Derivative Financial Instruments and Risk Management (Tables)

9 Months Ended

Sep. 30, 2020

Location and fair value of derivative instruments reported in the Consolidated Statement of Financial Position

The location and fair value of derivative instruments reported in the Consolidated Statement of Financial Position were as follows:



(Millions of dollars)	Consolidated Statement of Financial	Asset (Liability) Fair Value
	Position Location	September 30, 2020		December 31, 2019
Designated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	29	$	18
Machinery, Energy & Transportation	Long-term receivables – trade and other	28		9
Machinery, Energy & Transportation	Accrued expenses	(40)		(20)
Machinery, Energy & Transportation	Other liabilities	(21)		—
Financial Products	Receivables – trade and other	16		54
Financial Products	Long-term receivables – trade and other	—		13
Financial Products	Accrued expenses	(39)		(3)
Interest rate contracts

Machinery, Energy & Transportation	Long-term receivables – trade and other	1		—


Financial Products	Receivables – trade and other	3		—
Financial Products	Long-term receivables – trade and other	60		5
Financial Products	Accrued expenses	(12)		(25)
		$	25	$	51
Undesignated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	3	$	1


Financial Products	Receivables – trade and other	57		7
Financial Products	Long-term receivables – trade and other	12		5
Financial Products	Accrued expenses	(18)		(22)




Commodity contracts
Machinery, Energy & Transportation	Receivables – trade and other	9		4
Machinery, Energy & Transportation	Long-term receivables – trade and other	1		—
Machinery, Energy & Transportation	Accrued expenses	(7)		(1)

		$	57	$	(6)

Total notional amounts of derivative instruments

The total notional amounts of the derivative instruments were as follows:



(Millions of dollars)	September 30, 2020		December 31, 2019

Machinery, Energy & Transportation	$	3,479	$	2,563
Financial Products	$	11,538	$	8,931

Effect of derivatives designated as hedging instruments on Consolidated Statement of Results of Operations

The effect of derivatives designated as hedging instruments on the Consolidated Statement of Results of Operations was as follows:



Cash Flow Hedges
	Three Months Ended September 30, 2020
			Recognized in Earnings
(Millions of dollars)	Amount of Gains (Losses) Recognized in AOCI		Classification of Gains (Losses)	Amount of Gains (Losses) Reclassified from AOCI		Amount of the line items in the Consolidated Statement of Results of Operations
Foreign exchange contracts
Machinery, Energy & Transportation	$	66	Sales of Machinery, Energy & Transportation	$	(6)	$	9,228
			Cost of goods sold	(15)		6,919
Financial Products	(64)		Interest expense of Financial Products	8		137
			Other income (expense)	(63)		14
Interest rate contracts
Machinery, Energy & Transportation	2		Interest expense excluding Financial Products	(1)		136

Financial Products	1		Interest expense of Financial Products	(16)		137
	$	5		$	(93)


	Three Months Ended September 30, 2019
			Recognized in Earnings
	Amount of Gains (Losses) Recognized in AOCI		Classification of Gains (Losses)	Amount of Gains (Losses) Reclassified from AOCI		Amount of the line items in the Consolidated Statement of Results of Operations
Foreign exchange contracts
Machinery, Energy & Transportation	$	(13)	Sales of Machinery, Energy & Transportation	$	3	$	11,974

Financial Products	100		Interest expense of Financial Products	9		189
			Other income (expense)	89		88
Interest rate contracts
Machinery, Energy & Transportation	—		Interest expense excluding Financial Products	(2)		103
Financial Products	(12)		Interest expense of Financial Products	(3)		189
	$	75		$	96



Cash Flow Hedges
	Nine Months Ended September 30, 2020
			Recognized in Earnings
(Millions of dollars)	Amount of Gains (Losses) Recognized in AOCI		Classification of Gains (Losses)	Amount of Gains (Losses) Reclassified from AOCI		Amount of the line items in the Consolidated Statement of Results of Operations
Foreign exchange contracts

Machinery, Energy & Transportation	$	(58)	Sales of Machinery, Energy & Transportation	$	10	$	28,452
			Cost of goods sold	(58)		21,298
Financial Products	2		Interest expense of Financial Products	28		461
			Other income (expense)	(35)		265
Interest rate contracts
Machinery, Energy & Transportation	(14)		Interest expense excluding Financial Products	(3)		384

Financial Products	(23)		Interest expense of Financial Products	(40)		461
	$	(93)		$	(98)


	Nine Months Ended September 30, 2019
			Recognized in Earnings
	Amount of Gains (Losses) Recognized in AOCI		Classification of Gains (Losses)	Amount of Gains (Losses) Reclassified from AOCI		Amount of the line items in the Consolidated Statement of Results of Operations
Foreign exchange contracts
Machinery, Energy & Transportation	$	8	Sales of Machinery, Energy & Transportation	$	4	$	38,369
			Cost of goods sold	(4)		27,513
Financial Products	132		Interest expense of Financial Products	23		571
			Other income (expense)	91		316
Interest rate contracts
Machinery, Energy & Transportation	—		Interest expense excluding Financial Products	(3)		309
Financial Products	(72)		Interest expense of Financial Products	(2)		571
	$	68		$	109

Effect of derivatives not designated as hedging instruments on the Consolidated Statement of Results of Operations

The effect of derivatives not designated as hedging instruments on the Consolidated Statement of Results of Operations was as follows:



(Millions of dollars)	Classification of Gains (Losses)	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	8	$	(1)
Financial Products	Other income (expense)	(73)		15
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	6		(6)
		$	(59)	$	8

	Classification of Gains (Losses)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	21	$	12
Financial Products	Other income (expense)	12		(24)
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	(25)		10
		$	8	$	(2)

Effect of net settlement provisions of the master netting agreements on derivative assets

The effect of the net settlement provisions of the master netting agreements on our derivative balances upon an event of default or termination event was as follows:



September 30, 2020							Gross Amounts Not Offset in the Statement of Financial Position
(Millions of dollars)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amount of Assets Presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount of Assets
Derivatives
Machinery, Energy & Transportation	$	71	$	—	$	71	$	(55)	$	—	$	16
Financial Products	148		—		148		(37)		—		111
Total	$	219	$	—	$	219	$	(92)	$	—	$	127


December 31, 2019							Gross Amounts Not Offset in the Statement of Financial Position
(Millions of dollars)	Gross Amount of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amount of Assets Presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Received		Net Amount of Assets
Derivatives
Machinery, Energy & Transportation	$	32	$	—	$	32	$	(13)	$	—	$	19
Financial Products	84		—		84		(21)		—		63
Total	$	116	$	—	$	116	$	(34)	$	—	$	82

Effect of net settlement provisions of the master netting agreements on derivative liabilities


September 30, 2020							Gross Amounts Not Offset in the Statement of Financial Position
(Millions of dollars)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amount of Liabilities Presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Pledged		Net Amount of Liabilities
Derivatives
Machinery, Energy & Transportation	$	(68)	$	—	$	(68)	$	55	$	—	$	(13)
Financial Products	(69)		—		(69)		37		—		(32)
Total	$	(137)	$	—	$	(137)	$	92	$	—	$	(45)


December 31, 2019							Gross Amounts Not Offset in the Statement of Financial Position
(Millions of dollars)	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amount of Liabilities Presented in the Statement of Financial Position		Financial Instruments		Cash Collateral Pledged		Net Amount of Liabilities
Derivatives
Machinery, Energy & Transportation	$	(21)	$	—	$	(21)	$	13	$	—	$	(8)
Financial Products	(50)		—		(50)		21		—		(29)
Total	$	(71)	$	—	$	(71)	$	34	$	—	$	(37)