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Derivative instruments and hedging activities: | 9 Months Ended
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Sep. 30, 2018
Derivative instruments and hedging activities: | NOTE 13 – Derivative instruments and hedging activities: The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
|  | September 30, 2018 |  |  | December 31, 2017 |
|  | (U.S. $ in millions) |
Cross-currency swap—cash flow hedge |  | $ | 588 |  |  | $ | 588 |
Cross-currency swap—net investment hedge |  |  | 1,000 |  |  |  | 1,000 |
Interest rate swap—fair value hedge |  |  | 500 |  |  |  | 500 |
The following table summarizes the classification and fair values of derivative instruments:
|  | Fair value |
|  | Designated as hedging instruments |  |  | Not designated as hedging instruments |
|  | September 30, 2018 |  |  | December 31, 2017 |  |  | September 30, 2018 |  |  | December 31, 2017 |
Reported under |  | (U.S. $ in millions) |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option and forward contracts |  | $ | — |  |  | $ | — |  |  | $ | 23 |  |  | $ | 17 |
Other non-current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps—cash flow hedge |  |  | 42 |  |  |  | 25 |  |  |  | — |  |  |  | — |
Liability derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option and forward contracts |  |  | — |  |  |  | — |  |  |  | (14 | ) |  |  | (15 | )
Other taxes and long-term liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps—net investment hedge |  |  | (58 | ) |  |  | (96 | ) |  |  | — |  |  |  | — |
Senior notes and loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps—fair value hedge |  |  | (24 | ) |  |  | (2 | ) |  |  | — |  |  |  | — |
Derivatives on foreign exchange contracts mainly hedge Teva’s balance sheet items from currency exposure but are not designated as hedging instruments for accounting purposes. With respect to such derivatives, gains of $11 million and losses of $72 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $6 million and losses of $14 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively. Such losses and gains offset the revaluation of the balance sheet items which is also recorded under financial expenses, net. During the second quarter of 2018, the Company entered into option contracts and designed these transactions to limit the exposure of foreign exchange fluctuations on the euro denominated revenues with respect to the quarter for which such instruments are purchased. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as economic hedge. These derivative instruments are recognized on the balance sheet at their fair value, with changes in the fair value recognized under the same line item in the statements of income as the underlying exposure being hedged. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows. During the third quarter of 2018, the impact of such derivative instruments was immaterial. With respect to the interest rate and cross-currency swap agreements, gains of $1 million and $4 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $0.5 million and $1 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively. Such gains mainly reflect the differences between the fixed interest rate and the floating interest rate. Commencing in the third quarter of 2015, Teva entered into forward starting interest rate swap and treasury lock agreements designated as cash flow hedges of the U.S. dollar debt issuance in July 2016, with respect to $3.75 billion and $1.5 billion notional amounts, respectively. These agreements hedged the variability in anticipated future interest payments due to possible changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. dollar debt issuance in July 2016 (in connection with the closing of the Actavis Generics acquisition). Certain of the forward starting interest rate swaps and treasury lock agreements matured during the first half of 2016. In July 2016, Teva terminated the remaining forward starting interest rate swaps and treasury lock agreements. The termination of these transactions resulted in a loss position of $493 million, of which $242 million were settled on October 7, 2016 and the remaining amount was settled in January 2017. The change in fair value of these instruments recorded as part of other comprehensive income is amortized under financial expenses, net over the life of the debt. Such losses mainly reflect the changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. debt issuance in July 2016. With respect to the forward starting interest rate swaps and treasury lock agreements, losses of $21 million and $20 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and losses of $7 million were recognized under financial expenses, net for each of the three months ended September 30, 2018 and 2017. In the third quarter of 2016, Teva terminated interest rate swap agreements designated as fair value hedge relating to certain senior notes. Settlement of these transactions resulted in a gain position of $41 million. The fair value hedge accounting adjustments of these instruments recorded under senior notes and loans will be amortized under financial expenses, net over the life of the debt. With respect to these terminated interest rate swap agreements, gains of $5 million were recognized under financial expenses, net for both the nine months ended September 30, 2018 and 2017, and gains of $2 million were recognized under financial expenses, net for both the three months ended September 30, 2018 and 2017. In the fourth quarter of 2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $500 million notional amount of outstanding debt. In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement maturing in 2020 with a notional amount of $500 million. These cross currency swaps were designated as a net investment hedge of Teva’s euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. The effective portion of the hedge will be determined by looking into changes in spot exchange rate. The change in fair value of the cross currency swap attributable to changes other than those due to fluctuations in the spot exchange rates are excluded from the assessment of hedge effectiveness and are reported directly in the statement of income. With respect to these cross currency swap agreements, gains of $22 million and $8 million were recognized under financial expenses, net for the nine months ended September 30, 2018 and 2017, respectively, and gains of $6 million and $4 million were recognized under financial expenses, net for the three months ended September 30, 2018 and 2017, respectively.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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