Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 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 June 30, 2020 and December 31, 2019, we had marketable securities classified as Cash and cash equivalents of $1,358 million and $389 million, respectively.

Foreign Currency Gain (Loss)—Other income, net, in the Consolidated Statements of Income reflected foreign currency losses of less than $1 million and $7 million, and gains of $3 million and $14 million for the three and six months ended June 30, 2020 and 2019, respectively.

Financial Instruments Measured at Fair Value on a Recurring Basis—The following table summarizes financial instruments outstanding for the periods presented that are measured at fair value on a recurring basis:

	June 30, 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	$	—	$	20	$	—	$	27	Prepaid expenses and other current assets
Foreign currency	300		12		2,000		214		Other assets
Interest rates	—		1		—		22		Prepaid expenses and other current assets
Interest rates	252		3		1,940		41		Other assets
Derivatives not designated as hedges:
Commodities	165		55		3		—		Prepaid expenses and other current assets
Foreign currency	235		6		580		5		Prepaid expenses and other current assets
Non-derivatives:
Available-for-sale debt securities	432		433		162		162		Short-term investments
Equity securities	218		218		34		34		Short-term investments
Total	$	1,602	$	748	$	4,719	$	505
Liabilities–
Derivatives designated as hedges:
Commodities	$	51	$	2	$	—	$	—	Accrued liabilities
Foreign currency	—		15		—		16		Accrued liabilities
Foreign currency	2,355		108		950		53		Other liabilities
Interest rates	—		1		1,000		154		Accrued liabilities
Interest rates	1,500		756		700		77		Other liabilities
Derivatives not designated as hedges:
Commodities	103		17		224		34		Accrued liabilities
Foreign currency	603		8		200		1		Accrued liabilities
Total	$	4,612	$	907	$	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 June 30, 2020, our outstanding foreign currency contracts, not designated as hedges, mature from July 2020 to March 2021. Our commodity contracts, not designated as hedges, mature from July 2020 to December 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 for the periods presented. 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 debt.

	June 30, 2020				December 31, 2019
Millions of dollars	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-derivatives:
Liabilities:
Short-term debt	$	159	$	159	$	181	$	215
Long-term debt	13,669		14,872		11,609		12,561
Total	$	13,828	$	15,031	$	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 for the periods presented:

	June 30, 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	$	841	€	750	$	842	2022

Cash Flow Hedges—The following table summarizes our cash flow hedges outstanding for the periods presented:

	June 30, 2020		December 31, 2019
Millions of dollars	Notional Value		Notional Value		Expiration Date
Foreign currency	$	2,005	$	2,300	2021 to 2027
Interest rates	1,500		1,500		2021 to 2024
Commodities	51		—		2021 to 2022

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 June 30, 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 June 30, 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.

In May 2020, we terminated and cash settled $2,000 million in notional value of our cross-currency interest rate swaps, designated as cash flows hedges, maturing in 2021 and 2024. Upon termination of the swaps, we received $346 million from our counterparties. Concurrent with the settlement of the swaps, we entered into $1,705 million cross-currency interest rate swaps with euro notional amounts and maturity dates matching the original swaps. The swaps are designated as cash flow hedges to reduce the variability in the functional currency equivalent cash flows of certain foreign currency denominated intercompany loans.

During the second quarter of 2020, we entered into over-the-counter commodity swaps with a total notional amount of $51 million that were designated as cash flow hedges to manage the volatility of commodity prices related to anticipated purchases of feedstock for the years 2021 and 2022.

As of June 30, 2020, on a pre-tax basis, $6 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 for the periods presented:

	June 30, 2020		December 31, 2019
Millions of dollars	Notional Value		Notional Value		Expiration Date
Interest rates	$	252	$	2,140	2022 to 2026

In January 2020, we entered into a 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 components 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 tables summarize 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 June 30,
	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	$	(2)	$	9	$	—	$	(2)	$	—	$	—	Sales and other operating revenues
Commodities	—		(8)		—		—		—		—		Cost of sales
Foreign currency	(86)		(19)		45		26		14		15		Interest expense
Interest rates	3		(105)		2		—		(6)		46		Interest expense
Derivatives not designated as hedges:
Commodities	—		—		—		—		14		1		Sales and other operating revenues
Commodities	—		—		—		—		77		(22)		Cost of sales
Foreign currency	—		—		—		—		(6)		(3)		Other income, net
Non-derivatives designated as hedges:
Long-term debt	(20)		(11)		—		—		—		—		Other income, net
Total	$	(105)	$	(134)	$	47	$	24	$	93	$	37

	Effects of Financial Instruments
	Six Months Ended June 30,
	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	$	(2)	$	(41)	$	—	$	(8)	$	—	$	—	Sales and other operating revenues
Commodities	—		38		—		4		—		—		Cost of sales
Foreign currency	78		51		(8)		(13)		30		32		Interest expense
Interest rates	(532)		(179)		2		(4)		90		73		Interest expense
Derivatives not designated as hedges:
Commodities	—		—		—		—		5		3		Sales and other operating revenues
Commodities	—		—		—		—		74		(19)		Cost of sales
Foreign currency	—		—		—		—		(10)		16		Other income, net
Non-derivatives designated as hedges:
Long-term debt	2		5		—		—		—		—		Other income, net
Total	$	(454)	$	(126)	$	(6)	$	(21)	$	189	$	105

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 and six months ended June 30, 2020 were losses of $2 million each, and for the three and six months ended June 30, 2019 were losses of $5 million and $3 million, respectively.

The derivative amounts excluded from the assessment of effectiveness for foreign currency contracts designated as net investment hedges recognized in interest expense for the three and six months ended June 30, 2020 were gains of $3 million and $7 million, respectively, and for the three and six months ended June 30, 2019 were gains of $5 million and $10 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 $1 million and $3 million decrease in interest expense during the three and six months ended June 30, 2020, respectively, and $2 million and $5 million increase in interest expense during the three and six months ended June 30, 2019, respectively.

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
Debt securities at June 30, 2020	$	432	$	1	$	—	$	433
Debt securities at December 31, 2019	162		—		—		162

No allowance for credit losses related to our available-for-sale debt securities was recorded for the six months ended June 30, 2020 or for the year ended December 31, 2019.

As of June 30, 2020, bonds classified as available-for-sale debt securities had maturities between 4 months and 39 months.

The proceeds from maturities and sales of our available-for-sale-debt securities during the three and six months ended June 30, 2020 and 2019 are summarized in the following table:

	Three Months Ended June 30,				Six Months Ended June 30,
Millions of dollars	2020		2019		2020		2019
Proceeds from maturities of available-for-sale debt securities	$	—	$	23	$	—	$	331
Proceeds from sales of available-for-sale debt securities	—		180		—		180

No gain or loss was realized in connection with the sales of our available-for-sale debt securities during the three and six months ended June 30, 2020. The gross realized gains and losses associated with the sale of available-for-sale debt securities during the three and six months ended June 30, 2019 were less than $1 million in each respective period.

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 June 30, 2020 and December 31, 2019.

Investments in Equity Securities—Our investment in equity securities primarily consist of limited partnership investments. At June 30, 2020 and December 31, 2019, we had investments in equity securities with a notional amount of $218 million and $34 million, respectively, and a fair value of $218 million and $34 million, respectively. These investments may be redeemed within 7 days following written notice from the Company.

We received proceeds $1 million related to the sale of our investments in equity securities during the six months ended June 30, 2020 and $170 million and $332 million during the three and six months ended in June 30, 2019, respectively. No proceeds related to the sale of investments in equity securities were received during the three months ended June 30, 2020.

The following table summarizes the portion of unrealized gains and losses for the equity securities that are outstanding for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
Millions of dollars	2020		2019		2020		2019
Net gains (losses) recognized during the period	$	—	$	(1)	$	—	$	6
Less: Net gains recognized during the period on securities sold	—		8		—		9
Unrealized losses recognized during the period	$	—	$	(9)	$	—	$	(3)