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:  February 9, 2017
 
  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 February 9, 2017, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the fourth quarter and full year 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 February 9, 2017


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: February 9, 2017
 
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
 
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.







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


 
 
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.




4
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.




5
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.

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
 
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.

7
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
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



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
 
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

 

9
CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)



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.


10
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.

11
CUMMINS INC. AND SUBSIDIARIES
FINANCIAL MEASURES THAT SUPPLEMENT GAAP
(Unaudited)

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
%
 
 
 
 
 
 
 
 
 

12
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

 
 
 
 
 
 
 
 

13
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

 
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


14
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

 
$
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.

15
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

 
$
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

 
 
 
 
 
 
 
 



16