Teva Pharmaceutical Industries Ltd. ADR

Company Overview

Business Model: Teva Pharmaceutical Industries Limited is a biopharmaceutical company with a world-class generics business. It focuses on innovating in neuroscience and immunology, and providing complex generic medicines, biosimilars, and pharmacy brands globally. The company operates through three segments: United States, Europe, and International Markets, each managing a full product portfolio including generics (biosimilars and OTC products) and innovative medicines. Additional revenue streams include the sale of active pharmaceutical ingredients (API) to third parties, contract manufacturing services, and an out-licensing platform through its affiliate Medis.

Market Position: Teva Pharmaceutical Industries Limited is one of the leading generic pharmaceutical companies in the United States and holds a top three leadership position in many countries, including key European markets. Its global scale and broad portfolio provide a competitive advantage over local competitors, enabling optimized offerings of high-quality medicines and unique go-to-market approaches.

Recent Strategic Developments: In 2025, Teva Pharmaceutical Industries Limited continued the "Accelerate Growth" phase of its "Pivot to Growth" strategy, focusing on expanding its innovative portfolio, optimizing capital allocation for high-value activities, and modernizing operations for efficiency and cost savings.

• Divestitures: Divested the Teva-Takeda business venture in Japan on March 31, 2025. Initiated a renewed sales process for its API business in November 2025, maintaining the strategic intention to divest.
• Biosimilar Partnerships & Launches:
  • Partnered with Samsung Bioepis for U.S. commercialization of EPYSQLI (eculizumab), launched in the U.S. on April 7, 2025.
  • Collaborated with Formycon for commercialization of FYB203 (biosimilar to Eylea) in Europe (excluding Italy), the UK, Switzerland, and Israel.
  • Partnered with Prestige Biopharma for commercialization of Tuznue (biosimilar to Herceptin) across most European markets.
  • Received European Medicines Agency (EMA) approvals for PONLIMSI (denosumab) and DEGEVMA (denosumab) in November 2025.
• Innovative Pipeline Advancement: Submitted a New Drug Application (NDA) to the FDA for olanzapine LAI (TEV-‘749) in December 2025. Initiated Phase 3 studies for duvakitug (anti-TL1A) in October 2025.
• Artificial Intelligence Initiatives: Committed to integrating AI technologies to optimize internal processes, strengthen risk management, and support product research and development, including for clinical trial planning, drug discovery, manufacturing automation, financial forecasting, and customer engagement.

Geographic Footprint: Teva Pharmaceutical Industries Limited operates worldwide, with headquarters in Israel and significant presence in the United States, Europe (including the European Union, the United Kingdom, and other European countries), and International Markets (over 35 countries, including Canada and Israel).

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Gross Margin: 51.8%
• Operating Margin: 12.5%
• Net Margin: 8.2%

Investment in Growth:

• R&D Expenditure: $1,013 million (5.9% of revenue)
• Capital Expenditures: $501 million
• Strategic Investments: Significant investments and collaborations to expand innovative medicines and biosimilar pipeline, including partnerships with mAbxience, Launch Therapeutics, Alvotech, Modag, Sanofi, Royalty Pharma, and Biolojic Design.

Business Segment Analysis

United States Segment

Financial Performance:

• Revenue: $9,186 million (+14.3% YoY)
• Operating Margin: 36.5%
• Key Growth Drivers: Higher revenues from key innovative products AUSTEDO, AJOVY, and UZEDY, development milestone payments for duvakitug (anti-TL1A), and increased revenues from generic products (including biosimilars).

Product Portfolio:

• Generics & Biosimilars: Markets over 350 generic prescription products in more than 1,100 dosage strengths. Key products include lenalidomide capsules (generic Revlimid), Truxima (biosimilar to Rituxan), epinephrine injectable solution (generic EpiPen), and SIMLANDI (biosimilar to Humira).
• Innovative Medicines: Core therapeutic area in CNS (neurodegenerative disorders, movement disorders, migraine, neuropsychiatry, MS). Key products include AUSTEDO and AUSTEDO XR, AJOVY, UZEDY, and COPAXONE. Also maintains presence in oncology (TRUXIMA, BENDEKA) and respiratory (ProAir RespiClick, QVAR RediHaler, BRALTUS, CINQAIR/CINQAERO, DuoResp Spiromax, AirDuo RespiClick).
• New Product Launches (2025): Mifepristone Tablets (generic Korlym), SELARSDI (Ustekinumab-aekn) injection, Octreotide Acetate for Injectable Suspension (generic Sandostatin LAR Depot), EPYSQLI (eculizumab-aagh), Ticagrelor Tablets (generic Brilinta), Hydroxyzine Hydrochloride Tablets (relaunched), Fidaxomicin Tablets (generic Dificid), Liraglutide Injection (generic Saxenda), Dasatinib Tablets (generic Sprycel), Azelastine Hydrochloride and Fluticasone Propionate Nasal Spray (generic Dymista), Cyclosporine Ophthalmic Emulsion (generic Restasis), Dalbavancin for Injection (generic Dalvance), Amphetamine Extended-Release Orally Disintegrating Tablets (generic Adzenys XR-ODT).

Market Dynamics:

• Teva Pharmaceutical Industries Limited holds 6.5% of total U.S. generic prescriptions (based on trailing twelve months, IQVIA data).
• AJOVY's exit market share in the U.S. anti-CGRP class (subcutaneous injectable) was 33.3% in 2025, up from 29.6% in 2024.

Sub-segment Breakdown:

• Anda: $1,496 million revenue (-3% YoY). Anda distributes generic, biosimilar, innovative, and OTC pharmaceutical products from Teva Pharmaceutical Industries Limited and third-party manufacturers to various healthcare providers. Effective January 1, 2026, Anda will be reported under the Company’s Other Activities.

Europe Segment

Financial Performance:

• Revenue: $5,040 million (-1.2% YoY, or -5% in local currency)
• Operating Margin: 25.9%
• Key Growth Drivers: Decrease mainly due to the sale of certain product rights, lower revenues from generic and OTC products, and COPAXONE, partially offset by higher revenues from AJOVY.

Product Portfolio:

• Generics & Biosimilars: One of the leading pharmaceutical companies in Europe for generics, OTC, and biosimilars. OTC portfolio includes global brands like SUDOCREM and regional brands such as NasenDuo, DICLOX FORTE, OLFEN Max, and FLEGAMINA.
• Innovative Medicines: Focuses on CNS (including migraine) and respiratory therapeutic areas. Leading products are AJOVY and COPAXONE.
• New Product Launches/Updates (Biosimilars): RANIVISIO (ranibizumab) launched in EU/UK in 2022. FYMSKINA (ustekinumab) launched in Germany in 2025. EMA approvals for PONLIMSI (denosumab) and DEGEVMA (denosumab) in November 2025.

Market Dynamics: European markets are diverse and fragmented, but Teva Pharmaceutical Industries Limited leverages its pan-European presence. The company is not substantially dependent on any single European country for generic revenues.

International Markets Segment

Financial Performance:

• Revenue: $2,162 million (-12.2% YoY, or -11% in local currency)
• Operating Margin: 15.5%
• Key Growth Drivers: Decrease mainly due to the divestment of the Teva-Takeda business venture in Japan, lower proceeds from the sale of certain product rights, and a negative hedging impact, partially offset by higher revenues from generic products in other markets and AJOVY.

Product Portfolio:

• Generics & Biosimilars: Includes highly regulated generic markets (e.g., Canada, Israel) and branded generics-oriented markets (e.g., Russia, Latin America).
• Innovative Medicines: Focuses on CNS (including migraine), respiratory, and oncology. AJOVY launched in certain countries (e.g., Canada, Japan, Australia, Israel, South Korea, Brazil). AUSTEDO launched in China, Israel, and Brazil, and received marketing authorization in South Korea in April 2025.

Market Dynamics: Strategies are built on differentiation and addressing unmet market needs. Integrated sales force enables synergies across product offerings and channels.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: No share repurchases were made during 2025.
• Dividend Payments: No dividends have been paid on ordinary shares or ADSs since December 2017.
• Future Capital Return Commitments: Future share repurchases are subject to Board of Directors' approval and depend on market conditions, share price, and investment opportunities aligned with the "Pivot to Growth" strategy.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $3,556 million
• Total Debt: $16,807 million
• Net Cash Position: $(13,251) million (Net Debt)
• Debt Maturity Profile: Average debt maturity of approximately 5.6 years. Short-term debt constituted 11% of total debt.
  • 2026: $1,821 million
  • 2027: $2,764 million
  • 2028: $2,130 million
  • 2029: $2,177 million
  • 2030: $2,458 million
  • 2031 & thereafter: $5,523 million

Cash Flow Generation:

• Operating Cash Flow: $1,649 million (up from $1,247 million in 2024)
• Free Cash Flow: $2,396 million (up from $2,068 million in 2024)
• Cash Conversion Metrics: Net changes in working capital items were neutral in 2025. The company continues efforts to optimize working capital management.

Operational Excellence

Production & Service Model: Teva Pharmaceutical Industries Limited operates 33 finished dosage and packaging pharmaceutical plants across 21 countries, primarily in North America, Europe, Latin America, India, and Israel. In 2025, production included approximately 66 billion tablets and capsules, and 600 million sterile units. The company utilizes external contract manufacturers for operational and cost benefits and aims to maintain multiple supply sources for APIs to mitigate supply chain risks.

Supply Chain Architecture: Key Suppliers & Partners:

• API Sourcing: Sources a portion of APIs from its own 13 API production facilities and purchases additional APIs from suppliers in Europe, Asia, and the Americas. A supplier audit program ensures compliance and reliability.
• Contract Manufacturing: Engages external contract manufacturers.

Facility Network:

• Manufacturing: 33 finished dosage and packaging plants in 21 countries; 13 API production facilities.
• Research & Development: Global R&D group with development centers worldwide, including clinics for bioequivalence and Phase 1 studies.
• Distribution: Anda, the U.S. distribution business, serves independent retail pharmacies, chains, hospitals, and physician offices.

Operational Metrics:

• Production Volume (2025): Approximately 66 billion tablets and capsules, and 600 million sterile units.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Utilizes an integrated and comprehensive marketing model across most markets, offering a broad portfolio of generic, innovative, biosimilar, and OTC products. Innovative medicines rely heavily on a direct sales force.
• Channel Partners: Generic sales in the U.S. are primarily made to retail drug chains, mail order distributors, and wholesalers. Anda distributes products from Teva Pharmaceutical Industries Limited and third-party manufacturers.
• Digital Platforms: Not explicitly detailed in the filing.

Customer Portfolio: Customer Concentration: A significant portion of U.S. sales are made to a relatively small number of retail drug chains, wholesalers, managed care purchasing organizations, mail order distributors, and hospitals.

• McKesson Corporation: 13% of total consolidated net sales in 2025.
• AmerisourceBergen Corporation: 11% of total consolidated net sales in 2025.

Geographic Revenue Distribution:

• United States: 53% of total consolidated revenue in 2025.
• Israel: 2% of total consolidated revenue in 2025.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The pharmaceutical industry is highly competitive and rapidly evolving. Sales of generic medicines benefit from increasing acceptance and legislative support for generic substitution. The biosimilars market is highly competitive and evolving, with intellectual property protections expiring and increasing competition from new entrants. The innovative medicines business faces intense competition from both innovative and generic pharmaceutical companies.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Generic Drug Manufacturers: Domestic and international generic drug manufacturers.
• Brand-Name Pharmaceutical Companies: Through next-generation medicines, authorized generics, existing brand equivalents, and therapeutically similar drugs.
• Specific Product Competitors:
  • AJOVY: Emgality, Aimovig.
  • BENDEKA: Belrapzo and other generic bendamustine products.
  • COPAXONE: Generic versions of glatiramer acetate and alternative MS therapies.

Emerging Competitive Threats:

• Increased FDA approvals for existing generic products, intensifying competition on base generic products.
• Accelerated biosimilar development due to lower barriers to entry.
• New market entrants and disruptive technologies across all segments.

Competitive Response Strategy: Teva Pharmaceutical Industries Limited mitigates price erosion in generics through robust R&D and key launches. It challenges patents when appropriate and seeks alliances for product rights, development cost sharing, or to resolve patent/regulatory barriers. The company invests significantly in expanding its innovative and biosimilar pipeline through internal efforts and collaborations.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Healthcare Reforms: Governments globally implement reforms to reduce drug costs, including price caps, reimbursement limits, and changes to tendering systems. The U.S. Inflation Reduction Act (IRA) of 2022 significantly impacts Medicare drug pricing, requiring price setting discussions for high-expenditure drugs (e.g., AUSTEDO and AUSTEDO XR effective January 1, 2027) and imposing inflation-based rebates. Teva Pharmaceutical Industries Limited is legally challenging the IRA's Drug Price Negotiation Program.
• Technology Disruption: Rapidly evolving AI technologies introduce risks such as inaccuracies, biases, and cybersecurity vulnerabilities, potentially impacting operations, reputation, and compliance.
• Customer Concentration: A significant portion of sales to a few large U.S. customers (e.g., McKesson Corporation, AmerisourceBergen Corporation) creates pricing pressure and dependency risks.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Supplier Dependency: Reliance on single or limited sources for key raw materials and APIs poses supply interruption risks.
• Geographic Concentration: Operations in politically or economically unstable countries (e.g., ongoing conflict in the Middle East, Russia-Ukraine conflict) expose the company to sales loss, supply chain disruptions, and increased operational costs.
• Capacity Constraints: Aging manufacturing plants and equipment, and regulatory actions (e.g., facility shutdowns, production limits) could disrupt operations and product supply. Medicine shortages are a widespread global problem.

Financial & Regulatory Risks

Market & Financial Risks:

• Demand Volatility: Sales of generic products are affected by customer buying patterns, seasonality, and pricing.
• Foreign Exchange: Substantial international operations expose the company to significant foreign currency risks, impacting revenues, operating costs, profits, and cash flows.
• Credit & Liquidity: Significant debt ($16,807 million as of December 31, 2025) requires substantial interest and principal payments, limiting capital for growth. Covenants in the sustainability-linked revolving credit facility (RCF) impose financial ratio limitations, with non-compliance potentially leading to default.

Regulatory & Compliance Risks:

• Industry Regulation: Extensive regulation by agencies like the FDA, DEA, and EMA governs development, manufacturing, labeling, marketing, and sales. Non-compliance can result in fines, penalties, product recalls, and operational restrictions.
• Advertising Oversight: Increased scrutiny on pharmaceutical advertising, including a new U.S. Administration initiative in September 2025 to address direct-to-consumer (DTC) advertising, could lead to enforcement actions.
• Data Privacy: Subject to complex global data privacy laws (e.g., EU GDPR, EU AI Act, Israel Data Protection legislation, U.S. HIPAA, CCPA, CPRA), with non-compliance risking fines, litigation, and reputational damage.
• Competition Law: Increased government scrutiny from competition and pricing authorities globally (e.g., U.S. DOJ, FTC, European Commission) exposes the company to antitrust investigations, litigation, and significant damages (e.g., COPAXONE antitrust decision in Europe, generic drug antitrust litigation in the U.S.).
• Product Liability: Inherent exposure to product liability claims (e.g., nitrosamine impurities, Paragard IUD litigation), with potential for claims exceeding insurance coverage.
• Opioids Litigation: Ongoing legal and regulatory actions related to opioid sales and distribution, including a nationwide settlement in June 2023 ($4.25 billion over 13 years, including naloxone hydrochloride nasal spray supply) and pending claims in Canada.

Geopolitical & External Risks

Geopolitical Exposure: Global operations are susceptible to political or economic instability, major hostilities (e.g., Middle East, Russia-Ukraine conflict), and acts of terrorism, which could disrupt trade, supply chains, and operations. Trade Relations: U.S. tariffs and retaliatory actions by other countries could increase costs and disrupt supply. Sanctions & Export Controls: Compliance with dynamic global sanctions and trade controls (e.g., related to Russia-Ukraine conflict) may require withdrawal from or limitation of exposure to certain markets.

Innovation & Technology Leadership

Research & Development Focus: Teva Pharmaceutical Industries Limited's R&D activities are centralized under one global group, covering innovative medicines, generic medicines (finished goods and API), biosimilars, and OTC medicines.

• Core Technology Areas: Innovative R&D focuses on biologic and small molecule products in neuroscience (neuropsychiatry, migraine, movement disorders/neurodegeneration) and immunology. Generic R&D emphasizes high-value, complex generics and formulations. API R&D specializes in process development and physical compound characterization.
• Innovation Pipeline:
  • Phase 3: olanzapine LAI (TEV-‘749) for Schizophrenia (NDA submitted to FDA in December 2025); Dual Action Rescue Inhaler (DARI) (ICS/SABA; TEV-‘248) for Asthma; duvakitug (anti-TL1A, TEV-’574) for Crohn’s disease and ulcerative colitis (Phase 3 studies initiated October 2025).
  • Phase 2: Anti-IL-15 (TEV-’408) for Celiac disease; emrusolmin (TEV-‘286) for Multiple System Atrophy (Phase 2 initiated Q3 2024).
  • Biosimilars in Regulatory Review: Proposed biosimilars to Prolia (denosumab), Xgeva (denosumab), Simponi (golimumab), Simponi Aria (golimumab), and Eylea (aflibercept) in the U.S.
• Intellectual Property Portfolio: Holds numerous patents covering innovative medicines (e.g., AUSTEDO, AJOVY, UZEDY, BENDEKA) and hundreds of API patents. Actively challenges patents and relies on trade secrets, proprietary know-how, and regulatory exclusivities.

Technology Partnerships: Teva Pharmaceutical Industries Limited actively pursues in-licensing, acquisition, collaboration, and funding opportunities to expand its pipeline. Key partnerships include:

• mAbxience: Strategic licensing for biosimilar candidates TEV-‘316 (oncology) and TEV-‘333 (anti-PD-1 oncology).
• Launch Therapeutics and Abingworth: Clinical collaboration for DARI (ICS-SABA) for asthma, with Abingworth providing up to $150 million in development funding.
• Biolojic Design: Exclusive global license for BD9 multibody for atopic dermatitis and asthma.
• Royalty Pharma: Funding agreements for olanzapine LAI (TEV-’749) and anti-IL-15 antibody (TEV-’408).
• Sanofi: Exclusive collaboration for co-development and co-commercialization of duvakitug (anti-TL1A, TEV-’574).
• MODAG: Exclusive global license for emrusolmin (TEV-’286) and TEV-‘287 for neurodegenerative disorders.
• Alvotech: Exclusive U.S. commercialization agreement for multiple biosimilar product candidates, including SIMLANDI (adalimumab-ryvk) and SELARSDI (ustekinumab-aekn).
• MedinCell: Agreement for development and commercialization of long-acting injectable (LAI) products, including UZEDY (risperidone LAI) and olanzapine LAI (TEV-’749).

Leadership & Governance

Executive Leadership Team

Leadership Continuity: Teva Pharmaceutical Industries Limited focuses on succession planning through global talent review processes to identify and accelerate successors for senior positions.

Board Composition: The Audit Committee is comprised entirely of independent directors. The Human Resources and Compensation Committee, Compliance Committee, and Board of Directors oversee culture and talent, including human capital strategy and execution.

Human Capital Strategy

Workforce Composition:

• Total Employees: 33,950 (as of December 31, 2025), a decrease from 36,830 in 2024 and 37,851 in 2023, primarily due to "Teva Transformation programs."
• Geographic Distribution (excluding contractors, as of December 31, 2025): United States: 4,613; Europe: 17,390; International Markets (excluding Israel): 7,768; Israel: 3,071.
• Skill Mix: Actively seeks diverse candidates to build a broad talent pool reflecting patient diversity and supporting global medicine and service delivery.

Talent Management: Acquisition & Retention: Focuses on attracting, developing, and retaining top talent in the competitive pharmaceutical industry. Monitors employee turnover to inform retention and recruitment strategies. Diversity & Development: Committed to inclusion and diversity, fostering a culture of dignity, fairness, and psychological safety. Provides flexible onboarding, leadership, and development programs. Rolled out an AI-based talent development system in 2025 to match employee skills with development opportunities. Culture & Engagement: Annual employee surveys (83% response rate in 2025) indicate employees feel connected to Teva Pharmaceutical Industries Limited's purpose and values, confident in its societal impact, and treated with respect and fairness.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: Made measurable climate action progress in 2025, including towards 2030 greenhouse gas emissions reduction targets. Supply Chain Sustainability: Promotes product stewardship through environmental risk assessments for new products and processes. Social Impact Initiatives: Continued implementing its global Environment, Health and Safety (EHS) management system and expanded safety culture programs. Issued sustainability-linked senior notes with targets including improving access to medicines in low- and middle-income countries and reducing GHG emissions.

Business Cyclicality & Seasonality

Demand Patterns: Sales of generic products can be affected by fluctuations in customer buying patterns, seasonality (e.g., lower sales of seasonal OTC products in Europe), and pricing. Planning & Forecasting: Evaluates risks in supply planning, loss prevention, and business continuity planning.

Regulatory Environment & Compliance

Regulatory Framework: Teva Pharmaceutical Industries Limited operates under extensive and complex regulatory frameworks globally.

• Industry-Specific Regulations: Subject to regulations by the FDA, DEA, EMA, and other health authorities concerning development, manufacturing, labeling, marketing, and distribution of pharmaceutical products.
• International Compliance: Adheres to diverse regulatory requirements across 57 markets, including data privacy regulations (e.g., EU GDPR, Israel Data Protection legislation, U.S. HIPAA, CCPA, CPRA), and new AI regulations (e.g., EU Artificial Intelligence Act Regulation 2024/1689).
• Trade & Export Controls: Complies with national and international laws governing imports, exports, and economic sanctions, including dynamic sanctions related to geopolitical conflicts.
• Falsified Medicines Directive (FMD): Complies with EU FMD traceability requirements for drug products, effective since February 2019.

Legal Proceedings: Teva Pharmaceutical Industries Limited is party to numerous governmental investigations and litigation.

• IRA Litigation: Filed a lawsuit against CMS on January 15, 2025, challenging the Drug Price Negotiation Program of the IRA, which was dismissed by the U.S. District Court on November 20, 2025, and is currently under appeal.
• Opioids Litigation: Consummated a nationwide settlement in June 2023 to resolve claims from states and political subdivisions, involving payments of up to $4.25 billion over 13 years (including generic Narcan supply). Ongoing claims in Canada.
• Antitrust Litigation:
  • Paid a fine of 60.5 million euros to the European Commission in December 2025, closing the modafinil antitrust case.
  • Appealed the European Commission's October 31, 2024, decision alleging anticompetitive practices regarding COPAXONE (fine of 462.6 million euros).
  • Defending against multiple civil actions in the U.S. alleging conspiracies to fix prices and/or allocate market share of generic products.
  • Reached a settlement in principle for a putative class action regarding QVAR asthma inhalers in August 2025.
• DOJ PAP Complaint: Entered a settlement agreement with the DOJ on October 10, 2024, to pay $425 million over six years to resolve claims related to donations to patient assistance programs.
• FTC Investigation: Received a civil investigative demand from the FTC in June 2024 regarding patents listed in the Orange Book for certain inhaler products.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: Recognized a tax benefit of $180 million on pre-tax income of $1,223 million in 2025, resulting in an effective tax rate of (14.8%). In 2024, recognized a tax expense of $676 million on a pre-tax loss of $1,284 million.
• Geographic Tax Planning: Benefits from a preferred 6% tax rate in Israel for income from Special Preferred Technological Enterprises. Israeli subsidiaries compute taxable income in U.S. dollars to reduce exchange rate effects. Non-Israeli subsidiaries are taxed according to local laws, with some benefiting from tax incentives.
• Tax Reform Impact: Evaluated the impact of the OECD's Pillar Two global minimum tax and the U.S. One Big Beautiful Bill Act (signed July 4, 2025), concluding no material impact on 2025 consolidated financial statements, but potential future impacts.

Insurance & Risk Transfer

Risk Management Framework: Teva Pharmaceutical Industries Limited maintains an insurance program, including commercial and self-insurance, deemed reasonable for its business risks. This includes coverage for cyber risks, though it acknowledges that coverage may not be sufficient for all potential losses. The company also uses derivative financial instruments (forward exchange contracts, currency options, cross-currency swap contracts, interest rate swap contracts, treasury locks) to manage foreign exchange and interest rate risks.