Cummins Announces Fourth Quarter and Full Year 2016 Results

Cummins Inc. (NYSE: CMI) today reported results for the fourth quarter of 2016.

Fourth quarter revenues of $4.5 billion decreased 6 percent from the same quarter in 2015, largely reflecting lower commercial truck production in North America and weak global demand for industrial engines and power generation equipment. Currency negatively impacted revenues by approximately 2 percent compared to the same period last year, primarily due to a stronger U.S. dollar. Revenues in North America decreased 13 percent while international sales improved by 6 percent primarily due to increased revenues in China.

Net income attributable to Cummins in the fourth quarter was $378 million ($2.25 per diluted share), compared to $161million ($0.92 per diluted share) a year ago. Net income for the fourth quarter of 2015 excluding impairment and restructuring charges was $355 million ($2.02 per diluted share). The tax rate in the fourth quarter of 2016 was 22 percent.

Earnings before interest and taxes (EBIT) in the fourth quarter was $526 million, or 11.7 percent of sales, compared to $230 million or 4.8 percent of sales a year ago. Excluding impairment and restructuring charges, EBIT for the fourth quarter of 2015 was $531 million or 11.1 percent of sales.

“Despite weak conditions in a number of our largest markets, Cummins delivered fourth quarter results that were a little better than expected due to our strong market share in on-highway markets in North America and the benefits of our cost reduction work,” said Tom Linebarger Chairman and CEO. “We made significant progress in a number of our key initiatives in 2016, including executing our restructuring actions, completing the acquisition of our distributors in North America and continuing to invest in new products, all of which help position the Company for profitable growth when markets improve. We also returned 75 percent of the Company’s Operating Cash Flow to shareholders, consistent with our plan for the year.”

Revenues for the full year 2016 were $17.5 billion, 8 percent lower than 2015. Revenues in North America decreased 12 percent and international sales decreased 2 percent mainly due to foreign currency movements. Excluding the impact of the currency movements, international revenues increased 2 percent with growth in China and India being offset by weaker demand in Latin America, the Middle East and Africa.

Net income attributable to Cummins for the full year was $1.39 billion ($8.23 per diluted share), compared to $1.4 billion ($7.84 per diluted share) in 2015. Excluding impairment and restructuring charges, net income was $1.59billion ($8.93 per diluted share) in 2015. The full year tax rate was 24.6 percent in 2016.

EBIT for the year was $2.0 billion or 11.4 percent of sales, compared to $2.1 billion or 10.9 percent of sales in 2015. Excluding impairments and restructuring charges, EBIT for 2015 was $2.4 billion or 12 .5 percent of sales.

2017 Outlook:

Based on the current forecast, Cummins projects full year 2017 revenues to be flat to down 5 percent, and EBIT to be in the range of 11.0 to 11.5 percent of sales. Results in the first quarter of the year will continue to be challenged by difficult markets and are expected to mark the low point of the year. The Company expects to return at least 50 percent of Operating Cash Flow to shareholders in 2017 in the form of dividends and share repurchases.

2016 highlights:

• Cummins partnered with Peterbilt to develop and demonstrate technologies under the U.S. Department of Energy's (DOE) SuperTruck II program
• Cummins was recognized with the 2016 United States Overall Best Heavy-Duty Truck Engine Supplier Leadership Award by Frost and Sullivan
• The Environmental Protection Agency (EPA) certified Cummins’ full range of heavy- and medium-duty diesel engines for the 2017 Greenhouse Gas Emission Standards
• The Company returned 75 percent of Operating Cash Flow to shareholders in the form of dividends and share repurchases
• For the twelfth straight year, Cummins Inc. was awarded a perfect score in the 2017 Corporate Equality Index (CEI) from the Human Rights Campaign

¹ Generally Accepted Accounting Principles

Fourth quarter 2016 detail (all comparisons to same period in 2015) excluding restructuring and impairment charges in 2015

Engine Segment

• Sales - $2.0 billion, down 6 percent
• Segment EBIT - $194 million, or 9.9 percent of sales, compared to $160 million or 7.6 percent of sales
• On-highway revenues declined 9 percent primarily due to a decline in commercial truck production in North America, partially offset by an 8 percent increase in off-highway sales

Distribution Segment

• Sales - $1.7 billion, down 2 percent
• Segment EBIT - $122 million, or 7.3 percent of sales, compared to $111 million or 6.5 percent of sales
• Weaker sales to off-highway markets and an unfavorable impact of 1 percent from a stronger US dollar more than offset 5 percent revenue growth from acquisitions

Components Segment

• Sales - $1.2 billion, down 5 percent.
• Segment EBIT - $140 million , or 11.9 percent of sales, compared to $175 million or 14.2 percent of sales
• Revenues in North America declined due to lower commercial truck production, but were partially offset by higher revenues in China

Power Systems Segment

• Sales - $932 million, down 5 percent
• Segment EBIT - $68 million, or 7.3 percent of sales, compared to $59 million, or 6 percent of sales
• Revenues declined due to lower power generation and industrial engine demand in most regions

 

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 2017. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of factors, including, but not limited to: the adoption and implementation of global emission standards; the price and availability of energy; the pace of infrastructure development; increasing global competition among our customers; general economic, business and financing conditions; governmental action; changes in our customers’ business strategies; competitor pricing activity; expense volatility; labor relations; and other risks detailed from time to time in our Securities and Exchange Commission filings, including particularly in the Risk Factors section of our 2015 Annual Report on Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this press release and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, which are available at http://www.sec.gov or at http://www.cummins.com in the Investor Relations section of our website.

Presentation of Non-GAAP Financial Information

EBIT is a non-GAAP measure used in this release, and is defined and reconciled to what management believes to be the most comparable 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
In millions, except per share amounts		December 31, 2016				December 31, 2015
NET SALES		$	4,503			$	4,766
Cost of sales		3,383				3,554
GROSS MARGIN		1,120				1,212
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		519				508
Research, development and engineering expenses		158				177
Equity, royalty and interest income from investees		67				75
Loss contingency charge		—				60
Impairment of light-duty diesel assets		—				211
Restructuring actions and other charges		—				90
Other operating expense, net		(3		)		(12		)
OPERATING INCOME		507				229
Interest income		5				4
Interest expense		18				18
Other income (expense), net		14				(3		)
INCOME BEFORE INCOME TAXES		508				212
Income tax expense		112				34
CONSOLIDATED NET INCOME		396				178
Less: Net income attributable to noncontrolling interests		18				17
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	378			$	161
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	2.26			$	0.92
Diluted		$	2.25			$	0.92
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		167.6				175.5
Diluted		168.1				175.8
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	1.025			$	0.975

(a)		Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

		Years ended December 31,
In millions, except per share amounts		2016				2015
NET SALES		$	17,509			$	19,110
Cost of sales		13,057				14,163
GROSS MARGIN		4,452				4,947
OPERATING EXPENSES AND INCOME
Selling, general and administrative expenses		2,046				2,092
Research, development and engineering expenses		636				735
Equity, royalty and interest income from investees		301				315
Loss contingency charges		138				60
Impairment of light-duty diesel assets		—				211
Restructuring actions and other charges		—				90
Other operating expense, net		(5		)		(17		)
OPERATING INCOME		1,928				2,057
Interest income		23				24
Interest expense		69				65
Other income, net		48				9
INCOME BEFORE INCOME TAXES		1,930				2,025
Income tax expense		474				555
CONSOLIDATED NET INCOME		1,456				1,470
Less: Net income attributable to noncontrolling interests		62				71
NET INCOME ATTRIBUTABLE TO CUMMINS INC.		$	1,394			$	1,399
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CUMMINS INC.
Basic		$	8.25			$	7.86
Diluted		$	8.23			$	7.84
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		169.0				178.0
Diluted		169.3				178.4
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	4.00			$	3.51

(a)		Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (a)
In millions, except par value		December 31, 2016				December 31, 2015
ASSETS
Current assets
Cash and cash equivalents		$	1,120			$	1,711
Marketable securities		260				100
Total cash, cash equivalents and marketable securities		1,380				1,811
Accounts and notes receivable, net		3,025				2,820
Inventories		2,675				2,707
Prepaid expenses and other current assets		627				609
Total current assets		7,707				7,947
Long-term assets
Property, plant and equipment, net		3,800				3,745
Investments and advances related to equity method investees		946				975
Goodwill and other intangible assets, net		812				810
Other assets		1,746				1,657
Total assets		$	15,011			$	15,134
LIABILITIES
Current liabilities
Accounts payable (principally trade)		$	1,854			$	1,706
Loans payable		41				24
Commercial paper		212				—
Accrued expenses		2,218				2,073
Total current liabilities		4,325				3,803
Long-term liabilities
Long-term debt		1,568				1,576
Other liabilities		1,944				2,005
Total liabilities		$	7,837			$	7,384
EQUITY
Cummins Inc. shareholders’ equity
Common stock, $2.50 par value, 500 shares authorized, 222.4 and 222.4 shares issued		$	2,153			$	2,178
Retained earnings		11,040				10,322
Treasury stock, at cost, 54.2 and 47.2 shares		(4,489		)		(3,735		)
Common stock held by employee benefits trust, at cost, 0.7 and 0.9 shares		(8		)		(11		)
Accumulated other comprehensive loss		(1,821		)		(1,348		)
Total Cummins Inc. shareholders’ equity		6,875				7,406
Noncontrolling interests		299				344
Total equity		$	7,174			$	7,750
Total liabilities and equity		$	15,011			$	15,134

(a)		Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (a)
		Years ended December 31,
In millions		2016				2015
NET CASH PROVIDED BY OPERATING ACTIVITIES		$	1,935			$	2,059
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(531		)		(744		)
Investments in internal use software		(63		)		(55		)
Investments in and advances to equity investees		(41		)		(7		)
Acquisitions of businesses, net of cash acquired		(94		)		(117		)
Investments in marketable securities—acquisitions		(478		)		(282		)
Investments in marketable securities—liquidations		306				270
Proceeds from sale of equity investees		60				—
Cash flows from derivatives not designated as hedges		(102		)		8
Other, net		26				9
Net cash used in investing activities		(917		)		(918		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		111				44
Net borrowings of commercial paper		212				—
Payments on borrowings and capital lease obligations		(163		)		(76		)
Net borrowings (payments) under short-term credit agreements		19				(41		)
Distributions to noncontrolling interests		(65		)		(49		)
Dividend payments on common stock		(676		)		(622		)
Repurchases of common stock		(778		)		(900		)
Acquisition of noncontrolling interests		(98		)		(10		)
Other, net		29				10
Net cash used in financing activities		(1,409		)		(1,644		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(200		)		(87		)
Net decrease in cash and cash equivalents		(591		)		(590		)
Cash and cash equivalents at beginning of year		1,711				2,301
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,120			$	1,711

(a)		Prepared on an unaudited basis in accordance with accounting principles generally accepted in the United States of America.

CUMMINS INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)

As previously announced, beginning with the second quarter of 2016, we realigned certain of our reportable segments to be consistent with changes to our organizational structure and how the Chief Operating Decision Maker monitors the performance of our segments. We reorganized our business to combine our Power Generation segment and our high horsepower engine business to create the new Power Systems segment. Our reportable operating segments consist of Engine, Distribution, Components and Power Systems. We began to report results for our new reporting structure in the second quarter of 2016 and also reflected this change for historical periods.

We allocate certain common costs and expenses, primarily corporate functions, among segments. These include certain costs and expenses of shared services, such as information technology, human resources, legal, finance and supply chain management. In addition to the reorganization noted above, we reevaluated the allocation of these costs, considering the new segment structure created in April 2016 and adjusted our allocation methodology accordingly. The revised methodology, which is based on a combination of relative segment sales and relative service usage levels, is effective for the periods beginning after January 1, 2016 and resulted in the revision of our segment operating results, including segment earnings before interest, income taxes and noncontrolling interests (EBIT), for all four segments for the first quarter of 2016 with a greater share of costs allocated to the Distribution and Components segments than in previous years. Prior periods were not revised for the new allocation methodology. These changes had no impact on our consolidated results.

In millions		Engine				Distribution				Components				Power Systems				Intersegment Eliminations (1)				Total
Three months ended December 31, 2016
External sales		$	1,424			$	1,664			$	860			$	555			$	—			$	4,503
Intersegment sales		543				6				317				377				(1,243		)		—
Total sales		1,967				1,670				1,177				932				(1,243		)		4,503
Depreciation and amortization (2)		42				30				38				28				—				138
Research, development and engineering expenses		60				3				47				48				—				158
Equity, royalty and interest income from investees		28				14				12				13				—				67
Interest income		2				1				1				1				—				5
Segment EBIT		194				122			(3)	140				68			(4)	2				526
Segment EBIT as a percentage of total sales		9.9		%		7.3		%		11.9		%		7.3		%						11.7		%
Three months ended December 31, 2015
External sales		$	1,583			$	1,699			$	906			$	578			$	—			$	4,766
Intersegment sales		515				8				330				408				(1,261		)		—
Total sales		2,098				1,707				1,236				986				(1,261		)		4,766
Depreciation and amortization (2)		47				27				27				29				—				130
Research, development and engineering expenses		68				2				53				54				—				177
Equity, royalty and interest income from investees		39				18				9				9				—				75
Loss contingency charge		60				—				—				—				—				60
Impairment of light-duty diesel assets		202				—				9				—				—				211
Restructuring actions and other charges		17				23				13				26				11				90
Interest income		1				1				1				1				—				4
Segment EBIT		(59		)		88				153				33				15				230
Segment EBIT as a percentage of total sales		(2.8		)%		5.2		%		12.4		%		3.3		%						4.8		%

(1)		Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the three months ended December 31, 2016 and 2015.
(2)		Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense."
(3)		Distribution segment EBIT included a gain of $15 million on the fair value adjustment resulting from the acquisition of the controlling interest in a North American distributor for the three months ended December 31, 2016. See ''ACQUISITION'' for additional information.
(4)		In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million.

In millions		Engine				Distribution				Components				Power Systems				Intersegment Eliminations (1)				Total
Year ended December 31, 2016
External sales		$	5,774			$	6,157			$	3,514			$	2,064			$	—			$	17,509
Intersegment sales		2,030				24				1,322				1,453				(4,829		)		—
Total sales		7,804				6,181				4,836				3,517				(4,829		)		17,509
Depreciation and amortization (2)		163				116				133				115				—				527
Research, development and engineering expenses		226				13				208				189				—				636
Equity, royalty and interest income from investees		148				70				41				42				—				301
Loss contingency charges		138				—				—				—				—				138
Interest income		10				4				4				5				—				23
Segment EBIT		686				392			(3)	641				263			(4)	17				1,999
Segment EBIT as a percentage of total sales		8.8		%		6.3		%		13.3		%		7.5		%						11.4		%
Year ended December 31, 2015
External sales		$	6,733			$	6,198			$	3,745			$	2,434			$	—			$	19,110
Intersegment sales		1,937				31				1,427				1,633				(5,028		)		—
Total sales		8,670				6,229				5,172				4,067				(5,028		)		19,110
Depreciation and amortization (2)		187				105				109				110				—				511
Research, development and engineering expenses		263				10				236				226				—				735
Equity, royalty and interest income from investees		146				78				35				56				—				315
Loss contingency charge		60				—				—				—				—				60
Impairment of light-duty diesel assets		202				—				9				—				—				211
Restructuring charges and other actions		17				23				13				26				11				90
Interest income		11				4				4				5				—				24
Segment EBIT		636				412			(3)	727				335				(20		)		2,090
Segment EBIT as a percentage of total sales		7.3		%		6.6		%		14.1		%		8.2		%						10.9		%

(1)		Includes intersegment sales, intersegment profit in inventory eliminations and unallocated corporate expenses. There were no significant unallocated corporate expenses for the years ended December 31, 2016 and 2015.
(2)		Depreciation and amortization as shown on a segment basis excludes the amortization of debt discount and deferred costs included in the Condensed Consolidated Statements of Income as "Interest expense." The amortization of debt discount and deferred costs were $3 million for both the years ended December 31, 2016 and December 31, 2015.
(3)		Distribution segment EBIT included gains of $15 million and $18 million on the fair value adjustments resulting from the acquisition of the controlling interests in North American distributors for the years ended December 31, 2016 and December 31, 2015.
(4)		In the fourth quarter of 2016, we sold our remaining 49 percent interest in Cummins Olayan Energy for $61 million and recognized a gain of $17 million.

A reconciliation of our segment information to the corresponding amounts in the Condensed Consolidated Statements of Income is shown in the table below:

		Three months ended								Years ended
In millions		December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Total segment EBIT		$	526			$	230			$	1,999			$	2,090
Less: Interest expense		18				18				69				65
Income before income taxes		$	508			$	212			$	1,930			$	2,025

CUMMINS INC. AND SUBSIDIARIES
SELECT FOOTNOTE DATA
(Unaudited)

EQUITY, ROYALTY AND INTEREST INCOME FROM INVESTEES

Equity, royalty and interest income from investees included in our Condensed Consolidated Statements of Income for the reporting periods was as follows:

		Three months ended								Years ended
In millions		December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Distribution entities
Komatsu Cummins Chile, Ltda.		$	8			$	8			$	34			$	31
North American distributors		3				6				21				33
All other distributors		(2		)		1				—				3
Manufacturing entities
Dongfeng Cummins Engine Company, Ltd.		14				11				46				51
Chongqing Cummins Engine Company, Ltd.		10				9				38				41
Beijing Foton Cummins Engine Co., Ltd.		(7		)		15				52				62
All other manufacturers		29				11				69				52
Cummins share of net income		55				61				260				273
Royalty and interest income		12				14				41				42
Equity, royalty and interest income from investees		$	67			$	75			$	301			$	315

ACQUISITION

The Distribution segment North American distributor acquisition in the fourth quarter of 2016 was as follows:

Entity Acquired		Date of Acquisition		Additional Percent Interest Acquired		Payments to Former Owners			Acquisition Related Debt Retirements			Total Purchase Consideration			Type of Acquisition(1)		Gain Recognized(1)			Goodwill Acquired			Intangibles Recognized			Net Sales Previous Fiscal Year Ended
Cummins Pacific LLC (Pacific)		10/04/16		50%		$	30		$	67		$	99	(2)	COMB		$	15		$	4		$	8		$	391

____________________________________________________

(1)		The results from Pacific were included in Distribution segment results subsequent to the acquisition date. Pacific was accounted for as business combination (COMB) with gains recognized based on the requirement to remeasure our pre-existing ownership to fair value in accordance with GAAP.
(2)		The "Total Purchase Consideration" represents the total amount that will or is estimated to be paid to complete the acquisition. A portion of the acquisition payment has not yet been made and will be paid in future periods in accordance with the purchase contract. The total outstanding consideration at December 31, 2016, for this entity was $2 million.

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

Net income and diluted earnings per share (EPS) attributable to Cummins Inc. excluding special items

We believe these are useful measures of our operating performance for the periods presented as they illustrate our operating performance without regard to special items including tax adjustments. These measures are not in accordance with, or an alternative for, accounting principles generally accepted in the United States of America (GAAP) and may not be consistent with measures used by other companies. It should be considered supplemental data. The following table reconciles net income attributable to Cummins Inc. to net income attributable to Cummins Inc. excluding special items for the following periods:

			Three months ended
			December 31, 2016								December 31, 2015
In millions			Net Income				Diluted EPS				Net Income				Diluted EPS
Net income attributable to Cummins Inc.			$	378			$	2.25			$	161			$	0.92
Add
Impairment of light-duty diesel assets, net of tax (1)			—				—				133				0.75
Restructuring actions and other charges, net of tax (2)			—				—				61				0.35
Net income attributable to Cummins Inc. excluding special items			$	378			$	2.25			$	355			$	2.02
			Years ended
			December 31, 2016								December 31, 2015
In millions			Net Income				Diluted EPS				Net Income				Diluted EPS
Net income attributable to Cummins Inc.			$	1,394			$	8.23			$	1,399			$	7.84
Add
Impairment of light-duty diesel assets, net of tax (1)			—				—				133				0.75
Restructuring actions and other charges, net of tax (2)			—				—				61				0.34
Net income attributable to Cummins Inc. excluding special items			$	1,394			$	8.23			$	1,593			$	8.93

__________________________________________

(1)		In the fourth quarter of 2015, we recorded a $211 million charge for impairment of our light-duty diesel assets.
(2)		In the fourth quarter of 2015, we recorded a $90 million charge for restructuring actions and other charges.

Earnings before interest, income taxes, noncontrolling interests and special items

We define EBIT as earnings before interest expense, income tax expense and noncontrolling interests in income of consolidated subsidiaries. We use EBIT to assess and measure the performance of our operating segments and also as a component in measuring our variable compensation programs. This measure is not in accordance with, or an alternative for, GAAP and may not be consistent with measures used by other companies. It should be considered supplemental data. Below is a reconciliation of “Net income attributable to Cummins Inc.” to EBIT for each of the applicable periods:

		Three months ended								Years ended
In millions		December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Net income attributable to Cummins Inc.		$	378			$	161			$	1,394			$	1,399
Net income attributable to Cummins Inc. as a percentage of net sales		8.4		%		3.4		%		8.0		%		7.3		%
Add
Net income attributable to noncontrolling interests		18				17				62				71
Consolidated net income		396				178				1,456				1,470
Add
Interest expense		18				18				69				65
Income tax expense		112				34				474				555
Earnings before interest expense and income taxes		526				230				1,999				2,090
EBIT as a percentage of net sales		11.7		%		4.8		%		11.4		%		10.9		%
Add
Impairment of light-duty diesel assets		—				211				—				211
Restructuring actions and other charges		—				90				—				90
Earnings before interest expense, income taxes and special items		$	526			$	531			$	1,999			$	2,391
Earnings before interest expense, income taxes and special items as a percentage of net sales		11.7		%		11.1		%		11.4		%		12.5		%

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

Engine Segment Sales by Market and Unit Shipments by Engine Classification

In the second quarter of 2016, in conjunction with the reorganization of our segments, our Engine segment reorganized its reporting structure as follows:

• Heavy-duty truck - We manufacture diesel and natural gas engines that range from 310 to 605 horsepower serving global heavy-duty truck customers worldwide, primarily in North America, Latin America and Australia.
• Medium-duty truck and bus - We manufacture diesel and natural gas engines ranging from 130 to 450 horsepower serving medium-duty truck and bus customers worldwide, with key markets including North America, Latin America, China, Europe and India. Applications include pickup and delivery trucks, vocational truck, school bus, transit bus and shuttle bus. We also provide diesel engines for Class A motor homes (RVs), primarily in North America.
• Light-duty automotive (Pickup and Light Commercial Vehicle (LCV)) - We manufacture 105 to 385 horsepower diesel engines, including engines for the pickup truck market for Chrysler and Nissan in North America, and LCV markets in Europe, Latin America and Asia.
• Off-highway - We manufacture diesel engines that range from 48 to 715 horsepower to key global markets including mining, marine, rail, oil and gas, defense, agriculture and construction equipment and also to the power generation business for standby, mobile and distributed power generation solutions throughout the world.

Sales for our Engine segment by market were as follows:

2016
In millions		Q1				Q2				Q3				Q4				YTD
Heavy-duty truck		$	631			$	622			$	625			$	565			$	2,443
Medium-duty truck and bus		549				600				517				606				2,272
Light-duty automotive		433				394				345				409				1,581
Off-highway		363				386				372				387				1,508
Total sales		$	1,976			$	2,002			$	1,859			$	1,967			$	7,804
2015
In millions		Q1				Q2				Q3				Q4				YTD
Heavy-duty truck		$	757			$	875			$	784			$	700			$	3,116
Medium-duty truck and bus		608				674				585				640				2,507
Light-duty automotive		381				354				339				401				1,475
Off-highway		399				422				394				357				1,572
Total sales		$	2,145			$	2,325			$	2,102			$	2,098			$	8,670
2014
In millions		YTD
Heavy-duty truck		$	3,072
Medium-duty truck and bus		2,431
Light-duty automotive		1,567
Off-highway		1,897
Total sales		$	8,967

Unit shipments by engine classification (including unit shipments to Power Systems and off-highway engine units included in their respective classification) were as follows:

2016
Units		Q1			Q2			Q3			Q4			YTD
Heavy-duty		19,700			20,700			20,100			18,500			79,000
Medium-duty		55,400			62,300			53,400			58,000			229,100
Light-duty		61,700			57,100			49,800			60,000			228,600
Total units		136,800			140,100			123,300			136,500			536,700
2015
Units		Q1			Q2			Q3			Q4			YTD
Heavy-duty		28,700			32,800			28,600			24,300			114,400
Medium-duty		61,200			66,600			59,600			59,700			247,100
Light-duty		51,200			53,400			47,800			56,900			209,300
Total units		141,100			152,800			136,000			140,900			570,800
2014
Units		YTD
Heavy-duty		122,100
Medium-duty		266,800
Light-duty		204,400
Total units		593,300

Distribution Segment Sales by Product Line

2016
In millions		Q1				Q2				Q3				Q4				YTD
Parts		$	648			$	642			$	643			$	694			$	2,627
Service		299				297				299				320				1,215
Power generation		275				326				291				347				1,239
Engines		241				279				271				309				1,100
Total sales		$	1,463			$	1,544			$	1,504			$	1,670			$	6,181
2015
In millions		Q1				Q2				Q3				Q4				YTD
Parts		$	573			$	598			$	604			$	648			$	2,423
Service		284				307				301				330				1,222
Power generation		298				272				323				397				1,290
Engines		321				318				323				332				1,294
Total sales		$	1,476			$	1,495			$	1,551			$	1,707			$	6,229

Component Segment Sales by Business

2016
In millions		Q1				Q2				Q3				Q4				YTD
Emission solutions		$	607			$	624			$	540			$	546			$	2,317
Turbo technologies		265				276				241				254				1,036
Filtration		252				262				244				252				1,010
Fuel systems		113				117				118				125				473
Total sales		$	1,237			$	1,279			$	1,143			$	1,177			$	4,836
2015
In millions		Q1				Q2				Q3				Q4				YTD
Emission solutions		$	613			$	679			$	607			$	600			$	2,499
Turbo technologies		301				307				266				267				1,141
Filtration		255				266				240				249				1,010
Fuel systems		130				145				127				120				522
Total sales		$	1,299			$	1,397			$	1,240			$	1,236			$	5,172

Power Systems Segment Sales by Product Line and Unit Shipments by Engine Classification

In the second quarter of 2016, in conjunction with the reorganization of our segments, our Power Systems segment reorganized its reporting structure into the following product lines:

• Power generation - We design, manufacture, sell and support back-up and prime power generators ranging from 2 kilowatts to 3.5 megawatts, as well as controls, paralleling systems and transfer switches, for applications such as consumer, commercial, industrial, data centers, health care, telecommunications and waste water treatment plants. We also provide turnkey solutions for distributed generation and energy management applications using natural gas or biogas as a fuel. We also serve global rental accounts for diesel and gas generator sets.
• Industrial - We design, manufacture, sell and support diesel and natural gas high-horsepower engines up to 5,500 horsepower for a wide variety of equipment in the mining, rail, defense, oil and gas, and commercial marine applications throughout the world. Across these markets, we have major customers in North America, Europe, the Middle East, Africa, China, Korea, Japan, Latin America, India, Russia, Southeast Asia, South Pacific and Mexico.
• Generator technologies - We design, manufacture, sell and support A/C generator/alternator products for internal consumption and for external generator set assemblers. Our products are sold under the Stamford, AVK and Markon brands and range in output from 3 kilovolt-amperes (kVA) to 12,000 kVA.

Sales for our Power Systems segment by product line were as follows:

2016
In millions		Q1				Q2				Q3				Q4				YTD
Power generation		$	520			$	597			$	545			$	573			$	2,235
Industrial		215				240				233				275				963
Generator technologies		73				84				78				84				319
Total sales		$	808			$	921			$	856			$	932			$	3,517
2015
In millions		Q1				Q2				Q3				Q4				YTD
Power generation		$	624			$	710			$	621			$	615			$	2,570
Industrial		280				295				275				287				1,137
Generator technologies		98				92				86				84				360
Total sales		$	1,002			$	1,097			$	982			$	986			$	4,067
2014
In millions		YTD
Power generation		$	2,633
Industrial		1,331
Generator technologies		450
Total sales		$	4,414

High-horsepower unit shipments by engine classification were as follows:

2016
Units		Q1			Q2			Q3			Q4			YTD
Power generation		1,800			2,200			2,000			1,900			7,900
Industrial		1,000			1,100			1,000			1,300			4,400
Total units		2,800			3,300			3,000			3,200			12,300
2015
Units		Q1			Q2			Q3			Q4			YTD
Power generation		2,200			2,500			2,000			1,900			8,600
Industrial		1,300			1,200			1,200			1,500			5,200
Total units		3,500			3,700			3,200			3,400			13,800
2014
Units		YTD
Power generation		8,700
Industrial		6,100
Total units		14,800