Derivative Financial Instruments and Risk Management (Tables)

6 Months Ended

Jun. 30, 2021

Derivative

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	June 30, 2021		December 31, 2020
Designated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	59	$	74
Machinery, Energy & Transportation	Long-term receivables – trade and other	64		71
Machinery, Energy & Transportation	Accrued expenses	(23)		(36)
Machinery, Energy & Transportation	Other liabilities	—		(1)
Financial Products	Receivables – trade and other	—		1
Financial Products	Long-term receivables – trade and other	49		1
Financial Products	Accrued expenses	(54)		(148)
Interest rate contracts
Machinery, Energy & Transportation	Long-term receivables – trade and other	—		4
Financial Products	Receivables – trade and other	—		2
Financial Products	Long-term receivables – trade and other	38		57
Financial Products	Accrued expenses	(8)		(5)
		$	125	$	20
Undesignated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	12	$	10
Machinery, Energy & Transportation	Accrued expenses	(5)		(1)
Financial Products	Receivables – trade and other	43		17
Financial Products	Long-term receivables – trade and other	6		7
Financial Products	Accrued expenses	(18)		(107)
Commodity contracts
Machinery, Energy & Transportation	Receivables – trade and other	56		35
Machinery, Energy & Transportation	Long-term receivables – trade and other	3		2
Machinery, Energy & Transportation	Accrued expenses	(1)		—
		$	96	$	(37)

Total notional amounts of derivative instruments

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

(Millions of dollars)	June 30, 2021		December 31, 2020
Machinery, Energy & Transportation	$	3,859	$	3,553
Financial Products	$	10,575	$	11,260

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 June 30, 2021
			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	$	54	Sales of Machinery, Energy & Transportation	$	(10)	$	12,193
			Cost of goods sold	10		8,881
Financial Products	(38)		Interest expense of Financial Products	—		116
			Other income (expense)	(32)		201
Interest rate contracts
Machinery, Energy & Transportation	—		Interest expense excluding Financial Products	(1)		120
Financial Products	1		Interest expense of Financial Products	(6)		116
	$	17		$	(39)

	Three Months Ended June 30, 2020
			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	$	(34)	Sales of Machinery, Energy & Transportation	$	11	$	9,310
			Cost of goods sold	(32)		7,113
Financial Products	(35)		Interest expense of Financial Products	9		149
			Other income (expense)	(43)		29
Interest rate contracts
Machinery, Energy & Transportation	(12)		Interest expense excluding Financial Products	(1)		135
Financial Products	(9)		Interest expense of Financial Products	(19)		149
	$	(90)		$	(75)

Cash Flow Hedges
	Six Months Ended June 30, 2021
			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	$	7	Sales of Machinery, Energy & Transportation	$	(23)	$	23,384
			Cost of goods sold	38		16,893
Financial Products	81		Interest expense of Financial Products	2		241
			Other income (expense)	80		526
Interest rate contracts
Machinery, Energy & Transportation	7		Interest expense excluding Financial Products	(2)		262
Financial Products	1		Interest expense of Financial Products	(16)		241
	$	96		$	79

	Six Months Ended June 30, 2020
			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	$	(124)	Sales of Machinery, Energy & Transportation	$	16	$	19,224
			Cost of goods sold	(43)		14,379
Financial Products	66		Interest expense of Financial Products	20		324
			Other income (expense)	28		251
Interest rate contracts
Machinery, Energy & Transportation	(16)		Interest expense excluding Financial Products	(2)		248
Financial Products	(24)		Interest expense of Financial Products	(24)		324
	$	(98)		$	(5)

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 June 30, 2021		Three Months Ended June 30, 2020
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	11	$	16
Financial Products	Other income (expense)	(58)		(23)
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	45		15
		$	(2)	$	8
	Classification of Gains (Losses)	Six Months Ended June 30, 2021		Six Months Ended June 30, 2020
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	3	$	13
Financial Products	Other income (expense)	28		85
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	65		(31)
		$	96	$	67

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:

June 30, 2021							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	$	194	$	—	$	194	$	(29)	$	—	$	165
Financial Products	136		—		136		(55)		—		81
Total	$	330	$	—	$	330	$	(84)	$	—	$	246

December 31, 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	$	196	$	—	$	196	$	(38)	$	—	$	158
Financial Products	85		—		85		(57)		—		28
Total	$	281	$	—	$	281	$	(95)	$	—	$	186

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

June 30, 2021							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	$	(29)	$	—	$	(29)	$	29	$	—	$	—
Financial Products	(80)		—		(80)		55		—		(25)
Total	$	(109)	$	—	$	(109)	$	84	$	—	$	(25)

December 31, 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	$	(38)	$	—	$	(38)	$	38	$	—	$	—
Financial Products	(260)		—		(260)		57		—		(203)
Total	$	(298)	$	—	$	(298)	$	95	$	—	$	(203)