Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

Guarantees

We provide credit guarantees and residual value guarantees to third parties for financing and leasing associated with Caterpillar machinery. In addition, we provide standby letters of credit issued to third parties on behalf of our customers. These guarantees and standby letters of credit have varying terms and beneficiaries and are generally secured by customer assets.

No significant loss has been experienced or is anticipated under any of these guarantees. At December 31, 2021 and 2020, the related recorded liability was less than $1 million. The maximum potential amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered under recourse or collateralized provisions) we could be required to make under the guarantees was $36 million and $40 million at December 31, 2021 and 2020, respectively.

We provide guarantees to purchase certain loans of Caterpillar dealers from a special-purpose corporation (SPC) that qualifies as a VIE (see Note 1 for additional information regarding the accounting guidance on the consolidation of VIEs). The purpose of the SPC is to provide short-term working capital loans to Caterpillar dealers. This SPC issues commercial paper and uses the proceeds to fund its loan program. We receive a fee for providing this guarantee. We are the primary beneficiary of the SPC as our guarantees result in us having both the power to direct the activities that most significantly impact the SPC’s economic performance and the obligation to absorb losses and therefore we have consolidated the financial statements of the SPC. As of December 31, 2021 and 2020, the SPC’s assets of $888 million and $1.03 billion, respectively, were primarily comprised of loans to dealers, which are included in Finance receivables, net in the Consolidated Statements of Financial Position, and the SPC’s liabilities of $888 million and $1.03 billion, respectively, were primarily comprised of commercial paper, which is included in Short-term borrowings in the Consolidated Statements of Financial Position. The assets of the SPC are not available to pay our creditors. We may be obligated to perform under the guarantee if the SPC experiences losses. No loss has been experienced or is anticipated under this loan purchase agreement.

Lending commitments

We have commitments to extend credit to customers and Caterpillar dealers through lines of credit and other pre-approved credit arrangements. We apply the same credit policies and approval process for these commitments to extend credit as we do for other financing. Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding. The amount of unused commitments to extend credit to Caterpillar dealers was $10.76 billion at December 31, 2021. We generally have the right to unconditionally cancel, alter, or amend the terms of these dealer commitments at any time. The amount of unused commitments to extend credit to customers was $641 million at December 31, 2021. A significant portion of these commitments is not expected to be fully drawn upon; therefore, the total commitment amounts do not represent a future cash requirement.

Lease commitments

We lease certain property, vehicles and other equipment through operating leases. We recognize a lease liability and corresponding right-of-use asset based on the present value of lease payments. To determine the present value of lease payments for most of our leases, we use our incremental borrowing rate based on information available on the lease commencement date. We have elected not to separate payments for lease components from non-lease components. Our lease agreements may include options to extend or terminate the lease. When it is reasonably certain that we will exercise that option, we have included the option in the recognition of right-of-use assets and lease liabilities. Our variable lease costs primarily include maintenance, taxes and insurance. We have elected not to recognize right-of-use assets or lease liabilities for leases with a term of twelve months or less.

The components of lease cost were as follows for the years ended December 31:


(Millions of dollars)	2021		2020
Operating lease cost	$	7	$	8
Short-term lease cost	$	—	$	1
Variable lease cost	$	1	$	—

Operating lease right-of-use assets are recognized in Other assets in the Consolidated Statements of Financial Position. The operating lease liabilities are recognized in Other liabilities in the Consolidated Statements of Financial Position. Supplemental information related to operating leases as of December 31, was as follows:


(Millions of dollars)	2021			2020
Other assets	$	21		$	23
Other liabilities	$	21		$	24
Weighted average remaining lease term	5 years			5 years
Weighted average discount rates	1.6		%	1.9		%

At December 31, 2021, maturities of operating lease liabilities were as follows:


(Millions of dollars)
2022	$	6
2023	5
2024	4
2025	3
2026	2
Thereafter	3
Total lease payments	23
Less: imputed interest	(2)
Total	$	21

Supplemental cash flow information related to operating leases was as follows for the years ended December 31:


(Millions of dollars)	2021		2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	7	$	8
Right-of-use assets obtained in exchange for operating lease obligations	$	5	$	8

Litigation and claims

We are involved in unresolved legal actions that arise in the normal course of business. Although it is not possible to predict with certainty the outcome of our unresolved legal actions, we believe that these unresolved legal actions will neither individually nor in the aggregate have a material adverse effect on our consolidated results of operations, financial position or liquidity.