Derivative Financial Instruments and Risk Management (Tables)

9 Months Ended

Sep. 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	September 30, 2021		December 31, 2020
Designated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	44	$	74
Machinery, Energy & Transportation	Long-term receivables – trade and other	33		71
Machinery, Energy & Transportation	Accrued expenses	(23)		(36)
Machinery, Energy & Transportation	Other liabilities	(7)		(1)
Financial Products	Receivables – trade and other	—		1
Financial Products	Long-term receivables – trade and other	115		1
Financial Products	Accrued expenses	(21)		(148)
Interest rate contracts
Machinery, Energy & Transportation	Long-term receivables – trade and other	—		4
Financial Products	Receivables – trade and other	8		2
Financial Products	Long-term receivables – trade and other	27		57
Financial Products	Accrued expenses	(8)		(5)
		$	168	$	20
Undesignated derivatives
Foreign exchange contracts
Machinery, Energy & Transportation	Receivables – trade and other	$	13	$	10
Machinery, Energy & Transportation	Long-term receivables – trade and other	1		—
Machinery, Energy & Transportation	Accrued expenses	(10)		(1)
Financial Products	Receivables – trade and other	54		17
Financial Products	Long-term receivables – trade and other	6		7
Financial Products	Accrued expenses	(12)		(107)
Commodity contracts
Machinery, Energy & Transportation	Receivables – trade and other	29		35
Machinery, Energy & Transportation	Long-term receivables – trade and other	2		2
Machinery, Energy & Transportation	Accrued expenses	(23)		—
Machinery, Energy & Transportation	Other liabilities	(1)		—
		$	59	$	(37)

Total notional amounts of derivative instruments

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

(Millions of dollars)	September 30, 2021		December 31, 2020
Machinery, Energy & Transportation	$	4,742	$	3,553
Financial Products	$	11,069	$	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 September 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	$	(47)	Sales of Machinery, Energy & Transportation	$	2	$	11,707
			Cost of goods sold	4		8,617
Financial Products	89		Interest expense of Financial Products	(3)		111
			Other income (expense)	87		225
Interest rate contracts
Financial Products	3		Interest expense of Financial Products	(5)		111
	$	45		$	85

	Three Months Ended September 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	$	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)

Cash Flow Hedges
	Nine Months Ended September 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	$	(40)	Sales of Machinery, Energy & Transportation	$	(21)	$	35,091
			Cost of goods sold	42		25,510
Financial Products	170		Interest expense of Financial Products	(1)		352
			Other income (expense)	167		751
Interest rate contracts
Machinery, Energy & Transportation	7		Interest expense excluding Financial Products	(2)		376
Financial Products	4		Interest expense of Financial Products	(21)		352
	$	141		$	164

	Nine Months Ended September 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	$	(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)

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, 2021		Three Months Ended September 30, 2020
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	2	$	8
Financial Products	Other income (expense)	44		(73)
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	(30)		6
		$	16	$	(59)
	Classification of Gains (Losses)	Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
Foreign exchange contracts
Machinery, Energy & Transportation	Other income (expense)	$	5	$	21
Financial Products	Other income (expense)	72		12
Commodity contracts
Machinery, Energy & Transportation	Other income (expense)	35		(25)
		$	112	$	8

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, 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	$	122	$	—	$	122	$	(53)	$	—	$	69
Financial Products	210		—		210		(39)		—		171
Total	$	332	$	—	$	332	$	(92)	$	—	$	240

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

September 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	$	(64)	$	—	$	(64)	$	53	$	—	$	(11)
Financial Products	(41)		—		(41)		39		—		(2)
Total	$	(105)	$	—	$	(105)	$	92	$	—	$	(13)

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)