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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments DERIVATIVE FINANCIAL INSTRUMENTS
The company operates in multiple functional currencies and is a significant lender and borrower in the global markets. In the normal course of business, the company is exposed to the impact of interest rate changes and foreign currency fluctuations, and to a lesser extent equity risk. The company limits these risks by following established risk management policies and procedures, including the use of derivatives, and, where cost effective, financing with debt in the currencies in which assets are denominated. For interest rate exposures, derivatives are used to better align rate movements between the interest rates associated with the company’s lease and other financial assets and the interest rates associated with its debt. Derivatives are also used to manage the related cost of debt. For foreign currency exposures, derivatives are used to better manage the cash flow volatility arising from foreign exchange rate fluctuations.
The company does not offset derivative assets against liabilities in master netting arrangements. If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Balance Sheet at December 31, 2025 and 2024, the total derivative asset and liability positions each would have been reduced by $285 million and $352 million, respectively. The company restricts the use of cash collateral received to rehypothecation, and therefore reports it in restricted cash. Receivables and payables recognized upon payment or receipt of cash collateral against the fair values of the related derivative instruments, including the amount rehypothecated, are recognized on a gross basis in the Consolidated Balance Sheet, and were not material for all periods presented.
On July 1, 2024, the company completed the acquisition of StreamSets and webMethods from Software AG. Prior to the acquisition, beginning in December 2023, the company entered into foreign currency derivative contracts which were accounted for as non-hedge derivatives and expired by June 28, 2024. For the years ended December 31, 2024 and 2023, the company recorded a realized loss of $68 million and an unrealized gain of $12 million, respectively, in other (income) and expense in the Consolidated Income Statement. There were no associated derivatives outstanding at December 31, 2025 and 2024.
In its hedging programs, the company may use forward contracts, futures contracts, interest-rate swaps, cross-currency swaps, equity swaps and options depending upon the underlying exposure. The company is not a party to leveraged derivative instruments.
A brief description of the major hedging programs, categorized by underlying risk, follows.
Interest Rate Risk
Fixed and Variable Rate Borrowings
The company issues debt in the global capital markets to fund its operations and financing business. Access to cost-effective financing can result in interest rate mismatches with the underlying assets. To manage these mismatches and to reduce overall interest cost, the company may use interest-rate swaps to convert specific fixed-rate debt issuances into variable-rate debt (i.e., fair value hedges) and to convert specific variable-rate debt issuances into fixed-rate debt (i.e., cash flow hedges). At both December 31, 2025 and 2024, the total notional amount of the company’s interest-rate swaps was $6.7 billion. The weighted-average remaining maturity of these instruments at December 31, 2025 and 2024 was approximately 3.5 years and 4.5 years, respectively. These interest-rate contracts were accounted for as fair value hedges. The company did not have any cash flow hedges relating to this program outstanding at December 31, 2025 and 2024.
Foreign Exchange Risk
Long-Term Investments in Foreign Subsidiaries (Net Investment)
A large portion of the company’s foreign currency denominated debt portfolio is designated as a hedge of net investment in major foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in foreign currency exchange rates in the subsidiaries’ functional currency with respect to the U.S. dollar. At December 31, 2025 and 2024, the carrying value of debt designated as hedging instruments was $16.4 billion and $14.0 billion, respectively. The company also uses foreign currency derivatives, which may include forward contracts, long-term cross-currency swaps and options, for this risk management purpose. At December 31, 2025 and 2024, the total notional amount of derivative instruments designated as net investment hedges was $6.9 billion and $6.2 billion, respectively. At both December 31, 2025 and 2024, the weighted-average remaining maturity of these instruments was less than one year.

Anticipated Royalties and Cost Transactions
The company’s operations generate significant nonfunctional currency, third-party vendor payments and intercompany payments for royalties and goods and services among the company’s non-U.S. subsidiaries and with the company. In anticipation of these foreign currency cash flows and in view of the volatility of the currency markets, the company selectively employs forward contracts to manage its currency risk. These forward contracts are accounted for as cash flow hedges. At December 31, 2025, the maximum length of time remaining over which the company has hedged its exposure is approximately two years. At December 31, 2025 and 2024, the total notional amount of forward contracts designated as cash flow hedges of forecasted royalty and cost transactions was $10.8 billion and $9.7 billion, respectively. At both December 31, 2025 and 2024, the weighted-average remaining maturity of these instruments was less than one year.
At December 31, 2025 and 2024, in connection with cash flow hedges of anticipated royalties and cost transactions, there were unrealized net gains (before taxes) of $4 million and $415 million, respectively, deferred in AOCI. The company estimates that $48 million of deferred net losses (before taxes) on derivatives in AOCI at December 31, 2025 will be reclassified to net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.
Foreign Currency Denominated Borrowings
The company is exposed to exchange rate volatility on foreign currency denominated debt. To manage this risk, the company may employ forward contracts or cross-currency swaps to convert the principal, or principal and interest payments of foreign currency denominated debt to debt denominated in the functional currency of the borrowing entity. These derivatives are accounted for as cash flow hedges.
At December 31, 2025, the maximum length of time remaining over which the company has hedged its exposure was approximately five years. At December 31, 2025 and 2024, the total notional amount of derivative instruments designated as cash flow hedges of foreign currency denominated debt was $4.8 billion and $5.0 billion, respectively.
At December 31, 2025 and 2024, in connection with forward contracts, there were unrealized net losses (before taxes) of $48 million and unrealized net gains (before taxes) of $84 million, respectively, deferred in AOCI. Approximately $88 million of losses (before taxes) related to the initial forward points excluded from the assessment of hedge effectiveness is expected to be amortized to other (income) and expense within the next 12 months.
Subsidiary Cash and Foreign Currency Asset/Liability Management
The company uses its Global Treasury Centers to manage the cash of its subsidiaries. These centers principally use currency swaps to convert cash flows in a cost-effective manner. In addition, the company uses foreign exchange forward contracts to economically hedge, on a net basis, the foreign currency exposure of a portion of the company’s nonfunctional currency assets and liabilities. The terms of these forward and swap contracts are generally less than one year. The changes in the fair values of these contracts and of the underlying hedged exposures are generally offsetting and are recorded in other (income) and expense in the Consolidated Income Statement. At December 31, 2025 and 2024, the total notional amount of derivative instruments in economic hedges of foreign currency exposure was $6.4 billion and $7.4 billion, respectively.
Equity Risk Management
The company is exposed to market price changes in certain broad market indices and in the company’s own stock primarily related to certain obligations to employees. Changes in the overall value of these employee compensation obligations are recorded in SG&A expense in the Consolidated Income Statement. Although not designated as accounting hedges, the company utilizes derivatives, including equity swaps and futures, to economically hedge the exposures related to its employee compensation obligations. The derivatives are linked to the total return on certain broad market indices or the total return on the company’s common stock, and are recorded at fair value with gains or losses also reported in SG&A expense in the Consolidated Income Statement. At both December 31, 2025 and 2024, the total notional amount of derivative instruments in economic hedges of these compensation obligations was $1.5 billion.
Cumulative Basis Adjustments for Fair Value Hedges
At December 31, 2025 and 2024, the following amounts were recorded in the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges:
($ in millions)
At December 31:20252024
Short-term debt
Carrying amount of the hedged item$— $(13)
Cumulative hedging adjustments included in the carrying amount—assets/(liabilities)— (13)
Long-term debt
Carrying amount of the hedged item(6,656)(6,497)
Cumulative hedging adjustments included in the carrying amount—assets/(liabilities) (1)
36 190
(1)Includes $(114) million and $(155) million of hedging adjustments on discontinued hedging relationships at December 31, 2025 and 2024, respectively.
The Effect of Derivative Instruments in the Consolidated Income Statement and Consolidated Statement of Comprehensive Income

The total effects of all fair value hedges, cash flow hedges, net investment hedges and derivatives not designated as hedging instruments are summarized by income and expense line items as follows:
($ in millions)
(Gains)/Losses of Total Hedge Activity
For the year ended December 31:202520242023
Cost of services$27 $(22)$5 
Cost of sales15 (40)(22)
Cost of financing(2)10 11 
SG&A expense(170)(151)(165)
Other (income) and expense(641)515 (17)
Interest expense(13)51 54 
($ in millions)
(Gain)/Loss Recognized in Consolidated Income Statement
Consolidated
Income Statement
Line Item		Recognized on
Derivatives
Attributable to Risk
Being Hedged (1)
For the year ended December 31:202520242023202520242023
Derivative instruments in fair value hedges (2)
       
Interest rate contractsCost of financing$(11)$41 $17 $22 $(19)$2 
Interest expense(59)208 83 118 (97)11 
Derivative instruments not designated as hedging instruments
Foreign exchange contractsOther (income) and expense(116)390 192 N/A N/AN/A
Equity contractsSG&A expense(176)(135)(153)N/A N/AN/A
Other (income) and expense— — — N/A N/AN/A
Total $(362)$504 $140 $140 $(116)$13 
(1)The amount includes basis adjustments to the carrying value of the hedged item recorded during the period and amortization of basis adjustments recorded on de-designated hedging relationships during the period.
(2)The amount includes changes in clean fair values of the derivative instruments in fair value hedging relationships and the periodic accrual for coupon payments required under these derivative contracts.
N/A–Not applicable
($ in millions)
Effect of Derivatives Recognized in Consolidated Income Statement and Other Comprehensive Income
(Gains)/Losses
For the year ended Gains/(Losses)
Recognized in OCI 		Consolidated
Income Statement
Line Item		Reclassified
from AOCI
Amounts Excluded from
Effectiveness Testing (1)
December 31:202520242023202520242023202520242023
Derivative instruments in cash flow hedges      
Interest rate contracts$— $— $— Cost of financing$2 $2 $3 N/AN/AN/A
Interest expense11 13 15 N/AN/AN/A
Foreign exchange contracts
Amount included in the assessment of effectiveness175 405 213 Cost of services27 (22)5 N/AN/AN/A
  Cost of sales15 (40)(22)N/AN/AN/A
Cost of financing2 4 11 N/AN/AN/A
SG&A expense6 (16)(12)N/AN/AN/A
 
Other (income) and expense
(633)48 (239)N/AN/AN/A
Interest expense12 19 51 N/AN/AN/A
Amount excluded from the assessment of effectiveness(240)(16)(6)Other (income) and expenseN/A N/AN/A108 77 29 
Instruments in net investment hedges (2)
Foreign exchange contracts
Amount included in the assessment of effectiveness(2,120)1,354 (397)
Amount excluded from the assessment of effectiveness22 4 — Cost of financingN/AN/AN/A(18)(18)(22)
Interest expenseN/AN/AN/A(96)(91)(105)
Total$(2,163)$1,747 $(190)$(557)$7 $(189)$(5)$(32)$(98)
(1)Amounts excluded from effectiveness testing for both net investment hedges and cash flow hedges of foreign currency debt are amortized to net income on a straight-line basis over the life of the relevant hedging instrument.
(2)Instruments in net investment hedges include derivative and non-derivative instruments with the amounts recognized in OCI providing an offset to the translation of foreign subsidiaries.
N/A–Not applicable
For the years ended December 31, 2025 and 2024, there were no material gains or losses associated with an underlying exposure that did not or was not expected to occur (for cash flow hedges); nor are there any anticipated in the normal course of business.