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Derivative instruments and hedging activities | 12 Months Ended
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Dec. 31, 2023
Derivative Instruments and Hedging Activities | NOTE 10—Derivative instruments and hedging activities:
a. | Foreign exchange risk management:
In 2023, approximately 47% 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 and purchases and writes options in order to hedge the currency exposure on balance sheet items, revenues and expenses. In addition, the Company takes measures to reduce its exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the subsidiaries within Teva. The currency hedged items are usually denominated in the following main currencies: euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty, new Israeli shekel, Indian rupee and other currencies. Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt. The Company may choose to hedge against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and has in the past entered into cross currency swaps and forward contracts in the past 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 senior notes, sustainability-linked senior notes, bank loans and convertible debentures that bear fixed or variable interest rates, as well as a syndicated sustainability-linked revolving credit facility and securitization programs that bear a variable interest rate. In some cases, the Company has swapped from a fixed to a variable 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. As of December 31, 2023, all outstanding senior notes, sustainability-linked senior notes and convertible debentures bear a fixed interest rate.
c. | Bifurcated embedded derivatives:
Upon issuance of sustainability-linked senior notes, Teva recognized embedded derivatives related to interest rate adjustments and a potential one-time premium payment upon failure to achieve certain sustainability performance targets, such as access to medicines in low-to-middle-income countries and absolute greenhouse gas emissions reduction, which were bifurcated and are accounted for separately as derivative financial instruments. As of December 31, 2023 the fair value of these derivative instruments is negligible.
d. | Derivative instrument outstanding:
The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:
|  | December 31, 2023 |  |  | December 31, 2022 |
|  | (U.S. $ in millions) |
Cross-currency swap-cash flow hedge (1) |  | $ | 169 |  |  | $ | — |
The following table summarizes the classification and fair values of derivative instruments:
|  | Fair value |
|  | Designated as hedging instruments |  |  | Not designated as hedging instruments |
|  | December 31, 2023 |  |  | December 31, 2022 |  |  | December 31, 2023 |  |  | December 31, 2022 |
Reported under |  | (U.S. $ in millions) |  |  | (U.S. $ in millions) |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option and forward contracts |  | $ | — |  |  | $ | — |  |  | $ | 38 |  |  | $ | 29 |
Other non-current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps - cash flow hedge (1) |  |  | 8 |  |  |  | — |  |  |  | — |  |  |  | — |
Liability derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Option and forward contracts |  | $ | — |  |  | $ | — |  |  | $ | (39 | ) |  | $ | (101 | )
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:
Reported under |  | Financial expenses, net |  |  | Other comprehensive income (loss) |
|  | Year ended December 31, |  |  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (U.S. $ in millions) |
Line items in which effects of hedges are recorded |  | $ | 1,057 |  |  | $ | 966 |  |  | $ | 1,058 |  |  | $ | 91 |  |  | $ | (270 | ) |  | $ | (391 | )
Cross-currency swaps - cash flow hedge (1) |  |  | (11 | ) |  |  | — |  |  |  | — |  |  |  | 1 |  |  |  | — |  |  |  | — |
The table below provides information regarding the location and amount of pre-tax (gains) losses from derivatives not designated as hedging instruments:
Reported under |  | Financial expenses, net |  |  | Net revenues |
|  | Year ended December 31, |  |  | Year ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (U.S. $ in millions) |
Line items in which effects of hedges are recorded |  | $ | 1,057 |  |  | $ | 966 |  |  | $ | 1,058 |  |  | $ | (15,846 | ) |  | $ | (14,925 | ) |  | $ | (15,878 | )
Option and forward contracts (2) |  |  | (54 | ) |  |  | (12 | ) |  |  | (45 | ) |  |  | — |  |  |  | — |  |  |  | — |
Option and forward contracts economic hedge (3) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2 |  |  |  | (11 | ) |  |  | (31 | )
(1) | On March 31, 2023, Teva entered into a cross-currency interest rate swap agreement, designated as cash flow hedge for accounting purposes with respect to an intercompany loan due October 2026, denominated in Japanese yen.
(2) | 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.
(3) | Teva entered into option and forward contracts designed to limit the exposure of foreign exchange fluctuations on projected revenues and expenses recorded in euro, Swiss franc, Japanese yen, British pound, Russian ruble, Canadian dollar, Polish zloty and some other currencies to protect its projected operating results for 2023 and 2024. 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. In 2023, the negative impact from these derivatives recognized under revenues was $2 million. In 2022, the positive impact from these derivatives recognized under revenues was $11 million. 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. Cash flows associated with these derivatives are reflected as cash flows from operating activities in the consolidated statements of cash flows.
e. | Amortizations due to terminated derivative instruments:
Forward starting interest rate swaps and treasury lock agreements In 2015, Teva entered into forward starting interest rate swaps and treasury lock agreements to protect the Company from interest rate fluctuations in connection with a future debt issuance the Company was planning. These forward starting interest rate swaps and treasury lock agreements were terminated in July 2016 upon the debt issuance. The termination of these transactions resulted in a loss position of $493 million, which was recorded in other comprehensive income (loss) and is amortized under financial expenses, net over the life of the debt. With respect to these forward starting interest rate swaps and treasury lock agreements, losses of $31 million, $30 million and $37 million were recognized under financial expenses, net for the years ended December 31, 2023, 2022 and 2021, respectively.
f. | Securitization:
U.S. securitization program On November 7, 2022, Teva and a bankruptcy-remote special purpose vehicle (“SPV”) entered into an accounts receivable securitization facility (“AR Facility”) with PNC Bank, National Association (“PNC”) with a three-year term. The AR Facility initially provided for purchases of accounts receivable by PNC in an amount of up to $1 billion through November 2023, and up to $500 million from November 2023 through November 2025, provided that the SPV may increase the commitment amount up to $1 billion if additional credit providers participate in the AR facility. On June 30, 2023, the AR Facility agreement was amended to include an additional receivables purchaser under the agreement, in an amount of up to $250 million through November 2025, increasing the commitment size to $750 million from November 2023 to November 2025. On November 7, 2023, the SPV amended the AR Facility agreement by including an additional receivables purchaser and increased the commitment in an amount of up to $250 million, to $1 billion through March 2024, and in an amount of $125 million, to $875 million from March 2024 through November 2025. The SPV may amend the agreement and increase the commitment amount up to $1 billion from March 2024 through November 2025 if additional commitments are provided under the AR facility. Under the AR Facility, Teva’s subsidiaries continuously sell their accounts receivables, originated in the U.S., to the SPV and the SPV on-sells them to the receivables purchasers. The SPV is a variable interest entity (“VIE”) for which Teva is considered to be the primary beneficiary. The SPV’s sole business consists of the purchase of receivables from Teva’s subsidiaries and the subsequent transfer of such receivables to the receivables purchasers. Although the SPV is included in Teva’s consolidated financial statements, it is a separate legal entity with separate creditors. The assets of the SPV are not available to pay creditors of Teva or its subsidiaries. Upon the transfer of ownership and control of the receivables to the SPV, Teva and its subsidiaries have no retained interests in the receivables sold, and they become unavailable to Teva’s creditors should the relevant seller become insolvent. Teva has collection and administrative responsibilities for the receivables sold to the SPV. The fair value of these servicing arrangements as well as the fees earned was immaterial. The Company accounts for receivables sold from the SPV to the receivables purchasers as a sale of financial assets under ASC 860 and derecognizes the trade receivables from the Company’s Consolidated Balance Sheet. The total balance of accounts receivables sold to the receivables purchasers and derecognized by the SPV, as of December 31, 2023 and 2022, was $864 million and $820 million, respectively. In addition to the accounts receivables sold, as of December 31, 2023 and 2022, an amount of $437 million and $436 million of the SPV’s accounts receivables was pledged by the SPV as a seller guarantee, and is included under “Accounts receivables, net”, in the Consolidated Balance Sheet. In the years ended December 31, 2023 and 2022, Teva received proceeds of $861 million and $820 million, respectively, under the AR facility, which are included in cash from operating activities in the Consolidated Statements of Cash Flows for the year ended December 31, 2023 and 2022, respectively. EU securitization program In April 2011, Teva established a trade receivables securitization program (the “EU securitization program”) to sell accounts receivables, mainly originated in Europe, to BNP Paribas Bank (“BNP”). Under the EU securitization program, Teva, on a consolidated basis through its participating subsidiaries, receives an initial cash purchase price and the right to a deferred purchase price (“DPP”), according to the purchase price for the receivables sold by it. On an individual seller basis, each Teva subsidiary participating in the EU securitization program sells receivables to BNP at their nominal amount. BNP then immediately on-sells such receivables at their nominal amount to a bankruptcy-remote special-purpose entity (“SPE”), which in turn 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 sale 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 SPE’s assets are not available to pay Teva’s or its subsidiaries’ creditors. In August 2021, Teva extended the EU securitization program by an additional five years, to August 2026. Once a Teva subsidiary sells receivables to BNP, such subsidiary does not retain any interests in the receivables sold and does not have access to such receivables upon its insolvency. The conduit has all the rights in the securitized trade receivables, including the right to pledge or dispose 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. The DPP asset as of December 31, 2023 and 2022 was $247 million and $270 million, respectively. As of December 31, 2023 and 2022, the outstanding principal amount of receivables sold, net of DPP, was $686 million and $636 million, respectively. The following table summarizes the change in the sold receivables outstanding balance, net of DPP, under the outstanding securitization program:
|  | As of and for the year ended December 31, |
|  | 2023 |  |  | 2022 |
|  | (U.S. $ in millions) |
Sold receivables at the beginning of the year |  | $ | 636 |  |  | $ | 685 |
Proceeds from sale of receivables |  |  | 4,391 |  |  |  | 4,653 |
Cash collections (remitted to the owner of the receivables) |  |  | (4,365 | ) |  |  | (4,665 | )
Effect of currency exchange rate changes |  |  | 24 |  |  |  | (37 | )
Sold receivables at the end of the year |  | $ | 686 |  |  | $ | 636 |
g. | Supplier Finance Program Obligation
Teva maintains supply chain finance agreements with participating financial institutions. Under these agreements, participating suppliers may voluntarily elect to sell their accounts receivable with Teva to these financial institutions. Teva’s suppliers negotiate their financing agreements directly with the respective financial institutions and Teva is not a party to these agreements. Teva has no economic interest in its suppliers’ decisions to participate in the program and Teva pays the financial institutions the stated amount of confirmed invoices on the maturity dates, which is generally within 120 days from the date the invoice was received. The agreements with the financial institutions do not require Teva to provide assets pledged as security or other forms of guarantees for the supplier finance program. All outstanding amounts related to suppliers participating in the supplier finance program are recorded under accounts payables in Teva’s consolidated balance sheets. As of December 31, 2023 and December 31, 2022, the outstanding accounts payables to suppliers participating in these supplier finance programs were $108 million and $34 million, 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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