As part of its risk management strategy, the Company enters into derivative contracts to hedge against interest rate and foreign currency risk. Certain derivative instruments designated as fair value hedges, cash flow hedges or net investment hedges are subject to hedge accounting. Derivative instruments that are not subject to hedge accounting are held as derivatives not designated as hedging instruments. The Company’s policies prohibit the use of derivatives for speculation or trading. At the inception of each hedge relationship, the Company documents its risk management objectives, procedures and accounting treatment. All of the Company’s interest-rate and certain foreign-exchange contracts are transacted under International Swaps and Derivatives Association (ISDA) master agreements. Each agreement permits the net settlement of amounts owed in the event of default and certain other termination events. For derivative financial instruments, the Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreements and is not required to post or receive collateral.

Exposure limits and minimum credit ratings are used to minimize the risks of counterparty default. The Company’s maximum exposure to potential default of its derivative counterparties is limited to the asset position of its derivative portfolio. The asset position of the Company’s derivative portfolio is $103.8 at September 30, 2019.

The Company uses regression analysis to assess effectiveness of interest-rate contracts and net investment hedges at inception and uses quantitative or qualitative analysis to assess subsequent effectiveness on a quarterly basis. For foreign-exchange contracts, the Company performs quarterly assessments to ensure that critical terms continue to match. All components of the derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Hedge accounting is discontinued prospectively when the Company determines that a derivative financial instrument has ceased to be a highly effective hedge. Cash flows from derivative instruments are included in Operating activities in the Condensed Consolidated Statements of Cash Flows.

Interest-Rate Contracts: The Company enters into various interest-rate contracts, including interest-rate swaps and cross currency interest-rate swaps. Interest-rate swaps involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual notional amounts in a single currency. Cross currency interest-rate swaps involve the exchange of notional amounts and interest payments in different currencies. The Company is exposed to interest-rate and exchange-rate risk caused by market volatility as a result of its borrowing activities. The objective of these contracts is to mitigate the fluctuations on earnings, cash flows and fair value of borrowings. Net amounts paid or received are reflected as adjustments to interest expense.

At September 30, 2019, the notional amount of the Company’s interest-rate contracts was $3,228.2. Notional maturities for all interest-rate contracts are $171.1 for the remainder of 2019, $636.6 for 2020, $1,361.6 for 2021, $696.2 for 2022, $132.6 for 2023, $149.0 for 2024 and $81.1 thereafter.

Foreign-Exchange Contracts: The Company enters into foreign-exchange contracts to hedge certain anticipated transactions and assets and liabilities denominated in foreign currencies, particularly the Canadian dollar, the euro, the British pound, the Australian dollar, the Brazilian real and the Mexican peso. The objective is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. The Company enters into foreign-exchange contracts as net investment hedges to reduce the foreign currency exposure from its investments in foreign subsidiaries. At September 30, 2019, the notional amount of the outstanding foreign-exchange contracts was $1,108.0. Foreign-exchange contracts mature within one year.

The following table presents the balance sheet classification, fair value, gross and pro forma net amounts of derivative financial instruments:

	September 30, 2019						December 31, 2018
	ASSETS			LIABILITIES			ASSETS			LIABILITIES
Derivatives designated under hedge accounting:
Interest-rate contracts:
Financial Services:
Other assets	$	82.7					$	84.5
Deferred taxes and other liabilities				$	26.8					$	18.5
Foreign-exchange contracts:
Truck, Parts and Other:
Other current assets		18.0						8.9
Accounts payable, accrued expenses and other					4.3						4.2
	$	100.7		$	31.1		$	93.4		$	22.7
Derivatives not designated as hedging instruments:
Foreign-exchange contracts:
Truck, Parts and Other:
Other current assets	$	.7					$	.4
Accounts payable, accrued expenses and other				$	.8					$	.9
Financial Services:
Other assets		2.4						.9
Deferred taxes and other liabilities					.1						1.0
	$	3.1		$	.9		$	1.3		$	1.9
Gross amounts recognized in Balance Sheets	$	103.8		$	32.0		$	94.7		$	24.6
Less amounts not offset in financial instruments:
Truck, Parts and Other:
Foreign-exchange contracts		(1.0	)		(1.0	)		(.9	)		(.9	)
Financial Services:
Interest-rate contracts		(6.9	)		(6.9	)		(3.9	)		(3.9	)
Pro forma net amount	$	95.9		$	24.1		$	89.9		$	19.8

The following table presents the amount of (income) expense from derivative financial instruments recognized in the Consolidated Statements of Comprehensive Income:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2019			2018			2019			2018
Truck, Parts and Other:
Cash flow hedges	$	(3.6	)	$	3.2		$	10.5		$	.7
Net investment hedges		2.3						2.3
Total	$	(1.3	)	$	3.2		$	12.8		$	.7

Financial Services:
Fair value hedges		.3			.4			1.2			1.3
Cash flow hedges		(35.0	)		(3.7	)		(23.3	)		(86.5	)
Total	$	(34.7	)	$	(3.3	)	$	(22.1	)	$	(85.2	)

Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings together with the changes in fair value of the hedged item attributable to the risk being hedged. The following table presents the amounts recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:

The above table excludes the cumulative basis adjustments on discontinued hedge relationships of ($1.8) and ($2.9) as of September 30, 2019 and December 31, 2018, respectively.

Substantially all of the Company’s interest-rate contracts and some foreign-exchange contracts have been designated as cash flow hedges. Changes in the fair value of derivatives designated as cash flow hedges are recorded in AOCI. Amounts in AOCI are reclassified into net income in the same period in which the hedged transaction affects earnings. The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is 8.8 years.

The following table presents the pre-tax effects of derivative instruments recognized in other comprehensive income (loss) (OCI):

	Three Months Ended					Nine Months Ended
	September 30, 2019					September 30, 2019
	INTEREST-		FOREIGN-			INTEREST-	FOREIGN-
	RATE		EXCHANGE			RATE	EXCHANGE
	CONTRACTS		CONTRACTS			CONTRACTS	CONTRACTS
Gain (loss) recognized in OCI:
Truck, Parts and Other			$	(1.0	)		$	(17.2	)
Financial Services	$	26.0
	$	26.0	$	(1.0	)		$	(17.2	)

	Three Months Ended					Nine Months Ended
	September 30, 2018					September 30, 2018
	INTEREST-		FOREIGN-			INTEREST-		FOREIGN-
	RATE		EXCHANGE			RATE		EXCHANGE
	CONTRACTS		CONTRACTS			CONTRACTS		CONTRACTS
Gain (loss) recognized in OCI:
Truck, Parts and Other			$	(11.3	)			$	(4.9	)
Financial Services	$	2.9				$	84.5
	$	2.9	$	(11.3	)	$	84.5	$	(4.9	)

The amount of gain recorded in AOCI at September 30, 2019 that is estimated to be reclassified into earnings in the following 12 months if interest rates and exchange rates remain unchanged is approximately $10.3, net of taxes. The fixed interest earned on finance receivables will offset the amount recognized in interest expense, resulting in a stable interest margin consistent with the Company’s risk management strategy.

The amount of gains or losses reclassified out of AOCI into net income based on the probability that the original forecasted transactions would not occur was nil for the three and nine months ended September 30, 2019 and 2018.

Changes in the fair value of derivatives designated as net investment hedges are recorded in AOCI as an adjustment to the Cumulative Translation Adjustment (CTA). At September 30, 2019, the notional amount of the outstanding net investment hedges was $348.2. For the three and nine months ended September 30, 2019 the pre-tax gain recognized in OCI for the net investment hedges was $14.4.

For other risk management purposes, the Company enters into derivative instruments that do not qualify for hedge accounting. These derivative instruments are used to mitigate the risk of market volatility arising from borrowings and foreign currency denominated transactions. Changes in the fair value of derivatives not designated as hedging instruments are recorded in earnings in the period in which the change occurs.

The (income) expense recognized in earnings related to derivatives not designated as hedging instruments was as follows:

	Three Months Ended				Nine Months Ended
	September 30, 2019				September 30, 2019
	INTEREST-	FOREIGN-			INTEREST-	FOREIGN-
	RATE	EXCHANGE			RATE	EXCHANGE
	CONTRACTS	CONTRACTS			CONTRACTS	CONTRACTS
Truck, Parts and Other:
Cost of sales and revenues		$	.8			$	.8
Interest and other (income), net			2.0				4.6
Financial Services:
Interest and other borrowing expenses			(8.3	)			(13.0	)
Total		$	(5.5	)		$	(7.6	)

	Three Months Ended				Nine Months Ended
	September 30, 2018				September 30, 2018
	INTEREST-	FOREIGN-			INTEREST-	FOREIGN-
	RATE	EXCHANGE			RATE	EXCHANGE
	CONTRACTS	CONTRACTS			CONTRACTS	CONTRACTS
Truck, Parts and Other:
Cost of sales and revenues		$	(1.1	)		$	.1
Interest and other (income), net			(.3	)			3.4
Financial Services:
Interest and other borrowing expenses			(.5	)			(8.9	)
Selling, general and administrative			1.1				1.6
Total		$	(.8	)		$	(3.8	)