Cummins (CMI) 8-K Shares Expectations Regarding 2016 Revenue and Earnings

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.

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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.

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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.

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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).

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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