UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
[X]
|
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For the Fiscal Year Ended
December
31, 2015
OR
[ ]
|
TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For the transition period from _______ to _______
Commission File Number
1-4949
CUMMINS RETIREMENT AND SAVINGS PLAN
(Full title of the plan)
CUMMINS INC.
500 Jackson Street
P. O. Box 3005
Columbus, IN 47202-3005
(Name of Issuer of Securities Held Pursuant to the Plan and
the Address of its Principal Executive Office)
CUMMINS RETIREMENT
AND SAVINGS PLAN
FINANCIAL
STATEMENTS
AND
SUPPLEMENTARY
INFORMATION
December 31, 2015 AND 2014
CUMMINS
RETIREMENT AND SAVINGS PLAN
TABLE OF CONTENTS
December 31, 2015
AND 2014
*
|
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, 2015 and of
reportable transactions for the year ended December 31, 2015 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.
|
report of INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Benefits Policy Committee
and
Participants of the Cummins Retirement
and
Savings Plan
Columbus, Indiana
We have audited the accompanying
statements of net assets available for benefits of the Cummins Retirement and
Savings Plan (the “Plan”) as of December 31, 2015 and 2014, and the related
statement of changes in net assets available for benefits for the year ended December
31, 2015. 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. The Plan is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan’s
internal control over financial reporting. Accordingly, we express no such
opinion. 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, 2015 and 2014, and
the changes in net assets available for benefits for the year ended December
31, 2015, in conformity with accounting principles generally accepted in the United
States of America.
The supplemental information in
the accompanying Schedule H, line 4i – Schedule of Assets (Held at End of Year)
has been subjected to audit procedures performed in conjunction with the audit
of the Plan’s financial statements. The supplemental information is presented
for the purpose of additional analysis and is not a required part of the
financial statements but includes supplemental information required by the
Department of Labor’s Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental
information is the responsibility of the Plan’s management. Our audit
procedures included determining whether the supplemental information reconciles
to the financial statements or the underlying accounting and other records, as
applicable, and performing procedures to test the completeness and accuracy of
the information presented in the supplemental information. In forming our
opinion on the supplemental information in the accompanying schedules, we
evaluated whether the supplemental information, including its form and content,
is presented in conformity with the Department of Labor’s Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974. In our opinion, the supplemental information in the accompanying
schedule is fairly stated in all material respects in relation to the financial
statements as a whole.
/s/ BLUE & CO., LLC
BLUE & CO., LLC
Seymour, Indiana
June 23
, 2016
Cummins
RETIREMENT
AND SAVINGS PLAN
STATEMENTS OF NET
ASSETS AVAILABLE FOR BENEFITS
December 31, 2015
and 2014
|
|
|
|
|
2015
|
|
2014 As Restated
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Assets
|
|
|
|
|
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Investments:
|
|
|
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|
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Investment in Cummins Inc. and Affiliates
|
|
|
|
|
|
Retirement and Savings Plans Master Trust
|
|
|
|
|
|
At fair value:
|
|
|
|
|
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Cummins Inc. common stock fund
|
$
|
360,381,991
|
|
$
|
586,165,813
|
Other investments
|
|
1,437,506,497
|
|
|
1,364,774,028
|
|
|
1,797,888,488
|
|
|
1,950,939,841
|
At contract value:
|
|
|
|
|
|
Stable Value Fund
|
|
247,743,118
|
|
|
237,852,696
|
|
|
|
|
|
|
Total investments
|
|
2,045,631,606
|
|
|
2,188,792,537
|
|
|
|
|
|
|
Employee contributions receivable
|
|
2,739,837
|
|
|
2,603,773
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Employer contributions receivable
|
|
8,158,329
|
|
|
7,152,556
|
Contributions receivable from outside plans
|
|
54,423,318
|
|
|
28,903,329
|
Notes receivable from participants
|
|
30,783,869
|
|
|
28,592,378
|
|
Net assets available for benefits
|
$
|
2,141,736,959
|
|
$
|
2,256,044,573
|
See accompanying notes to financial
statements.
3
|
Additions
|
|
|
Contributions:
|
|
|
Employer
|
$
|
49,526,456
|
Employee
|
|
112,170,441
|
Plan interest in Cummins Inc. and Affiliates Retirement
|
|
|
and Savings Plans Master Trust investment loss
|
|
(220,929,373)
|
Interest on notes receivable from participants
|
|
1,225,418
|
Total additions
|
|
(58,007,058)
|
|
|
|
Deductions
|
|
|
Benefits paid to participants
|
|
140,866,354
|
Administrative expenses
|
|
1,111,060
|
Total deductions
|
|
141,977,414
|
|
|
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Fund transfers with affiliate plans
|
|
3,760,641
|
Fund transfers with outside plans
|
|
81,916,217
|
|
|
|
Net change in net assets available for benefits
|
|
(114,307,614)
|
|
|
|
Net assets available for benefits, beginning of year
|
|
2,256,044,573
|
|
Net assets available for benefits, end of year
|
$
|
2,141,736,959
|
|
|
|
|
See accompanying notes to financial statements.
4
1.
|
description of the plan
|
The following description of the Cummins Retirement
and Savings Plan (the “Plan”) provides only general information. Participants
should refer to the Plan document for a more complete description of the Plan’s
provisions.
Effective January 1, 2015, the Plan was amended and
adopted the name Cummins Retirement and Savings Plan. Prior to this the name
of the Plan was Cummins Retirement and Savings Plan for Non-Bargaining
Employees.
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”).
An amendment effective September 30, 2015 merged the
assets and liabilities included in the Cummins Southern Plains, LLC 401(K)
Profit Sharing Plan into the Cummins Retirement and Savings Plan. The transfer
of these assets was $27,492,899 and is reflected in the accompanying financial
statements as “Fund transfers with outside plans” in the Statement of Changes
in Net Assets Available for Benefits. Non-bargaining eligible employees of the
plan began participating in the Cummins Retirement and Savings Plan on October
1, 2015.
An amendment effective December 31, 2015 merged the
assets and liabilities included in the Cummins NPower Retirement Plan, the Cummins
NPower Retirement Plan for Union Employees, and the
Cummins Rocky Mountain LLC 401(K) Retirement Savings Plan into the Cummins
Retirement and Savings Plan. The transfer of these assets was $54,423,318 and
is reflected in the accompanying financial statements within “Fund transfers
with outside plans” in the Statement of Changes in Net Assets Available for
Benefits and as “Contributions receivable from outside plans” in the Statements
of Net Assets Available for Benefits. Bargaining and non-bargaining eligible
employees of these plans will begin participating in the Cummins Retirement and
Savings Plan on January 1, 2016.
An amendment that was effective December 31, 2014 merged
employees not subject to any collective bargaining agreement included in the
Cummins Northwest Retirement Savings Plan (the “CNW Plan”) into the Cummins
Retirement and Savings Plan as of December 31, 2014. The transfer of these
assets was $28,903,329 and is reflected in the accompanying financial
statements as “Contributions receivable from outside plans” in the Statements
of Net Assets Available for Benefits as of December 31, 2014.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
Master Trust
The Cummins Inc. and Affiliates Retirement and Savings
Plans Master Trust (“Master Trust”) holds the assets of the Plan and the Cummins
Retirement and Savings Plan for Certain Collectively Bargained Employees.
The trustee for the Master Trust is State Street
Corporation (“Trustee”). As participants transfer between different locations
within the Company, their related Plan account transfers to the appropriate
Plan, if applicable. Such transfers are reflected in the accompanying financial
statements as “Fund transfers with affiliate plans”.
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 twenty-five investment
options, including the Cummins Inc. Common Stock Fund.
Matching Contribution
The Company contributes to the Plan by matching 100%
of the first 1% contributed plus 50% of the next 5% contributed. The matching
contribution is made in the form of cash or Company stock, based on the
participant’s employing company, as defined. 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.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
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.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
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.
Notes Receivable from Participants
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. Principal and interest is paid ratably through payroll deductions.
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.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
Investments held by a defined contribution plan are
required to be reported at fair value, except for fully benefit-responsive
investment contracts. Contract value is the relevant measure for the portion of
the net assets available for benefits of a defined contribution plan attributable
to fully benefit-responsive investment contracts because contract value is the
amount participants normally would receive if they were to initiate permitted
transactions under the terms of the Plan.
Change in Accounting Principle
During 2015, the Plan early adopted Accounting
Standards Update 2015-12,
Plan Accounting, Parts I and II
, which
simplified accounting for certain investments and eliminated previously
required disclosure requirements.
Part I
specifies that contract value is the relevant measure for fully
benefit-responsive investment contracts to be recorded in the statement of net
assets available for benefits. Previously, these contracts were recorded at
fair value which was $236,396,756 and required a $1,455,940 adjustment to increase
these contracts to the contract value which was $237,852,696 at December 31,
2014. Similarly, the net assets available for benefits at fair value which was
$2,254,588,633 also required a $1,455,940 adjustment to increase net assets
available for benefits to the contract value of $2,256,044,573 at December 31,
2014. The accounting policy has been revised to reflect this change and the
2014 statement of net assets available for benefits was retroactively restated
to record fully benefit-responsive investment contracts at contract value and
remove the effects of the above adjustment to net assets available for benefits
as required by the standard.
Part II
eliminates certain disclosure requirements for plans. Specifically, investments
will be disaggregated by general type (mutual funds, common stocks, bonds, etc.)
whereas previously they were disaggregated in much greater detail such as by investment
objective or industry. In addition, the disclosure of individual investments
with a value equal to or greater than 5% of net assets available for benefits
has been removed. And finally, plans will present the net appreciation (depreciation) in the aggregate whereas previously it was
detailed by the general type of the investment. The 2014 notes to the
financial statements have been retroactively restated as required by the
standard.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
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 Stable
Value fund and common/collective trust investments. The Stable Value fund
consists primarily of insurance contracts and bank investment contracts with
various companies. Insurance contracts and bank contracts are nontransferable,
but provide for benefit-responsive withdrawals by plan participants at contract
value. Alternative investment contracts consist of investments together with
contracts under which a bank or other institution provides for
benefit-responsive withdrawals by plan participants at contract value. Contract
value represents contributions made to investment contracts, plus earnings, less
participant withdrawals and administrative expenses. There are no limitations
on liquidity guarantees and no valuation reserves are being recorded to adjust
contract amounts.
The common/collective trust investments are public
investment securities valued using the net asset value (NAV) provided by fund
managers. The NAV is quoted on a private market that is not active; however,
the unit price is based on underlying investments which are traded on an active
market. There are no redemption restrictions on common/collective trusts.
Notes Receivable from Participants
Notes receivable from participants are measured at
their unpaid principal balance plus any accrued but unpaid interest. Delinquent
notes receivable from participants are recorded as a distribution based upon
the terms of the Plan document.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
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 such changes
could materially affect the amounts reported in the financial statements.
Payment of Benefits
Benefit payments are recorded when paid.
Administrative Expenses
Substantially all costs of administering the Plan are
paid by the Company. However, a portion of administrative fees are charged to
participants’ accounts (a monthly fee of 0.05% of the participant’s account
balance up to a maximum of $5).
Reclassifications
Certain prior year amounts have been reclassified
herein to conform to the current method of presentation.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
3.
|
INVESTMENTS IN MASTER TRUST
|
The Plan’s investments are held in the Master Trust.
At December 31, 2015 and 2014, the Plan’s interest in the net assets of the
Master Trust was 88.6% and 88.7%, respectively.
The following investments are held by the Master Trust
as of December 31:
|
|
2015
|
|
2014
|
|
At fair value:
|
|
|
|
|
|
|
Cummins Inc. Common Stock Fund
|
$
|
370,998,542
|
|
$
|
599,200,268
|
|
Common / collective trusts
|
|
791,208,424
|
|
|
699,666,086
|
|
Registered investment companies
|
|
801,827,664
|
|
|
827,178,198
|
|
|
|
1,964,034,630
|
|
|
2,126,044,552
|
|
At contract value:
|
|
|
|
|
|
|
Stable Value fund wrapped
|
|
|
|
|
|
|
investment contracts
|
|
345,753,740
|
|
|
341,768,439
|
|
|
Total
|
$
|
2,309,788,370
|
|
$
|
2,467,812,991
|
The Plan’s percentage of each investment
classification held by the Master Trust as of December 31 is as follows:
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Cummins Inc. Common Stock Fund
|
|
97.1%
|
|
|
97.8%
|
|
Stable Value fund
|
|
71.7%
|
|
|
69.7%
|
|
Common / collective trusts
|
|
90.9%
|
|
|
90.1%
|
|
Registered investment companies
|
|
89.6%
|
|
|
88.7%
|
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
The Stable Value fund’s key objectives are to provide
preservation of principal, maintain a stable interest rate, and provide daily
liquidity at contract value for participant withdrawals and transfers in
accordance with the provision of the Plans. To accomplish these objectives, the
Stable Value fund invests primarily in investment contracts such as traditional
guaranteed investment contracts (GICs) and wrapper contracts (also known as
synthetic GICs). In a traditional GIC, the issuer takes a deposit from the Stable
Value fund and purchases investments that are held in the issuer’s general
account. The issuer is contractually obligated to repay the principal and a
specified rate of interest guaranteed to the Stable Value fund. A synthetic
investment contract, or wrapper contract, is an investment contract issued by
an insurance company or other financial institution, designed to provide a
contract value “wrapper” around a portfolio of bonds or other fixed income securities
that are owned by the Stable Value fund.
In a wrapper contract structure, the underlying
investments are owned by the Stable Value fund and held in trust for
participants. The Stable Value fund purchases a wrapper contract from an
insurance company or bank. The wrapper contract amortizes the realized and
unrealized gains and losses on the underlying fixed income investments,
typically over the duration of the investments, through adjustments to the
future interest crediting rate (which is the rate earned by participants in the
Stable Value fund for the underlying investments). The issuer of the wrapper
contract provides assurance that the adjustments to the interest crediting rate
do not result in a future interest crediting rate that is less than zero. An
interest crediting rate less than zero would result in a loss of principal or
accrued interest.
The key factors that influence future interest
crediting rates for a wrapper contract include the level of market interest
rates, the amount and timing of participant contributions, transfers, and
withdrawals into and out of the wrapper contract, the investment returns
generated by the fixed income investments that back the wrapper contract and
the duration of the underlying investments backing the wrapper contract.
Wrapper contracts’ interest crediting rates are typically reset on a monthly or
quarterly basis. While there may be slight variations from one contract to
another, most wrapper contracts use a formula to determine the interest
crediting rate that is based on the specific factors as aforementioned. Over
time, the crediting rate formula amortizes the Stable Value fund’s
realized and unrealized market value gains and losses over the duration of the
underlying investments.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
Because changes in market interest rates affect the
yield to maturity and the market value of the underlying investments, they can
have a material impact on the wrapper contract’s interest crediting rate. In
addition, participant withdrawals and transfers from the Stable Value fund are
paid at contract value but funded through the market value liquidation of the
underlying investments, which also impacts the interest crediting rate.
All wrapper contracts provide for a minimum interest crediting
rate of zero percent. In the event that the interest crediting rate should fall
to zero and the requirements of the wrapper contract are satisfied, the wrapper
issuers will pay to the Plans the shortfall needed to maintain the interest
crediting rate at zero. This helps to ensure that participants’ principal and
accrued interest will be protected.
In certain circumstances, the amount withdrawn from
the wrapper contract would be payable at fair value rather than at contract
value. These events include termination of the Plans, a material adverse change
to the provisions of the Plans, if the employer elects to withdraw from a
wrapper contract in order to switch to a different investment provider, or if
the terms of a successor plan (in the event of the spin-off or sale of a
division) do not meet the wrapper contract issuer’s underwriting criteria for
issuance of a clone wrapper contract. These events described herein that could
result in the payment of benefits at market value rather than contract value
are not probable of occurring in the foreseeable future.
Examples of events that would permit a wrapper
contract issuer to terminate a wrapper contract upon short notice include the
Plans’ loss of their qualified status, uncured material breaches of
responsibilities, or material and adverse changes to the provisions of the
Plans. If one of these events was to occur, the wrapper contract issuer could terminate
the wrapper contract at the market value of the underlying investments (or in
the case of a traditional GIC, at the hypothetical market value based upon a
contractual formula).
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
Synthetic investment contracts generally impose
conditions on both the Plan and the issuer. If an event of default occurs and
is not cured, the non-defaulting party may terminate the contract. The
following may cause the Plan to be in default: a breach of material obligation
under the contract; a material misrepresentation; or a material amendment to
the Plan agreement. The issuer may be in default if it breaches a material
obligation under the investment contract; makes a material misrepresentation;
is acquired or reorganized. If, in the event of default of an issuer, the Plan
were unable to obtain a replacement the Plan could seek to add additional
issuers over time to diversify the Plan’s exposure to such risk, but there is
no assurance the Plan may be able to do so. The combination of the default of
an issuer and an inability to obtain a replacement agreement could render the
Plan unable to achieve its objective of maintaining a stable contract value.
The terms of an investment contract generally provide for settlement of
payments only upon termination of the contract or total liquidation of the
covered investments. Generally, payments will be made pro-rata, based on the
percentage of investments covered by each issuer. Contract termination occurs
whenever the contract value or market value of the covered investments reaches
zero or upon certain events of default. If the contract terminates due to
issuer default, the issuer will generally be required to pay to the Plan the
excess, if any, of contract value over market value on the date of termination.
If the contract terminates when the market value equals zero, the issuer will
pay the excess of contract value over market value to the Plan to the extent
necessary for the Plan to satisfy outstanding contract value withdrawal
requests. Contract termination also may occur by either party upon election and
notice.
The following is the Master Trust’s investment in
Cummins Inc. common stock (excluding cash) at December 31:
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Number of shares
|
|
4,170,215
|
|
|
4,139,096
|
|
|
|
|
|
|
|
|
Cost
|
$
|
264,697,670
|
|
$
|
234,405,059
|
|
|
Market
|
$
|
367,020,622
|
|
$
|
596,733,470
|
|
|
|
|
|
|
|
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
The Internal Revenue Service has determined by an
opinion letter for the Plan dated July 19, 2002, that the Plan and related
trust are designed in accordance with applicable sections of the Internal
Revenue Code (IRC). Although the Plan has been amended subsequent to July 19,
2002, the Plan administrator believes that the Plan is designed and is
currently operated in compliance with the applicable requirements of the IRC.
Accounting principles generally accepted in the United
States of America require management to evaluate tax positions taken by the
Plan and recognize a tax liability if the Plan has taken an uncertain position
that more likely than not would not be sustained upon examination by various
federal and state taxing authorities. Management has concluded that as of December
31, 2015 and 2014, there are no uncertain positions taken or expected to be
taken that would require recognition of a liability or disclosure in the accompanying
financial statements.
The Plan is subject to routine audits by taxing
jurisdictions. However, as of the date the financial statements were available
to be issued, there were no audits for any tax periods in progress. Management
believes it is no longer subject to income tax examinations for years prior to 2012.
6.
|
RELATED PARTY TRANSACTIONS
|
Certain Master Trust investments are shares of mutual
funds managed by State Street Corporation and shares of Cummins Inc. State
Street Corporation is the Master Trust trustee. Cummins Inc. is the Plan
Sponsor. Hewitt Associates, LLC serves as the Plans’ third party administrator.
Blue & Co., LLC serves as the Plan’s auditor. JPMorgan Asset Management
serves as the Plan’s investment manager of the Stable Value fund. Transactions
with these parties qualify as party-in-interest transactions.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
7.
|
Fair value measurements
|
The framework for measuring fair value provides a fair
value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1)
and the lowest priority to unobservable inputs (level 3). The three levels of
the fair value hierarchy are described as follows:
-
Level 1: Inputs
to the valuation methodology are unadjusted quoted prices for identical assets
or liabilities in active markets that the Plan has the ability to access.
-
Level 2: Inputs
to the valuation methodology include quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets or liabilities
in inactive markets; inputs other than quoted prices that are observable for
the asset or liability; inputs that are derived principally from or
corroborated by observable market data by correlation or other means. If the
asset or liability has a specified (contractual) term, the level 2 input must
be observable for substantially the full term of the asset or liability.
-
Level 3: Inputs
to the valuation methodology are unobservable and significant to the fair value
measurement.
The asset or liability’s fair value measurement level
within the fair value hierarchy is based on the lowest level of any input that
is significant to the fair value measurement. Valuation techniques maximize the
use of relevant observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation
methodologies used for assets measured at fair value. There have been no
changes in the methodologies used at December 31, 2015 and 2014.
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
-
Common/collective trusts
: Valued at the net asset value (NAV) of units of a
collective trust. The NAV, as provided by the trustee, is used as a practical
expedient to estimate fair value. The NAV is based on the fair value of the
underlying investments held by the fund less its liabilities. This practical
expedient is not used when it is determined to be probable that the fund will
sell the investment for an amount different than the reported NAV. Participant
transactions (purchases and sales) may occur daily. Were the Plan to initiate a
full redemption of the collective trust, the investment advisor reserves the
right to temporarily delay withdrawal from the trust in order to ensure that
securities liquidations will be carried out in an orderly business manner.
The Plan’s policy is to recognize transfers between
levels as of the end of the reporting period. There were no significant
transfers between Levels 1 and 2 during 2015 or 2014.
The following table sets forth by level, within the
hierarchy, the Plan’s assets measured at fair value on a recurring basis as of December
31, 2015 and 2014:
|
|
2015
|
|
|
Fair
|
|
|
|
|
|
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Master Trust level assets
|
|
|
|
|
|
|
|
|
|
Registered investment
|
|
|
|
|
|
|
|
|
|
companies
|
$
|
801,827,664
|
|
$
|
801,827,664
|
|
$
|
-0-
|
|
Common stocks
|
|
370,998,542
|
|
|
370,998,542
|
|
|
-0-
|
|
Common/collective trusts
|
|
791,208,424
|
|
|
-0-
|
|
|
791,208,424
|
|
Cummins
RETIREMENT
AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015
and 2014
|
|
2014
|
|
|
Fair
|
|
|
|
|
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Master Trust level assets
|
|
|
|
|
|
|
|
|
|
|
Registered investment
|
|
|
|
|
|
|
|
|
|
|
companies
|
$
|
|
827,178,198
|
|
$
|
827,178,198
|
|
$
|
-0-
|
|
Common stocks
|
|
|
599,200,268
|
|
|
599,200,268
|
|
|
-0-
|
|
Common/collective trusts
|
|
|
699,666,086
|
|
|
-0-
|
|
|
699,666,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY INFORMATION
|
21
(a)
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identity of Issue
|
|
Description of Investment
|
|
Cost
|
|
Current Value
|
*
|
Participant Loans
|
|
1 - 4 1/2 year maturity
|
|
|
|
|
|
|
|
|
|
4.25%
|
|
$
|
-0-
|
|
$
|
30,783,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Party in interest
|
See report of independent registered public accounting firm.
Pursuant to the requirements of the Securities Exchange Act
of 1934, the trustees (or other persons who administer the Plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
CUMMINS RETIREMENT AND SAVINGS PLAN
|
|
|
|
By: Benefits Policy Committee of Cummins Inc.
|
|
|
Date: June 23, 2016
|
|
By: /s/ Donald G. Jackson
|
|
|
Donald G. Jackson
|
|
|
Vice President
Treasurer
|
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