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, 2018

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 14. 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, 2018, 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, 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
Shares acquired	—	7.9		—
Shares issued	—	(0.2	)	(0.1	)
Balance at December 31, 2018	222.4	64.4		0.4

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, 2018, consisting of shares issued and repurchased is presented in our Consolidated Statements of Changes in Equity.

In October 2018, our Board of Directors authorized the acquisition of up to $2 billion of additional common stock upon completion of the 2016 repurchase plan. 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. For the year ended December 31, 2018, we made the following purchases under our stock repurchase programs:



In millions (except per share amounts) For each quarter ended	2018 Shares Purchased	Average Cost Per Share		Total Cost of Repurchases		Cash Paid for Shares Not Received			Remaining Authorized Capacity ⁽¹⁾
November 2015, $1 billion repurchase program
April 1	0.3	$	166.79	$	46	$	—		$	—

December 2016, $1 billion repurchase program
April 1	0.7	$	164.48	$	117				$	883
July 1	1.5	143.69		216					667
September 30	2.8	143.58		400		100			167
December 31	1.9	139.67		267		(100		)	—
Subtotal	6.9	144.68		1,000		—			—

October 2018, $2 billion repurchase program
December 31	0.7	$	139.85	$	94				$	1,906

Total	7.9	$	145.05	$	1,140	$	—

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

In 2018, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. LLC to repurchase $500 million of our common stock under our previously announced share repurchase plans and received 3.5 million shares at an average price of $144.02 per share.

In 2016, we entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. LLC to repurchase $500 million of our common stock under our previously announced share repurchase plans and received 4.7 million shares at an average price of $105.50 per share.

We repurchased $1,140 million, $451 million and $778 million of our common stock in the years ended December 31, 2018, 2017 and 2016, respectively.

Quarterly Dividends

Total dividends paid to common shareholders in 2018, 2017 and 2016 were $718 million, $701 million and $676 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 2018, the Board of Directors authorized an increase to our quarterly dividend of 5.6 percent from $1.08 per share to $1.14. In July 2017, the Board of Directors authorized a 5.4 percent increase to our quarterly cash dividend on our common stock from $1.025 per share to $1.08 per share. In July 2016, the Board of Directors approved a 5.1 percent increase to our quarterly dividend on our common stock from $0.975 per share to $1.025 per share. Cash dividends per share paid to common shareholders for the last three years were as follows:



	Quarterly Dividends
	2018		2017		2016
First quarter	$	1.08	$	1.025	$	0.975
Second quarter	1.08		1.025		0.975
Third quarter	1.14		1.08		1.025
Fourth quarter	1.14		1.08		1.025
Total	$	4.44	$	4.21	$	4.00

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. Shares of Cummins stock and cash in the EBT may be used to fund the accounts of participants in the Cummins Retirement and Savings Plan who have elected to receive company matching funds in Cummins stock. In addition, we may direct the trustee to sell shares in the EBT on the open market and sweep cash from the EBT to fund other employee benefit plans. Matching contributions charged to income for the years ended December 31, 2018, 2017 and 2016 were $12 million, $17 million and $23 million, respectively.