Shares Expectations Regarding 2016 Revenue
and Earnings
- Fourth quarter 2015 revenues of $4.8
billion, EBIT of 11.1 percent of sales excluding restructuring and
impairment charges
- Full Year 2015 revenues of $19.1
billion and EBIT of 12.5 percent, excluding restructuring and
impairment charges
- The company expects revenues to
decline between 5 and 9 percent in 2016 and EBIT to be in the range
of 11.6 to 12.2 percent of sales
Cummins Inc. (NYSE: CMI) today reported results for the fourth
quarter and full year of 2015.
Fourth quarter revenues of $4.8 billion decreased 6 percent from
the same quarter in 2014, with the impact of currency, primarily a
stronger US dollar, negatively impacting sales by 4 percent.
Revenues in North America declined 2 percent while international
sales declined by 12 percent. Within international markets, sales
in Latin America declined the most.
Earnings before interest and taxes (EBIT) in the fourth quarter
of 2015 were $531 million, or 11.1 percent of sales, excluding
charges for impairments of $211 million and restructuring of $90
million. This compares to $661 million or 13.0 percent of sales a
year ago, excluding $32 million of expense related to cost
reduction activities in the Power Generation segment in 2014.
“As a result of weakening market conditions in the fourth
quarter of 2015, the Company reviewed its global manufacturing
footprint and now expects to scale back the range of light duty
engines it plans to manufacture in North America,” said Rich
Freeland, President and Chief Operating Officer. “This change in
plans, combined with the uncertainty of winning additional
customers for the V8 light duty engine, caused the Company to
reassess the book value of its light duty manufacturing assets in
North America. As a result, a non-cash, pre-tax impairment charge
of $211 million was recorded to adjust the assets to fair value. We
are disappointed that we had to record the charge, but we remain
committed to our light duty engine customers and are confident in
the growth potential of our global light duty engine business,
including the V8 engine in North America.”
The Company incurred a pre-tax charge for restructuring of $90
million associated with a reduction in professional employees, and
also recorded a loss contingency of $60 million in the fourth
quarter of 2015.
Net income attributable to Cummins was $161 million ($0.92 per
diluted share), or $355 million ($2.02 per diluted share) excluding
impairment and restructuring charges in the fourth quarter of 2015.
This compares to $465 million ($2.56 per diluted share) in 2014
excluding one-time items. The tax rate in the fourth quarter of
2015, including discrete items, was 16.0 percent.
Revenues for the full year 2015 were $19.1 billion, 1 percent
lower than 2014. Revenues in North America increased 7
percent, but international sales declined 11 percent due to lower
sales in Latin America, Europe and Asia Pacific.
EBIT for the year was $2.09 billion or 10.9 percent of
sales. Excluding impairments and restructuring, EBIT was $2.39
billion or 12.5 percent of sales. This compares to $2.53
billion or 13.2 percent of sales in 2014, excluding one-time
items.
Net income attributable to Cummins for the full year 2015 was
$1.4 billion ($7.84 per diluted share) in 2015, or $1.59
billion ($8.93 per diluted share) excluding impairment and
restructuring charges, down from $1.67 billion ($9.13 per
diluted share) in 2014, excluding one-time items. The full year tax
rate was 27.4 percent in 2015.
“We made significant progress in a number of our key initiatives
in 2015, including gaining market share with our new products in
China, successfully acquiring and integrating our North American
distributors, improving the quality of our products and reducing
material costs,” said Chairman and CEO Tom Linebarger. “However a
combination of weak end markets and a stronger U.S. dollar
presented significant challenges to our performance. As demand
weakened in the third quarter we moved quickly to lower costs.
Through a combination of restructuring and other staffing actions,
we reduced headcount by more than 2,000 people in the fourth
quarter, and launched a number of initiatives within our
manufacturing operations to reduce costs.”
“The benefits of restructuring, material cost reduction
initiatives and quality improvements combined with the launch of
new and improved products in 2016, should position the Company for
stronger performance in the future, despite the challenges of a
weak macroeconomic environment. We plan to return 75 percent of
operating cash flow to shareholders in the form of dividends and
share repurchase in 2016, building on our actions in 2015 when we
returned a record $1.5 billion to shareholders,” concluded
Linebarger.
Based on its current forecast, Cummins expects full year 2016
revenues to decline between 5 and 9 percent and EBIT to be in the
range of 11.6 to 12.2 percent of sales.
2015 highlights:
- The Company increased its dividend by
25 percent and repurchased 7.2 million shares
- For the eighth consecutive year,
Cummins was named one of the world’s most ethical companies by the
Ethisphere Institute
- Diversity Inc named Cummins as one of
the Top 50 companies for diversity for the seventh consecutive
year
- The Company was named as a winner of
the Golden Peacock Award for Excellence in Corporate
Governance
- Cummins was named to the 2015 Dow Jones
North American Sustainability Index for the tenth consecutive
year
Fourth quarter 2015 detail (all comparisons to same period in
2014) excluding restructuring and impairment charges in 2015 and
excluding one-time items in 2014.
Engine Segment
- Sales - $2.5 billion, down 11
percent
- Segment EBIT - $189 million, or 7.5
percent of sales, compared to $315 million or 11.1 percent of
sales
- Segment EBIT reflects a $60 million
charge for a loss contingency
- Weak demand in global industrial
markets and a decline in heavy duty truck production in North
America were partially offset by strong demand in North American
medium-duty truck and bus markets
Distribution Segment
- Sales - $1.7 billion, up 1 percent
- Segment EBIT - $111 million, or 6.5
percent of sales, compared to $158 million or 9.3 percent of
sales
- Increased revenues from acquisitions
were partially offset by a 6 percent negative impact from currency
and a 2 percent decline in organic sales
Components Segment
- Sales - $1.2 billion, down 6
percent
- Segment EBIT - $175 million , or 14.2
percent of sales, compared to $160 million or 12.1 percent of
sales
- Reduced sales in on-highway markets in
North America and Brazil along with a negative foreign currency
impact of 4 percent, were partially offset by increased revenue
from China
Power Generation Segment
- Sales - $654 million, down 14
percent
- Segment EBIT - $27 million, or 4.1
percent of sales, compared to $54 million, or 7.1 percent of
sales
- Revenue declined in North America by 12
percent and by 15 percent in international markets. Currency
movements negatively impacting revenue by 3 percent. Growth in
India and Europe, was more than offset by declines in all other
regions.
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 more than 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.twitter.com/cummins and on YouTube
at www.youtube.com/cumminsinc.
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 2015. 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 actions; 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 2014
Annual Report on Form 10-K. Shareholders, potential investors and
other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The
forward-looking statements made herein are made only as of the date
of this press release and we undertake no obligation to publicly
update any forward-looking statements, whether as a result of new
information, future events or otherwise. More detailed information
about factors that may affect our performance may be found in our
filings with the Securities and Exchange Commission, which are
available at http://www.sec.gov or at
http://www.cummins.com in the Investor
Relations section of our website.
Presentation of Non-GAAP Financial Information
EBIT is a non-GAAP measure used in this release, and is defined
and reconciled to what management believes to be the most
comparable GAAP measure in a schedule attached to this release.
Cummins presents this information as it believes it is useful to
understanding the Company's operating performance, and because EBIT
is a measure used internally to assess the performance of the
operating units.
Webcast information
Cummins management will host a teleconference to discuss these
results today at 10 a.m. EST. This teleconference will be
webcast and available on the Investor Relations section of the
Cummins website at www.cummins.com . Participants wishing to view
the visuals available with the audio are encouraged to sign-in a
few minutes prior to the start of the teleconference.
CUMMINS INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (a)
Three months ended December 31, December
31, In millions, except per share amounts 2015
2014 NET SALES $ 4,766 $ 5,090 Cost of
sales
3,554 3,817
GROSS MARGIN
1,212 1,273
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses
508 568
Research, development and engineering expenses
177 187
Equity, royalty and interest income from investees
75 76
Impairment of light-duty diesel assets
211 — Restructuring
actions and other charges
90 — Other operating expense, net
(72 ) (13 )
OPERATING INCOME 229 581
Interest income
4 6 Interest expense
18 17
Other (expense) income, net
(3 ) 42
INCOME
BEFORE INCOME TAXES 212 612 Income tax expense
34 145
CONSOLIDATED NET INCOME
178 467 Less: Net income attributable to
noncontrolling interests
17 23
NET INCOME
ATTRIBUTABLE TO CUMMINS INC. $ 161 $ 444
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS
INC. Basic
$ 0.92 $ 2.45 Diluted
$
0.92 $ 2.44
WEIGHTED AVERAGE SHARES
OUTSTANDING Basic
175.5 181.4 Diluted
175.8 181.9
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.
CUMMINS INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (a)
Years ended December 31, In millions, except per share
amounts 2015 2014 NET SALES
$ 19,110 $ 19,221 Cost of sales
14,163
14,360
GROSS MARGIN 4,947 4,861
OPERATING EXPENSES AND INCOME Selling, general and
administrative expenses
2,092 2,095 Research, development
and engineering expenses
735 754 Equity, royalty and
interest income from investees
315 370 Impairment of
light-duty diesel assets
211 — Restructuring actions and
other charges
90 — Other operating expense, net
(77
) (17 )
OPERATING INCOME 2,057 2,365
Interest income
24 23 Interest expense
65 64 Other
income, net
9 110
INCOME BEFORE INCOME
TAXES 2,025 2,434 Income tax expense
555
698
CONSOLIDATED NET INCOME 1,470 1,736
Less: Net income attributable to noncontrolling interests
71 85
NET INCOME ATTRIBUTABLE TO CUMMINS
INC. $ 1,399 $ 1,651
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC. Basic
$ 7.86 $ 9.04 Diluted
$ 7.84 $ 9.02
WEIGHTED AVERAGE SHARES OUTSTANDING Basic
178.0 182.7 Diluted
178.4 183.1
CASH
DIVIDENDS DECLARED PER COMMON SHARE $ 3.51 $ 2.81
(a) Prepared on an unaudited basis in accordance with
accounting principles generally accepted in the United States of
America.
CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (a)
December 31, December 31, In millions,
except par value 2015 2014 ASSETS Current
assets Cash and cash equivalents
$ 1,711 $ 2,301
Marketable securities
100 93 Total cash, cash
equivalents and marketable securities
1,811 2,394 Accounts
and notes receivable, net
2,820 2,946 Inventories
2,707 2,866 Prepaid expenses and other current assets
609 849 Total current assets
7,947
9,055 Long-term assets Property, plant and equipment,
net
3,745 3,686 Investments and advances related to equity
method investees
975 981 Goodwill and other intangible
assets, net
810 822 Other assets
1,657 1,220
Total assets
$ 15,134 $ 15,764
LIABILITIES Current liabilities Accounts payable
(principally trade)
$ 1,706 $ 1,881 Loans payable
24 86 Accrued expenses
2,073 2,054
Total current liabilities
3,803 4,021
Long-term liabilities Long-term debt
1,576 1,577 Other
liabilities
2,005 2,073 Total liabilities
$ 7,384 $ 7,671
EQUITY
Cummins Inc. shareholders’ equity Common stock, $2.50 par value,
500 shares authorized, 222.4 and 222.3 shares issued
$
2,178 $ 2,139 Retained earnings
10,322 9,545 Treasury
stock, at cost, 47.2 and 40.1 shares
(3,735 ) (2,844
) Common stock held by employee benefits trust, at cost, 0.9 and
1.1 shares
(11 ) (13 ) Accumulated other
comprehensive loss
(1,348 ) (1,078 ) Total Cummins
Inc. shareholders’ equity
7,406 7,749 Noncontrolling
interests
344 344 Total equity
$
7,750 $ 8,093 Total liabilities and equity
$ 15,134 $ 15,764 (a) Prepared
on an unaudited basis in accordance with accounting principles
generally accepted in the United States of America.
CUMMINS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (a) Years
ended December 31, In millions 2015
2014 NET CASH PROVIDED BY OPERATING ACTIVITIES
$ 2,059 $ 2,266
CASH FLOWS
FROM INVESTING ACTIVITIES Capital expenditures
(744
) (743 ) Investments in internal use software
(55
) (55 ) Investments in and advances to equity investees
(7 ) (60 ) Acquisitions of businesses, net of cash
acquired
(117 ) (436 ) Investments in marketable
securities—acquisitions
(282 ) (275 ) Investments in
marketable securities—liquidations
270 336 Cash flows from
derivatives not designated as hedges
8 (14 ) Other, net
9 13 Net cash used in investing activities
(918 ) (1,234 )
CASH FLOWS FROM FINANCING
ACTIVITIES Proceeds from borrowings
44 55 Payments on
borrowings and capital lease obligations
(76 ) (94 )
Net payments under short-term credit agreements
(41 )
(40 ) Distributions to noncontrolling interests
(49 )
(83 ) Dividend payments on common stock
(622 ) (512 )
Repurchases of common stock
(900 ) (670 ) Other, net
— 1 Net cash used in financing activities
(1,644 ) (1,343 )
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS (87 ) (87 ) Net
decrease in cash and cash equivalents
(590 ) (398 )
Cash and cash equivalents at beginning of year
2,301
2,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 1,711 $ 2,301 (a) Prepared on
an unaudited basis in accordance with accounting principles
generally accepted in the United States of America.
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
In millions Engine Distribution
Components
PowerGeneration
Non-segment Items
(1)
Total Three months ended December 31, 2015 External
sales
$ 1,793 $ 1,699 $
906 $ 368 $ — $
4,766 Intersegment sales
735 8
330 286 (1,359 ) —
Total sales
2,528 1,707 1,236
654 (1,359 ) 4,766 Depreciation and
amortization(2)
61 27 27 15 —
130 Research, development and engineering expenses
107 2 53 15 — 177 Equity,
royalty and interest income from investees
44 18
9 4 — 75 Interest income
2
1 1 — — 4 Segment EBIT
(excluding impairment of light-duty diesel assets and restructuring
actions and other charges)
$ 189 (5) $
111 (6) $ 175 $ 27
$ 29 $ 531 Impairment of light-duty
diesel assets(3)
202 — 9 — —
211 Restructuring actions and other charges(4)
26
23 13 19 9
90 Segment EBIT
$ (39 )
(5) $ 88 (6) $ 153
$ 8 $ 20 $
230 Segment EBIT (excluding impairment of
light-duty diesel assets and restructuring actions and other
charges) as a percentage of total sales
7.5 %
6.5 % 14.2 % 4.1 %
11.1 % Segment EBIT as a percentage of total sales
(1.5 )% 5.2 % 12.4 %
1.2 % 4.8 % Three months
ended December 31, 2014 External sales $ 1,988 $ 1,682 $ 970 $
450 $ — $ 5,090 Intersegment sales 851 12 351
310 (1,524 ) — Total sales 2,839 1,694 1,321 760
(1,524 ) 5,090 Depreciation and amortization(2) 54 28 27 15 — 124
Research, development and engineering expenses 103 2 60 22 — 187
Equity, royalty and interest income from investees 30 28 9 9 — 76
Interest income 3 2 1 — — 6 Segment EBIT 315 158 (6) 160 22 (7) (26
) 629 Segment EBIT as a percentage of total sales
11.1 % 9.3 % 12.1 % 2.9 %
12.4 %
(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 December 31, 2015 and December 31, 2014.
(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)
See Note 2, "IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS," for
additional information.
(4)
See Note 3, "RESTRUCTURING ACTIONS AND OTHER CHARGES," for
additional information.
(5)
Engine segment EBIT included an accrual for a loss contingency of
$60 million. See Note 4, "LOSS CONTINGENCY," for additional
information.
(6)
Distribution segment EBIT included gains of $1 million and $35
million on the fair value adjustments resulting from the
acquisition of the controlling interests in North American
distributors for the three months ended December 31, 2015 and
December 31, 2014, respectively.
(7)
Power Generation segment EBIT for the three months ended December
31, 2014, included actions taken to reduce its future cost
structure. Costs associated with these actions were $32 million and
are primarily related to the closure of a plant in Germany.
CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION (Unaudited) In
millions Engine Distribution Components
PowerGeneration
Non-segmentItems
(1)
Total Year ended December 31, 2015 External sales
$ 7,540 $ 6,198 $ 3,745
$ 1,627 $ — $ 19,110
Intersegment sales
2,909 31
1,427 1,113 (5,480 )
— Total sales
10,449 6,229 5,172
2,740 (5,480 ) 19,110 Depreciation and
amortization(2)
239 105 109 58 —
511 Research, development and engineering expenses
428 10 236 61 — 735
Equity, royalty and interest income from investees
171
78 35 31 — 315 Interest income
13 4 4 3 — 24
Segment EBIT (excluding impairment of light-duty diesel assets and
restructuring actions and other charges)
$ 1,035
(5) $ 435 (6) $ 749
$ 175 $ (3 ) $
2,391 Impairment of light-duty diesel assets(3)
202
— 9 — — 211 Restructuring
actions and other charges(4)
26 23
13 19 9 90
Segment EBIT
$ 807 (5) $
412 (6) $ 727 $
156 $ (12 ) $
2,090 Segment EBIT (excluding impairment of
light-duty diesel assets and restructuring actions and other
charges) as a percentage of total sales
9.9 %
7.0 % 14.5 % 6.4 %
12.5 % Segment EBIT as a percentage of total sales
7.7 % 6.6 % 14.1 %
5.7 % 10.9 % Year ended
December 31, 2014 External sales $ 8,437 $ 5,135 $ 3,791 $
1,858 $ — $ 19,221 Intersegment sales 2,525 39 1,327
1,038 (4,929 ) — Total sales 10,962 5,174
5,118 2,896 (4,929 ) 19,221 Depreciation and amortization(2) 207 86
106 53 — 452 Research, development and engineering expenses 438 9
230 77 — 754 Equity, royalty and interest income from investees 147
148 36 39 — 370 Interest income 12 4 4 3 — 23 Segment EBIT 1,225
491 (6) 684 168 (7) (70 ) 2,498 Segment EBIT as a percentage
of total sales 11.2 % 9.5 % 13.4 % 5.8
% 13.0 %
(1)
Includes intersegment sales, intersegment profit in
inventory eliminations and unallocated corporate expenses. There
were no significant unallocated corporate expenses for the years
ended December 31, 2015 and December 31, 2014.
(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 and $3 million for the years ended December 31, 2015 and
2014, respectively.
(3)
See Note 2, "IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS," for
additional information.
(4)
See Note 3, "RESTRUCTURING ACTIONS AND OTHER CHARGES," for
additional information.
(5)
Engine segment EBIT included an accrual for a loss contingency of
$60 million. See Note 4, "LOSS CONTINGENCY," for additional
information.
(6)
Distribution segment EBIT included gains of $18 million and $73
million on the fair value adjustments resulting from the
acquisition of the controlling interests in North American
distributors for the years ended December 31, 2015 and December 31,
2014, respectively.
(7)
Power Generation segment EBIT for the year ended December 31, 2014,
included actions taken to reduce its future cost structure. Costs
associated with these actions were $32 million and are primarily
related to the closure of a plant in Germany.
CUMMINS INC. AND
SUBSIDIARIESRECONCILIATION OF SEGMENT
INFORMATION(Unaudited)
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, 2015
December 31, 2014 December 31,
2015 December 31, 2014 Total segment
EBIT
$ 230 $ 629
$ 2,090 $ 2,498 Less:
Interest expense
18 17
65 64
Income before income taxes
$ 212 $ 612
$ 2,025 $ 2,434
CUMMINS INC. AND SUBSIDIARIESSELECTED
FOOTNOTE DATA(Unaudited)
NOTE 1. 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, 2015 December
31, 2014 December 31, 2015
December 31, 2014 Distribution Entities North
American distributors
$ 6 $ 18
$ 33 $
107 Komatsu Cummins Chile, Ltda.
8 7
31 29 All other
distributors
1 2
3 4
Manufacturing Entities
Beijing Foton Cummins Engine Co., Ltd.
15 (8 )
62 (2
) Dongfeng Cummins Engine Company, Ltd.
11 16
51 67
Chongqing Cummins Engine Company, Ltd.
9 12
41 51 All
other manufacturers
11 20
52 74
Cummins share of net income
61 67
273 330
Royalty and interest income
14 9
42
40 Equity, royalty and interest income from investees
$ 75 $ 76
$ 315 $
370
NOTE 2. IMPAIRMENT OF LIGHT-DUTY DIESEL ASSETS
We began development of a new North American light-duty diesel
engine (LDD) platform in July of 2006 for use in a variety of on-
and off-highway applications. Since that time, and as of December
31, 2015, we capitalized investments of approximately $279 million,
with a net book value prior to the impairment of $246 million ($235
million of which is in our Engine segment and $11 million of which
is in our Components segment). Market uncertainty due to the global
recession in 2008/2009 resulted in some customers delaying or
canceling their vehicle programs, while others remained active. We
announced an agreement with Nissan Motor Co. Ltd. in 2013 to supply
our light-duty diesel engine and began commercial shipment in 2015.
In the fourth quarter of 2015, we learned that we were not
successful in our bid to supply this product for an additional
customer. In addition, the recent deterioration in global economic
conditions and excess manufacturing capacity in other markets make
it unlikely that we will manufacture additional products on the LDD
line to utilize its excess capacity during the asset recovery
period. As a result, we concluded that the combination of these
events presented a triggering event requiring an assessment of the
recoverability of these assets in the fourth quarter of 2015. The
assessment indicated that the projected undiscounted cash flows
related to this asset group were not sufficient to recover its
carrying value. Consequently, we were required to write down the
LDD asset group to fair value. Our fourth quarter results included
an impairment charge of $211 million ($133 million after-tax), of
which $202 million is in the Engine segment and $9 million is in
the Components segment, to reflect the assets at fair value. We
remain committed to servicing existing contracts and are not
exiting this product line.
NOTE 3. RESTRUCTURING ACTIONS AND OTHER
CHARGES
In the fourth quarter of 2015, we announced and executed
restructuring actions primarily in the form of voluntary and
involuntary employee separation programs in response to the
continued deterioration in our global markets in the second half of
2015, as well as expected reductions in orders in most U.S. and
global markets in 2016. We reduced our worldwide professional
workforce by approximately 1,900 employees, or 5 percent, including
approximately 370 employees accepting voluntary retirement packages
with the remainder of the reductions being involuntary. We incurred
a charge of $90 million ($61 million after-tax) in the fourth
quarter of 2015, which included $86 million for the severance costs
related to both voluntary and involuntary terminations and $4
million for asset impairments and other charges.
Employee termination and severance costs were recorded based on
approved plans developed by the businesses and corporate management
which specified positions to be eliminated, benefits to be paid
under existing severance plans or statutory requirements and the
expected timetable for completion of the plan. Estimates of
restructuring costs and benefits were made based on information
available at the time charges were recorded. Due to the inherent
uncertainty involved, actual amounts paid for such activities may
differ from amounts initially recorded and we may need to revise
previous estimates.
NOTE 4. LOSS CONTINGENCY
Engines systems sold in the United States must be certified to
comply with the Environmental Protection Agency (EPA) and
California Air Resources Board (CARB) emission standards. EPA
and CARB regulations require that in-use testing be performed on
vehicles by the emission certificate holder and reported to the EPA
and CARB in order to ensure ongoing compliance with these emission
standards. We are the holder of this emission certificate for our
engines, including engines installed in certain vehicles with one
customer on which we did not also manufacture or sell the emission
after treatment system. During 2015, a wash coat quality issue
in certain of these third party after treatment systems caused some
of our inter-related engines to fail in-use emission testing. In
the fourth quarter, the vehicle manufacturer made a request that we
assist in the design and bear the financial cost of a field
campaign (Campaign) to address the technical issue purportedly
causing some vehicles to fail the in-use testing.
While we are not responsible for the warranty issues related to
a component that we did not manufacture or sell, as the emission
compliance certificate holder, we are responsible for proposing a
remedy to the EPA and CARB. As a result, we have proposed actions
to the agencies that we believe will address the emission failures.
As the certificate holder, we expect to participate in the cost of
the proposed voluntary Campaign and have recorded a charge for this
Campaign in other operating expenses of $60 million ($38 million
after tax) in the fourth quarter. We are pursuing a cost sharing
arrangement with the vehicle manufacturer which could reduce the
economic cost of this Campaign. We will record a cost recovery in
the period when a binding agreement is obtained.
We currently do not expect any fines or penalties from the EPA
or CARB related to this matter.
NOTE 5. INCOME TAXES
Our income tax rates are generally less than the 35 percent U.S.
income tax rate primarily because of lower taxes on foreign
earnings and research tax credits. The effective tax rate for the
three and twelve month periods ended December 31, 2015, was 16.0
percent and 27.4 percent, respectively. The effective tax rate for
the three month period ended December 31, 2015 included U.S. tax
legislation that was passed in the fourth quarter extending the
federal research tax credit permanently. We recorded a $25 million
benefit in the fourth quarter related to this legislation.
In addition to the fourth quarter item, the tax rate for the
twelve month period ended December 31, 2015, included an $18
million one-time tax benefit primarily to reflect the release of
reserves for uncertain tax positions related to a favorable federal
audit settlement.
CUMMINS INC. AND
SUBSIDIARIESFINANCIAL 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, 2015
December 31, 2014 In millions Net Income
Diluted EPS Net Income Diluted EPS Net
income attributable to Cummins Inc.
$ 161 $
0.92 $ 444 $ 2.44 Add Impairment of light-duty diesel assets
(1)
133 0.75 — — Restructuring actions and other
charges (1)
61 0.35 21 (2) 0.12 Loss contingency (1)
38 0.22 — — Less Federal research tax credit
25 0.15 — — Net income
attributable to Cummins Inc. excluding special items
$
368 $ 2.09 $ 465 $ 2.56
Years ended December 31, 2015 December 31,
2014 In millions Net Income Diluted EPS
Net Income Diluted EPS Net income attributable to
Cummins Inc.
$ 1,399 $ 7.84 $ 1,651 $
9.02 Add Impairment of light-duty diesel assets (1)
133
0.75 — — Restructuring actions and other charges (1)
61 0.34 21 (2) 0.11 Loss contingency (1)
38
0.21 — — Net income attributable to
Cummins Inc. excluding special items
$ 1,631
$ 9.14 $ 1,672 $ 9.13
(1)
See the respective previous footnotes for additional
information.
(2)
In the fourth quarter of 2014, we recorded a plant closing and
initiated other actions totaling $32 million ($21 million after
tax).
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 (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 Years ended In
millions
December 31,2015
December 31,2014
December 31,2015
December 31,2014
Earnings before interest expense, income taxes and special items
$ 591 $ 661
$ 2,451 $ 2,530
Earnings before interest expense, income taxes and special items as
a percentage of net sales
12.4 % 13.0 %
12.8
% 13.2 % Less Impairment of light-duty diesel assets
211 —
211 — Restructuring actions and other charges
90 —
90 — Loss contingency
60 —
60 —
Plant closing and other actions
— 32
—
32 Earnings before interest expense and income taxes
$ 230 $ 629
$ 2,090
$ 2,498 EBIT as a percentage of net sales
4.8 % 12.4 %
10.9 % 13.0 % Less
Interest expense
18 17
65 64 Income tax expense
34 145
555 698
Consolidated net income
178 467
1,470
1,736 Less Net income attributable to
noncontrolling interests
17 23
71
85 Net income attributable to Cummins Inc.
$
161 $ 444
$ 1,399 $ 1,651
Net income attributable to Cummins Inc. as a
percentage of net sales
3.4 % 8.7 %
7.3
% 8.6 %
CUMMINS INC. AND SUBSIDIARIESBUSINESS
UNIT SALES DATA(Unaudited)
Engine Segment Sales by Market and Unit Shipments by Engine
Classification
In the first quarter of 2015, our Engine segment reorganized its
reporting structure to include the following markets: heavy-duty
truck, medium-duty truck and bus, light-duty automotive (pickup and
light commercial vehicle), industrial and stationary power. Sales
by market for our Engine segment by business (including 2014 and
2013 reorganized balances) were as follows:
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 Industrial 616 624 617
601 2,458 Stationary
power 234 270 203
186 893 Total
sales $ 2,596 $ 2,797 $ 2,528
$
2,528 $ 10,449
2014 In millions
Q1 Q2 Q3 Q4 YTD Heavy-duty truck
$ 718 $ 769 $ 801 $ 784 $ 3,072 Medium-duty truck and bus 575 605
599 652 2,431 Light-duty automotive 391 392 396 388 1,567
Industrial 669 739 768 775 2,951 Stationary power 210 239
252 240 941 Total sales $ 2,563 $ 2,744
$ 2,816 $ 2,839 $ 10,962
2013
In millions YTD Heavy-duty truck $ 2,618 Medium-duty
truck and bus 2,064 Light-duty automotive 1,465 Industrial 2,921
Stationary power 945 Total sales $ 10,013
Unit shipments by engine classification (including unit
shipments to Power Generation):
2015 Units
Q1 Q2 Q3 Q4 YTD Mid-range
112,400 120,000 107,400
116,600 456,400 Heavy-duty 28,700
32,800 28,600
24,300 114,400 High-horsepower 3,500
3,700 3,200
3,400 13,800 Total units
144,600 156,500 139,200
144,300
584,600
2014 Units Q1 Q2
Q3 Q4 YTD Mid-range 118,900 118,700 117,700
115,900 471,200 Heavy-duty 28,800 30,300 32,300 30,700 122,100
High-horsepower 3,400 3,900 3,900 3,600
14,800 Total units 151,100 152,900 153,900
150,200 608,100
Distribution Segment Sales by Business
2015 In millions
Q1 Q2 Q3 Q4 YTD Parts and
filtration $ 573 $ 598 $ 604
$ 648 $ 2,423 Engines
321 318 323
332 1,294 Power generation 298 272 323
397 1,290 Service 284 307 301
330 1,222 Total sales $ 1,476 $ 1,495 $
1,551
$ 1,707 $ 6,229
2014 In millions Q1 Q2 Q3
Q4 YTD Parts and filtration $ 382 $ 461 $ 491 $ 590 $
1,924 Engines 174 249 270 368 1,061 Power generation 193 278 279
413 1,163 Service 201 250 252 323 1,026
Total sales $ 950 $ 1,238 $ 1,292 $ 1,694
$ 5,174
Component Segment Sales by Business
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
2014 In millions Q1 Q2 Q3
Q4 YTD Emission solutions $ 543 $ 582 $ 598 $ 620 $
2,343 Turbo technologies 313 307 297 305 1,222 Filtration 265 275
268 267 1,075 Fuel systems 109 116 124 129
478 Total sales $ 1,230 $ 1,280 $ 1,287
$ 1,321 $ 5,118
Power Generation Segment Sales by Business
In the first quarter of 2015, our Power Generation segment
reorganized its reporting structure to include the following
businesses: power systems, alternators and power solutions. Sales
for our Power Generation segment by business (including 2014 and
2013 reorganized balances) were as follows:
2015 In millions
Q1 Q2 Q3 Q4 YTD Power systems $
543 $ 611 $ 551
$ 533 $ 2,238 Alternators 98 92 86
82 358 Power solutions 39 44 22
39 144 Total sales $ 680 $ 747 $ 659
$ 654 $ 2,740
2014 In
millions Q1 Q2 Q3 Q4 YTD
Power systems $ 510 $ 586 $ 598 $ 606 $ 2,300 Alternators 105 126
115 103 449 Power solutions 24 31 41 51
147 Total sales $ 639 $ 743 $ 754 $ 760
$ 2,896
2013 In millions YTD Power
systems $ 2,381 Alternators 496 Power solutions 154 Total
sales $ 3,031
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160204005374/en/
Cummins Inc.Carole Casto, 317-610-2480Executive Director -
Corporate Communicationscarole.casto@cummins.com
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