v3.25.4
Fair Value Measurements and Financial Instruments
 12 Months Ended
Dec. 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments
Note 9. Fair Value Measurements and Financial Instruments
Recurring Fair Value Measurements
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2025:
(dollars in millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Assets:
Prepaid expenses and other:
Fixed income securities$— $40 $— $40 
Cross currency swaps— 4 — 4 
Foreign exchange forwards— 1 — 1 
Other assets:
Marketable equity securities
453 — — 453 
Fixed income securities— 344 — 344 
Cross currency swaps— 1,417 — 1,417 
Total$453 $1,806 $— $2,259 
Liabilities:
Other current liabilities:
Interest rate swaps$— $1,910 $— $1,910 
Cross currency swaps— 222 — 222 
Foreign exchange forwards— 1 — 1 
Other liabilities:
Interest rate swaps— 3,171 — 3,171 
Cross currency swaps— 951 — 951 
Total$— $6,255 $— $6,255 
(1) Quoted prices in active markets for identical assets or liabilities.
(2) Observable inputs other than quoted prices in active markets for identical assets and liabilities.
(3) Unobservable pricing inputs in the market.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2024:
(dollars in millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Assets:
Prepaid expenses and other:
Fixed income securities$— $16 $— $16 
Interest rate caps— 3 — 3 
Other assets:
  Fixed income securities— 269 — 269 
  Cross currency swaps— 500 — 500 
Total$— $788 $— $788 
Liabilities:
Other current liabilities:
Interest rate swaps$— $1,964 $— $1,964 
Cross currency swaps— 345 — 345 
  Foreign exchange forwards— 5 — 5 
Interest rate caps— 3 — 3 
Other liabilities:
  Interest rate swaps— 3,338 — 3,338 
  Cross currency swaps— 2,344 — 2,344 
Total$— $7,999 $— $7,999 
(1) Quoted prices in active markets for identical assets or liabilities.
(2) Observable inputs other than quoted prices in active markets for identical assets and liabilities.
(3) Unobservable pricing inputs in the market.
Certain of our equity investments do not have readily determinable fair values and are excluded from the tables above. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer and are included in Investments in unconsolidated businesses in our consolidated balance sheets. As of December 31, 2025 and December 31, 2024, the carrying amount of our investments without readily determinable fair values was $710 million and $724 million, respectively. During 2025, there were insignificant adjustments due to observable price changes and insignificant impairment charges. Cumulative adjustments due to observable price changes and impairment charges were approximately $191 million and $144 million, respectively.

Marketable equity securities are valued using quoted prices in active markets for identical assets and thus are classified within Level 1.

Fixed income securities consist primarily of investments in municipal bonds. The valuation of the fixed income securities is based on the quoted prices for similar assets in active markets or identical assets in inactive markets or models that apply inputs from observable market data. The valuation determines that these securities are classified as Level 2.

Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our derivative instruments are recorded on a gross basis.

We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period.

Fair Value of Short-term and Long-term Debt
The fair value of our debt is determined using various methods, including quoted prices for identical debt instruments, which is a Level 1 measurement, as well as quoted prices for similar debt instruments with comparable terms and maturities, which is a Level 2 measurement.

The fair value of our short-term and long-term debt, excluding finance leases, was as follows:

Fair Value
(dollars in millions)Carrying
Amount		Level 1Level 2Level 3Total
At December 31, 2025
$155,639 $91,664 $62,640 $— $154,304 
At December 31, 2024
141,665 81,552 55,464 — 137,016 

Derivative Instruments
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates. We employ risk management strategies, which may include the use of a variety of derivatives including interest rate swaps, cross currency swaps, forward starting interest rate swaps, treasury rate locks, interest rate caps, swaptions and foreign exchange forwards. We do not hold derivatives for trading purposes.

The following table sets forth the notional amounts of our outstanding derivative instruments:
(dollars in millions)
At December 31,20252024
Interest rate swaps$23,674 $24,025 
Cross currency swaps36,074 32,053 
Foreign exchange forwards570 620 
The following tables summarize the activities of our designated derivatives:
(dollars in millions)
Years Ended December 31,20252024
Interest Rate Swaps:
Notional value entered into$634 $— 
Notional value settled985 2,046 
Pre-tax gain (loss) recognized in Interest expense(10)4 
Cross Currency Swaps:
Notional value entered into6,191 2,146 
Notional value settled2,170 3,619 
Pre-tax gain (loss) on cross currency swaps recognized in Interest expense3,476 (1,839)
Pre-tax gain (loss) on hedged debt recognized in Interest expense(3,476)1,839 
Excluded components recognized in Other comprehensive income (loss)
(1,131)730 
Initial value of the excluded component amortized into Interest expense92 96 
Treasury Rate Locks:
Notional value entered into6,000 1,000 
    Notional value settled6,000 1,000 
Pre-tax gain (loss) recognized in Other comprehensive income (loss)
(121)(21)

(dollars in millions)
Years Ended December 31,20252024
Other, net Cash Flows from Operating Activities:
  Cash paid for settlement of interest rate swaps
$(45)$(57)
  Cash received (paid) for settlement of treasury rate locks(1)
— (21)
Other, net Cash Flows from Financing Activities:
Cash paid for settlement of cross currency swaps, net(91)(243)
(1) In 2025, treasury rate locks settlement payments amounting to $121 million were deferred by incorporating the settlement amounts into the cash flows due of certain fixed-to-float interest rate swaps executed in November 2025. Inclusion of the treasury rate locks settlement amounts into the cash flows of these fixed-to-float interest rate swaps resulted in an other-than-insignificant financing element at inception. As such, the cash flows associated with these interest rate swaps will be classified as financing activities in the consolidated statements of cash flows.

The following table displays the amounts recorded in Long-term debt in our consolidated balance sheets related to cumulative basis adjustments for our interest rate swaps designated as fair value hedges. The cumulative amounts exclude cumulative basis adjustments related to foreign exchange risk.
(dollars in millions)
At December 31,20252024
Carrying amount of hedged liabilities$18,815 $18,863 
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities(4,841)(5,192)
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting has been discontinued214 281 

Interest Rate Swaps
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value in our consolidated balance sheets as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are primarily offset by changes in the fair value of the hedged debt due to changes in interest rates.

Cross Currency Swaps
We have entered into cross currency swaps to exchange our British Pound Sterling, Euro, Swiss Franc, Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses. These swaps are designated as fair value hedges. We record the cross currency swaps at fair value in our consolidated balance sheets as assets and liabilities. Changes in the fair value of the cross currency swaps attributable to changes in the spot rate of the hedged item and changes in the recorded value of the hedged debt due to changes in spot rates are recorded in the same income statement line item. We present exchange gains and losses from the conversion of foreign currency denominated debt as a part of Interest expense. During the years ended December 31, 2025 and 2024, these amounts completely offset each other and no net gain or loss was recorded.
Changes in the fair value of cross currency swaps attributable to time value and cross currency basis spread are initially recorded to Other comprehensive income (loss). Unrealized gains or losses on excluded components are recorded in Other comprehensive income (loss) and are recognized into Interest expense on a systematic and rational basis through the swap accrual over the life of the hedging instrument.

On March 31, 2022, we elected to de-designate our cross currency swaps previously designated as cash flow hedges and re-designated these swaps as fair value hedges. The amount remaining in Accumulated other comprehensive loss related to cash flow hedges on the date of transition will be reclassified to earnings when the hedged item is recognized in earnings or when it becomes probable that the forecasted transactions will not occur. For the fair value hedges, we elected to exclude the change in fair value of the cross currency swaps related to both time value and cross currency basis spread from the assessment of hedge effectiveness (the excluded components). The initial value of the excluded components of $1.0 billion as of March 31, 2022 will continue to be amortized into Interest expense over the remaining life of the hedging instruments. During the years ended December 31, 2025 and 2024, the amortization of the initial value of the excluded component completely offset the amortization related to the amount remaining in Other comprehensive income (loss) related to cash flow hedges. See Note 14 for additional information. We estimate that $86 million will be amortized into Interest expense within the next 12 months.
Net Investment Hedges
We have designated certain foreign currency debt instruments as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. The notional amount of Euro-denominated debt designated as a net investment hedge was €750 million as of both December 31, 2025 and 2024.

Treasury Rate Locks
We enter into treasury rate locks designated as cash flow hedges to mitigate our interest rate risk on future transactions. We recognize gains and losses resulting from interest rate movements in Other comprehensive income (loss).

We also enter into undesignated treasury rate locks to mitigate our interest rate risk on future transactions. We recognize gains and losses resulting from interest rate movements in Interest expense.

Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges but for which we have elected not to apply hedge accounting.

The following table summarizes the activity of our derivatives not designated in hedging relationships:
(dollars in millions)
Years Ended December 31,20252024
Foreign Exchange Forwards:
Notional value entered into$7,740 $8,640 
Notional value settled7,790 9,070 
Pre-tax gain (loss) recognized in Other income (expense), net
75 (50)
Treasury Rate Locks:
Notional value entered into1,250 — 
Notional value settled1,250 — 
Pre-tax gain (loss) recognized in Interest expense(5)— 

Foreign Exchange Forwards
We entered into Euro foreign exchange forwards, and in prior periods, British Pound Sterling foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries.

Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term and long-term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease receivables, and derivative contracts.

Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain fixed cap amounts or rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding positions as compared to established thresholds or caps and changes in credit ratings. We do not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair
value. At both December 31, 2025 and 2024, we did not hold any collateral. At December 31, 2025 and 2024, we posted $1.1 billion and $2.1 billion, respectively, of collateral related to derivative contracts under collateral exchange agreements, which were recorded as Prepaid expenses and other in our consolidated balance sheets. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition due to our diversified pool of counterparties.