Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 13. SHAREHOLDERS' EQUITY

Preferred and Preference Stock

We are authorized to issue one million shares each of zero par value preferred and preference stock with preferred shares being senior to preference shares. We can determine the number of shares of each series, and the rights, preferences and limitations of each series. At December 31, 2017, there was no preferred or preference stock outstanding.

Common Stock

Changes in shares of common stock, treasury stock and common stock held in trust for employee benefit plans were as follows:



In millions	Common Stock	Treasury Stock		Common Stock Held in Trust
Balance at December 31, 2014	222.3	40.1		1.1
Shares acquired	—	7.2		—
Shares issued	0.1	(0.1	)	(0.2	)
Balance at December 31, 2015	222.4	47.2		0.9
Shares acquired	—	7.3		—
Shares issued	—	(0.3	)	(0.2	)
Balance at December 31, 2016	222.4	54.2		0.7
Shares acquired	—	2.9		—
Shares issued	—	(0.4	)	(0.2	)
Balance at December 31, 2017	222.4	56.7		0.5

Treasury Stock

Shares of common stock repurchased by us are recorded at cost as treasury stock and result in a reduction of shareholders' equity in our Consolidated Balance Sheets. Treasury shares may be reissued as part of our stock-based compensation programs. When shares are reissued, we use the weighted-average cost method for determining cost. The gains between the cost of the shares and the issuance price are added to additional paid-in-capital. The losses are deducted from additional paid-in capital to the extent of the gains. Thereafter, the losses are deducted from retained earnings. Treasury stock activity for the three-year period ended December 31, 2017, consisting of shares issued and repurchased is presented in our Consolidated Statements of Changes in Equity.

In December 2016, our Board of Directors authorized the acquisition of up to $1 billion of additional common stock upon completion of the 2015 repurchase plan. In 2017, we made the following purchases under the 2015 purchase programs:



In millions (except per share amounts) For each quarter ended	2017 Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Remaining Authorized Capacity ⁽¹⁾
April 2	0.3	$	151.32	$	51	$	445
July 2	0.5	153.95		69		376
October 1	1.7	155.05		271		105
December 31	0.4	166.00		60		46
Total	2.9	$	155.81	$	451

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⁽¹⁾The remaining authorized capacity under the 2015 plan was calculated based on the cost to purchase the shares but excludes commission expenses in accordance with the authorized plan.

In 2016, we entered into an accelerated share repurchase agreement with a third party financial institution to repurchase $500 million of our common stock under our previously announced share repurchase plans and received 4.7 million shares at an average purchase price of $105.50 per share.

We repurchased $451 million, $778 million and $900 million of our common stock in the years ended December 31, 2017, 2016 and 2015 respectively.

Quarterly Dividends

Total dividends paid to common shareholders in 2017, 2016 and 2015 were $701 million, $676 million and $622 million, respectively. Declaration and payment of dividends in the future depends upon our income and liquidity position, among other factors, and is subject to declaration by our Board of Directors, who meet quarterly to consider our dividend payment. We expect to fund dividend payments with cash from operations.

In July 2017, the Board of Directors authorized an increase to our quarterly dividend of 5.4 percent from $1.025 per share to $1.08. In July 2016, the Board of Directors authorized a 5.1 percent increase to our quarterly cash dividend on our common stock from $0.975 per share to $1.025 per share. In July 2015, the Board of Directors approved a 25 percent increase to our quarterly dividend on our common stock from $0.780 per share to $0.975 per share. Cash dividends per share paid to common shareholders for the last three years were as follows:



	Quarterly Dividends
	2017		2016		2015
First quarter	$	1.025	$	0.975	$	0.78
Second quarter	1.025		0.975		0.78
Third quarter	1.08		1.025		0.975
Fourth quarter	1.08		1.025		0.975
Total	$	4.21	$	4.00	$	3.51

Employee Benefits Trust

In 1997, we established the Employee Benefits Trust (EBT) funded with common stock for use in meeting our future obligations under employee benefit and compensation plans. The primary sources of cash for the EBT are dividends received on unallocated shares of our common stock held by the EBT. The EBT may be used to fund matching contributions to employee accounts in the 401(k) Retirement Savings Plan (RSP) made in proportion to employee contributions under the terms of the RSP. In addition, we may direct the trustee to sell shares of the EBT on the open market to fund other non-qualified employee benefit plans. Matching contributions charged to income for the years ended December 31, 2017, 2016 and 2015 were $17 million, $23 million and $25 million, respectively.