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Form 8-K CUMMINS INC For: Aug 02

August 2, 2016 7:41 AM EDT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549


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

Date of Report:  August 2, 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 August 2, 2016, Cummins Inc. (“Cummins,” “the Company,” “the registrant,” “we,” “our,” or “us”) issued the attached press release reporting its financial results for the second 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 August 2, 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: August 2, 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
 
July 3,
2016
 
June 28,
2015
NET SALES
 
$
4,528

 
$
5,015

Cost of sales
 
3,331

 
3,683

GROSS MARGIN
 
1,197

 
1,332

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
524

 
537

Research, development and engineering expenses
 
155

 
166

Equity, royalty and interest income from investees
 
88

 
94

Other operating expense, net
 
(39
)
 

OPERATING INCOME
 
567

 
723

Interest income
 
6

 
6

Interest expense
 
16

 
17

Other income (expense), net
 
18

 
(8
)
INCOME BEFORE INCOME TAXES
 
575

 
704

Income tax expense
 
148

 
208

CONSOLIDATED NET INCOME
 
427

 
496

Less: Net income attributable to noncontrolling interests
 
21

 
25

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
406

 
$
471

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
2.41

 
$
2.63

Diluted
 
$
2.40

 
$
2.62

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 

 
 
Basic
 
168.8

 
179.2

Diluted
 
169.0

 
179.6

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.975

 
$
0.78

 
 
 
 
 
(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)


 
 
Six months ended
In millions, except per share amounts
 
July 3,
2016
 
June 28,
2015
NET SALES
 
$
8,819

 
$
9,724

Cost of sales
 
6,566

 
7,197

GROSS MARGIN
 
2,253

 
2,527

OPERATING EXPENSES AND INCOME
 
 
 
 
Selling, general and administrative expenses
 
1,014

 
1,054

Research, development and engineering expenses
 
321

 
361

Equity, royalty and interest income from investees
 
160

 
162

Other operating expense, net
 
(41
)
 
(3
)
OPERATING INCOME
 
1,037

 
1,271

Interest income
 
12

 
11

Interest expense
 
35

 
31

Other income, net
 
26

 
1

INCOME BEFORE INCOME TAXES
 
1,040

 
1,252

Income tax expense
 
280

 
352

CONSOLIDATED NET INCOME
 
760

 
900

Less: Net income attributable to noncontrolling interests
 
33

 
42

NET INCOME ATTRIBUTABLE TO CUMMINS INC.
 
$
727

 
$
858

 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
 
 
 
 
Basic
 
$
4.27

 
$
4.77

Diluted
 
$
4.26

 
$
4.76

 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
Basic
 
170.3

 
179.9

Diluted
 
170.5

 
180.3

 
 
 
 
 
CASH DIVIDENDS DECLARED PER COMMON SHARE
 
$
1.95

 
$
1.56

 
 
 
 
 
(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
 
July 3,
2016
 
December 31,
2015
ASSETS
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1,045

 
$
1,711

Marketable securities
 
235

 
100

Total cash, cash equivalents and marketable securities
 
1,280

 
1,811

Accounts and notes receivable, net
 
3,023

 
2,820

Inventories
 
2,778

 
2,707

Prepaid expenses and other current assets
 
549

 
609

Total current assets
 
7,630

 
7,947

Long-term assets
 
 
 
 
Property, plant and equipment
 
7,432

 
7,322

Accumulated depreciation
 
(3,729
)
 
(3,577
)
Property, plant and equipment, net
 
3,703

 
3,745

Investments and advances related to equity method investees
 
1,073

 
975

Goodwill
 
481

 
482

Other intangible assets, net
 
328

 
328

Pension assets
 
764

 
735

Other assets
 
1,041

 
922

Total assets
 
$
15,020

 
$
15,134

 
 
 
 
 
LIABILITIES
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable (principally trade)
 
$
1,825

 
$
1,706

Loans payable
 
19

 
24

Commercial paper
 
200

 

Accrued compensation, benefits and retirement costs
 
353

 
409

Current portion of accrued product warranty
 
335

 
359

Current portion of deferred revenue
 
433

 
403

Other accrued expenses
 
947

 
863

Current maturities of long-term debt
 
38

 
39

Total current liabilities
 
4,150

 
3,803

Long-term liabilities
 
 
 
 
Long-term debt
 
1,614

 
1,576

Postretirement benefits other than pensions
 
328

 
349

Pensions
 
299

 
298

Other liabilities and deferred revenue
 
1,434

 
1,358

Total liabilities
 
$
7,825

 
$
7,384

 
 
 
 
 
EQUITY
 
 
 
 
Cummins Inc. shareholders’ equity
 
 
 
 
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued
 
$
2,196

 
$
2,178

Retained earnings
 
10,716

 
10,322

Treasury stock, at cost, 53.7 and 47.2 shares
 
(4,422
)
 
(3,735
)
Common stock held by employee benefits trust, at cost, 0.7 and 0.9 shares
 
(9
)
 
(11
)
Accumulated other comprehensive loss
 
(1,620
)
 
(1,348
)
Total Cummins Inc. shareholders’ equity
 
6,861

 
7,406

Noncontrolling interests
 
334

 
344

Total equity
 
$
7,195

 
$
7,750

Total liabilities and equity
 
$
15,020

 
$
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)


 
 
Six months ended
In millions
 
July 3,
2016
 
June 28,
2015
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Consolidated net income
 
$
760

 
$
900

Adjustments to reconcile consolidated net income to net cash provided by operating activities
 
 
 
 
Restructuring payments
 
(42
)
 

Loss contingency
 
39

 

Depreciation and amortization
 
259

 
254

Deferred income taxes
 
2

 
(63
)
Equity in income of investees, net of dividends
 
(87
)
 
(68
)
Pension contributions in excess of expense
 
(82
)
 
(122
)
Other post-retirement benefits payments in excess of expense
 
(17
)
 
(15
)
Stock-based compensation expense
 
20

 
17

Translation and hedging activities
 
(45
)
 
27

Changes in current assets and liabilities, net of acquisitions
 
 
 
 
Accounts and notes receivable
 
(252
)
 
(426
)
Inventories
 
(101
)
 
(127
)
Other current assets
 
189

 
18

Accounts payable
 
139

 
97

Accrued expenses
 
(209
)
 
(21
)
Changes in other liabilities and deferred revenue
 
129

 
133

Other, net
 
32

 
(35
)
Net cash provided by operating activities
 
734

 
569

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(189
)
 
(247
)
Investments in internal use software
 
(27
)
 
(22
)
Investments in and advances to equity investees
 
(17
)
 
(17
)
Acquisitions of businesses, net of cash acquired
 
(1
)
 
(15
)
Investments in marketable securities—acquisitions
 
(379
)
 
(173
)
Investments in marketable securities—liquidations
 
237

 
155

Cash flows from derivatives not designated as hedges
 
(21
)
 
5

Other, net
 
6

 
14

Net cash used in investing activities
 
(391
)
 
(300
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from borrowings
 
109

 
12

Net borrowings of commercial paper
 
200

 

Payments on borrowings and capital lease obligations
 
(133
)
 
(31
)
Distributions to noncontrolling interests
 
(24
)
 
(14
)
Dividend payments on common stock
 
(333
)
 
(280
)
Repurchases of common stock
 
(695
)
 
(514
)
Other, net
 
(16
)
 
(2
)
Net cash used in financing activities
 
(892
)
 
(829
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(117
)
 
19

Net decrease in cash and cash equivalents
 
(666
)
 
(541
)
Cash and cash equivalents at beginning of year
 
1,711

 
2,301

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,045

 
$
1,760

 
 
 
 
 
(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 July 3, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,504

 
$
1,538

 
$
933

 
$
553

 
$

 
$
4,528

 
Intersegment sales
 
498

 
6

 
346

 
368

 
(1,218
)
 

 
Total sales
 
2,002

 
1,544

 
1,279

 
921

 
(1,218
)
 
4,528

 
Depreciation and amortization(2)
 
41

 
29

 
32

 
29

 

 
131

 
Research, development and engineering expenses
 
53

 
3

 
51

 
48

 

 
155

 
Equity, royalty and interest income from investees
 
46

 
19

 
12

 
11

 

 
88

 
Interest income
 
3

 
1

 
1

 
1

 

 
6

 
Segment EBIT
 
206

 
87

 
190

 
90

 
18

 
591

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.3
%
 
5.6
%
 
14.9
%
 
9.8
%
 
 
 
13.1
%
 
 
 

 
 
 
 
 
 
 
 
 
 
 
Three months ended June 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
1,834

 
$
1,487

 
$
1,017

 
$
677

 
$

 
$
5,015

 
Intersegment sales
 
491

 
8

 
380

 
420

 
(1,299
)
 

 
Total sales
 
2,325

 
1,495

 
1,397

 
1,097

 
(1,299
)
 
5,015

 
Depreciation and amortization(2)
 
47

 
25

 
28

 
26

 

 
126

 
Research, development and engineering expenses
 
53

 
3

 
57

 
53

 

 
166

 
Equity, royalty and interest income from investees
 
51

 
21

 
8

 
14

 

 
94

 
Interest income
 
2

 
1

 
1

 
2

 

 
6

 
Segment EBIT
 
278

 
113

 
223

 
127

 
(20
)
 
721

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
12.0
%
 
7.6
%
 
16.0
%
 
11.6
%
 
 
 
14.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 July 3, 2016 and June 28, 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
 
Six months ended July 3, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
2,993

 
$
2,996

 
$
1,830

 
$
1,000

 
$

 
$
8,819

 
Intersegment sales
 
985

 
11

 
686

 
729

 
(2,411
)
 

 
Total sales
 
3,978

 
3,007

 
2,516

 
1,729

 
(2,411
)
 
8,819

 
Depreciation and amortization(2)
 
80

 
57

 
63

 
58

 

 
258

 
Research, development and engineering expenses
 
110

 
7

 
107

 
97

 

 
321

 
Equity, royalty and interest income from investees
 
82

 
37

 
20

 
21

 

 
160

 
Interest income
 
5

 
2

 
2

 
3

 

 
12

 
Segment EBIT
 
403

 
174

 
353

 
136

 
9

 
1,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.1
%
 
5.8
%
 
14.0
%
 
7.9
%
 
 
 
12.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 28, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
External sales
 
$
3,523

 
$
2,956

 
$
1,948

 
$
1,297

 
$

 
$
9,724

 
Intersegment sales
 
947

 
15

 
748

 
802

 
(2,512
)
 

 
Total sales
 
4,470

 
2,971

 
2,696

 
2,099

 
(2,512
)
 
9,724

 
Depreciation and amortization(2)
 
93

 
52

 
54

 
54

 

 
253

 
Research, development and engineering expenses
 
122

 
6

 
118

 
115

 

 
361

 
Equity, royalty and interest income from investees
 
74

 
41

 
17

 
30

 

 
162

 
Interest income
 
4

 
2

 
2

 
3

 

 
11

 
Segment EBIT
 
478

 
201

 
418

 
228

 
(42
)
 
1,283

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment EBIT as a percentage of total sales
 
10.7
%
 
6.8
%
 
15.5
%
 
10.9
%
 
 
 
13.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the six months ended July 3, 2016 and June 28, 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 $1 million for both of the six months ended July 3, 2016 and June 28, 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
 
Six months ended
In millions
 
July 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
Total segment EBIT
 
$
591

 
$
721

 
$
1,075

 
$
1,283

Less: Interest expense
 
16

 
17

 
35

 
31

Income before income taxes
 
$
575

 
$
704

 
$
1,040

 
$
1,252

 
 
 
 
 
 
 
 
 
Income before income taxes as a percentage of net sales
 
12.7
%
 
14.0
%
 
11.8
%
 
12.9
%


8

CUMMINS INC. AND SUBSIDIARIES
EQUITY INVESTEES 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
 
Six months ended
In millions
 
July 3,
2016
 
June 28,
2015
 
July 3,
2016
 
June 28,
2015
Distribution Entities
 
 
 
 
 
 
 
 
Komatsu Cummins Chile, Ltda.
 
$
8

 
$
8

 
$
18

 
$
15

North American distributors
 
6

 
8

 
11

 
18

All other distributors
 
1

 

 
1

 
1

Manufacturing Entities
 
 

 
 
 
 

 
 
Beijing Foton Cummins Engine Co., Ltd.
 
22

 
22

 
40

 
29

Dongfeng Cummins Engine Company, Ltd.
 
15

 
15

 
22

 
29

Chongqing Cummins Engine Company, Ltd.
 
9

 
11

 
17

 
23

All other manufacturers
 
16

 
21

 
32

 
28

Cummins share of net income
 
77

 
85

 
141

 
143

Royalty and interest income
 
11

 
9

 
19

 
19

Equity, royalty and interest income from investees
 
$
88

 
$
94

 
$
160

 
$
162

 

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:
 
 
 
 
Six months ended
 
 
 
July 3, 2016
 
June 28, 2015
In millions
 
Net Income
 
Diluted EPS
 
Net Income
 
Diluted EPS
Net income attributable to Cummins Inc.
 
$
727

 
$
4.26

 
$
858

 
$
4.76

Less
 
 
 
 
 
 
 
 
Tax benefit
 

 

 
18

 
0.10

Net income attributable to Cummins Inc. excluding special items
 
$
727

 
$
4.26

 
$
840

 
$
4.66

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 (EBIT). 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
 
Six months ended
In millions
 
July 3, 2016
 
June 28, 2015
 
July 3, 2016
 
June 28, 2015
Earnings before interest expense and income taxes
 
$
591

 
$
721

 
$
1,075

 
$
1,283

 
 
 
 
 
 
 
 
 
EBIT as a percentage of net sales
 
13.1
%
 
14.4
%
 
12.2
%
 
13.2
%
 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
Interest expense
 
16

 
17

 
35

 
31

Income tax expense
 
148

 
208

 
280

 
352

Consolidated net income
 
427

 
496

 
760

 
900

 
 
 
 
 
 
 
 
 
Less
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
21

 
25

 
33

 
42

Net income attributable to Cummins Inc.
 
$
406

 
$
471

 
$
727

 
$
858

 
 
 
 
 
 
 
 
 
Net income attributable to Cummins Inc. as a percentage of net sales
 
9.0
%
 
9.4
%
 
8.2
%
 
8.8
%


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 (including 2016, 2015 and 2014 revised balances) were as follows:
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty truck
 
$
631

 
$
622

 
$

 
$

 
$
1,253

Medium-duty truck and bus
 
549

 
600

 

 

 
1,149

Light-duty automotive
 
433

 
394

 

 

 
827

Off-highway
 
363

 
386

 

 

 
749

Total sales
 
$
1,976

 
$
2,002

 
$

 
$

 
$
3,978

 
 
 
 
 
 
 
 
 
 
 
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)


Revised 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

 

 

 
40,400

Mid-range
 
55,400

 
62,300

 

 

 
117,700

Light-duty
 
61,700

 
57,100

 

 

 
118,800

Total units
 
136,800

 
140,100

 

 

 
276,900

 
 
 
 
 
 
 
 
 
 
 
2015
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Heavy-duty
 
28,700

 
32,800

 
28,600

 
24,300

 
114,400

Mid-range
 
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

 
 
 
 
 
 
 
 
Mid-range
 
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

 
$

 
$

 
$
1,290

Service
 
299

 
297

 

 

 
596

Power generation
 
275

 
326

 

 

 
601

Engines
 
241

 
279

 

 

 
520

Total sales
 
$
1,463

 
$
1,544

 
$

 
$

 
$
3,007

 
 
 
 
 
 
 
 
 
 
 
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

 
$

 
$

 
$
1,231

Turbo technologies
 
265

 
276

 

 

 
541

Filtration
 
252

 
262

 

 

 
514

Fuel systems
 
113

 
117

 

 

 
230

Total sales
 
$
1,237

 
$
1,279

 
$

 
$

 
$
2,516

 
 
 
 
 
 
 
 
 
 
 
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 as follows:
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 (including 2016, 2015 and 2014 revised balances) were as follows:
2016
 
 
 
 
 
 
 
 
 
 
In millions
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
$
520

 
$
597

 
$

 
$

 
$
1,117

Industrial
 
215

 
240

 

 

 
455

Generator technologies
 
73

 
84

 

 

 
157

Total sales
 
$
808

 
$
921

 
$

 
$

 
$
1,729

 
 
 
 
 
 
 
 
 
 
 
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 (including 2016, 2015 and 2014 revised units) were as follows: 
2016
 
 
 
 
 
 
 
 
 
 
Units
 
Q1
 
Q2
 
Q3
 
Q4
 
YTD
Power generation
 
1,800

 
2,200

 

 

 
4,000

Industrial
 
1,000

 
1,100

 

 

 
2,100

Total units
 
2,800

 
3,300

 

 

 
6,100

 
 
 
 
 
 
 
 
 
 
 
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


Contact:
Carole Casto
Executive Director - Corporate Communications
(317) 610-2480
For Immediate Release
August 2, 2016

Cummins Announces Second Quarter 2016 Results

Second quarter revenues of $4.5 billion, EBIT of 13.1 percent of sales
GAAP profit before tax of 12.7 percent of sales, Diluted EPS of $2.40
Expects full year 2016 revenues to be down 8 to 10 percent, lower than previous guidance of down 5 to 9 percent
Full year 2016 EBIT expected to be in the range of 11.6 to 12.2 percent, unchanged
Returned more than $1 billion to shareholders year to date through dividends and share repurchases

COLUMBUS, IND. - Cummins Inc. (NYSE: CMI) today reported results for the second quarter of 2016.

Second quarter revenues of $4.5 billion decreased 10 percent from the same quarter in 2015. Lower truck production in North America and weak global demand for off-highway and power generation equipment were the most significant drivers of the decline in sales. Currency negatively impacted revenues by approximately 1 percent compared to last year, primarily due to a stronger US dollar.

Revenues in North America decreased 13 percent while international sales declined by 4 percent. Within international markets, revenues in the Middle East, Mexico and Brazil declined the most.

Earnings before interest and taxes (EBIT) in the second quarter were $591 million, or 13.1 percent of sales, down from $721 million or 14.4 percent of sales a year ago.

Net income attributable to Cummins was $406 million ($2.40 per diluted share), compared to $471 million ($2.62 per diluted share) in the second quarter of 2015. The tax rate in the second quarter of 2016 was 25.7 percent.

“We made strong progress in our cost reduction initiatives in the second quarter, while continuing to invest in and launch new products that will drive profitable growth in the future,” said Tom Linebarger, Cummins Chairman and CEO. “Benefits from restructuring actions, material cost reduction initiatives, and improvements in product quality helped to mitigate the impact of weak demand in a number of our largest markets and will position the Company for stronger performance when markets improve. We have returned more than $1 billion to shareholders so far this year, through a combination of dividends and share repurchases. Our Board of Directors recently approved an increase in our quarterly dividend of 5.1





percent, consistent with our plans to return 75 percent of operating cash flow to shareholders in 2016,” concluded Linebarger.

Based on the current forecast, Cummins expects full year 2016 revenues to be down 8 to 10 percent, lower than our previous guidance of down 5 to 9 percent primarily due to a lower outlook for North America truck production and weaker demand in global off-highway markets. EBIT is expected to be in the range of 11.6 to 12.2 percent of sales, unchanged from three months ago.

Other recent highlights:

Cummins won the 2016 Award of Excellence in Energy Management from the Clean Energy Ministerial (CEM), a high-level global forum that promotes policies and programs to advance clean energy

The Board of Directors approved an increase in the Company's quarterly cash dividend from 97.5 cents per share to $1.025 per share

Cummins was recently named as one of the Top 50 Companies for Diversity by DiversityInc for the tenth consecutive year

The Company repurchased 1.8 million shares in the second quarter

Second quarter 2016 detail (all comparisons to same period in 2015)

Engine Segment

Sales - $2.0 billion, down 14 percent
Segment EBIT - $206 million, or 10.3 percent of sales, compared to $278 million or 12.0 percent of sales
Segment EBIT reflects a $39 million charge to increase our estimate for the loss contingency recorded in the fourth quarter of 2015
On-highway revenues declined 15 percent primarily due to weaker truck production in North America

Distribution Segment

Sales - $1.5 billion, up 3 percent
Segment EBIT - $87 million, or 5.6 percent of sales, compared to $113 million or 7.6 percent of sales
Increased revenue from acquisitions was partially offset by a decline in organic sales in North America and the Middle East and the negative impact from a stronger US dollar

Components Segment

Sales - $1.3 billion, down 8 percent
Segment EBIT - $190 million, or 14.9 percent of sales, compared to $223 million or 16.0 percent of sales
Revenues declined in North America due to lower industry truck production, partially offset by growth in China

Power Systems Segment

Sales - $921 million, down 16 percent





Segment EBIT - $90 million, or 9.8 percent of sales, compared to $127 million, or 11.6 percent of sales
Revenues declined in most major markets due to weak demand for power generation equipment and industrial engines


About Cummins
Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 55,000 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.4 billion on sales of $19.1 billion in 2015. Press releases can be found on the Web at www.cummins.com. Follow Cummins on Twitter at www.twittter.com/cummins and on YouTube at www.youtube.com/cummininc.

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 2016. 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 generally accepted accounting principles (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.






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