UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

cumminsca06.jpg

FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report:  November 1, 2016
 
  CUMMINS INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other Jurisdiction of
Incorporation)
1-4949
 (Commission File Number)
35-0257090
 (I.R.S. Employer Identification No.)

500 Jackson Street
P. O. Box 3005
Columbus, IN  47202-3005
(Principal Executive Office)  (Zip Code)

Registrant's telephone number, including area code:  (812) 377-5000
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
  
 

1

Item 2.02. Results of Operations and Financial Condition.
 
On November 1, 2016, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the third quarter of 2016, which is furnished herewith as Exhibit 99.

The information furnished pursuant to this Item 2.02, including Exhibit 99, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Exchange Act.


Item 9.01. Financial Statements and Exhibits.
 
(d)
The following exhibit is furnished pursuant to Item 2.02 herewith: 
99-Press Release dated November 1, 2016


SIGNATURE

 
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 hereunto duly authorized.
 
Date: November 1, 2016
 
CUMMINS INC.
 /s/ Marsha L. Hunt
Marsha L. Hunt
Vice President - Corporate Controller
(Principal Accounting Officer)

 

2
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)



 
 
Three months ended
In millions, except per share amounts
 
October 2,
2016
 
September 27,
2015
NET SALES
 
$
4,187

 
$
4,620

Cost of sales
 
3,108

 
3,412

GROSS MARGIN
 
1,079

 
1,208

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
513

 
530

Research, development and engineering expenses
 
157

 
197

Equity, royalty and interest income from investees
 
74

 
78

Loss contingency
 
99

 
—

Other operating expense, net
 
—

 
(2
)
OPERATING INCOME
 
384

 
557

Interest income
 
6

 
9

Interest expense
 
16

 
16

Other income, net
 
8

 
11

INCOME BEFORE INCOME TAXES
 
382

 
561

Income tax expense
 
82

 
169

CONSOLIDATED NET INCOME
 
300

 
392

Less: Net income attributable to noncontrolling interests
 
11

 
12

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
289

 
$
380

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
1.72

 
$
2.15

Diluted
 
$
1.72

 
$
2.14

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 

 
 
Basic
 
167.8

 
177.0

Diluted
 
168.2

 
177.4

 
 
 
 
 
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.







3
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (a)


 
 
Nine months ended
In millions, except per share amounts
 
October 2,
2016
 
September 27,
2015
NET SALES
 
$
13,006

 
$
14,344

Cost of sales
 
9,674

 
10,609

GROSS MARGIN
 
3,332

 
3,735

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,527

 
1,584

Research, development and engineering expenses
 
478

 
558

Equity, royalty and interest income from investees
 
234

 
240

Loss contingency
 
138

 
—

Other operating expense, net
 
(2
)
 
(5
)
OPERATING INCOME
 
1,421

 
1,828

Interest income
 
18

 
20

Interest expense
 
51

 
47

Other income, net
 
34

 
12

INCOME BEFORE INCOME TAXES
 
1,422

 
1,813

Income tax expense
 
362

 
521

CONSOLIDATED NET INCOME
 
1,060

 
1,292

Less: Net income attributable to noncontrolling interests
 
44

 
54

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
1,016

 
$
1,238

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
5.99

 
$
6.92

Diluted
 
$
5.99

 
$
6.90

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
 
169.5

 
178.9

Diluted
 
169.7

 
179.3

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
2.975

 
$
2.535

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




4
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)


In millions, except par value
 
October 2,
2016
 
December 31,
2015
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,251

 
$
1,711

Marketable securities
 
250

 
100

Total cash, cash equivalents and marketable securities
 
1,501

 
1,811

Accounts and notes receivable, net
 
2,873

 
2,820

Inventories
 
2,820

 
2,707

Prepaid expenses and other current assets
 
600

 
609

Total current assets
 
7,794

 
7,947

Long-term assets
 
 
 
 
Property, plant and equipment
 
7,460

 
7,322

Accumulated depreciation
 
(3,783
)
 
(3,577
)
Property, plant and equipment, net
 
3,677

 
3,745

Investments and advances related to equity method investees
 
1,077

 
975

Goodwill
 
482

 
482

Other intangible assets, net
 
319

 
328

Pension assets
 
773

 
735

Other assets
 
1,014

 
922

Total assets
 
$
15,136

 
$
15,134

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
1,781

 
$
1,706

Loans payable
 
48

 
24

Commercial paper
 
273

 
—

Accrued compensation, benefits and retirement costs
 
393

 
409

Current portion of accrued product warranty
 
333

 
359

Current portion of deferred revenue
 
460

 
403

Other accrued expenses
 
985

 
863

Current maturities of long-term debt
 
35

 
39

Total current liabilities
 
4,308

 
3,803

Long-term liabilities
 
 
 
 
Long-term debt
 
1,593

 
1,576

Postretirement benefits other than pensions
 
326

 
349

Pensions
 
301

 
298

Other liabilities and deferred revenue
 
1,344

 
1,358

Total liabilities
 
$
7,872

 
$
7,384

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,209

 
$
2,178

Retained earnings
 
10,833

 
10,322

Treasury stock, at cost, 54.1 and 47.2 shares
 
(4,468
)
 
(3,735
)
Common stock held by employee benefits trust, at cost, 0.7 and 0.9 shares
 
(8
)
 
(11
)
Accumulated other comprehensive loss
 
(1,632
)
 
(1,348
)
Total Cummins Inc. shareholders’ equity
 
6,934

 
7,406

Noncontrolling interests
 
330

 
344

Total equity
 
$
7,264

 
$
7,750

Total liabilities and equity
 
$
15,136

 
$
15,134

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




5
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)


 
 
Nine months ended
In millions
 
October 2,
2016
 
September 27,
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
1,060

 
$
1,292

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Restructuring payments
 
(53
)
 
—

Loss contingency
 
138

 
—

Depreciation and amortization
 
391

 
383

Gain on fair value adjustment for consolidated investees
 
—

 
(17
)
Deferred income taxes
 
60

 
(120
)
Equity in income of investees, net of dividends
 
(94
)
 
(68
)
Pension contributions in excess of expense
 
(92
)
 
(119
)
Other post-retirement benefits payments in excess of expense
 
(16
)
 
(18
)
Stock-based compensation expense
 
28

 
24

Translation and hedging activities
 
(39
)
 
22

Changes in current assets and liabilities, net of acquisitions
 
 
 
 
Accounts and notes receivable
 
(112
)
 
(163
)
Inventories
 
(150
)
 
(179
)
Other current assets
 
138

 
133

Accounts payable
 
97

 
(52
)
Accrued expenses
 
(279
)
 
(153
)
Changes in other liabilities and deferred revenue
 
188

 
219

Other, net
 
45

 
(53
)
Net cash provided by operating activities
 
1,310

 
1,131

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(312
)
 
(393
)
Investments in internal use software
 
(42
)
 
(38
)
Investments in and advances to equity investees
 
(29
)
 
(9
)
Acquisitions of businesses, net of cash acquired
 
(1
)
 
(102
)
Investments in marketable securities—acquisitions
 
(447
)
 
(175
)
Investments in marketable securities—liquidations
 
291

 
228

Cash flows from derivatives not designated as hedges
 
(64
)
 
17

Other, net
 
14

 
(5
)
Net cash used in investing activities
 
(590
)
 
(477
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings
 
111

 
24

Net borrowings of commercial paper
 
273

 
—

Payments on borrowings and capital lease obligations
 
(156
)
 
(64
)
Net borrowings (payments) under short-term credit agreements
 
25

 
(38
)
Distributions to noncontrolling interests
 
(42
)
 
(35
)
Dividend payments on common stock
 
(505
)
 
(452
)
Repurchases of common stock
 
(745
)
 
(650
)
Other, net
 
(2
)
 
—

Net cash used in financing activities
 
(1,041
)
 
(1,215
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(139
)
 
(52
)
Net decrease in cash and cash equivalents
 
(460
)
 
(613
)
Cash and cash equivalents at beginning of year
 
1,711

 
2,301

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,251

 
$
1,688

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

6
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
 
Non-segment
Items (1)
 
Total
 
Three months ended October 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,357

 
$
1,497

 
$
824

 
$
509

 
$
—

 
$
4,187

 
Intersegment sales
 
502

 
7

 
319

 
347

 
(1,175
)
 
—

 
Total sales
 
1,859

 
1,504

 
1,143

 
856

 
(1,175
)
 
4,187

 
Depreciation and amortization(2)
 
42

 
28

 
32

 
29

 
—

 
131

 
Research, development and engineering expenses
 
56

 
3

 
54

 
44

 
—

 
157

 
Equity, royalty and interest income from investees
 
38

 
19

 
9

 
8

 
—

 
74

 
Loss contingency
 
99

 
—

 
—

 
—

 
—

 
99

 
Interest income
 
3

 
1

 
1

 
1

 
—

 
6

 
Segment EBIT
 
89

 
96

 
148

 
59

 
6

 
398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
4.8
%
 
6.4
%
 
12.9
%
 
6.9
%
 
 
 
9.5
%
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Three months ended September 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,627

 
$
1,543

 
$
891

 
$
559

 
$
—

 
$
4,620

 
Intersegment sales
 
475

 
8

 
349

 
423

 
(1,255
)
 
—

 
Total sales
 
2,102

 
1,551

 
1,240

 
982

 
(1,255
)
 
4,620

 
Depreciation and amortization(2)
 
47

 
26

 
28

 
27

 
—

 
128

 
Research, development and engineering expenses
 
73

 
2

 
65

 
57

 
—

 
197

 
Equity, royalty and interest income from investees
 
33

 
19

 
9

 
17

 
—

 
78

 
Interest income
 
6

 
1

 
1

 
1

 
—

 
9

 
Segment EBIT
 
217

 
123

 
156

 
74

 
7

 
577

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.3
%
 
7.9
%
 
12.6
%
 
7.5
%
 
 
 
12.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 October 2, 2016 and September 27, 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."

7
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components
 
Power Systems
 
Non-segment Items (1)
 
Total
 
Nine months ended October 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
4,350

 
$
4,493

 
$
2,654

 
$
1,509

 
$
—

 
$
13,006

 
Intersegment sales
 
1,487

 
18

 
1,005

 
1,076

 
(3,586
)
 
—

 
Total sales
 
5,837

 
4,511

 
3,659

 
2,585

 
(3,586
)
 
13,006

 
Depreciation and amortization(2)
 
121

 
86

 
95

 
87

 
—

 
389

 
Research, development and engineering expenses
 
166

 
10

 
161

 
141

 
—

 
478

 
Equity, royalty and interest income from investees
 
120

 
56

 
29

 
29

 
—

 
234

 
Loss contingency
 
138

 
—

 
—

 
—

 
—

 
138

 
Interest income
 
8

 
3

 
3

 
4

 
—

 
18

 
Segment EBIT
 
492

 
270

 
501

 
195

 
15

 
1,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
8.4
%
 
6.0
%
 
13.7
%
 
7.5
%
 
 
 
11.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 27, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
5,150

 
$
4,499

 
$
2,839

 
$
1,856

 
$
—

 
$
14,344

 
Intersegment sales
 
1,422

 
23

 
1,097

 
1,225

 
(3,767
)
 
—

 
Total sales
 
6,572

 
4,522

 
3,936

 
3,081

 
(3,767
)
 
14,344

 
Depreciation and amortization(2)
 
140

 
78

 
82

 
81

 
—

 
381

 
Research, development and engineering expenses
 
195

 
8

 
183

 
172

 
—

 
558

 
Equity, royalty and interest income from investees
 
107

 
60

 
26

 
47

 
—

 
240

 
Interest income
 
10

 
3

 
3

 
4

 
—

 
20

 
Segment EBIT
 
695

 
324

 
574

 
302

 
(35
)
 
1,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.6
%
 
7.2
%
 
14.6
%
 
9.8
%
 
 
 
13.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the nine months ended October 2, 2016 and September 27, 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 was $2 million for the nine months ended October 2, 2016 and September 27, 2015.

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:
 
 
 
Three months ended
 
Nine months ended
In millions
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Total segment EBIT
 
$
398

 
$
577

 
$
1,473

 
$
1,860

Less: Interest expense
 
16

 
16

 
51

 
47

Income before income taxes
 
$
382

 
$
561

 
$
1,422

 
$
1,813



8
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
 
Nine months ended
In millions
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Distribution entities
 
 
 
 
 
 
 
 
Komatsu Cummins Chile, Ltda.
 
$
8

 
$
8

 
$
26

 
$
23

North American distributors
 
7

 
9

 
18

 
27

All other distributors
 
1

 
1

 
2

 
2

Manufacturing entities
 
 

 
 
 
 

 
 
Beijing Foton Cummins Engine Co., Ltd.
 
19

 
18

 
59

 
47

Chongqing Cummins Engine Company, Ltd.
 
11

 
9

 
28

 
32

Dongfeng Cummins Engine Company, Ltd.
 
10

 
11

 
32

 
40

All other manufacturers
 
8

 
13

 
40

 
41

Cummins share of net income
 
64

 
69

 
205

 
212

Royalty and interest income
 
10

 
9

 
29

 
28

Equity, royalty and interest income from investees
 
$
74

 
$
78

 
$
234

 
$
240

 
LOSS CONTINGENCY

In the fourth quarter of 2015, we disclosed the request by one customer to participate in the design and bear the financial cost of a field campaign (Campaign) associated with quality issues in certain third party aftertreatment systems causing some of our inter-related engines to fail in-use emission testing. We established a reserve in the fourth quarter of 2015. In the second quarter of 2016, we recoded an additional accrual of $39 million based upon the Campaign design at the time. Additional in-use emission testing performed in the third quarter of 2016 has indicated that the Campaign should be expanded to include a larger population of vehicles. Our third quarter results include an additional accrual of $99 million to reflect the higher estimated cost of the expanded Campaign. We have not reached a cost sharing agreement with our customer related to this matter and our final cost could differ from what we have recorded.

9
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
 
 
 
October 2, 2016
 
September 27, 2015
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
289

 
$
1.72

 
$
380

 
$
2.14

Add
 
 
 
 
 
 
 
 
Loss contingency, net (1)
 
50

 
0.30

 
—

 
—

Net income attributable to Cummins Inc. excluding special items
 
$
339

 
$
2.02


$
380


$
2.14

 
 
 
Nine months ended
 
 
 
October 2, 2016
 
September 27, 2015
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
1,016

 
$
5.99

 
$
1,238

 
$
6.90

Add
 
 
 
 
 
 
 
 
Loss contingency, net (1)
 
$
74

 
$
0.44

 
—

 
—

Less
 
 
 
 
 
 
 
 
Tax benefit
 
—

 
—

 
18

 
0.10

Net income attributable to Cummins Inc. excluding special items
 
$
1,090

 
$
6.43

 
$
1,220

 
$
6.80

____________________________________
(1) The loss contingency is net of the favorable variable compensation impact.
Earnings before interest, income taxes and noncontrolling interests
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 EBIT to “Net income attributable to Cummins Inc.” for each of the applicable periods:
 
 
Three months ended
 
Nine months ended
In millions
 
October 2, 2016
 
September 27, 2015
 
October 2, 2016
 
September 27, 2015
Earnings before interest expense and income taxes
 
$
398

 
$
577

 
$
1,473

 
$
1,860

 
 
 
 
 
 
 
 
 
EBIT as a percentage of net sales
 
9.5
%
 
12.5
%
 
11.3
%
 
13.0
%
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
Interest expense
 
16

 
16

 
51

 
47

Income tax expense
 
82

 
169

 
362

 
521

Consolidated net income
 
300

 
392

 
1,060

 
1,292

 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
11

 
12

 
44

 
54

Net income attributable to Cummins Inc.
 
$
289

 
$
380

 
$
1,016

 
$
1,238

 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
6.9
%
 
8.2
%
 
7.8
%
 
8.6
%

10
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 engines that range from 310 to 600 horsepower serving global heavy-duty truck customers worldwide, primarily in North America.
•
Medium-duty truck and bus - We manufacture diesel engines ranging from 200 to 450 horsepower serving medium-duty truck and bus customers worldwide, with key markets including North America, Latin America, Europe and Mexico. We also provide diesel and natural gas engines for school buses, transit buses and shuttle buses worldwide, with key markets including North America, Europe, Latin America and Asia, and 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 provide diesel engines that range from 60 to 755 horsepower to key global markets including construction, mining, rail, defense, agriculture, marine, and oil and gas 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

 
$
—

 
$
1,878

Medium-duty truck and bus
 
549

 
600

 
517

 
—

 
1,666

Light-duty automotive
 
433

 
394

 
345

 
—

 
1,172

Off-highway
 
363

 
386

 
372

 
—

 
1,121

Total sales
 
$
1,976

 
$
2,002

 
$
1,859

 
$
—

 
$
5,837

 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 

11
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


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

 
—

 
60,500

Medium-duty
 
55,400

 
62,300

 
53,400

 
—

 
171,100

Light-duty
 
61,700

 
57,100

 
49,800

 
—

 
168,600

Total units
 
136,800

 
140,100

 
123,300

 
—

 
400,200

 
 
 
 
 
 
 
 
 
 
 
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

 
$
—

 
$
1,933

Service
 
299

 
297

 
299

 
—

 
895

Power generation
 
275

 
326

 
291

 
—

 
892

Engines
 
241

 
279

 
271

 
—

 
791

Total sales
 
$
1,463

 
$
1,544

 
$
1,504

 
$
—

 
$
4,511

 
 
 
 
 
 
 
 
 
 
 
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


12
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


Component Segment Sales by Business
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Emission solutions
 
$
607

 
$
624

 
$
540

 
$
—

 
$
1,771

Turbo technologies
 
265

 
276

 
241

 
—

 
782

Filtration
 
252

 
262

 
244

 
—

 
758

Fuel systems
 
113

 
117

 
118

 
—

 
348

Total sales
 
$
1,237

 
$
1,279

 
$
1,143

 
$
—

 
$
3,659

 
 
 
 
 
 
 
 
 
 
 
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 generators ranging from 2 kilowatts to 3.5 megawatts, as well as paralleling systems and transfer switches, for applications such as residential, 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 serves 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, 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.

13
CUMMINS INC. AND SUBSIDIARIES
BUSINESS UNIT SALES DATA
(Unaudited)


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

 
$
—

 
$
1,662

Industrial
 
215

 
240

 
233

 
—

 
688

Generator technologies
 
73

 
84

 
78

 
—

 
235

Total sales
 
$
808

 
$
921

 
$
856

 
$
—

 
$
2,585

 
 
 
 
 
 
 
 
 
 
 
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

 
—

 
6,000

Industrial
 
1,000

 
1,100

 
1,000

 
—

 
3,100

Total units
 
2,800

 
3,300

 
3,000

 
—

 
9,100

 
 
 
 
 
 
 
 
 
 
 
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

 
 
 
 
 
 
 
 



14