Cummins Announces Fourth Quarter and Full Year 2016 Results

COLUMBUS, Ind.

  • Fourth quarter revenues of $4.5 billion; GAAPNet Income of $378 million
  • EBIT of 11.7 percent of sales; Diluted EPS of $2.25
  • Full year revenues of $17.5 billion; GAAPNet Income of $1.39 billion EBIT of 11.4 percent of sales; Diluted EPS of$8.23
  • Company expects full year 2017 revenues to be flat to down 5 percent, EBIT expected to be in the range of 11.0 to 11.5 percent

Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2016.

Fourth quarter revenues of $4.5 billion decreased 6 percent from the same quarter in 2015, largely reflecting lower commercial truck production in North America and weak global demand for industrial engines and power generation equipment. Currency negatively impacted revenues by approximately 2 percent compared to the same period last year, primarily due to a stronger U.S. dollar. Revenues in North America decreased 13 percent while international sales improved by 6 percent primarily due to increased revenues in China.

Net income attributable to Cummins in the fourth quarter was $378 million ($2.25 per diluted share), compared to $161million ($0.92 per diluted share) a year ago. Net income for the fourth quarter of 2015 excluding impairment and restructuring charges was $355 million ($2.02 per diluted share). The tax rate in the fourth quarter of 2016 was 22 percent.

Earnings before interest and taxes (EBIT) in the fourth quarter was $526 million, or 11.7 percent of sales, compared to $230 million or 4.8 percent of sales a year ago. Excluding impairment and restructuring charges, EBIT for the fourth quarter of 2015 was $531 million or 11.1 percent of sales.

“Despite weak conditions in a number of our largest markets, Cummins delivered fourth quarter results that were a little better than expected due to our strong market share in on-highway markets in North America and the benefits of our cost reduction work,” said Tom Linebarger Chairman and CEO. “We made significant progress in a number of our key initiatives in 2016, including executing our restructuring actions, completing the acquisition of our distributors in North America and continuing to invest in new products, all of which help position the Company for profitable growth when markets improve. We also returned 75 percent of the Company’s Operating Cash Flow to shareholders, consistent with our plan for the year.”

Revenues for the full year 2016 were $17.5 billion, 8 percent lower than 2015. Revenues in North America decreased 12 percent and international sales decreased 2 percent mainly due to foreign currency movements. Excluding the impact of the currency movements, international revenues increased 2 percent with growth in China and India being offset by weaker demand in Latin America, the Middle East and Africa.

Net income attributable to Cummins for the full year was $1.39 billion ($8.23 per diluted share), compared to $1.4 billion ($7.84 per diluted share) in 2015. Excluding impairment and restructuring charges, net income was $1.59billion ($8.93 per diluted share) in 2015. The full year tax rate was 24.6 percent in 2016.

EBIT for the year was $2.0 billion or 11.4 percent of sales, compared to $2.1 billion or 10.9 percent of sales in 2015. Excluding impairments and restructuring charges, EBIT for 2015 was $2.4 billion or 12 .5 percent of sales.

2017 Outlook:

Based on the current forecast, Cummins projects full year 2017 revenues to be flat to down 5 percent, and EBIT to be in the range of 11.0 to 11.5 percent of sales. Results in the first quarter of the year will continue to be challenged by difficult markets and are expected to mark the low point of the year. The Company expects to return at least 50 percent of Operating Cash Flow to shareholders in 2017 in the form of dividends and share repurchases.

2016 highlights:

  • Cummins partnered with Peterbilt to develop and demonstrate technologies under the U.S. Department of Energy's (DOE) SuperTruck II program
  • Cummins was recognized with the 2016 United States Overall Best Heavy-Duty Truck Engine Supplier Leadership Award by Frost and Sullivan
  • The Environmental Protection Agency (EPA) certified Cummins’ full range of heavy- and medium-duty diesel engines for the 2017 Greenhouse Gas Emission Standards
  • The Company returned 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases
  • For the twelfth straight year, Cummins Inc. was awarded a perfect score in the 2017 Corporate Equality Index (CEI) from the Human Rights Campaign

1 Generally Accepted Accounting Principles

Fourth quarter 2016 detail (all comparisons to same period in 2015) excluding restructuring and impairment charges in 2015

Engine Segment

  • Sales - $2.0 billion, down 6 percent
  • Segment EBIT - $194 million, or 9.9 percent of sales, compared to $160 million or 7.6 percent of sales
  • On-highway revenues declined 9 percent primarily due to a decline in commercial truck production in North America, partially offset by an 8 percent increase in off-highway sales

Distribution Segment

  • Sales - $1.7 billion, down 2 percent
  • Segment EBIT - $122 million, or 7.3 percent of sales, compared to $111 million or 6.5 percent of sales
  • Weaker sales to off-highway markets and an unfavorable impact of 1 percent from a stronger US dollar more than offset 5 percent revenue growth from acquisitions

Components Segment

  • Sales - $1.2 billion, down 5 percent.
  • Segment EBIT - $140 million , or 11.9 percent of sales, compared to $175 million or 14.2 percent of sales
  • Revenues in North America declined due to lower commercial truck production, but were partially offset by higher revenues in China

Power Systems Segment

  • Sales - $932 million, down 5 percent
  • Segment EBIT - $68 million, or 7.3 percent of sales, compared to $59 million, or 6 percent of sales
  • Revenues declined due to lower power generation and industrial engine demand in most regions

 

Forward-looking disclosure statement

Information provided in this release that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on strategies regarding the future. These forward looking statements include, without limitation, statements relating to our plans and expectations for our revenues for the full year of 2017. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2015 Annual Report on Form 10-K. 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 press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBIT is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable GAAP measure in a schedule attached to this release. Cummins presents this information as it believes it is useful to understanding the Company's operating performance, and because EBIT is a measure used internally to assess the performance of the operating units.

Webcast information

Cummins management will host a teleconference to discuss these results today at 10 a.m. EST. This teleconference will be webcast and available on the Investor Relations section of the Cummins website at www.cummins.com . Participants wishing to view the visuals available with the audio are encouraged to sign-in a few minutes prior to the start of the teleconference.

     
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)
     
    Three months ended
In millions, except per share amounts  

December 31,
2016

  December 31,
2015
NET SALES   $ 4,503     $ 4,766  
Cost of sales   3,383     3,554  
GROSS MARGIN   1,120     1,212  
OPERATING EXPENSES AND INCOME        
Selling, general and administrative expenses   519     508  
Research, development and engineering expenses   158     177  
Equity, royalty and interest income from investees   67     75  
Loss contingency charge       60  
Impairment of light-duty diesel assets       211  
Restructuring actions and other charges       90  
Other operating expense, net   (3 )   (12 )
OPERATING INCOME   507     229  
Interest income   5     4  
Interest expense   18     18  
Other income (expense), net   14     (3 )
INCOME BEFORE INCOME TAXES   508     212  
Income tax expense   112     34  
CONSOLIDATED NET INCOME   396     178  
Less: Net income attributable to noncontrolling interests   18     17  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 378     $ 161  
         
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.        
Basic   $ 2.26     $ 0.92  
Diluted   $ 2.25     $ 0.92  
         
WEIGHTED AVERAGE SHARES OUTSTANDING        
Basic   167.6     175.5  
Diluted   168.1     175.8  
         
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 1.025     $ 0.975  
         

(a)

  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
     
     
    Years ended December 31,
In millions, except per share amounts   2016   2015
NET SALES   $ 17,509     $ 19,110  
Cost of sales   13,057     14,163  
GROSS MARGIN   4,452     4,947  
OPERATING EXPENSES AND INCOME        
Selling, general and administrative expenses   2,046     2,092  
Research, development and engineering expenses   636     735  
Equity, royalty and interest income from investees   301     315  
Loss contingency charges   138     60  
Impairment of light-duty diesel assets       211  
Restructuring actions and other charges       90  
Other operating expense, net   (5 )   (17 )
OPERATING INCOME   1,928     2,057  
Interest income   23     24  
Interest expense   69     65  
Other income, net   48     9  
INCOME BEFORE INCOME TAXES   1,930     2,025  
Income tax expense   474     555  
CONSOLIDATED NET INCOME   1,456     1,470  
Less: Net income attributable to noncontrolling interests   62     71  
NET INCOME ATTRIBUTABLE TO CUMMINS INC.   $ 1,394     $ 1,399  
         
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.        
Basic   $ 8.25     $ 7.86  
Diluted   $ 8.23     $ 7.84  
         
WEIGHTED AVERAGE SHARES OUTSTANDING        
Basic   169.0     178.0  
Diluted   169.3     178.4  
         
CASH DIVIDENDS DECLARED PER COMMON SHARE   $ 4.00     $ 3.51  
         

(a)

  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
     
         
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
         
In millions, except par value   December 31,
2016
  December 31,
2015
ASSETS        
Current assets        
Cash and cash equivalents   $ 1,120     $ 1,711  
Marketable securities   260     100  
Total cash, cash equivalents and marketable securities   1,380     1,811  
Accounts and notes receivable, net   3,025     2,820  
Inventories   2,675     2,707  
Prepaid expenses and other current assets   627     609  
Total current assets   7,707     7,947  
Long-term assets        
Property, plant and equipment, net   3,800     3,745  
Investments and advances related to equity method investees   946     975  
Goodwill and other intangible assets, net   812     810  
Other assets   1,746     1,657  
Total assets   $ 15,011     $ 15,134  
         
LIABILITIES        
Current liabilities        
Accounts payable (principally trade)   $ 1,854     $ 1,706  
Loans payable   41     24  
Commercial paper   212      
Accrued expenses   2,218     2,073  
Total current liabilities   4,325     3,803  
Long-term liabilities        
Long-term debt   1,568     1,576  
Other liabilities   1,944     2,005  
Total liabilities   $ 7,837     $ 7,384  
         
EQUITY        
Cummins Inc. shareholders’ equity        
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued   $ 2,153     $ 2,178  
Retained earnings   11,040     10,322  
Treasury stock, at cost, 54.2 and 47.2 shares   (4,489 )   (3,735 )
Common stock held by employee benefits trust, at cost, 0.7 and 0.9 shares   (8 )   (11 )
Accumulated other comprehensive loss   (1,821 )   (1,348 )
Total Cummins Inc. shareholders’ equity   6,875     7,406  
Noncontrolling interests   299     344  
Total equity   $ 7,174     $ 7,750  
Total liabilities and equity   $ 15,011     $ 15,134  
         

(a)

  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
     
     
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
     
   

Years ended December 31,

In millions   2016   2015
NET CASH PROVIDED BY OPERATING ACTIVITIES   $ 1,935     $ 2,059  
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Capital expenditures   (531 )   (744 )
Investments in internal use software   (63 )   (55 )
Investments in and advances to equity investees   (41 )   (7 )
Acquisitions of businesses, net of cash acquired   (94 )   (117 )
Investments in marketable securities—acquisitions   (478 )   (282 )
Investments in marketable securities—liquidations   306     270  
Proceeds from sale of equity investees   60      
Cash flows from derivatives not designated as hedges   (102 )   8  
Other, net   26     9  
Net cash used in investing activities   (917 )   (918 )
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from borrowings   111     44  
Net borrowings of commercial paper   212      
Payments on borrowings and capital lease obligations   (163 )   (76 )
Net borrowings (payments) under short-term credit agreements   19     (41 )
Distributions to noncontrolling interests   (65 )   (49 )
Dividend payments on common stock   (676 )   (622 )
Repurchases of common stock   (778 )   (900 )
Acquisition of noncontrolling interests   (98 )   (10 )
Other, net   29     10  
Net cash used in financing activities   (1,409 )   (1,644 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   (200 )   (87 )
Net decrease in cash and cash equivalents   (591 )   (590 )
Cash and cash equivalents at beginning of year   1,711     2,301  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 1,120     $ 1,711  
         

(a)

  Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.
     

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

As previously announced, beginning with the second quarter of 2016, we realigned certain of our reportable segments to be consistent with changes to our organizational structure and how the Chief Operating Decision Maker monitors the performance of our segments. We reorganized our business to combine our Power Generation segment and our high horsepower engine business to create the new Power Systems segment. Our reportable operating segments consist of Engine, Distribution, Components and Power Systems. We began to report results for our new reporting structure in the second quarter of 2016 and also reflected this change for historical periods.

We allocate certain common costs and expenses, primarily corporate functions, among segments. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. In addition to the reorganization noted above, we reevaluated the allocation of these costs, considering the new segment structure created in April 2016 and adjusted our allocation methodology accordingly. The revised methodology, which is based on a combination of relative segment sales and relative service usage levels, is effective for the periods beginning after January 1, 2016 and resulted in the revision of our segment operating results, including segment earnings before interest, income taxes and noncontrolling interests (EBIT), for all four segments for the first quarter of 2016 with a greater share of costs allocated to the Distribution and Components segments than in previous years. Prior periods were not revised for the new allocation methodology. These changes had no impact on our consolidated results.

                         
In millions   Engine   Distribution   Components  

Power
Systems

 

Intersegment
Eliminations (1)

  Total
Three months ended December 31, 2016                        
External sales   $ 1,424     $ 1,664     $ 860     $ 555     $     $ 4,503  
Intersegment sales   543     6     317     377     (1,243 )    
Total sales   1,967     1,670     1,177     932     (1,243 )   4,503  
Depreciation and amortization (2)   42     30     38     28         138  
Research, development and engineering expenses   60     3     47     48         158  
Equity, royalty and interest income from investees   28     14     12     13         67  
Interest income   2     1     1     1         5  
Segment EBIT   194     122   (3) 140     68   (4) 2     526  
                         
Segment EBIT as a percentage of total sales   9.9 %   7.3 %   11.9 %   7.3 %       11.7 %
                         
Three months ended December 31, 2015                        
External sales   $ 1,583     $ 1,699     $ 906     $ 578     $     $ 4,766  
Intersegment sales   515     8     330     408     (1,261 )    
Total sales   2,098     1,707     1,236     986     (1,261 )   4,766  
Depreciation and amortization (2)   47     27     27     29         130  
Research, development and engineering expenses   68     2     53     54         177  
Equity, royalty and interest income from investees   39     18     9     9         75  
Loss contingency charge   60                     60  
Impairment of light-duty diesel assets   202         9             211  
Restructuring actions and other charges   17     23     13     26     11     90  
Interest income   1     1     1     1         4  
Segment EBIT   (59 )   88     153     33     15     230  
                         
Segment EBIT as a percentage of total sales   (2.8 )%   5.2 %   12.4 %   3.3 %       4.8 %
                                   

(1)

  Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended December 31, 2016 and 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."

(3)

  Distribution segment EBIT included a gain of $15 million on the fair value adjustment resulting from the acquisition of the controlling interest in a North American distributor for the three months ended December 31, 2016. See ''ACQUISITION'' for additional information.

(4)

  In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million.
     
                         
In millions   Engine   Distribution   Components  

Power
Systems

 

Intersegment
Eliminations (1)

  Total
Year ended December 31, 2016                        
External sales   $ 5,774     $ 6,157     $ 3,514     $ 2,064     $     $ 17,509  
Intersegment sales   2,030     24     1,322     1,453     (4,829 )    
Total sales   7,804     6,181     4,836     3,517     (4,829 )   17,509  
Depreciation and amortization (2)   163     116     133     115         527  
Research, development and engineering expenses   226     13     208     189         636  
Equity, royalty and interest income from investees   148     70     41     42         301  
Loss contingency charges   138                     138  
Interest income   10     4     4     5         23  
Segment EBIT   686     392   (3) 641     263   (4) 17     1,999  
                         
Segment EBIT as a percentage of total sales   8.8 %   6.3 %   13.3 %   7.5 %       11.4 %
                         
Year ended December 31, 2015                        
External sales   $ 6,733     $ 6,198     $ 3,745     $ 2,434     $     $ 19,110  
Intersegment sales   1,937     31     1,427     1,633     (5,028 )    
Total sales   8,670     6,229     5,172     4,067     (5,028 )   19,110  
Depreciation and amortization (2)   187     105     109     110         511  
Research, development and engineering expenses   263     10     236     226         735  
Equity, royalty and interest income from investees   146     78     35     56         315  
Loss contingency charge   60                     60  
Impairment of light-duty diesel assets   202         9             211  
Restructuring charges and other actions   17     23     13     26     11     90  
Interest income   11     4     4     5         24  
Segment EBIT   636     412   (3) 727     335     (20 )   2,090  
                         
Segment EBIT as a percentage of total sales   7.3 %   6.6 %   14.1 %   8.2 %       10.9 %
                                   

(1)

  Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2016 and 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 $3 million for both the years ended December 31, 2016 and December 31, 2015.

(3)

  Distribution segment EBIT included gains of $15 million and $18 million on the fair value adjustments resulting from the acquisition of the controlling interests in North American distributors for the years ended December 31, 2016 and December 31, 2015.

(4)

  In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million.
     

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   Years ended
In millions   December 31,
2016
  December 31,
2015
  December 31,
2016
  December 31,
2015
Total segment EBIT   $ 526     $ 230     $ 1,999     $ 2,090
Less: Interest expense   18     18     69     65
Income before income taxes   $ 508     $ 212     $ 1,930     $ 2,025
                               

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

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

         
    Three months ended   Years ended
In millions   December 31,
2016
  December 31,
2015
  December 31,
2016
  December 31,
2015
Distribution entities                
Komatsu Cummins Chile, Ltda.   $ 8     $ 8     $ 34     $ 31
North American distributors   3     6     21     33
All other distributors   (2 )   1         3
Manufacturing entities                
Dongfeng Cummins Engine Company, Ltd.   14     11     46     51
Chongqing Cummins Engine Company, Ltd.   10     9     38     41
Beijing Foton Cummins Engine Co., Ltd.   (7 )   15     52     62
All other manufacturers   29     11     69     52
Cummins share of net income   55     61     260     273
Royalty and interest income   12     14     41     42
Equity, royalty and interest income from investees   $ 67     $ 75     $ 301     $ 315
                               

ACQUISITION

The Distribution segment North American distributor acquisition in the fourth quarter of 2016 was as follows:

Entity Acquired  

Date of
Acquisition

 

Additional
Percent
Interest
Acquired

 

Payments
to
Former
Owners

 

Acquisition
Related
Debt
Retirements

 

Total
Purchase
Consideration

 

Type of
Acquisition(1)

 

Gain
Recognized(1)

 

Goodwill
Acquired

 

Intangibles
Recognized

 

Net Sales
Previous
Fiscal Year
Ended

Cummins Pacific LLC (Pacific)   10/04/16   50%   $ 30   $ 67   $ 99 (2) COMB   $ 15   $ 4   $ 8   $ 391

____________________________________________________

(1)

  The results from Pacific were included in Distribution segment results subsequent to the acquisition date. Pacific was accounted for as business combination (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP.

(2)

  The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. A portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2016, for this entity was $2 million.
     

CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to special items including tax adjustments. These measures are not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding special items for the following periods:

      Three months ended
      December 31, 2016   December 31, 2015
In millions   Net Income   Diluted EPS   Net Income   Diluted EPS
Net income attributable to Cummins Inc.   $ 378     $ 2.25     $ 161     $ 0.92
Add                
Impairment of light-duty diesel assets, net of tax (1)           133     0.75
Restructuring actions and other charges, net of tax (2)           61     0.35
Net income attributable to Cummins Inc. excluding special items   $ 378     $ 2.25     $ 355     $ 2.02
       
      Years ended
      December 31, 2016   December 31, 2015
In millions   Net Income   Diluted EPS   Net Income   Diluted EPS
Net income attributable to Cummins Inc.   $ 1,394     $ 8.23     $ 1,399     $ 7.84
Add                
Impairment of light-duty diesel assets, net of tax (1)           133     0.75
Restructuring actions and other charges, net of tax (2)           61     0.34
Net income attributable to Cummins Inc. excluding special items   $ 1,394     $ 8.23     $ 1,593     $ 8.93

__________________________________________

(1)

  In the fourth quarter of 2015, we recorded a $211 million charge for impairment of our light-duty diesel assets.

(2)

  In the fourth quarter of 2015, we recorded a $90 million charge for restructuring actions and other charges.
     

Earnings before interest, income taxes, noncontrolling interests and special items

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBIT for each of the applicable periods:

         
    Three months ended   Years ended
In millions  

December 31, 2016

  December 31, 2015   December 31, 2016   December 31, 2015
Net income attributable to Cummins Inc.   $ 378     $ 161     $ 1,394     $ 1,399  
                 
Net income attributable to Cummins Inc. as a percentage of net sales   8.4 %   3.4 %   8.0 %   7.3 %
                 
Add                
Net income attributable to noncontrolling interests   18     17     62     71  
Consolidated net income   396     178     1,456     1,470  
                 
Add                
Interest expense   18     18     69     65  
Income tax expense   112     34     474     555  
Earnings before interest expense and income taxes   526     230     1,999     2,090  
                 
EBIT as a percentage of net sales   11.7 %   4.8 %   11.4 %   10.9 %
                 
Add                
Impairment of light-duty diesel assets       211         211  
Restructuring actions and other charges       90         90  
Earnings before interest expense, income taxes and special items   $ 526     $ 531     $ 1,999     $ 2,391  
                 
Earnings before interest expense, income taxes and special items as a percentage of net sales   11.7 %   11.1 %   11.4 %   12.5 %
                         

CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)

Engine Segment Sales by Market and Unit Shipments by Engine Classification

In the second quarter of 2016, in conjunction with the reorganization of our segments, our Engine segment reorganized its reporting structure as follows:

  • Heavy-duty truck - We manufacture diesel and natural gas engines that range from 310 to 605 horsepower serving global heavy-duty truck customers worldwide, primarily in North America, Latin America and Australia.
  • Medium-duty truck and bus - We manufacture diesel and natural gas engines ranging from 130 to 450 horsepower serving medium-duty truck and bus customers worldwide, with key markets including North America, Latin America, China, Europe and India. Applications include pickup and delivery trucks, vocational truck, school bus, transit bus and shuttle bus. 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 105 to 385 horsepower diesel engines, including engines for the pickup truck market for Chrysler and Nissan in North America, and LCV markets in Europe, Latin America and Asia.
  • Off-highway - We manufacture diesel engines that range from 48 to 715 horsepower to key global markets including mining, marine, rail, oil and gas, defense, agriculture and construction equipment and also to the power generation business for standby, mobile and distributed power generation solutions throughout the world.

Sales for our Engine segment by market were as follows:

2016                    
In millions   Q1   Q2   Q3   Q4   YTD
Heavy-duty truck   $ 631     $ 622     $ 625     $ 565     $ 2,443
Medium-duty truck and bus   549     600     517     606     2,272
Light-duty automotive   433     394     345     409     1,581
Off-highway   363     386     372     387     1,508
Total sales   $ 1,976     $ 2,002     $ 1,859     $ 1,967     $ 7,804
                     
2015                    
In millions   Q1   Q2   Q3   Q4   YTD
Heavy-duty truck   $ 757     $ 875     $ 784     $ 700     $ 3,116
Medium-duty truck and bus   608     674     585     640     2,507
Light-duty automotive   381     354     339     401     1,475
Off-highway   399     422     394     357     1,572
Total sales   $ 2,145     $ 2,325     $ 2,102     $ 2,098     $ 8,670
                     
2014                    
In millions   YTD                
Heavy-duty truck   $ 3,072                  
Medium-duty truck and bus   2,431                  
Light-duty automotive   1,567                  
Off-highway   1,897                  
Total sales   $ 8,967                  
                         

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

2016                    
Units   Q1   Q2   Q3   Q4   YTD
Heavy-duty   19,700     20,700     20,100     18,500     79,000
Medium-duty   55,400     62,300     53,400     58,000     229,100
Light-duty   61,700     57,100     49,800     60,000     228,600
Total units   136,800     140,100     123,300     136,500     536,700
                     
2015                    
Units   Q1   Q2   Q3   Q4   YTD
Heavy-duty   28,700     32,800     28,600     24,300     114,400
Medium-duty   61,200     66,600     59,600     59,700     247,100
Light-duty   51,200     53,400     47,800     56,900     209,300
Total units   141,100     152,800     136,000     140,900     570,800
                     
2014                    
Units   YTD                
Heavy-duty   122,100                  
Medium-duty   266,800                  
Light-duty   204,400                  
Total units   593,300                  

Distribution Segment Sales by Product Line

2016                    
In millions   Q1   Q2   Q3   Q4   YTD
Parts   $ 648     $ 642     $ 643     $ 694     $ 2,627
Service   299     297     299     320     1,215
Power generation   275     326     291     347     1,239
Engines   241     279     271     309     1,100
Total sales   $ 1,463     $ 1,544     $ 1,504     $ 1,670     $ 6,181
                     
2015                    
In millions   Q1   Q2   Q3   Q4   YTD
Parts   $ 573     $ 598     $ 604     $ 648     $ 2,423
Service   284     307     301     330     1,222
Power generation   298     272     323     397     1,290
Engines   321     318     323     332     1,294
Total sales   $ 1,476     $ 1,495     $ 1,551     $ 1,707     $ 6,229

Component Segment Sales by Business

2016                    
In millions   Q1   Q2   Q3   Q4   YTD
Emission solutions   $ 607     $ 624     $ 540     $ 546     $ 2,317
Turbo technologies   265     276     241     254     1,036
Filtration   252     262     244     252     1,010
Fuel systems   113     117     118     125     473
Total sales   $ 1,237     $ 1,279     $ 1,143     $ 1,177     $ 4,836
                     
2015                    
In millions   Q1   Q2   Q3   Q4   YTD
Emission solutions   $ 613     $ 679     $ 607     $ 600     $ 2,499
Turbo technologies   301     307     266     267     1,141
Filtration   255     266     240     249     1,010
Fuel systems   130     145     127     120     522
Total sales   $ 1,299     $ 1,397     $ 1,240     $ 1,236     $ 5,172

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

In the second quarter of 2016, in conjunction with the reorganization of our segments, our Power Systems segment reorganized its reporting structure into the following product lines:

  • Power generation - We design, manufacture, sell and support back-up and prime power generators ranging from 2 kilowatts to 3.5 megawatts, as well as controls, paralleling systems and transfer switches, for applications such as consumer, commercial, industrial, data centers, health care, telecommunications 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. We also serve global rental accounts for diesel and gas generator sets.
  • Industrial - We design, manufacture, sell and support diesel and natural gas high-horsepower engines up to 5,500 horsepower for a wide variety of equipment in the mining, rail, defense, oil and gas, and commercial marine applications throughout the world. Across these markets, we have major customers in North America, Europe, the Middle East, Africa, China, Korea, Japan, Latin America, India, Russia, Southeast Asia, South Pacific and Mexico.
  • Generator technologies - We design, manufacture, sell and support A/C generator/alternator products for internal consumption and for external 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.

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

2016                    
In millions   Q1   Q2   Q3   Q4   YTD
Power generation   $ 520     $ 597     $ 545     $ 573     $ 2,235
Industrial   215     240     233     275     963
Generator technologies   73     84     78     84     319
Total sales   $ 808     $ 921     $ 856     $ 932     $ 3,517
                     
2015                    
In millions   Q1   Q2   Q3   Q4   YTD
Power generation   $ 624     $ 710     $ 621     $ 615     $ 2,570
Industrial   280     295     275     287     1,137
Generator technologies   98     92     86     84     360
Total sales   $ 1,002     $ 1,097     $ 982     $ 986     $ 4,067
                     
2014                    
In millions   YTD                
Power generation   $ 2,633                  
Industrial   1,331                  
Generator technologies   450                  
Total sales   $ 4,414                  

High-horsepower unit shipments by engine classification were as follows:

2016                    
Units   Q1   Q2   Q3   Q4   YTD
Power generation   1,800     2,200     2,000     1,900     7,900
Industrial   1,000     1,100     1,000     1,300     4,400
Total units   2,800     3,300     3,000     3,200     12,300
                     
2015                    
Units   Q1   Q2   Q3   Q4   YTD
Power generation   2,200     2,500     2,000     1,900     8,600
Industrial   1,300     1,200     1,200     1,500     5,200
Total units   3,500     3,700     3,200     3,400     13,800
                     
2014                    
Units   YTD                
Power generation   8,700                  
Industrial   6,100                  
Total units   14,800                  

 

About Cummins Inc.

Cummins Inc., a global power leader, is a corporation of complementary business segments that design, manufacture, distribute and service a broad portfolio of power solutions. The company’s products range from diesel, natural gas, electric and hybrid powertrains and powertrain-related components including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, electric power generation systems, batteries, electrified power systems, hydrogen generation and fuel cell products. Headquartered in Columbus, Indiana (U.S.), since its founding in 1919, Cummins employs approximately 61,600 people committed to powering a more prosperous world through three global corporate responsibility priorities critical to healthy communities: education, environment and equality of opportunity. Cummins serves its customers online, through a network of company-owned and independent distributor locations, and through thousands of dealer locations worldwide and earned about $2.3 billion on sales of $23.6 billion in 2019. See how Cummins is powering a world that’s always on by accessing news releases and more information at https://www.cummins.com/always-on.

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