FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 19. 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.


		September 30, 2022				December 31, 2021
		Carrying amount (net)		Estimated fair value		Carrying amount (net)		Estimated fair value
Assets	Loans and other receivables	$	2,799	$	2,657	$	2,706	$	2,853

Liabilities	Borrowings (Note 11)	$	30,405	$	29,198	$	35,186	$	41,207
	Investment contracts (Note 12)	1,809		1,877		1,909		2,282

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. We use derivatives to manage currency risks related to foreign exchange, and interest rate and currency risk between financial assets and liabilities, and certain equity investments and commodity prices.


FAIR VALUE OF DERIVATIVES	September 30, 2022						December 31, 2021
	Gross Notional		All other assets		All other liabilities		Gross Notional		All other assets		All other liabilities
Currency exchange contracts	$	6,477	$	330	$	262	$	7,214	$	114	$	122
Interest rate contracts	50		2		1		2,071		75		4
Derivatives accounted for as hedges	$	6,527	$	333	$	263	$	9,285	$	188	$	126

Currency exchange contracts	$	53,416	$	1,682	$	2,390	$	64,097	$	794	$	756
Interest rate contracts	155		8		0		1369		5		1
Other contracts	1,662		218		53		1,674		387		10
Derivatives not accounted for as hedges	$	55,234	$	1,909	$	2,443	$	67,140	$	1,186	$	767

Gross derivatives	$	61,761	$	2,241	$	2,706	$	76,425	$	1,374	$	893

Netting and credit adjustments			$	(1,433)	$	(1,433)			$	(637)	$	(639)
Cash collateral adjustments			—		(173)				(54)		(42)
Net derivatives recognized in statement of financial position			$	808	$	1,101			$	684	$	212

Net accrued interest			$	—	$	—			$	10	$	5
Securities held as collateral			—		—				(2)		—
Net amount			$	808	$	1,101			$	691	$	217

FAIR VALUE HEDGES. At September 30, 2022, all fair value hedges were terminated due to exposure management actions, including debt maturities. Gains (losses) associated with the terminated hedging relationships will continue to amortize into interest expense until the bonds mature. The cumulative amount of hedging adjustments of $1,693 million (all on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $13,825 million. At September 30, 2021, the cumulative amount of hedging adjustments of $3,788 million (including $2,579 million on discontinued hedging relationships) was included in the carrying amount of the hedged liability of $32,679 million. The cumulative amount of hedging adjustments was primarily recorded in long-term borrowings.

CASH FLOW HEDGES AND NET INVESTMENT HEDGES


	Gain (loss) recognized in AOCI for the three months ended September 30				Gain (loss) recognized in AOCI for the nine months ended September 30
	2022		2021		2022		2021
Cash flow hedges(a)	$	(64)	$	(30)	$	(187)	$	1
Net investment hedges(b)	396		191		691		290

(a) Primarily related to currency exchange and interest rate contracts.

(b) The carrying value of foreign currency debt designated as net investment hedges was $3,019 million and $4,449 million at September 30, 2022 and 2021, respectively. The total reclassified from AOCI into earnings was insignificant for both the three and nine months ended September 30, 2022 and 2021.

The total amount in AOCI related to cash flow hedges of forecasted transactions was a $108 million loss at September 30, 2022. We expect to reclassify $72 million of loss to earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. At September 30, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately 13 years.

The table below presents the gains (losses) of our derivative financial instruments in the Statement of Earnings (Loss):


	Three months ended September 30, 2022								Three months ended September 30, 2021
	Revenues		Interest Expense		SG&A		Other(a)			Revenues		Debt Extinguishment Costs		Interest Expense		SG&A		Other(a)
	$	19,084	$	390	$	2,868	$	14,567		$	18,569	$	—	$	462	$	2,745	$	13,752

Effect of cash flow hedges	$	(3)	$	(4)	$	(1)	$	6		$	6			$	(7)	$	—	$	(18)

Hedged items														190
Derivatives designated as hedging instruments														(241)
Effect of fair value hedges														$	(52)

Currency exchange contracts	$	—			$	59	$	(521)		$	2			$	(18)	$	(66)	$	(149)
Interest rate, commodity and equity contracts(b)	1				(26)		56			—				2		1		41
Effect of derivatives not designated as hedges	$	1	$	—	$	33	$	(465)		$	2	$	—	$	(17)	$	(65)	$	(109)



	Nine months ended September 30, 2022								Nine months ended September 30, 2021
	Revenues		Interest Expense		SG&A		Other(a)			Revenues		Debt Extinguishment Costs		Interest Expense		SG&A		Other(a)
	$	54,769	$	1,191	$	9,239	$	39,127		$	53,893	$	1,416	$	1,450	$	8,503	$	41,315

Effect of cash flow hedges	$	1	$	(17)	$	(1)	$	(46)		$	20			$	(29)	$	1	$	(38)

Hedged items			127											1,375
Derivatives designated as hedging instruments			(143)											(1,510)
Effect of fair value hedges			$	(16)										$	(135)

Currency exchange contracts	$	—			$	(236)	$	(829)		$	(4)			$	(18)	$	48	$	251
Interest rate, commodity and equity contracts(b)	3				(185)		226			2		48		—		113		160
Effect of derivatives not designated as hedges	$	3	$	—	$	(421)	$	(603)		$	(1)	$	48	$	(19)	$	161	$	411

(a) Amounts are inclusive of cost of sales and other income (loss).

(b) SG&A was primarily driven by hedges of deferred incentive compensation, and other income (loss) by hedges of Baker Hughes equity sale. Both hedging programs were to offset the earnings impact of the underlying.

COUNTERPARTY CREDIT RISK. Our exposures to counterparties (including accrued interest), net of collateral we held, was $473 million and $564 million at September 30, 2022 and December 31, 2021, respectively. Counterparties' exposures to our derivative liability (including accrued interest), net of collateral posted by us, was $905 million and $159 million at September 30, 2022 and December 31, 2021, respectively.