Salaried 11-K for Cummins Inc.

 

 

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549


FORM 11-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OFF 1934

For the Fiscal Year Ended December 31, 2003
 


CUMMINS INC.

(Name of issuer of the securities held pursuant to the plan)

             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)

(812) 377-5000
(Registrant's telephone number, including area code)

CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING UNIT HOURLYEMPLOYEES

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

DECEMBER 31, 2003 AND 2002

(Full title of the plan)

 

 

 

 



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES


FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION

DECEMBER 31, 2003 AND 2002

 

 

 

 

 

 

 



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

TABLE OF CONTENTS

DECEMBER 31, 2003 AND 2002

Page
   
Independent Auditor's Report............................................................................................................. 1 - 2
   
Financial Statements:  
   
      Statements of Net Assets Available for Benefits as of December 31, 2003 and 2002..................... 3
   
      Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2003... 4
   
      Notes to Financial Statements...................................................................................................... 5 - 10
   
Supplemental Schedules*  
   
      Schedule H, line 4i - Schedule of Assets (Held at End of Year)...................................................... 11

* As the Plan is a member of the Cummins Inc. and Affiliates Retirement and Savings Plans Master Trust ("Master Trust"), the schedules of assets (held at end of year), at December 31, 2003 and of reportable transactions for the year ended December 31, 2003 of the Master Trust have been certified by the Master Trustee and have been separately filed with the Department of Labor.  Other Supplemental Schedules not filed herewith are omitted because of the absence of the conditions under which they are required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.

 

 

 



100 North Walnut Street - Seymour, Indiana 47274
(812) 522-8416 - FAX (812) 523-8615
email address:  blue@blueandco.com

INDEPENDENT AUDITOR'S REPORT

To the Benefits Policy Committee and Participants of the Cummins Inc. and Affiliates
 Retirement and Savings Plan for Salaried and Non-Bargaining Hourly Employees
Columbus, Indiana

We have audited the accompanying statements of net assets available for benefits of the Cummins Inc. and Affiliates Retirement and Savings Plan for Salaried and Non-Bargaining Hourly Employees (the "Plan") as of December 31, 2003 and 2002, and the related statement of changes in net assets available for benefits for the year ended December 31, 2003.  These financial statements are the responsibility of the Plan's management.  Our responsibility is to express an opinion on these financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2003 and 2002, and the changes in net assets available for benefits for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplemental allocation information in the statements of net assets available for benefits and the statement of changes in net assets available for benefits is presented for the purpose of additional analysis of the basic financial statements rather than to present information regarding the net assets available for benefits and changes in net assets available for benefits as allocated, and is not a required part of the basic financial statements.  This supplemental allocation information is the responsibility of the Plan's management.  Such supplemental allocation information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. 

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule H, line 4i - Schedule of Assets (Held at End of Year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. 

 

 

 

1



 

 

This supplemental information is the responsibility of the Plan's management.  The supplemental information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

/s/ BLUE & CO., LLC
BLUE & CO., LLC

June 15, 2004

 

 

 

2



CUMMINS  INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 and 2002


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003

 

2002

 

 

Supplemental Information

 

 

 

Supplemental Information

 

 

 

 

Allocated

 

Unallocated

 

Total

 

Allocated

 

Unallocated

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

   Investments:

 

 

 

 

 

 

 

 

 

 

 

 

      Investment in Cummins Inc. and Affiliates

 

 

 

 

 

 

 

 

 

 

 

 

       Retirement and Savings Plans Master

 

 

 

 

 

 

 

 

 

 

 

 

       Trust, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

        Cummins Inc. common stock - ESOP fund

 $  37,921,360

 

 $ 37,453,461

 

 $  75,374,821

 

 $  28,642,951

 

 $ 24,248,203

 

 $   52,891,154

        Other investments

 

   481,216,992

 

               -0-  

 

   481,216,992

 

   367,981,836

 

             -0-  

 

    367,981,836

 

 

   519,138,352

 

    37,453,461

 

   556,591,813

 

   396,624,787

 

    24,248,203

 

    420,872,990

      Participant loans

 

       6,295,837

 

               -0-  

 

       6,295,837

 

       5,695,285

 

             -0-  

 

        5,695,285

           Total investments

 

   525,434,189

 

    37,453,461

 

   562,887,650

 

   402,320,072

 

    24,248,203

 

    426,568,275

 

 

 

 

 

 

 

 

 

 

 

 

 

   Receivables:

 

 

 

 

 

 

 

 

 

 

 

 

     Employer contributions

 

       2,363,325

 

             -0-  

 

       2,363,325

 

       2,478,118

 

             -0-  

 

        2,478,118

     Employee contributions

 

         759,021

 

               -0-  

 

          759,021

 

          579,566

 

             -0-  

 

          579,566

           Total receivables

 

      3,122,346

 

               -0-  

 

       3,122,346

 

       3,057,684

 

             -0-  

 

        3,057,684

 

 

 

 

 

 

 

 

 

 

 

 

 

           Total assets

 

   528,556,535

 

    37,453,461

 

   566,009,996

 

   405,377,756

 

    24,248,203

 

    429,625,959

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

  Note payable - ESOP (Note 4)

 

              -0-  

 

    46,450,000

 

     46,450,000

 

              -0-  

 

    50,950,000

 

      50,950,000

  Interest payable

 

                -0-  

 

      1,194,346

 

       1,194,346

 

                -0-  

 

        444,624

 

          444,624

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets (deficit) available for benefits

 

 $ 528,556,535

 

 $(10,190,885)

 

 $ 518,365,650

 

 $405,377,756

 

 $(27,146,421)

 

 $  378,231,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

           

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

3



CUMMINS  INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003


Supplemental Information

 

Allocated

 

Unallocated

 

Total

Additions:

   

 Contributions:

   

    Employer

 $     9,197,265

 

 $     6,529,719

 

 $  15,726,984

    Employee

      26,488,137

 

                -0-  

 

     26,488,137

    Allocation of 96,917 shares of Cummins Inc.

   

      common stock, at market

       2,726,275

 

                -0-  

 

       2,726,275

 Plan interest in Cummins Inc. and Affiliates

   

    Retirement and Savings Plans Master Trust

   

    investment income

    115,226,088

 

      16,633,884

 

   131,859,972

 Interest income

          337,394

 

                -0-  

 

         337,394

          Total additions

    153,975,159

 

      23,163,603

 

   177,138,762

   

Deductions:

   

 Benefits paid to participants

      30,796,380

 

                -0-  

 

     30,796,380

 Interest expense

               -0-  

 

        3,481,792

 

       3,481,792

 Allocation of 96,917 shares of Cummins Inc.

   

              -0-  

    common stock, at market

               -0-  

 

        2,726,275

 

       2,726,275

          Total deductions

      30,796,380

 

        6,208,067

 

     37,004,447

   

Net increase in net assets (deficit)

   

 available for benefits

    123,178,779

 

      16,955,536

 

   140,134,315

   

Net assets (deficit) available for benefits:

   

   Beginning of year

    405,377,756

 

     (27,146,421)

 

   378,231,335

   

   End of year

 $ 528,556,535

 

 $  (10,190,885)

 

 $ 518,365,650

         
         
         
See accompanying notes to financial statements.

4



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002


1.   DESCRIPTION OF THE PLAN

The following description of the Cummins Inc. and Affiliates Retirement and Savings Plan for Salaried and Non-Bargaining Hourly Employees (the "Plan") provides only general information.  Participants should refer to the Plan document for a more complete description of the Plan's provisions.

General

The Plan is a defined contribution plan designed to provide participants with a systematic method of savings and at the same time enable such participants to benefit from contributions made to the Plan by Cummins Inc. and Affiliates (collectively, the "Company").  Eligible employees are salaried and non-bargaining hourly employees of the Company.  The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").  During 2002, assets of participants that were employees of Nelson Industries, Inc. were spun out to a separate qualified plan (Note 5).

Master Trust

The Cummins Inc. and Affiliates Retirement and Savings Plans Master Trust ("Master Trust") holds the assets of the Plan and the following Company-sponsored plans:

The trustee for the Master Trust is The Vanguard Group.

Contributions

Participants may contribute up to 50% of their eligible pay through a combination of pre-tax and after-tax contributions.  Participants may direct their contributions in any of thirteen investment options, including Cummins Inc. common stock.

5



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002


Matching Contribution

The Company matches participant contributions in amounts ranging from 50% of the first $900 of participant wages contributed to 50% of the first 6%, or 50% of the first 2% of participant wages contributed, based on the participant's employing company, as defined.  The matching contribution is made in the form of cash or Company stock, based on the participant's employing company, as defined.  Prior to May 1, 2002, Company matching contributions in the form of Company stock could not be reinvested into other investment options until the participant is 55 years of age.  On May 1, 2002, the Company started removing restrictions on the reinvestment of stock received as a Company match.  At December 31, 2002, 80% of stock received as a Company match was available for diversification.  Subsequent to February 1, 2003, the entire amount of Company stock received as a match is available for diversification.

Participant Accounts

Each participant's account is credited with the participant's contributions, the Company's contributions and an allocation of Plan earnings.  Allocations of Plan earnings are made daily and are based upon the participant's weighted average account balance for the day, as described in the Plan document.

Vesting

Participants are fully vested in all employee and employer contributions and earnings thereon at all times.

Benefit Payments

Upon termination of employment or retirement, account balances are paid either as a lump-sum distribution or annual installments not to exceed the lesser of 15 years or the life expectancy of the participant and or joint life expectancy of the participant and beneficiary, and commence no later than the participant reaching age 70-1/2.  The Plan also permits hardship withdrawals from participant pre-tax contributions and actual earnings thereon.  Participants may also withdraw their after-tax contributions.

Voting Rights

Each participant is entitled to exercise voting rights attributable to the Company shares allocated to his or her account.  The Trustee shall vote all Company shares for which no voting instructions were received in the same manner and proportion as the shares for which voting instructions were received.

Participant Loans

A participant can obtain a loan up to a maximum of the lesser of $50,000 or 50% of the participant's account balance.  Loans are secured by the participant's account balance and bear interest at the prime rate plus one percent, and mature no later than 4½ years from the date of the loan.

6



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002


Plan Termination

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Plan have been prepared on an accrual basis of accounting.

Investments

The Plan's investment in the Master Trust is stated at fair value based on the fair value of the underlying investments of the Master Trust, determined primarily by quoted market prices, except for the fixed income fund.  The fixed income fund consists primarily of insurance contracts and bank investment contracts with various insurance companies and is stated at contract value as the investments are fully benefit-responsive.  The contract values represent contributions made under the contracts, plus earnings, less withdrawals and administrative expenses.  Withdrawals or transfers from the fund are valued at contract value.

Allocation of Master Trust Assets and Transactions

The investment income and expenses of the Master Trust are allocated to each plan based on the relationship of the Plan's investment balances to the total Master Trust investment balances.

Use of Estimates

The preparation of financial statements, in accordance with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.

Risks and Uncertainties

The Master Trust invests in various securities.  Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility.  Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.

Administrative Expenses

Substantially all costs of administering the Plan are paid by the Company. 

7



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002


Reclassifications

Certain prior year amounts have been reclassified herein to conform to the current method of presentation.

3.   INVESTMENTS IN MASTER TRUST

The Plan's investments are held in the Master Trust.  The assets of the Master Trust are held by The Vanguard Group.  At December 31, 2003 and 2002, the Plan's interest in the net assets of the Master Trust was 57.1 % and 53.5%, respectively.  The following investments are held by the Master Trust as of December 31:

 
 

2003

2002

 
 

Cummins Inc. common stock fund

 $    83,780,208

 

 $    74,572,906

 

Cummins Inc. common stock - ESOP fund

 
 

 (non-participant directed)

      75,374,821

 

      52,891,154

 

Fixed income fund

     312,524,095

 

     284,260,001

 

Registered investment companies

     502,915,326

 

     374,857,991

         
 

    Total

 $  974,594,450

 

 $  786,582,052

The fixed income fund portion of the Master Trust comprises several fully benefit-responsive insurance and investment contracts maturing through 2008.  The contracts have varying yields and crediting interest rates which averaged 4.5 percent and 5.3 percent during the years ended December 31, 2003 and 2002, respectively.  The crediting interest rates adjust on varying intervals by contract.  There are no reserves against contract value for credit risk of the contract issuer or otherwise.  The contracts' aggregate fair values exceed the reported contract values by approximately $2,235,000 at December 31, 2003.

Investments that represent 5% of more of the Master Trust's assets are separately identified as follows:

   

2003

2002

   
 

Vanguard Wellington Fund

 

 $  172,362,635

 $  146,025,314

 

Cummins Inc. common stock

 

     159,155,029

     127,464,060

 

Vanguard Institutional Index Fund

 

     142,720,301

     105,688,631

 

Vanguard US Growth Fund

 

      68,300,899

      53,074,811

 

Vanguard Explorer Fund

 

      44,930,828

      26,645,611

 

Other

 

     387,124,758

     327,683,625

         
 

    Total

 

 $  974,594,450

 $  786,582,052

   

8



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

Investment income for the Master Trust for the year ended December 31, 2003 is as follows:

   
 

Net appreciation in fair value of investments:

 
 

 Cummins Inc. common stock

 

 $    45,636,185

 

 Cummins Inc. common stock - ESOP fund

 
 

   (non-participant directed)

 

      41,004,102

 

 Registered investment companies

 

      95,281,121

     
 

Interest

 

      14,405,450

 

Dividends

 

        2,445,642

 

Dividends from Cummins Inc. common stock -

 
 

 ESOP fund (non-participant directed)

 

        2,230,032

Additional information about the changes in net assets of the Master Trust for the year ended December 31, 2003 relating to non-participant directed investments is as follows:

Contributions

 

 $    10,256,448

Benefits paid to participants

 

        3,140,236

Transfers to participant-directed investments

 

      19,664,540

4.   ESOP FUND

The Master Trust established an Employee Stock Ownership Plan ("ESOP") Trust account in July 1989 to purchase 2,362,206 shares of the Company's common stock in exchange for a $75,000,000 note secured by the shares.  The note payable was repaid in November 2002 by the Company and the Company concurrently entered into a $50,950,000 note with the ESOP Trust.  This note is secured by the remaining unallocated shares in the ESOP Trust.  The interest rate on the note is 5.61% with a maturity date of January 2010.  Loan principal payments for the next five years and thereafter are as follows:

2004 $   5,200,000
2005 5,900,000
2006 6,700,000
2007 7,500,000
2008 8,500,000
Thereafter
12,650,000
   
   
 
$46,450,000

9



CUMMINS INC. AND AFFILIATES
RETIREMENT AND SAVINGS PLAN
FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002

The following is the Master Trust's investment in Cummins Inc. common stock - ESOP Fund (including cash) at December 31:

 

   
 

2003

2002

 

Allocated

Unallocated

Allocated

Unallocated

 

Number of shares

 

         774,562

 

         756,028

         894,055

 

         852,909

 

Cost

 

 $  36,840,168

 $  24,003,889

 $  43,604,029

 $  27,079,861

 

 

 

 

 

Market

 

 $  37,921,360

 $  37,453,461

 $  28,642,951

 $  24,248,203

               

5.   FUND TRANSFER

On January 1, 2002, $6,146,364 in assets of participants that were employees of Nelson Industries, Inc. was transferred out of the Plan to create the Nelson Retirement and Savings Plan.

6.   TAX STATUS

The Plan received a favorable determination letter dated July 19, 2002 in which the Internal Revenue Service ("IRS") stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (the "Code").  The Plan has been amended since receiving that determination letter.  The Company and its counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Code.  Therefore, no provision for income taxes has been included in the Plan's financial statements.

7.   RELATED PARTY TRANSACTIONS

Certain Master Trust investments are shares of mutual funds managed by The Vanguard Group, and shares of Cummins Inc.  The Vanguard Group is the trustee of the Master Trust and Cummins Inc. is the Plan Sponsor; therefore, transactions with these parties qualify as party-in-interest transactions.

8.   CONTINGENCY

The Plan is currently undergoing an audit by the Internal Revenue Service for plan years 1999 through 2001.  As this audit is not yet complete, the financial statements do not reflect any potential liability related to this audit.  In addition, the Company is not aware of any potential plan disqualification issues that have arisen during this audit.

10