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Derivative instruments and hedging activities (Tables)
 9 Months Ended
Sep. 30, 2020
Summary of Notional Amounts for Hedged Items, Designated as Hedge Accounting
The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
 
    
September 30,
     
December 31,
  
    
2020
     
2019
  
    
(U.S. $ in millions)
  
Cross-currency swap
—
net investment hedge
    $ —        $ 1,000  
  
 
 
     
 
 
  
Summary of Classification and Fair Values of Derivative Instruments
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,

2020
     
December 31,

2019
     
September 30,

2020
     
December 31,

2019
  
Reported under
   
(U.S. $ in millions)
  
Asset derivatives:
            
Other current assets:
            
Option and forward contracts
    $ —        $ —        $ 36      $ 32  
Liability derivatives:
            
Other current liabilities:
            
Cross-currency swaps—net investment hedge
      —          (22 )       —          —    
Option and forward contracts
      —          —          (67 )       (41 ) 
Derivatives Not Designated as Hedging Instruments
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
(loss)
 
 
  
Three months ended,
 
  
Three months ended,
 
 
  
September 30,

2020
 
  
September 30,
2019
 
  
September 30,

2020
 
  
September 30,
2019
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
  
$
117
 
  
$
211
 
  
$
79
 
  
$
(53
) 
Cross-currency swaps—cash flow hedge (1)
  
 
—  
 
  
 
(1
) 
  
 
—  
 
  
 
(33
) 
Cross-currency swaps—net investment hedge (2)
  
 
—  
 
  
 
(7
) 
  
 
—  
 
  
 
(39
) 
Interest rate swaps—fair value hedge (3)
  
 
—  
 
  
 
*
 
  
 
—  
 
  
 
—  
 
 
*
Represents an amount less than $0.5 million.
 
    
Financial expenses, net
     
Other comprehensive income (loss)
  
    
Nine months ended,
     
Nine months ended,
  
    
September 30,

2020
     
September 30,
2019
     
September 30,

2020
     
September 30,
2019
  
Reported under
   
(U.S. $ in millions)
  
Line items in which effects of hedges are recorded
    $ 565      $ 635      $ (302 )     $ 117  
Cross-currency swaps
—
cash flow hedge (1)
      —          (2 )       —          (49 ) 
Cross-currency swaps
—
net investment hedge (2)
      (2 )       (22 )       (21 )       (46 ) 
Interest rate swaps—fair value hedge (3)
      —          2        —          —    
Information Regarding The Location And Amount Of Pretax (Gains) Losses Of Derivatives Designated In Fair Value Or Cash Flow Hedging Relationships
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
 
 
  
Three months ended,
 
  
Three months ended,
 
 
  
September 30,

2020
 
  
September 30,
2019
 
  
September 30,

2020
 
  
September 30,
2019
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
  
$
117
 
  
$
211
 
  
$
(3,978
) 
  
$
(4,093
) 
Option and forward contracts (4)
  
 
40
 
  
 
(35
) 
  
 
—  
 
  
 
—  
 
Option and forward contracts economic hedge (5)
  
 
—  
 
  
 
—  
 
  
 
3
 
  
 
(4
) 
 
 
  
Financial expenses, net
 
  
Net revenues
 
 
  
Nine months ended,
 
  
Nine months ended,
 
 
  
September 30,

2020
 
  
September 30,
2019
 
  
September 30,

2020
 
  
September 30,
2019
 
Reported under
  
(U.S. $ in millions)
 
Line items in which effects of hedges are recorded
  
$
565
 
  
$
635
 
  
$
(12,206
) 
  
$
(12,420
) 
Option and forward contracts (4)
  
 
78
 
  
 
(42
) 
  
 
—  
 
  
 
—  
 
Option and forward contracts Economic hedge (5)
  
 
—  
 
  
 
—  
 
  
 
(37
) 
  
 
—  
 
 
(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 $588 million in 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 and received. In the first quarter of 2020, these cross-currency swap agreements expired. The settlement of these transactions resulted in cash proceeds of $3 million.
(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 a gain position 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 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 projected revenues and expenses recorded in euro, the British pound, the Russian ruble and some other currencies during the period for which such instruments are transacted. These derivative instruments do not meet the criteria for hedge accounting, however, they are accounted for as an economic hedge. These derivative instruments, which may include hedging transactions against future projected revenues and expenses, are recognized on the balance sheet at their fair value on a quarterly basis, while the foreign exchange impact on the underlying revenues and expenses may occur in subsequent quarters. Changes in the fair value of the derivative instruments are recognized in the same line item in the statements of income as the underlying exposure being hedged. In the first nine months of 2020, the positive impact from these derivatives recognized under revenues was $37 million, partially offset by a $3 million negative impact recognized under cost of sales. The cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.