Quarterly report [Sections 13 or 15(d)]

DERIVATIVES

v3.26.1
DERIVATIVES
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure
NOTE 13. DERIVATIVES
We are exposed to financial risk resulting from volatility in foreign exchange rates, interest rates and commodity prices. This risk is closely monitored and managed through the use of physical forward contracts (which are not considered derivatives) and financial derivative instruments including foreign currency forward contracts, commodity swap contracts and interest rate swaps and locks. Financial derivatives are used expressly for hedging purposes and under no circumstances are they used for speculative purposes. When material, we adjust the estimated fair value of our derivative contracts for counterparty or our credit risk. None of our derivative instruments are subject to collateral requirements. Substantially all of our derivative contracts are subject to master netting arrangements, which provide us with the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.
Foreign Currency Exchange Rate Risk
We had foreign currency forward contracts with notional amounts of $4.8 billion at March 31, 2026, with the following currencies comprising 83 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Australian dollar, Euro and Canadian dollar. We had foreign currency forward contracts with notional amounts of $5.2 billion at December 31, 2025, with the following currencies comprising 82 percent of outstanding foreign currency forward contracts: British pound, Chinese renminbi, Euro, Australian dollar and Canadian dollar.
We are further exposed to foreign currency exchange risk as many of our subsidiaries are subject to fluctuations as the functional currencies of the underlying entities are not our U.S. dollar reporting currency. To help reduce volatility in the equity value of our subsidiaries, we enter into foreign exchange forwards designated as net investment hedges for certain of our investments. Under the terms of our foreign exchange forwards, we agreed with third parties to sell British pounds, Chinese renminbi and Euros in exchange for U.S. dollar currency at a specified rate at the maturity of the contract. The notional amount of these hedges at March 31, 2026, was $1.3 billion. In the second quarter of 2025, we began entering into cross-currency interest rate swaps designated as net investment hedges for certain of our investments to help reduce volatility in the equity value of our subsidiaries. Under the current terms of our cross-currency interest rate swaps, we generally pay fixed-rate interest in Euros or Chinese renminbi and receive fixed-rate interest in U.S. dollars. The notional amount of these hedges at March 31, 2026, was $500 million.
The following table summarizes our net investment hedge activity in accumulated other comprehensive loss (AOCL):
Three months ended
March 31,
In millions 2026 2025
Type of Derivative Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Earnings
Foreign exchange forwards $ 5  $ —  $ (24) $ — 
Cross-currency interest rate swaps (1) —  —  — 
Interest Rate Risk
In 2021, we entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate currently equal to the three-month SOFR.
In December 2025, we entered into $150 million of interest rates swaps and in January 2026, we entered into additional $150 million of interest rate swaps. These series of swaps effectively convert a portion of our senior notes, due in 2054, from a fixed rate of 5.45 percent to a floating rate equal to the daily SOFR plus a spread, in which $50 million matures in 2036 and $250 million matures in 2041.
We designated the swaps as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in current income as interest expense. The interest rate swaps on our 2030 debt and 2054 debt had notional amounts outstanding at March 31, 2026 of $680 million and $300 million, respectively.
The following table summarizes the gains and losses:
Three months ended
March 31,
In millions 2026 2025
Type of Swap Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings
Interest rate swaps (1)
$ (2) $ 6  $ 17  $ (14)
(1) The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.

Derivatives Not Designated as Hedging Instruments
The following table summarizes the effect on our Condensed Consolidated Statements of Net Income for derivative instruments not designated as hedging instruments:
Three months ended
March 31,
In millions 2026 2025
Loss recognized in income - Cost of sales (1)
$ —  $ (3)
(Loss) gain recognized in income - Other income, net (1)
(20) 61 
(1) Includes foreign currency forward contracts.
Fair Value Amount and Location of Derivative Instruments
The following table summarizes the location and fair value of derivative instruments on our Condensed Consolidated Balance Sheets:
Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments
In millions March 31,
2026		 December 31,
2025		 March 31,
2026		 December 31,
2025
Notional amount $ 4,098  $ 3,241  $ 3,619  $ 4,316 
Derivative assets
Prepaid expenses and other current assets (1)
$ 37  $ 16  $ 37  $ 39 
Other assets 2  —  —  — 
Total derivative assets (1)
$ 39  $ 16  $ 37  $ 39 
Derivative liabilities
Other accrued expenses $ 23  $ 29  $ 3  $ 3 
Other liabilities 78  72  —  — 
Total derivative liabilities (1)
$ 101  $ 101  $ 3  $ 3 
(1) Estimates of the fair value of all derivative assets and liabilities above are derived from Level 2 inputs, which are estimated using actively quoted prices for similar instruments from brokers and observable inputs where available, including market transactions and third-party pricing services, or net asset values provided to investors. We do not currently have any Level 3 input measures and there were no transfers into or out of Level 2 or 3 during the three months ended March 31, 2026, or the year ended December 31, 2025.
We elected to present our derivative contracts on a gross basis in our Condensed Consolidated Balance Sheets. Had we chosen to present on a net basis, we would have derivatives in a net asset position of $35 million and $20 million and derivatives in a net liability position of $63 million and $69 million at March 31, 2026 and December 31, 2025, respectively.