SEC Filings


10-K
CUMMINS INC filed this Form 10-K on 02/11/2019
Entire Document
 

Shelf Registration
As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the SEC on February 16, 2016. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Our current shelf is scheduled to expire in February 2019.
Interest Expense
For the years ended December 31, 2018, 2017 and 2016, total interest incurred was $116 million, $85 million and $75 million, respectively, and interest capitalized was $2 million, $4 million and $6 million, respectively.
Interest Rate Risk
We have a series of interest rate swaps to effectively convert our September 2013, $500 million debt issue, due in 2023, from a fixed rate of 3.65 percent to a floating rate equal to the one-month LIBOR plus a spread. The terms of the swaps mirror those of the debt, with interest paid semi-annually. The swaps were designated, and will be accounted for, as fair value hedges under GAAP. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current income as “Interest expense.” The net swap settlements that accrue each period are also reported in “Interest expense.”
The following table summarizes these gains and losses for the years presented below:
 
 
Years ended December 31,
In millions
 
2018
 
2017
 
2016
Income Statement Classification
 
Gain/(Loss) on Swaps
 
Gain/(Loss) on Borrowings
 
Gain/(Loss) on Swaps
 
Gain/(Loss) on Borrowings
 
Gain/(Loss) on
Swaps
 
Gain/(Loss) on
Borrowings
Interest expense (1)
 
$
(8
)
 
$
7

 
$
(7
)
 
$
8

 
$
(8
)
 
$
12

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(1) The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness.
Fair Value of Debt
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:
 
 
 
December 31,
In millions
 
2018
 
2017
Fair values of total debt (1)
 
$
2,679

 
$
2,301

Carrying values of total debt
 
2,476

 
2,006


___________________________________________
(1) The fair value of debt is derived from Level 2 inputs.
NOTE 11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
We sponsor several pension plans covering substantially all employees. Generally, pension benefits for salaried employees are determined as a function of employee’s compensation. Pension benefits for most hourly employees are determined similarly and as a function of employee’s compensation, with the exception of a small group of hourly employees whose pension benefits were grandfathered in accordance with agreements with their union representation and are based on their years of service and compensation during active employment. The level of benefits and terms of vesting may vary among plans and are offered in accordance with applicable laws. Pension plans assets are administered by trustees and are principally invested in fixed income security and equity securities. It is our policy to make contributions to our various qualified plans in accordance with statutory and contractual funding requirements, and any additional contributions we determine are appropriate.
Obligations, Assets and Funded Status
Benefit obligation balances presented below reflect the projected benefit obligation (PBO) for our pension plans. The changes in the benefit obligations, the various plan assets, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant pension plans at December 31 were as follows:

92