XML 133 R18.htm IDEA: XBRL DOCUMENT
v3.19.3.a.u2

Derivative instruments and hedging activities | 12 Months Ended
--- | ---
Dec. 31, 2019
Derivative Instruments and Hedging Activities | NOTE 10—Derivative instruments and hedging activities:
a. | Foreign exchange risk management:
In 2019, approximately 48% of Teva’s revenues were denominated in currencies other than the U.S. dollar. As a result, Teva is subject to significant foreign currency risks. The Company enters into forward exchange contracts, purchases and writes options in order to hedge the currency exposure on balance sheet items and operating activities. In addition, the Company takes measures to reduce exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the companies in the Group. The currency hedged items are usually denominated in the following main currencies: the British pound (GBP), the euro (EUR), the Swiss franc (CHF), the Japanese yen (JPY), the Polish zloty (PLN), the new Israeli shekel (NIS), the Russian ruble (RUB), Canadian dollar (CAD), the Mexican peso (MXN), the Indian rupee (INR) and other European and Latin American currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt. The Company hedges against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and entered into cross currency swaps and forward contracts in order to hedge such an exposure. Most of the counterparties to the derivatives are major banks and the Company is monitoring the associated inherent credit risks. The Company does not enter into derivative transactions for trading purposes.
b. | Interest risk management:
The Company raises capital through various debt instruments, including straight notes that bear a fixed or variable interest rate, bank loans, securitizations and convertible debentures. In some cases, the Company has swapped from a fixed to a floating interest rate (“fair value hedge”) and from a fixed to a fixed interest rate with an exchange from a currency other than the functional currency (“cash flow hedge”), thereby reducing overall interest expenses or hedging risks associated with interest rate fluctuations.
c. | Derivative instrument disclosure:
The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
|  | December 31, |
|  | 2019 |  |  | 2018 |
|  | (U.S. $ in millions) |
Cross-currency swap—cash flow hedge |  | $ | — |  |  | $ | 588 |
Interest rate swap—fair value hedge |  |  | — |  |  |  | 500 |
Cross-currency swap—net investment hedge |  |  | 1,000 |  |  |  | 1,000 |
d. | Derivative instrument outstanding:
The following table summarizes the classification and fair value of derivative instruments:
|  | Fair value |
|  | Designated as hedging instruments |  |  | Not designated as hedging instruments |
|  | December 31, 2019 |  |  | December 31, 2018 |  |  | December 31, 2019 |  |  | December 31, 2018 |
Reported under |  | (U.S. $ in millions) |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option and forward contracts |  | $ | — |  |  | $ | — |  |  | $ | 32 |  |  | $ | 18 |
Other non-current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps—cash flow hedge |  |  | — |  |  |  | 58 |  |  |  |  |  |  |  | — |
Liability derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps—net investment hedge |  |  | (22 | ) |  |  | — |  |  |  |  |  |  |  |  |
Option and forward contracts |  |  | — |  |  |  | — |  |  |  | (41 | ) |  |  | (26 | )
Other taxes and long-term liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps—net investment hedge |  |  | — |  |  |  | (41 | ) |  |  | — |  |  |  | — |
Senior notes and loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps—fair value hedge |  |  | — |  |  |  | (9 | ) |  |  | — |  |  |  | — |
The table below provides information regarding the location and amount of pre-tax (gains) losses from derivatives designated in fair value or cash flow hedging relationships:
|  | Financial expenses, net |  |  | Other comprehensive income |
|  | Year ended December 31, |  |  | Year ended December 31, |
|  | 2019 |  |  | 2018** |  |  | 2017** |  |  | 2019 |  |  | 2018** |  |  | 2017** |
Reported under |  | (U.S. $ in millions) |
Line items in which effects of hedges are recorded |  | $ | 822 |  |  | $ | 959 |  |  | $ | 895 |  |  | $ | 160 |  |  | $ | (585 | ) |  | $ | 1,369 |
Cross-currency swaps—cash flow hedge (1) |  |  | (2 | ) |  |  | (2 | ) |  |  | (3 | ) |  |  | (33 | ) |  |  | (35 | ) |  |  | 71 |
Cross-currency swaps—net investment hedge (2) |  |  | (29 | ) |  |  | (31 | ) |  |  | (13 | ) |  |  | (22 | ) |  |  | (51 | ) |  |  | 97 |
Interest rate swaps—fair value hedge (3) |  |  | 2 |  |  |  | * |  |  |  | (4 | ) |  |  | — |  |  |  | — |  |  |  | — |
* | Represents an amount less than $0.5 million.
** | Comparative figures are based on prior hedge accounting standard.
The table below provides information regarding the location and amount of pre-tax (gains) losses from derivatives not designated as hedging instruments:
|  | Financial expenses, net |  |  | Net revenues |
|  | Year ended December 31, |  |  | Year ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
Reported under |  | (U.S. $ in millions) |
Line items in which effects of hedges are recorded |  | $ | 822 |  |  | $ | 959 |  |  | $ | 895 |  |  | $ | 16,887 |  |  | $ | 18,271 |  |  | $ | 21,853 |
Option and forward contracts (4) |  |  | (51 | ) |  |  | (12 | ) |  |  | 82 |  |  |  | — |  |  |  | — |  |  |  | — |
Option and forward contracts Economic hedge (5) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 14 |  |  |  | (4 | ) |  |  | — |
(1) | With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate. In the fourth quarter of 2019, Teva terminated cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. The settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses-net over the life of the debt as additional interest expense.
(2) | In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement with a notional amount of $500 million maturing in 2020. These cross currency swaps were designated as a net investment hedge of Teva’s foreign subsidiaries euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. With respect to these cross currency swap agreements, Teva recognized gains which mainly reflect the differences between the float-for-float interest rates paid in euros and received in U.S. dollar . No amounts were reclassified from accumulated other comprehensive income into income related to the sale of a subsidiary.
(3) | 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. With respect to this interest rate swap agreement, Teva recognized a loss which mainly reflects the differences between the fixed interest rate and the floating interest rate. In the third quarter of 2019, Teva terminated this interest rate swap agreement. The settlement of these transactions resulted in cash proceeds of $ 10 million. The fair value hedge accounting adjustments of fair value hedge instruments, which are recorded under senior notes and loans, are amortized under financial expenses-net over the life of the debt as additional interest expense.
(4) | Teva uses foreign exchange contracts (mainly option and forward contracts) to hedge balance sheet items from currency exposure. These foreign exchange contracts are not designated as hedging instruments for accounting purposes. In connection with these foreign exchange contracts, Teva recognizes gains or losses that offset the revaluation of the balance sheet items also recorded under financial expenses—net.
(5) | Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on revenues and expenses recorded in euro, the British pound, the Russian ruble and some other currencies during 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.
e. | Matured forward starting interest rate swaps and treasury lock agreements:
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, in connection with the debt issuances, 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 in other comprehensive income (loss) will be 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 $29 million, $28 million and $27 million were recognized under financial expenses, net for the years ended December 31, 2019, 2018 and 2017, respectively. In the third quarter of 2019, Teva terminated $500 million interest rate swap agreements designated as fair value hedge relating to its 2.8% senior notes due 2023 with respect to $3,000 million notional amount. Settlement of these transactions resulted in cash proceeds of $ 10 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses - net over the life of the debt. In the fourth quarter of 2019, Teva terminated $588 million cross-currency swap agreements against its outstanding 3.65% senior notes maturing in November 2021. Settlement of these transactions resulted in cash proceeds of $95 million. The cash flow hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, are amortized under financial expenses-net over the life of the debt. With respect to the interest rate swap agreements, gains of $6 million, $6 million and $7 million were recognized under financial expenses, net for the years ended December 31, 2019, 2018 and 2017, respectively.
f. | Securitization:
In April 2011, Teva established a trade receivables securitization program to sell trade receivables to BNP Paribas Bank (“BNP”). Under the program Teva (on a consolidated basis) receives, as purchase price for the receivables sold by it, an initial cash purchase price and the right to receive a deferred purchase price (“DPP”). On an individual seller basis, each Teva subsidiary sells receivables to BNP for an amount equal to their nominal amount. BNP then immediately on-sells such receivables to a bankruptcy-remote special-purpose entity (“SPE”), for an amount equal to the nominal amount of such trade receivables. The SPE then on-sells such receivables to a conduit sponsored by BNP (“the conduit”) for an initial cash purchase price (equal to the nominal amount of such receivables less a discount) and the right to receive a DPP. The SPE is a VIE for which Teva is considered to be the primary beneficiary. The SPE’s sole business consists of the purchase of receivables from Teva subsidiaries and the subsequent transfer of such receivables to the conduit. Although the SPE is included in Teva’s consolidated financial statements, it is a separate legal entity with separate creditors. The conduit and other designated creditors of the SPE are entitled, both before and upon the SPE’s liquidation, to be paid out of the SPE’s assets prior to the DPP payable to Teva. The assets of the SPE are not available to pay creditors of Teva or its subsidiaries. This program expires on August 21, 2020 but can be renewed with consent from the parties to the program up to August 31, 2021 or any other date agreed between the parties. Once sold to BNP, the relevant Teva subsidiary as seller has no retained interests in the receivables sold and they are unavailable to the relevant seller should the relevant seller become insolvent. The conduit has all the rights in the securitized trade receivables, including the right to pledge or dispose of such receivables. Consequently, receivables sold under this agreement are de-recognized from Teva’s consolidated balance sheet. The portion of the purchase price for the receivables which is not paid in cash by the conduit is a DPP asset. The conduit pays the SPE the DPP from collections received by the conduit from the securitized trade receivables (after paying senior costs and expenses, including the conduit’s debt service obligations), which the SPE then pays to Teva. The DPP asset represents a beneficial interest in the transferred financial assets and is recognized at fair value as part of the sale transaction. The DPP asset is included in other current assets on Teva’s consolidated balance sheet. Teva has collection and administrative responsibilities for the sold receivables. The fair value of these servicing arrangements as well as the fees earned was immaterial. DPP asset as of December 31, 2019 and 2018 was $250 million and $231 million, respectively. As of December 31, 2019 and 2018, the balance of Teva’s securitized assets sold were $690 million and $686 million, respectively. The following table summarizes the sold receivables outstanding balance net of DPP asset under the outstanding securitization program:
|  | As of and for the year ended December 31, |
|  | 2019 |  |  | 2018 |
|  | (U.S. $ in millions) |
Sold receivables at the beginning of the year |  | $ | 686 |  |  | $ | 799 |
Proceeds from sale of receivables |  |  | 4,852 |  |  |  | 5,071 |
Cash collections (remitted to the owner of the receivables) |  |  | (4,849 | ) |  |  | (5,151 | )
Effect of currency exchange rate changes |  |  | 1 |  |  |  | (33 | )
Sold receivables at the end of the year |  | $ | 690 |  |  | $ | 686 |

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration