v3.26.1
Fair Value Measurements and Financial Instruments
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments
Note 7. 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 June 30, 2026:
(dollars in millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Assets:
Prepaid expenses and other:
Fixed income securities$— $35 $— $35 
Cross currency swaps— 29 — 29 
Interest rate caps— 9 — 9 
Other assets:
Marketable equity securities
553 — — 553 
Fixed income securities— 350 — 350 
Cross currency swaps— 1,182 — 1,182 
Total$553 $1,605 $— $2,158 
Liabilities:
Other current liabilities:
Interest rate swaps$— $2,154 $— $2,154 
Cross currency swaps— 279 — 279 
Interest rate caps— 9 — 9 
Foreign exchange forwards— 3 — 3 
Other liabilities:
Interest rate swaps— 3,025 — 3,025 
Cross currency swaps— 1,116 — 1,116 
Variable prepaid forward— — 493 493 
Total$— $6,586 $493 $7,079 
(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, 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 securities453 — — 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.
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 condensed consolidated balance sheets. As of June 30, 2026 and December 31, 2025, the carrying amount of our investments without readily determinable fair values was $672 million and $710 million, respectively. During the three and six months ended June 30, 2026, there were insignificant adjustments due to observable price changes and there were insignificant impairment charges. As of June 30, 2026, cumulative adjustments due to observable price changes and impairment charges were $190 million and $155 million, respectively.

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, other than the variable prepaid forward (VPF), 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 these derivative instruments.

For the VPF, the value is determined using the Black-Scholes method using a combination of readily observable market parameters such as floor and call prices of the VPF, risk free rate, contractual term of the instrument and unobservable inputs such as implied volatility of the underlying marketable securities. This represents a Level 3 measurement. Level 3 instruments include valuation based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.

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 AmountLevel 1Level 2Level 3Total
At June 30, 2026$161,639 $90,965 $68,942 $— $159,907 
At December 31, 2025155,639 91,664 62,640 — 154,304 

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 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:
At June 30,At December 31,
(dollars in millions)20262025
Interest rate swaps$23,674 $23,674 
Cross currency swaps40,173 36,074 
Foreign exchange forwards600 570 
The following tables summarize the activities of our designated derivatives:
Three Months EndedSix Months Ended
June 30,June 30,
(dollars in millions)2026202520262025
Interest Rate Swaps:
Notional value entered into$— $— $— $— 
Notional value settled— 985 — 985 
Pre-tax gain recognized in Interest expense
5 — 8 — 
Cross Currency Swaps:
Notional value entered into— — 3,836 — 
Notional value settled309 817 309 1,176 
Pre-tax gain (loss) on cross currency swaps recognized in Interest expense
(336)2,422 (937)3,500 
Pre-tax gain (loss) on hedged debt recognized in Interest expense
336 (2,422)937 (3,500)
Excluded components recognized in Other comprehensive income
745 (28)516 (877)
    Initial value of the excluded component amortized into Interest expense
21 23 43 46 
Treasury Rate Locks:
Notional value entered into— 4,900 — 4,900 
Notional value settled— — — — 
Pre-tax loss recognized in Other comprehensive income
— (55)— (55)

Six Months Ended
June 30,
(dollars in millions)20262025
Other, net Cash Flows from Operating Activities:
Cash paid for settlement of interest rate swaps$— $(45)
Other, net Cash Flows from Financing Activities:
Cash received (paid) for settlement of cross currency swaps, net17 (80)

The following table displays the amounts recorded in Long-term debt in our condensed 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.
At June 30,At December 31,
(dollars in millions)20262025
Carrying amount of hedged liabilities$18,702 $18,815 
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities(4,949)(4,841)
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting has been discontinued196 214 

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 condensed 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 condensed 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 three and six months ended June 30, 2026 and June 30, 2025, 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. Unrealized gains or losses on excluded components are recorded in Other
comprehensive income 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 three and six months ended June 30, 2026 and June 30, 2025, the amortization of the initial value of the excluded component completely offset the amortization related to the amount remaining in Other comprehensive income related to cash flow hedges. See Note 9 for additional information. We estimate that $82 million will be amortized into Interest expense within the next 12 months.

We also enter into undesignated cross currency swaps to mitigate our foreign currency and interest rate risk on our foreign currency denominated debt. We recognize gains and losses resulting from changes in the fair value of these swaps in Interest expense.

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. In January 2026, we de-designated the existing net investment hedge and re-designated the same Euro-denominated note in a new net investment hedge including additional foreign subsidiaries. The notional amount of Euro-denominated debt designated as a net investment hedge was €750 million as of both June 30, 2026 and December 31, 2025.

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.

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:
Three Months EndedSix Months Ended
June 30,June 30,
(dollars in millions)2026202520262025
Foreign Exchange Forwards:
    Notional value entered into$1,620 $1,990 $3,175 $3,980 
Notional value settled1,610 1,990 3,145 3,870 
Pre-tax gain (loss) recognized in Other income, net
(10)60 (22)88 
Cross Currency Swaps:
Notional value entered into— — 572 — 
Notional value settled— — — — 
Pre-tax gain (loss) recognized in Interest expense
10 — (11)— 
Treasury Rate Locks:
Notional value entered into— 1,000 — 1,250 
Notional value settled— 1,000 — 1,250 
Pre-tax loss recognized in Interest expense
— (8)— (5)
Variable Prepaid Forward:
Notional value entered into422 — 422 — 
Notional value settled— — — — 
Pre-tax loss recognized in Other income, net
(135)— (135)— 

Foreign Exchange Forwards
We entered into Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries.
    
Variable Prepaid Forward
In May 2026, we entered into a VPF to mitigate market risk related to certain marketable equity securities and received a prepayment of approximately $358 million. The prepayment resulted in an other-than-insignificant financing element. As such, the cash flows related to the VPF will be classified within Cash flow from financing activities in the condensed consolidated statements of cash flows. As part of this arrangement, the Company has pledged the underlying marketable equity securities with a fair value of approximately $546 million as of June 30, 2026.

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 (International Swaps and Derivatives Association 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 June 30, 2026 and December 31, 2025, we did not hold any collateral. At both June 30, 2026 and December 31, 2025, we posted $1.1 billion of collateral related to derivative contracts under collateral exchange agreements, which were recorded as Prepaid expenses and other in our condensed 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.