Financial Instruments and Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments and Fair Value Measurements [Text Block]

7.  Financial Instruments and Fair Value Measurements

We are exposed to market risks, such as changes in commodity pricing, interest rates and currency exchange rates. To manage the volatility related to these exposures, we selectively enter into derivative contracts pursuant to our risk management policies.

A summary of our financial instruments, risk management policies, derivative instruments, hedging activities and fair value measurement can be found in Notes 2 and 15 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. If applicable, updates have been included in the respective sections below.

Cash and Cash Equivalents—At March 31, 2020 and December 31, 2019, we had marketable securities classified as Cash and cash equivalents of $885 million and $389 million, respectively.

Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency losses of $7 million, and gains of $11 million for the three months ended March 31, 2020 and 2019, respectively.

Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding as of March 31, 2020 and December 31, 2019 that are measured at fair value on a recurring basis:

	March 31, 2020				December 31, 2019
Millions of dollars	Notional Amount		Fair Value		Notional Amount		Fair Value		Balance Sheet Classification
Assets–
Derivatives designated as hedges:
Foreign currency	$	—	$	51	$	—	$	27	Prepaid expenses and other current assets
Foreign currency	2,300		351		2,000		214		Other assets
Interest rates	—		26		—		22		Prepaid expenses and other current assets
Interest rates	2,246		135		1,940		41		Other assets
Derivatives not designated as hedges:
Commodities	138		9		3		—		Prepaid expenses and other current assets
Foreign currency	355		13		580		5		Prepaid expenses and other current assets
Non-derivatives:
Available-for-sale debt securities	159		157		162		162		Short-term investments
Equity securities	43		43		34		34		Short-term investments
Total	$	5,241	$	785	$	4,719	$	505
Liabilities–
Derivatives designated as hedges:
Foreign currency	$	—	$	33	$	—	$	16	Accrued liabilities
Foreign currency	650		27		950		53		Other liabilities
Interest rates	—		5		1,000		154		Accrued liabilities
Interest rates	1,500		760		700		77		Other liabilities
Derivatives not designated as hedges:
Commodities	156		37		224		34		Accrued liabilities
Foreign currency	604		15		200		1		Accrued liabilities
Total	$	2,910	$	877	$	3,074	$	335

All financial instruments in the table above are classified as Level 2. We present the gross assets and liabilities of our derivative financial instruments on the Consolidated Balance Sheets.

At March 31, 2020, our outstanding foreign currency contracts, not designated as hedges, mature from April 2020 to September 2020. Our commodity contracts, not designated as hedges, mature from April 2020 to June 2020.

Financial Instruments Not Measured at Fair Value on a Recurring Basis—The following table presents the carrying value and estimated fair value of our financial instruments that are not measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019. Due to the short maturity, the fair value of all non-derivative financial instruments included in Current assets and Current liabilities for which the carrying value approximates fair value are excluded from the table below. Short-term and long-term debt are recorded at amortized cost in the Consolidated Balance Sheets. The carrying and fair values of short-term and of long-term debt exclude commercial paper and other miscellaneous short-term debt.

	March 31, 2020				December 31, 2019
Millions of dollars	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-derivatives:
Liabilities:
Short-term debt	$	711	$	731	$	181	$	215
Long-term debt	12,155		12,222		11,609		12,561
Total	$	12,866	$	12,953	$	11,790	$	12,776

All financial instruments in the table above are classified as Level 2.

Net Investment Hedges—The following table summarizes our net investment hedges outstanding at March 31, 2020 and December 31, 2019:

	March 31, 2020				December 31, 2019
Millions of euro/dollars	Notional Value				Notional Value				Expiration Date
			Equivalent US$				Equivalent US$
Foreign currency	€	617	$	650	€	617	$	650	2027
Foreign-currency denominated debt	€	750	$	821	€	750	$	842	2022

Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding at March 31, 2020 and December 31, 2019:

	March 31, 2020		December 31, 2019
Millions of dollars	Notional Value		Notional Value		Expiration Date
Foreign currency	$	2,300	$	2,300	2021 to 2027
Interest rates	1,500		1,500		2021 to 2024

In January 2020, we amended previously existing forward-starting interest rate swaps with a total notional amount of $1,000 million (the “Swaps”) to extend their maturities to July 2023 and April 2024. As of March 31, 2020, the Swaps were designated as cash flow hedges to mitigate the risk of variability in interest rates of future expected debt issuance by July 2023 and April 2024. Other assets as of March 31, 2020 includes $238 million of collateral held with our counterparties related to our forward-starting interest rate swaps; this amount represents the maximum amount of collateral required in accordance with the Swap agreements. Related cash flows are included in financing activities in the Consolidated Statements of Cash Flows.

As of March 31, 2020, on a pre-tax basis, $3 million is scheduled to be reclassified from Accumulated other comprehensive loss as an increase to interest expense over the next twelve months.

Fair Value Hedges—The following table summarizes our fair value hedges outstanding at March 31, 2020 and December 31, 2019:

	March 31, 2020		December 31, 2019
Millions of dollars	Notional Value		Notional Value		Expiration Date
Interest rates	$	2,246	$	2,140	2021 to 2027

In January 2020, we entered into an euro fixed-for-floating interest rate swap to mitigate the change in the fair value of €100 million of our €500 million guaranteed notes due 2026 associated with the risk of variability in the 6-month EURIBOR rate (the benchmark interest rate). The fixed-rate and variable-rate are settled annually and semi-annually, respectively.

In April 2020, we terminated $2,000 million in notional value of our fixed-for-floating interest rate swaps which were designated as fair value hedges originally set to expire in 2021 and 2027. Upon termination of the fixed-for-floating interest rate swaps, we received $147 million from our counterparties.

Impact on Earnings and Other Comprehensive Income—The following table summarizes the pre-tax effect of derivative and non-derivative instruments recorded in Accumulated other comprehensive loss (“AOCI”), the gains (losses) reclassified from AOCI to earnings and additional gains (losses) recognized directly in earnings:

	Effects of Financial Instruments
	Three Months Ended March 31,
	Gain (Loss) Recognized in AOCI				Gain (Loss) Reclassified from AOCI to Income				Gain (Loss) Recognized in Income				Income Statement
Millions of dollars	2020		2019		2020		2019		2020		2019		Classification
Derivatives designated as hedges:
Commodities	$	—	$	(50)	$	—	$	(5)	$	—	$	—	Sales and other operating revenues
Commodities	—		46		—		4		—		—		Cost of sales
Foreign currency	164		70		(53)		(39)		16		17		Other income, net; Interest expense
Interest rates	(535)		(74)		—		(4)		96		(34)		Interest expense
Derivatives not designated as hedges:
Commodities	—		—		—		—		(9)		2		Sales and other operating revenues
Commodities	—		—		—		—		(3)		3		Cost of sales
Foreign currency	—		—		—		—		(4)		19		Other income, net
Non-derivatives designated as hedges:
Long-term debt	22		16		—		—		—		—		Other income, net
Total	$	(349)	$	8	$	(53)	$	(44)	$	96	$	7

The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in other comprehensive income for the three months ended March 31, 2020 and 2019 were gains of less than $1 million and $2 million, respectively.

The derivative amounts excluded from effectiveness testing for foreign currency contracts designated as net investment hedges recognized in interest expense for the three months ended March 31, 2020 and 2019 were gains of $4 million and $5 million, respectively.

The pre-tax effect of the periodic receipt of fixed interest and payment of variable interest associated with our fixed-for-floating interest rate swaps resulted in a $2 million decrease in interest expense during the three months ended March 31, 2020 and $3 million increase in interest expense during the three months ended March 31, 2019.

Investments in Available-for-Sale Debt Securities—The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of our outstanding available-for-sale debt securities:

Millions of dollars	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale debt securities:
Bonds at March 31, 2020	$	159	$	1	$	(3)	$	157
Bonds at December 31, 2019	162		—		—		162

No allowance for credit losses related to our available-for-sale debt securities was recorded for the three months ended March 31, 2020 and for the year ended December 31, 2019.

As of March 31, 2020, bonds classified as available-for-sale debt securities had maturities between 10 months and 42 months.

The proceeds from maturities of our available-for-sale-debt securities during the three months ended March 31, 2020 and 2019 are summarized in the following table:

	Three Months Ended March 31,
Millions of dollars	2020		2019
Proceeds from maturities of available-for-sale debt securities	$	—	$	308

No proceeds were received and no gain or loss was realized in connection with the sales of our available-for-sale debt securities during the three months ended March 31, 2020 and 2019.

We had no available-for-sale debt securities which were in a continuous unrealized loss position for less than or greater than twelve months as of March 31, 2020 and December 31, 2019.

Investments in Equity Securities—Our equity securities primarily consist of limited partnership investments. At March 31, 2020 and December 31, 2019, we had investments in equity securities with a notional amount of $43 million and $34 million, respectively, and a fair value of $43 million and $34 million, respectively. These investments may be redeemed on a weekly basis.

We received proceeds of $1 million and $162 million related to the sale of our investments in equity securities during the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes the portion of unrealized gains and losses for the equity securities that are outstanding as of March 31, 2020 and 2019:

	Three Months Ended March 31,
Millions of dollars	2020		2019
Net gains recognized during the period	$	—	$	7
Less: Net gains recognized during the period on securities sold	—		1
Unrealized gains recognized during the period	$	—	$	6