Cummins Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DEBT

DEBT

9 Months Ended

Sep. 28, 2014

Debt Disclosure [Abstract]

DEBT

NOTE 9. DEBT

A summary of long-term debt was as follows:



In millions	September 28, 2014			December 31, 2013
Long-term debt
Senior notes, 3.65%, due 2023⁽¹⁾	$	500		$	500
Debentures, 6.75%, due 2027	58			58
Debentures, 7.125%, due 2028 ⁽¹⁾	250			250
Senior notes, 4.875%, due 2043	500			500
Debentures, 5.65%, due 2098 (effective interest rate 7.48%)	165			165
Credit facilities related to consolidated joint ventures	7			92
Other	38			65
	1,518			1,630
Unamortized discount	(47		)	(48		)
Fair value adjustments due to hedge on indebtedness ⁽¹⁾	51			49
Capital leases	89			92
Total long-term debt	1,611			1,723
Less: Current maturities of long-term debt	(27		)	(51		)
Long-term debt	$	1,584		$	1,672

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⁽¹⁾ In February 2014, we settled our November 2005 interest rate swap which previously converted our $250 million debt issue, due in 2028, from a fixed rate to a floating rate based on a LIBOR spread. We are amortizing the $52 million gain realized upon settlement over the remaining 14-year term of related debt. Also, in February 2014, we entered into 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. See Note 12, "DERIVATIVES" for further details.

Principal payments required on long-term debt during the next five years are as follows:



	Required Principal Payments
In millions	2014		2015		2016		2017		2018
Payment	$	11	$	22	$	32	$	12	$	16

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 value and carrying value of total debt, including current maturities, was as follows:



In millions	September 28, 2014		December 31, 2013
Fair value of total debt⁽¹⁾	$	1,922	$	1,877
Carrying value of total debt	1,689		1,740

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⁽¹⁾The fair value of debt is derived from Level 2 inputs.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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