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 29, 2015~~April 3, 2016

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 29, 2015~~April 3, 2016, there were ~~181,311,804~~170,359,533 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. Cummins is not including the information provided on the website as part of, or incorporating such information by reference into, this Quarterly Report on Form 10-Q.

~~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 months ended April 3, 2016 and March 29, 2015 ~~and March 30, 2014~~	3
	Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2016 and March 29, 2015 ~~and March 30, 2014~~	4
	Condensed Consolidated Balance Sheets at ~~March 29, 2015~~April 3, 2016 and December 31, ~~2014~~2015	5
	Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2016 and March 29, 2015 ~~and March 30, 2014~~	6
	Condensed Consolidated Statements of Changes in Equity for the three months ended April 3, 2016 and March 29, 2015 ~~and March 30, 2014~~	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1719
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3841
ITEM 4.	Controls and Procedures	3841
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	3942
ITEM 1A.	Risk Factors	3942
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3942
ITEM 3.	Defaults Upon Senior Securities	4043
ITEM 4.	Mine Safety Disclosures	4043
ITEM 5.	Other Information	4043
ITEM 6.	Exhibits	4043
	Signatures	4144
	Cummins Inc. Exhibit Index	4245

~~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						Three months ended
In millions, except per share amounts	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
NET SALES ^(a)	$	4,709		$	4,406		$	4,291		$	4,709
Cost of sales	3,514			3,307			3,235			3,514
GROSS MARGIN	1,195			1,099			1,056			1,195

OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	517			485			490			517
Research, development and engineering expenses	195			190			166			195
Equity, royalty and interest income from investees (Note 4)	68			90			72			68
Other operating income (expense), net	(3		)	(1		)
Other operating expense, net							(2		)	(3		)
OPERATING INCOME	548			513			470			548

Interest income	5			5			6			5
Interest expense	14			17
Interest expense (Note 8)							19			14
Other income, net	9			10			8			9
INCOME BEFORE INCOME TAXES	548			511			465			548

Income tax expense (Note 5)	144			153			132			144
CONSOLIDATED NET INCOME	404			358			333			404

Less: Net income attributable to noncontrolling interests	17			20			12			17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	387		$	338		$	321		$	387

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic	$	2.14		$	1.83		$	1.87		$	2.14
Diluted	$	2.14		$	1.83		$	1.87		$	2.14

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	180.6			184.3			171.8			180.6
Dilutive effect of stock compensation awards	0.4			0.4			0.2			0.4
Diluted	181.0			184.7			172.0			181.0

CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.78		$	0.625		$	0.975		$	0.78

^(a)Includes sales to nonconsolidated equity investees of ~~$325~~$242 million and ~~$592~~$325 million for the three ~~month periods~~months ended April 3, 2016 and March 29, 2015, ~~and March 30, 2014,~~ 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						Three months ended
In millions	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
CONSOLIDATED NET INCOME	$	404		$	358		$	333		$	404
Other comprehensive (loss) income, net of tax (Note 11)
Foreign currency translation adjustments							(57		)	(176		)
Unrealized loss on derivatives							(21		)	—
Change in pension and other postretirement defined benefit plans	13			4			9			13
Foreign currency translation adjustments	(176		)	31
Unrealized loss on marketable securities	(1		)	(2		)	—			(1		)
Unrealized gain on derivatives	—			2
Total other comprehensive (loss) income, net of tax	(164		)	35
Total other comprehensive loss, net of tax							(69		)	(164		)
COMPREHENSIVE INCOME	240			393			264			240
Less: Comprehensive income attributable to noncontrolling interests	20			26			12			20
COMPREHENSIVE INCOME ATTRIBUTABLE TO CUMMINS INC.	$	220		$	367		$	252		$	220

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		March 29, 2015			December 31, 2014				April 3, 2016			December 31, 2015
ASSETS
Current assets
Cash and cash equivalents		$	1,997		$	2,301			$	915		$	1,711
Marketable securities (Note 6)		115			93				359			100
Total cash, cash equivalents and marketable securities		2,112			2,394				1,274			1,811
Accounts and notes receivable, net
Trade and other		2,930			2,744				2,736			2,640
Nonconsolidated equity investees		310			202				185			180
Inventories (Note 7)		2,936			2,866				2,759			2,707
Prepaid expenses and other current assets		712			849				514			609
Total current assets		9,000			9,055				7,468			7,947
Long-term assets
Property, plant and equipment		7,046			7,123				7,360			7,322
Accumulated depreciation		(3,409		)	(3,437		)		(3,648		)	(3,577		)
Property, plant and equipment, net		3,637			3,686				3,712			3,745
Investments and advances related to equity method investees		968			981				1,053			975
Goodwill		470			479				485			482
Other intangible assets, net		340			343				344			328
Prepaid pensions		714			637
Pension assets									763			735
Other assets		607			595				1,002			922
Total assets		$	15,736		$	15,776			$	14,827		$	15,134

LIABILITIES
Current liabilities
Loans payable		$	71		$	86
Accounts payable (principally trade)		2,013			1,881				$	1,809		$	1,706
Loans payable (Note 8)									117			24
Commercial paper (Note 8)									50			—
Accrued compensation, benefits and retirement costs									302			409
Current portion of accrued product warranty (Note 9)									350			359
Current portion of deferred revenue									425			403
Other accrued expenses									815			863
Current maturities of long-term debt (Note 8)		33			23				49			39
Current portion of accrued product warranty (Note 9)		379			363
Accrued compensation, benefits and retirement costs		390			508
Deferred revenue		393			401
Other accrued expenses		778			759
Total current liabilities		4,057			4,021				3,917			3,803
Long-term liabilities
Long-term debt (Note 8)		1,602			1,589				1,614			1,576
Postretirement benefits other than pensions									339			349
Pensions		290			289				298			298
Postretirement benefits other than pensions		359			369
Other liabilities and deferred revenue		1,359			1,415				1,399			1,358
Total liabilities		$	7,667		$	7,683			$	7,567		$	7,384

Commitments and contingencies (Note 10)

EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.3 and 222.3 shares issued		$	2,146		$	2,139
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued									$	2,076		$	2,178
Retained earnings		9,792			9,545				10,473			10,322
Treasury stock, at cost, 41.0 and 40.1 shares		(2,975		)	(2,844		)
Common stock held by employee benefits trust, at cost, 1.0 and 1.1 shares		(12		)	(13		)
Treasury stock, at cost, 52.0 and 47.2 shares									(4,203		)	(3,735		)
Common stock held by employee benefits trust, at cost, 0.8 and 0.9 shares									(9		)	(11		)
Accumulated other comprehensive loss (Note 11)		(1,245		)	(1,078		)		(1,417		)	(1,348		)
Total Cummins Inc. shareholders’ equity		7,706			7,749				6,920			7,406
Noncontrolling interests		363			344				340			344
Total equity		$	8,069		$	8,093			$	7,260		$	7,750
Total liabilities and equity		$	15,736		$	15,776			$	14,827		$	15,134

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)

		Three months ended							Three months ended
In millions		March 29, 2015			March 30, 2014				April 3, 2016			March 29, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	404		$	358			$	333		$	404
Adjustments to reconcile consolidated net income to net cash provided by operating activities
Restructuring actions and other charges, net of cash payments (Note 12)									(25		)	—
Depreciation and amortization		128			105				128			128
Deferred income taxes		(1		)	22				(2		)	(1		)
Equity in income of investees, net of dividends		(53		)	(52		)		(48		)	(53		)
Pension contributions in excess of expense		(96		)	(100		)
Other post-retirement benefits payments in excess of expense		(8		)	(8		)
Pension contributions in excess of expense (Note 3)									(50		)	(96		)
Other post-retirement benefits payments in excess of expense (Note 3)									(8		)	(8		)
Stock-based compensation expense		5			10				5			5
Translation and hedging activities		7			(3		)		(14		)	7
Changes in current assets and liabilities, net of acquisitions
Accounts and notes receivable		(276		)	(232		)		(98		)	(276		)
Inventories		(98		)	(135		)		(54		)	(98		)
Other current assets		20			2				188			20
Accounts payable		147			302				103			147
Accrued expenses		(35		)	(95		)		(283		)	(35		)
Changes in other liabilities and deferred revenue		59			50				78			59
Other, net		(30		)	39				10			(30		)
Net cash provided by operating activities		173			263				263			173

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(100		)	(107		)		(71		)	(100		)
Investments in internal use software		(8		)	(14		)		(13		)	(8		)
Investments in and advances to equity investees		10			(6		)		(25		)	10
Acquisitions of businesses, net of cash acquired		(11		)	(90		)		(1		)	(11		)
Investments in marketable securities—acquisitions (Note 6)		(95		)	(84		)		(291		)	(95		)
Investments in marketable securities—liquidations (Note 6)		71			108				35			71
Cash flows from derivatives not designated as hedges		4			5				(26		)	4
Other, net		4			1				4			4
Net cash used in investing activities		(125		)	(187		)		(388		)	(125		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		2			7				105			2
Net borrowings of commercial paper (Note 8)									50			—
Payments on borrowings and capital lease obligations		(18		)	(25		)		(15		)	(18		)
Distributions to noncontrolling interests		(1		)	(13		)		(10		)	(1		)
Dividend payments on common stock		(140		)	(115		)		(170		)	(140		)
Repurchases of common stock		(137		)	(419		)		(575		)	(137		)
Other, net		(2		)	(37		)		(17		)	(2		)
Net cash used in financing activities		(296		)	(602		)		(632		)	(296		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(56		)	5				(39		)	(56		)
Net decrease in cash and cash equivalents		(304		)	(521		)		(796		)	(304		)
Cash and cash equivalents at beginning of year		2,301			2,699				1,711			2,301
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,997		$	2,178			$	915		$	1,997

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			Treasury Stock			Common Stock Held in Trust			Accumulated Other Comprehensive Loss			Total Cummins Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Common Stock Held in Trust			Accumulated Other Comprehensive Loss			Total Cummins Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity
BALANCE AT DECEMBER 31, 2013	$	556	$	1,543		$	8,406		$	(2,195	)	$	(16	)	$	(784	)	$	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		)
Distributions 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		$	(2,600	)	$	(15	)	$	(755	)	$	7,360		$	374		$	7,734

BALANCE AT DECEMBER 31, 2014	$	556	$	1,583		$	9,545		$	(2,844	)	$	(13	)	$	(1,078	)	$	7,749		$	344		$	8,093		$	556	$	1,583		$	9,545		$	(2,844	)	$	(13	)	$	(1,078	)	$	7,749		$	344		$	8,093
Net income						387												387			17			404								387												387			17			404
Other comprehensive income (loss)															(167		)	(167		)	3			(164		)
Other comprehensive (loss) income, net of tax (Note 11)																																									(167		)	(167		)	3			(164		)
Issuance of shares			1															1			—			1					1															1			—			1
Employee benefits trust activity			11									1						12			—			12					11									1						12			—			12
Acquisition of shares									(137		)							(137		)	—			(137		)									(137		)							(137		)	—			(137		)
Cash dividends on common stock						(140		)										(140		)	—			(140		)						(140		)										(140		)	—			(140		)
Distributions to noncontrolling interests																		—			(1		)	(1		)																		—			(1		)	(1		)
Stock based awards			(5		)				6									1			—			1					(5		)				6									1			—			1
BALANCE AT MARCH 29, 2015	$	556	$	1,590		$	9,792		$	(2,975	)	$	(12	)	$	(1,245	)	$	7,706		$	363		$	8,069		$	556	$	1,590		$	9,792		$	(2,975	)	$	(12	)	$	(1,245	)	$	7,706		$	363		$	8,069

BALANCE AT DECEMBER 31, 2015																											$	556	$	1,622		$	10,322		$	(3,735	)	$	(11	)	$	(1,348	)	$	7,406		$	344		$	7,750
Net income																																321												321			12			333
Other comprehensive (loss) income, net of tax (Note 11)																																									(69		)	(69		)	—			(69		)
Issuance of shares																													2															2			—			2
Employee benefits trust activity																													9									2						11			—			11
Acquisition of shares (Note 2)																													(100		)				(475		)							(575		)	—			(575		)
Cash dividends on common stock																																(170		)										(170		)	—			(170		)
Distributions to noncontrolling interests																																												—			(10		)	(10		)
Stock based awards																													(6		)				7									1			—			1
Other shareholder transactions																													(7		)													(7		)	(6		)	(13		)
BALANCE AT APRIL 3, 2016																											$	556	$	1,520		$	10,473		$	(4,203	)	$	(9	)	$	(1,417	)	$	6,920		$	340		$	7,260

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, ~~and~~ 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 600 company-owned and independent distributor locations and ~~approximately~~over 7,200 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 ~~2015~~2016 and ~~2014~~2015 ended on April 3 and March 29, ~~and~~ ~~March 30,~~ respectively. Our fiscal year ends on December 31, regardless of the day of the week on which December 31 falls.

~~The preparation~~Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts presented and disclosed in ~~the~~our 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, useful lives for depreciation and amortization, 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 rates and other ~~rate~~ assumptions for pension and other postretirement benefit ~~expenses,~~costs, warranty programs, income taxes and deferred tax valuation allowances, lease ~~classifications~~classification, contingencies and ~~contingencies.~~restructuring costs. 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~~months ended April 3, 2016 and March 29, 2015, ~~and March 30, 2014~~, were as follows:

Three months ended
March 29,
2015 March 30,
2014
Options excluded 339,878
1,430



	Three months ended
	April 3, 2016	March 29, 2015
Options excluded	1,687,666	339,878

These interim condensed financial statements should be read in conjunction with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2014~~.2015. 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.

On February 9, 2016, we entered into an accelerated share repurchase (ASR) agreement with a third party financial institution to repurchase $500 million of our common stock under our previously announced share repurchase plans. Pursuant to the terms of the agreement, we paid the full $500 million purchase price and received approximately 4.1 million shares at a price of $98.43 per share, representing approximately 80 percent of the shares expected to be repurchased. The unsettled portion of the ASR meets the criteria to be accounted for as a forward contract indexed to our stock and qualifies as an equity transaction. This resulted in a $100 million reduction to additional paid-in capital during the quarter. The final number of shares to be

repurchased will be based on our volume-weighted average stock price during the term of the transaction, less a discount. The ASR is expected to be completed by the end of the second quarter of 2016.

The initial delivery of shares resulted in a reduction to our common stock outstanding used to calculate earnings per share in the first quarter of 2016.

~~Table of Contents~~

NOTE 3. PENSION AND OTHER POSTRETIREMENT BENEFITS

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	March 29, 2015			March 30, 2014			March 29, 2015			March 30, 2014			March 29, 2015		March 30, 2014		April 3, 2016			March 29, 2015			April 3, 2016			March 29, 2015			April 3, 2016		March 29, 2015
Service cost	$	20		$	17		$	7		$	6		$	—	$	—	$	23		$	20		$	5		$	7		$	—	$	—
Interest cost	25			26			14			16			4		4		28			25			13			14			4		4
Expected return on plan assets	(47		)	(44		)	(23		)	(22		)	—		—		(51		)	(47		)	(19		)	(23		)	—		—
Recognized net actuarial loss	11			8			9			7			1		—		7			11			4			9			1		1
Net periodic benefit cost	$	9		$	7		$	7		$	7		$	5	$	4	$	7		$	9		$	3		$	7		$	5	$	5

We made contributions to our defined benefit pension plans of $60 million and $112 million for the three months ended April 3, 2016 and March 29, 2015, respectively. We made payments for other postretirement benefits of $13 million for both the three months ended April 3, 2016 and March 29, 2015.

NOTE 4. 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						Three months ended
In millions	March 29, 2015			March 30, 2014			April 3, 2016		March 29, 2015
Distribution Entities
Komatsu Cummins Chile, Ltda.							$	10	$	7
North American distributors	$	10		$	32		5		10
Komatsu Cummins Chile, Ltda.	7			6
All other distributors	1			1			—		1
Manufacturing Entities
Beijing Foton Cummins Engine Co., Ltd.							18		7
Chongqing Cummins Engine Company, Ltd.							8		12
Dongfeng Cummins Engine Company, Ltd.	14			14			7		14
Chongqing Cummins Engine Company, Ltd.	12			11
Beijing Foton Cummins Engine Co., Ltd. (Light-duty)	8			6
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)	(1		)	(6		)
All other manufacturers	7			15			16		7
Cummins share of net income	58			79			64		58
Royalty and interest income	10			11			8		10
Equity, royalty and interest income from investees	$	68		$	90		$	72	$	68

NOTE 5. INCOME TAXES

Our effective tax rate for the year is expected to approximate ~~29.5~~28.5 percent,, excluding any one-time items that may arise. The expected tax rate does not include the benefits of the research tax credit, which expired December 31, 2014 and has not yet been renewed by Congress. If the research credit is reinstated during 2015, we would anticipate the 2015 effective tax rate to be reduced to 28.5 percent. 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.~~ income and the research tax credit.

~~The~~Our effective tax rate for the three ~~month period~~months ended April 3, 2016, was 28.4 percent and did not include any discrete items.

Our effective tax rate for the three months ended March 29, 2015,, was 26.3 ~~percent~~.percent. This tax rate included an $18 million discrete tax benefit to reflect the release of reserves for uncertain tax positions related to a favorable federal audit settlement.

~~Our~~The increase in the effective tax rate for the three ~~month~~months ended April 3, 2016, versus the comparable period ~~ended March 30, 2014,~~in 2015 was~~29.9 percent~~. This tax rate included 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.

~~The decrease in the three month effective tax rate from 2014 to 2015 is~~ primarily due to the ~~2015~~ favorable discrete tax ~~item.~~benefit in 2015, partially offset by the research tax credit recognized in the first quarter of 2016 and favorable changes in the jurisdictional mix of pre-tax income.

It is reasonably possible that our existing liabilities for uncertain tax benefits may decrease in an amount ranging from $40 million to $90 million within the next 12 months for U.S. and non-U.S. audits that are in progress.

~~Table of Contents~~

NOTE 6. MARKETABLE SECURITIES

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


	March 29, 2015						December 31, 2014						April 3, 2016						December 31, 2015
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
Level 2⁽¹⁾
Bank debentures													$	260	$	—	$	260	$	—	$	—		$	—
Debt mutual funds	$	90	$	—	$	90	$	75	$	1	$	76	71		—		71		88		—			88
Money market funds													15		—		15		—		—			—
Equity mutual funds	9		—		9		9		—		9		11		—		11		11		(1		)	10
Bank debentures	14		—		14		6		—		6
Government debt securities	2		—		2		2		—		2		2		—		2		2		—			2
Total marketable securities	$	115	$	—	$	115	$	92	$	1	$	93	$	359	$	—	$	359	$	101	$	(1	)	$	100

⁽¹⁾The fair value of Level 2 securities is estimated ~~primarily~~ using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing ~~services.~~services, or net asset values provided to investors. We do not currently have any Level 3 securities and there were no transfers between Level 2 or 3 during the first three months of ~~2015~~2016 and ~~2014.~~2015.

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

Bank debentures— These investments provide us with a contractual rate of return and generally range in maturity from three months to one year. The counter-parties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institutions’ month-end statement.

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

Money market funds— These investments in short-term debt instruments have a weighted average maturity of less than one year. The counter-parties to these investments are reputable financial institutions with investment grade credit ratings. Since these instruments are not tradable and must be settled directly by us with the respective financial institution, our fair value measure is the financial institutions' month-end statement.

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

Government debt securities-non-U.S.— 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.

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				Three months ended
In millions	March 29, 2015		March 30, 2014		April 3, 2016		March 29, 2015
Proceeds from sales and maturities of marketable securities	$	71	$	108	$	35	$	71
Gross realized gains from the sale of available-for-sale securities	1		1
Gross realized gains from the sale of marketable securities⁽¹⁾					—		1

⁽¹⁾Gross realized losses from the sale of available-for-sale securities were immaterial

At ~~March 29, 2015~~,April 3, 2016, the fair value of available-for-sale investments in debt securities that utilize a Level 2 fair value measure is shown by contractual maturity ~~was as follows:~~below:


Maturity date	Fair value (in millions)
Contractual Maturity			(in millions)
1 year or less	$	91	$	346
1 - 5 years	6		1
5 - 10 years	9		1
Total	$	106	$	348

NOTE 7. INVENTORIES

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


In millions	March 29, 2015			December 31, 2014			April 3, 2016			December 31, 2015
Finished products	$	1,896		$	1,859		$	1,833		$	1,796
Work-in-process and raw materials	1,161			1,129			1,033			1,022
Inventories at FIFO cost	3,057			2,988			2,866			2,818
Excess of FIFO over LIFO	(121		)	(122		)	(107		)	(111		)
Total inventories	$	2,936		$	2,866		$	2,759		$	2,707

~~Table of Contents~~

NOTE 8. DEBT

Loans Payable and Commercial Paper

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



	April 3, 2016					December 31, 2015
Dollars in millions	Amount		Weighted Average Interest Rate			Amount		Weighted Average Interest Rate
Revolving line of credit ⁽¹⁾	$	100	1.02	%		$	—	—
Loans payable ⁽²⁾	17					24
Total loans payable	117					24
Commercial paper ⁽³⁾	50		0.43	%	⁽⁴⁾	—		—
Total loans payable and commercial paper	$	167				$	24

⁽¹⁾In the first quarter of 2016, we borrowed against a new international revolving line of credit, with a financial institution, which has a maximum capacity of $100 million. We plan to pay the outstanding balance in full in the second quarter of 2016.

⁽²⁾Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practical to aggregate these notes and calculate a quarterly weighted-average interest rate.

⁽³⁾ In February 2016, the Board of Directors authorized us to issue up to $1.75 billion of unsecured short-term promissory notes ("commercial paper") pursuant to a commercial paper program. The program will facilitate the private placement of unsecured short-term debt through third party brokers. We intend to use the net proceeds from the commercial paper program for general corporate purposes.

⁽⁴⁾ The weighted average interest rate is inclusive of all brokerage fees.

Long-term Debt

A summary of long-term debt was as follows:


In millions	March 29, 2015			December 31, 2014			April 3, 2016			December 31, 2015
Long-term debt
Senior notes, 3.65%, due 2023	$	500		$	500		$	500		$	500
Debentures, 6.75%, due 2027	58			58			58			58
Debentures, 7.125%, due 2028	250			250			250			250
Senior notes, 4.875%, due 2043	500			500			500			500
Debentures, 5.65%, due 2098 (effective interest rate 7.48%)	165			165			165			165
Credit facilities related to consolidated joint ventures	3			3
Other debt	51			31			77			55
Unamortized discount	(47		)	(47		)	(57		)	(57		)
Fair value adjustments due to hedge on indebtedness	73			65			80			63
Capital leases	82			87			90			81
Total long-term debt	1,635			1,612			1,663			1,615
Less: Current maturities of long-term debt	(33		)	(23		)	49			39
Long-term debt	$	1,602		$	1,589		$	1,614		$	1,576

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


	Required Principal Payments										Required Principal Payments
In millions	2015		2016		2017		2018		2019		2016		2017		2018		2019		2020
Principal payments	$	25	$	39	$	15	$	16	$	11	$	39	$	26	$	38	$	23	$	7

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 29, 2015		December 31, 2014		April 3, 2016		December 31, 2015
Fair value of total debt⁽¹⁾	$	2,043	$	1,993	$	2,048	$	1,821
Carrying value of total debt	1,706		1,698		1,830		1,639

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

NOTE 9. PRODUCT WARRANTY LIABILITY

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:


In millions	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
Balance, beginning of year	$	1,283		$	1,129		$	1,404		$	1,283
Provision for warranties issued	109			84			93			109
Deferred revenue on extended warranty contracts sold	56			53			55			56
Payments	(94		)	(102		)	(102		)	(94		)
Amortization of deferred revenue on extended warranty contracts	(43		)	(34		)	(47		)	(43		)
Changes in estimates for pre-existing warranties	15			2			—			15
Foreign currency translation	(6		)	1			—			(6		)
Balance, end of period	$	1,320		$	1,133		$	1,403		$	1,320

~~Table of Contents~~

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our ~~March 29, 2015,~~April 3, 2016, balance sheet were as follows:


In millions	March 29, 2015		Balance Sheet Location	April 3, 2016		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	173	Deferred revenue	$	199	Deferred revenue
Long-term portion	447		Other liabilities and deferred revenue	527		Other liabilities and deferred revenue
Total	$	620		$	726

Receivables related to estimated supplier recoveries
Current portion	$	8	Trade and other receivables	$	6	Trade and other receivables
Long-term portion	4		Other assets	3		Other assets
Total	$	12		$	9

Long-term portion of warranty liability	$	321	Other liabilities and deferred revenue	$	327	Other liabilities and deferred revenue

NOTE 10. 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.

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.

Loss Contingency

Engines systems sold in the U.S. ~~Distributor Commitments~~

~~Our distribution agreements~~must be certified to comply with ~~independent~~the Environmental Protection Agency (EPA) and ~~partially-owned distributors generally have a renewablethree-year term~~California Air Resources Board (CARB) emission standards. EPA and CARB regulations require that in-use testing be performed on vehicles by the emission certificate holder and reported to the EPA and CARB in order to ensure ongoing compliance with these emission standards. We are ~~restricted to specified territories. Our distributors develop and maintain a network~~the holder of ~~dealers~~this emission certificate for our engines, including engines installed in certain vehicles with one customer on which we ~~have no direct relationship. Our distributors are permitted to~~did not also manufacture or sell ~~other, noncompetitive products only with our consent. We license all~~the emission aftertreatment system. During 2015, a quality issue in certain of these third party aftertreatment systems caused some of our ~~distributors~~inter-related engines to ~~use our name~~fail in-use emission testing. In the fourth quarter of 2015, the vehicle manufacturer made a request that we assist in the design and ~~logo~~bear the financial cost of a field campaign (Campaign) to address the technical issue purportedly causing some vehicles to fail the in-use testing.

While we are not responsible for the warranty issues related to a component that we did not manufacture or sell, as the emission compliance certificate holder, we are responsible for proposing a remedy to the EPA and CARB. As a result, we have proposed actions to the agencies that we believe will address the emission failures. As the certificate holder, we expect to participate in ~~connection~~the cost of the proposed voluntary Campaign and recorded a charge for this Campaign in other operating expenses of$60 million ($38 million after tax) in 2015. We continue to work with the ~~sale~~vehicle manufacturer on campaign design 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 upon60-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.execution

~~Table~~plans, however the Campaign is not expected to be completed for some time. The final cost of ~~Contents~~this Campaign could differ from what we recorded in the fourth quarter of 2015 and is not expected to be known before the second half of 2016.

We currently do not expect any fines or penalties from the EPA or CARB related to this matter.

~~Other~~ Guarantees and Commitments

~~In addition to the matters discussed above, from~~From time to time we enter into ~~other~~ guarantee arrangements, including guarantees of non-U.S. distributor financings, residual value guarantees on equipment under operating leases and other miscellaneous guarantees of joint ventures or third-party obligations. ~~As of March 29, 2015,~~At April 3, 2016, the maximum potential loss related to these ~~other~~ guarantees was ~~$5 million.~~ $27 million, of which $15 million was recorded as a liability on the balance sheet.

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 29, 2015,~~At April 3, 2016, if we were to stop purchasing from each of these suppliers, the aggregate amount of the penalty would be approximately ~~$70~~$141 million,, of which~~$36~~ $70 million relates to a contract with ~~an engine parts~~a components supplier that extends to ~~2016. These~~2018. Most of these arrangements enable us to secure critical components. We do not currently anticipate paying any penalties under these contracts.

During 2014, we began entering into physical forward contracts with suppliers of platinum and palladium to purchase minimum volumes of the commodities at contractually stated prices for various periods, not to exceed two years. ~~As of March 29, 2015,~~At April 3, 2016, the total commitments under these contracts were ~~$55~~$39 million. These arrangements enable us to fix the prices of these commodities, which otherwise are subject to market volatility.

We have guarantees with certain customers that require us to satisfactorily honor contractual or regulatory obligations, or compensate for monetary losses related to nonperformance. These performance bonds and other performance-related guarantees were~~$73~~ $73 million at ~~March 29, 2015and$76 million~~ at ~~December 31, 2014~~.

April 3, 2016.

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.

~~Table of Contents~~

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

Following are the changes in accumulated other comprehensive (loss) 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			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, 2013	$	(611	)	$	(179	)	$	7		$	(1	)	$	(784	)
Other comprehensive income before reclassifications
Before tax amount	(7		)	24			(1		)	3			19			$	7		$	26
Tax (expense) 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	)

Balance at December 31, 2014	$	(669	)	$	(406	)	$	(1	)	$	(2	)	$	(1,078	)							$	(669	)	$	(406	)	$	(1	)	$	(2	)	$	(1,078	)
Other comprehensive income before reclassifications
Before tax amount	(3		)	(204		)	1			1			(205		)	$	4		$	(201	)	(3		)	(204		)	1			1			(205		)	$	4		$	(201	)
Tax (expense) benefit	1			23			—			—			24			—			24
Tax benefit																						1			23			—			—			24			—			24
After tax amount	(2		)	(181		)	1			1			(181		)	4			(177		)	(2		)	(181		)	1			1			(181		)	4			(177		)
Amounts reclassified from accumulated other comprehensive income⁽¹⁾⁽²⁾	15			—			(1		)	—			14			(1		)	13			15			—			(1		)	—			14			(1		)	13
Net current period other comprehensive income (loss)	13			(181		)	—			1			(167		)	$	3		$	(164	)
Net current period other comprehensive (loss) income																						13			(181		)	—			1			(167		)	$	3		$	(164	)
Balance at March 29, 2015	$	(656	)	$	(587	)	$	(1	)	$	(1	)	$	(1,245	)							$	(656	)	$	(587	)	$	(1	)	$	(1	)	$	(1,245	)

Balance at December 31, 2015																						$	(654	)	$	(696	)	$	(2	)	$	4		$	(1,348	)
Other comprehensive income before reclassifications
Before tax amount																						—			(58		)	—			(26		)	(84		)	$	—		$	(84	)
Tax benefit																						—			1			—			4			5			—			5
After tax amount																						—			(57		)	—			(22		)	(79		)	—			(79		)
Amounts reclassified from accumulated other comprehensive income⁽¹⁾⁽²⁾																						9			—			—			1			10			—			10
Net current period other comprehensive (loss) income																						9			(57		)	—			(21		)	(69		)	$	—		$	(69	)
Balance at April 3, 2016																						$	(645	)	$	(753	)	$	(2	)	$	(17	)	$	(1,417	)

⁽¹⁾ Amounts are net of tax.

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

⁽¹⁾ ~~Amounts are net of tax.~~

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

~~Table of Contents~~

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


In millions	Three months ended							Three months ended
(Gain)/Loss Components	March 29, 2015			March 30, 2014			Statement of Income Location	April 3, 2016			March 29, 2015			Statement of Income Location

Change in pension and other postretirement defined benefit plans
Recognized actuarial loss	$	22		$	15		⁽¹⁾	$	13		$	22		⁽¹⁾
Total before taxes	22			15
Tax effect	(7		)	(5		)	Income tax expense	(4		)	(7		)	Income tax expense
Net change in pensions and other postretirement defined benefit plans	$	15		$	10			9			15

Realized (gain) loss on marketable securities	$	(1	)	$	(1	)	Other income (expense), net
Realized gain on marketable securities								—			(1		)	Other income, net
Tax effect	(1		)	—			Income tax expense	—			(1		)	Income tax expense
Net realized (gain) loss on marketable securities	$	(2	)	$	(1	)
Net realized gain on marketable securities								—			(2		)

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

Total reclassifications for the period	$	13		$	9			$	10		$	13

⁽¹⁾ These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 3, ''PENSION AND OTHER POSTRETIREMENT BENEFITS'').

NOTE 12. RESTRUCTURING ACTIONS AND OTHER CHARGES

We executed restructuring actions primarily in the form of professional voluntary and involuntary employee separation programs in the fourth quarter of 2015. These actions were in response to the continued deterioration in our global markets in the second half of 2015, as well as expected reductions in orders in most U.S. and global markets in 2016. We reduced our worldwide workforce by approximately 1,900 employees, including approximately 370 employees accepting voluntary retirement packages with the remainder of the reductions being involuntary. We incurred a charge of $90 million in the fourth quarter of 2015, of which $86 million related to severance costs for both voluntary and involuntary terminations and $4 million for asset impairments and other charges. As a result of changes in estimates, we now expect approximately $88 million will be settled in cash.

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 costs and benefits were made based on information available at the time charges were recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded and we may need to revise previous estimates.

At April 3, 2016, substantially all terminations have been completed.

The table below summarizes the activity and balance of accrued workforce reductions, which is included in "Other accrued expenses" in our Consolidated Balance Sheets:



In millions
Balance at December 31, 2015	$	60
Cash payments for 2015 actions	(27		)
Change in estimate	2
Balance at April 3, 2016	$	35

NOTE ~~12.~~13. OPERATING SEGMENTS

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Cummins' chief operating decision-maker (CODM) is the Chief ~~Executive~~Operating Officer.

Our reportable operating segments consist of ~~the following:~~ Engine, Distribution, Components and Power Generation. This reporting structure is organized according to the products and markets each segment serves. 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 Distribution segment includes wholly-owned and partially-owned distributorships engaged in wholesaling engines, generator sets and service parts, as well as performing service and repair activities on our products and maintaining relationships with various OEMs throughout the world. The Components segment sells filtration products, aftertreatment systems, turbochargers and fuel systems. The Power Generation segment is an integrated provider of power systems, which sells engines, generator sets and alternators.

As previously announced, effective April 2016, we re-organized our business to combine our Power Generation segment and our high horsepower engine business to create the new Power Systems segment. Going forward we will present results for four operating segments: Engine, Distribution, Components and Power Systems. We will begin to report results for our new reporting structure in the second quarter of 2016 and will also reflect this change for historical periods. The formation of the Power Systems segment combines two businesses that are already strongly interdependent which will allow us to streamline business and technical processes to accelerate innovation, grow market share and more efficiently manage our supply chain and manufacturing operations.

We use segment EBIT (defined as earnings before interest expense, income 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~~allocate certain common costs and expenses, primarily corporate functions, among segments differently than we would for stand-alone financial information prepared in accordance with GAAP. These include certain costs and expenses of shared services, such as information technology, human resources, legal and finance. We also do not allocate debt-related items, actuarial gains or losses,

~~Table of Contents~~

prior service costs or credits, changes in cash surrender value of corporate owned life insurance or income taxes to individual segments. Segment EBIT may not be consistent with measures used by other companies.

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

In millions Engine Distribution Components Power Generation
Non-segment
Items ⁽¹⁾
Total
Three months ended March 29, 2015

External sales $ 1,889
$ 1,469
$ 931
$ 420
$ —
$ 4,709
Intersegment sales 707
7
368
260
(1,342 ) —
Total sales 2,596
1,476
1,299
680
(1,342 ) 4,709
Depreciation and amortization⁽²⁾
58
27
26
16
—
127
Research, development and engineering expenses 114
3
61
17
—
195
Equity, royalty and interest income from investees 30
20
9
9
—
68
Interest income 2
1
1
1
—
5
Segment EBIT 253
88
195
49
(23 ) 562

Three months ended March 30, 2014

External sales $ 2,090
$ 942
$ 922
$ 452
$ —
$ 4,406
Intersegment sales 473
8
308
187
(976 ) —
Total sales 2,563
950
1,230
639
(976 ) 4,406
Depreciation and amortization⁽²⁾
51
16
26
12
—
105
Research, development and engineering expenses 116
2
53
19
—
190
Equity, royalty and interest income from investees 32
41
9
8
—
90
Interest income 2
1
1
1
—
5
Segment EBIT 269
76
⁽³⁾
167
25
(9 ) 528



In millions	Engine		Distribution		Components		Power Generation		Non-segment Items ⁽¹⁾			Total
Three months ended April 3, 2016
External sales	$	1,624	$	1,458	$	897	$	312	$	—		$	4,291
Intersegment sales	710		5		340		238		(1,293		)	—
Total sales	2,334		1,463		1,237		550		(1,293		)	4,291
Depreciation and amortization⁽²⁾	58		26		27		16		—			127
Research, development and engineering expenses	97		2		54		13		—			166
Equity, royalty and interest income from investees	41		18		8		5		—			72
Interest income	3		1		1		1		—			6
Segment EBIT	200		95		173		31		(15		)	484

Three months ended March 29, 2015
External sales	$	1,889	$	1,469	$	931	$	420	$	—		$	4,709
Intersegment sales	707		7		368		260		(1,342		)	—
Total sales	2,596		1,476		1,299		680		(1,342		)	4,709
Depreciation and amortization⁽²⁾	58		27		26		16		—			127
Research, development and engineering expenses	114		3		61		17		—			195
Equity, royalty and interest income from investees	30		20		9		9		—			68
Interest income	2		1		1		1		—			5
Segment EBIT	253		88		195		49		(23		)	562

⁽¹⁾Includes intersegment sales, ~~and~~intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended April 3, 2016 and March 29, ~~2015 and March 30, 2014.~~2015.

⁽²⁾Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were $1 million and ~~less than~~ $1 million for the three months ended April 3, 2016 and March 29, 2015, ~~and March 30, 2014,~~ respectively.

⁽³⁾Distribution segment EBIT included a gain of $6 million on the fair value adjustment resulting from the acquisition of a controlling interest in a North American distributor for the three months ended March 30, 2014.

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				Three months ended
In millions	March 29, 2015		March 30, 2014		April 3, 2016		March 29, 2015
Total EBIT	$	562	$	528
Total segment EBIT					$	484	$	562
Less: Interest expense	14		17		19		14
Income before income taxes	$	548	$	511	$	465	$	548

NOTE ~~13.~~14. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In ~~February 2015,~~March 2016, the Financial Accounting Standards Board (FASB) amended its standards related to the ~~consolidation~~accounting for stock compensation. This amendment addresses several aspects of the accounting for share-based payment transactions that could change for us including, but not limited to, recognition of excess tax benefits or deficiencies in the income statement each period and classification of the excess tax benefits or deficiencies as operating activities in the cash flow statement. The new standard is effective for annual periods beginning after December 15, 2016, with early adoption permitted. We are in the process of evaluating the impact the amendment will have on our Consolidated Financial Statements.

In February 2016, the FASB amended its standards related to the accounting for leases. Under the new standard, lessees will now be required to recognize all leases on the balance sheet as both a right-of-use-asset and a liability. The standard will continue to have two types of leases for income statement recognition purposes: operating leases and finance leases. Operating leases will result in the recognition of a single lease expense on a straight-line basis over the lease term similar to the treatment for operating leases under today's standards. Finance leases will result in an accelerated expense similar to the accounting for capital leases under today's standards. The determination of a lease classification as operating or finance will be done in a

manner very similar to today's standard. The new standard also contains amended guidance regarding the identification of embedded leases in service contracts and the identification of lease and non-lease components in an arrangement. The new standard is effective for us on January 1, 2019, with early adoption permitted. We are still evaluating the impact the standard could have on our Consolidated Financial Statements; however, while we have not yet quantified the amount, we do expect the standard will have a material impact on our Consolidated Balance Sheets due to the recognition of additional assets and liabilities for operating leases.

In January 2016, the FASB amended its standards related to the accounting of certain ~~legal entities. The~~financial instruments. This amendment ~~will change the method~~addresses certain aspects of ~~analysis that we must perform to determine whether certain types of legal entities should be consolidated, primarily limited partnerships~~recognition, measurement, presentation and similar structures. The amendment will eliminate three of the original six conditions for evaluating whether a fee paid to a decision-maker or a service provider represents a variable interest in a variable interest entity (VIE).disclosure. The new rules will become effective for annual and interim periods beginning after December 15, ~~2015.~~2017. Early adoption is not permitted. We ~~do not believe that this~~are in the process of evaluating the impact the amendment will have ~~a significant effect~~ on our Consolidated Financial Statements.

~~Table of Contents~~

In May 2014, the FASB amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidance and provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that we will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that we will recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that we expect to be entitled to in exchange for those goods or services. The ~~standard allows either full or modified retrospective adoption. Early adoption is not permitted. The~~ guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The ~~new rules will become~~standard allows either full or modified retrospective adoption effective for annual and interim periods beginning January 1, 2017. In April 2015, the FASB proposed a one year delay of the effective date of the standard to provide adequate time for implementation. It is important to note that the FASB's proposed deferral is not a final decision.2018. We are in the process of evaluating the impact the amendment will have on our Consolidated Financial ~~Statements~~Statements. ~~, and~~While a final decision has not been made, we are ~~further considering~~currently planning to adopt the ~~impact of each method of adoption.~~standard using the modified retrospective approach.

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" or words of similar meaning. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as "future factors," which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some future factors that could cause our results to differ materially from the results discussed in such forward-looking statements are discussed below and shareholders, potential investors and other readers are urged to consider these future factors carefully in evaluating forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Future factors that could affect the outcome of forward-looking statements include the following:

a sustained slowdown or significant downturn in our markets;

a downturn in the North American truck industry;

a major customer experiencing financial distress;

changes in the engine outsourcing practices of significant customers;

any significant problems in our new engine platforms;

a further slowdown in infrastructure development;

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

foreign currency exchange rate changes;

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

the integration of our previously partially-owned United States and Canadian distributors;

~~changes in the engine outsourcing practices~~our plan to grow through strategic acquisitions and related uncertainties of ~~significant customers;~~entering into such transactions;

~~a downturn~~challenges or unexpected costs in ~~the North American truck industry or financial distress of a major truck customer;~~completing restructuring and cost reduction initiatives;

~~a major customer experiencing financial distress;~~

~~any significant problems in our new engine platforms;~~

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

•variability in material and commodity costs;

product recalls;

the development of new technologies;

competitor pricing activity;

~~Table of Contents~~

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

exposure to potential security breaches or other disruptions to our information technology ~~security threats~~systems and ~~sophisticated "cyber attacks;"~~data security;

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

changes in taxation;

global legal and ethical compliance costs and risks;

aligning our capacity and production with our demand;

product liability claims;

~~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 actuarial and 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;~~ and

other risk factors described in our Form 10-K, Part I, 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.

~~Table of Contents~~

ORGANIZATION OF INFORMATION

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared to provide the reader with a view and perspective of our business through the eyes of management and should be read in conjunction with our Management's Discussion and Analysis of Financial Condition and Results of Operations section of our ~~2014~~2015 Form 10-K. Our MD&A is presented in the following sections:

•Executive Summary and Financial Highlights

•Outlook

•Results of Operations

Comprehensive Income

•Operating Segment Results

•Liquidity and Capital Resources

•Application of Critical Accounting Estimates

•Recently Issued Accounting Pronouncements

~~Table of Contents~~

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, Navistar International Corporation, Fiat Chrysler ~~Group, LLC (Chrysler)~~Automobiles (Fiat 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 600 company-owned and independent distributor locations and ~~approximately~~over 7,200 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 reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by 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~~ 7decreased 9 percent in the three months ended ~~March 29, 2015,~~April 3, 2016, as compared to the same period in ~~2014~~,2015, primarily due to lower demand in most global on-highway markets, unfavorable foreign currency fluctuations, decreased demand in most global Power generation markets and lower demand in most global industrial markets, partially offset by sales increases related to the consolidation of partially-owned North American distributors since December 31, ~~2013.~~2014. Revenue in the U.S. and Canada ~~improved~~declined by 1710 percent primarily due to ~~improved~~decreased demand in the North American on-highway markets and lower demand in the industrial oil and gas markets, partially offset by increased Distribution segment sales related to the consolidation of North American ~~distributors and higher demand in the North American on-highway markets, partially offset by lower demand in off-highway mining and construction markets.~~distributors. Continued ~~international~~global economic ~~uncertainty~~weakness in the first quarter of ~~2015,~~2016 negatively impacted our international revenues ~~(excluding~~(excludes the U.S. and Canada), which declined by 68 percent, with sales down ~~or relatively flat~~ in ~~many~~most of our markets, especially ~~Europe~~in South America, the U.K. and ~~Brazil.~~China. The decline in international ~~revenue~~sales was ~~led by lower demand in the Engine segment, especially the on-highway markets in Brazil and Korea, declines in international construction and commercial marine demand and~~primarily due to unfavorable foreign currency impacts of 3 percent (primarily in ~~Europe,~~the Brazilian real, European euro, Canadian dollar, Indian rupee, Chinese renminbi and Australian dollar), lower demand in the on-highway markets in Brazil ~~Australia~~ and ~~the U.K.). These decreases were partially offset~~Mexico and decreased demand in international industrial markets led by ~~increased international demand for power generation products.~~ declines in mining and commercial marine markets.

The following table contains sales and earnings before interest expense, income ~~taxes~~tax expense and noncontrolling interests (EBIT) results by operating segment for the three ~~month periods~~months ended April 3, 2016 and March 29, ~~2015 and March 30, 2014~~. 2015. 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 income taxes.

~~Table of Contents~~


	Three months ended																				Three months ended
Operating Segments	March 29, 2015								March 30, 2014								Percent change				April 3, 2016								March 29, 2015								Percent change
				Percent								Percent					2015 vs. 2014							Percent								Percent					2016 vs. 2015
In millions	Sales			of Total		EBIT			Sales			of Total		EBIT			Sales		EBIT		Sales			of Total		EBIT			Sales			of Total		EBIT			Sales		EBIT
Engine	$	2,596		55	%	$	253		$	2,563		58	%	$	269		1	%	(6	)%	$	2,334		54	%	$	200		$	2,596		55	%	$	253		(10	)%	(21	)%
Distribution	1,476			31	%	88			950			22	%	76			55	%	16	%	1,463			34	%	95			1,476			31	%	88			(1	)%	8	%
Components	1,299			28	%	195			1,230			28	%	167			6	%	17	%	1,237			29	%	173			1,299			28	%	195			(5	)%	(11	)%
Power Generation	680			14	%	49			639			14	%	25			6	%	96	%	550			13	%	31			680			14	%	49			(19	)%	(37	)%
Intersegment eliminations	(1,342		)	(28	)%	—			(976		)	(22	)%	—			38	%	—		(1,293		)	(30	)%	—			(1,342		)	(28	)%	—			(4	)%	—
Non-segment	—			—		(23		)	—			—		(9		)	—		NM		—			—		(15		)	—			—		(23		)	—		(35	)%
Total	$	4,709		100	%	$	562		$	4,406		100	%	$	528		7	%	6	%	$	4,291		100	%	$	484		$	4,709		100	%	$	562		(9	)%	(14	)%
"NM" - not meaningful information

Net income attributable to Cummins was ~~$387~~$321 million,, or ~~$2.14~~$1.87 per diluted share,, on sales of ~~$4.7~~$4.3 billion for the three months ended ~~March 29, 2015~~,April 3, 2016, versus the comparable prior year period ~~with~~ net income attributable to Cummins of ~~$338~~$387 million,, or ~~$1.83~~$2.14 per diluted share, on sales of ~~$4.4 billion~~.$4.7 billion. The ~~increase~~decrease in net income and earnings per diluted share was driven by ~~improved~~lower gross margin, unfavorable foreign currency fluctuations and a higher effective tax rate, partially offset by ~~higher~~lower research, development and engineering expenses and decreased selling, general and administrative ~~expenses and lower equity, royalty and interest income from investees.~~expenses. The ~~increase~~decrease in gross margin was primarily due to lower volumes, unfavorable mix and unfavorable foreign currency fluctuations (primarily in the Brazilian real, Canadian dollar and Australian dollar), partially offset by lower material and commodity costs, improved Distribution segment sales related to the consolidation of partially-owned North American distributors since December 31, ~~2013, higher volumes~~2014 and ~~lower material~~savings from restructuring actions taken in the fourth quarter of 2015. Basic and ~~commodity costs, partially offset by higher warranty costs and unfavorable foreign currency fluctuations. Diluted~~diluted earnings per share for the three months ended ~~March 29, 2015,~~April 3, 2016, benefited ~~$0.01~~$0.03 from ~~lower~~fewer weighted average shares outstanding due to ~~2015~~ purchases under the stock repurchase ~~program.~~programs.

We generated ~~$173~~$263 million of operating cash flows for the three months ended, ~~March 29, 2015,~~ compared to ~~$263~~$173 million for the same period in ~~2014~~.2015. Refer to the section titled “Cash Flows” in the “Liquidity and Capital Resources” section for a discussion of items impacting cash flows.

~~In September 2013,~~During the first three months of 2016, we ~~announced our intention to acquire the equity that we do not already own in most~~repurchased $274 million of ~~our partially-owned U.S. and Canadian distributors over a~~ ~~three to five year period. We plan to spend an additional $160 million to $200 million on North American distributor acquisitions and the related debt retirements in the second half of 2015.~~

~~We repurchased~~ ~~$137 million~~ ofcommon stock under the ~~2012~~2014 Board of Directors Authorized Plan, ~~(2012 Plan)~~completing this program. In November 2015, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon the completion of the 2014 repurchase plan. We repurchased $201 million under the new authorization during the first three months of ~~2015.~~2016 and paid an additional $100 million under an accelerated share repurchase agreement for shares that we will receive in the second quarter of 2016. See Note 2, "BASIS OF PRESENTATION" to the Notes to Condensed Consolidated Financial Statements for additional information.

In February 2016, the Board of Directors authorized us to issue up to $1.75 billion of unsecured short-term promissory notes ("commercial paper") pursuant to a commercial paper program. The program will facilitate the private placement of unsecured short-term debt through third party brokers. We intend to use the net proceeds from the commercial paper program for general corporate purposes.

Our debt to capital ratio (total capital defined as debt plus equity) at ~~March 29, 2015,~~April 3, 2016, was ~~17.5~~20.1 percent, compared to ~~17.3~~17.5 percent at December 31, ~~2014. We have $2.1~~2015. The increase was due to the repurchases of common stock and higher total debt. At April 3, 2016, we had $1.3 billion in cash and marketable securities on hand and access to our credit facilities, if necessary, to meet currently anticipated investment and funding needs. As of the date of filing this Quarterly Report on Form 10-Q, our credit ratings were as follows:



	Long-Term	Short-Term
Credit Rating Agency	Senior ~~L-T~~ Debt Rating	Debt Rating	Outlook	~~Last Updated~~
Standard & Poor’s Rating Services	A+	~~Stable~~A1	~~August 2014~~Stable
Fitch Ratings	A	~~Stable~~F1	~~October 2014~~Stable
Moody’s Investors Service, Inc.	A2	~~Stable~~P1	~~December 2014~~Stable

Our global pension plans, including our unfunded and non-qualified plans, were ~~108~~111 percent funded at December 31, ~~2014.~~2015. Our U.S. qualified plan, which represents approximately 5657 percent of the worldwide pension obligation, was 119 percent funded and our U.K. plan was ~~113~~123 percent funded. We expect to contribute ~~$175~~$146 million to our global pension plans in ~~2015. We anticipate~~2016. In addition, we expect our 2016 net periodic pension ~~and other postretirement benefit~~ cost ~~in 2015~~ to increase by approximately $8 million pre-tax, or approximately $0.03 per diluted share, when compared to 2014 due to lower discount rates and unfavorable demographics mostly offset by favorable expected return on asset performance. Refer toapproximate $42 million. See Note 3, "PENSION AND OTHER POSTRETIREMENT BENEFITS" to the Notes to Condensed Consolidated Financial Statements for additional ~~information regarding our pension plans.~~information.

We expect our effective tax rate for the full year of ~~2015~~2016 to approximate ~~29.5~~28.5 percent,, excluding any one-time tax items.

~~Table of Contents~~

OUTLOOK

Near-Term

Our outlook reflects the following ~~positive~~ trends for the remainder of ~~2015:~~2016:

We expect ~~continued growth~~demand in the North American ~~heavy-duty and~~ medium-duty ~~on-highway markets compared to 2014.~~

~~We expect North American light-duty demand~~truck market to remain strong.

We expect ~~the new ISG engine, which began production~~demand for pick-up trucks in ~~the second quarter of 2014 with our Beijing Foton Cummins Engine Co., Ltd. joint venture,~~North America to ~~continue to gain market share in China in its first full year of production.~~remain strong.

We ~~plan to acquire two more unconsolidated North American distributors~~expect demand in ~~the second half of the year, which will increase our Distribution segment revenues and acquire the remaining equity in a consolidated North American distributor.~~

~~Demand in~~ India ~~is expected~~ to improve in ~~some end markets~~most end-markets as its economy continues to improve.

We expect to realize annualized savings from the ~~economy improves throughout the year.~~ 2015 restructuring actions of approximately $160 million.

Our outlook reflects the following challenges to our business that may reduce our revenue and earnings potential for the remainder of ~~2015:~~2016:

We may close or restructure additional manufacturing facilities as we evaluate the appropriate size and structure of our manufacturing capacity, which could result in additional charges.

~~Power~~We expect industry production of heavy-duty trucks in North America to decline.

We expect power generation markets ~~are expected~~ to remain weak.

~~Weak~~We believe weak economic ~~growth~~conditions in Brazil will continue to negatively impact demand across our ~~on-highway business.~~

~~We do not anticipate end markets in China to improve.~~

~~Demand in certain European markets could remain weak due to continued political and economic uncertainty.~~

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

Foreign currency volatility could continue to put pressure on ~~revenue~~our revenues and earnings.

We expect market demand to ~~decline~~remain weak in the oil and gas markets as the result of low crude oil prices.

~~Domestic and international~~Demand for equipment in global mining markets ~~could continue~~is expected to ~~deteriorate if commodity prices continue to weaken.~~remain weak.

~~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 as the result of the following four macroeconomic trends that should benefit our businesses:

~~tightening emissions controls across the world;~~

~~infrastructure needs in emerging markets;~~

~~energy availability and cost issues; and~~

~~globalization of industries like ours.~~

~~Table of Contents~~

RESULTS OF OPERATIONS


		Three months ended							Favorable/							Three months ended							Favorable/
		March 29, 2015			March 30, 2014				(Unfavorable)							April 3, 2016				March 29, 2015			(Unfavorable)
In millions (except per share amounts)	In millions (except per share amounts)	March 29, 2015						Amount				Percent		In millions (except per share amounts)					Amount				Percent
NET SALES	NET SALES	$	4,709		March 30, 2014	$	4,406			$	303			7	%	April 3, 2016	NET SALES	$	4,291	March 29, 2015			$	4,709		$	(418	)	(9	)%
Cost of sales	Cost of sales	3,514			3,307				(207		)		(6	)%	Cost of sales	3,235				3,514			279			8	%
GROSS MARGIN	GROSS MARGIN	1,195			1,099				96				9	%	GROSS MARGIN	1,056				1,195			(139		)	(12	)%
OPERATING EXPENSES AND INCOME	OPERATING EXPENSES AND INCOME														OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses	Selling, general and administrative expenses	517			485				(32		)		(7	)%	Selling, general and administrative expenses	490				517			27			5	%
Research, development and engineering expenses	Research, development and engineering expenses	195			190				(5		)		(3	)%	Research, development and engineering expenses	166				195			29			15	%
Equity, royalty and interest income from investees	Equity, royalty and interest income from investees	68			90				(22		)		(24	)%	Equity, royalty and interest income from investees	72				68			4			6	%
Other operating income (expense), net		(3		)	(1		)		(2		)		NM
Other operating expense, net															Other operating expense, net	(2		)		(3		)	1			33	%
OPERATING INCOME	OPERATING INCOME	548			513				35				7	%	OPERATING INCOME	470				548			(78		)	(14	)%
Interest income	Interest income	5			5				—				—	%	Interest income	6				5			1			20	%
Interest expense	Interest expense	14			17				3				18	%	Interest expense	19				14			(5		)	(36	)%
Other income (expense), net		9			10				(1		)		(10	)%
Other income, net															Other income, net	8				9			(1		)	(11	)%
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	548			511				37				7	%	INCOME BEFORE INCOME TAXES	465				548			(83		)	(15	)%
Income tax expense	Income tax expense	144			153				9				6	%	Income tax expense	132				144			12			8	%
CONSOLIDATED NET INCOME	CONSOLIDATED NET INCOME	404			358				46				13	%	CONSOLIDATED NET INCOME	333				404			(71		)	(18	)%
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	17			20				3				15	%	Less: Net income attributable to noncontrolling interests	12				17			5			29	%
NET INCOME ATTRIBUTABLE TO CUMMINS INC.	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	387		$	338			$	49			14	%	NET INCOME ATTRIBUTABLE TO CUMMINS INC.	$	321			$	387		$	(66	)	(17	)%
Diluted earnings per common share attributable to Cummins Inc.		$	2.14		$	1.83			$	0.31			17	%
"NM" - not meaningful information
Diluted Earnings Per Common Share Attributable to Cummins Inc.															Diluted Earnings Per Common Share Attributable to Cummins Inc.	$	1.87			$	2.14		$	(0.27	)	(13	)%


	Three months ended						Favorable/ (Unfavorable)	Three months ended					Favorable/ (Unfavorable)
	March 29, 2015			March 30, 2014			Favorable/ (Unfavorable)	April 3, 2016			March 29, 2015		Favorable/ (Unfavorable)
Percent of sales			Percentage Points	March 30, 2014				April 3, 2016		Percentage Points
Gross margin	March 29, 2015		25.4	%		24.9	%	0.5		24.6	March 29, 2015	%	25.4	%	(0.8	)
Selling, general and administrative expenses	11.0	%		11.0	%		—	11.4	%		11.0	%	(0.4	)
Research, development and engineering expenses	4.1	%		4.3	%		0.2	3.9	%		4.1	%	0.2

Net Sales

Net sales for the three months ended April 3, 2016, decreased by $418 million~~March 29, 2015~~, ~~increased~~versus the comparable period in ~~2014~~ ~~primarily due to~~ ~~increased sales of~~ ~~55 percent~~ ~~in the Distribution~~2015. The primary drivers by segment ~~primarily related to the acquisitions of North American distributors since December 31, 2013 and strength in North American on-highway markets.~~were as follows:

~~The increase in sales was partially offset by the following:~~

~~External~~ Engine segment sales decreased by 10 percent ~~due to the significant increase in intersegment sales as a percentage of total sales~~ primarily due to ~~the newly consolidated North American distributors, partially offset by higher~~lower demand in North American on-highway ~~markets.~~markets and lower demand in most industrial markets, partially offset by increased sales in the light-duty automotive business.

Power Generation segment sales decreased 19 percent primarily due to lower demand in both lines of business and decreased sales in most regions with the largest declines in China, Other Asia, Western Europe and Brazil.

Foreign currency fluctuations unfavorably impacted sales by approximately 3 percent (primarily in ~~Europe, Brazil, Australia, Canada~~the Brazilian real, European euro, Canadian dollar, Indian rupee, Chinese renminbi and ~~the U.K.)~~Australian dollar).

Components segment sales decreased 5 percent primarily due to lower demand in turbo technologies and fuel systems businesses and unfavorable foreign currency fluctuations.

Distribution segment sales decreased 1 percent, primarily due to a decline in North American engine and power generation sales and unfavorable foreign currency fluctuations, partially offset by higher sales related to the consolidation of partially-owned North American distributors since December 31, 2014.

Sales to international markets, based on location of customers, for the three months ended ~~March 29, 2015, were 39 percent of total net sales compared with 44 percent of total net sales for~~April 3, 2016 and the comparable period in ~~2014.~~

2015 were both 39 percent of net sales. A more detailed discussion of sales by segment is presented in the “OPERATING SEGMENT RESULTS” section.

Gross Margin

Gross margin ~~increased~~decreased $139 million for the three months ended ~~March 29, 2015~~,April 3, 2016, versus the comparable period in ~~2014~~,2015 and ~~increased~~decreased 0.8 points as a percentage of ~~sales by~~ ~~0.5 percentage point~~ssales. The decrease in gross margin was primarily due to lower volumes, unfavorable mix and unfavorable foreign currency fluctuations (primarily in the Brazilian real, Canadian dollar and Australian dollar), partially offset by lower material and commodity costs, improved Distribution segment sales related to the consolidation of partially-owned North American distributors since December 31, ~~2013, higher volumes~~2014 and ~~lower material and commodity costs, partially offset by higher warranty costs and unfavorable foreign currency fluctuations (primarily~~savings from restructuring actions taken in ~~Australia, Canada and Brazil).~~ the fourth quarter of 2015.

~~Table of Contents~~

The provision for base warranties issued, excluding campaigns, as a percent of sales for the three months ended ~~March 29, 2015, was 2.0 percent compared to 1.8 percent for~~April 3, 2016 and the comparable period in ~~2014.~~2015 were both 2.0 percent. 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 decreased $27 million for the three months ended ~~March 29, 2015~~, ~~increased~~April 3, 2016, versus the comparable period in ~~2014~~,2015, primarily due to ~~higher~~lower compensation ~~and related~~ expenses of ~~$35~~$16 million ~~partially offset by~~as a result of restructuring actions in 2015 and lower consulting expenses of ~~$11~~$12 million. Overall, selling, general and administrative expenses, as a percentage of sales, increased to 11.4 percent in the three months ended April 3, 2016, from 11.0 percent in the comparable period in 2015 (largely due to the acquisition of North American distributors since December 31, 2014). Compensation and related expenses include salaries, fringe benefits and variable compensation. ~~Overall, selling, general and administrative expenses, as a percentage of sales, remained flat at 11.0 percent in the first three months of 2015 versus the comparable period in 2014.~~

Research, Development and Engineering Expenses

Research, development and engineering expenses decreased $29 million for the three months ended ~~March 29, 2015~~, ~~increased~~April 3, 2016, versus the comparable period in ~~2014~~,2015, primarily due to higher ~~compensation and related expenses~~expense recovery of $8$9 million, ~~partially offset by decreased~~lower consulting expenses of ~~$2 million.~~$1 million and lower compensation expenses of $1 million as a result of restructuring actions in 2015. Compensation and related expenses include salaries, fringe benefits and variable compensation. Overall, research, development and engineering expenses, as a percentage of sales, decreased to ~~4.1~~3.9 percent in the ~~first~~ three months ~~of 2015~~ended April 3, 2016, from ~~4.3~~4.1 percent in the comparable period in ~~2014.~~2015. 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~~dincreased $4 million for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014. The primarily drivers were as follows:~~

Increase/(Decrease)
March 29, 2015 vs. March 30, 2014
In millions Three months ended
North American distributors $ (22 )
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty) 5
Other equity income (4 )
Cummins share of net income (21 )
Royalty and interest income (1 )
Equity, royalty and interest income from investees $ (22 )

~~The decrease for the three months ended March 29,~~ 2015, ~~was~~ primarily due to ~~the consolidation of the partially-owned~~higher earnings at Beijing Foton Cummins Engine Co., Ltd. ($11 million) and Komatsu Cummins Chile, Ltda. ($3 million). These increases were partially offset by lower equity earnings at Dongfeng Cummins Engine Company, Ltd. ($7 million), North American distributors since December 31, 2013. As we continue executing our plan to acquire partially-owned distributors, we expect equity earnings for our North American distributors to continue to decrease as the earnings will be included in our consolidated results.($5 million) and Chongqing Cummins Engine Company, Ltd. ($4 million).

Other Operating ~~Income (Expense), net~~Expense, Net

Other operating ~~income (expense)~~expense, net was as follows:


	Three months ended						Three months ended
In millions	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
Loss on write off of assets							$	(5	)	$	(1	)
Amortization of intangible assets							(3		)	(6		)
Royalty income, net	$	5		$	2		7			5
Amortization of intangible assets	(6		)	(3		)
Other, net	(2		)	—			(1		)	(1		)
Total other operating income (expense), net	$	(3	)	$	(1	)
Total other operating expense, net							$	(2	)	$	(3	)

~~Table of Contents~~

Interest Income

Interest income for the three months ended ~~March 29, 2015,~~April 3, 2016, remained relatively flat versus the comparable ~~period~~periods in ~~2014.~~ 2015.

Interest Expense

Interest expense for the three months ended ~~March 29, 2015, decreased~~April 3, 2016, increased $5 million versus the comparable ~~period~~periods in ~~2014~~,2015, primarily due to ~~the positive impact of the interest rate swap.~~an increase in total weighted average debt outstanding.

Other Income, ~~(Expense), net~~Net

Other income, ~~(expense)~~net was as follows:


	Three months ended						Three months ended
In millions	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
Change in cash surrender value of corporate owned life insurance	$	10		$	7		$	8		$	10
Dividend income							1			1
Gain on marketable securities, net	1			1			—			1
Dividend income	1			1
Gain on fair value adjustment for consolidated investee	—			6
Bank charges	(2		)	(2		)	(3		)	(2		)
Foreign currency loss, net	(2		)	(5		)	(3		)	(2		)
Other, net	1			2			5			1
Total other income (expense), net	$	9		$	10
Total other income, net							$	8		$	9

Income Tax Expense

Our effective tax rate for the year is expected to approximate ~~29.5~~28.5 percent, excluding any one-time items that may arise. The expected tax rate does not include the benefits of the research tax credit, which expired December 31, 2014 and has not yet been renewed by Congress. If the research credit is reinstated during 2015, we would anticipate the 2015 effective tax rate to be reduced to 28.5 percent. 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.~~income and the research tax credit.

~~The~~Our effective tax rate for the three ~~month period~~months ended April 3, 2016, was 28.4 percent and did not include any discrete items.

Our effective tax rate for the three months ended March 29, 2015, was 26.3 percent. This tax rate included an $18 million discrete tax benefit to reflect the release of reserves for uncertain tax positions related to a favorable federal audit settlement.

~~Our~~The increase in the effective tax rate for the three ~~month~~months ended April 3, 2016, versus the comparable period ~~ended March 30, 2014,~~in 2015 was 29.9 percent. This tax rate included 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.

Noncontrolling Interests

Noncontrolling interests eliminate the income or loss attributable to non-Cummins ownership interests in our consolidated entities. Noncontrolling interests in income of consolidated subsidiaries for the three months ended April 3, 2016, decreased $5 million primarily due to lower earnings at Wuxi Cummins Turbo Technologies Co. Ltd. and a decline from the acquisition of the remaining interest in previously consolidated North American distributors since December 31, 2013, partially offset by higher earnings at Cummins India Ltd.

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 Inc. for the three months ended ~~March 29, 2015~~, ~~increase~~dApril 3, 2016, decreased $66 million and $0.27 per share, respectively versus the comparable period in ~~2014~~,2015, primarily due to ~~higher~~lower gross margin, unfavorable foreign currency fluctuations and a higher effective tax rate, partially offset by ~~higher~~lower research, development and engineering expenses and decreased selling, general and administrative ~~expenses~~expenses. Basic and ~~lower equity, royalty and interest income from investees. Diluted~~diluted earnings per share for the three months ended ~~March 29, 2015,~~April 3, 2016, benefited ~~$0.01~~$0.03 from ~~lower~~fewer weighted average shares outstanding due to ~~2015~~ purchases under the stock repurchase ~~program.~~programs.

COMPREHENSIVE INCOME

Foreign Currency Translation Adjustment

The foreign currency translation adjustment was a net loss of $57 million and $176 million for the three months ended April 3, 2016and March 29,2015, respectively, and was driven by the following:



	Three months ended
	April 3, 2016				March 29, 2015
In millions	Translation adjustment			Primary currency driver vs. U.S. dollar	Translation adjustment			Primary currency driver vs. U.S. dollar
Wholly owned subsidiaries	$	(62	)	British pound offset by Brazilian real	$	(181	)	British pound, Brazilian real
Equity method investments	5			Mexican peso⁽¹⁾, Chinese renminbi	—			Indian rupee offset by Russian rouble, Chinese renminbi
Consolidated subsidiaries with a non-controlling interest	—			Indian rupee offset by Chinese renminbi	5			Indian rupee
Total	$	(57	)		$	(176	)

~~Table~~⁽¹⁾The Mexican peso adjustment related to a reclassification out of ~~Contents~~other comprehensive income at the time of the sale of an equity investment in the first quarter of 2016.

OPERATING SEGMENT RESULTS

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

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

Engine Segment Results

Financial data for the Engine segment was as follows:


	Three months ended						Favorable/						Three months ended						Favorable/
	March 29,			March 30,			(Unfavorable)						April 3,			March 29,			(Unfavorable)
In millions	2015			2014			Amount				Percent		2016			2015			Amount			Percent
External sales(1)	$	1,889		$	2,090		$	(201	)	⁽¹⁾	(10	)%	$	1,624		$	1,889		$	(265	)	(14	)%
Intersegment sales(1)	707			473			234			⁽¹⁾	49	%	710			707			3			—	%
Total sales	2,596			2,563			33				1	%	2,334			2,596			(262		)	(10	)%
Depreciation and amortization	58			51			(7		)		(14	)%	58			58			—			—	%
Research, development and engineering expenses	114			116			2				2	%	97			114			17			15	%
Equity, royalty and interest income from investees	30			32			(2		)		(6	)%	41			30			11			37	%
Interest income	2			2			—				—	%	3			2			1			50	%
Segment EBIT	253			269			(16		)		(6	)%	200			253			(53		)	(21	)%

							Percentage Points												Percentage Points
Segment EBIT as a percentage of total sales	9.7		%	10.5		%					(0.8	)	8.6		%	9.7		%				(1.1	)

^{(1 )} Due to the acquisitions of North American distributors, sales previously recognized as external sales are now included in intersegment sales.

Engine segment net sales by market were as follows:



	Three months ended				Favorable/
	April 3,		March 29,		(Unfavorable)
In millions	2016		2015		Amount			Percent
Heavy-duty truck	$	631	$	757	$	(126	)	(17	)%
Medium-duty truck and bus	549		608		(59		)	(10	)%
Light-duty automotive	433		381		52			14	%
Total on-highway	1,613		1,746		(133		)	(8	)%
Industrial	539		616		(77		)	(13	)%
Stationary power	182		234		(52		)	(22	)%
Total sales	$	2,334	$	2,596	$	(262	)	(10	)%

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



	Three months ended		Favorable/
	April 3,	March 29,	(Unfavorable)
	2016	2015	Amount		Percent
Mid-range	117,100	112,400	4,700		4	%
Heavy-duty	19,700	28,700	(9,000	)	(31	)%
High-horsepower	2,800	3,500	(700	)	(20	)%
Total unit shipments	139,600	144,600	(5,000	)	(3	)%

Sales

Engine segment sales for the three months ended April 3, 2016, decreased $262 million versus the comparable period in 2015. The following were the primary drivers by market:

Heavy-duty truck engine sales decreased $126 million primarily due to lower demand in North American heavy-duty truck markets with decreased engine shipments of 33 percent.

Industrial engine sales decreased $77 million primarily due to lower demand in North American oil and gas markets with decreased engine shipments of 81 percent, lower international demand in mining markets with decreased engine shipments of 30 percent, primarily in Europe, and lower international demand in marine markets with decreased engine shipments of 14 percent.

Medium-duty truck and bus sales decreased $59 million primarily due to lower demand in global medium-duty truck markets with decreased engine shipments of 16 percent, primarily in North America and Brazil.

Foreign currency fluctuations unfavorably impacted sales results (primarily in Brazilian real, Chinese renminbi and Indian rupee).

The decreases above were partially offset by an increase in light-duty automotive sales of $52 million primarily due to new sales to Nissan for the truck platform they launched in the second half of 2015.

Total on-highway-related sales for the three months ended April 3, 2016, were 69 percent of total engine segment sales, compared to 67 percent for the comparable period in 2015.

Segment EBIT

Engine segment EBIT for the three months ended April 3, 2016, decreased $53 million versus the comparable period in 2015 primarily due to lower gross margin, partially offset by lower selling, general and administrative expenses, lower research, development and engineering expenses, higher equity, royalty and interest income from investees and favorable foreign currency fluctuations (primarily in the British pound and Mexican peso). Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:



	Three months ended
	April 3, 2016 vs. March 29, 2015
	Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of total sales
Gross margin	$	(106	)	(19	)%	(2.1	)
Selling, general and administrative expenses	26			13	%	0.2
Research, development and engineering expenses	17			15	%	0.2
Equity, royalty and interest income from investees	11			37	%	0.6

The decrease in gross margin for the three months ended April 3, 2016, versus the comparable period in 2015, was primarily due to unfavorable mix and lower volumes, partially offset by lower material and commodity costs and favorable product coverage. The decrease in selling, general and administrative expenses was primarily due to lower compensation expenses as the result of restructuring actions taken in December 2015 and lower consulting expenses. The decrease in research, development and engineering expenses was primarily due to higher expense recovery. The increase in equity, royalty and interest income from investees was primarily due to increased earnings at Beijing Foton Cummins Engine Co., Ltd., partially offset by decreased earnings at Dongfeng Cummins Engine Company, Ltd. and Cummins Westport, Inc.

Distribution Segment Results

Financial data for the Distribution segment was as follows:



	Three months ended						Favorable/
	April 3,			March 29,			(Unfavorable)
In millions	2016			2015			Amount			Percent
External sales	$	1,458		$	1,469		$	(11	)	(1	)%
Intersegment sales	5			7			(2		)	(29	)%
Total sales	1,463			1,476			(13		)	(1	)%
Depreciation and amortization	26			27			1			4	%
Research, development and engineering expenses	2			3			1			33	%
Equity, royalty and interest income from investees	18			20			(2		)	(10	)%
Interest income	1			1			—			—	%
Segment EBIT	95			88			7			8	%

							Percentage Points
Segment EBIT as a percentage of total sales	6.5		%	6.0		%				0.5

Sales for our Distribution segment by region were as follows:



	Three months ended				Favorable/
	April 3,		March 29,		(Unfavorable)
In millions	2016		2015		Amount			Percent
North & Central America	$	955	$	979	$	(24	)	(2	)%
Europe, CIS and China	186		156		30			19	%
Asia Pacific	169		177		(8		)	(5	)%
Africa	48		50		(2		)	(4	)%
Middle East	41		44		(3		)	(7	)%
India	41		37		4			11	%
South America	23		33		(10		)	(30	)%
Total sales	$	1,463	$	1,476	$	(13	)	(1	)%

Sales for our Distribution segment by product were as follows:



	Three months ended				Favorable/
	April 3,		March 29,		(Unfavorable)
In millions	2016		2015		Amount			Percent
Parts and filtration	$	647	$	573	$	74		13	%
Service	299		284		15			5	%
Power generation	275		298		(23		)	(8	)%
Engines	242		321		(79		)	(25	)%
Total sales	$	1,463	$	1,476	$	(13	)	(1	)%

Sales

Distribution segment sales for the three months ended April 3, 2016, decreased $13 million versus the comparable period in 2015, primarily due to a decline in organic sales of $135 million in North American engine and power generation markets and unfavorable foreign currency fluctuations (primarily in the Canadian dollar, Australian dollar and South African rand), partially offset by $109 million of segment sales related to the consolidation of partially-owned North American distributors since December 31, 2014 and organic sales growth in China, Africa, Europe and CIS.

Segment EBIT

Distribution segment EBIT for the three months ended April 3, 2016, increased $7 million versus the comparable period in 2015, primarily due to higher gross margin, partially offset by unfavorable foreign currency fluctuations (primarily in the

Canadian dollar, Australian dollar and South African rand) and higher selling, general and administrative expenses. Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:



	Three months ended
	April 3, 2016 vs. March 29, 2015
	Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of total sales
Gross margin	$	14		6	%	1.1
Selling, general and administrative expenses	(13		)	(8	)%	(1.0	)
Equity, royalty and interest income from investees	(2		)	(10	)%	(0.2	)
Other operating income, net	7			NM		0.5
"NM" - not meaningful information

The increase in gross margin for the three months ended April 3, 2016, versus the comparable period in 2015, was primarily due to the acquisition of partially owned North American distributors since December 31, 2014, favorable mix and improved pricing, partially offset by unfavorable foreign currency fluctuations (primarily in the Canadian dollar, Australian dollar and South African rand). The increase in selling, general and administrative expenses was primarily due to higher compensation expenses due to the acquisition of North American distributors. Acquisitions resulted in lower amortization of intangible assets of $6 million for the three months ended April 3, 2016, versus the comparable period in 2015, driving the favorable change in other income, net.

Components Segment Results

Financial data for the Components segment was as follows:



	Three months ended						Favorable/
	April 3,			March 29,			(Unfavorable)
In millions	2016			2015			Amount			Percent
External sales ⁽¹⁾	$	897		$	931		$	(34	)	(4	)%
Intersegment sales ⁽¹⁾	340			368			(28		)	(8	)%
Total sales	1,237			1,299			(62		)	(5	)%
Depreciation and amortization	27			26			(1		)	(4	)%
Research, development and engineering expenses	54			61			7			11	%
Equity, royalty and interest income from investees	8			9			(1		)	(11	)%
Interest income	1			1			—			—	%
Segment EBIT	173			195			(22		)	(11	)%

							Percentage Points
Segment EBIT as a percentage of total sales	14.0		%	15.0		%				(1.0	)

⁽¹⁾ Due to the acquisitions of North American distributors, sales previously recognized as external sales are now ~~considered~~included in intersegment sales.

~~In the first quarter of 2015,~~Sales for our ~~Engine~~Components segment ~~reorganized its reporting structure to include the following markets:~~

~~Heavy-duty truck -~~ ~~We manufacture diesel engines that range from 310 to 600 horsepower serving global heavy-duty truck customers worldwide and fire trucks, primarily in North America.~~

~~Medium-duty truck and bus -~~ We manufacture medium-duty diesel engines ranging from 200 to 450 horsepower serving medium-duty and inter-city delivery truck customers worldwide, with key markets including North America, Latin America, Europe and Mexico. We also provide diesel or natural gas engines for school buses, transit buses and shuttle buses worldwide, with key markets including North America, Europe, Latin America and Asia. We also provide diesel engines for Class A motor homes (RVs), primarily in North America.

~~Light-duty automotive(Pickup and Light Commercial Vehicle (LCV)) -~~ We manufacture 320 to 385 horsepower diesel engines for Chrysler Group, LLC's (Chrysler) heavy-duty chassis cab and pickup trucks. We also manufacture 105 to 300 horsepower diesel engines for LCV's worldwide, with key markets in Europe, Latin America and Asia.

~~Industrial -~~ We provide mid-range, heavy-duty and high-horsepower engines that range from 49 to 5,100 horsepower for a wide variety of equipment in the construction, agricultural, mining, rail, government, oil and gas, and commercial and recreational marine applications throughout the world. Across these markets we have major customers in North America, Europe, Middle East, Africa, China, Korea, Japan, Latin America, India, Russia, Southeast Asia, South Pacific and Mexico.

~~Stationary power -~~ ~~We provide mid-range, heavy-duty and high-horsepower engines, that range from 60 to 4,300 horsepower, to our power generation~~by business ~~for standby, mobile and distributed power generation solutions throughout the world.~~

~~Table of Contents~~

~~Engine segment net sales by market (including 2014 reorganized balances)~~ were as follows:

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
Heavy-duty truck $ 757
$ 718
$ 39
5 %
Medium-duty truck and bus 608
575
33
6 %
Light-duty automotive 381
391
(10 ) (3 )%
Total on-highway 1,746
1,684
62
4 %
Industrial 616
669
(53 ) (8 )%
Stationary power 234
210
24
11 %
Total sales $ 2,596
$ 2,563
$ 33
1 %

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

Three months ended Favorable/
March 29, March 30, (Unfavorable)
2015 2014 Amount Percent
Midrange 112,400
118,900
(6,500 ) (5 )%
Heavy-duty 28,700
28,800
(100 ) — %
High-horsepower 3,500
3,400
100
3 %
Total unit shipments 144,600
151,100
(6,500 ) (4 )%



	Three months ended				Favorable/
	April 3,		March 29,		(Unfavorable)
In millions	2016		2015		Amount			Percent
Emission solutions	$	607	$	613	$	(6	)	(1	)%
Turbo technologies	265		301		(36		)	(12	)%
Filtration	252		255		(3		)	(1	)%
Fuel systems	113		130		(17		)	(13	)%
Total sales	$	1,237	$	1,299	$	(62	)	(5	)%

Sales

~~Engine~~Components segment sales for the three months ended ~~March 29, 2015~~, ~~increase~~dApril 3, 2016, decreased $62 million across all lines of business versus the comparable period in ~~2014~~.2015. The following were the primary drivers by ~~market:~~business:

~~Heavy-duty truck engine~~Turbo technologies sales ~~increase~~ddecreased $36 million primarily due to ~~improved~~lower demand in North American on-highway markets and unfavorable foreign currency fluctuations (primarily in the British pound, Brazilian real and Chinese renminbi).

Fuel systems sales decreased $17 million primarily due to lower demand in the North American ~~heavy-duty truck market with increased engine shipments of 8 percent,~~on-highway markets, partially offset by ~~weaker demand in China and Korea.~~

~~Medium-duty truck and bus sales~~ ~~increased due to~~ higher demand in the North American medium-duty truck market with increased engine shipments of 14 percent, primarily due to market share gains and higher international bus demand with improved engine shipments of 20 percent. These increases were partially offset by weaker medium-duty truck demand in Brazil.

~~Stationary power engine sales increased due to favorable mix of products sold to the Power Generation business, partially offset by decreased volumes.~~

~~The increases above were partially offset by the following:~~

Industrial engine sales decreased due to lower international demand in construction markets with decreased engine shipments of 30 percent, primarily in Korea and China, as well as reduced demand in international commercial marine markets with decreased engine shipments of 9 percent.

~~Foreign currency fluctuations unfavorably impacted sales results (primarily in Brazil and Europe).~~China.

~~Total on-highway-related sales for the~~ ~~three months ended March 29, 2015, were~~ ~~67 percent~~ ~~of total engine segment sales, compared to~~ ~~66 percent~~ ~~for the comparable period in~~ ~~2014~~.

Segment EBIT

~~Engine~~Components segment EBIT for the three months ended ~~March 29, 2015~~, ~~decrease~~dApril 3, 2016, decreased $22 million versus the comparable period in ~~2014~~2015, primarily due to lower gross margin ~~higher selling, general~~ and ~~administrative expenses and lower equity, royalty and interest income from investees,~~unfavorable foreign currency fluctuations (primarily in the Brazilian real), partially offset by lower research, development and engineering expenses. Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:

~~Table of Contents~~


	Three months ended							Three months ended
	March 29, 2015 vs. March 30, 2014							April 3, 2016 vs. March 29, 2015
	Favorable/(Unfavorable) Change							Favorable/(Unfavorable) Change
In millions	Amount			Percent		Percentage point change as a percent of total sales		Amount			Percent		Percentage point change as a percent of total sales
Gross margin	$	(7	)	(1	)%	(0.6	)	$	(28	)	(9	)%	(1.1	)
Selling, general and administrative expenses	(3		)	(1	)%	—		3			4	%	(0.1	)
Research, development and engineering expenses	2			2	%	0.1		7			11	%	0.3
Equity, royalty and interest income from investees	(2		)	(6	)%	—		(1		)	(11	)%	(0.1	)

The decrease in gross margin for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014,~~2015, was primarily due to ~~increased warranty costs,~~unfavorable mix, unfavorable pricing and unfavorable foreign currency fluctuations (primarily in the Brazilian real), partially offset by lower material ~~and commodity~~ costs. The ~~increase~~decrease in selling, general and administrative expenses was primarily due to ~~higher~~lower consulting expenses and lower compensation expenses ~~partially offset by lower consulting expenses.~~as the result of restructuring actions taken in December 2015. The decrease in research, development and engineering expenses was primarily due to higher expense recovery, ~~and~~ lower consulting expenses ~~partially offset by higher~~and lower compensation ~~expenses. Equity earnings included a charge of approximately $12 million recorded by an equity investee. The charge writes down the investee's underlying assets to estimated fair value~~expenses as the result of ~~an impairment review triggered by the start-up investee's volumes not growing as anticipated from the inception of the venture.~~restructuring actions taken in December 2015.

~~Distribution Segment Results~~

~~Financial data for the Distribution segment was as follows:~~

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
External sales $ 1,469
$ 942
$ 527
56 %
Intersegment sales 7
8
(1 ) (13 )%
Total sales 1,476
950
526
55 %
Depreciation and amortization 27
16
(11 ) (69 )%
Research, development and engineering expenses 3
2
(1 ) (50 )%
Equity, royalty and interest income from investees 20
41
(21 ) (51 )%
Interest income 1
1
—
— %
Segment EBIT ⁽¹⁾
88
76
12
16 %

Percentage Points
Segment EBIT as a percentage of total sales 6.0 %
⁽²⁾
8.0 %
(2.0 )

⁽¹⁾Segment EBIT for the three months ended March 30, 2014, included a $6 million gain on the fair value adjustment resulting from the acquisition of the remaining interest in a North American distributor.

⁽²⁾~~Prior North American distributor acquisitions increased distribution segment EBIT, however it is dilutive to EBIT as a percentage of sales.~~

~~Table of Contents~~

~~Sales for our Distribution segment by region were as follows:~~

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
North & Central America $ 979
$ 444
$ 535
NM
Asia Pacific 177
162
15
9 %
Europe, CIS and China 156
194
(38 ) (20 )%
Africa 50
41
9
22 %
Middle East 44
41
3
7 %
India 37
34
3
9 %
South America 33
34
(1 ) (3 )%
Total sales $ 1,476
$ 950
$ 526
55 %
"NM" - not meaningful information

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

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
Parts and filtration $ 573
$ 382
$ 191
50 %
Engines 321
174
147
84 %
Power generation 298
193
105
54 %
Service 284
201
83
41 %
Total sales $ 1,476
$ 950
$ 526
55 %

~~Sales~~

Distribution segment sales for the three months ended March 29, 2015, increased versus the comparable period in 2014 primarily due to $538 million of segment sales related to the consolidation of partially-owned North American distributors since December 31, 2013, $10 million of segment sales related to the acquisition of international distributors and $45 million of organic sales growth primarily in Asia Pacific, North America and Africa, partially offset by decreased sales in China and Western Europe and unfavorable foreign currency fluctuations (primarily in Australia, Canada and Europe).

~~Segment EBIT~~

~~Distribution segment EBIT for the three months ended March 29, 2015,~~ ~~increased versus the comparable period in~~ ~~2014~~, primarily due to acquisitions of North American distributors, partially offset by higher selling, general and administrative expenses, lower equity, royalty and interest income from investees and unfavorable foreign currency fluctuations (primarily in Australia and Canada) and increased amortization of intangible assets related to the acquisitions. We expect a reduction in equity, royalty and interest income from investees to continue as a result of these acquisitions. EBIT as a percentage of sales for the three months ended March 29, 2015, was ~~6.0 percent~~ ~~compared to~~ ~~8.0 percent~~ ~~for the comparable period in~~ ~~2014. The decrease was due to the dilutive effect of the 2014 acquisitions. Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:~~

Three months ended
March 29, 2015 vs. March 30, 2014
Favorable/(Unfavorable) Change
In millions Amount Percent Percentage point
change as a percent
of total sales
Gross margin $ 67
40 % (1.8 )
Selling, general and administrative expenses (28 ) (21 )% 3.1
Equity, royalty and interest income from investees (21 ) (51 )% (2.9 )

~~Table of Contents~~

~~Components~~Power Generation Segment Results

Financial data for the ~~Components~~Power Generation segment was as follows:


	Three months ended						Favorable/						Three months ended						Favorable/
	March 29,			March 30,			(Unfavorable)						April 3,			March 29,			(Unfavorable)
In millions	2015			2014			Amount				Percent		2016			2015			Amount			Percent
External sales(1)	$	931		$	922		$	9		⁽¹⁾	1	%	$	312		$	420		$	(108	)	(26	)%
Intersegment sales(1)	368			308			60			⁽¹⁾	19	%	238			260			(22		)	(8	)%
Total sales	1,299			1,230			69				6	%	550			680			(130		)	(19	)%
Depreciation and amortization	26			26			—				—	%	16			16			—			—	%
Research, development and engineering expenses	61			53			(8		)		(15	)%	13			17			4			24	%
Equity, royalty and interest income from investees	9			9			—				—	%	5			9			(4		)	(44	)%
Interest income	1			1			—				—	%	1			1			—			—	%
Segment EBIT	195			167			28				17	%	31			49			(18		)	(37	)%

							Percentage Points												Percentage Points
Segment EBIT as a percentage of total sales	15.0		%	13.6		%					1.4		5.6		%	7.2		%				(1.6	)

⁽¹⁾ Due to the acquisitions of North American distributors, sales previously recognized as external sales are now ~~considered intersegment sales.~~

~~Sales for our Components segment by business were as follows:~~

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
Emission solutions $ 613
$ 543
$ 70
13 %
Turbo technologies 301
313
(12 ) (4 )%
Filtration 255
265
(10 ) (4 )%
Fuel systems 130
109
21
19 %
Total sales $ 1,299
$ 1,230
$ 69
6 %

~~Sales~~

~~Components segment sales for the~~ ~~three months ended March 29, 2015~~, ~~increased versus the comparable period~~included in~~2014. The following were the primary drivers by business:~~

~~Emission solutions sales~~ ~~increase~~d primarily due to improved demand in the North American on-highway markets and increased demand for our products in China to continue to meet emission requirements. The increases were partially offset by lower demand in Brazil and Western Europe.

~~Fuel systems sales~~ ~~increased due to improved demand in North American on-highway markets, the new Beijing Foton ISG engine that entered production in the second quarter of 2014 in China and increased aftermarket demand.~~

~~The increases above were partially offset by the following:~~

~~Turbo technologies sales~~ ~~decreased as a result of lower demand in China, Western Europe and Russia and decreased aftermarket demand, partially offset by higher demand in North American on-highway markets.~~

~~Filtration sales~~ ~~decreased primarily due to lower demand in Eastern Europe and Russia and decreased aftermarket demand, partially offset by higher demand in North American on-highway markets.~~

~~Foreign currency fluctuations unfavorably impacted sales results (primarily in Europe, Brazil and the U.K.).~~

~~Segment EBIT~~

~~Components segment EBIT for the three months ended March 29, 2015,~~ ~~increased versus the comparable period in~~ ~~2014~~, primarily due to higher gross margin, partially offset by higher research, development and engineering expenses and higher selling, general and administrative expenses. Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:

~~Table of Contents~~

Three months ended
March 29, 2015 vs. March 30, 2014
Favorable/(Unfavorable) Change
In millions Amount Percent Percentage point
change as a percent
of total sales
Gross margin $ 36
13 % 1.6
Selling, general and administrative expenses (2 ) (3 )% 0.2
Research, development and engineering expenses (8 ) (15 )% (0.4 )
Equity, royalty and interest income from investees —
— % —

~~The~~ ~~increase~~ ~~in gross margin for the three months ended March 29, 2015, versus the comparable period in~~ ~~2014~~, was primarily due to higher volumes, mainly in the emission solutions business and lower material costs, partially offset by unfavorable pricing and unfavorable foreign currency fluctuations (primarily in Europe and Brazil). The ~~increase~~ in selling, general and administrative expenses was primarily due to higher compensation expenses, partially offset by lower consulting expenses. The increase in research, development and engineering expenses was primarily due to higher compensation expenses, higher consulting expenses and lower expense recovery.

~~Power Generation Segment Results~~

~~Financial data for the Power Generation segment was as follows:~~

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
External sales $ 420
$ 452
$ (32 )
⁽¹⁾
(7 )%
Intersegment sales 260
187
73
⁽¹⁾
39 %
Total sales 680
639
41
6 %
Depreciation and amortization 16
12
(4 ) (33 )%
Research, development and engineering expenses 17
19
2
11 %
Equity, royalty and interest income from investees 9
8
1
13 %
Interest income 1
1
—
— %
Segment EBIT 49
25
24
96 %

Percentage Points
Segment EBIT as a percentage of total sales 7.2 % 3.9 %
3.3

⁽¹⁾ ~~Due to the acquisitions of North American distributors, sales previously recognized as external sales are now considered~~ intersegment sales.

In the first quarter of ~~2015,~~2016, our Power Generation segment reorganized its reporting structure to include the following ~~businesses:~~product lines:

Power ~~systems~~generation - We manufacture generators for commercial and consumer applications ranging from 2 kilowatts to 3.5 megawatts, as well as paralleling systems and transfer switches for applications such as data centers, health care facilities and waste water treatment plants. We also provide turnkey solutions for distributed generation and energy management applications using natural gas or biogas as a fuel. The business also serves global rental accounts for diesel and gas generator sets.

~~Alternators~~Generator technologies - We design, manufacture, sell and service A/C generator/alternator products internally as well as to other generator set assemblers. Our products are sold under the Stamford, AVK and Markon brands and range in output from 3 kilovolt-amperes (kVA) to 12,000 kVA.

~~Power solutions -~~ We provide natural gas fuel-based turnkey solutions for distributed generation and energy management applications using natural or bio gas as a fuel. The business also serves a global rental account for diesel and gas generator sets.

~~Table of Contents~~

Sales for our Power Generation segment by business (including ~~2014~~2015 reorganized balances) were as follows:

Three months ended Favorable/
March 29, March 30, (Unfavorable)
In millions 2015 2014 Amount Percent
Power systems 543
510
33
6 %
Alternators 98
105
(7 ) (7 )%
Power solutions 39
24
15
63 %
Total sales $ 680
$ 639
$ 41
6 %



	Three months ended				Favorable/
	April 3,		March 29,		(Unfavorable)
In millions	2016		2015		Amount			Percent
Power generation	$	477	$	582	$	(105	)	(18	)%
Generator technologies	73		98		(25		)	(26	)%
Total sales	$	550	$	680	$	(130	)	(19	)%

Sales

Power Generation segment sales for the three months ended ~~March 29, 2015~~, ~~increase~~dApril 3, 2016, decreased $130 million versus the comparable period in ~~2014~~.2015. The following were the primary drivers by business:

Power ~~systems~~generation sales ~~increased~~decreased in most regions with the largest declines in demand primarily ~~due to higher~~in China, Other Asia, Latin America, Mexico and Western Europe.

Generator technologies sales decreased in most regions with the highest declines in demand primarily in China and ~~Asia, partially offset by lower demand in Russia.~~

~~Power solutions sales increased primarily due to higher demand in the U.K., partially offset by lower demand in North America.~~

~~The increases above were partially offset by the following:~~

~~Alternator sales decreased primarily due to lower demand in Europe, partially offset by higher demand in China.~~Western Europe.

Foreign currency fluctuations unfavorably impacted sales results (primarily in ~~Europe~~the Brazilian real, Indian rupee and ~~Brazil)~~European euro).

Segment EBIT

Power Generation segment EBIT for the three months ended ~~March 29, 2015,~~ ~~increase~~dApril 3, 2016, decreased $18 million versus the comparable period in ~~2014~~2015, primarily due to ~~higher~~lower gross margin, partially offset by lower selling, general and ~~lower research, development and engineering~~administrative expenses. Major components of EBIT and related changes to segment EBIT and EBIT as a percentage of sales were as follows:


	Three months ended					Three months ended
	March 29, 2015 vs. March 30, 2014					April 3, 2016 vs. March 29, 2015
	Favorable/(Unfavorable) Change					Favorable/(Unfavorable) Change
In millions	Amount		Percent		Percentage point change as a percent of total sales	Amount			Percent		Percentage point change as a percent of total sales
Gross margin	$	17	15	%	1.4	$	(29	)	(23	)%	(0.8	)
Selling, general and administrative expenses	1		1	%	0.9	11			15	%	(0.6	)
Research, development and engineering expenses	2		11	%	0.5	4			24	%	0.1
Equity, royalty and interest income from investees	1		13	%	—	(4		)	(44	)%	(0.4	)

The ~~increase~~decrease in gross margin for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014,~~2015, was primarily due to ~~higher volumes.~~lower volumes, partially offset by savings from restructuring actions taken in December 2015 and lower material and commodity costs. The decrease in selling, general and administrative expenses was primarily due to lower ~~consulting expenses and lower~~ compensation expenses as the result of ~~operating~~restructuring actions taken in December ~~of 2014, partially offset by~~2015 and lower ~~expense recovery.~~consulting expenses. The decrease in research, development and engineering expenses was primarily due to lower compensation expenses as the result of ~~operating~~restructuring actions taken in December ~~of 2014, and lower consulting expenses.~~2015.

~~Table of Contents~~

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						Three months ended
In millions	March 29, 2015			March 30, 2014			April 3, 2016			March 29, 2015
Total EBIT							$	499		$	585
Non-segment EBIT ⁽¹⁾							(15		)	(23		)
Total segment EBIT	$	585		$	537		484			562
Non-segment EBIT ⁽¹⁾	(23		)	(9		)
Total EBIT	562			528
Less: Interest expense	14			17			19			14
Income before income taxes	$	548		$	511		$	465		$	548

~~Table of Contents~~

LIQUIDITY AND CAPITAL RESOURCES

Key Working Capital and Balance Sheet Data

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. Working capital and balance sheet measures are provided in the following table:


In millions	March 29, 2015			December 31, 2014
Dollars in millions							April 3, 2016			December 31, 2015
Working capital ⁽¹⁾	$	4,943		$	5,034		$	3,551		$	4,144
Current ratio	2.22			2.25			1.91			2.09
Accounts and notes receivable, net	$	3,240		$	2,946		$	2,921		$	2,820
Days’ sales in receivables	60			53			61			55
Inventories	$	2,936		$	2,866		$	2,759		$	2,707
Inventory turnover	4.9			5.3			4.6			4.9
Accounts payable (principally trade)	$	2,013		$	1,881		$	1,809		$	1,706
Days' payable outstanding	47			44			50			48
Total debt	$	1,706		$	1,698		$	1,830		$	1,639
Total debt as a percent of total capital ⁽²⁾	17.5		%	17.3		%	20.1		%	17.5		%

⁽¹⁾Working capital includes cash and cash equivalents.

⁽²⁾Total capital is defined as total debt plus equity.

Cash Flows

~~Cash and cash equivalents~~ ~~decrease~~d ~~$304 million~~ ~~during the three months ended March 29, 2015, compared to a~~ ~~$521 milliondecrease~~ ~~in cash and cash equivalents during the comparable period in~~ ~~2014~~. Cash and cash equivalents were impacted as follows:



	Three months ended
In millions	April 3, 2016			March 29, 2015			Change
Net cash provided by operating activities	$	263		$	173		$	90
Net cash used in investing activities	(388		)	(125		)	(263		)
Net cash used in financing activities	(632		)	(296		)	(336		)
Effect of exchange rate changes on cash and cash equivalents	(39		)	(56		)	17
Net decrease in cash and cash equivalents	$	(796	)	$	(304	)	$	(492	)

Three months ended
In millions March 29,
2015 March 30,
2014 Change
Net cash provided by operating activities $ 173
$ 263
$ (90 )
Net cash used in investing activities (125 ) (187 ) 62
Net cash used in financing activities (296 ) (602 ) 306
Effect of exchange rate changes on cash and cash equivalents (56 ) 5
(61 )
Net decrease in cash and cash equivalents $ (304 ) $ (521 ) $ 217

Net cash provided by operating activities ~~decrease~~dincreased $90 million for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014~~,2015, primarily due to ~~unfavorable~~favorable working capital fluctuations and lower pension contributions in excess of expense, partially offset by ~~higher~~lower consolidated net income. During the first three months of ~~2015~~,2016, the ~~higher~~lower working capital requirements resulted in a cash outflow of ~~$242~~$144 million compared to a cash outflow of ~~$158~~$242 million in the comparable period in ~~2014~~. 2015.

Net cash used in investing activities ~~decrease~~dincreased $263 million for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014~~,2015, primarily due to ~~lower cash investment for the acquisitions of businesses in 2015 and lower investments in and advances to equity investees, partially offset by~~ higher net investments in marketable ~~securities.~~securities of $232 million.

Net cash used in financing activities ~~decreased~~increased $336 million for the three months ended ~~March 29, 2015,~~April 3, 2016, versus the comparable period in ~~2014,~~2015, primarily due to ~~lower~~higher common stock repurchases of ~~common stock~~$438 million, partially offset by increased proceeds from borrowings of ~~$282~~$103 million and new net borrowings of commercial paper of $50 million.

Sources of Liquidity

We generate significant ongoing cash flow, which has been used, in part, to fund working capital, common stock repurchases, capital expenditures, dividends on our common stock, acquisitions, projected pension obligations, debt service and ~~debt service.~~restructuring actions and other charges. Cash provided by operations is our principal source of liquidity with ~~$173~~$263 million provided ~~by operations for~~in the three months ended ~~March 29, 2015.~~ April 3, 2016.

~~Table of Contents~~

~~As of March 29, 2015,~~At April 3, 2016, our other sources of liquidity ~~include:~~

included:

~~cash and cash equivalents of~~ ~~$2.0 billion, of which approximately~~ ~~42 percent~~ ~~is located in the U.S. and~~ ~~58 percent~~ ~~is located outside the U.S., primarily in the U.K., China and Singapore,~~

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



	April 3, 2016
In millions	Total Combined		U.S		International		Primary location of international balances
Cash and cash equivalents	$	915	$	242	$	673	U.K., China, Singapore
Marketable securities ⁽¹⁾	359		33		326		China, India
Total	$	1,274	$	275	$	999
Available credit capacity
Revolving credit facility ⁽²⁾	$	1,750
International and other uncommitted domestic credit facilities ⁽³⁾	151

~~international and other domestic credit facilities with $260 million available and~~

~~marketable securities of $115 million, of which 64 percent is located in India, 24 percent is located in the U.S. and 12 percent is located in Brazil, the~~⁽¹⁾The majority of ~~which~~marketable securities could be liquidated into cash within a few days.

⁽²⁾The revolving credit facility is maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. At April 3, 2016, we had $50 million of commercial paper outstanding, which effectively reduced the available capacity under our revolving credit facility to $1.70 billion.

⁽³⁾ The available capacity is net of letters of credit.

Cash, Cash Equivalents and Marketable Securities

A significant portion of our cash flows is generated outside the U.S. ~~As of~~ ~~March 29, 2015, 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 and India.~~ The geographic location of our cash and marketable securities aligns well with our ~~business growth strategy.~~ongoing investments. 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. 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~~.years.

Debt Facilities and Other Sources of Liquidity

We have a ~~$1.7~~$1.75 billion revolving credit facility, the proceeds of which can be used for general corporate purposes. This facility expires on November ~~9, 2018.~~13, 2020. The revolving credit facility is maintained primarily to provide backup liquidity for our commercial paper borrowings, letters of credit and general corporate purposes. The total combined borrowing capacity under the revolving credit facility and commercial paper program should not exceed $1.75 billion.

~~We have~~As a ~~current~~well-known seasoned issuer, we filed an automatic shelf registration ~~filed~~for an undetermined amount of debt and equity securities with the Securities and Exchange Commission ~~under which~~on February 16, 2016. 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.

The maturity schedule of our existing long-term debt does not require significant cash outflows in the intermediate term. Required annual principal payments range from $11 million to $39 million over the next five years.

Uses of Cash

Share Repurchases

In November 2015, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon the completion of the 2014 repurchase plan. In the first three months of 2016, we made the following purchases under the respective stock repurchase programs:



In millions (except per share amounts) For each quarter ended	Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Cash Paid for Shares Not Received		Remaining Authorized Capacity ⁽¹⁾
July 2014, $1 billion repurchase program
April 3	2.9	$	95.40	$	274			$	—

November 2015, $1 billion repurchase program
April 3	2.0	$	98.43	$	201	$	100	$	699

Total	4.9	$	96.66	$	475	$	100

⁽¹⁾The remaining authorized capacities under the 2014 and 2015 Plans were calculated based on the cost to purchase the shares but exclude commission expenses in accordance with the authorized Plans.

We may continue to repurchase outstanding shares from time to time during 2016 to offset the dilutive impact of employee stock based compensation plans and to enhance shareholder value.

Dividends

In July 2015, our Board of Directors authorized an increase to our quarterly dividend of 25 percent from $0.78 per share to $0.975 per share. We paid dividends of $170 million during the three months ended April 3, 2016.

Capital Expenditures

Capital expenditures and spending on internal use software for the three months ended ~~March 29, 2015,~~April 3, 2016, were ~~$100~~$84 million compared to ~~$107~~$108 million in the comparable period in ~~2014~~. 2015. Despite the challenging international economies, we continue to invest in new product lines and targeted capacity expansions. We plan to spend between ~~$750~~$600 million and ~~$850~~$650 million in ~~2015~~2016 as we continue with product launches and facility improvements. Approximately 50 percent of our capital expenditures are expected to be invested outside of the U.S. in ~~2015.~~

~~Share Repurchases~~

~~Purchases under the 2012 Plan were as follows:~~

In millions (except per share amounts)
For each quarter ended Shares
Purchased Average Cost
Per Share Total Cost of
Repurchases
Remaining
Authorized
Capacity ⁽¹⁾
March 29 1.0
$ 138.15
$ 137
$ 37

~~Table of Contents~~

⁽¹⁾~~The remaining authorized capacity under the 2012 Plan was calculated based on the cost to purchase the shares, but excludes commission expenses in accordance with the 2012 Plan.~~

In July 2014, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon the completion of the 2012 Plan. We may continue to repurchase outstanding shares from time to time during 2015 to offset the dilutive impact of employee stock based compensation plans and to enhance shareholder value.

~~Dividends~~

~~In July 2014, the Board of Directors authorized a dividend increase of approximately 25 percent from $0.625 per share to $0.78 per share on a quarterly basis.~~ ~~We paid dividends of $140 million during the three months ended March 29, 2015.~~

~~Acquisitions~~

In September 2013, we announced our intention to acquire the equity that we do not already own in most of our partially-owned U.S. and Canadian distributors over a three to five year period. We plan to spend an additional $160 million to $200 million on North American distributor acquisitions and the related debt retirements in the second half of 2015.2016.

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 three months of ~~2015~~, 2016, the investment return on our U.S. pension trust was ~~2.6~~4.7 percent while our U.K. pension trust return was ~~4.2~~4.0 percent.Approximately 7978 percent of our pension plan assets are held in highly liquid investments such as fixed income and equity securities. The remaining 2122 percent of our plan assets are held in less liquid, but market valued investments, including real estate, private equity and insurance contracts.

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				Three months ended
In millions	March 29, 2015		March 30, 2014		April 3, 2016		March 29, 2015
Defined benefit pension and other postretirement plans
Defined benefit pension plans
Voluntary contribution	$	36	$	39	$	48	$	36
Mandatory contribution	76		75		12		76
Defined benefit pension contributions	112		114		$	60	$	112
Other postretirement plans	13		12
Total defined benefit plans	$	125	$	126

Defined contribution pension plans	$	25	$	26	$	21	$	25

We anticipate making additional defined benefit pension contributions ~~and other postretirement benefit payments~~ during the remainder of ~~2015~~2016 of ~~$63~~$86 million. The estimated $146 million ~~and~~ ~~$27 million, respectively. The~~ ~~$175 million~~ of pension contributions for the full year include voluntary contributions of approximately ~~$82 million~~.$102 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. ~~Claims and premiums for other postretirement benefits are expected to approximate~~ ~~$40 million~~ in ~~2015~~. We expect our ~~2015~~2016 net periodic pension cost to approximate ~~$63~~$42 million.

Current Maturities of Short and Long-Term Debt

We had $50 million of commercial paper outstanding at April 3, 2016, that matures in less than one year. The maturity schedule of our existing long-term debt does not require significant cash outflows in the intermediate term. Required annual principal payments range from $7 million to $39 million over the next five years (including the remainder of 2016).

Restructuring Actions

~~Table~~We executed restructuring actions primarily in the form of ~~Contents~~

professional voluntary and involuntary employee separation programs in the fourth quarter of 2015. We reduced our worldwide workforce by approximately 1,900 employees. We incurred a fourth quarter charge of $90 million ($61 million after tax) for these headcount reductions, of which $86 million was expected to be settled in cash. As a result of changes in estimates, we now expect the amount to be $88 million. The majority of these payments will be made by the end of September 2016. At April 3, 2016, substantially all terminations have been completed.

Credit Ratings

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



	Long-Term	Short-Term
Credit Rating Agency ⁽¹⁾	Senior ~~L-T~~ Debt Rating	Debt Rating	Outlook	~~Last Updated~~
Standard & Poor’s Rating Services	A+	~~Stable~~A1	~~August 2014~~Stable
Fitch Ratings	A	~~Stable~~F1	~~October 2014~~Stable
Moody’s Investors Service, Inc.	A2	~~Stable~~P1	~~December 2014~~Stable

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

Management's Assessment of Liquidity

Our financial condition and liquidity remain strong. Our solid balance sheet and credit ratings enable ready access to credit and the capital markets. We assess our liquidity in terms of our ability to generate adequate cash to fund our operating, investing and financing activities. We believe our liquidity provides us with the financial flexibility needed to fund working capital, ~~capital expenditures,~~ common stock repurchases, capital expenditures, dividend payments, ~~acquisitions~~acquisition of ~~our~~the remaining North American ~~distributors,~~distributor, projected pension obligations, ~~and~~ debt service ~~obligations.~~obligations and severance payments. We continue to generate cash from operations in the U.S. and maintain access to ~~$1.7 billion of~~ our ~~revolver as noted above.~~revolving credit facility.

~~Table of Contents~~

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 ~~2014~~2015 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~~Our critical accounting estimates ~~include those addressing~~disclosed in the Form 10-K address the estimation of liabilities for warranty programs, 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 ~~2014~~2015 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 three months of ~~2015~~.2016.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Note ~~13,~~14, "RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS," in the Notes to Condensed Consolidated Financial ~~Statements.~~Statements for additional information.

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 ~~2014~~2015 Form 10-K. There have been no material changes in this information since the filing of our ~~2014~~2015 Form 10-K.

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 ~~March 29, 2015~~,April 3, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II. OTHER INFORMATION

ITEM 1.Legal Proceedings

ITEM 1A.Risk Factors

In addition to other information set forth in this report, you should consider other risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K or the "CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION" in this Quarterly report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently judge to be immaterial also may materially adversely affect our business, financial condition or operating results.

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⁾
January 1 - February 1, 2015 269,400
$ 142.63
269,400
87,627
February 2 - March 1, 2015 727,970
136.52
725,712
87,855
March 2 - March 29, 2015 1,505
140.96
—
87,425
Total 998,875
138.18
995,112



	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 7	850,978	$	88.20	850,378	120,020
February 8 - March 6	4,065,102	98.43		4,063,802	124,204
March 7 - April 3	1,075	109.96		—	124,113
Total	4,917,155	96.66		4,914,180

⁽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 ~~the 2012~~our Board of Directors authorized ~~$1 billion~~ share repurchase ~~program.~~programs.

⁽²⁾ These values reflect the sum of shares held in loan status under our Key Employee Stock Investment Plan. The repurchase ~~program~~programs authorized by the Board of Directors ~~does~~do not limit the number of shares that may be purchased and ~~was~~were excluded from this column. The dollar value remaining available for future purchases under such programs as of April 3, 2016, was $699 million.

~~We repurchased~~ ~~$137 million~~ ~~of stock under the 2012 Board of Directors Authorized Plan during the first three months of 2015.~~ In ~~July 2014,~~November 2015, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon the completion of the ~~2012 Plan.~~2014 repurchase plan. On February 9, 2016, we entered into an accelerated share repurchase (ASR) agreement with a third party financial institution to repurchase $500 million of our common stock under our previously announced share repurchase plans. Pursuant to the terms of the agreement, we paid the full $500 million purchase price and received approximately 4.1 million shares at a price of $98.43 per share, representing approximately 80 percent of the shares expected to be repurchased. The unsettled portion of the ASR meets the criteria to be accounted for as a forward contract

~~Table~~indexed to our stock and qualifies as an equity transaction. This resulted in a $100 million reduction to additional paid-in capital during the quarter. The final number of ~~Contents~~shares to be repurchased will be based on our volume-weighted average stock price during the term of the transaction, less a discount. The ASR is expected to be completed by the end of the second quarter of 2016. The initial 4.1 million shares delivered from the ASR are included in purchases in the table above. We repurchased a total of $274 million and $201 million of stock under the 2014 and 2015 authorized stock repurchase plans, respectively, during the three months ended April 3, 2016, including the ASR shares discussed above.

During the three months ended ~~March 29, 2015~~,April 3, 2016, we repurchased ~~3,763~~2,975 shares 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~~purchase. If the shares are sold before the loan is paid off, the employee 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.

ITEM 3.Defaults Upon Senior Securities

Not applicable.

~~Not applicable.~~

ITEM 4.Mine Safety Disclosures

Not applicable.

~~Not applicable.~~

ITEM 5.Other Information

Not applicable.

~~Not applicable.~~

ITEM 6.Exhibits

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

~~Table of Contents~~

SIGNATURES

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



Cummins Inc.
Date:	~~April 29, 2015~~May 3, 2016

	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)

~~Table of Contents~~

CUMMINS INC.

EXHIBIT INDEX



Exhibit No.		Description of Exhibit
~~10(n)~~		~~Form of Long-Term Grant Notice under the 2012 Omnibus Incentive Plan~~
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.

4245



	Increase/(Decrease)
	March 29, 2015 vs. March 30, 2014
In millions	Three months ended
North American distributors	$	(22	)
Beijing Foton Cummins Engine Co., Ltd. (Heavy-duty)	5
Other equity income	(4		)
Cummins share of net income	(21		)
Royalty and interest income	(1		)
Equity, royalty and interest income from investees	$	(22	)