FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

NOTE 17. FINANCIAL INSTRUMENTS

The following table provides information about assets and liabilities not carried at fair value and excludes finance leases, equity securities without readily determinable fair value and non-financial assets and liabilities. Substantially all of these assets are considered to be Level 3 and the vast majority of our liabilities’ fair value are considered Level 2.

	March 31, 2020				December 31, 2019
(In millions)	Carrying amount (net)		Estimated fair value		Carrying amount (net)		Estimated fair value
Assets
Loans and other receivables	$	3,912	$	3,777	$	4,113	$	4,208
Liabilities
Borrowings (Note 11)	85,154		85,033		90,882		97,754
Investment contracts (Note 12)	2,169		2,485		2,191		2,588

The lower fair value in relation to carrying value for borrowings at March 31, 2020 compared to December 31, 2019 was driven primarily by widening GE credit spreads, partially offset by a decline in market interest rates. Unlike the carrying amount, estimated fair value of borrowings included $913 million and $1,106 million of accrued interest at March 31, 2020 and December 31, 2019, respectively.

Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.

DERIVATIVES AND HEDGING. Our policy requires that derivatives are used solely for managing risks and not for speculative purposes. Total gross notional was $101,209 million ($53,808 million in GE Capital and $47,401 million in GE) and $98,018 million ($55,704 million in GE Capital and $42,314 million in GE) at March 31, 2020 and December 31, 2019, respectively. GE Capital notional relates primarily to managing interest rate and currency risk between financial assets and liabilities, and GE notional relates primarily to managing currency risk.

FAIR VALUE OF DERIVATIVES	March 31, 2020								December 31, 2019
(In millions)	Gross Notional		All other assets			All other liabilities			Gross Notional		All other assets			All other liabilities
Interest rate contracts	$	23,617	$	2,191		$	9		$	23,918	$	1,636		$	11
Currency exchange contracts	7,307		170			277			7,044		99			46
Derivatives accounted for as hedges	$	30,924	$	2,361		$	287		$	30,961	$	1,734		$	57
Interest rate contracts	$	2,447	$	29		$	7		$	3,185	$	18		$	12
Currency exchange contracts	66,240		1,105			1,477			62,165		697			744
Other contracts	1,598		5			103			1,706		123			40
Derivatives not accounted for as hedges	$	70,285	$	1,139		$	1,587		$	67,056	$	838		$	796
Gross derivatives	$	101,209	$	3,500		$	1,874		$	98,018	$	2,572		$	853
Netting and credit adjustments			$	(1,145	)	$	(1,155	)			$	(546	)	$	(546	)
Cash collateral adjustments			(1,297		)	(198		)			(1,286		)	(105		)
Net derivatives recognized in statement of financial position			$	1,058		$	520				$	740		$	202
Net accrued interest			$	71		$	1				$	182		$	1
Securities held as collateral			(693		)	—					(469		)	—
Net amount			$	436		$	521				$	452		$	203

Fair value of derivatives in our consolidated Statement of Financial Position excluded accrued interest. Cash collateral adjustments excluded excess collateral received and posted of $198 million and $995 million at March 31, 2020, respectively, and $104 million and $603 million at December 31, 2019, respectively. Securities held as collateral excluded excess collateral received of $45 million and $27 million at March 31, 2020 and December 31, 2019 respectively.

FAIR VALUE HEDGES. We use derivatives to hedge the effects of interest rate and currency exchange rate changes on our borrowings. At March 31, 2020, the cumulative amount of hedging adjustments of $6,527 million (including $2,348 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $53,272 million. At March 31, 2019, the cumulative amount of hedging adjustments of $3,712 million (including $2,685 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $58,885 million. The cumulative amount of hedging adjustments was primarily recorded in long-term borrowings.

CASH FLOW HEDGES. Changes in the fair value of cash flow hedges are recorded in Accumulated Other Comprehensive Income (AOCI) and recorded in earnings in the period in which the hedged transaction occurs. The gain (loss) recognized in AOCI was $(313) million and $47 million for the three months ended March 31, 2020 and 2019, respectively. The gain (loss) reclassified from AOCI to earnings was $(59) million and zero for the three months ended March 31, 2020 and 2019, respectively. These amounts were primarily related to currency exchange and interest rate contracts.

The total amount in AOCI related to cash flow hedges of forecasted transactions was a $183 million loss at March 31, 2020. We expect to reclassify $125 million of loss to earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. For the three months ended March 31, 2020 and 2019, we recognized $18 million of loss, primarily as a result of the disposition of BioPharma, and insignificant gains and losses, respectively, related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. At March 31, 2020 and 2019, the maximum term of derivative instruments that hedge forecasted transactions was 15 years and 14 years, respectively.

NET INVESTMENT HEDGES. For these hedges, the portion of the fair value changes of the derivatives or debt instruments that relates to changes in spot currency exchange rates is recorded in a separate component of AOCI. The portion of the fair value changes of the derivatives related to differences between spot and forward rates is recorded in earnings each period. The amounts recorded in AOCI affect earnings if the hedged investment is sold, substantially liquidated, or control is lost.

The total gain (loss) recognized in AOCI on hedging instruments for the three months ended March 31, 2020 and 2019 was $158 million and $(68) million, respectively, comprising $109 million and $(27) million on currency exchange contracts and $48 million and $(41) million on foreign currency debt, respectively. The total gain (loss) excluded from assessment and recognized in earnings was $2 million and $8 million for the three months ended March 31, 2020 and 2019, respectively.

The carrying value of foreign currency debt designated as net investment hedges was $9,145 million and $12,502 million at

March 31, 2020 and 2019, respectively. The gain (loss) reclassified from AOCI into earnings was zero and $6 million for the three months ended March 31, 2020 and 2019, respectively.

EFFECTS OF DERIVATIVES ON EARNINGS. All derivatives are marked to fair value on our balance sheet, whether they are designated in a hedging relationship for accounting purposes or are used as economic hedges. For derivatives not designated as hedging instruments, substantially all of the gain or loss recognized in earnings is offset by either the current period change in value of underlying exposures, which is recorded in earnings in the current period or a future period when the recording of the exposures occur.

The table below presents the effect of our derivative financial instruments in the consolidated Statement of Earnings:

	Three months ended March 31, 2020															Three months ended March 31, 2019
(In millions)	Revenues			Cost of sales			Interest Expense			SG&A			Other Income			Revenues			Cost of sales			Interest Expense			SG&A			Other Income
Total amounts presented in the consolidated Statement of Earnings	$	20,524		$	15,695		$	794		$	3,065		$	6,869		$	22,202		$	16,208		$	1,065		$	3,402		$	847
Total effect of cash flow hedges	$	(21	)	$	(25	)	$	(10	)	$	(3	)	$	—		$	20		$	(9	)	$	(10	)	$	(1	)	$	—
Hedged items							$	(2,480	)													$	(527	)
Derivatives designated as hedging instruments							2,511															515
Total effect of fair value hedges							$	31														$	(11	)
Interest rate contracts	$	(23	)	$	—		$	(9	)	$	—		$	—		$	(4	)	$	—		$	(16	)	$	—		$	—
Currency exchange contracts	(521		)	13			—			54			11			390			9			—			(45		)	3
Other	—			—			—			(160		)	(22		)	—			—			96			—			13
Total effect of derivatives not designated as hedges	$	(545	)	$	13		$	(9	)	$	(106	)	$	(12	)	$	386		$	9		$	80		$	(45	)	$	16

The amount excluded for cash flow hedges which is recognized in earnings was $15 million and zero for the three months ended March 31, 2020 and 2019, respectively.

COUNTERPARTY CREDIT RISK. Fair values of our derivatives can change significantly from period to period based on, among other factors, market movements and changes in our positions. We manage counterparty credit risk (the risk that counterparties will default and not make payments to us according to the terms of our agreements) on an individual counterparty basis. Where we have agreed to netting of derivative exposures with a counterparty, we net our exposures with that counterparty and apply the value of collateral posted to us to determine the exposure. We actively monitor these net exposures against defined limits and take appropriate actions in response, including requiring additional collateral. Our exposures to counterparties (including accrued interest), net of collateral we held, was $270 million and $368 million at March 31, 2020 and December 31, 2019, respectively. Counterparties' exposures to our derivative liability (including accrued interest), net of collateral posted by us, was $463 million and $159 million at March 31, 2020 and December 31, 2019, respectively.