NOTE 14: FAIR VALUE MEASUREMENTS
The following tables provide the valuation hierarchy classification of assets and liabilities that are carried at fair value and measured on a recurring basis in our Consolidated Balance Sheet:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2025 |
(dollars in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Recurring fair value measurements: | | | | | | | |
| Marketable securities held in trusts | $ | 750 | | | $ | 676 | | | $ | 74 | | | $ | — | |
| Derivative assets | 436 | | | — | | | 436 | | | — | |
| Derivative liabilities | 265 | | | — | | | 265 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2024 |
(dollars in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Recurring fair value measurements: | | | | | | | |
| Marketable securities held in trusts | $ | 786 | | | $ | 721 | | | $ | 65 | | | $ | — | |
| Derivative assets | 187 | | | — | | | 187 | | | — | |
| Derivative liabilities | 451 | | | — | | | 451 | | | — | |
Valuation Techniques. Our derivative assets and liabilities include foreign exchange contracts that are measured at fair value using internal models based on observable market inputs such as forward rates, interest rates, our own credit risk, and our counterparties’ credit risks.
As of December 31, 2025, there has not been any significant impact to the fair value of our derivative liabilities due to our own credit risk. Similarly, there has not been any significant adverse impact to our derivative assets based on our evaluation of our counterparties’ credit risks.
The following table provides carrying amounts and fair values of financial instruments that are not carried at fair value in our Consolidated Balance Sheet at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2025 | | 2024 |
| (dollars in millions) | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| Long-term debt (excluding finance leases) | $ | 37,627 | | | $ | 35,733 | | | $ | 40,991 | | | $ | 37,956 | |
The following tables provide the valuation hierarchy classification of assets and liabilities that are not carried at fair value in our Consolidated Balance Sheet at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2025 |
| (dollars in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | | | | | | |
| Long-term debt (excluding finance leases) | $ | 35,733 | | | $ | — | | | $ | 34,800 | | | $ | 933 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2024 |
| (dollars in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | | | | | | |
| Long-term debt (excluding finance leases) | $ | 37,956 | | | $ | — | | | $ | 35,180 | | | $ | 2,776 | |
The fair value of our Short-term borrowings approximates the carrying value due to their short-term nature and is classified as level 3 within the fair value hierarchy.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.