIVATIVES" for further details.
Principal payments required on long-term debt during the next five years are as follows:
 
 
Required Principal Payments
In millions
 
2014
 
2015
 
2016
 
2017
 
2018
Payment
 
$
32

 
$
56

 
$
44

 
$
9

 
$
15


Fair Value of Debt
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair value and carrying value of total debt, including current maturities, 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 debt is derived from Level 2 inputs.

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NOTE 10. PRODUCT WARRANTY LIABILITY
 
We charge the estimated costs of warranty programs, other than product recalls, to income when the 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.  A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued recall programs was as follows:
 
 
 
Three months ended
In millions 
 
March 30, 2014
 
March 31, 2013
Balance, beginning of year
 
$
1,129

 
$
1,088

Provision for warranties issued
 
84

 
116

Deferred revenue on extended warranty contracts sold
 
53

 
49

Payments
 
(102
)
 
(102
)
Amortization of deferred revenue on extended warranty contracts
 
(34
)
 
(27
)
Changes in estimates for pre-existing warranties
 
2

 
(9
)
Foreign currency translation
 
1

 
(5
)
Balance, end of period
 
$
1,133

 
$
1,110

 
Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our March 30, 2014, balance sheet were as follows:
In millions
 
March 30, 2014
 
Balance Sheet Location
Deferred revenue related to extended coverage programs
 
 

 
 
Current portion
 
$
151

 
Deferred revenue
Long-term portion
 
362

 
Other liabilities and deferred revenue
Total
 
$
513

 
 
 
 
 
 
 
Receivables related to estimated supplier recoveries
 
 

 
 
Current portion
 
$
9

 
Trade and other receivables
Long-term portion
 
5

 
Other assets
Total
 
$
14

 
 
 
 
 
 
 
Long-term portion of warranty liability
 
$
275

 
Other liabilities and deferred revenue
 
NOTE 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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Table of Contents

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.
 
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 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 March 30, 2014, the maximum potential loss related to these other guarantees was $8 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 March 30, 2014, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately $105 million, of which $57 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 $69 million at March 30, 2014 and $66 million at December 31, 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 March 30, 2014, we have committed to invest an additional $54 million in existing joint ventures, of which the entire $54 million is expected to be funded in 2014.


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Table of Contents

NOTE 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.  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.
 
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.
In February 2014, we settled our November 2005 interest rate swap which previously converted our $250 million debt issue, due in 2028, from a fixed rate 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 swaps mirror those of the debt, with interest paid semi-annually. The swaps were designated, and will be accounted for, as fair value hedges under GAAP. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as “Interest expense.”
The following table summarizes these gains and losses for the three month period presented below:
 
 
Three months ended
In millions(1)
 
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
Interest expense
 
$
(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 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 they were not material for the periods presented.
(2)Includes foreign currency forward contracts.
(3)Includes commodity swap contracts.


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Table of Contents

Derivatives Not Designated as Hedging Instruments
The following table summarizes the effect on our Condensed Consolidated Statements of Income for derivative instruments not classified as cash flow hedges for the three month periods presented below:
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.

Fair Value Amount and Location of Derivative Instruments
The following table summarizes the location and fair value of interest rate swap contracts, foreign currency forward contracts, commodity swap contracts and commodity zero-cost collars on our Condensed Consolidated Balance Sheets:
 
 
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 of 5,104 and 5,421 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 $7,468 and $6,841 and $7,639 and $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.

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 $2 million and derivatives in a net liability position of $8 million.

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Table of Contents

NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
Following are the changes in accumulated other comprehensive income (loss) by component:
 
 
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
Balance at December 31, 2012
 
$
(794
)
 
$
(161
)
 
$
5

 
$

 
$
(950
)
 
 

 
 

Other comprehensive income before reclassifications
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Before tax amount
 
5

 
(154
)
 
(1
)
 
(6
)
 
(156
)
 
$
3

 
$
(153
)
Tax (provision) benefit
 
(2
)
 
1

 

 
1

 

 

 

After tax amount
 
3

 
(153
)
 
(1
)
 
(5
)
 
(156
)
 
3

 
(153
)
Amounts reclassified from accumulated other comprehensive income(1)(2)
 
16

 

 
(4
)
 
(1
)
 
11

 
(5
)
 
6

Net current period other comprehensive income (loss)
 
19

 
(153
)
 
(5
)
 
(6
)
 
(145
)
 
$
(2
)
 
$
(147
)
Balance at March 31, 2013
 
$
(775
)
 
$
(314
)
 
$

 
$
(6
)
 
$
(1,095
)
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
 
$
(611
)
 
$
(179
)
 
$
7

 
$
(1
)
 
$
(784
)
 
 

 
 

Other comprehensive income before reclassifications
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Before tax amount
 
(7
)
 
24

 
(1
)
 
3

 
19

 
$
7

 
$
26

Tax (provision) benefit
 
1

 

 

 
(1
)
 

 

 

After tax amount
 
(6
)
 
24

 
(1
)
 
2

 
19

 
7

 
26

Amounts reclassified from accumulated other comprehensive income(1)(2)
 
10

 

 

 

 
10

 
(1
)
 
9

Net current period other comprehensive income (loss)
 
4

 
24

 
(1
)
 
2

 
29

 
$
6

 
$
35

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 further details.  


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Table of Contents

Following are the items reclassified out of accumulated other comprehensive income (loss) and the related tax effects:
In millions
 
Three months ended
 
 
(Gain)/Loss Components
 
March 30, 2014
 
March 31, 2013
 
Statement of Income Location
 
 
 
 
 
 
 
Realized (gain) loss on marketable securities
 
$
(1
)
 
$
(10
)
 
Other income (expense), net
Income tax expense
 

 
1

 
Income tax expense
Net realized (gain) loss on marketable securities
 
(1
)

(9
)
 
 
 
 
 
 
 
 
 
Realized (gain) loss on derivatives
 
 

 
 
 
 
Foreign currency forward contracts
 
(2
)
 

 
Net sales
Commodity swap contracts
 
2

 
(2
)
 
Cost of sales
Total before taxes
 


(2
)
 
 
Income tax expense
 

 
1

 
Income tax expense
Net realized (gain) loss on derivatives
 


(1
)
 
 
 
 
 
 
 
 
 
Change in pension and other postretirement defined benefit plans
 
 

 
 
 
 
Recognized actuarial loss
 
15

 
24

 
(1) 
Total before taxes
 
15


24

 
 
Income tax expense
 
(5
)
 
(8
)
 
Income tax expense
Net change in pensions and other postretirement defined benefit plans
 
10


16

 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
9


$
6

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

NOTE 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' 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.


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Table of Contents

Summarized financial information regarding our reportable operating segments for the three month periods is shown in the table below:
In millions
 
Engine
 
Components
 
Power Generation
 
Distribution
 
Non-segment
Items (1)
 
Total
Three months ended March 30, 2014
 
 

 
 

 
 

 
 

 
 

 
 

External sales
 
$
2,090

 
$
922

 
$
452

 
$
942

 
$

 
$
4,406

Intersegment sales
 
473

 
308

 
187

 
8

 
(976
)
 

Total sales
 
2,563

 
1,230

 
639

 
950

 
(976
)
 
4,406

Depreciation and amortization(2)
 
51

 
26

 
12

 
16

 

 
105

Research, development and engineering expenses
 
116

 
53

 
19

 
2

 

 
190

Equity, royalty and interest income from investees
 
32

 
9

 
8

 
41

 

 
90

Interest income
 
2

 
1

 
1

 
1

 

 
5

Segment EBIT
 
269


167


25


76

(3) 
(9
)
 
528

 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2013
 
 

 
 

 
 

 
 

 
 

 
 

External sales
 
$
1,885

 
$
722

 
$
539

 
$
776

 
$

 
$
3,922

Intersegment sales
 
418

 
296

 
207

 
2

 
(923
)
 

Total sales
 
2,303

 
1,018

 
746

 
778

 
(923
)
 
3,922

Depreciation and amortization(2)
 
52

 
24

 
12

 
10

 

 
98

Research, development and engineering expenses
 
105

 
57

 
18

 
2

 

 
182

Equity, royalty and interest income from investees
 
23

 
7

 
7

 
45