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Fair value measurement
 12 Months Ended
Dec. 31, 2023
Fair value measurement
NOTE 20—Fair value measurement:
Financial items carried at fair value as of December 31, 2023 and 2022 are classified in the tables below in one of the three categories described in note 1g:
 
    
December 31, 2023
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
            
Money markets
    $ 1,704        —         —       $ 1,704  
Cash, deposits and other
      1,522        —         —         1,522  
Investment in securities:
            
Investment in convertible bond security
      —         —         40        40  
Equity securities
      7        —         —         7  
Other
      1        —         —         1  
Restricted cash
      1        —         —         1  
Derivatives:
            
Asset derivatives
:
            
Options and forward contracts
      —         38        —         38  
Cross-currency interest rate swap
      —         8        —         8  
Liabilities derivatives
:
               —   
Options and forward contracts
      —         (39 )       —         (39 ) 
Bifurcated embedded derivatives
      —         —       §        —   
Contingent consideration*
      —         —         (517 )       (517 ) 
  
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 3,235      $ 7      $ (477 )     $ 2,765  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
December 31, 2022
  
    
Level 1
     
Level 2
     
Level 3
     
Total
  
    
(U.S. $ in millions)
  
Cash and cash equivalents:
                                    
Money markets
    $ 1,222        —         —       $ 1,222  
Cash, deposits and other
      1,579        —         —         1,579  
Investment in securities:
                                    
Equity securities
      9        —         —         9  
Other
      5        —         1        6  
Restricted cash
      33        —         —         33  
Derivatives:
                                    
Asset derivatives:
                                    
Options and forward contracts
      —         29        —         29  
Liability derivatives:
                                    
Options and forward contracts
               (101 )                (101 ) 
Bifurcated embedded derivatives
      —         —       §          —   
Contingent consideration*
      —         —         (251 )       (251 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 2,848      $ (73 )     $ (250 )     $ 2,525  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
§
Represents an amount less than $0.5 million.
*
Contingent consideration represents liabilities recorded at fair value in connection with acquisitions. The contingent consideration liability is recorded under accrued expenses and other taxes and long-term liabilities. The financial data presented in the tables above as of December 31, 2022 have been revised as discussed in note 1b.
Teva 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. The discount rate applied ranged from 8.5% to 11%. The weighted average discount rate, calculated based on the relative fair value of Teva’s contingent consideration liabilities, was 8.8%.
The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in consolidated statements of income. Significant changes in unobservable inputs, mainly the cash flows projected, could result in material changes to the contingent consideration liabilities. A change of the discount rate by
1
%
 would have not resulted in material changes to the contingent consideration liabilities.
The convertible debt security is accounted for as available for sale with changes in fair value reflected in other comprehensive income. As of December 31, 2023, the fair value of the conversion option is negligible.
 
The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs.
 
 
 
 
 
 
 
 
 
 
    
December 31,
2023
     
December 31,
2022
  
    
(U.S. $ in millions)
  
Fair value at the beginning of the period
    $ (250 )     $ (175 ) 
Investment in convertible bond **
      40        —   
Bifurcated embedded derivatives
      §        §  
Additional contingent consideration resulting from Novetide acquisition*
      —         (11 ) 
Adjustments to provisions for contingent consideration:
                  
Allergan transaction***
      (422 )       (240 ) 
Eagle transaction
      (132 )       (21 ) 
Novetide transaction
      2        —   
Settlement of contingent consideration:
                  
Allergan transaction
      207        109  
Eagle transaction
      76        88  
Novetide transaction
      2        —   
    
 
 
     
 
 
  
Fair value at the end of the period
    $ (477 )     $ (250 ) 
    
 
 
     
 
 
  
 
§
Represents an amount less than $
0.5
 million.
*
In January 2022, Teva acquired 100% ownership of Novetide Ltd. (“Novetide”), which was previously accounted for as “investment in associated companies.” This transaction was accounted for as a business combination. Total consideration for the transaction included cash and certain contingent royalty payments through 2034. As part of the transaction, Teva recognized a gain under “Share in (profits) losses of associated companies, net,” reflecting the difference between the book value of its investment in Novetide and its fair value as of the date Teva completed its acquisition.
**
On September 29, 2023, Teva invested $40 million in subordinated convertible bonds, which were issued by Alvotech, pursuant to a convertible bond instrument dated December 20, 2022. (see note 2).
***
The financial data presented in the tables above with respect to adjustments to provisions for contingent consideration related to Allergan in 2022 have been revised as discussed in note 1b.
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, senior notes and sustainability-linked 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, sustainability-linked 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,
  
    
2023
     
2022
  
    
(U.S. $ in millions)
  
Senior notes and sustainability-linked senior notes included under senior notes and loans
    $ 17,214      $ 16,694  
Senior notes and convertible senior debentures included under short-term debt
      1,651        2,075  
  
 
 
     
 
 
  
Total
    $ 18,865      $ 18,769  
  
 
 
     
 
 
  
 
*
The fair value was estimated based on quoted market prices.