v3.26.1
Hedging Activities and Fair Value Measurements
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS
NOTE D – HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

Our risk from changes in currency exchange rates consists primarily of monetary assets and liabilities; forecasted intercompany and third-party transactions; and net investments in certain subsidiaries. We employ derivative and nonderivative instruments, primarily forward currency contracts, to reduce the risk to our earnings and cash flows associated with changes in currency exchange rates. The success of our currency risk management program depends, in part, on forecasted transactions denominated primarily in euro, Chinese renminbi, Japanese yen, British pound sterling, Korean won, Australian dollar and Swiss franc.

Certain of our currency derivative instruments are designated as cash flow hedges under FASB ASC Topic 815, Derivatives and Hedging (FASB ASC Topic 815), and are intended to protect the U.S. dollar value of forecasted transactions. We also designate certain forward currency contracts as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in euro, Chinese renminbi, Canadian dollar and Japanese yen. We designate certain euro-denominated debt as net investment hedges to hedge a portion of our net investments in certain of our entities with functional currencies denominated in euro. As of June 30, 2026 and December 31, 2025, we designated as a net investment hedge our €900 million in aggregate principal amount of 0.625% senior notes issued in November 2019 and due in 2027 (December 2027 Notes).

We also use forward currency contracts that are not part of designated hedging relationships as a part of our strategy to manage our exposure to currency exchange rate risk related to monetary assets and liabilities and related forecasted transactions.

Refer to Note A – Significant Accounting Policies to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for further discussion relating to derivative instruments and hedging activities.

The following table presents the contractual amounts of our hedging instruments outstanding:

(in millions)FASB ASC Topic 815 DesignationAs of
June 30, 2026December 31, 2025
Forward currency contractsCash flow hedge$8,662 $7,270 
Forward currency contractsNet investment hedge1,492 1,292 
Foreign currency-denominated debt(1)
Net investment hedge997 997 
Forward currency contractsNon-designated4,231 4,163 
Total Notional Outstanding$15,382 $13,723 
(1) Foreign currency-denominated debt is the €900 million debt principal associated with our December 2027 Notes designated as a net investment hedge.

The remaining time to maturity as of June 30, 2026 is within 60 months for all forward currency contracts designated as cash flow hedges and generally less than one year for all non-designated forward currency contracts. The forward currency contracts designated as net investment hedges generally mature between one and two years. The euro-denominated debt principal designated as a net investment hedge has a contractual maturity of December 1, 2027.

The following presents the effect of our derivative and nonderivative instruments designated as cash flow and net investment hedges under FASB ASC Topic 815 within our accompanying unaudited consolidated statements of operations. Refer to Note L – Changes in Other Comprehensive Income for the total amounts relating to derivative and nonderivative instruments presented within our accompanying unaudited consolidated statements of comprehensive income (loss).
Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of Tax
Location of Amount Reclassified
Pre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended June 30, 2026
Forward currency contracts
Cash flow hedges$15 $(3)$12 Cost of products sold$4 $(1)$3 
Net investment hedges(2)
19 (4)14 Interest expense(8)2 (6)
Foreign currency-denominated debt
Net investment hedges(3)
11 (2)8 Other, net— — — 

Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of Tax
Location of Amount Reclassified
Pre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Three Months Ended June 30, 2025
Forward currency contracts
Cash flow hedges$(255)$57 $(198)Cost of products sold$(21)$5 $(16)
Net investment hedges(2)
(61)14 (47)Interest expense(9)2 (7)
Foreign currency-denominated debt
Net investment hedges(3)
(81)18 (63)Other, net— — — 

Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of TaxLocation of Amount ReclassifiedPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Six Months Ended June 30, 2026
Forward currency contracts
Cash flow hedges$114 $(26)$88 Cost of products sold$7 $(2)$5 
Net investment hedges(2)
36 (8)28 Interest expense(11)2 (8)
Foreign currency-denominated debt
Net investment hedges(3)
32 (7)25 Other, net— — — 

Effect of Hedging Relationships on Accumulated Other Comprehensive Income
Amount Recognized in OCI on Hedges
Unaudited Consolidated Statements of Operations(1)
Amount Reclassified from AOCI into Earnings
(in millions)Pre-Tax Gain (Loss)Tax Benefit (Expense)Gain (Loss) Net of TaxLocation of Amount ReclassifiedPre-Tax (Gain) LossTax (Benefit) Expense(Gain) Loss Net of Tax
Six Months Ended June 30, 2025
Forward currency contracts
Cash flow hedges$(325)$73 $(252)Cost of products sold$(61)$14 $(48)
Net investment hedges(2)
(78)18 (60)Interest expense(14)3 (11)
Foreign currency-denominated debt
Net investment hedges(3)
(119)27 (93)Other, net— — — 
(1) In all periods presented in the table above, the pre-tax (gain) loss amounts reclassified from AOCI to earnings represent the effect of the hedging relationships on earnings.
(2) For our outstanding forward currency contracts designated as net investment hedges, the net gain or loss reclassified from AOCI to earnings as a reduction of Interest expense represents the straight-line amortization of the excluded component as calculated at the date of designation. This initial value of the excluded component has been excluded from the assessment of effectiveness in accordance with FASB ASC Topic 815. In the current and prior periods, we did not recognize any gains or losses on the components included in the assessment of hedge effectiveness in earnings.
(3) For our outstanding euro-denominated debt principal designated as a net investment hedge, the change in fair value attributable to changes in the spot rate is recorded in the CTA component of OCI. No amounts were reclassified from AOCI to current period earnings.

As of June 30, 2026, pre-tax net gains or losses for our derivative instruments designated, or previously designated, as cash flow and net investment hedges under FASB ASC Topic 815 that may be reclassified from AOCI to earnings within the next twelve months are presented below (in millions):

FASB ASC Topic 815 DesignationLocation on Unaudited Consolidated Statements of OperationsAmount of Pre-Tax Gain (Loss) that may be Reclassified to Earnings
Designated Hedging Instrument
Forward currency contractsCash flow hedgeCost of products sold$21 
Forward currency contractsNet investment hedgeInterest expense23 

Net gains and losses on currency hedge contracts not designated as hedging instruments offset by net gains and losses from currency transaction exposures are presented below:
Location on Unaudited Consolidated Statements of OperationsThree Months Ended
June 30,		Six Months Ended June 30,
(in millions)2026202520262025
Net gain (loss) on currency hedge contractsOther, net$5 $(132)$15 $(174)
Net gain (loss) on currency transaction exposuresOther, net(20)131 (41)173 
Net currency exchange gain (loss)$(15)$(0)$(26)$(1)

Fair Value Measurements

Refer to Note D – Hedging Activities and Fair Value Measurements to our audited financial statements contained in Item 8. Financial Statements and Supplementary Data of our most recent Annual Report on Form 10-K for discussion relating to our derivative and nonderivative instruments and fair value measurements.
The following are the balances of our derivative and nonderivative assets and liabilities:

Location on Unaudited Consolidated Balance Sheets(1)
As of
(in millions)June 30, 2026December 31, 2025
Derivative and Nonderivative Assets:
Designated Hedging Instruments
Forward currency contractsOther current assets$100 $99 
Forward currency contractsOther long-term assets110 57 
209 156 
Non-Designated Hedging Instruments
Forward currency contractsOther current assets46 25 
Total Derivative and Nonderivative Assets$255 $181 
Derivative and Nonderivative Liabilities:
Designated Hedging Instruments
Forward currency contractsOther current liabilities$62 $109 
Forward currency contractsOther long-term liabilities74 102 
Foreign currency-denominated debt(2)
Long-term debt1,023 1,055 
1,159 1,266 
Non-Designated Hedging Instruments
Forward currency contractsOther current liabilities39 42 
Total Derivative and Nonderivative Liabilities$1,198 $1,308 
(1) We classify derivative and nonderivative assets and liabilities as current when the settlement date of the contract is one year or less.
(2) Foreign currency-denominated debt is the €900 million debt principal associated with our December 2027 Notes designated as a net investment hedge. A portion of this notional is subject to de-designation and re-designation based on changes in the underlying hedged item.

Recurring Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis consist of the following:
As of
June 30, 2026December 31, 2025
(in millions)Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Money market funds and time deposits$210 $— $— $210 $1,075 $— $— $1,075 
Publicly-held equity securities10 — — 10 17 — — 17 
Hedging instruments— 255 — 255 — 181 — 181 
$220 $255 $— $475 $1,092 $181 $— $1,273 
Liabilities
Hedging instruments$— $1,198 $— $1,198 $— $1,308 $— $1,308 
Contingent consideration liability— — 257 257 — — 385 385 
Licensing arrangements— — — — — — 7 7 
$— $1,198 $257 $1,455 $— $1,308 $392 $1,700 

Our investments in money market funds and time deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. These investments are classified as Cash and cash equivalents or Other current assets within our accompanying unaudited consolidated balance sheets, in accordance with GAAP and our accounting policies. In addition to $210 million invested in money market funds and time deposits as of June 30, 2026 and $1.075 billion as of December 31, 2025, we held $409 million in interest-bearing and non-interest-bearing bank accounts as of June 30, 2026 and $965 million as of December 31, 2025.
Our recurring fair value measurements using Level 3 inputs include those related to our contingent consideration liability. Refer to Note B – Acquisitions and Strategic Investments for a discussion of the changes in the fair value of our contingent consideration liability.

Non-Recurring Fair Value Measurements

We hold certain assets and liabilities that are measured at fair value on a non-recurring basis in periods after initial recognition. The fair value of a measurement alternative investment is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. Refer to Note B – Acquisitions and Strategic Investments for a discussion of our strategic investments and Note C – Goodwill and Other Intangible Assets for a discussion of the fair values of our intangible assets including goodwill.

The fair value of our outstanding debt obligations, excluding finance leases, was $12.272 billion as of June 30, 2026 and $11.154 billion as of December 31, 2025. We determined fair value by using quoted market prices for our publicly registered senior notes, classified as Level 1 within the fair value hierarchy, and face value for commercial paper, term loans and credit facility borrowings outstanding. Refer to Note E – Contractual Obligations and Commitments for a discussion of our debt obligations.