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

Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES (Tables)

DERIVATIVES (Tables)

9 Months Ended

Sep. 28, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table summarizes these gains and losses for the three and nine month periods presented below:



	Three months ended									Nine months ended
In millions	September 28, 2014				September 29, 2013					September 28, 2014					September 29, 2013
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			Gain/(Loss) on Swaps			Gain/(Loss) on Borrowings
Interest expense⁽¹⁾	$	—	$	2	$	(6	)	$	6	$	8	$	(5	)	$	(34	)	$	34

⁽¹⁾The difference between the gain/(loss) on swaps and borrowings represents hedge ineffectiveness.

Location and amounts of gains and losses for derivative instruments classified as cash flow hedges

The following table summarizes the effect on our Condensed Consolidated Statements of Income for derivative instruments classified as cash flow hedges for the three and nine month periods presented below:



In millions⁽¹⁾	Three months ended					Nine months ended
Derivatives in cash flow hedging relationships	September 28, 2014		September 29, 2013			September 28, 2014			September 29, 2013
Gain/(loss) reclassified from AOCL into income - Net sales⁽²⁾	$	1	$	(2	)	$	6		$	(4	)
Gain/(loss) reclassified from AOCL into income - Cost of sales⁽³⁾	1		(2		)	(2		)	1
Total	$	2	$	(4	)	$	4		$	(3	)

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⁽¹⁾The table does not include amounts related to ineffectiveness or the effective portion of gain (loss) recognized in AOCL as they were not material for the periods presented.

⁽²⁾Includes foreign currency forward contracts.

⁽³⁾Includes commodity swap contracts.

Location and amounts of gains and losses for derivative instruments that are not classified as hedges

The following table summarizes the effect on our Condensed Consolidated Statements of Income for derivative instruments not classified as cash flow hedges for the three and nine month periods presented below:



In millions	Three months ended						Nine months ended
Derivatives not designated as hedging instruments	September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Gain/(loss) recognized in income - Cost of sales⁽¹⁾	$	1		$	(1	)	$	(2	)	$	(2	)
Gain/(loss) recognized in income - Other income (expense), net⁽²⁾	(12		)	19			(5		)	(3		)
Total	$	(11	)	$	18		$	(7	)	$	(5	)

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⁽¹⁾ Includes foreign currency forward contracts and commodity zero-cost collars.

⁽²⁾ Includes foreign currency forward contracts.

Location and fair value of derivative instruments

The following table summarizes the location and fair value of interest rate swap contracts, foreign currency forward contracts, commodity swap contracts and commodity zero-cost collars on our Condensed Consolidated Balance Sheets:



	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
In millions	September 28, 2014		December 31, 2013		September 28, 2014		December 31, 2013
Notional amount⁽¹⁾	$	603	$	425	$	747	$	547

Derivative assets recorded in:
Prepaid expenses and other current assets	—		5		—		6
Other assets	5		49		—		—
Total derivative assets⁽²⁾	$	5	$	54	$	—	$	6

Derivative liabilities recorded in:
Other accrued expenses	2		5		1		5
Total derivative liabilities⁽²⁾	$	2	$	5	$	1	$	5

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⁽¹⁾Commodity zero-cost collars are not designated as hedging instruments and had a notional quantity of 4,578 and 5,421 metric tons of copper at September 28, 2014 and December 31, 2013, respectively. These instruments are not included in the notional amounts above as they were subject to a USD denominated cap and floor; however, they are included in the total asset and liability balances as appropriate. The average cap and floor at September 28, 2014 and December 31, 2013 were $7,265 and $6,619 and $7,639 and $6,978, respectively.

⁽²⁾Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated primarily using actively quoted prices for similar instruments from brokers and observable inputs, including market transactions and third-party pricing services. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the first nine months of 2014 and 2013.