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Fair Value Measurement
 12 Months Ended
Dec. 31, 2019
Fair Value Measurement
NOTE 20
—
Fair value measurement:
Financial items
 
carried at fair value as of
 
December 31, 2019 and 2018 are classified in the tables below in one of the three categories described in note 1
g
:
 
December 31, 2019
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
  
(U.S. $ in millions)
 
Cash and cash equivalents:
   
     
     
     
 
Money markets
  $
577
    $
—
 
 
     $
—
 
 
     $
577
 
Cash, deposits and other
   
1,398
     
—
 
 
      
—
 
 
      
1,398
 
Investment in securities:
   
     
     
     
 
Equity securities
   
42
     
—
 
 
      
—
 
 
      
42
 
Other, mainly debt securities
   
2
     
—
 
 
      
12
     
14
 
Derivatives:
   
     
     
     
 
Asset derivatives
—
options and forward contracts
   
—
 
 
      
32
     
—
 
 
      
32
 
Liabilities derivatives
—
options and forward contracts
   
—
 
 
      
(41
)    
—
 
 
      
(41
)
Liabilities derivatives
—
interest rate and cross-currency swaps
   
—
 
 
      
(22
)    
—
 
 
      
(22
)
Contingent consideration*
   
—
 
 
      
—
 
 
      
(460
)    
(460
)
                                 
Total
  $
2,019
    $
(31
)   $
(448
)   $
1,540
 
                                 
  
December 31, 2018
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
  
(U.S. $ in millions)
 
Cash and cash equivalents:
   
     
     
     
 
Money markets
  $
203
    $
—  
     $
—  
     $
203
 
Cash, deposits and other
   
1,579
     
—  
      
—  
      
1,579
 
Investment in securities:
   
     
     
     
 
  
Equity securities
   
51
     
—  
      
—  
      
51
 
Other, mainly debt securities
   
2
     
—  
      
10
     
12
 
Derivatives:
   
     
     
     
 
Asset derivatives
—
options and forward contracts
   
—  
      
18
     
—  
      
18
 
Asset derivatives
—
cross-currency swaps
   
—  
      
58
     
—  
      
58
 
Liability derivatives
—
options and forward contracts
   
—  
      
(26
 )    
—  
      
(26
 )
Liabilities derivatives
—
interest rate and cross-currency swaps
   
—  
      
(50
 )    
—  
      
(50
 )
Contingent consideration*
   
—  
      
—  
      
(507
 )    
(507
 )
                                 
Total
  $
1,835
    $
—
  
 
 
 
   $
(497
 )   $
1,338
 
                                 
 
* Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.
Teva determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the
contingent consideration is based on several factors, such as: the cash flows projected from the success of unapproved product candidates; the probability of success of product candidates, including risks associated with uncertainty regarding achievement and payment of milestone events; the time and resources needed to complete the development and approval of product candidates; the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the United States and Europe
;
 and the risk adjusted discount rate for fair value measurement.
The contingent consideration is evaluated quarterly or more frequently if circumstances dictate. Changes in the fair value of contingent consideration are recorded in earnings.
Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liability.
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs
.
 
 
 
 
 
 
 
 
 
  
December 31,
2019
 
  
December 31,
2018
 
  
(U.S. $ in millions)
 
Fair value at the beginning of the period
  $
(497
 )   $
(717
 )
Investment in debt securities
   
2
      
(8
)
Adjustments to provisions for contingent consideration:
   
     
 
Actavis Generics transaction
   
92
     
—
  
Labrys acquisition
   
—
 
 
      
(17
 )
Eagle transaction
   
(151
 )    
(40
 )
Settlement of contingent consideration:
   
     
 
Labrys acquisition
   
—
 
 
      
151
 
Eagle transaction
   
106
     
134
 
Fair value at the end of the period
  $
(448
 )   $
(497
 )
                 
Teva’s financial instruments consist mainly of cash and cash equivalents, investments in securities, current and
non-current
receivables, short-term credit, accounts payable and accruals, loans and senior notes, convertible senior debentures and derivatives.
The fair value of the financial instruments included in working capital and
non-current
receivables approximates their carrying value. The fair value of long-term bank loans mostly approximates their carrying value, since they bear interest at rates close to the prevailing market rates.
Financial instruments not measured at fair value
Financial instruments measured on a basis other than fair value consist of senior notes and convertible senior debentures (see note 9), and are presented in the below table in terms of fair value:
  
Estimated fair value*
 
  
December 31,
 
  
2019
 
  
2018
 
  
(U.S. $ in millions)
 
Senior notes included under long-term liabilities
  $
22,686
    $
23,560
 
Senior notes and convertible senior debentures included under short-term liabilities
   
2,318
     
2,140
 
                 
Fair value at the end of the period
  $
25,004
    $
25,700
 
                 
*
The fair value was estimated based on quoted market prices.