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:  February 4, 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 February 4, 2016, 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 2015, 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 4, 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: February 4, 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
 
December 31,
2015
 
December 31,
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.







3

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.




4

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


In millions, except par value
 
December 31,
2015
 
December 31,
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.




5

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.

6

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

                   
 
In millions
 
Engine
 
Distribution
 
Components
 
Power Generation
 
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.

7

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

 
In millions
 
Engine
 
Distribution
 
Components
 
Power Generation
 
Non-segment Items (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.


8

CUMMINS INC. AND SUBSIDIARIES
RECONCILIATION 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



9

CUMMINS INC. AND SUBSIDIARIES
SELECTED 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.

10

CUMMINS INC. AND SUBSIDIARIES
SELECTED FOOTNOTE DATA
(Unaudited)



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.

11

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, 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).

12

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 (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
%


13

CUMMINS INC. AND SUBSIDIARIES
BUSINESS 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








14

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



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



15

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


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

 
 
 
 
 
 
 
 

 


16




Contact:
Carole Casto
Executive Director - Corporate Communications
(317) 610-2480
carole.casto@cummins.com
For Immediate Release
February 4, 2016
Cummins Announces Financial Results for the Fourth Quarter and Full Year 2015;
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
COLUMBUS, IND. - 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,” continued Freeland.
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 US 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 2000 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.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 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.


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