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Fair Value Measurement
 6 Months Ended
Jun. 30, 2020
Fair Value Measurement
 
NOTE 16 – Fair value measurement:
Financial items carried at fair value as of June 30, 2020 and December 31, 2019 are classified in the tables below in one of the three categories of fair value levels:
 
    
June 30, 2020
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
            
Money markets
    $ 607      $ —      $ —      $ 607  
Cash, deposits and other
      1,795        —        —        1,795  
Investment in securities:
            
Equity securities
      15        —        —        15  
Other, mainly debt securities
      1        —        13        14  
Derivatives:
            
Asset derivatives—options and forward contracts
      —        40        —        40  
Liability derivatives—options and forward contracts
      —        (52 )       —        (52 ) 
Contingent consideration*
      —        —        (484 )       (484 ) 
  
 
 
     
 
 
     
 
 
     
 
 
  
Total
  
$
2,418
 
  
$
(12
) 
  
$
(471
) 
  
$
1,935
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
    
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  
Liability derivatives—options and forward contracts
      —          (41 )       —          (41 ) 
Liability derivatives—interest rate and cross-currency swaps
      —          (22 )       —          (22 ) 
Contingent consideration*
      —          —          (460 )       (460 ) 
  
 
 
     
 
 
     
 
 
     
 
 
  
Total
  
$
2,019
 
  
$
(31
) 
  
$
(448
) 
  
$
1,540
 
  
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.
Tev
a
 determined the fair value of the
liabilities
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. A probability of success factor ranging from 80% to 100% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied ranged from 7.5% to 8.5%. The weighted average discount rate, calculated based on the relative fair value of
Teva’s
 
contingent consideration
liabilities
, was 8.1%.
 
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 liabilities.
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:
 
    
Six months ended
June 30, 2020
  
    
(U.S. $ in millions)
  
Fair value at the beginning of the period
    $ (448 ) 
Revaluation of debt securitie
s
      1  
Adjustments to provisions for contingent consideration:
   
Actavis Generics transaction
      (15 ) 
Eagle transaction
      (67 ) 
Settlement of contingent consideration:
   
Eagle transactio
n
      58  
  
 
 
  
Fair value at the end of the perio
d
    $ (471 ) 
  
 
 
  
Financial instruments not measured at fair value
Financial instruments measured on a basis other than fair value mostly consist of senior notes and convertible senior debentures and are presented in the table below in terms of fair value (level 1 inputs):
 
    
Fair value*
  
    
June 30,
     
December 31,
  
    
2020
     
2019
  
    
(U.S. $ in millions)
  
Senior notes included under senior notes and loans
    $ 23,131      $ 22,686  
Senior notes and convertible senior debentures included under short-term debt
      1,595        2,318  
  
 
 
     
 
 
  
Total
    $ 24,726      $ 25,004  
  
 
 
     
 
 
  
 
 
*
Based on quoted market price. See note 7 for carrying value.