UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2018~~2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number001-16174

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Exact name of registrant as specified in its charter)


Israel		Not Applicable
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

5 Basel Street, Petach Tikva, ISRAEL		4951033
(Address of principal executive offices)		(Zip code)

+972(3) 914-8171

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing one Ordinary Share	TEVA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes ☐ No ☒

As of ~~April 30, 2018,~~March 31, 2019, the registrant had ~~1,018,226,803~~1,091,598,003 ordinary shares outstanding.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

INDEX


PART I.		~~Page No.~~
~~PART I –~~ FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets		5

	Consolidated Statements of Income (loss)		6

	Consolidated Statements of Comprehensive Income (loss)		7

	Consolidated statements of changes in equity		8

	Consolidated Statements of Cash Flows		9

	Notes to Consolidated Financial Statements		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		5043

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		7462

Item 4.	Controls and Procedures		7562

PART II.	~~PART II –~~ OTHER INFORMATION

Item 1.	Legal Proceedings		7663

Item 1A1A.	Risk Factors		7663

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		7663

Item 3.	Defaults Upon Senior Securities		7663

Item 4.	Mine Safety Disclosures		7663

Item 5.	Other Information		7663

Item 6.	Exhibits		7764

~~SIGNATURES~~			78Signatures	65

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise indicated, all references to the “Company,” “we,” “our” and “Teva” refer to Teva Pharmaceutical Industries Limited and its subsidiaries, and references to “revenues” refer to net revenues. References to “U.S. dollars,” “dollars,” “U.S. $” and “$” are to the lawful currency of the United States of America, and references to “NIS” are to new Israeli shekels. References to “MS” are to multiple sclerosis. Market data, including both sales and share data, is based on information provided by IQVIA (formerly IMS Health Inc.), a provider of market research to the pharmaceutical industry (“IQVIA”), unless otherwise stated. References to “Actavis Generics” are to the generic pharmaceuticals business we purchased from Allergan plc (“Allergan”) on August 2, 2016. References to ~~“P&G” are to The Procter & Gamble Company, and references to “PGT” are to PGT Healthcare, the joint venture we formed with P&G. References to~~ “R&D” are to Research and Development, references to “IPR&D” are toin-process R&D, references to “S&M” are to Selling and Marketing and references to “G&A” are to General and Administrative. Some amounts in this report may not add up due to rounding. All percentages have been calculated using unrounded amounts.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form10-Q, and the reports and documents incorporated by reference in this Quarterly Report on Form10-Q, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management’s current beliefs and expectations and are subject to substantial risks and uncertainties, both known and unknown, that could cause our future results, performance or achievements to differ significantly from that expressed or implied by such forward-looking statements. You can identify these forward-looking statements by the use of words such as “should,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. Important factors that could cause or contribute to such differences include risks relating to:

•

our ability to successfully compete in the marketplace, including: that we are substantially dependent on our generic products; competition for our specialty products, especially COPAXONE^®, our leading medicine, which faces competition from existing and potential additional generic versions and orally-administered alternatives; the uncertainty of commercial success of AJOVY^® or AUSTEDO^®; competition from companies with greater resources and capabilities; efforts of pharmaceutical companies to limit the use of generics, including through legislation and regulations; consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our products, both from competing products and increased regulation; delays in launches of new products and our ability to achieve expected results from investments in our product pipeline; our ability to take advantage of high-value opportunities; the difficulty and expense of obtaining licenses to proprietary technologies; and the effectiveness of our patents and other measures to protect our intellectual property rights;

our ~~substantially increased~~substantial indebtedness, ~~and significantly decreased cash on hand,~~ which may limit our ability to incur additional indebtedness, engage in additional transactions or make new investments, may result in a further downgrade of our credit ratings; and our inability to raise debt or borrow funds in amounts or on terms that are favorable to us;

our business and operations in general, including: failure to effectively execute our restructuring plan announced in December 2017; uncertainties related to, and failure to achieve, the potential benefits and success of our ~~new~~ senior management team and organizational structure; harm to our pipeline of future products due to the ongoing review of our R&D programs; our ability to develop and commercialize additional pharmaceutical products; potential additional adverse consequences following our resolution with the U.S. government of our FCPA investigation; compliance with sanctions and other trade control laws; manufacturing or quality control problems, which may damage our reputation for quality production and require costly remediation; interruptions in our supply chain; disruptions of our or third party information technology systems or breaches of our data security; the failure to recruit or retain key personnel; variations in intellectual property laws that may adversely affect our ability to manufacture our products; challenges associated with conducting business globally, including adverse effects of political or economic instability, major hostilities or terrorism; significant sales to a limited number of customers in our U.S. market; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; and our prospects and opportunities for growth if we sell assets;

compliance, regulatory and litigation matters, including: costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; increased legal and regulatory action in connection with public concern over the abuse of opioid medications in the U.S.; governmental investigations into S&M practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

and other factors discussed in ~~Item 1A to~~this Quarterly Report on Form10-Q and in our Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018, including in the sections captioned “Risk Factors.” Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statements or other information contained herein, whether as a result of new information, future events or otherwise. You are cautioned not to put undue reliance on these forward-looking statements.

PART I — FINANCIAL INFORMATION

ITEM 1.

~~ITEM 1.~~

FINANCIAL STATEMENTS

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in ~~millions)~~millions, except for share data)

(Unaudited)


							March 31,			December 31,
	March 31, 2018			December 31, 2017			2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	1,418		$	963		$	1,973		$	1,782
Trade receivables		6,289			7,128			5,108			5,822
Inventories		5,113			4,924			4,782			4,731
Prepaid expenses		1,138			1,100			969			899
Other current assets		712			701			438			468
Assets held for sale		17			566			162			92

Total current assets		14,687			15,382			13,431			13,794
Deferred income taxes		463			574			351			368
Othernon-current assets		832			932			756			731
Property, plant and equipment, net		7,420			7,673			6,785			6,868
Operating leaseright-of-use assets								517			—
Identifiable intangible assets, net		17,314			17,640			13,191			14,005
Goodwill		28,465			28,414			24,822			24,917

Total assets	$	69,181		$	70,615		$	59,854		$	60,683

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,302		$	3,646		$	2,790		$	2,216
Sales reserves and allowances		7,410			7,881			6,200			6,711
Trade payables		1,929			2,069			1,763			1,853
Employee-related obligations		607			549			633			870
Accrued expenses		2,632			3,014			1,869			1,868
Other current liabilities		876			724			773			804
Liabilities held for sale		—			38

Total current liabilities		14,756			17,921			14,028			14,322
Long-term liabilities:
Deferred income taxes		2,998			3,277			2,079			2,140
Other taxes and long-term liabilities		1,875			1,843			1,669			1,727
Senior notes and loans		29,450			28,829			25,834			26,700
Operating Lease Liabilities								424			—

Total long-term liabilities		34,323			33,949			30,005			30,567

Commitments and contingencies, see note 16
Total liabilities		49,079			51,870			44,033			44,889

Equity:
Teva shareholders’ equity:
Preferred shares of NIS 0.10 par value per mandatory convertible preferred share; March 31, 2018 and December 31, 2017: authorized 5.0 million shares; issued 3.7 million shares		3,696			3,631
Ordinary shares of NIS 0.10 par value per share; March 31, 2018 and December 31, 2017: authorized 2,495 million shares; issued 1,124 million shares		54			54
Ordinary shares of NIS 0.10 par value per share; March 31, 2019 and December 31, 2018: authorized 2,495 million shares; issued 1,198 million shares and 1,196 million shares, respectively								56			56
Additionalpaid-in capital		23,443			23,479			27,234			27,210
Retained earnings		(2,688	)		(3,808	)
Accumulated deficit								(6,063	)		(5,958	)
Accumulated other comprehensive loss		(1,735	)		(1,848	)		(2,359	)		(2,459	)
Treasury shares as of March 31, 2018 and December 31, 2017 —106 million ordinary shares and 107 million ordinary shares, respectively		(4,149	)		(4,149	)
Treasury shares as of March 31, 2019 and December 31, 2018 — 107 million ordinary shares and 106 million ordinary shares, respectively								(4,137	)		(4,142	)

		18,621			17,359			14,732			14,707

Non-controlling interests		1,481			1,386			1,089			1,087

Total equity		20,102			18,745			15,821			15,794

Total liabilities and equity	$	69,181		$	70,615		$	59,854		$	60,683

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(U.S. dollars in millions, except share and per share data)

(Unaudited)


							Three months ended
	Three months ended March 31,						March 31,
	2018			2017			2019			2018
Net revenues	$	5,065		$	5,650		$	4,295		$	5,065
Cost of sales		2,717			2,811			2,440			2,750

Gross profit		2,348			2,839			1,856			2,315
Research and development expenses		317			432			261			317
Selling and marketing expenses		771			958			648			738
General and administrative expenses		329			366			292			329
Other asset Impairments, restructuring and other items		707			240
Intangible assets impairment								469			206
Goodwill impairment		180			—			—			180
Other assets impairments, restructuring and other items								1			501
Legal settlements and loss contingencies		(1,278	)		20			57			(1,278	)
Other income		(203	)		(72	)		(6	)		(203	)

Operating income		1,525			895			134			1,525
Financial expenses, net		271			207			218			271

Income before income taxes		1,254			688
Income (loss) before income taxes								(84	)		1,254
Income taxes		46			54			9			46
Share in (profits) losses of associated companies, net		74			(7	)
Share in losses of associated companies, net								4			74

Net income		1,134			641
Net Income (loss) attributable tonon-controlling interests		14			(4	)
Net income (loss)								(97	)		1,134
Net income attributable tonon-controlling interests								8			14

Net income attributable to Teva		1,120			645
Net income (loss) attributable to Teva								(105	)		1,120

Dividends on preferred shares		65			65			—			65

Net income attributable to ordinary shareholders	$	1,055		$	580
Net income (loss) attributable to ordinary shareholders							$	(105	)	$	1,055

Earnings per share attributable to ordinary shareholders:
Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	1.04		$	0.57		$	(0.10	)	$	1.04

Diluted	$	1.03		$	0.57		$	(0.10	)	$	1.03

Weighted average number of shares (in millions):
Basic		1,017			1,016			1,090			1,017

Diluted		1,020			1,017			1,090			1,020

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(U.S. dollars in millions)

(Unaudited)

   Three months ended
March 31,
   2018 2017
Net income
   $ 1,134 $ 641
Other comprehensive income, net of tax:

Currency translation adjustment
   239 466
Unrealized gain (loss) from derivative financial instruments, net
   (44 ) 8
Unrealized gain fromavailable-for-sale securities, net
   1 54
Unrealized loss on defined benefit plans
   —   (13 )


Total other comprehensive income
   196 515


Total comprehensive income
   1,330 1,156
Comprehensive income attributable tonon-controlling interests
   97 66


Comprehensive income attributable to Teva
   $ 1,233 $ 1,090


	Three months ended
	March 31,
	2019			2018
Net income (loss)	$	(97	)	$	1,134
Other comprehensive income (loss), net of tax:
Currency translation adjustment		47			239
Unrealized gain (loss) from derivative financial instruments		47			(44	)
Unrealized gain fromavailable-for-sale securities		—			1

Total other comprehensive income		94			196

Total comprehensive income (loss)		(3	)		1,330
Comprehensive income attributable tonon-controlling interests		2			97

Comprehensive income (loss) attributable to Teva	$	(5	)	$	1,233

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value			MCPS*		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other compre- hensive (loss)			Treasury shares			Total Teva share-holders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2017		1,124		54			3,631		23,479			(3,803	)		(1,853	)		(4,149	)		17,359			1,386			18,745
Cumulative effect of new accounting standard												(5	)		5
Comprehensive income (loss)												1,120			113						1,233			97			1,330
Stock-based compensation expense									29												29						29
Dividends to preferred shareholders							65		(65	)											0						0
Transactions withnon-controlling interests																					—			(2	)		(2	)

Balance at March 31, 2018		1,124	$	54		$	3,696	$	23,443		$	(2,688	)	$	(1,735	)	$	(4,149	)	$	18,621		$	1,481		$	20,102


* Mandatory convertible preferred shares.
	Teva shareholders’ equity
	Ordinary shares
	Number of shares (in millions)		Stated value			MCPS*		Additional paid-in capital			Retained earnings (accumulated deficit)			Accumulated other compre- hensive (loss)			Treasury shares			Total Teva share-holders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at December 31, 2018		1,196		56			0		27,210			(5,958	)		(2,459	)		(4,142	)		14,707			1,087			15,794
Comprehensive income (loss)												(105	)		100						(5	)		2			(3	)
Issuance of Shares		2		*	*
Issuance of Treasury Shares									(3	)								5			2						2
Stock-based compensation expense									34												34						34
Other									(6	)											(6	)					(6	)

Balance at March 31, 2019		1,198	$	56			—	$	27,234		$	(6,063	)	$	(2,359	)	$	(4,137	)	$	14,732		$	1,089		$	15,821

*	Mandatory convertible preferred shares.

**	Represents an amount less than $0.5 million.

Amounts may not add up due to rounding.

The accompanying notes are an integral part of the financial statements.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)


	Three months ended March 31,						Three months ended March 31,
	2018			2017			2019			2018
Operating activities:
Net income	$	1,134		$	641
Adjustments to reconcile net income to net cash provided by operations:
Net income (loss)							$	(97	)	$	1,134
Adjustments to reconcile net income (loss) to net cash provided by operations:
Net change in operating assets and liabilities		(592	)		(797	)		(805	)		(592	)
Impairment of long-lived assets		432			11			489			432
Depreciation and amortization		507			480			443			507
Goodwill impairment		180			—
Other items								83			(16	)
Stock-based compensation								34			30
Deferred income taxes – net and uncertain tax positions		(221	)		(217	)		(33	)		(221	)
Net gain from sale of long-lived assets and investments		(106	)		(39	)		(2	)		(106	)
Goodwill impairment								—			180
Impairment of equity investment		94			—			—			94
Research and development in process		54			—			—			54
Stock-based compensation		30			40
Other items		(16	)		17

Net cash provided by operating activities		1,496			136			112			1,496

Investing activities:
Beneficial interest collected in exchange for securitized trade receivables								362			444
Purchases of property, plant and equipment								(125	)		(163	)
Other investing activities								23			(10	)
Proceeds from sales of business, investments and long-lived assets		824			1,412			13			824
Beneficial interest collected in exchanged for securitized trade receivables		444			334
Purchases of property, plant and equipment		(163	)		(202	)
Purchases of investments and other assets		(56	)		(6	)		(1	)		(56	)
Other investing activities		(10	)		(22	)

Net cash provided by investing activities		1,039			1,516			272			1,039

Financing activities:
Repayment of long-term loans and other long-term liabilities		(6,243	)		—
Proceeds from long-term loans, net of issuance costs		4,440			—
Repayment of senior notes and loans and other long-term liabilities								(126	)		(6,243	)
Tax withholding payments made on shares and dividends								(52	)		(22	)
Other financing activities								(10	)		(5	)
Net change in short-term debt		(261	)		(1,350	)		(1	)		(261	)
Dividends paid on ordinary shares		(12	)		(346	)
Dividends paid on preferred shares		(10	)		(65	)
Other financing activities		(5	)		(7	)
Proceeds from senior notes and loans, net of issuance costs								—			4,440

Net cash used in financing activities		(2,091	)		(1,768	)		(189	)		(2,091	)

Translation adjustment on cash and cash equivalents		11			28			(4	)		11

Net change in cash and cash equivalents		455			(88	)		191			455
Balance of cash and cash equivalents at beginning of period		963			988			1,782			963

Balance of cash and cash equivalents at end of period	$	1,418		$	900		$	1,973		$	1,418

Supplemental cash flow information:
Non-cash financing and investing activities:
Beneficial interest obtained in exchange for securitized trade receivables	$	551		$	285		$	396		$	551

Amounts may not add up due to rounding

The accompanying notes are an integral part of the financial statements.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Basis of presentation:

The accompanying unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all recurring adjustments necessary to fairly state the financial position and results of operations of Teva. The information included in this Quarterly Report on Form10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form10-K for the year ended December 31, ~~2017,~~2018, as filed with the Securities and Exchange Commission (“SEC”). Amounts as of December 31, ~~2017~~2018 were derived from the audited balance sheet at that date, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included. Certain comparative figures have been reclassified to conform to current presentation. The results of operations for the three months ended March 31, ~~2018~~2019 are not necessarily indicative of results that could be expected for the entire fiscal year. Certain amounts in the consolidated financial statements and associated notes may not add up due to rounding. All percentages have been calculated using unrounded amounts.

Note 2 -– Significant accounting policies:

Recently adopted accounting pronouncements

On January 1, 2018, Teva adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method. The cumulative effect of initially applying the new revenue standard was immaterial. See note 9 for further discussion.

In ~~May 2017,~~June 2018, the FASB issued ASU2018-07 “Improvement to Nonemployee Share-Based Payments Accounting.” This guidance ~~on changes to terms and conditions of~~simplifies the accounting fornon-employee share-based payment ~~awards.~~transactions. The ~~amendment provides guidance about which changes~~amendments specify that ASC 718 applies to ~~terms or conditions of a~~all share-based payment ~~award require an entity~~transactions in which a grantor acquires goods or services to ~~apply modification accounting. The guidance is effective for the fiscal year beginning on January 1, 2018, including interim periods within that year.~~be used or consumed in a grantor’s own operations by issuing share-based payment awards. Teva adopted the provisions of this update ~~in the first quarter~~as of ~~2018. The impact that this new standard has on Teva’s financial statements after adoption will depend on any future modification of share-based compensation.~~

~~In February 2017, the FASB issued guidance onde-recognition~~ ~~of nonfinancial assets. The amendments address the recognition of gains and losses on the transfer (i.e., sale) of nonfinancial assets to counterparties other than customers. The guidance conformsde-recognition~~ ~~on nonfinancial assets with the model for transactions in the new revenue standard. Teva adopted the provisions of this update in the first quarter of 2018~~January 1, 2019 with no material impact on its consolidated financial statements.

In August 2016, the FASB issued guidance on statements of cash flows. The guidance addresses eight specific issues: debt prepayment or debt extinguishment costs; settlement of certain debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interest in securitization transactions; and separately identifiable cash flows and application of predominance principle. The amendments should be applied retrospectively. Teva adopted the provisions of this update in the first quarter of 2018. This resulted in a reclassification of $444 million and $334 million from operating activities to investing activities in the first quarter of 2018 and 2017, respectively.

In January 2016, the FASB issued guidance which updates certain aspects of recognition, measurement, presentation and disclosure of equity investments. The guidance requires entities to recognize changes in fair value in net income rather than in accumulated other comprehensive income. Teva adopted the provisions of this update in the first quarter of 2018. Following the adoption, the Company recorded a $5 million opening balance reclassification from accumulated other comprehensive loss to retained earnings. See note 10.

~~Recently issued accounting pronouncements, not yet adopted~~

In February 2018, the FASB issued guidance on the recognition and measurement of financial assets and financial liabilities. The guidance provides updates which address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The guidance is effective for fiscal years beginning after December 15, 2017; however, public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018 are not required to adopt these amendments until the interim period beginning after June 15, 2018. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance allows reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.

~~In August~~ 2017, the FASB issued ~~guidance on derivatives~~ASU2017-12 “Derivatives and ~~hedging, which~~Hedging—Targeted Improvements to Accounting for Hedging Activities.” This guidance expands and refines hedge accounting for bothnon-financial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Teva adopted the provisions of this update as of January 1, 2019 with no material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU2016-02 “Leases”. The guidance establishes aright-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The guidance became effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

Teva adopted the new accounting standard ASC 842 “Leases” and all the related amendments on January 1, 2019 and used the effective date as Teva’s date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. Teva did not elect the ‘package of practical expedients’, which permits the Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard. However, the Company did elect the practical expedient pertaining to theuse-of hindsight.

The new standard also provides practical expedients for an entity’s ongoing accounting. Teva elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means, for those leases, Teva does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Teva also elected the practical expedient to not separate lease andnon-lease components for all of Teva’s leases, other than leases of real estate.

Additionally, following the adoption of the new Lease Standard and in subsequent measurements, Teva applies the portfolio approach to account for the operating lease ROU assets and liabilities for certain car leases and incremental borrowing rates.

The adoption of this standard has a material effect on Teva’s financial statements. The most significant impact is reflected in: (i) the recognition of approximately $553 million ROU assets and $561 million lease liabilities on Teva’s balance sheet for its operating leases of real estate, vehicles and equipment (the difference between the additional lease assets and lease liabilities did not impact the retained earnings), and (ii) the requirement to provide significant new disclosures regarding Teva’s leasing activities and to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. However, the adoption of this standard does not have a material impact on Teva’s consolidated statements of income and consolidated statements of cash flows. Also, Company’s accounting for finance leases remained substantially unchanged. See note 20 for further discussion.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Recently issued accounting pronouncements, not yet adopted

In November 2018, the FASB issued ASU2018-18 “Collaborative Arrangements (Topic 808)—Clarifying the interaction between Topic 808 and Topic 606.” The amendments provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606. It also specifically (i) addresses when the participant should be considered a customer in the context of a unit of account, (ii) addsunit-of-account guidance in ASC 808 to align with guidance in ASC 606, and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. The guidance will be effective for fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years (early~~2019. Early adoption is permitted ~~for any interim~~ and ~~annual financial statements that have not yet been issued). Teva~~should be applied retrospectively. The Company is currently evaluating this guidance to determine the ~~potential effect~~impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU2018-15 “Intangibles—Goodwill andother—Internal-use software (Subtopic350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtaininternal-use software. The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In August 2018, the FASB issued ASU2018-13 “Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Certain disclosures required by this guidance must be applied on a retrospective basis and others on a prospective basis. The guidance will be effective for fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In June 2016, the FASB issued ~~guidance~~ASU2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on ~~financial instruments. The~~Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. Teva is currently evaluating the potential effect of the guidance on its consolidated financial statements.

In February 2016, the FASB issued guidance on leases. The guidance requires entities to record lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance. The guidance will become effective for interim and annual periods beginning on January 1, 2019 (early adoption is permitted) and is required to be adopted at the earliest period presented using a modified retrospective approach. In January 2018, the FASB issued an update that permits an entity to elect an optional transition practical expedient to not evaluate land easements that existed or expired before the entity’s adoption of the new standard and that were not previously accounted for as leases. Although the Company has not finalized its process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company expects there will be a material increase to assets and liabilities related to the recognition of new~~right-of-use~~ ~~assets and lease liabilities on the Company’s balance sheet for leases currently classified as operating leases.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 3 – Certain transactions:

Business acquisitions:

Actavis Generics and Anda acquisitions

On August 2, 2016, Teva ~~consummated its~~completed the acquisition of Allergan plc’s (“Allergan”) worldwide generic pharmaceuticals business (“Actavis Generics”). At closing, Teva transferred to Allergan consideration of approximately $33.4 billion in cash and approximately 100.3 million Teva shares.

On October 3, 2016, Teva ~~consummated~~completed the acquisition of Anda Inc. (“Anda”), ~~the fourth largest distributor of generic pharmaceuticals~~a medicines distribution business in the United States, from Allergan, for cash consideration of $500 million. ~~The purchase is a~~This transaction was related to the Actavis Generics acquisition and, as such, the purchase price accounting and related disclosures were treated on a combined basis.

The final cash consideration for the Actavis Generics acquisition was subject to certain net working capital adjustments. Following the terms of the agreement, Teva submitted an adjustment for $1.4 billion with regards to a working capital true up as well as potential recoveries of purchase price related to certain tax items. On January 31, 2018, Teva and Allergan entered into a settlement agreement and mutual releases ~~providing that~~for which Allergan ~~will make~~made aone-time payment of $703 million to Teva ~~which was paid during the first quarter of 2018. The Agreement also provides that Teva and Allergan will jointly dismiss~~to settle the working capital ~~dispute arbitration, as well as actual or potential claims~~adjustments under the Master Purchase Agreement, dated July 26, ~~2015, by and between Teva and Allergan, for breach of any representation, warranty or covenant (other than any breach of a post-closing covenant not known as of the date of the settlement agreement).~~2015. As the measurement period has ended, this amount ~~has been~~was recorded as a gain under legal settlements and loss ~~contingencies.~~contingencies in the first quarter of 2018.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Rimsa

On March 3, 2016, Teva completed the acquisition of Representaciones e Investigaciones Médicas, S.A. de C.V. (“Rimsa”), a pharmaceutical manufacturing and distribution company in Mexico, for $2.3 billion, in a cash free, debt free set of transactions. Teva financed the transaction using cash on hand.

Following the closing of the acquisition, Teva identified issues concerning Rimsa’spre-acquisition quality, manufacturing and other practices, at which point Teva began an assessment of the extent and cost of remediation required to return its products to the market. In September 2016, two lawsuits were filed: apre-emptive suit by the Rimsa sellers against Teva and Teva’s lawsuit alleging fraud and breach of contract against the Rimsa sellers. The Rimsa sellers subsequently dismissed their lawsuit and the dismissal was approved by court order on December 20, 2016.

On February 15, 2018, Teva and the Rimsa sellers entered into a settlement agreement and mutual releases ~~on the~~with respect to Teva’s breach of contract claim, ~~providing that~~pursuant to which the Rimsa sellers ~~will make~~made aone-time payment to ~~Teva, which~~Teva. Teva’s breach of contract claim was ~~paid during~~subsequently dismissed by the ~~first quarter of 2018 and~~court. As the measurement period has ended, this payment was recorded as a gain under legal settlements and loss ~~contingencies. This settlement was approved by~~contingencies in the ~~court and Teva’s breach~~first quarter of ~~contract claim was subsequently dismissed.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

2018.

Assets and Liabilities Held For Sale:

~~Certain Women’s Health and Other Specialty Products~~

On September 17, 2017, Teva entered into a definitive agreement under which CVC Capital Partners Fund VI will acquire a portfolio of products for $703 million in cash. The portfolio of products, which is marketed and sold outside of the United States, includes the women’s health products OVALEAP^®~~, ZOELY~~^®~~, SEASONIQUE~~^®~~, COLPOTROPHINE~~^® ~~and other specialty products such as ACTONEL~~^®.

As of December 31, 2017, the Company accounted for this transaction as assets and liabilities held for sale and determined that the fair value less cost to sell exceeded the carrying value of the business. The Company disposed of $329 million of goodwill associated with the divested business.

On January 31, 2018, Teva completed the sale of the portfolio of products to CVC Capital Partners Fund VI. As a result of these transactions, the Company recognized a net gain on sale of approximately $93 million in the first quarter of 2018 within other income in the consolidated statement of income. The transaction expenses for these divestitures of approximately $2 million were recognized concurrently and included as a reduction to the net gain on sale.

The Company determined that the sale of its global women’s health business did not constitute a strategic shift and that it did not, and will not, have a major effect on its operations and financial results. Accordingly, the operations associated with the transactions are not reported as discontinued operations.

The table below summarizes the major classes of assets and liabilities included as held for sale as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:


	March 31, 2018		December 31, 2017		March 31, 2019			December 31, 2018
	(U.S. $ in millions)				(U.S. $ in millions)
Inventories		—		39	$	25		$
Property, plant and equipment, net		17		16		114			92
Identifiable intangible assets, net		—		236		13			—
Goodwill		—		275		79			51
Adjustments of assets held for sale to fair value						(69	)		(51	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	17	$	566	$	162		$	92

Other taxes and long-term liabilities		—		38

Total liabilities of the disposal group classified as held for sale in the consolidated balance sheets	$	—	$	38

Other significant agreements:

The Company has entered into alliances and other arrangements with third parties to acquire rights to products it does not have, to access markets it does not operate in and to otherwise share development costs or business risks. The Company’s most significant agreements of this nature are summarized below.

~~PGT Healthcare Partnership~~Eli Lilly and Alder BioPharmaceuticals

In ~~April~~December 2018, Teva ~~signed a separation~~entered into an agreement with Eli Lilly, resolving the ~~Procter & Gamble Company (“P&G”)~~European Patent Office opposition they had filed against Teva’s AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to ~~terminate~~revoke the ~~PGT Healthcare partnership that~~patent protecting AJOVY in the ~~two companies established in 2011 to marketover-the-counter~~ ~~(“OTC”) medicines. Teva will continue to maintain its OTC business on an independent basis.~~

The separation is planned to become effective July 1, 2018, subject to receipt of applicable regulatory approvals. As part of the separation, Teva will transfer shares it holds in New Chapter Inc. and ownership rights in an OTC plant located in India to P&G. Teva will continue to provide certain services to P&G after the separation for a transition period.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

During the first quarter of 2018, Teva recorded an impairment of $56 million related to the plant in India and an impairment of $94 million related to the investment in New Chapter Inc. which was recorded within share in loss (profits) of associated companies.

~~Alder BioPharmaceuticals~~^®U.K.

On January 8, 2018, Teva signed a global license agreement with Alder BioPharmaceuticals (“Alder”). The agreement validates Teva’s IP and resolves Alder’s opposition to Teva’s European patent with respect to anti-calcitonin gene-related peptide (CGRP) antibodies, including the withdrawal of Alder’s appeal before the European Patent Office. Under the terms of the agreement, Alder will receive anon-exclusive license to Teva’s anti-CGRP antibodies patent portfolio to develop, manufacture and commercialize eptinezumab in the U.S. and worldwide, excluding Japan and Korea. Teva received a $25 million upfront payment that was recognized as revenue during the first quarter of ~~2018, which was recognized as revenue.~~2018. The agreement stipulates additional milestone payments to Teva of up to $175 million, as well as future royalties.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

PGT Healthcare Partnership

In July 2018, Teva terminated its joint venture with the Procter & Gamble Company (“P&G”), PGT Healthcare partnership (“PGT”), which the two companies established in 2011 to marketover-the-counter (“OTC”) medicines. Teva will continue to maintain its OTC business on an independent basis.

As part of the separation, Teva transferred to P&G the shares it held in New Chapter Inc. and ownership rights in an OTC plant located in India. Teva provides certain services to P&G after the separation for a transition period.

During the first quarter of 2018, Teva classified the plant in India as an asset held for sale and recorded an impairment of $64 million under other assets impairments, restructuring and other items. In addition, Teva recorded a write-down of $94 million of its investment in New Chapter Inc. under share in losses of associated companies.

During September 2018, Teva and P&G completed the final net asset distribution as part of the dissolution and Teva recorded a gain of $50 million to reflect the cash payment received from P&G under the dissolution agreement.

AUSTEDO^®

On September, 19, 2017, Teva entered into a partnership agreement with Nuvelution Pharma, Inc. (“Nuvelution”) for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage clinical development, driving all operational aspects of the phase 3 program, and Teva will lead the regulatory process and be responsible for commercialization. Upon and subject to FDA approval of AUSTEDO for the treatment of Tourette syndrome, Teva will pay Nuvelution apre-agreed amount as compensation for their contribution to the partnership.

Otsuka

On May 12, 2017, Teva entered into a license and collaboration agreement with Otsuka Pharmaceutical Co. Ltd. (“Otsuka”), providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for ~~fremanezumab~~AJOVY in Japan and, if approved, to commercialize the product in Japan. Otsuka paid Teva an upfront payment of $50 million in consideration for the transaction. Teva may receive additional milestone payments upon filing with Japanese regulatory authorities, receipt of regulatory approval and achievement of certain revenue targets. Otsuka will also pay Teva royalties on ~~fremanezumab~~AJOVY sales in Japan.

Attenukine^TM

In December 2016, Teva entered into a license agreement for research, development, manufacture and commercializing of Attenukine^TM technology with a subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”). Teva received a $30 million upfront payment. The agreement stipulates additional milestone payments to Teva of up to $280 million, as well as future royalties.

~~Ninlaro~~^®

~~In November 2016, Teva entered into an agreement to sell its royalties and other rights in Ninlaro~~^® (ixazomib) to a subsidiary of Takeda, for a $150 million upfront payment to Teva and an additional $150 million payment based on sales during 2017. Teva was entitled to these royalties pursuant to an agreement from 2014 assigning the Ninlaro^® patents to an affiliate of Takeda in consideration of milestone payments and sales royalties. In the first six months of 2017, Teva received payments in the amount of $150 million, which were recognized as revenue for the period.

Celltrion

In October 2016, Teva and Celltrion, Inc. (“Celltrion”) entered into a collaborative agreement to commercialize Truxima^® and Herzuma^®, two ~~of Celltrion’s~~ biosimilar products in development for the U.S. and Canadian markets. Teva paid Celltrion $160 million, of which up to $60 million is refundable or creditable under certain circumstances. Teva and Celltrion will share the profit from the commercialization of these products.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Regeneron

In September 2016, Teva and Regeneron Pharmaceuticals, Inc. (“Regeneron”) entered into a collaborative agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. Teva and Regeneron share equally in the global commercial rights to this product, as well as ongoing associated R&D costs of approximately $1 billion. Teva made an upfront payment of $250 million to Regeneron in the third quarter of 2016 as part of the ~~agreement and additional milestone~~agreement. Milestone payments of $25 million, ~~and~~ $35 million and $60 million were paid in the second quarter of 2017, ~~and in~~ the first quarter of 2018 and the fourth quarter of 2018, respectively.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 4 – Inventories:

Inventories, net of reserves, consisted of the following:


	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(U.S. $ in millions)				(U.S. $ in millions)
Finished products	$	2,772	$	2,689	$	2,641	$	2,665
Raw and packaging materials		1,483		1,454		1,357		1,328
Products in process		646		597		613		590
Materials in transit and payments on account		212		184		171		148

	$	5,113	$	4,924	$	4,782	$	4,731

NOTE 5 -– Property, plant and ~~equipment, net:~~equipment:

Property, plant and equipment, net, consisted of the following:

   March 31,    December 31,
   2018    2017
   (U.S. $ in millions)
Machinery and equipment
   $ 5,759    $ 5,809
Buildings
   3,307    3,329
Computer equipment and other assets
   2,055    2,016
Payments on account
   615    634
Land⁽¹⁾
   358    390




   12,094    12,178
Less—accumulated depreciation
   4,674    4,505




   $ 7,420    $ 7,673

~~(1)~~

~~Land includes long-term leasehold rights in various locations, with useful lives between 30 and 99 years.~~


	March 31, 2019			December 31, 2018
	(U.S. $ in millions)
Machinery and equipment	$	5,699		$	5,691
Buildings		3,124			3,143
Computer equipment and other assets		2,113			2,097
Payments on account		520			514
Land		370			351

		11,826			11,796
Less—accumulated depreciation		(5,041	)		(4,928	)

	$	6,785		$	6,868

NOTE 6 -– Identifiable intangible assets:

Identifiable intangible assets consisted of the following:


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount				Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2018		2017		2018		2017		2018		2017		2019		2018		2019		2018		2019		2018
	(U.S. $ in millions)												(U.S. $ in millions)
Product rights	$	21,395	$	21,011	$	8,728	$	8,276	$	12,667	$	12,735	$	20,201	$	20,361	$	9,706	$	9,565	$	10,494	$	10,796
Trade names		618		617		64		55		554		562		603		606		100		91		503		515
Research and development in process		4,093		4,343		—		—		4,093		4,343
In process research and development														2,193		2,694		—		—		2,193		2,694

Total	$	26,106	$	25,971	$	8,792	$	8,331	$	17,314	$	17,640	$	22,997	$	23,661	$	9,806	$	9,656	$	13,191	$	14,005

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Product rights and trade names

Product rights and trade names are assets presented at amortized cost. ~~These assets~~Product rights and trade names represent a portfolio of pharmaceutical products from various categories with a weighted average ~~amortization~~ life of approximately 1112 years. Amortization of intangible assets ~~was~~amounted to $283 million and $310 ~~million for the three months ended March 31, 2018 and is recorded in earnings, as relevant, under cost of sales and S&M expenses, depending on the nature of the asset.~~

Whenever impairment indicators are identified for definite life intangible assets, Teva reconsiders the asset’s estimated life, calculates the undiscounted value of the asset’s or asset group’s cash flows by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams and compares such value against the asset’s or asset group’s carrying amount. If the carrying amount is greater, Teva records an impairment loss for the excess of book value over fair value based on the discounted cash flows.

The more significant estimates and assumptions inherent in the estimate of the fair value of identifiable intangible assets include all assumptions associated with forecasting product profitability, including sales and cost to sell projections, R&D expenditure for ongoing support of product rights or continued development of IPR&D, estimated useful lives and IPR&D expected launch dates. Additionally, for IPR&D assets the risk of failure has been factored into the fair value measure.

~~Impairment of identifiable intangible assets was $206~~ million in the three months ended March 31, 2019 and 2018, ~~and is recorded in earnings under other asset impairments, restructuring and other items. See note 14.~~respectively.

Additional reductions to R&D intangibles relate to reclassification to product rights following regulatory approvals of generic products and impairments of assets due to development status, changes in projected launch date or changes in commercial projections related to products under development.

~~In the first quarter of 2018, $103 million was reclassified from IPR&D to product rights in connection with mesalamine following regulatory approval for this product.~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

IPR&D

Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is comprised mainly of the following acquisitions and related assets: various generic products (Actavis Generics) – $1,935 million; various generic products (Rimsa) – $47 million and AUSTEDO – $211 million. IPR&D carries intrinsic risks that the asset might not succeed in advanced phases and may be impaired in future periods.

In the first three months of 2019, Teva reclassified $236 million of products from IPR&D to product rights following regulatory approval, mainly $174 million in connection with Methyl ER.

Intangible assets impairment

Impairments of long-lived intangible assets in the first three months of 2019 and 2018 were $469 million and $206 million, respectively. Impairments in the first quarter of 2019 consisted of:

IPR&D assets of $265 million, mainly due to: (i) $125 million related to lenalidomide (generic equivalent of Revlimid^®) due to modified competition assumptions as a result of settlements between the innovator and other generic filers and (ii) $140 million of other generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (e.g., market size, competition assumptions, legal landscape, launch date or discount rate); and

Identifiable product rights of $204 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States.

NOTE 7 -– Goodwill:

The changes in the carrying amount of goodwill for the period ended March 31, ~~2018~~2019 were as follows:

Generics Specialty Other Total North
America Europe Growth
Market Other Total
(U.S. $ in millions) (U.S. $ in millions)
Balance as of December 31, 2017⁽³⁾
$ 18,864 $ 8,464 $ 1,086 $ 28,414 $ —   $ —   $ —   $ —   $ —
Relative fair value allocation
(18,864 ) (8,464 ) (1,086 ) (28,414 ) 11,144 9,001 5,404 2,865 28,414

Balance as of January 1, 2018
—   —   —   —   11,144 9,001 5,404 2,865 28,414
Changes during the period:

Goodwill impairment⁽¹⁾
(180 ) (180 )
Goodwill disposal⁽²⁾
(54 ) (54 )
Translation differences
(13 ) 269 28 1 285

Balance as of March 31, 2018⁽³⁾
$ —   $ —   $ —   $ —   $ 11,131 $ 9,216 $ 5,252 $ 2,866 $ 28,465


	North America			Europe			International Markets		Other		Total
	(U.S. $ in millions)
Balance as of January 1, 2019	$	11,098		$	8,653		$	2,479	$	2,687	$	24,917
Changes during the period:
Goodwill reclassified as assets to held for sale		(23	)		(5	)		—		—		(28	)
Translation differences		8			(117	)		41		1		(67	)

Balance as of March 31, 2019	$	11,083		$	8,531		$	2,520	$	2,688	$	24,822

~~(1)~~

~~Due to the goodwill impairment related to Rimsa.~~

~~(2)~~

~~Due to the divestment of the women’s health business.~~

~~(3)~~

~~Accumulated goodwill impairment as of March 31, 2018 and December 31, 2017 was approximately $18.2 billion and $18.0 billion, respectively.~~

~~In November 2017,~~ Teva ~~announced a new organizational structure and leadership changes to enable strategic alignment across its portfolios, regions and functions. Teva now~~ operates its business through three segments: North America, Europe and ~~Growth~~International Markets. ~~The purpose of the new structure is to enable stronger alignment and integration between operations, commercial regions, R&D and Teva’s global marketing and portfolio function, in order to optimize~~Teva began reporting its ~~product lifecycle across the therapeutic areas. Teva’s~~ financial results ~~for~~under this structure in the first quarter of ~~2018 are being reported under this new structure for the first time.~~

2018. In addition to these three segments, Teva has other ~~activities,~~sources of revenues, primarily the ~~active pharmaceutical ingredient (“API”) manufacturing business and~~sale of APIs to third parties, certain contract manufacturing ~~services.~~services and anout-licensing platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis. See note 17.

Following the announcement of its new organizational structure and leadership changes in November 2017, Teva conducted an analysis of its business segments, which led to changes in Teva’s identified reporting units, operating and reporting segments. As a result, on January 1, 2018, Teva reallocated its goodwill to the adjusted reporting units using a relative fair value allocation. In conjunction with the goodwill reallocation, Teva performed a goodwill impairment test for the balances in its adjusted reporting units, utilizing the same annual operating plan (“AOP”) and long range plan model that were used in its 2017 annual impairment test; The Company concluded that the fair value of each reporting unit was in excess of its carrying value.

During the first quarter of 2018, Teva identified an increase in certain components of the weighted average cost of capital (“WACC”), such as an increase in the risk free interest and the unlevered beta. The Company addressed these changes in rates as an indication for impairment and performed an additional impairment test as of March 31, 2018.

Based on its revised analysis, Teva recorded a goodwill impairment of $180 million related to its Rimsa reporting unit in the first quarter of 2018. The remaining goodwill allocated to this reporting unit is $706 million as of March 31, 2018. This impairment was driven by the change in fair value, including the discount rate updated for the WACC change noted above, and the change in allocated net assets to the reporting unit. See note 3.

Based on current macro-economic developments and capital markets anticipation, a possible increase in the risk free interest rate of 0.5% may result in an increase to Teva’s WACC by approximately the same amount and consequently in an additional impairment of $70 million and $100 million with respect to Rimsa and the Growth Markets reporting units, respectively.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

For Teva’s remaining reporting units, the percentage difference between estimated fair value and estimated carrying value in the first quarter of 2018 was 6%, 10%, 21% and 49% for Teva’s Growth Markets, Europe, North America and other reporting units, respectively.

Teva determines the fair value of its reporting units using ~~a weighting of fair values derived from~~ the income approach. The income approach is a forward-looking approach for estimating fair ~~value and utilizes the 2018 remaining year forecast, projections for growth off that base with an associated price erosion, as well as terminal growth rate.~~value. Within the income approach, the method ~~that was~~ used is the discounted cash flow method. Teva ~~started~~starts with a forecast of all the expected net cash flows associated with the reporting unit, which includes the application of a terminal value, and then ~~applied~~applies a discount rate to arrive at a net present value amount. Cash flow projections are based on Teva’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the WACC, adjusted for the relevant risk associated with country-specific and business-specific characteristics. If any of these expectations were to vary materially from Teva’s assumptions, Teva could face impairment of goodwill allocated to these reporting units in the future.

During the first quarter of 2019, management assessed developments during the quarter to determine if it was more likely than not that the fair value of any of its reporting units was below its carrying amount. This includes the International Markets, Medis and Europe reporting units, which had headroom of 6% or less as of December 31, 2018. As part of this assessment, the Company also considered the sensitivity of its conclusions as they relate to changes in the estimates and assumptions used in the latest forecast available for each period.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In addition, Teva analyzed the aggregate fair value of its reporting units, calculated as part of the annual goodwill impairment test performed in the fourth quarter of 2018, compared to its market capitalization. Despite the decrease in share price during the first quarter of 2019 compared to the average share price used to assess the reasonableness of the results of the cash flow projections used for the goodwill impairment analysis in the fourth quarter of 2018, management believes that its fair value assessment is reasonably supported by Teva’s market capitalization. Management will continue to monitor business conditions and will also consider future developments in Teva’s market capitalization when assessing whether additional goodwill impairment is required in future periods.

Based on this assessment, management has concluded that it is not more likely than not that the fair value of any of the reporting units is below its carrying value as of March 31, 2019 and, therefore, no quantitative assessments were performed.

NOTE 8 – Earnings (Loss) per share:

Basic earnings and loss per share are computed by dividing net results attributable to Teva’s ordinary shareholders by the weighted average number of ordinary shares outstanding (including fully vested restricted share units (“RSUs”)) during the period, net of treasury shares.

In computing the diluted loss per share for the three months ended March 31, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options andnon-vested RSUs granted under employee stock compensation plans, and convertible senior debentures, since they had an anti-dilutive effect on loss per share. Diluted earnings per share for the three months ended March 31, 2018 ~~and 2017, basic earnings per share was adjusted to take~~took into account the potential dilution that could occur upon the exercise of options andnon-vested RSUs granted under employee stock compensation plans, using the treasury stock method.

Additionally, in the three months ended March 31, 2018, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 64 million shares (including shares that ~~may be~~were issued due to unpaid dividends tountil that date) ~~for the three months ended March 31, 2018 and 59 million for the three months ended March 31, 2017, as well as for the convertible senior debentures for the respective periods,~~, since ~~both~~they had an anti-dilutive effect on ~~earnings~~loss per share.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

On December 17, 2018, the mandatory convertible preferred shares automatically converted into ADSs and all of the accumulated and unpaid dividends on the mandatory convertible preferred shares were paid in ADSs. As a result of this conversion, Teva issued 70.6 million ADSs in December 2018.

NOTE 9 – Revenue from contracts with customers:

~~Revenue recognition prior to the adoption of the new revenue standard~~

~~Please refer to note 1 to the consolidated financial statements and critical accounting policies included in our Annual Report on Form10-K~~ ~~for the year ended December 31, 2017 for a summary of our significant accounting policies~~

~~Revenue recognition following the adoption of the new revenue standard~~

A contract with a customer exists only when: the parties to the contract have approved it and are committed to perform their respective obligations, the Company can identify each party’s rights regarding the distinct goods or services to be transferred (“performance obligations”), the Company can determine the transaction price for the goods or services to be transferred, the contract has commercial substance and it is probable that the Company will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

Revenues are recorded in the amount of consideration to which the Company expects to be entitled in exchange for performance obligations upon transfer of control to the customer, excluding amounts collected on behalf of other third parties and sales taxes.

The amount of consideration to which Teva expects to be entitled varies as a result of rebates, chargebacks, returns and other sales reserve and allowances (“SR&A”) the Company offers its customers and their customers, as well as the occurrence or nonoccurrence of future events, including milestone events. A minimum amount of variable consideration is recorded concurrently with the satisfaction of performance obligations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Estimates of variable consideration are based on historical experience and the specific terms in the individual agreements (which the Company believes approximates expected value). Rebates and chargebacks are the largest components of SR&A. For further description of SR&A components and how they are estimated, see “Variable consideration” below.

~~Shipping and handling costs after control over a product has transferred to a customer are accounted for as a fulfillment cost and are recorded under S&M expenses.~~

Teva does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less. The Company’s credit terms to customers are in average between thirty and ninety days.

The Company generally recognizes the incremental costs of obtaining contracts as an expense since the amortization period of the assets that the Company otherwise would have recognized is one year or less. The costs are recorded under S&M expenses. Similarly, Teva does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Disaggregation of revenue

The following table disaggregates Teva’s revenues by major revenue streams. For additional information on disaggregation of revenues see note 17.

   March 31, 2018
   North America    Europe    Growth Markets    Other activities    Total
   (U.S. dollars in millions)
Sale of goods
   2,168    1,429    519    177    4,293
Licensing arrangements
   32    10    20    2    64
Distribution
   331    3    153    —      487
Other
   —      —      58    163    221










   $ 2,531    $ 1,442    $ 750    $ 342    $ 5,065










   March 31, 2017
   North America    Europe    Growth Markets    Other activities    Total
   (U.S. dollars in millions)
Sale of goods
   2,824    1,287    529    196    4,836
Licensing arrangements
   121    1    1    1    124
Distribution
   295    53    125    —      473
Other
   —      —      63    154    217










   $ 3,240    $ 1,341    $ 718    $ 351    $ 5,650

~~Nature of revenue streams~~
   Three months ended March 31, 2019
   North America    Europe    International
Markets    Other
activities    Total
   (U.S.$ in millions)
Sale of goods
   1,637    1,259    468    187    3,551
Licensing arrangements
   31    5    §    1    37
Distribution
   379    §    151    —      530
Other
   —      §    48    128    177










   $ 2,047    $ 1,264    $ 668    $ 317    $ 4,295










§ Represents an amount less than $1 million.


   Three months ended March 31, 2018
   North America    Europe    International
Markets    Other
activities    Total
   (U.S.$ in millions)
Sale of goods
   2,168    1,429    519    177    4,293
Licensing arrangements
   32    10    20    2    64
Distribution
   331    3    153    —      487
Other
   —      —      58    163    221










   $ 2,531    $ 1,442    $ 750    $ 342    $ 5,065

Revenue from sales of goods, including sales to distributors is recognized when the customer obtains control of the product. This generally occurs when products are shipped once the Company has a present right to payment, legal title, and risk and rewards of ownership are obtained by the customer.

Licensing arrangements performance obligations generally include intellectual property (“IP”) rights, certain R&D and contract manufacturing services. The Company accounts for IP rights and services separately if they are distinct – i.e. if they are separately identifiable from other items in the arrangement and if the customer can benefit from them on their own or with other resources that are readily available to the customer. The consideration is allocated between IP rights and services based on their relative stand-alone selling prices.

Revenue for distinct IP rights is accounted for based on the nature of the promise to grant the license. In determining whether the Company’s promise is to provide a right to access its IP or a right to use its IP, the Company considers the nature of the IP to which the customer will have rights. IP is either functional IP which has significant standalone functionality or symbolic IP which does not have significant standalone functionality. Revenue from functional IP is recognized at the point in time when control of the distinct license is transferred to the customer, when the Company has a present right to payment and risks and rewards of ownership are transferred to the customer. Revenue from symbolic IP is recognized over the access period to the Company’s IP.

Revenue from sales based milestones and royalties promised in exchange for a license of IP is recognized only when, or as, the later of subsequent sale or the performance obligation to which some or all of the sales-based royalty has been allocated, has been satisfied. Revenues from licensing arrangements included royalty income of $21 million and $105 million for the three months ended March 31, 2018 and 2017, respectively. The amount recognized in 2017 includes royalty income resulting from the Ninlaro^® ~~transaction.~~

Distribution revenues are derived from sales of third-party products for which the Company acts as distributor, mostly in the United States via Anda and in Israel. The Company is the principal in these arrangements and therefore records revenue on a gross basis as it controls the promised goods before transferring these goods to the customer. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment and legal title, and risk and rewards of ownership are obtained by the customer.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Other revenues are primarily comprised of contract manufacturing services, sales of medical devices, and other miscellaneous items. The Company is generally the principal in these arrangements and therefore records revenue on a gross basis as it controls the promised goods before transferring these goods to the customer. Revenue is recognized when the customer obtains control of the products. This generally occurs when products are shipped once the Company has a present right to payment, legal title, and risk and rewards of ownership are obtained by the customer.

~~Contract assets and liabilities~~

~~Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.~~

~~Contract liabilities are mainly comprised of deferred revenues, which were immaterial as of March 31, 2018 and December 31, 2017, respectively.~~

Variable consideration

Variable consideration mainly includes sales reserves and allowances (“SR~~&A,~~&A”), comprised of rebates (including Medicaid and other governmental program discounts), chargebacks, returns and other promotional (including shelf stock adjustments) items. Provisions for prompt payment discounts are netted against trade receivables.

The Company recognizes these provisions at the time of sale and adjusts them if the actual amounts differ from the estimated provisions. ~~The following briefly describes the nature of each deduction and how provisions are estimated:~~

~~Rebates~~

~~Rebates are primarily related to volume incentives and are offered to key customers to promote loyalty. These rebate programs provide that, upon the attainment ofpre-established~~ volumes or the attainment of revenue milestones for a specified period, the customer receives a rebate. Since rebates are contractually agreed upon, they are estimated based on the specific terms in each agreement based on historical trends and expected sales. Externally obtained inventory levels are evaluated in relation to estimates made for rebates payable to indirect customers.

~~Medicaid and Other Governmental Rebates~~

Pharmaceutical manufacturers whose products are covered by the Medicaid program are required to rebate to each state a percentage of their average manufacturer’s price for the products dispensed. Many states have also implemented supplemental rebate programs that obligate manufacturers to pay rebates in excess of those required under federal law. The Company estimates these rebates based on historical trends of rebates paid, as well as on changes in wholesaler inventory levels and increases or decreases in sales.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Chargebacks~~

The Company has arrangements with various third parties, such as managed care organizations and drug store chains, establishing prices for certain of Teva’s products. While these arrangements are made between the Company and the customers, the customers independently select a wholesaler from which they purchase the products. Alternatively, certain wholesalers may enter into agreements with the customers, with Teva’s concurrence, which establish the pricing for certain products which the wholesalers provide. Under either arrangement, Teva will issue a credit (referred to as a “chargeback”) to the wholesaler for the difference between the invoice price to the wholesaler and the customer’s contract price. Provisions for chargebacks involve estimates of contract prices of over 2,000 products and multiple contracts with multiple wholesalers. The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers and therefore will not necessarily fluctuate in proportion to an increase or decrease in sales. Provisions for estimating chargebacks are calculated using historical chargeback experience and/or expected chargeback levels for new products and anticipated pricing changes. Teva considers current and expected price competition when evaluating the provision for chargebacks. Chargeback provisions are compared to externally obtained distribution channel reports for reasonableness. The Company regularly monitors the provision for chargebacks and makes adjustments when the Company believes that actual chargebacks may differ from estimated provisions.

~~Other Promotional Arrangements~~

Other promotional or incentive arrangements are periodically offered to customers, specifically related to the launch of products or other targeted promotions. Provisions are made in the period for which the Company can estimate the incentive earned by the customer, in accordance with the contractual terms. The Company regularly monitors the provision for other promotional arrangements and makes adjustments when Teva believes that the actual provision may differ from the estimated provisions.

~~Shelf Stock Adjustments~~

The custom in the pharmaceutical industry is generally to grant customers a shelf stock adjustment based on the customers’ existing inventory contemporaneously with decreases in the market price of the related product. The most significant of these relate to products for which an exclusive or semi-exclusive period exists. Provisions for price reductions depend on future events, including price competition, new competitive launches and the level of customer inventories at the time of the price decline. Teva regularly monitors the competitive factors that influence the pricing of its products and customer inventory levels and adjust these estimates where appropriate.

~~Returns~~

Returns primarily relate to customer returns of expired products which, the customer has the right to return up to one year following the expiration date. Such returned products are destroyed and credits and/or refunds are issued to the customer for the value of the returns. Accordingly, no returned assets are recoded in connection with those products. The returns provision is estimated by applying a historical return rate to the amounts of revenue estimated to be subject to returns. Revenue subject to returns is estimated based on the lag time from time of sale to date of return. The estimated lag time is developed by analyzing historical experience. Additionally, The Company considers specific factors, such as levels of inventory in the distribution channel, product dating and expiration, size and maturity of launch, entrance of new competitors, changes in formularies or packaging and any changes to customer terms, for determining the overall expected levels of returns.

~~Prompt Pay Discounts~~

Prompt pay discounts are offered to most customers to encourage timely payment. Discounts are estimated at the time of invoice based on historical discounts in relation to sales. Prompt pay discounts are almost always utilized by customers. As a result, the actual discounts do not vary significantly from the estimated amount.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

SR&A to U.S. customers comprised approximately ~~86%~~83% of the Company’s total SR&A as of March 31, ~~2018,~~2019, with the remaining balance primarily in Canada and Germany. The changes in SR&A for third-party sales for the ~~period~~three months ended March 31, ~~2018~~2019 were as follows:


	Sales Reserves and Allowances																								Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in Sales Reserves and Allowances			Total			Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in Sales Reserves and Allowances			Total
	(U.S. dollars in millions)																								(U.S.$ in millions)
Balance at December 31, 2017	$	196		$	3,077		$	1,908		$	1,849		$	780		$	267		$	7,881		$	8,077
Balance at December 31, 2018																									$	175		$	3,006		$	1,361		$	1,530		$	638		$	176		$	6,711		$	6,886
Provisions related to sales made in current year period		136			1,865			357			2,711			70			103			5,106			5,242			112			1,350			324			2,320			72			114			4,180			4,292
Provisions related to sales made in prior periods		2			(19	)		3			(1	)		21			(8	)		(4	)		(2	)		—			—			1			(5	)		3			(1	)		(2	)		(2	)
Credits and payments		(157	)		(2,051	)		(349	)		(2,927	)		(119	)		(139	)		(5,585	)		(5,742	)		(125	)		(1,613	)		(438	)		(2,413	)		(117	)		(101	)		(4,682	)		(4,807	)
Translation differences		1			9			2			1			1			(1	)		12			13			—			(6	)		(1	)		—			—			—			(7	)		(7	)

Balance at March 31, 2018	$	178			2,881		$	1,921		$	1,633		$	753		$	222		$	7,410		$	7,588
Balance at March 31, 2019																									$	162			2,737		$	1,247		$	1,432		$	596		$	188		$	6,200		$	6,362

NOTE 10 – Accumulated other comprehensive loss:

The components of, and changes within, accumulated other comprehensive losses attributable to Teva are presented in the table below:


															Net Unrealized Gains/(Losses)								Benefit Plans
	Net Unrealized Gains/(Losses)								Benefit Plans						Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains/(losses) and prior service (costs)/credits			Total
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains/(losses) and prior service (costs)/credits			Total			(U.S.$ in millions)
Balance as of December 31, 2017*	$	(1,316	)	$	1	$	(442	)	$	(91	)	$	(1,848	)	$	(1,316	)	$	1	$	(442	)	$	(91	)	$	(1,848	)

Other comprehensive income (loss) before reclassifications		156			1		(51	)		—			106			156			1		(51	)		—			106
Amounts reclassified to the statements of income		—			—		7			—			7			—			—		7			—			7

Net other comprehensive income (loss) before tax		156			1		(44	)		—			113			156			1		(44	)		—			113

Net other comprehensive income (loss) after tax**		156			1		(44	)		—			113
Net other comprehensive income (loss) after tax* *																156			1		(44	)		—			113

Balance as of March 31, 2018	$	(1,160	)	$	2	$	(486	)	$	(91	)	$	(1,735	)	$	(1,160	)	$	2	$	(486	)	$	(91	)	$	(1,735	)

*	Following the adoption of ASU2016-01, the Company recorded a $5 million opening balance reclassification from accumulated other comprehensive income to retained earnings.

**	Amounts do not include a $83 million gain from foreign currency translation adjustments attributable tonon-controlling ~~interests of a $83 million gain.~~interests.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

   Net Unrealized Gains/(Losses) Benefit Plans
   Foreign
currency
translation
adjustments Available-for-
sale securities Derivative
financial
instruments Actuarial
gains/(losses)
and prior
service
(costs)/credits Total
Balance, December 31, 2016
   $ (2,769 ) $ (7 ) $ (302 ) $ (81 ) $ (3,159 )


Other comprehensive income/(loss) before reclassifications
   448 90 2 (9 ) 531
Amounts reclassified to the statements of income
   (52 ) (35 ) 6 1 (80 )


Net other comprehensive income/(loss) before tax
   396 55 8 (8 ) 451
Corresponding income tax
   —   (1 ) —   (5 ) (6 )


Net other comprehensive income/(loss) after tax*
   396 54 8 (13 ) 445


Balance, March 31, 2017
   $ (2,373 ) $ 47 $ (294 ) $ (94 ) $ (2,714 )


	Net Unrealized Gains/(Losses)								Benefit Plans
	Foreign currency translation adjustments			Available-for- sale securities		Derivative financial instruments			Actuarial gains/(losses) and prior service (costs)/credits			Total
	(U.S.$ in millions)
Balance as of December 31, 2018	$	(2,055	)	$	1	$	(327	)	$	(78	)	$	(2,459	)

Other comprehensive income (loss) before reclassifications		53			—		40			—			93
Amounts reclassified to the statements of income		—			—		7			—			7

Net other comprehensive income (loss) before tax		53			—		47			—			100

Net other comprehensive income (loss) after tax*		53			—		47			—			100

Balance as of March 31, 2019	$	(2,002	)	$	1	$	(280	)	$	(78	)	$	(2,359	)

*	Amounts do not include a $6 million loss from foreign currency translation adjustments attributable tonon-controlling ~~interests of a $70 million gain.~~interests.

NOTE 11 ~~– Debt~~—Debt obligations:

a. Short-term debt:


		Weighted average interest rate as of March 31, 2018	Maturity			March 31, 2018		December 31, 2017			Weighted average interest rate as of March 31, 2019			Maturity		March 31, 2019		December 31, 2018
						(U.S. $ in millions)										(U.S. $ in millions)
Term loan JPY 28.3 billion⁽⁵⁾		JPY LIBOR+0.25%		2018		$	—	$	251
Bank and financial institutions												6.94	%		—	$	2	$	2
Convertible debentures		0.25%		2026	*		514		514			0.25	%		2026		514		514
Other		11.68%		2018			2		1
Current maturities of long-term liabilities	Current maturities of long-term liabilities						786		2,880	Current maturities of long-term liabilities							2,274		1,700

Total short term debt	Total short term debt					$	1,302	$	3,646	Total short term debt						$	2,790	$	2,216

*	~~Net-share~~ ~~settlement feature exercisable at any time.~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Long-term ~~debt includes the following:~~debt:

   Weighted average interest
rate as of March 31, 2018 Maturity    March 31, 2018    December 31,
2017

   %    (U.S. $ in millions)
Senior notes EUR 1,750 million
   0.38% 2020    $ 2,152    $ 2,095
Senior notes EUR 1,500 million
   1.13% 2024    1,837    1,788
Senior notes EUR 1,300 million
   1.25% 2023    1,593    1,550
Senior notes EUR 1,000 million⁽³⁾
   2.88% 2019    —      1,199
Senior notes EUR 900 million⁽¹⁾
   4.50% 2025    1,109    —
Senior notes EUR 750 million
   1.63% 2028    915    891
Senior notes EUR 700 million⁽¹⁾
   3.25% 2022    863    —
Senior notes EUR 700 million
   1.88% 2027    859    837
Senior notes USD 3,500 million
   3.15% 2026    3,492    3,492
Senior notes USD 3,000 million
   2.20% 2021    2,997    2,996
Senior notes USD 3,000 million
   2.80% 2023    2,992    2,992
Senior notes USD 2,000 million
   1.70% 2019    2,000    2,000
Senior notes USD 2,000 million
   4.10% 2046    1,984    1,984
Senior notes USD 1,500 million⁽³⁾
   1.40% 2018    —      1,500
Senior notes USD 1250 million⁽²⁾
   6.00% 2024    1,250    —
Senior notes USD 1250 million⁽²⁾
   6.75% 2028    1,250    —
Senior notes USD 844 million
   2.95% 2022    863    864
Senior notes USD 789 million
   6.15% 2036    781    781
Senior notes USD 700 million
   2.25% 2020    700    700
Senior notes USD 613 million
   3.65% 2021    623    624
Senior notes USD 588 million
   3.65% 2021    587    587
Senior notes CHF 450 million
   1.50% 2018    472    461
Senior notes CHF 350 million
   0.50% 2022    367    360
Senior notes CHF 350 million
   1.00% 2025    368    360
Senior notes CHF 300 million
   0.13% 2018    314    308
Fair value hedge accounting adjustments
   (16 )    (2 )




Total senior notes
   30,352    28,367
Term loan USD 2.5 billion⁽⁴⁾
   LIBOR +1.1375% 2018    —      285
Term loan USD 2.5 billion⁽⁴⁾
   LIBOR +1.50% 2017-2020    —      2,000
Term loan JPY 58.5 billion⁽⁵⁾
   JPY LIBOR +0.55% 2022    —      519
Term loan JPY 35 billion⁽⁶⁾
   1.42% 2019    —      311
Term loan JPY 35 billion⁽⁶⁾
   JPY LIBOR +0.3% 2018    —      311




Total loans
   —      3,426
Debentures USD 15 million⁽⁷⁾
   7.20% 2018    —      15
Other
   7.31% 2026    5    5




Total debentures and others
   5    20




Less current maturities
   (786 )    (2,880 )
Derivative instruments
   16    2
Less debt issuance costs
   (137 )    (106 )




Total long-term debt
   $ 29,450    $ 28,829

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Weighted average interest rate as of March 31, 2019	Maturity	March 31, 2019			December 31, 2018
	%		(U.S. $ in millions)
Senior notes EUR 1,660 million	0.38%	2020	$	1,860		$	1,897
Senior notes EUR 1,500 million	1.13%	2024		1,674			1,707
Senior notes EUR 1,300 million	1.25%	2023		1,452			1,480
Senior notes EUR 900 million	4.50%	2025		1,010			1,029
Senior notes EUR 750 million	1.63%	2028		834			850
Senior notes EUR 700 million	3.25%	2022		785			801
Senior notes EUR 700 million	1.88%	2027		783			798
Senior notes USD 3,500 million	3.15%	2026		3,493			3,493
Senior notes USD 3,000 million	2.20%	2021		2,998			2,997
Senior notes USD 3,000 million	2.80%	2023		2,994			2,993
Senior notes USD 1,574 million (1)	1.70%	2019		1,574			1,700
Senior notes USD 2,000 million	4.10%	2046		1,985			1,985
Senior notes USD 1,250 million	6.00%	2024		1,250			1,250
Senior notes USD 1,250 million	6.75%	2028		1,250			1,250
Senior notes USD 844 million	2.95%	2022		859			860
Senior notes USD 789 million	6.15%	2036		782			782
Senior notes USD 700 million	2.25%	2020		700			700
Senior notes USD 613 million	3.65%	2021		620			621
Senior notes USD 588 million	3.65%	2021		587			587
Senior notes CHF 350 million	0.50%	2022		352			356
Senior notes CHF 350 million	1.00%	2025		352			356
Fair value hedge accounting adjustments				(6	)		(9	)

Total senior notes				28,188			28,483
Other long term debt	4.58%	2026		13			12

Less current maturities				(2,274	)		(1,700	)
Derivative instruments				6			9
Less debt issuance costs				(99	)		(104	)

Total senior notes and loans			$	25,834		$	26,700

~~Debt development~~

(1)	~~In March 2018,~~ During the first quarter of 2019, Teva ~~Pharmaceutical Finance Netherlands II B.V., a Teva finance subsidiary, issued senior notes in an aggregate~~repurchased and canceled approximately $126 million principal amount of ~~€1.6 billion.~~

~~(2)~~

~~In March 2018, Teva Pharmaceutical Finance Netherlands III B.V., a Teva finance subsidiary, issued senior notes in an aggregate principal amount of $2.5 billion.~~

~~(3)~~

~~In March 2018, Teva redeemed in full~~ its ~~$1.5 billion 1.4%~~$1,700 million 1.7% senior notes due in July ~~2018 and its €1.0 billion 2.88% senior notes due in April~~ 2019.

~~(4)~~

~~During the first quarter of 2018, Teva prepaid approximately $2.3 billion principal amount of the remaining term loan facilities.~~

~~(5)~~

During the first quarter of 2018, Teva prepaid in full JPY 86.8 billion principal amount of the outstanding term loan facilities of which JPY 28.3 billion were in short-term debt as of December 31, 2017.

~~(6)~~

~~During the first quarter of 2018, Teva prepaid in full JPY 70 billion of its 1.42% and JPY LIBOR+0.3% outstanding term loans.~~

~~(7)~~

~~During the first quarter of 2018, Teva prepaid in full $15 million of its outstanding debentures.~~

Long term debt was issued by several indirect wholly-owned subsidiaries of the Company and is fully and unconditionally guaranteed by the Company as to payment of all principal, interest, discount and additional amounts (as defined), if any.

Long term debt as of March 31, ~~2018~~2019 is effectively denominated (taking into consideration cross currency swap agreements) in the following currencies: U.S. dollar ~~64%~~66%, euro ~~34%~~31% and Swiss franc 2%3%.

Teva’s principal sources of short-term liquidity are its existing cash investments, liquid securities and available credit facilities, primarily its $3$2.3 billion revolving credit facility (“RCF”).

In April 2019, the Company entered into a $2.3 billion unsecured syndicated revolving credit facility, ~~(“RCF”),~~ which ~~was not utilized as~~replaced the previous $3 billion revolving credit facility. The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of March 31, 2018, as well as internally generated funds. In connection with the requirements of the RCF, the Company entered into negative pledge agreements with certain banks and institutional investors. Under the agreements, the Company and its subsidiaries have undertaken not to register floating charges on assets in favor of any third parties without the prior consent of the banks, to maintain certain financial ratios, including ~~the requirement to maintain compliance with~~ a ~~net debt to EBITDA~~maximum leverage ratio, which becomes more restrictive over ~~time, and to fulfill other restrictions, as stipulated by the agreements.~~time. As of March 31, ~~2018,~~2019, the Company did not have any outstanding debt under ~~the~~its then-applicable RCF, which ~~is our~~was its only debt subject to ~~the net debt~~a maximum leverage ratio, and met all financial covenants thereunder.

Teva expects that it will continue to ~~EBITDA covenant Assuming utilization of the RCF, and under specified circumstances, includingnon-compliance~~ with such covenants and the unavailability of any waiver, amendment or other modification thereto and the expiration of any applicable grace period thereto, substantially all of the Company’s debt could be negatively impacted by~~non-compliance~~ ~~with such covenants. The Company has~~have sufficient cash resources to ~~meet~~support its debt service payments and all other financial obligations ~~in the ordinary course of business~~ for at least twelve months from the date of ~~the release of~~ this ~~Quarterly Report.~~report.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 12 – Fair value measurement:

Teva’s financial instruments consist mainly of cash and cash equivalents, investment in securities, current andnon-current receivables, short-term debt, current andnon-current payables, contingent consideration, senior notes and loans, convertible senior debentures and derivatives.

The fair value of the financial instruments included in working capital andnon-current receivables and payables approximates their carrying value. The fair value of ~~term~~ loans and bank facilities ~~mostly~~ approximates their carrying value, since they bear interest at rates close to the prevailing market rates.

Financial instruments measured at fair value

The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable inputs that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. ~~The fair value hierarchy gives the lowest priority to Level 3 inputs.~~

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible, and considers counterparty credit risk in its assessment of fair value.

There were no transfers between Level 1, Level 2 and Level 3 during the first ~~quarter~~three months of ~~2018.~~2019.

Financial items carried at fair value as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are classified in the tables below in one of the three categories described above:

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	March 31, 2018												March 31, 2019
	Level 1			Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)												(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	6		$	—		$	—		$	6		$	319	$	—		$	—		$	319
Cash, deposits and other		1,412			—			—			1,412			1,654		—			—			1,654
Investment in securities:
Equity securities		58			—			—			58			52		—			—			52
Other, mainly debt securities		13			—			19			32			2		—			13			15
Derivatives:
Asset derivatives - options and forward contracts		—			15			—			15
Asset derivatives - cross currency swaps		—			4			—			4
Liabilities derivatives - options and forward contracts		—			(18	)		—			(18	)
Liabilities derivatives - interest rate and cross-currency swaps		—			(141	)		—			(141	)
Asset derivatives—options and forward contracts														—		32			—			32
Asset derivatives—cross currency swaps														—		76			—			76
Liabilities derivatives—options and forward contracts														—		(11	)		—			(11	)
Liabilities derivatives—interest rate and cross-currency swaps														—		(28	)		—			(28	)
Contingent consideration*		—			—			(708	)		(708	)		—		—			(405	)		(405	)

Total	$	1,489		$	(140	)	$	(689	)	$	660		$	2,027	$	69		$	(392	)	$	1,704


	December 31, 2017												December 31, 2018
	Level 1		��	Level 2			Level 3			Total			Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)												(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	5		$	—		$	—		$	5		$	203	$	—		$	—		$	203
Cash, deposits and other		958			—			—			958			1,579		—			—			1,579
Investment in securities:
Equity securities		65			—			—			65			51		—			—			51
Structured investment vehicles		—			—			—			—
Other, mainly debt securities		14			—			18			32			2		—			10			12
Derivatives:
Asset derivatives - options and forward contracts		—			17			—			17
Asset derivatives - cross-currency swaps		—			25			—			25
Liability derivatives - options and forward contracts		—			(15	)		—			(15	)
Liabilities derivatives - interest rate and cross-currency swaps		—			(98	)		—			(98	)
Asset derivatives—options and forward contracts														—		18			—			18
Asset derivatives—cross-currency swaps														—		58			—			58
Liability derivatives—options and forward contracts														—		(26	)		—			(26	)
Liabilities derivatives—interest rate and cross-currency swaps														—		(50	)		—			(50	)
Contingent consideration*		—			—			(735	)		(735	)		—		—			(507	)		(507	)

Total	$	1,042		$	(71	)	$	(717	)	$	254		$	1,835	$	—		$	(497	)	$	1,338

*	Contingent consideration represents liabilities recorded at fair value in connection with acquisitions.

Teva determined the fair value of the liability 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 U.S. and Europe, and the risk adjusted discount rate for fair value measurement.

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 liability.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table summarizes the activity for those financial assets and liabilities where fair value measurements are estimated utilizing Level 3 inputs:

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended March 31, 2018
	Three months ended March 31, 2018			Three months ended March 31, 2019
	(U.S. $ in millions)			(U.S. $ in millions)
Fair value at the beginning of the period	$	(717	)	$	(497	)
Revaluation of debt securities		1			3
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		(6	)
Actavis Generics transaction—see note 14					106
Labrys transaction		(1	)
Eagle transaction		(1	)		(35	)
Settlement of contingent consideration:
Eagle transaction		35			31

Fair value at the end of the period	$	(689	)	$	(392	)

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:


					Estimated fair value*
	Estimated fair value*				March 31,		December 31,
	March 31, 2018		December 31, 2017		2019		2018
	(U.S. $ in millions)				(U.S. $ in millions)
Senior notes included under senior notes and loans	$	26,365	$	23,459	$	23,622	$	23,560
Senior notes and convertible debentures included under short-term debt		1,242		2,713
Senior notes and convertible senior debentures included under short-term debt						2,732		2,140

Total	$	27,607	$	26,172	$	26,354	$	25,700

*	The fair value was estimated based on quoted market prices, where available.

NOTE 13 – Derivative instruments and hedging activities:

a.	Foreign exchange risk management:

In the first quarter of 2019, approximately 49% 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, purchases and writes options in order to hedge the currency exposure on balance sheet items. In addition, the Company takes measures to reduce exposure by using natural hedging. The Company also acts to offset risks in opposite directions among the companies in the Group. The currency hedged items are usually denominated in the following main currencies: the new Israeli shekel (NIS), the euro (EUR), the Swiss franc (CHF), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD), the Polish zloty (PLN), the Indian rupee (INR) and other European and Latin American currencies.

Depending on market conditions, foreign currency risk is also managed through the use of foreign currency debt.

The Company hedges against possible fluctuations in foreign subsidiaries net assets (“net investment hedge”) and entered into cross currency swaps and forward contracts 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.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

b.	Interest risk management:

The Company raises capital through various debt instruments, including straight notes that bear a fixed or variable interest rate, bank loans, securitizations and convertible debentures. In some cases, the Company has swapped from a fixed to a floating 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.

~~NOTE 13 – Derivative instruments and hedging activities:~~
c.
Derivative instruments notional amounts

The following table summarizes the notional amounts for hedged items, when transactions are designated as hedge accounting:

   March 31,
2018    December 31,
2017
   (U.S. $ in millions)
Cross-currency swap – cash flow hedge
   $ 588    $ 588
Cross-currency swap – net investment hedge
   1,000    1,000
Interest rate swap – fair value hedge
   500    500


	March 31,		December 31,
	2019		2018
	(U.S. $ in millions)
Cross-currency swap—cash flow hedge	$	588	$	588
Cross-currency swap—net investment hedge		1,000		1,000
Interest rate swap—fair value hedge		500		500

		2,088		2,088

d.	Derivative instrument outstanding:

The following table summarizes the classification and fair values of derivative instruments:


	Fair value												Fair value
	Designated as hedging instruments						Not designated as hedging instruments						Designated as hedging instruments						Not designated as hedging instruments
	March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018			March 31, 2019			December 31, 2018
Reported under	(U.S. $ in millions)												(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—		$	—		$	15		$	17		$	—		$	—		$	32		$	18
Othernon-current assets:
Cross-currency swaps – cash flow hedge		4			25			—			—

Cross-currency swaps—cash flow hedge														76			58			—			—
Liability derivatives:
Other current liabilities:
Option and forward contracts		—			—			(18	)		(15	)		—			—			(11	)		(26	)
Cross-currency swaps—net investment hedge														(22	)		—			—			—
Other taxes and long-term liabilities:
Cross-currency swaps – net investment hedge		(125	)		(96	)		—			—
Cross-currency swaps—net investment hedge														—			(41	)		—			—
Senior notes and loans:
Interest rate swaps – fair value hedge		(16	)		(2	)		—			—
Interest rate swaps—fair value hedge														(6	)		(9	)		—			—

~~Derivatives on foreign exchange contracts mainly hedge Teva’s balance sheet items~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The table below provides information regarding the location and amount of pretax (gains) losses from ~~currency exposure but~~derivatives designated in fair value or cash flow hedging relationships:


	Reported under
	Financial expenses, net						Other Comprehensive income
	Period ended,
	March 31, 2019			March 31, 2018**			March 31, 2019			March 31, 2018**
	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	218		$	271		$	100		$	113
Cross-currency swaps—cash flow hedge (1)		(1	)		*			(20	)		17
Cross-currency swaps—net investment hedge (2)		(7	)		(7	)		(20	)	$	30
Interest rate swaps—fair value hedge (3)	$	1		$	*		$	—		$	—

*	Represents an amount less than $0.5 million.

**	Comparative figures are based on prior hedge accounting standard.

The table below provides information regarding the location and amount of pretax (gains) losses from derivatives not designated as hedging ~~instruments for accounting purposes. With respect to such derivatives, losses of $19 million and $47 million were~~instruments:


	Reported under
	Financial expenses, net					Net Revenues
	Period ended,
	March 31, 2019			March 31, 2018		March 31, 2019		March 31, 2018
	(U.S. $ in millions)
Line items in which effects of hedges are recorded		218			271		4,295		5,065
Option and forward contracts (4)	$	(42	)	$	19	$	—	$	—

(1)

With respect to cross-currency swap agreements, Teva recognized ~~under financial expenses, net for the three months ended March 31, 2018 and 2017, respectively. Such losses and~~ gains ~~offset the revaluation of the balance sheet items~~ which ~~is also recorded under financial expenses, net.~~

With respect to the interest rate and cross-currency swap agreements, gains of $0.5 million and $1 million were recognized under financial expenses, net for the three months ended March 31, 2018 and 2017, respectively. Such gains mainly reflect the differences between the fixed interest rate and the floating interest rate.

(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 thefloat-for-float interest rates paid and received. No amounts were reclassified from AOCI into income related to the sale of a subsidiary.

(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.

(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.

e.	Matured forward starting interest rate swaps and treasury lock agreements:

Commencing in the third quarter of 2015, Teva entered into forward starting interest rate swap and treasury lock agreements designated as cash flow hedges of the U.S. dollar debt issuance in July 2016, with respect to $3.75 billion and $1.5 billion notional amounts, respectively. These agreements hedged the variability in anticipated future interest payments due to possible changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. dollar debt issuance in July 2016 (in connection with the closing of the Actavis Generics acquisition). See note 11.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Certain of the forward starting interest rate swaps and treasury lock agreements matured during the first half of 2016. In July 2016, in connection with the debt issuances, Teva terminated the remaining forward starting interest rate swaps and treasury lock agreements. The termination of these transactions resulted in a loss position of $493 million, of which $242 million were settled on October 7, 2016 and the remaining amount was settled in January 2017. The change in fair value of these instruments recorded ~~as part of~~in other comprehensive income (loss) will be amortized under financial ~~expenses, net~~expenses-net over the life of the debt. Such losses mainly reflect the changes in the benchmark interest rate between the date the agreements were entered into and the actual date of the U.S. debt issuance in July 2016.

With respect to the forward starting interest rate swaps and treasury lock agreements, losses of $7 million were recognized under financial expenses, net for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018.

In the third quarter of 2016, Teva terminated interest rate swap agreements designated as fair value hedge relating to ~~certain~~its 2.95% senior ~~notes.~~notes due 2022 with respect to $844 million notional amount and its 3.65% senior notes due 2021 with respect to $450 million notional amount. Settlement of these transactions resulted in a gain position of $41 million. The fair value hedge accounting adjustments of these instruments, which are recorded under senior notes and loans, ~~will be~~are amortized under financial ~~expenses, net~~expenses-net over the life of the ~~debt.~~ debt as additional interest expense.

With respect to ~~these terminated~~the interest rate swap agreements, gains of $2 million were recognized under financial expenses, net for the three months ended March 31, ~~2018~~2019 and ~~2017.~~2018.

NOTE 14 – Other assets impairments, restructuring and other items:


	Three months ended March 31,
	2019			2018
	(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	20		$	226
Contingent consideration		(71	)		8
Restructuring		32			247
Other		20			20

Total	$	1		$	501

(1)	Including impairments related to exit and disposal activities

Impairments

Impairments of property, plant and equipment for the first three months of 2019 were $20 million, consisting mainly of impairment of lease-related assets in North America.

As a result of Teva’s plant rationalization acceleration in connection with the two year restructuring plan announced in December, 2017, to the extent the Company changes its plans on any given asset and/or the assumptions underlying such plans, there may be additional impairments in the future.

Contingent consideration

In the ~~fourth quarter~~three months ended March 31, 2019, Teva recorded $71 million of ~~2016, Teva entered into an interest rate swap agreement designated as fair value hedge relating~~contingent consideration income, compared to ~~its 2.8% senior notes due 2023, with respect to $500~~$8 million ~~notional amount of outstanding debt.~~

~~In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement maturing~~expense in 2020 with a notional amount of $500 million. These cross currency swaps were designated as a net investment hedge of Teva’s euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. The effective portion of the hedge will be determined by looking into changes in spot exchange rate. The change in fair value of the cross currency swap attributable to changes other than those due to fluctuations in the spot exchange rates are excluded from the assessment of hedge effectiveness and are reported directly in the statement of income.

~~With respect to these cross currency swap agreements, gains of $7 million were recognized under financial expenses, net for~~ the three months ended March 31, 2018. The ~~amount recorded in the statement of~~ income in the first quarter of ~~2017~~2019 mainly related to the decrease in the expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid^®) which was ~~not material.~~part of the Actavis acquisition.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~NOTE 14 – Other impairments, restructuring and other items:~~

~~Other impairments, restructuring and other items consisted of the following:~~

   Three months ended
March 31,
   2018    2017
   (U.S. $ in millions)
Restructuring expenses
   $ 247    $ 130
Integration expenses
   —      23
Contingent consideration
   8    21
Impairments of long-lived assets
   432    11
Other
   20    55




Total
   $ 707    $ 240

In determining the estimated fair value of long-lived assets, Teva utilized a discounted cash flow model. The key assumptions within the model related to forecasting future revenue and operating income, an appropriate WACC and an appropriate terminal value based on the nature of the long-lived asset. The Company’s updated forecasts of net cash flows for the impaired assets reflect, among others, the following: (i) for IPR&D assets, the impact of changes to the development programs, the projected development and regulatory timeframes and the risks associated with these assets; and (ii) for product rights, pricing and volume projections, as well as patent life and any significant changes to the competitive environment.

As a result of Teva’s plant rationalization acceleration, following the two year restructuring plan that was announced in December 2017, to the extent the Company will change its plans on any given asset and/or the assumptions underlying such plan, there could be additional impairments in the future.

~~Impairments~~

~~Impairments of long-lived intangible assets in the first quarter of 2018 were $206 million, mainly consisting of:~~

Identifiable IPR&D of $117 million mainly related to revaluation of generic products acquired from Actavis Generics due to development progress and changes in other key valuation indications (market size, legal landscape, launch date or discount rate).

~~Identifiable product rights of $76 million due to revaluation of Actavis Generics product rights in the United States.~~

~~Impairments of property, plant and equipment in the first quarter of 2018 were $226 million, mainly consisting of:~~

~~$147 million related to restructuring costs, including:~~

~~$113 million related to site closures in Israel; and~~

~~$34 million related to headquarters and distribution sites consolidation in the United States;~~

~~Other impairment costs, mainly $56 million related to a plant located India, in connection with the P&G separation agreement.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Restructuring

In the ~~first quarter of 2018,~~three months ended March 31, 2019, Teva recorded ~~$247~~$32 million of restructuring expenses, compared to ~~$130~~$247 million in the ~~first quarter of 2017. The expenses in the first quarter of 2018 were primarily related to headcount reductions across all functions.~~three months ended March 31, 2018.

Since ~~Teva’s~~the announcement of its restructuring plan, ~~the Company~~Teva reduced its global headcount by approximately ~~6,200~~10,400 full-time-equivalent employees.

~~Teva also recorded a $226 million impairment of property, plant and equipment related to restructuring costs as detailed in “— Impairments” above.~~

The following ~~table provides~~tables provide the components of costs associated with Teva’s restructuring plan, including other costs ~~related to exit~~associated with Teva’s restructuring plan and ~~disposal activities:~~recorded under different items:


	Three months ended March 31,				Three months ended March 31,
	2018		2017		2019		2018
	(U.S. $ in millions)				(U.S. $ in millions)
Restructuring
Employee termination	$	228	$	95	$	20	$	228
Other		19		35		12		19

Total	$	247	$	130	$	32	$	247

The following table provides the components of and changes in the Company’s restructuring accruals:


	Employee termination costs			Other			Total			Employee termination costs			Other			Total
	(U.S. $ in millions )									(U.S. $ in millions )
Balance as of January 1, 2018	$	(294	)	$	(17	)	$	(311	)
Balance as of January 1, 2019										$	(204	)	$	(29	)	$	(233	)
Provision		(228	)		(19	)		(247	)		(20	)		(12	)		(32	)
Utilization and other*		129			7			136			32			34			66

Balance as of March 31, 2018	$	(393	)	$	(29	)	$	(422	)
Balance as of March 31, 2019										$	(192	)	$	(7	)	$	(199	)

*	Includes adjustments for foreign currency translation.

Significant regulatory events

In July 2018, the FDA completed an inspection of Teva’s manufacturing plant in Davie, Florida in the United States, and issued a FormFDA-483 to the site. In October 2018, the FDA notified Teva that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, Teva received a warning letter from the FDA that contains four enumerated concerns related to production, quality control, and investigations at this site. Teva is working diligently to remediate the FDA’s concerns in a manner consistent with current good manufacturing practice (CGMP) requirements, and to address those concerns as quickly and as thoroughly as possible. If Teva is unable to remediate the warning letter findings to the FDA’s satisfaction, it may face additional consequences, including delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. Teva expects to generate approximately $240 million in revenues from this site for the remainder of 2019, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.

In July 2018, Teva announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown impurity called NDMA found in valsartan API supplied to Teva by Zhejiang Huahai Pharmaceutical. Since July 2018, Teva has been actively engaged with regulatory agencies around the world in reviewing its valsartan and other sartan products for NDMA and other related impurities and, where necessary, has initiated additional voluntary recalls. The impact of this recall on Teva’s 2018 financial statements was $51 million, primarily related to inventory reserves. Teva expects to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter, for which litigation costs are currently being incurred. Teva may also incur additional customer penalties, impairments and litigation costs going forward.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 15 – Legal ~~settlements~~Settlements and ~~loss contingencies:~~Loss Contingencies:

Legal settlements and loss contingencies for the first three months ~~ended March 31, 2018 resulted in~~of 2019 amounted to an expense of $57 million, compared to an income of ~~$1.3 billion compared to expenses of $20~~$1,278 million ~~for~~in the first three months ~~ended March 31, 2017.~~of 2018. The income in the first quarter of 2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa settlement and a reversal of the reserve ~~recorded in the second quarter of 2017 with respect~~related to the carvedilol ~~patent litigation, following the reversal of the verdict granting the award to GSK.~~ judgment.

As of March 31, ~~2018~~2019 and December 31, ~~2017, an accrued amount~~2018, Teva’s provision for legal settlements and loss contingencies ~~of $872~~recorded under accrued expenses was $618 million and ~~$1.2 billion, respectively, was recorded in accrued expenses.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

$562 million, respectively.

NOTE 16 – Commitments and ~~Contingencies:~~contingencies:

General

From time to time, Teva and/or its subsidiaries are subject to claims for damages and/or equitable relief arising in the ordinary course of business. In addition, as described below, in large part as a result of the nature of its business, Teva is frequently subject to litigation. Teva generally believes that it has meritorious defenses to the actions brought against it and vigorously pursues the defense or settlement of each such action. Except as described below, Teva does not currently have a reasonable basis to estimate the loss, or range of loss, that is reasonably possible with respect to matters disclosed in this note.

Teva records a provision in its financial statements to the extent that it concludes that a contingent liability is probable and the amount thereof is estimable. Based upon the status of the cases described below, management’s assessments of the likelihood of damages, and the advice of counsel, no provisions have been made regarding the matters disclosed in this note, except as noted below. Litigation outcomes and contingencies are unpredictable, and excessive verdicts can occur. Accordingly, management’s assessments involve complex judgments about future events and often rely heavily on estimates and assumptions. Teva continuously reviews the matters described below and may, from time to time, remove previously disclosed matters that the Company has determined no longer meet the materiality threshold for disclosure.

If one or more of such proceedings described below were to result in final judgments against Teva, such judgments could be material to its results of operations and cash flows in a given period. In addition, Teva incurs significant legal fees and related expenses in the course of defending its positions even if the facts and circumstances of a particular litigation do not give rise to a provision in the financial statements.

In connection with third-party agreements, Teva may under certain circumstances be required to indemnify, and may be indemnified by, in unspecified amounts, the parties to such agreements against third-party claims. Among other things, Teva’s agreements with third parties may require Teva to indemnify them, or require them to indemnify Teva, for the costs and damages incurred in connection with product liability claims, in specified or unspecified amounts.

Except as otherwise noted, all of the litigation matters disclosed below involve claims arising in the United States. Except as otherwise noted, all third party sales figures given below are based on IQVIA (formerly IMS Health Inc.) data.

For income tax contingencies, see note 15 to Teva’s Annual Report on Form10-K for the year ended December 31, 2018.

Intellectual Property Litigation

From time to time, Teva seeks to develop generic versions of patent-protected pharmaceuticals for sale prior to patent expiration in various markets. In the United States, to obtain approval for most generics prior to the expiration of the originator’s patents, Teva must challenge the patents under the procedures set forth in the Hatch-Waxman Act of 1984, as amended. To the extent that Teva seeks to utilize such patent challenge procedures, Teva is and expects to be involved in patent litigation regarding the validity, enforceability or infringement of the originator’s patents. Teva may also be involved in patent litigation involving the extent to which its product or manufacturing process techniques may infringe other originator or third-party patents.

Additionally, depending upon a complex analysis of a variety of legal and commercial factors, Teva may, in certain circumstances, elect to market a generic version even though litigation is still pending. To the extent Teva elects to proceed in this manner, it could face substantial liability for patent infringement if the final court decision is adverse to Teva, which could be material to its results of operations and cash flows in a given period.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

The general rule for damages in patent infringement cases in the United States is that the patentee should be compensated by no less than a reasonable royalty and it may also be able, in certain circumstances, to be compensated for its lost profits. The amount of a reasonable royalty award would generally be calculated based on the sales of Teva’s product. The amount of lost profits would generally be based on the lost sales of the patentee’s product. In addition, the patentee may seek consequential damages as well as enhanced damages of up to three times the profits lost by the patent holder for willful infringement, although courts have typically awarded much lower multiples.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Teva is also involved in litigation regarding patents in other countries where it does business, particularly in ~~Europe, where Teva has in recent years increased the number of launches of its generic versions of branded pharmaceuticals prior to the expiration of the innovator’s patents.~~Europe. The laws concerning generic pharmaceuticals and patents differ from country to country. Damages for patent infringement in Europe may include lost profits or a reasonable royalty, but enhanced damages for willful infringement are generally not available.

In July 2014, GlaxoSmithKline (“GSK”) sued Teva in Delaware federal court for infringement of a patent expiring in June 2015 directed to using carvedilol in a specified manner to decrease the risk of mortality in patients with congestive heart failure. Teva and eight other generic producers began selling their carvedilol tablets (the generic version of GSK’s Coreg^®) in September 2007. ~~Teva vigorously disputed GSK’s claims on the merits and also disputed the amount and nature of GSK’s alleged damages.~~ A jury trial was held and the jury returned a verdict in GSK’s favor finding Teva liable for induced infringement, including willful infringement, and assessing damages of $235.5 million, not includingpre- or post-judgment interest. ~~Teva filed~~Following post-trial motions ~~for judgment as a matter of law asking~~filed by the ~~court to overturn the jury verdict~~parties, on inducement, invalidity, and the award of lost profits damages, and GSK filed post-trial motions asking the court to increase the damages amount in light of the willful infringement finding and to set the interest rate(s) to be applied to the total damages amount. On March 28, 2018, the ~~District Court~~district court issued an opinion overturning the jury verdict and instead found no induced infringement by Teva, thereby finding that Teva did not owe any ~~damages. The District Court~~damages; the district court also denied Teva’s motion seeking to overturn the jury verdict with respect to ~~invalidity and denied GSK’s motion seeking to increase the damages award. GSK can appeal this decision.~~invalidity. On May 25, 2018, both parties filed an appeal. If the appeal of the ~~District Court’s~~district court’s decision is decided against Teva, the case would be remanded to the ~~District Court~~district court for it to consider Teva’s other legal and equitable defenses that have not yet been considered by the ~~District Court.~~district court. The provision that was included in the financial statements for this matter ~~has been~~was reversed as the exposure is no longer considered probable.

In 2014, Teva Canada succeeded in its challenge of the bortezomib (the generic equivalent of Velcade^®) product and mannitol ester patents under the Patented Medicines (Notice Of Compliance) Regulations (“PM(NOC)”). ~~Teva commenced sales in the first quarter of 2015.~~ At the time of Teva’s launch in 2015, annual sales of Velcade were approximately 94 million Canadian dollars. Additionally, Teva commenced an action under Section 8 of PM(NOC) to recover damages for being kept off of the market during the PM(NOC) proceedings. Janssen and Millennium filed a counterclaim for infringement of the same two patents as well as a patent covering a process to prepare bortezomib. The product patent expired in October 2015; the other patents expire in January 2022 and March 2025. ~~On December 20,~~In 2017, Teva entered into an agreement with Janssen and ~~Millenium~~Millennium which limits the damages payable by either party depending on the outcome of the infringement/impeachment action. As a result, the most Janssen and ~~Millenium~~Millennium could recover is 200 million Canadian dollars ~~(approximately $159 million)~~ plus post-judgment interest. ~~The trial, which~~In June 2018, the court ruled that Janssen and Millennium pay Teva 5 million Canadian dollars in Section 8 damages. Janssen and Millennium filed an appeal that is ~~limited to~~currently pending. If the ~~issue of patent validity and infringement, began~~decision is overturned on ~~January 29, 2018 and concluded on March 8, 2018. The court has not yet issued any decision.~~appeal, Teva could owe the capped damages set forth above. In addition to the potential damages that could be awarded, ~~if Janssen and Millenium ultimately were successful in their allegations of patent infringement,~~ Teva could be ~~enjoined from further~~ordered to cease sales of its bortezomib product.

On July 8, 2011, Helsinn sued Teva over its filing of an ANDA to market a generic version of palonosetron IV solution (the generic equivalent of Aloxi^®) and in November 2015, the District Court of New Jersey ruled against Teva. Teva appealed this decision and in May 2017, the Federal Circuit Court of Appeals reversed the district court’s ruling and found the asserted patents invalid. In January 2018, full appellate review of that decision was denied. Helsinn filed an appeal with the US Supreme Court, which was granted. On January 22, 2019, the Supreme Court affirmed the appellate court’s decision finding the asserted patent invalid. Helsinn has no further opportunity to appeal this patent decision. Separately, in October 2014, Helsinn filed an additional claim on later-acquired patents. On January 30, 2018, the District Court of New Jersey denied Helsinn’s request for a preliminary injunction based on these later acquired patents. Teva launched its generic palonosetron IV solution after obtaining final regulatory approval on March 23, 2018. If Teva ultimately loses the case on the later-acquired patents discussed above, Teva may be ordered to cease sales of its generic product and/or pay damages to Helsinn. Aloxi^® annual U.S. sales as of November 2017 were $459 million.

In July 2015, Janssen sued Actavis and Teva (along with 10 other filers) over their filing of an ANDA to market their abiraterone acetate tablets, 250mg (generic versions of Zytiga^®). In August 2017, Janssen sued Teva over its ANDA filing to market a 500mg generic version of Zytiga. In both cases, Janssen asserted a method of treatment patent. In January 2018, following a petition forinter partes review, the Patent Trials and Appeals Board (“PTAB”) found the patent to be invalid. In October 2018, the New Jersey District Court also found the patent to be invalid. Both the District Court and PTAB decisions are currently on appeal. Teva launched its generic 250mg product in November 2018. If Teva ultimately loses this case, Teva may be ordered by the court to cease sales of its generic product and/or pay damages to Janssen. Annual U.S. sales of Zytiga at the time of generic entry were about $1.3 billion.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Product Liability Litigation

Teva’s business inherently exposes it to potential product liability claims. Teva maintains a program of insurance, which may include commercial insurance, self-insurance (including direct risk retention), or a combination of both approaches, in amounts and on terms that it believes are reasonable and prudent in light of its business and related risks. However, Teva sells, and will continue to sell, pharmaceuticals that are not covered by its product liability insurance; in addition, it may be subject to claims for which insurance coverage is denied as well as claims that exceed its policy limits. Product liability coverage for pharmaceutical companies is becoming more expensive and increasingly difficult to obtain. As a result, Teva may not be able to obtain the type and amount of ~~commercial~~ insurance it desires, or any ~~commercial~~ insurance on reasonable terms, in all of its markets.

Competition Matters

As part of its generic pharmaceuticals business, Teva has challenged a number of patents covering branded pharmaceuticals, some of which are among the most widely-prescribed and well-known drugs on the market. Many of Teva’s patent challenges have resulted in litigation relating to Teva’s attempts to market generic versions of such pharmaceuticals under the federal Hatch-Waxman Act. Some of this litigation has been resolved through settlement agreements in which Teva obtained a license to market a generic version of the drug, often years before the patents expire.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Teva and its subsidiaries have increasingly been named as defendants in cases that allege antitrust violations arising from such settlement agreements. The plaintiffs in these cases, which are usually direct and indirect purchasers of pharmaceutical products, and often assert claims on behalf of classes of all direct and indirect purchasers, typically allege that (1) Teva received something of value from the innovator in exchange for an agreement to delay generic entry, and (2) significant savings could have been realized if there had been no settlement agreement and generic competition had commenced earlier. These class action cases seek various forms of injunctive and monetary relief, including damages based on the difference between the brand price and what the generic price allegedly would have been and disgorgement of profits, which are automatically ~~trebled~~tripled under the relevant statutes, plus attorneys’ fees and costs. The alleged damages generally depend on the size of the branded market and the length of the alleged delay, and can be ~~substantial –~~ substantial—potentially measured in multiples of the annual brand ~~sales –~~ sales—particularly where the alleged delays are lengthy or branded drugs with annual sales in the billions of dollars are involved.

Teva believes that its settlement agreements are lawful and serve to increase competition, and has defended them vigorously. In Teva’s experience to date, these cases have typically settled for a fraction of the high end of the damages sought, although there can be no assurance that such outcomes will continue.

In June 2013, the United States Supreme Court held, in Federal Trade Commission v. Actavis, Inc. (the “AndroGel case”), that a rule of reason test should be applied in analyzing whether such settlements potentially violate the federal antitrust laws. The Supreme Court held that a trial court must analyze each agreement in its entirety in order to determine whether it violates the antitrust laws. This new test has resulted in increased scrutiny of Teva’s patent settlements, additional action by the FTC and state and local authorities, and an increased risk of liability in Teva’s currently pending antitrust litigations.

In April 2006, certain subsidiaries of Teva were named in a class action lawsuit filed in the U.S. District Court for the Eastern District of Pennsylvania. The case alleges that the settlement agreements entered into between Cephalon, Inc., now a Teva subsidiary (“Cephalon”), and various generic pharmaceutical companies in late 2005 and early 2006 to resolve patent litigation involving certain finished modafinil products (marketed as PROVIGIL^®) were unlawful because they had the effect of excluding generic competition. The case also alleges that Cephalon improperly asserted its PROVIGIL patent against the generic pharmaceutical companies. The first lawsuit was ~~brought~~filed by ~~King Drug Company of Florence, Inc. on behalf of itself and as~~ a proposed class action on behalf of any other person or entity that purchased PROVIGIL directly from Cephalon (the “Direct Purchaser Class”). Similar allegations were made in other complaints, including those filed on behalf of a proposedpurported class of ~~end payers~~direct purchasers. Similar complaints were also filed by a purported class of ~~PROVIGIL (the “End Payer Class”), by~~indirect purchasers, certain ~~individual end payers, by certain retail~~ chain pharmacies and by Apotex, Inc. (collectively, these cases are referred to as the “Philadelphia Modafinil Action”). Separately, Apotex challenged Cephalon’s PROVIGIL patent and, in October 2011, the ~~Court~~court found the patent to be invalid and unenforceable based on inequitable conduct. ~~This decision was affirmed on appeal in April 2013.~~ Teva has either settled or reached agreements in principle to settle with all of the plaintiffs in the Philadelphia Modafinil Action. However, one of the end payers, United Healthcare Services, took the position that it is not bound by the settlement that was agreed to on its behalf and brought a separate action in Minnesota federal court, which has been transferred to the U.S. District Court for the Eastern District of Pennsylvania, where Teva has also filed suit to enforce the settlement. A bench trial in the suit to enforce the settlement commenced on April 23, 2018 and concluded on April 27, 2018. The court ordered post-trial briefing to be submitted within 45 days and has not yet issued any decision.

Additionally, Cephalon and Teva have reached a settlement with 48 state attorneys general, which was approved by the court on November 7, 2016. Certain other claimants, including the State of California, have given notices of potential claims related to these settlement agreements. Teva has produced documents and information in response to discovery requests issued by the California Attorney General’s office as part of its ongoing investigation of generic competition to PROVIGIL.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In May 2015, Cephalon entered into a consent decree with the FTC (the “Modafinil Consent Decree”) under which the FTC dismissed its claims against Cephalon in the FTC Modafinil Action in exchange for payment of $1.2 billion (lessset-offs for prior settlements) by Cephalon and Teva into a settlement fund. The settlement fund does not cover any judgments or settlements outside the United States. Under the ~~consent decree,~~Modafinal Consent Decree, Teva also agreed to certain injunctive relief with respect to the types of settlement agreements Teva may enter into to resolve patent litigation in the United States for a period of ten years. ~~The~~In February 2019, in connection with the settlement ~~fund does not cover any judgments or settlements outside~~of other unrelated FTC antitrust lawsuits, as described below, Teva and the ~~United States.~~FTC agreed to amend certain provisions of the Modafinil Consent Decree and to restart itsten-year term.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Following~~Additionally, following an investigation initiated by the European Commission in April 2011 regarding a modafinil patent settlement in Europe, the European Commission issued a Statement of Objections in July 2017 against both Cephalon and Teva alleging that the 2005 settlement agreement between the parties had the object and effect of hindering the entry of generic modafinil. ~~Teva submitted its defense in writing and an oral hearing was held.~~ No final decision regarding infringement has yet been taken by ~~The~~the European Commission. The sales of modafinil in the European Economic Area during the last full year of the alleged infringement amounted to EUR 46.5 million.

In January 2009, the FTC and the State of California filed a complaint for injunctive relief in California federal court alleging that a September 2006 patent lawsuit settlement between Watson Pharmaceuticals, Inc. (“Watson”), now a Teva subsidiary, and Solvay Pharmaceuticals, Inc. (“Solvay”) relating to AndroGel^® 1% (testosterone gel) violated the antitrust laws. Additional lawsuits alleging similar claims were later filed by private plaintiffs (including plaintiffs purporting to represent classes of similarly situated claimants as well as ~~direct purchaser~~retailer plaintiffs filing separately), and the various actions were consolidated in a multidistrict litigation in Georgia federal court. ~~The defendants filed various summary judgment motions on September 29, 2017, and~~On July 16, 2018, the ~~direct-purchaser plaintiffs moved~~direct purchaser plaintiffs’ motion for class certification was denied. As a result, the three direct purchasers that had sought class certification can proceed as individual plaintiffs, but any other member of the proposed direct purchaser class will need to file a separate, individual lawsuit if it wishes to participate in the litigation. On February 22, 2019, the FTC stipulated to the dismissal of its claims against Watson, in exchange for Teva’s agreement to amend the Modafinil Consent Decree, as described above. Teva settled with most of the retailer plaintiffs in April 2019. Trial on the remaining private plaintiffs’ claims has been scheduled to begin in February ~~9, 2018. Both sets of motions remain pending.~~2020. Annual sales of AndroGel^® 1% were approximately $350 million at the time of the settlement ~~were approximately $350 million,~~ and ~~annual sales of the AndroGel franchise (AndroGel~~^® ~~1% and AndroGel~~^® ~~1.62%) were~~ approximately $140 million ~~and $1.05 billion, respectively,~~ at the time Actavis launched its generic version of AndroGel^® 1% in November 2015. A provision for this case was included in the financial statements.

In December 2011, three groups of plaintiffs sued Wyeth and Teva for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving extended release venlafaxine (generic Effexor XR^® ~~XR)~~) entered into in November 2005. The cases were filed by a purported class of direct purchasers, by a purported class of indirect purchasers and by certain chain pharmacies in the United States District Court for the District of New Jersey. The plaintiffs claim that the settlement agreement between Wyeth and Teva unlawfully delayed generic entry. In October 2014, the court granted Teva’s motion to dismiss in the direct purchaser cases, after which the parties agreed that the court’s reasoning applied equally to the indirect purchaser cases. Plaintiffs appealed and, onin August ~~21,~~ 2017, the Third Circuit reversed the district court’s decision and remanded for further proceedings. On November 20, 2017, Teva and Wyeth filed a petition for a writ of certiorari in the United States Supreme Court. That petition was denied on February 20, 2018, and litigation has resumed before the district court. Annual sales of Effexor XR^® XR were approximately $2.6 billion at the time of settlement and at the time Teva launched its generic ~~versions were launched~~version of Effexor XR^® in July 2010.

In February 2012, two purported classes of direct-purchaser plaintiffs sued GSK and Teva in New Jersey federal court for alleged violations of the antitrust laws in connection with their settlement of patent litigation involving lamotrigine (generic Lamictal^®) entered into in February 2005. The plaintiffs claim that the settlement agreement unlawfully delayed generic entry and seek unspecified damages. In December 2012, the court dismissed the ~~case. In January 2014, the court denied the direct purchaser plaintiffs’ motion for reconsideration and affirmed its original dismissal. In~~case, but in June 2015, the Third Circuit reversed and remanded for further proceedings. In December 2018, the court granted the direct-purchaser plaintiffs’ motion for class certification. On ~~February 19, 2016, Teva and GSK filed a~~March 18, 2019, the Third Circuit granted the defendants’ petition for ~~a writ of certiorari in the United States Supreme Court, which was denied on November 7, 2016. In the meantime, litigation has resumed before~~immediate appellate review and the district ~~court.~~court has stayed the litigation pending the outcome of the Third Circuit appeal. Annual sales of Lamictal^® were approximately $950 million at the time of the settlement and approximately $2.3 billion at the time Teva launched its generic ~~competition commenced~~version of Lamictal^® in July 2008.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

In April 2013, purported classes of direct purchasers of, and end payers for, Niaspan^® (extended release niacin) sued Teva and Abbott for violating the antitrust laws by entering into a settlement agreement in April 2005 to resolve patent litigation over the product. A multidistrict litigation has been established in the U.S. District Court for the Eastern District of Pennsylvania. Throughout 2015 and in January 2016, several individual direct purchaseropt-out plaintiffs filed complaints with allegations nearly identical to those of the direct purchaser ~~class.~~class and, in December 2018, both the direct-purchaser class plaintiffs and indirect-purchaser class plaintiffs filed motions for class certification, which remain pending. In October 2016, the District Attorney for Orange County, California, filed a similar complaint, which has since been amended, in California state court, alleging violations of state law. Further proceedings in the California action have been stayed pending resolution of Defendants’ petition for writ of mandate or prohibition filed with the Court of Appeal, Fourth Appellate District, which seeks an order vacating the Superior Court’s denial of Defendants’ motionDefendants moved to strike ~~all~~the District Attorney’s claims for restitution and civil penalties to the extent ~~they are~~ not limited to alleged activity occurring in Orange County. The Superior Court denied that motion. The Court of Appeal subsequently reversed the decision and review of the Appellate Court decision is now pending before the California Supreme Court. Annual sales of Niaspan^® were approximately $416 million at the time of the settlement and approximately $1.1 billion at the time Teva launched its generic ~~competition commenced~~version of Niaspan^® in September 2013.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In November 2013, a putative class action was filed in Pennsylvania federal court against Actavis, Inc. and certain of its affiliates, alleging that Watson’s 2012 patent lawsuit settlement with Endo Pharmaceuticals Inc. relating to Lidoderm^® (lidocaine transdermal patches) violated the antitrust laws. Additional lawsuits containing similar allegations followed on behalf of other classes of putative direct purchaser andend-payer plaintiffs, as well as retailers acting in their individual capacities, and those cases were consolidated as a multidistrict litigation in federal court in California. On February 21, 2017, the court granted both the indirect purchaser plaintiffs’ and the direct purchaser plaintiffs’ motions for class certification. ~~We reached an agreement to settle~~Teva settled the multidistrict litigation with the various plaintiff groups in the first quarter of ~~2018. A~~2018 and a provision ~~for these settlements has been~~was included in the financial ~~statements, and on March 20, 2018, the direct purchaser andend-payor~~ ~~plaintiffs moved the court to preliminarily approve their respective settlements.~~statements. The FTC ~~has~~ also filed suit to challenge the Lidoderm^® settlement, initially bringing antitrust claims against Watson, Endo and Allergan in Pennsylvania federal court in March ~~2016, and then~~2016. The FTC later voluntarily ~~dismissing~~dismissed those claims and~~re-filing~~ refiled them ~~along~~(along with a stipulated order for permanent injunction to settle its claims against ~~Endo~~Endo) in the same California federal court in which the private multidistrict litigation referenced above was pending. On February 3, 2017, the State of California filed aits own complaint against Allergan and Watson, and that complaint was also assigned to the California federal court presiding over the multidistrict litigation. ~~After~~On February 22, 2019, the FTC dismissed its claims ~~in Pennsylvania, but before itre-filed~~ ~~them in California, Watson~~against Actavis and Allergan, ~~filed suit against~~in exchange for Teva’s agreement to amend the FTC in the same Pennsylvania federal court where the agency had initially brought its lawsuit, seeking a declaratory judgment that the FTC’s claims are not authorized by statute, or, in the alternative, that the FTC does not have statutory authority to pursue a disgorgement remedy. That declaratory judgment action remains pending, and the court in California has stayed both the FTC’s claims and theModafinil Consent Decree, as described above. The State of California’s claims ~~against Allergan and Watson,~~remain pending, but have been stayed as the ~~outcome of the declaratory judgment action~~parties engage in ~~Pennsylvania.~~settlement negotiations. Annual sales of Lidoderm^® at the time of the settlement were approximately $1.2 billion and ~~were~~ approximately $1.4 billion at the time Actavis launched its generic version in September 2013.

Since November 2013, numerous lawsuits have been filed in various federal courts by purported classes of end payers for, and direct purchasers of, Aggrenox^® (dipyridamole/aspirin tablets) against Boehringer Ingelheim (“BI”), the innovator, and several Teva subsidiaries. The lawsuits allege, among other things, that the settlement agreement between BI and Barr entered into in August 2008 violated the antitrust laws. A multidistrict litigation has been established in the U.S. District Court for the District of Connecticut. ~~Teva and BI’s motion to dismiss was denied in March 2015.~~ On April 11, 2017, the Orange County District Attorney filed a complaint for violations of California’s Unfair Competition Law based on the Aggrenox^® patent litigation settlement. Teva has settled with the putative classes of direct purchasers and end payers, as well as with theopt-out direct purchaser plaintiffs, and with two of theopt-out end payer plaintiffs. A provision with respect to the settlements was included in the financial statements. The district court overruled certain objections to the end payer settlement, including objections made by the Orange County District Attorney, and approved the settlement. The District Attorney subsequently appealed the court’s approval to the Second Circuit.Opt-outs from the end payer class have also appealed certain aspects of the court’s approval order to the Second Circuit. Those appeals remain pending. Annual sales of Aggrenox^® were approximately $340 million at the time of the settlement and approximately $455 million at the time Teva launched its authorized generic ~~competition began~~version of Aggrenox^® in July 2015. ~~Teva has settled with the putative class of direct purchasers and theopt-out~~ ~~direct purchaser plaintiffs. Additionally, on January 8, 2018, Teva reached an agreement to settle with the end payer class plaintiffs, and subsequently settled with two of theopt-out~~ end payer plaintiffs, Humana and Blue Cross/Blue Shield of Louisiana. The settlement with the end payer class was preliminarily approved by the court on March 6, 2018. A provision has been included in the financial statements for this matter.

Since January 2014, numerous lawsuits have been filed in the U.S. District Court for the Southern District of New York by purported classes of end payers for, and direct purchasers of, Actos^® and ~~Acto plus~~Actoplus Met^® (pioglitazone and pioglitazone plus metformin) against Takeda, the innovator, and several generic manufacturers, including Teva, Actavis and Watson.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The lawsuits allege, among other things, that the settlement agreements between Takeda and the generic manufacturers ~~(including Takeda’s December 2010 settlement agreement with Teva)~~ violated the antitrust laws. The ~~Court~~court dismissed the end payer lawsuits against all defendants in September 2015. ~~In October 2015, the end payers appealed that ruling, and on March 22, 2016, a stipulation was filed dismissing Teva and the other generic defendants from the appeal.~~ On February 8, 2017, the Court of Appeals for the Second Circuit affirmed the dismissal in part and vacated and remanded the dismissal in part with respect to the claims against Takeda. The direct purchasers’ case had been stayed pending resolution of the appeal in the end payer matter and the direct purchasers amended their complaint for a second time ~~after~~following the Second Circuit’s decision. Defendants ~~had~~ moved to dismiss the direct purchasers’ ~~original~~ complaint, and ~~supplemental briefing on~~ that motion ~~based on the new allegations in the amended complaint was completed on June 29, 2017. The court has not yet issued its decision.~~remains pending. At the time of the settlement, annual sales of Actos^® and Actoplus Met were approximately $3.7 billion and ~~annual sales of ACTO plus Met~~^® ~~were~~ approximately $500 ~~million.~~million, respectively. At the time Teva launched its authorized generic ~~competition commenced~~version of Actos^® and Actoplus Met in August 2012, annual sales of Actos^® and Actoplus Met were approximately $2.8 billion and ~~annual sales of ACTO plus Met~~^® ~~were~~ approximately $430 ~~million.~~

In June 2014, two groups of end payers sued AstraZeneca and Teva, as well as Ranbaxy and Dr. Reddy’s, in the Philadelphia Court of Common Pleas for violating the antitrust laws by entering into settlement agreements to resolve the esomeprazole (generic Nexium^®) patent litigation (the “Philadelphia Esomeprazole Actions”). These end payers had opted out of a class action that was filed in the Massachusetts federal court in September 2012 and resulted in a jury verdict in December 2014 in favor of AstraZeneca and Ranbaxy (the “Massachusetts Action”). Prior to the jury verdict, Teva settled with all plaintiffs in the Massachusetts Action for $24 million. The allegations in the Philadelphia Esomeprazole Actions are nearly identical to those in the Massachusetts Action. The Philadelphia Esomeprazole Actions were stayed pending resolution of the Massachusetts Action, which was on appeal to the First Circuit with respect to the claims against the~~non-settling~~ defendants AstraZeneca and Ranbaxy. On November 21, 2016, the First Circuit affirmed the district court’s judgment in favor of AstraZeneca and Ranbaxy, and the plaintiffs’ petitions for rehearing and rehearing en banc were denied on January 10, 2017.million, respectively.

In September 2014, the FTC sued AbbVie Inc. and certain of its affiliates (“AbbVie”) ~~and~~as well as Teva in the U.S. District Court for the Eastern District of Pennsylvania alleging that they violated the antitrust laws when they entered into a settlement agreement to resolve the AndroGel^® patent litigation and a supply agreement under which AbbVie ~~would~~agreed to supply Teva with an authorized generic ~~product for~~version of TriCor^® ~~to Teva.~~. The FTC alleges that Teva agreed to delay the entry of its generic testosterone gel product in exchange for entering into the TriCor supply agreement. In May 2015, the court ~~granted Teva’s motion to dismiss~~dismissed the FTC’s claim concerning the settlement and supply agreements, and thus dismissed Teva from the case entirely. The FTC proceeded with a separate claim against AbbVie alone and in June 2018, following a bench trial, the court held that AbbVie had violated the antitrust laws by filing sham patent infringement lawsuits against both Teva and Perrigo in the underlying AndroGel patent litigation. The court ordered AbbVie to pay $448 million in disgorgement but declined to award injunctive relief. The FTC filed a notice of appeal as to, ~~Teva. The~~among other things, the district court’s May 2015 dismissal of the FTC’s ~~motions for reconsideration and for entry of partial final judgment to permit an immediate appeal were denied, so~~claim against Teva, but in February 2019, the FTC ~~cannot~~stipulated to dismiss Teva from its appeal, in exchange for Teva’s agreement to amend the dismissal until its claims against AbbVie are resolved. The Court granted the FTC’s summary judgment motion that AbbVie’s patent infringement lawsuit against Teva in the AndroGel patent litigation was objectively baseless. A bench trial for the FTC’s case against AbbVie began in February 2018 and concluded in April 2018. The court has not yet issued its decision.Modafinil Consent Decree, as described above.

~~Since~~

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In May 2015, ~~two lawsuits have been filed in the U.S. District Court for the Southern District of New York by a purported class of direct purchasers of, and~~ a purported class of end payers for Namenda IR^® (memantine hydrochloride) filed a lawsuit against Forest Laboratories, LLC (“Forest”) ~~and Actavis PLC,~~, the innovator, and several generic manufacturers, including Teva. ~~Teva is only a defendant in the end payer case and defendants moved to dismiss the claims made by the end payers.~~ The ~~lawsuits allege,~~lawsuit alleges, among other things, that ~~the~~ settlement agreements between Forest and the generic manufacturers ~~(including Forest’s November 2009 settlement agreement with Teva)~~to resolve patent litigation over Namenda IR^® violated the antitrust laws. ~~On September 13, 2016, the~~The court has denied defendants’ motions to dismiss ~~but stayed~~and in September 2018 referred the ~~cases with respect~~parties to ~~the claims brought under state law, which are the only claims asserted against Teva.~~mediation. Annual sales of Namenda IR^® at the time of the settlement were approximately $1.1 billion and ~~are currently~~ approximately ~~$1.4 billion.~~$550 million at the time other manufacturers first launched generic versions of Namenda IR^® in July 2015.

On ~~March 8,~~December 16, 2016, ~~and April 11, 2016, certain Actavis subsidiaries in the United Kingdom, including Auden Mckenzie Holdings Limited, received notices from~~ the U.K. Competition and Markets Authority (“CMA”) that it had launched formal investigations under Section 25 of the Competition Act of 1998 (“Competition Act”) into suspected breaches of competition law in connection with the supply of 10mg and 20mg hydrocortisone tablets. On December 16, 2016, the CMA issued a statement of objections (a provisional finding of infringement of the Competition Act) in respect of certain allegations against Allergan, Actavis UK and ~~Allergan, which was later reissued to include~~ certain Auden Mckenzie ~~entities.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~A response was submitted~~entities alleging competition law breaches in connection with the supply of 10mg and ~~an oral hearing was held.~~20mg hydrocortisone tablets in the U.K. On December 18, 2017, the CMA issued a Statement of Draft Penalty Calculation. ~~A response was submitted and an oral hearing was held.~~ No final decision regarding infringement of competition law has yet been ~~issued by the CMA.~~issued. On March 3, 2017, the CMA issued a second statement of ~~objection~~objections in respect of certain additional allegations (relating to the same products and covering part of the same time period as ~~for~~in the first statement of objections) against Actavis UK, Allergan and ~~a number of other companies, which was later reissued to include~~ certain Auden Mckenzie entities. ~~A response was submitted~~On February 28, 2019, the CMA issued a third statement of objections with allegations of additional infringements relating to the supply of 10mg and ~~an oral hearing was held.~~20mg hydrocortisone tablets in the U.K against certain Auden Mckenzie entities and others. On January 9, 2017, Teva completed the sale of Actavis UK to Accord Healthcare Limited, pursuant to which Teva will indemnify Accord Healthcare for potential fines imposed by the CMA and/or damages awarded by a court onagainst Actavis UK ~~as a result~~in relation to the December 18, 2017 and March 3, 2017 statements of ~~the investigations in respect of~~objections, and resulting from conduct prior to the closing date of the sale. In addition, Teva agreed to indemnify Allergan against losses arising from this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3. In the event of any such fines or damages, Teva expects to assert claims, including claims for breach of warranty, against the sellers of Auden Mckenzie. The terms of the purchase agreement may preclude a full recovery by Teva. A liability for this matter has been recorded in purchase accounting related to the acquisition of Actavis Generics. Further to our Master Purchase Agreement with Allergan whereby Teva agreed to indemnify Allergan for liabilities related to acquired assets, Teva agreed with Allergan to settle and release Teva’s indemnity claim and Allergan’s potential losses arising from the CMA in connection with this matter, pursuant to the agreement the parties entered into on January 31, 2018. See note 3.

InSince November 2016, ~~three~~several putative indirect purchaser and direct purchaser class actions were filed in federal courts in Wisconsin, Massachusetts and Florida against Shire U.S., Inc. and Shire LLC (collectively, “Shire”), Actavis and ~~Actavis,~~Teva, alleging that Shire’s 2013 patent litigation settlement with Actavis related to the ADHD drug Intuniv^® (guanfacine) violated various state consumer protection and antitrust laws. On December 30, 2016 and January 11, 2017, two additional similar actions were filed, also in Massachusetts federal court, against Shire and Actavis or Teva (as successor to Actavis) by putative classes of direct purchaser plaintiffs. All ~~five~~ cases are now in Massachusetts federal ~~court, and on March 10, 2017, both the indirect purchaser plaintiffs and the direct purchaser plaintiffs filed consolidated amended complaints.~~court. Annual sales of Intuniv^® were approximately $335 million at the time of the settlement and approximately $327 million at the time Actavis launched its generic ~~competition began~~ version of Intuniv^®in 2014.

Government Investigations and Litigation Relating to Pricing and Marketing

Teva is involved in government investigations and litigation arising from the marketing and promotion of its pharmaceutical products in the United States. Many of these investigations originate through what are known asqui tam complaints, in which the government reviews a complaint filed under seal by a whistleblower (a “relator”) that alleges violations of the federal False Claims Act. The government considers whether to investigate the allegations and will, in many cases, issue subpoenas requesting documents and other information, including conducting witness interviews. The government must decide whether to intervene and pursue ~~theclaims~~the claims as the plaintiff. Once a decision is made by the government, the complaint is unsealed. If the government decides not to intervene, then the relator may decide to pursue the lawsuit on his own without the active participation of the government.

A number of state attorneys general have filed various actions against Teva and/or certain of its subsidiaries ~~including certain Actavis subsidiaries,~~ relating to reimbursements or drug price reporting under Medicaid or other programs. Such price reporting is alleged to have caused ~~governments~~states and others to pay inflated reimbursements for covered drugs. Teva and its subsidiaries have reached settlements in most of these ~~cases,~~cases. On October 4, 2018, Teva settled longstanding litigation filed by the State of Illinois against subsidiaries of Teva and ~~remain parties~~Watson for a total settlement amount of $135 million, the majority of which was paid in December of 2018. Teva accepted the settlement while denying any liability with respect to ~~active~~the claims made by the state. Pending the final settlement payment, the Illinois litigation is stayed. In August 2013, judgment was entered in ~~Illinois.~~a separate case brought by the State of Mississippi against Watson, pursuant to which Watson was ordered to pay compensatory damages amounting to $12.4 million. In March 2014, the Mississippi court amended the judgment to also include punitive damages in the amount of $17.9 million. The judgment was affirmed in all respects by the Mississippi Supreme Court in January 2018 and has since been satisfied in full. Certain Actavis subsidiaries ~~remain parties~~were dismissed by the trial court in an action brought by the State of Utah. That dismissal was affirmed by the Utah Court of Appeals on February 28, 2019. The State’s time to ~~active litigation in Illinois~~seek further appellate review has expired and ~~Utah.~~the matter is now concluded. A provision for ~~the~~these cases ~~has been~~was included in the financial statements. Trial in the Illinois case against Teva concluded in the fourth quarter of 2013, and post-trial briefing was submitted. On June 28, 2017, after several years, the court issued a Memorandum Order After Trial finding liability against Teva, but reserved its decision on damages. Teva denies any liability and sought reconsideration of the order, which was denied. A hearing on damages is scheduled for August 8, 2018. The State of Illinois is seeking approximately $90 million in compensatory damages. Any such damages ultimately awarded by the court are subject to automatic trebling. In addition, the state is seeking statutory penalties ranging from $362 million to approximately $1.2 billion. Teva will continue to argue that any damages and penalties should be significantly less than the amount sought by the state. In August 2013, in the Mississippi case against Watson, the court ruled in favor of the state, awarding $12.4 million in compensatory damages and civil penalties. In March 2014, the court awarded the state an additional $17.9 million in punitive damages. A provision for these amounts has been included in the financial statements. Watson appealed both the original and the punitive damage awards. On January 11, 2018, the Mississippi Supreme Court affirmed the judgment in favor of the State of Mississippi and against Watson in all respects.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

On February 9, 2018, the judgment was fully satisfied and on February 16, 2018, the trial court discharged the appeal bond fully concluding this matter. In Utah, claims against Watson that were dismissed in their entirety by the trial court are now on appeal.

Severalqui tam complaints have been unsealed in recent years as a result of government decisions not to participate in the cases. The following is a summary of certain government investigations,qui tam actions and related matters.

In January 2014, Teva received a civil investigative demand from the U.S. Attorney for the Southern District of New York seeking documents and information from January 1, 2006 related to sales, marketing and promotion of COPAXONE and AZILECT^®, focusing on educational and speaker programs. The demand states that the government is investigating possible civil violations of the federal False Claims Act. In March 2015, the docket in this matter and a False Claims Act civilqui tam complaint concerning this matter were unsealed by the court ~~which revealed that~~after the ~~U.S. Attorney had notified the court in November 2014 that it had~~government declined to ~~intervene in and proceed with the lawsuit. The qui tam relators, however, are moving forward with the lawsuit. In June 2015, Teva filed motions to dismiss the complaint.~~intervene. In February 2016, the court ~~stayed its decision on the relators’ claims based on state and local laws,~~ denied Teva’s motions to dismiss the False Claims Act claims and instructed the relators to amend their complaint with additional information. In March 2016, the relators filed an amended complaint. Teva’s motion for summary judgment on all claims was denied on February 27, 2019.

In January 2014, aqui tamcomplaint ~~which~~was filed in Rhode Island federal court alleging that Teva ~~answered~~and several other defendants, including manufacturers of MS drugs and pharmacy benefit managers, violated the False Claims Act. Thequi tam action was unsealed on April 4, 2018 after the government declined to intervene. The relator alleges that Teva and the other defendants induced fraudulent overpayments for illegitimate “Bona Fide Service Fees” in ~~April 2016.~~excess of fair market value to inflate prices for the Medicare Part D program. Teva moved to dismiss the complaint. The ~~parties~~DOJ also moved to dismiss the complaint, arguing that it lacked merit and was not in the government’s interest to continue. Both motions are ~~currently engaged~~pending.

In May 2017, aqui tam action was filed against a number of Teva subsidiaries. Thequi tam action was unsealed on June 13, 2018 after the government declined to intervene. The relator in ~~discovery.~~the case alleges that Teva violated the False Claims Act by devising and engaging in promotional schemes that violate the Anti-Kickback Statute (“AKS”), resulting in false certifications of compliance with the AKS. Specifically, the relator alleges that Teva paidin-kind remuneration to physicians through reimbursement support and nursing services in order to increase the number of COPAXONE prescriptions. An amended complaint was filed on October 15, 2018. Teva and the DOJ moved to dismiss the case. These motions are pending.

~~Beginning in~~Since May 2014, ~~various~~approximately 1,500 complaints have been filed with respect to opioid sales and distribution against various Teva affiliates, along with several other pharmaceutical companies, by a number of cities, counties, states, other governmental agencies and ~~agencies across the country. There are actions currently pending against Teva and its affiliates that have been brought by various states, subdivisions and state agencies~~private plaintiffs in both ~~State~~state and ~~Federal Courts.~~federal courts. Most of the ~~Federal~~federal cases have been consolidated into a multidistrict litigation in the Northern District of ~~Ohio. In addition to~~Ohio (“MDL Opioid Proceeding”) and many of the ~~complaints~~cases filed ~~by states,~~in state ~~agencies and political subdivisions, private class action lawsuits~~court have been ~~filed in Arkansas, Massachusetts, Ohio~~removed to federal court and ~~Pennsylvania. Several counties in various states and~~consolidated into the State of Delaware have commenced an action against Anda, Inc. (and other distributor and manufacturer defendants) alleging that Anda, Inc. failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the diversion of such products to individuals who used them for other than legitimate medical purposes. The complaints,MDL Opioid Proceeding. Complaints asserting claims under similar provisions of different state law, generally contend that the defendants allegedly engaged in improper marketing and distribution of opioids, including ACTIQ^® and FENTORA^®. The complaints also assert claims related to Teva’s generic opioid products. In addition, several dozen complaints filed by cities, counties and the State of Delaware have named Anda, Inc. (and other distributors and manufacturers) alleging that Anda failed to develop and implement systems sufficient to identify suspicious orders of opioid products and prevent the abuse and diversion of such products to individuals who used them for other than legitimate medical purposes. Plaintiffs seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. Certain plaintiffs assert that the measure of damages is the entirety of the costs associated with addressing the abuse of opioids and opioid addiction. None of the complaints ~~specifies~~specify the exact amount of damages at ~~issue.~~issue; however, an adverse resolution of any of these lawsuits or investigations may involve large monetary penalties and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows. Teva and its affiliates that are defendants in the various lawsuits deny all allegations asserted in these complaints and have filed or will ~~be filing~~file motions to dismiss where possible. On ~~April 11,~~October 5, 2018, the magistrate judge in the ~~multidistrict litigation~~MDL Opioid Proceeding issued a ~~case management order setting~~Report & Recommendation rejecting the first motion to dismiss, except for the common law public nuisance claim, which was dismissed. On December 19, 2018, the District Court judge overruled defendants’ objections to the Report & Recommendation. Motions to dismiss in additional similar cases remain pending. On April 1, 2019, the magistrate judge in the MDL Opioid Proceeding issued two Report & Recommendations in which he recommended that the court grant in part and deny in part pending motions to dismiss of the manufacturer, distributor, pharmacy, and generic manufacturing defendants. Specifically, the magistrate judge recommended that The Muscogee (Creek) Nation’s Lanham Act claim be dismissed as to all defendants, and that its claims against the generic manufacturers are partially preempted; he recommended that the motions to dismiss be denied as to the remaining claims. The magistrate judge also recommended that the Blackfeet Tribe of the Blackfeet Indian Reservation’s federal common law public nuisance and Montana Unfair Trade Practices and Consumer Protection Act claims be dismissed, and that its claims against the generic manufacturers are partially preempted; he recommended that the motions to dismiss be denied as to the remaining claims. Fact discovery in the MDL Opioid Proceeding for the first track of cases is closed, and expert discovery is proceeding with a trial scheduled for ~~March~~October 2019. Other cases remain pending in various state courts, including Oklahoma, where a trial is scheduled to begin in May 2019, and where the plaintiffs are seeking joint and several damages among all defendants. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina and Texas, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. On April 27, 2018, Teva received subpoena requests from the DOJ seeking documents relating to the manufacture, marketing and sale of opioids. Teva ~~intends to comply~~is complying with this subpoena. In addition, a number of ~~State Attorneys General,~~state attorneys general, including a coordinated multistate effort, have initiated investigations into sales and marketing practices of Teva and its affiliates with respect to opioids. Other states are conducting their own investigations outside of the multistate group. Teva is cooperating with these ongoing investigations ~~which are ongoing,~~ and cannot predict the outcome at this ~~time the outcome.~~time.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

On June 21, 2016, Teva USA received a subpoena from the DOJ Antitrust Division ~~of the DOJ~~ seeking documents and other information relating to the marketing and pricing of certain of Teva ~~USA’s~~USA generic products and communications with competitors about such products. Actavis received a similar subpoena in June 2015. Teva and Actavis are cooperating with the DOJ subpoena requests. On July 12, 2016, Teva USA received a subpoena from the Connecticut Attorney General seeking documents and other information relating to potential state antitrust law violations. In 2015, Actavis ~~has also~~ received a similar subpoena from the Connecticut Attorney General. ~~Teva and Actavis are cooperating fully with these subpoenas.~~

On December 15, 2016, a civil action was brought by the attorneys general of twenty states against Teva USA and several other companies asserting claims under federal antitrust law ~~(specifically, section 1 of the Sherman Act)~~ alleging price fixing of generic products in the United States. An amended complaint was filed on March 1, 2017 adding twenty additional states to the named plaintiffs and adding supplemental state law claims.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The states seek a finding that the defendants’ actions violated federal antitrust law and state antitrust and consumer protection laws, as well as injunctive relief, disgorgement, damages on behalf of various state and governmental entities and consumers, civil penalties and costs. On August 3, 2017, the ~~Judicial Panel on Multidistrict Litigation (“JPML”)~~action was transferred ~~this action~~ to the generic drug multidistrict litigation ~~pending~~ in ~~federal court in~~the Eastern District of Pennsylvania ~~which is discussed in greater detail below.~~(“Pennsylvania MDL”). On July 17, 2017, a new complaint was filed in the District Court of Connecticut on behalf of four additional states – Arkansas, Missouri, New Mexico and West Virginia, as well as the District of Columbia. These plaintiffs were not previously party to the State Attorney General action that commenced in December 2016. This complaint, which the JPML has also transferred to the generic drug multidistrict litigation discussed below, makeswith the same factual allegations and claims that are at issue in the ~~earlier State Attorneys General complaint.~~Pennsylvania MDL case. The complaint was subsequently transferred to the Pennsylvania MDL. On October 31, 2017, the attorneys general filed a motion for leave to file an amended complaint which named Actavis and Teva as defendants, and added new allegations and claims to those appearing in the prior complaints. On June 5, 2018, the District Court for the Eastern District of 45Pennsylvania granted the attorneys general’s motion to amend and on June 18, 2018, the attorneys general of 47 states plus Puerto Rico and the District of Columbia filed a ~~motion for leave to file an~~consolidated amended complaint in this action. The proposed amended complaint names Actavis as a defendant as well as Teva, and adds new allegations and claims to those appearing in the prior complaints. Defendants have opposed the motion.complaint.

Beginning on March 2, 2016, numerous complaints have been filed in the United States on behalf of putative classes of direct and indirect purchasers of several generic drug products, as well as several individual direct purchaseropt-out plaintiffs. These complaints, which allege that the defendants engaged in conspiracies to fix ~~increase, maintain~~prices and/or ~~stabilize the prices~~allocate market share of ~~the~~ generic ~~drug~~ products ~~named,~~ have been brought against various manufacturer defendants, including ~~among others,~~ Teva ~~USA, Actavis Holdco U.S., Inc., Actavis Elizabeth~~ and ~~Pliva, Inc.~~Actavis. The plaintiffs generally seek injunctive relief and damages under federal antitrust law, and damages under various state laws. On April 6, 2017, these cases were transferred to the ~~Judicial Panel on Multidistrict Litigation (JPML) entered an order transferring~~Pennsylvania MDL. Additional cases brought by classes of direct or indirect purchasers and alleging claims of generic price-fixing for coordination or consolidation with the multidistrict litigation currently pending in the Eastern District of Pennsylvania; the panel subsequentlywere transferred ~~further cases~~ to that court and the plaintiffs filed consolidated amended complaints on August 15, 2017. ~~Defendants moved to dismiss certain of those consolidated amended complaints on~~On October ~~6, 2017. In February~~16, 2018, the court ~~overseeing~~denied certain of the ~~multidistrict litigation lifted~~defendants’ motions to dismiss as to certain federal claims, and on February 15, 2019, the ~~stay of discovery on a limited basis~~court granted in part and denied in part defendants’ motions to ~~allow for document discovery~~dismiss as to certain state law claims. Teva and~~non-merits~~ ~~based depositions. Teva denies~~ Actavis deny having engaged in any conduct that would give rise to liability with respect to the above-mentioned ~~subpoenas~~complaints.

In May 2018, Teva received a civil investigative demand from the DOJ Civil Division, pursuant to the federal False Claims Act, seeking documents and ~~civil suits.~~information produced since January 1, 2009 relevant to the Civil Division’s investigation concerning allegations that generic pharmaceutical manufacturers, including Teva, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted in violation of the False Claims Act. Teva is cooperating with this subpoena.

On March 21, 2017, Teva received a subpoena from the U.S. Attorney’s office in Boston, Massachusetts requesting documents related to Teva’s donations to patient assistance programs. Teva is cooperating ~~fully~~ in responding to the subpoena.

~~For several years,~~In December 2016, Teva ~~had conducted a voluntary worldwide investigation into business practices that may have implications~~resolved certain claims under the U.S. Foreign Corrupt Practices Act (“FCPA”)~~, following the receipt, beginning in 2012, of subpoenas and informal document requests from~~ with the SEC and the DOJ, ~~with respect to compliance with the FCPA~~as more fully described in ~~certain countries. In December 2016, Teva reached a resolution with the SEC and DOJ to fully resolve these FCPA matters.~~Teva’s 2017 Annual Report. The resolution, which relates to conduct in Russia, Mexico and Ukraine from 2007 to 2013, provides for penalties of approximately $519 million (reserved in the financial statements in the third quarter of 2016), which includessettlement included a fine, disgorgement and prejudgment interest; a three-year deferred prosecution agreement (“DPA”) for ~~Teva; a guilty plea by Teva’s Russian subsidiary to criminal charges of violations of the anti-bribery provisions of the FCPA; consent to entry of a final judgment against~~ Teva ~~settling civil claims of violations of the anti-bribery, internal controls and books and records provisions of the FCPA;~~ and the retention of an independent compliance monitor for a period of three years. ~~The SEC civil consent~~If, during the term of the DPA (approximately three years unless extended), the DOJ determines that Teva has committed a felony under federal law, provided deliberately false or misleading information or otherwise breached the DPA, Teva could be subject to prosecution and ~~DOJ~~additional fines or penalties, including the deferred ~~prosecution agreement have each obtained court approval.~~

charges. Following the above resolution with the SEC and DOJ, Teva has had requests for documents and information from various Russian government entities. In December 2016, Teva was informed by Israeli authorities that they had initiated an investigation into the conduct that was the subject of the FCPA investigation and which resulted in the above-mentioned resolution with the SEC and DOJ. Onaddition, on January 14, 2018, Teva ~~and the Government of Israel~~ entered into an arrangement for the Contingent Cessation of Proceedings pursuant to the Israeli Securities Law with the Government of Israel that ~~ends~~ended the investigation of the Israeli government into ~~such~~the conduct ~~against~~that was subject to the ~~Company~~FCPA investigation, and ~~provides for~~provided a payment of ~~75 million New Israeli Shekels (approximately~~approximately $22 ~~million).~~million.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Shareholder Litigation

On November 6, 2016 and December 27, 2016, two putative securities class actions were filed in the U.S. District Court for the Central District of California against Teva and certain of its current and former ~~officers.~~officers and directors. After those two lawsuits were consolidated and transferred to the U.S. District Court for the District of Connecticut, the court appointed the Ontario Teachers’ Pension Plan Board as lead ~~plaintiff.~~plaintiff (the “Ontario Teachers Securities Litigation”). The lead plaintiff then filed a consolidated amended complaint. On April 3, 2018, the court dismissed the case without prejudice. Lead plaintiff filed a second amended complaint on June 22, 2018, purportedly on behalf of purchasers of Teva’s securities between February 6, 2014 and August 3, 2017. The ~~consolidated~~second complaint ~~seeks unspecified damages, legal fees, interest, and costs, and it~~ asserts that Teva and certain of its current and former officers and directors violated ~~the~~ federal ~~securities laws and Israeli~~ securities laws in connection with Teva’s alleged failure to disclose ~~Teva’s participation in an alleged anticompetitive scheme to fix prices and allocate markets~~pricing strategies for ~~generic~~various drugs in its generic drug portfolio and by making allegedly false or misleading statements in certain offering materials issued during the ~~United States. On December 1, 2017,~~class period. The second complaint seeks unspecified damages, legal fees, interest, and costs. Teva and the current and former officer and director defendants filed motions to dismiss the ~~consolidated amended~~second complaint ~~with prejudice. On April 3, 2017,~~on September 14, 2018. Those motions are pending before the ~~Court granted the motions to dismiss without prejudice. A second amended complaint is expected with renewed dismissal briefing.~~court.

On July 17, 2017, a lawsuit was filed in the U.S. District Court for the Southern District of Ohio derivatively on behalf of the Teva Employee Stock Purchase Plan, and alternatively as a putative class action lawsuit on behalf of individuals who purchased Teva stock through that plan. That lawsuit seeks unspecified damages, legal fees, interest and costs. The complaint alleges that Teva failed to maintain adequate financial controls based on the facts underpinning Teva’s FCPA ~~deferred prosecution agreement,~~DPA and also based on allegations substantially similar to those in the ~~putative class action securities lawsuit pending in U.S. District Court for the District of Connecticut, discussed above.~~Ontario Teachers Securities Litigation. On November 29, 2017, the ~~Court~~court granted Teva’s motion to transfer the litigation to the U.S. District Court for the District of Connecticut where the ~~putative class action securities lawsuit~~Ontario Teachers Securities Litigation is pending. On ~~December 29, 2017,~~February 12, 2018, the ~~parties jointly moved to stay~~district court stayed the case pending resolution of the motions to dismiss filed in the ~~consolidated putative securities class action~~Ontario Teachers Securities Litigation described above.

On August 3, 2017, a ~~securities~~ lawsuit was filed in the U.S. District Court for the District of Connecticut by OZ ELS Master Fund, Ltd.~~, OZ Special Funding, L.P, OZ Enhanced Master Fund, Ltd., Gordel Capital Limited, OZ Global Equity Opportunities Master Fund, Ltd., OZ Master Fund, Ltd.,~~ and ~~OZ Global Special Investments Master Fund L.P.~~related entities. The complaint asserts that Teva and certain of its current and former officers violated the federal securities laws in connection with Teva’s alleged failure to disclose Teva’s participation in an alleged anticompetitive scheme to fix prices and allocate markets for generic drugs in the United States. On August 30, 2017, the court entered an order deferring all deadlines pending the resolution of the motions to dismiss filed in the ~~consolidated putative securities class action~~Ontario Teachers Securities Litigation described above.

On August 21 and 30, 2017, ~~a putative class action securities lawsuit was filed by~~ Elliot Grodko and Barry Baker filed putative securities class actions in the U.S. District Court for the Eastern District of Pennsylvania purportedly on behalf of purchasers of Teva’s securities between November 15, 2016 and August 2, 2017 seeking unspecified damages, legal fees, interest, and costs. The ~~complaint alleged~~complaints allege that Teva and certain of its current and former officers violated the federal securities laws and Israeli securities laws by making false and misleading statements in connection with Teva’s acquisition and integration of Actavis Generics. On November 1, 2017, the court consolidated the Baker and Grodko cases. On April 10, 2018, the ~~Court~~court granted Teva’s motion to transfer ~~this~~the consolidated action to the District of Connecticut where the Ontario Teachers ~~securities litigation~~Securities Litigation is currently pending.

OnBetween August ~~30, 2017, a~~2018 and February 2019, ten complaints were filed against Teva and current and former officer and director defendants seeking unspecified compensatory and rescissory damages, legal fees, costs and expenses. The allegations in these complaints are substantially similar to the allegations in the Ontario Teachers Securities Litigation, but have been brought on behalf of plaintiffs that have “opted out” of the putative ~~securities~~ class ~~action was~~in the Ontario Teachers Securities Litigation. The plaintiffs in these“opt-out” cases filed ~~by Barry Baker~~their complaints in the Court of Common Pleas of Montgomery County, Pennsylvania, the U.S. District Court for the Eastern District of Pennsylvania ~~on behalf~~and the U.S. District Court for the District of ~~purchasers of Teva’s securities between November 15, 2016 and August 2, 2017 seeking unspecified damages, legal fees, interest, and costs. The complaint alleges that~~Connecticut. Teva and ~~certain officers violated~~ the ~~federal securities laws by making false~~current and ~~misleading statements in connection with Teva’s acquisition~~former officer and ~~integration of Actavis Generics. On November 1, 2017, the Court consolidated the Baker case with the Grodko case, discussed above. On April 10, 2018, the Court granted Teva’s motion~~director defendants filed or will file motions or stipulations to transfer ~~this action~~the cases filed in Pennsylvania to the U.S. District Court for the District of Connecticut, where the Ontario Teachers ~~securities litigation~~Securities Litigation is ~~currently~~ pending. The cases filed in, or transferred to, Connecticut have been or will request to be stayed pending resolution of the motions to dismiss filed in the Ontario Teachers Securities Litigation described above.

Motions to approve derivative actions against certain past and present directors and officers have been filed in Israel ~~with respect to alleged~~alleging negligence and recklessness with respect to the acquisition of the Rimsa business and the acquisition of Actavis Generics. Motions for document disclosure prior to initiating ~~derivatives~~derivative actions were filed with respect to dividend distribution, executive compensation, several patent settlement agreements, opioids and ~~executive compensation.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

the U.S. price-fixing investigations. Motions to approve securities class actions against Teva and certain of its current and former directors and officers were filed in Israel ~~with~~based on allegations ~~regarding proper~~of improper disclosure of the above-mentioned pricing investigation, as well as lack of disclosure of negative developments in the generic sector, ~~and~~including price erosion ~~of the prices of~~with respect to Teva’s ~~products as were presented in the second quarter financial reporting of Teva.~~products. Other motions were filed in Israel to approve a derivative action, discovery and a class action related to ~~alleged~~ claims regarding Teva’s above-mentioned FCPA resolution with the SEC and DOJ.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Environmental Matters

Teva or its subsidiaries are party to a number of environmental proceedings, or have received claims, including under the federal Superfund law or other federal, provincial or state and local laws, imposing liability for alleged noncompliance, or for the investigation and remediation of releases of hazardous substances and for natural resource damages. Many of these proceedings and claims seek to require the generators of hazardous wastes disposed of at a third party-owned site, or the party responsible for a release of hazardous substances that impacted a site, to investigate and ~~cleanup~~clean the site or to pay or reimburse others for such activities, including for oversight by governmental authorities and any related damages to natural resources. Teva or its subsidiaries have received claims, or been made a party to these proceedings, along with others, as an alleged generator of wastes that were disposed of or treated at third-party waste disposal sites, or as a result of an alleged release from one of Teva’s facilities or former facilities.

Although liability among the responsible parties, under certain circumstances, may be joint and several, these proceedings are frequently resolved so that the allocation of ~~cleanup~~clean-up and other costs among the parties reflects the relative contributions of the parties to the site conditions and takes into account other pertinent factors. Teva’s potential liability varies greatly at each of the sites; for some sites the costs of the investigation, ~~cleanup~~clean-up and natural resource damages have not yet been determined, and for others Teva’s allocable share of liability has not been determined. At other sites, Teva has taken an active role in identifying those costs, to the extent they are identifiable and estimable, which do not include reductions for potential recoveries of ~~cleanup~~clean-up costs from insurers, indemnitors, former site owners or operators or other potentially responsible parties. In addition, enforcement proceedings relating to alleged violations of federal, state, commonwealth or local requirements at some of Teva’s facilities may result in the imposition of significant penalties (in amounts not expected to materially adversely affect Teva’s results of operations) and the recovery of certain costs and natural resource damages, and may require that corrective actions and enhanced compliance measures be implemented.

Other Matters

On February 1, 2018, former shareholders of Ception Therapeutics, Inc., a company that was acquired by and merged into Cephalon in 2010, prior to Cephalon’s acquisition by Teva, filed breach of contract and other related claims against the Company, Teva USA and Cephalon in the Delaware Court of Chancery. Among other things, the plaintiffs allege that Cephalon breached the terms of the 2010 Ception-Cephalon merger agreement by failing to exercise commercially reasonable efforts to develop and commercialize CINQAIR^® (reslizumab) for the treatment of eosinophilic esophagitis ~~(EE)~~(“EE”). The plaintiffs claim damages of at least $200 million, an amount they allege is equivalent to the milestones payable to the former shareholders of Ception in the event Cephalon were to obtain regulatory approval for EE in the United States ($150 million) and Europe ($50 million). ~~All defendants have~~Defendants moved to dismiss the ~~plaintiffs’~~ complaint and ~~filed briefs~~on December 28, 2018, the court granted the motion in ~~support~~part and dismissed all of plaintiffs’ claims, except for their ~~motions on April 10, 2018.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

claim against Cephalon for breach of contract.

NOTE 17 – Segments:

~~In November 2017,~~ Teva announced a new organizational structure and leadership changes to enable strategic alignment across its portfolios, regions and functions. Teva now operates its business through three segments: North America, Europe and Growth Markets. The purpose of the new structure is to enable stronger alignment and integration between operations, commercial regions, R&D and Teva’s global marketing and portfolio function, in order to optimize its product lifecycle across the therapeutic areas. Teva’s financial results for the first quarter of 2018 are being reported under this new structure for the first time.

~~In addition to these three segments, Teva has other activities, primarily the API manufacturing business and certain contract manufacturing services.~~

~~All the above changes were reflected through retroactive revision of prior period segment information.~~

Since 2013 and until December 31, 2017, Teva had two reportable segments: generic and specialty medicines. The generic medicines segment included Teva’s OTC and API businesses. Teva’s other activities included distribution activities, sales of medical devices and certain contract manufacturing operation (“CMO”) services.

~~Teva now~~ operates its business and reports its financial results in three segments:

~~a) North America segment, which includes the United States and Canada.~~

(a)	North America segment, which includes the United States and Canada.

~~b) Europe segment, which includes the European Union and certain other European countries.~~

(b)	Europe segment, which includes the European Union and certain other European countries.

~~c) Growth~~

(c)	International Markets segment, which includes all countries other than those in the North America and Europe segments.

The Company began reporting its financial results under this structure in the first quarter of 2018. This change was reflected through retroactive revision of prior period segment information.

In addition to these three segments, Teva has other sources of revenues, primarily the sale of APIs to third parties, certain contract manufacturing services and anout-licensing platform offering a portfolio of products to other pharmaceutical companies through its affiliate Medis.

Teva’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the three identified reportable segments, namely North America, Europe and ~~Growth~~International Markets, to make decisions about resources to be allocated to the segments and assess their performance.

Segment profit is comprised of gross profit for the segment less R&D expenses, S&M expenses, G&A expenses and other income related to the segment. Segment profit does not include amortization and certain other items.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Teva manages its assets on a company basis, not by segments, as many of its assets are shared or commingled. Teva’s CODM does not regularly review asset information by reportable segment and, therefore, Teva does not report asset information by reportable segment.

Teva’s CEO may review its strategy and organizational structure. Any changes in strategy may lead to a reevaluation of the Company’s segments and goodwill allocation to reporting units, as well as fair value attributable to its reporting units. See note 7.

a. Segment information:


	Three months ended March 31, 2019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,047		$	1,264		$	668
Gross profit		1,039			730			269
R&D expenses		165			66			22
S&M expenses		268			215			115
G&A expenses		112			48			36
Other income		(4	)		(1	)		(0.2	)

Segment profit	$	498		$	403		$	97


	Three months ended March 31, 2018
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,531		$	1,442		$	750
Gross profit		1,403			792			313
R&D expenses		188			73			24
S&M expenses		276			250			134
G&A expenses		126			91			41
Other (income) loss		(102	)		1			(8	)

Segment profit	$	915		$	377		$	122

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~a. Segment information:~~


	Three months ended March 31,
	2019			2018
	(U.S.$ in millions)
North America profit	$	498		$	915
Europe profit		403			377
International Markets profit		97			122

Total segment profit		998			1,414
Profit of other activities		21			21

		1,019			1,435
Amounts not allocated to segments:
Amortization		283			310
Other assets impairments, restructuring and other items		1			501
Goodwill impairment		—			180
Intangible asset impairments		469			206
Gain on divestitures, net of divestitures related costs		§			(93	)
Other R&D expenses		§			22
Costs related to regulatory actions taken in facilities		4			1
Legal settlements and loss contingencies		57			(1,278	)
Other unallocated amounts		70			61

Consolidated operating income		134			1,525

Financial expenses, net		218			271

Consolidated (loss) income before income taxes	$	(84	)	$	1,254

   North America Europe    Growth Markets
   Three months ended
March 31, Three months ended
March 31,    Three months ended
March 31,
   2018 2017 2018    2017    2018 2017
   (U.S. $ in millions) (U.S. $ in millions)    (U.S. $ in millions)
Revenues
   $ 2,531 $ 3,240 $ 1,442    $ 1,341    $ 750 $ 718
Gross profit
   1,432 2,080 797    734    313 292
R&D expenses
   188 267 73    106    24 47
S&M expenses
   305 441 255    279    134 158
G&A expenses
   126 139 91    79    41 48
Other income
   (102 ) (73 ) 1    2    (8 ) (1 )






Segment profit
   $ 915 $ 1,306 $ 377    $ 268    $ 122 $ 40

   Three months ended
March 31,
   2018    2017
   (U.S.$ in millions)
North America profit
   $ 915    $ 1,306
Europe profit
   377    268
Growth Markets profit
   122    40




Total segment profit
   1,414    1,614
Profit of other activities
   21    7




   1,435    1,621
Amounts not allocated to segments:

Amortization
   310    320
Other asset impairments, restructuring and other items
   707    240
Goodwill impairment
   180    —
Gain on divestitures, net of divestitures related costs
   (93 )    —
Inventorystep-up
   —      64
Other R&D expenses
   22    —
Costs related to regulatory actions taken in facilities
   1    34
Legal settlements and loss contingencies
   (1,278 )    20
Other unallocated amounts
   61    48




Consolidated operating income
   1,525    895




Financial expenses, net
   271    207




Consolidated income before income taxes
   $ 1,254    $ 688

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

§
Represents an amount less than $0.5 million.

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended March 31,				Three months ended March 31,
	2018		2017		2019		2018
	(U.S.$ in millions)				(U.S.$ in millions)
North America segment
North America
Generic products	$	1,088	$	1,415	$	966	$	1,088
COPAXONE		476		797		208		476
BENDEKA / TREANDA		181		156		122		181
ProAir		130		121		59		130
QVAR		107		84		64		107
AJOVY						20		—
AUSTEDO		30		—		74		30
Distribution		331		295

	Three months ended March 31,
	2018		2017
	(U.S.$ in millions)
Europe segment
Generic products	$	997	$	850
COPAXONE		153		152
Respiratory products		113		84

	Three months ended March 31,
	2018		2017
	(U.S.$ in millions)
Growth Markets segment
Generic products	$	488	$	486
COPAXONE		16		21
Distribution		153		125
Anda						379		331
Other						155		188
Total					$	2,047	$	2,531

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended March 31,
	2019		2018
	(U.S.$ in millions)
Europe
Generic products	$	919	$	997
COPAXONE		114		153
Respiratory products		91		113
Other		140		179
Total	$	1,264	$	1,442


	Three months ended March 31,
	2019		2018
	(U.S.$ in millions)
International markets
Generic products	$	441	$	488
COPAXONE		13		16
Distribution		151		153
Other		62		93
Total	$	668	$	750

A significant portion of Teva’s revenues, and a higher proportion of the profits, come from the manufacture and sale of patent-protected pharmaceuticals. Many of Teva’s specialty medicines are covered by several patents that expire at different times. Nevertheless, once patent protection has expired, or has been lost prior to the expiration date as a result of a legal challenge, Teva no longer has patent exclusivity on these products, and subject to regulatory approval, generic pharmaceutical manufacturers are able to produce and market similar (or purportedly similar) products and sell them for a lower price. The ~~commencement~~launch of generic competition, even in the form ofnon-equivalent products, can result in a substantial decrease in revenues for a particular specialty medicine in a very short time. Any ~~such~~ expiration or loss of IPsuch intellectual property rights could therefore significantly adversely affect Teva’s results of operations and financial condition.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE ~~18—~~18 – Other income:


	Three months ended March 31,					Three months ended March 31,
	2018		2017			2019			2018
	(U.S. $ in millions)					(U.S. $ in millions)
Gain on divestitures, net of divestitures related costs⁽¹⁾	$	93		—		$	(1	)		93
Section 8 and similar payments⁽²⁾		99		75			—			99
Gain on sale of assets		8		—			1			8
Other, net		3		(3	)		6			3

Total other income	$	203	$	72		$	6		$	203

(1)	~~Gain~~ Mainly related to the divestment of the women’s health business and the dissolution of PGT in 2018. ~~See note 3.~~

(2)	Section 8 of the Patented Medicines (Notice of Compliance) ~~Regulations~~Regulation relates to recoveries of lost revenue related to patent infringement proceedings in Canada.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 19 – Income ~~Taxes:~~taxes:

In the first quarter of 2019, Teva recognized a tax expense of $9 million, or 11%, onpre-tax loss of $84 million. In the first quarter of 2018, ~~income taxes were~~Teva recognized a tax expense of $46 million, or 4%, onpre-tax income of ~~$1.3 billion. In the first quarter of 2017, income taxes were $54 million, or 8%, onpre-tax~~ ~~income of $688~~$1,254 million. ~~Our~~Teva’s tax rate for the first quarter of ~~2018~~2019 was mainly affected by~~one-time~~ ~~legal settlements~~ impairments, amortization and ~~divestments that had~~interest disallowance as a ~~low corresponding tax effect.~~

~~The Company recognized~~result of the ~~income tax effects of the~~U.S. Tax Cuts and Jobs ~~Act (“TCJA”) in its audited consolidated financial statements included in the Company’s Annual Report on Form10-K~~ for the year ended December 31, 2017, in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the TCJA was enacted into law. The guidance also provides for a measurement period of up to one year from the enactment date for the Company to complete the accounting for the U.S. tax law changes. As such, the Company’s financial results for the year ended December 31, 2017, reflected a $112 million provisional estimate for its~~one-time~~ deemed repatriation tax liability. No subsequent adjustments have been made to the amounts recorded as of December 31, 2017, which continue to represent a provisional estimate of the impact of the TCJA. The estimated impact of the TCJA is based on certain assumptions and the Company’s current interpretation, and may change as the Company receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time.Act.

The statutory Israeli corporate tax rate is 23% in ~~2018. Our~~2019. Teva’s tax rate differs from the Israeli statutory tax rate, mainly due to ~~the mix~~generation of profits ~~generated~~ in various jurisdictions ~~where~~in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other ~~countries,~~countries.

NOTE 20 – Leases:

Leases prior to the adoption of the new Lease Standard

Teva leases real estate, cars and equipment for use in its operations, which are classified as ~~well~~operating leases. In addition to rent, the leases may require Teva to pay directly for fees, insurance, maintenance and other operating expenses. Rental expense for the three months ended March 31, 2018 and the 12 months ended December 31, 2018 was $46 million and $175 million, respectively. The Company also has capital leases for properties.

Leases following the adoption of the new Lease Standard

Teva adopted the new accounting standard ASC 842 “Leases” and all the related amendments on January 1, 2019 and used the effective date as ~~infrequent~~Teva’s date of initial application.

Teva determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC842-10-25-2. If any of these five criteria is met, Teva classifies the lease as a finance lease. Otherwise, Teva classifies the lease as an operating lease. When determining lease classification, Teva’s approach in assessing two of the mentioned criteria is: (i) generally 75% or ~~nonrecurring items.~~more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) generally 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset.

Operating leases are included in operating leaseright-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in the consolidated balance sheets. Finance leases are included in property, plant and equipment, other current liabilities, and other long-term liabilities in the consolidated balance sheets. Finance leases of land include long-term leasehold rights in various locations, with useful lives between 30 and 99 years.

ROU assets represent Teva’s right to use an underlying asset for the lease term and lease liabilities represent Teva’s obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Teva uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of the lease payments.

For finance leases, Teva recognizes interest on the lease liability separately from amortization of the ROU assets in the statement of comprehensive income. For operating leases, lease expenses are recognized on a straight-line basis over the lease term.

The new standard also provides practical expedients for an entity’s ongoing accounting. Teva elected the short-term lease recognition exemption for all leases with a term shorter than 12 months. This means that for those leases, Teva does not recognize ROU assets or lease liabilities, including not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition, but recognizes lease expenses over the lease term on a straight line basis. Teva also elected the practical expedient to not separate lease andnon-lease components for all of Teva’s leases, other than leases of real estate.

Lease terms will include options to extend or terminate the lease when it is reasonably certain that Teva will exercise or not exercise the option to renew or terminate the lease.

Teva’s lease agreements have remaining lease terms ranging from 1 year to 80 years. Some of these agreements include options to extend the leases for up to 15 years and some include options to terminate the leases immediately. Certain leases also include options to purchase the leased property.

The depreciable life of leasehold improvements is limited by the expected lease term, unless there is a transfer of title or a purchase option for the leased asset reasonably certain of exercise.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Some of our vehicle lease agreements include rental payments based on the actual usage of the vehicles and other lease agreements include rental payments adjusted periodically for inflation. Teva’s lease agreements do not contain any material residual value guarantees.

Teva does not believe the new Lease Standard will have a notable impact on its liquidity. The new standard will have no impact on Teva’s debt-covenant compliance under its RCF.

Teva rents out or subleases certain real estate to third parties, which has an immaterial impact on Teva’s consolidated financial statements.

The components of lease cost in the first quarter of 2019 were as follows:


	Three months ended March 31, 2019
	(U.S. $ in millions)
Operating lease cost:	$
Fixed payments and variable payments that depend on an index or rate		42
Variable lease payments not included in the lease liability		2
Short-term lease cost		2

Total operating lease cost	$	46

Supplemental cash flow information related to operating leases was as follows:


	Three months ended March 31, 2019
	(U.S. $ in millions)
Cash paid for amounts included in the measurement of lease liabilities:	$
Operating cash flows from operating leases		39
Right-of-use assets obtained in exchange for lease obligations(non-cash):	$
Operating leases		15

Supplemental balance sheet information related to operating leases was as follows:


	March 31, 2019
	(U.S. $ in millions)
Operating leases:	$
Operating lease ROU assets		517

Other current liabilities		114
Operating lease liabilities		424

Total operating lease liabilities	$	538


	March 31, 2019
Weighted average remaining lease term
Operating leases		7.6 years
Weighted average discount rate
Operating leases		6.1	%

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Maturities of operating lease liabilities were as follows:


	March 31, 2019
	(U.S. $ in millions)
2019 (excluding the three months ended March 31, 2019)	$	108
2020		115
2021		91
2022		71
2023		50
After 2024		253

Total operating lease payments	$	688

Less: imputed interest		150

Present value of lease liabilities	$	538


	December 31, 2018
	December 31, 2018
	(U.S. $ in millions)
2019	$	193
2020		154
2021		118
2022		91
2023		66
After 2024		283

Total lease payments	$	905

As of March 31, 2019, Teva has additional operating leases for office space, which have yet to commence, with undiscounted future payments of $106 million. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 9 to 12 years.

As of March 31, 2019 Teva’s total finance lease assets and finance lease liabilities are $76 million and $26 million, respectively. The difference between those amounts is mainly due to prepaid payments.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a global pharmaceutical company, committed to ~~increasing access to high-quality healthcare to~~helping patients around the ~~world.~~ world to access affordable medicines and benefit from innovations to improve their health. Our mission is to be a global leader in generics, specialty medicines and biopharmaceuticals, improving the lives of patients.

We operate worldwide, with headquarters in Israel and a significant presence in the United States, Europe and many other markets around the world. Our key strengths include our world-leading ~~generics~~generic medicines expertise and portfolio, focused specialty medicines portfolio and global infrastructure and scale.

Teva was incorporated in Israel on February 13, 1944 and is the successor to a number of Israeli corporations, the oldest of which was established in 1901.

~~In November 2017, we announced a new organizational structure and leadership changes to enable strategic alignment across our portfolios, regions and functions.~~ Our Business Segments

We ~~now~~ operate our business through three segments: North America, Europe and ~~Growth~~International Markets. ~~The purpose of the new~~Each business segment manages our entire product portfolio in its region, including generics, specialty medicines and OTC products. This structure ~~is to enable stronger~~enables strong alignment and integration between operations, commercial regions, R&D and our global marketing and portfolio function, ~~in order to optimize~~optimizing our product lifecycle across therapeutic areas. ~~Our financial results for the first quarter of 2018 are being reported under this new structure for the first time.~~

In addition to these three segments, we have other activities, primarily ~~our active pharmaceutical ingredient (“API”) manufacturing business~~the sale of APIs to third parties and certain contract manufacturing services.

~~The data presented in this report for prior periods have been conformed~~In December 2017, we announced a comprehensive restructuring plan intended to ~~reflect~~significantly reduce our cost base, unify and simplify our organization and improve business performance, profitability, cash flow generation and productivity. This plan is intended to reduce our total cost base by $3 billion by the ~~changes to our segment reporting commencing~~end of 2019.

Highlights

Significant highlights in the first quarter of ~~2018.~~

~~Highlights~~

~~Significant highlights of the first quarter of 2018~~2019 included:

Revenues in the first quarter of ~~2018~~2019 were ~~$5.1 billion,~~$4,295 million, a decrease of ~~10%~~15%, or ~~15%~~12% in local currency terms, compared to the first quarter of ~~2017.~~2018, mainly due to generic competition to COPAXONE, as well as declines in revenues from our respiratory products and U.S. generics business.

•

Our North America segment generated revenues of $2.5 billion and profit of $915 million in the first quarter of 2018. Revenues decreased by 22%, mainly due to adverse market dynamics in the U.S. generics market, a decrease in COPAXONE^® revenues due to generic competition and the loss of revenues from the sale of our women’s health business. Profit decreased by 30% mainly due to lower revenues, partially offset by cost reductions as part of the restructuring plan.

Our North America segment generated revenues of $2,047 million and profit of $498 million in the first quarter of 2019. Revenues decreased by 19% compared to the first quarter of 2018, mainly due to a decline in revenues from COPAXONE, our U.S. generics business, as well as certain other specialty products. Profit decreased by 46%, mainly due to lower revenues from COPAXONE, a decline in sales of certain other specialty products and generic products, as well as lower other income.

Our Europe segment generated revenues of ~~$1.4 billion~~$1,264 million and profit of ~~$377 million.~~$403 million in the first quarter of 2019. Revenues ~~increased by 8% but~~ decreased by 6%12%, or 5% in local currency terms, compared to the first quarter of 2018, mainly due to a decline in COPAXONE revenues due to the ~~loss~~entry of ~~revenues from~~competing glatiramer acetate products, the ~~closure~~termination of ~~our distribution business in Hungary~~the PGT joint venture and the sale of our women’s health business, partially offset by new generic product launches. Profit increased by ~~41%. The increase was~~7%, mainly due to ~~higher revenues as well as~~lower cost of goods sold related to the termination of the PGT joint venture, cost reductions and efficiency measures as part of the restructuring plan.

Our ~~Growth~~International Markets segment generated revenues of ~~$750~~$668 million and profit of ~~$122 million.~~$97 million in the first quarter of 2019. Revenues ~~increased~~decreased by 4%11%, ~~flat~~or 3% in local currency ~~terms. Profit increased~~terms, and profit decreased by ~~$82 million,~~20% compared to the first quarter of 2018. The decrease in revenues and profit was mainly due to lower sales in Japan resulting from regulatory pricing reductions and generic competition tooff-patent products, partially offset by higher ~~revenues as well as~~sales in Russia and cost reductions and efficiency measures as part of the restructuring plan.

~~Other~~

Identifiable intangible asset impairments ~~restructuring and other items~~ were ~~$707 million, compared to $240~~$469 million in the first quarter of ~~2017, mainly due to a $432 million impairment of long-lived assets and $247 million restructuring expenses.~~

~~We recorded a goodwill impairment of $180 million, driven by the change in fair value, including the discount rate and the change in allocated net assets, to the Rimsa reporting unit.~~

We recorded income of $1.3 billion under legal settlements and loss contingencies. The income consisted primarily of the working capital adjustment with Allergan, the Rimsa settlement and a reversal of the reserve recorded with respect to the carvedilol patent litigation verdict reversal.

~~Operating income was $1.5 billion in the first quarter of 2018,~~2019, compared to ~~$895~~$206 million in the first quarter of ~~2017,~~2018. The impairment expenses in the first quarter of 2019 were related to IPR&D assets of $265 million and identifiable product rights of $204 million.

Operating income was $134 million in the first quarter of 2019, compared to $1,525 million in the first quarter of 2018. The decrease in operating income was mainly due to income ~~in connection with~~from legal settlements ~~partially offset by other asset impairments, restructuring~~ and ~~other items, a goodwill impairment and lower operating income~~loss contingencies in ~~our North America segment.~~the first quarter of 2018.

Exchange rate movements between the first quarter of ~~2018~~2019 and the first quarter of ~~2017 positively~~2018 negatively impacted ~~overall~~ revenues by ~~$240~~$177 million and operating income by ~~$37~~$49 million.

~~Our~~

As of March 31, 2019, our debt ~~decreased by $1.7 billion,~~was $28,624 million, compared to $28,916 million as of December 31, 2018. The decrease was mainly due to ~~$6.5 billion of prepayments of certain term loans and senior notes, partially offset by our March 2018 issuance of $4.4 billion of senior notes~~favorable exchange rates, as well as ~~foreign exchange fluctuations.~~the repurchase and cancellation of $126 million of our $1,700 million 1.7% senior notes due July 2019.

Cash flow generated from operating activities was ~~$1.5 billion~~$112 million in the first quarter of 2019, compared to $1,496 million in the first quarter of 2018. The higher cash flow in the first quarter of 2018 ~~compared to $0.1 billion in the first quarter of 2017,~~was mainly due to the proceeds from the working capital adjustment with Allergan and the legal settlement with Rimsa.

~~Transactions~~

~~On January 31, 2018, we completed~~ In addition, the ~~sale~~lower cash flow in the first quarter of 2019 was mainly due to lower revenues from COPAXONE, as well as a ~~portfolio~~decline in sales of ~~products to CVC Capital Partners Fund VI for $703 million in cash. The portfolio of products, which is marketed and sold outside of the United States, includes the women’s health products OVALEAP~~^®~~, ZOELY~~^®~~, SEASONIQUE~~^®~~, COLPOTROPHINE~~^® ~~and~~certain other specialty products ~~such as ACTONEL~~^®.

~~In April 2018, we signed a separation agreement with P&G~~and generic products and performance incentive payments to terminate the PGT Healthcare partnership that the two companies established in 2011 to market OTC medicines. We will continue to maintain our OTC business on an independent basis. The separation is planned to become effective July 1, 2018, subject to receipt of applicable regulatory approvals. As part of the separation, we will transfer shares we hold in New Chapter Inc. and ownership rights in an OTC plant located in India to P&G. We will continue to provide certain services to P&G after the separationemployees for ~~a transition period.~~2018.

Results of Operations

Comparison of Three Months Ended March 31, ~~2018~~2019 to Three Months Ended March 31, ~~2017~~2018

The following table sets forth, for the periods indicated, certain financial data derived from our ~~U.S. GAAP~~ financial ~~statements.~~statements:


	Percentage of Net Revenues						Percentage Change 2018 - 2017
	Three Months Ended March 31,									Percentage of Net Revenues Three Months Ended March 31,						Percentage Change
	2018			2017						2019			2018			2019 - 2018
	%			%			%			%			%			%
Net revenues		100.0			100.0			(10	)		100			100			(15	)
Gross profit		46.4			50.2			(17	)		43			46			(20	)
Research and development expenses		6.3			7.6			(27	)		6			6			(18	)
Selling and marketing expenses		15.2			17.0			(20	)		15			15			(12	)
General and administrative expenses		6.5			6.5			(10	)		7			6			(11	)
Other asset impairments, restructuring and other items		14.0			4.2			195
Intangible assets impairment											11			4			127
Goodwill impairment		3.6			—			§			—			4			(100	)
Other assets impairments, restructuring and other items											§			10			(100	)
Legal settlements and loss contingencies		(25.2	)		0.4			—			1			(25	)		—
Other income		(4.0	)		(1.3	)		182			§			(4	)		—
Operating income		30.0			15.8			70			3			30			(91	)
Financial expenses, net		5.4			3.7			31			5			5			(19	)
Income before income taxes		24.6			12.1			82
Income taxes (benefit)		0.9			1.0			(15	)
Share in (profits) losses of associated companies, net		1.4			(0.1	)		—
Income (loss) before income taxes											(2	)		25			—
Income taxes											§			1			(80	)
Share in losses of associated companies, net											§			1			(95	)
Net income attributable tonon-controlling interests		0.3			(0.1	)		—			§			§			(44	)
Net income attributable to Teva		22.0			11.3			74
Net income (loss) attributable to Teva											(2	)		22			—
Dividends on preferred shares		1.3			1.2			§			—			1			(100	)
Net income attributable to ordinary shareholders		20.7			10.1			82
Net income (loss) attributable to ordinary shareholders											(2	)		21			—

§	Represents an amount less than 0.5%.

Segment Information

North America Segment

The following table presents revenues, expenses and profit for our North America segment for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended March 31,										2019					2018
	2018					2017					(U.S.$ in millions / % of Segment Revenues)
	(U.S.$ in millions / % of Segment Revenues)										Three months ended March 31,
Revenues	$	2,531		100	%	$	3,240		100	%		2,047		100	%		2,531		100.0	%
Gross profit		1,432		57	%		2,080		64	%		1,039		50.8	%		1,403		55.5	%
R&D expenses		188		8	%		267		8	%		165		8.1	%		188		7.4	%
S&M expenses		305		12	%		441		14	%		268		13.1	%		276		10.9	%
G&A expenses		126		5	%		139		4	%		112		5.5	%		126		5.0	%
Other income		(102	)	(4	%)		(73	)	(2	%)		(4	)	§			(102	)	(4.0	%)

Segment profit*	$	915		36	%	$	1,306		40	%		498		24.3	%		915		36.2	%

Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “Teva Consolidated Results—Operating Income” below.

§	Represents an amount less than 0.5%.

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the first quarter of ~~2018~~2019 were ~~$2.5 billion,~~$2,047 million, a decrease of ~~$709~~$484 million, or ~~22%~~19%, compared to the first quarter of ~~2017,~~2018, mainly due to ~~adverse market dynamics in the U.S. generics market,~~ a decline in revenues of COPAXONE, ~~revenues due to generic competition~~our U.S. generics business, BENDEKA^® / TREANDA^® and ~~the loss of revenues from the sale of our women’s health business,~~QVAR^®, partially offset by higher revenues from our Anda business, AUSTEDO ~~BENDEKA~~ and ~~TREANDA, QVAR and our distribution business.~~

~~Revenues in the United States, our largest market, were $2.4 billion in the first quarter of 2018, a decrease of $719 million, or 23%, compared to the first quarter of 2017.~~AJOVY.

Revenues by Major Products and Activities

The following table presents revenues for our North America segment by major products and activities for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

   Three months ended
March 31,    Percentage
Change
   2018    2017    2017-2018
   (U.S.$ in millions)
Generic products
   $ 1,088    $ 1,415    (23 %)
COPAXONE
   476    797    (40 %)
BENDEKA / TREANDA
   181    156    16 %
ProAir
   130    121    7 %
QVAR
   107    84    27 %
AUSTEDO
   30    —      N/A
Distribution
   331    295    12 %

   Three months ended
March 31,
Percentage
Change

   2019    2018    2019-2018
   (U.S.$ in millions)
Generic products
   $ 966    $ 1,088    (11 %)
COPAXONE
   208    476    (56 %)
BENDEKA / TREANDA
   122    181    (33 %)
ProAir
   59    130    (55 %)
QVAR
   64    107    (41 %)
AJOVY
   20    —      NA
AUSTEDO
   74    30    151 %
Anda
   379    331    14 %
Other
   155    188    (18 %)
Total
   $ 2,047    $ 2,531    (19 %)

Generic products revenues in our North America segment in the first quarter of ~~2018~~2019 decreased by ~~23%~~11% to ~~$1.1 billion,~~$966 million, compared to the first quarter of ~~2017,~~2018, mainly due to ~~lower volumes~~market dynamics, price erosion in our U.S. generics business and ~~continued price erosion.~~portfolio optimization, partially offset by new generic product launches.

Among the most significant generic products we sold in North America in the first quarter of ~~2018~~2019 were ~~methylphenidate extended-release tablets (Concerta~~albuterol sulfate inhalation aerosol (ProAir^® HFA authorized ~~generic), sildenafil citrate tablets (the~~ generic ~~equivalent~~ of ~~Viagra~~^®)Teva’s specialty product), daptomycin injection (the generic equivalent of Cubicin^®), amphetamine salt tablets (the generic equivalent of Adderall IR^®), methylphenidate extended-release tablets (Concerta^® authorized generic) and ~~estradiol vaginal cream~~lidocaine transdermal patch (the generic equivalent of ~~Estrace~~Lidoderm Patch^®).

In the first quarter of ~~2018,~~2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~584~~436 million total prescriptions (based on trailing twelve months), representing ~~15%~~12% of total U.S. generic prescriptions according to IQVIA data.

COPAXONE^® revenues in our North America segment in the first quarter of ~~2018~~2019 decreased by ~~40%~~56% to ~~$476~~$208 million, compared to the first quarter of ~~2017,~~2018, mainly due to generic competition in the United States.

COPAXONE revenues in the United States were ~~$462~~$194 million in the first quarter of ~~2018.~~2019.

Revenues of COPAXONE in our North America segment were ~~74%~~62% of global COPAXONE revenues in the first quarter of ~~2018,~~2019, compared to ~~82%~~74% in the first quarter of ~~2017.~~2018.

COPAXONE global sales accounted for approximately ~~13%~~8% of our global revenues in the first quarter of ~~2018~~2019 and a significantly higher percentage of our profits and cash flow from operations during this period.

The FDA approved generic versions of COPAXONE 40 mg/mL in October 2017 and February 2018 and a second generic version of COPAXONE 20 mg/mL in October ~~2017.~~2017 in the United States. Hybrid versions of COPAXONE 20 mg/mL and 40 mg/mL were also approved in the European Union.

~~COPAXONE 40 mg/mL is protected by five~~On October 12, 2018, the U.S. ~~Orange Book patents that expire in 2030. These patents have been challenged in proceedings~~Court of Appeals for the Federal Circuit (“CAFC”) handed down its ruling in the ~~United States. We are appealing certain adverse~~consolidated appeal of decisions from the U.S. District Court and Patent Trial and Appeal Board, ~~decisions~~relating to ~~defend these~~ patents ~~in the United States. At least one competitor has fully launched its generic version of~~covering COPAXONE 40 mg/~~mL. This launch, prior~~ml. The CAFC found all claims at issue to ~~final resolution of the pending patent litigation, should~~ be ~~considered an “at-risk” launch, which means that if the pending litigation is resolved in~~invalid and we are currently evaluating our ~~favor, the company selling this generic product could face significant damages claims and other potential remedies.~~options for further appeals. COPAXONE 40 mg/mL is ~~also~~ protected by one European patent expiring in 2030. This patent is being challenged in Italy and ~~Norway and has been opposed at~~Norway. The patent was upheld by the Opposition Division of the European Patent ~~Office. The~~Office in April 2019. In October 2017, the U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected.

The market for MS treatments continues to develop, particularly with the recent approvals of generic versions of COPAXONE discussed above, as well as additional generic versions expected to be approved in the future. ~~The increasing number of oral~~Oral treatments for MS, such as Tecfidera^®, Gilenya^® and Aubagio^®, ~~continues~~continue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies.

BENDEKAand TREANDA combined revenues in our North America segment in the first quarter of ~~2018 increased~~2019 decreased by ~~16%~~33% to ~~$181~~$122 million, compared to the first quarter of ~~2017,~~2018, mainly due to ~~higher~~lower volumes and lower pricing, resulting partly from ~~supply stabilization.~~the June 2018 launch of aready-to-dilute bendamustine hydrochloride by Eagle Pharmaceuticals, Inc. (“Eagle”). In July 2018, our partner, Eagle, prevailed in its suit in the U.S. district court against the FDA to obtain seven years of orphan drug exclusivity in the United States for BENDEKA. The FDA has appealed the district court’s decision, but barring a reversal by the appellate court, drug applications referencing BENDEKA, TREANDA or any other bendamustine product will not be approved by the FDA until the orphan drug exclusivity expires in December 2022. In April 2019, we signed an amendment to the license agreement with Eagle extending the royalty term applicable to the U.S. to the full period for which we sell BENDEKA and increasing the royalty rate. In addition, Eagle agreed to assume a portion of BENDEKA-related patent litigation expenses.

ProAir revenues in our North America segment in the first quarter of ~~2018 increased~~2019 decreased by 7%55% to ~~$130~~$59 million, compared to the first quarter of ~~2017,~~2018, mainly due to ~~higher volumes.~~lower volumes as well as lower net pricing. In January 2019, we launched our own ProAir authorized generic in the United States following the launch of a generic version of Ventolin^®HFA, another albuterol inhaler. Revenues from our ProAir HFA authorized generic are included in “generic products” above. ProAir is the second-largest short-acting beta-agonist in the market, with an exit market share of ~~46.1%~~28.9% in terms of total number of prescriptions during the first quarter of ~~2018,~~2019, compared to ~~47.7%~~46.1% in the first quarter of ~~2017.~~2018. In the first quarter of 2019, the exit market share of our ProAir HFA authorized generic was 17.6%. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo Pharmaceuticals (“Perrigo”) permitting Perrigo to launch its generic product in limited quantities once it receives FDA approval and without quantity limitations after June 2018. In November 2017, we settled another patent challenge to ProAir HFA with Lupin Pharmaceuticals, Inc. (“Lupin”), et al. permitting Lupin to launch its generic product on September 23, 2019, or earlier under certain circumstances. To date, no generic competition has been launched.

QVARrevenues in our North America segment in the first quarter of ~~2018 increased~~2019 decreased by ~~27%~~41% to ~~$107~~$64 million, compared to the first quarter of ~~2017. We launched QVAR~~^® ~~RediHaler~~^™ ~~in the first quarter of~~ 2018. The ~~increase~~decrease in sales in the first quarter of ~~2018~~2019 was mainly due to ~~slightly~~ higher ~~wholesaler stocking for all QVAR family products~~than normal volumes during the first quarter of 2018 in connection with the ~~launch.~~launch of QVAR^® RediHaler^™ and lower net pricing. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of ~~29.4%~~21.1% in terms of total number of prescriptions during the first quarter of ~~2018,~~2019, compared to ~~38.1%~~29.4% in the first quarter of ~~2017.~~2018.

AJOVY revenues in our North America segment in thefirst quarter of 2019 were $20 million. AJOVY was approved by the FDA and launched in the United States in September 2018 for the preventive treatment of migraine in adults. In April 2019, the European Medicines Agency (“EMA”) granted a Marketing Authorization for AJOVY in the European Union in a centralized process.

On May 12, 2017, we entered into a license and collaboration agreement with Otsuka Pharmaceutical Co., Ltd. (“Otsuka”) providing Otsuka with an exclusive license to conduct phase 2 and 3 clinical trials for AJOVY in Japan and, once approved, to commercialize the product in Japan.

AJOVY is protected by patents expiring in 2026 in Europe and in 2027 in the United States, with possibility for extension in various markets. An additional patent relating to the use of AJOVY in the treatment of migraine is issued in the United States and will expire in 2035. This patent is also pending in other countries. AJOVY will also be protected by regulatory exclusivity for 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

We have filed a lawsuit in the United States District Court for the District of Massachusetts alleging that Eli Lilly & Co.’s (“Lilly”) marketing and sale of its galcanezumab product for the treatment of migraine infringes nine Teva patents. Lilly has also submitted IPR (inter partes review) petitions to the Patent Trial and Appeal Board, challenging the validity of the nine patents asserted against it in the litigation. In addition, we have entered into separate agreements with Alder Biopharmaceuticals and Lilly, resolving the European Patent Office oppositions that they filed against our AJOVY patents. The settlement agreement with Lilly also resolved Lilly’s action to revoke the patent protecting AJOVY in the U.K.

AUSTEDOrevenues in our North America segment in the first quarter of ~~2018~~2019 were $74 million, compared to $30 ~~million.~~ million in the first quarter of 2018.

AUSTEDO was approved by the FDA and launched in April 2017 in the United States for the treatment of chorea associated with Huntington disease. In August 2017, the FDA approved AUSTEDO for the treatment of tardive dyskinesia.

~~Distribution~~Anda revenues in our North America segment ~~which are generated by Anda,~~ increased by ~~12%~~14% to ~~$331~~$379 million in the first quarter of ~~2018,~~2019, compared to the first quarter of ~~2017,~~2018, mainly due to ~~the severe cold, cough and influenza season~~higher volumes. Anda, our distribution business in the ~~first quarter of 2018, which increased demand for certain medicines. Our Anda business~~United States, distributes generic, specialty and OTC pharmaceutical products from various third party manufacturers to independent retail pharmacies, pharmacy retail chains, hospitals and physician offices in the United States. Anda is able to compete in the secondary distribution market by maintaining high inventory levels for a broad offering of products, competitive pricing and offering next day delivery throughout the United ~~States and competitive pricing.~~States.

Product Launches and Pipeline

In the first quarter of ~~2018,~~2019, we launched the generic ~~versions~~version of the following branded products in North ~~America (listed by month of launch):~~America:

Product Name

Brand Name

Launch
Date
   Total Annual U.S.
Branded Sales at Time
of Launch
(U.S.$ in millions (IQVIA))*
Estradiol Vaginal Cream, USP, 0.01%
   Estrace^®    January    $ 304
Methylphenidate Hydrochloride Extended-Release Capsules (LA), CII 20 mg, 30 mg & 40 mg
   Ritalin LA^® ER    January    $ 97
Busulfan Injection 6 mg/mL, 60 mg
   Busulfex^®    January    $ 86
Trientine Hydrochloride Capsules, USP 250 mg
   Syprine^®    February    $ 147
Hydrocortisone Butyrate Cream USP, 0.1% (Lipophilic)
   Locoid Lipocream^®    February    $ 6
Minocycline Hydrochloride Extended-Release Tablets, USP 65 mg & 115 mg
   Solodyn^® ER    February    $ 148
Lansoprazole Delayed-Release Orally Disintegrating Tablets 15 mg & 30 mg
   Prevacid^® SoluTab^™ DR ODT    March    $ 184
Tiagabine Hydrochloride Tablets 12 mg & 16 mg **
   Gabitril^®    March    $ 9
Palonosetron Hydrochloride Injection 0.05 mg/mL, 0.25 mg
   Aloxi^®    March    $ 452
Mesalamine Delayed-Release Tablets, USP 1.2 g
   Lialda^® DR    March    $ 1,128

Product Name

Brand Name

Launch
Date

Total Annual U.S.
Branded Sales at Time
of Launch
(U.S.$ in millions
(IQVIA))^*

Vardenafil hydrochloride tablets, 2.5 mg, 5 mg, 10 mg & 20 mg

Levitra

^®

January

Albuterol sulfate HFA inhalation aerosol with dose counter, 90 mcg**

ProAir

^®

January

1,497

Vigabatrin tablets, USP, 500 mg

Sabril

^®

February

183

ALYQ^TM (tadalafil tablets), USP, 20 mg

Adcirca

^®

February

475

Ketoconazole cream, 2%***

Nizoral

^®

February

Clindamycin phosphate and benzoyl peroxide gel, 1.2%/2.5%

Acanya

^®

February

Minocycline hydrochloride extended-release tablets, USP, 80 mg & 105 mg

Solodyn

^®
ER

February

173

Diclofenac epolamine topical patch, 1.3%

Flector

^®

March

123

Cyclobenzaprine hydrochloride extended-release capsules, 15 mg & 30 mg**

Amrix

^®

March

Deferasirox tablets, 125 mg, 250 mg & 500 mg

Exjade

^®

March

134

Methylergonovine maleate tablets, USP, .2 mg

Methergine

^®

March

Docosanol cream, 10%

Abreva

^®

March

*	The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch orre-launch.

**	Authorized generic ~~version~~ of a Teva specialty product.

***	Product wasre-launched.

Our generic products pipeline in the United States includes, as of March 31, ~~2018, 325~~2019, 284 product applications awaiting FDA approval, including 8693 tentative approvals. This total reflects all pending ANDAs, supplements for product line extensions and tentatively approved applications and includes some instances where more than one application was submitted for the same reference product. Excluding overlaps, the branded products underlying these pending applications had U.S. sales for the twelve months ended December 31, ~~2017~~2018 exceeding ~~$111~~$117 billion, according to IQVIA. Approximately 70% of pending applications include a paragraph IV patent challenge and we believe we are first to file with respect to ~~110~~105 of these products, or ~~129~~128 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$63~~$75 billion in U.S. brand sales for the twelve months ended December 31, ~~2017,~~2018, according to IQVIA.

IQVIA reported brand sales are one of the many indicators of future potential value of a launch, but equally important are the mix and timing of competition, as well as cost effectiveness. The potential advantages of being the first filer with respect to some of these products may be subject to forfeiture, shared exclusivity or competition fromso-called “authorized generics,” which may ultimately affect the value derived.

In the first quarter of ~~2018,~~2019, we received tentative approvals for generic equivalents of the products listed in the table below, excluding overlapping applications. A “tentative approval” indicates that the FDA has substantially completed its review of an application and final approval is expected once the relevant patent expires, a court decision is reached, a30-month regulatory stay lapses or a180-day exclusivity period awarded to another manufacturer either expires or is forfeited.

Generic Name
   Brand Name Total U.S. Annual Branded
Market (U.S. $ in millions (IQVIA))*
Eltrombopag tablets, 12.5 mg, 25 mg & 75 mg
   Promacta^® $ 200
Esomeprazole magnesium delayed-release capsules, 20 mg
   Nexium^® DR $ 85
Ingenol mebutate gel, 0.05%
   Picato^® $ 17
Nicotine polacrilex mini mint lozenges, 2 mg & 4 mg
   Nicorette^® $ 68
Perampanel tablets, 2 mg, 4 mg, 6 mg, 8 mg & 10 mg
   Fycompa^® $ 68
Rotigotine transdermal system, 1 mg/24 hr, 2 mg/24 hr, 3 mg/24 hr, 4 mg/24 hr, 6 mg/24 hr & 8 mg/24 hr
   Neupro^® $ 143
Ticagrelor tablets, 60 mg & 90 mg
   Brilinta^® $ 712
Generic Name
   Brand Name Total U.S. Annual Branded
Market (U.S. $
in millions (IQVIA))*
Dapagliflozin tablets, 5 mg
   Farxiga ^® $ 1,688
Enzalutamide capsules, 40 mg
   Xtandi ^® $   999
Everolimus tablets, 2.5 mg, 5 mg, 7.5 mg & 10 mg
   Afinitor ^® $   770

*	For the twelve months ended in the calendar quarter immediately prior to the receipt of tentative approval.

~~In the first quarter~~

Below is a description of ~~2018,~~key products in our specialty pipeline ~~in North America consisted~~as of ~~the following products:~~March 31, 2019:

~~Therapeutic Area~~

Product

Potential
Indication(s)

Route of

Administration

~~Route of~~
~~Administration~~

Development Phase

(date entered phase 3)

Comments

~~neurology~~CNS, Neurology and ~~neuropsychiatry~~Neuropsychiatry

AUSTEDO
(deutetrabenazine)

Tourette syndrome

Oral

3 (December 2017)

~~Laquinimod~~Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to develop AUSTEDO for the treatment of tics associated with Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and be responsible for commercialization.

~~Relapsing remitting multiple sclerosis~~Dyskinesia in cerebral palsy

Oral

~~Discontinued~~3 (January 2019)

~~Progressive forms of multiple sclerosis~~

~~Oral~~

~~Discontinued~~

~~Huntington disease~~

~~Oral~~

~~Pridopidine~~

~~Huntington disease~~

~~Oral~~

~~Discontinued due to pipeline prioritization~~

TV-46000 (risperidone
LAI)

Schizophrenia

LAI

3 (April 2018)

Migraine and Pain

~~Fremanezumab (anti~~
~~CGRP)~~

~~Chronic and episodic migraine~~

~~Subcutaneous~~

~~Submitted to FDA (October 2017)~~⁽¹⁾

~~Cluster~~

fremanezumab (anti CGRP)

Episodic

cluster headache

Subcutaneous

3 (November 2016)

Discontinued in April 2019, after a futility analysis of the phase 3 study showed that the primary endpoint is unlikely to be met.

Post traumatic
headache

Subcutaneous

Fasinumab⁽²⁾

A fully human monoclonal antibody that targets NGF, a protein that plays a central role in the regulation of pain signaling. There is evidence that NGF levels are elevated in patients with chronic pain conditions.

Osteoarthritis pain

Subcutaneous

3 (March 2016)

Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”).

In August 2018, Regeneron and Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the knee or hip with the remaining low dose 1mg every month (1mg4W) and 1mg every two months (1mg8W).

Fasinumab is protected by patents expiring in 2028 and will also be protected by regulatory exclusivity of 12 years from marketing approval in the United States and 10 years from marketing approval in Europe.

Chronic lower
back pain

Subcutaneous

~~TV-45070~~3 (December 2017)

~~Neuropathic pain~~

Respiratory

~~Topical~~

~~Partnership with Xenon terminated by mutual agreement~~

~~Respiratory~~

CINQAIR/
CINQAERO

Severe asthma with

eosinophilia

Subcutaneous

3 (August 2015)

In January 2018, we announced that the phase 3 study did not meet its primary endpoint. We are reviewing the full data to determine next steps.

ProAire-RespiClick^™

Bronchospasm and exercise induced bronchitis

Oral
inhalation

Submitted to FDA ~~(September~~
(September 2017)

~~Oncology~~

Resubmitted to
FDA (August
2018)

Following feedback from the FDA, changes in application were implemented resulting in a~~CT-P10~~re-submission of the supplemental NDA to the FDA on August 30, 2018.

Oncology

Truxima (formerlyCT-P10)⁽³⁾

(biosimilar ~~candidate~~ to
Rituxan^® US)

~~Submitted to~~Approved by FDA ~~(2017)~~
(November 2018)

Approved in
Canada (April
2019)

Herzuma (formerly~~CT-P6~~CT-P06)⁽³⁾

(biosimilar ~~candidate~~ to
Herceptin^® US)

~~Submitted to~~ Approved by
FDA ~~(2017)~~(December
2018)

~~(1)~~

~~We do not expect to receive FDA approval on our Biologics License Applications (“BLA”) for fremanezumab on themid-June~~ ~~PDUFA date. We are engaged in a constructive dialogue with the FDA in close collaboration with our partner Celltrion, Inc. (“Celltrion”). We expect an FDApre-approval~~ ~~inspection to take place in the coming months and to receive FDA approval and launch before the end of 2018.~~

~~(2)~~

Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). Regeneron recently reported that an independent Data Monitoring Committee monitoring the ongoing safety and efficacy of the fasinumab clinical trials recommended that the higher dose-regimens be discontinued based on the risk benefit assessment, and that the program may continue with the lower dose-regimens of fasinumab. We understand that Regeneron is modifying the trials accordingly.

~~(3)~~

Developed under collaboration agreement with Celltrion. During the first quarter of 2018, Celltrion received complete response letters from the FDA regarding the BLAs for these biosimilar products. Celltrion is working on resolving all issues and resubmitting the BLAs.

North America Gross Profit

Gross profit from our North America segment in the first quarter of ~~2018~~2019 was ~~$1.4 billion,~~$1,039 million, a decrease of ~~31%~~26% compared to ~~$2.1 billion~~$1,403 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues from COPAXONE, as well as a decline in sales of certain other specialty products and generic products, ~~revenues.~~partially offset by increases in sales of AUSTEDO and AJOVY.

Gross profit margin for our North America segment in the first quarter of ~~2018~~2019 decreased to ~~56.6% from 64.2%~~50.8%, compared to 55.5% in the first quarter of ~~2017. This~~2018. The decrease was mainly due to lower revenues from COPAXONE ~~revenues (4.0 points)~~ and ~~continued price erosion of~~certain other specialty products, partially offset by generic products ~~(3.0 points).~~and Anda.

North America R&D Expenses

R&D expenses relating to our North America segment in the first quarter of ~~2018~~2019 were ~~$188~~$165 million, a decrease of ~~30%~~12% compared to ~~$267~~$188 million in the first quarter of ~~2017.~~2018.

For a description of our R&D expenses in the first quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

North America S&M Expenses

S&M expenses relating to our North America segment in the first quarter of ~~2018~~2019 were ~~$305~~$268 million, a decrease of ~~31%~~3% compared to ~~$441~~$276 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

North America G&A Expenses

G&A expenses relating to our North America segment in the first quarter of ~~2018~~2019 were ~~$126~~$112 million, a decrease of 9%11% compared to ~~$139~~$126 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

North America Other Income

Other income from our North America segment in the first quarter of ~~2018~~2019 was ~~$102~~$4 million, ~~an increase of 40%~~ compared to ~~$73~~$102 million in the first quarter of ~~2017.~~2018. The ~~increase~~higher other income in the first quarter of 2018 was mainly due to ~~higher~~ Section 8 recoveries from multiple cases in Canada. ~~Section 8 of the Patented Medicines (Notice of Compliance) Regulations relates to recoveries of lost revenue related to patent infringement proceedings.~~

North America Profit

Profit from our North America segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “Teva Consolidated Results—Operating Income” below.

Profit from our North America segment in the first quarter of ~~2018~~2019 was ~~$915~~$498 million, a decrease of ~~30%~~46% compared to ~~$1.3 billion~~$915 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues ~~due to~~from COPAXONE, as well as a decline in sales of certain other specialty products and generic ~~competition for COPAXONE~~products and ~~continued price erosion in the U.S. generics market,~~lower other income, partially offset by cost reductions and efficiency measures as part of the restructuring ~~plan and higher other income.~~plan.

Europe Segment

The following table presents revenues, expenses and profit for our Europe segment for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended March 31,										Three months ended March 31,
	2018					2017					2019					2018
	(U.S.$ in millions / % of Segment Revenues)										(U.S.$ in millions / % of Segment Revenues)
Revenues	$	1,442		100	%	$	1,341		100	%		1,264		100	%		1,442	100	%
Gross profit		797		55	%		734		55	%		730		57.8	%		792	55.0	%
R&D expenses		73		5	%		106		8	%		66		5.2	%		73	5.1	%
S&M expenses		255		18	%		279		21	%		215		17.0	%		250	17.4	%
G&A expenses		91		6	%		79		6	%		48		3.8	%		91	6.3	%
Other expenses		1	§				2	§
Other income												(1	)	§			1	§

Segment profit*	$	377		26	%		268		20	%		403		31.9	%		377	26.1	%

§	Represents an amount less than 0.5%.

Europe Revenues

Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the first quarter of ~~2018~~2019 were ~~$1.4 billion, an increase~~$1,264 million, a decrease of 8%12%, or ~~$101~~$178 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues decreased by 6%5%, mainly due to a decline in COPAXONE revenues due to the ~~loss~~entry of ~~revenues from~~competing glatiramer acetate products, the ~~closure~~termination of ~~our distribution business in Hungary~~the PGT joint venture and the sale of our women’s health business, partially offset by new generic product launches.

Revenues by Major Products and Activities

The following table presents revenues for our Europe segment by major products and activities for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended				Percentage
	March 31,				Change			Three months ended March 31,				Percentage Change
	2018		2017		2017-2018			2019		2018		2018-2019
	(U.S.$ in millions)							(U.S.$ in millions)
Generic products	$	997	$	850		17	%	$	919	$	997		(8	%)
COPAXONE		153		152		1	%		114		153		(26	%)
Respiratory products		113		84		35	%		91		113		(19	%)
Other									140		179		(22	%)
Total								$	1,264	$	1,442		(12	%)

Generic products revenues in our Europe segment in the first quarter of ~~2018,~~2019, including OTC products, ~~increased~~decreased by ~~17%~~8% to ~~$997~~$919 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased by 2%,~~were flat compared to the first quarter of 2018, mainly due to ~~new product launches and volume growth in OTC,~~the loss of revenues from the termination of the PGT joint venture, partially offset by ~~price reductions.~~new generic product launches.

COPAXONE revenues in our Europe segment in the first quarter of ~~2018 increased~~2019 decreased by 1%26% to ~~$153~~$114 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues decreased by ~~13%~~20%, mainly due to price reductions resulting from the entry of ~~generic competition.~~competing glatiramer acetate products.

Revenues of COPAXONE in our Europe segment were ~~24%~~34% of global COPAXONE revenues in the first quarter of ~~2018,~~2019, compared to ~~16%~~24% in the first quarter of ~~2017.~~2018.

For further information onabout COPAXONE, see “—North America Revenues—Revenues by Major Product” above.

Respiratory products revenues in our Europe segment in the first quarter of ~~2018 increased~~2019 decreased by ~~35%~~19% to ~~$113~~$91 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased~~decreased by ~~18%~~13%, mainly due to lower volumes in the ~~launch of BRALTUS~~^® ~~in 2017.~~U.K.

Product Launches and Pipeline

As of March 31, ~~2018,~~2019, our generic products pipeline in Europe included ~~234~~191 generic approvals ~~in Europe~~ relating to 4635 compounds in 9562 formulations, and approximately ~~1,503~~1,291 marketing authorization applications pending approval in 37 European countries, relating to ~~183~~150 compounds in ~~364~~315 formulations, including ~~one application~~two applications pending with the EMA for one strength in 30 countries.

For information regarding our specialty pipeline and launches in the first quarter of ~~2018,~~2019, see “—North America ~~Segment—Product~~Segment —Product Launches and Pipeline.”

Europe Gross Profit

Gross profit from our Europe segment in the first quarter of ~~2018~~2019 was ~~$797~~$730 million, ~~an increase~~a decrease of 9%8% compared to ~~$734~~$792 million in the first quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to ~~the positive impact of currency fluctuations, partially offset by~~a decline in COPAXONE revenues, the loss of revenues from the sale of our women’s health ~~business.~~business and the impact of currency fluctuations, partially offset by new generic product launches and lower cost of goods sold.

Gross profit margin for our Europe segment in the first quarter of ~~2018~~2019 increased to ~~55.3%~~57.8%, ~~from 54.7%~~compared to 55.0% in the first quarter of ~~2017. This~~2018. The increase was mainly due to lower cost of goods sold related to the ~~closure~~termination of ~~our distribution business in Hungary (1.6 points), partially offset by other production costs (1.0 points).~~the PGT joint venture.

Europe R&D Expenses

R&D expenses relating to our Europe segment in the first quarter of ~~2018~~2019 were ~~$73~~$66 million, a decrease of ~~31%~~10% compared to ~~$106~~$73 million in the first quarter of ~~2017.~~2018.

For a description of our R&D expenses in the first quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

Europe S&M Expenses

S&M expenses relating to our Europe segment in the first quarter of ~~2018~~2019 were ~~$255~~$215 million, a decrease of 9%14% compared to ~~$279~~$250 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions as part of the restructuring ~~plan, partially offset by currency fluctuations.~~plan.

Europe G&A Expenses

G&A expenses relating to our Europe segment in the first quarter of ~~2018~~2019 were ~~$91~~$48 million, ~~an increase~~a decrease of ~~15%~~47% compared to ~~$79~~$91 million in the first quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to ~~currency fluctuations, partially offset by~~ cost reductions and efficiency measures as part of the restructuring plan.

Europe Profit

~~The profit~~Profit of our Europe segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

Profit from our Europe segment in the first quarter of ~~2018~~2019 was ~~$377~~$403 million, an increase of ~~41%~~7% compared to ~~$268~~$377 million in the first quarter of ~~2017.~~2018. The increase was mainly due to ~~higher revenues as well as~~lower cost of goods sold related to the termination of the PGT joint venture and cost reductions and efficiency measures as part of the restructuring plan.

~~Growth~~International Markets Segment

The following table presents revenues, expenses and profit for our ~~Growth~~International Markets segment for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended March 31,											Three months ended March 31,
	2018					2017						2019					2018
	(U.S.$ in millions / % of Segment Revenues)											(U.S.$ in millions / % of Segment Revenues)
Revenues	$	750		100	%	$	718			100	%		668		100	%		750		100	%
Gross profit		313		42	%		292			41	%		269		40.3	%		313		41.8	%
R&D expenses		24		4	%		47			7	%		22		3.3	%		24		3.2	%
S&M expenses		134		18	%		158			22	%		115		17.2	%		134		17.9	%
G&A expenses		41		5	%		48			7	%		36		5.3	%		41		5.5	%
Other income		(8	)	(1	%)		(1	)	§				(0	)	§			(8	)	(1.1	%)

Segment profit*	$	122		16	%	$	40			6	%		97		14.5	%		122		16.3	%

Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

§	Represents an amount less than 0.5%.

~~Growth~~International Markets Revenues

Our ~~Growth~~International Markets segment includes all countries other than those in our North America and Europe segments. Our key ~~growth~~international markets are Israel, Japan ~~Russia~~ and ~~Israel.~~Russia. The countries in this category range from highly regulated, pure generic markets, such as Israel, to hybrid markets, such as Japan, to branded generics oriented markets, such as Russia and certain Commonwealth of Independent States (CIS), Latin American and Asia Pacific markets.

Revenues from our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 were ~~$750~~$668 million, ~~an increase~~a decrease of ~~$32~~$82 million, or 4%11%, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues ~~were flat~~decreased 3% compared to the first quarter of ~~2017,~~2018, mainly due to lower sales in Japan, partially offset by higher sales in ~~Israel, Japan and Russia, partially offset by the effect of the deconsolidation of our subsidiaries in Venezuela and the loss of revenues from the sale of our women’s health business.~~Russia.

Revenues by Major Products and Activities

The following table presents revenues for our ~~Growth~~International Markets segment by major products and activities for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:

   Three months ended    Percentage
   March 31,    Change
   2018    2017    2017-2018
   (U.S.$ in millions)
Generic products
   $ 488    $ 486    §
COPAXONE
   16    21    (24 %)
Distribution
   153    125    22 %

§	~~Represents an amount less than 0.5%.~~

   Three months ended
March 31,
Percentage
Change

   2019    2018    2018-2019
   (U.S.$ in millions)
Generic products
   $ 441    $ 488    (10 %)
COPAXONE
   13    16    (18 %)
Distribution
   151    153    (1 %)
Other
   62    93    (33 %)
Total
   $ 668    $ 750    (11 %)

Generic products revenues in our ~~Growth~~International Markets segment in the first quarter of ~~2018,~~2019, which include OTC products, ~~were flat~~decreased by 10% to $441 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues decreased by 3%1%, mainly due to ~~the effect of the deconsolidation of our subsidiaries~~lower sales in ~~Venezuela.~~Japan resulting from regulatory pricing reductions and generic competition tooff-patented products, partially offset by higher sales in Russia.

COPAXONE revenues in our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 decreased by ~~24%~~18% to ~~$16~~$13 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues ~~decreased~~increased by ~~20%~~3%.

For further information about COPAXONE, see “—North America Revenues—Revenues by Major Product” above.

Distribution revenues in our ~~Growth~~International Markets segment in the first quarter of ~~2018 increased~~2019 decreased by ~~22%~~1% to ~~$153~~$151 million, compared to the first quarter of ~~2017.~~2018. In local currency terms, revenues increased by ~~13%~~4%.

~~Growth~~International Markets Gross Profit

Gross profit from our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 was ~~$313~~$269 million, ~~an increase~~a decrease of 7%14% compared to ~~$292~~$313 million in the first quarter of ~~2017. The increase was mainly due to higher revenues in Japan, including a milestone payment from Takeda following approval of AZILECT~~^®~~, and higher revenues in Israel, partially offset by the deconsolidation of our subsidiaries in Venezuela and the loss of revenues from the sale of our women’s health business.~~2018.

Gross profit margin for our ~~Growth~~International Markets segment in the first quarter of ~~2018 increased~~2019 decreased to ~~41.7%~~40.3%, ~~from 40.7%~~compared to 41.8% in the first quarter of ~~2017. This increase~~2018. The decrease was mainly due to ~~higher gross profit~~lower sales in Japan, ~~(3.5 points),~~ partially offset by ~~the deconsolidation of our subsidiaries~~higher sales in ~~Venezuela (1.3 points) and currency fluctuations in Argentina (0.8 points).~~Russia.

~~Growth~~International Markets R&D Expenses

R&D expenses relating to our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 were ~~$24~~$22 million, a decrease of ~~49%~~8% compared to ~~$47~~$24 million in the first quarter of ~~2017.~~2018.

For a description of our R&D expenses in the first quarter of ~~2018,~~2019, see “—Teva Consolidated Results—Research and Development (R&D) Expenses” below.

~~Growth~~International Markets S&M Expenses

S&M expenses relating to our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 were ~~$134~~$115 million, a decrease of ~~15%~~14% compared to ~~$158~~$134 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring plan.

~~Growth~~International Markets G&A Expenses

G&A expenses relating to our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 were ~~$41~~$36 million, a decrease of ~~15%~~13% compared to ~~$48~~$41 million in the first quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions as part of the restructuring plan.

~~Growth~~International Markets Profit

~~The profit~~Profit of our ~~Growth~~International Markets segment consists of gross profit less R&D expenses, S&M expenses, G&A expenses and any other income related to this segment. Segment profit does not include amortization and certain other items. The data presented for prior periods have been conformed to reflect the changes to our segment reporting commencing in the first quarter of 2018. See note 17 to our consolidated financial statements and “—Teva Consolidated Results—Operating Income” below.

Profit from our ~~Growth~~International Markets segment in the first quarter of ~~2018~~2019 was ~~$122~~$97 million, a decrease of 20% compared to ~~$40~~$122 million in the first quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to lower sales in Japan resulting from regulatory pricing reductions and generic competition tooff-patent products, partially offset by higher ~~revenues, as well as~~sales in Russia and cost reductions and efficiency measures as part of the restructuring plan.

During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results after concluding that we did not meet the accounting criteria for control over our wholly-owned subsidiaries in Venezuela and that we no longer had significant influence over such subsidiaries. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the first quarter of 2018. We recorded $21 million in revenues and $3 million in operating income in the first quarter of 2017 with respect to our subsidiaries in Venezuela. We exclude these changes in revenues and operating profit in Venezuela from any discussion of local currency results.

Other Activities

We have other sources of revenues, primarily ~~our API manufacturing business and~~the sale of APIs to third parties, certain contract manufacturing ~~services.~~services and anout-licensing platform offering a portfolio of products to other pharmaceutical companies through our affiliate Medis. Our other activities are not included in our North America, Europe or ~~Growth~~International Markets segments described above.

Our revenues from other activities in the first quarter of ~~2018 decreased by 2.6%~~2019 were $317 million, a decrease of 7% compared to ~~$342 million.~~the first quarter of 2018. In local currency terms, revenues decreased by 8%5%, mainly due to lower ~~API sales to third parties.~~revenues from contract manufacturing services and Medis.

API sales to third parties in the first quarter of ~~2018 decreased by 9%~~2019 were $187 million, an increase of 4% compared to ~~$179 million.~~the first quarter of 2018. In local currency terms, revenues ~~decreased~~increased by ~~10%, mainly due to the timing of certain shipments in the first quarter of 2018.~~5%.

Teva Consolidated Results

Revenues

Revenues in the first quarter of ~~2018~~2019 were ~~$5.1 billion,~~$4,295 million, a decrease of ~~10%~~15%, or ~~15%~~12% in local currency terms, compared to the first quarter of ~~2017,~~2018, mainly due to ~~adverse market dynamics in the U.S. generics market,~~ generic competition to COPAXONE, ~~and loss of~~as well as declines in revenues ~~following~~from our ~~divestment of certain~~respiratory products and ~~discontinuation of certain activities.~~U.S. generics business. See “—North America Revenues,” “—Europe Revenues,” “—~~Growth~~International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the first quarter of ~~2018 in comparison with~~2019 negatively impacted revenues by $177 million compared to the first quarter of ~~2017 positively impacted revenues by $240 million.~~2018.

Gross Profit

Gross profit in the first quarter of ~~2018~~2019 was ~~$2.3 billion,~~$1,856 million, a decrease of ~~17%~~20% compared to the first quarter of ~~2017.~~2018. The ~~lower gross profit~~decrease was mainly a result of the factors discussed above under “—North America Gross Profit,” “—Europe Gross Profit” and “—~~Growth~~International Markets Gross ~~Profit” as well as lower remediation expenses and higher accelerated depreciation and inventorystep-up~~ ~~in the first quarter of 2017, which did not recur in the first quarter of 2018.~~Profit.”

Gross profit as a percentage of revenues was ~~46.4%~~43.2% in the first quarter of ~~2018,~~2019, compared to ~~50.2%~~45.7% in the first quarter of ~~2017.~~2018.

The decrease in gross profit as a percentage of revenues was mainly due to lower profitability in North America, ~~(5.1 points), the sale~~resulting mainly from a decline in COPAXONE revenues due to generic competition, as well as lower revenues of ~~our women’s health business (0.9 points) and higher accelerated depreciation (0.4 points),~~certain other specialty products, partially offset by ~~inventorystep-up~~lower amortization expenses ~~(1.3 points),~~and higher profitability in Europe, ~~(0.9 points) and remediation expenses (0.7 points).~~mainly due to the termination of the PGT joint venture.

Research and Development (R&D) Expenses

Net R&D expenses in the first quarter of ~~2018~~2019 were ~~$317~~$261 million, a decrease of ~~27%~~18% compared to the first quarter of ~~2017.~~2018.

Our R&D activities for generic products in each of our segments include both (i) direct expenses relating to product formulation, analytical method development, stability testing, management of bioequivalence and other clinical studies and regulatory filings; and (ii) indirect expenses, such as costs of internal administration, infrastructure and personnel.

Our R&D activities for specialty products in each of our segments include costs of discovery research, preclinical development, early- and late-clinical development and drug formulation, clinical trials and product registration costs. These expenditures are reported net of contributions received from collaboration partners. Our spending takes place throughout the development process, including (i) early-stage projects in both discovery and preclinical phases; (ii) middle-stage projects in clinical programs up to phase 3; (iii) late-stage projects in phase 3 programs, including where a new drug application is currently pending approval; (iv) life cycle management and post-approval studies for marketed products; and (v) indirect expenses that support our overall specialty R&D efforts but are not allocated by product or to specific R&D projects, such as the costs of internal administration, infrastructure and personnel.

In the first quarter of ~~2018,~~2019, our R&D expenses were primarily related to generic products in our North America segment, as well as specialty product candidates in the pain, ~~respiratory,~~ migraine, headache and ~~headache~~respiratory therapeutic areas, with additional activities in selected other areas.

Our lower R&D expenses in the first quarter of ~~2018~~2019 compared to the first quarter of ~~2017~~2018 primarily resulted from pipeline optimization and project terminations, phase 3 studies that have ended and related headcount ~~reductions, partially offset by higher costs due to an increase in phase 3 clinical activity (primarily fasinumab, in collaboration with Regeneron).~~reductions.

R&D expenses as a percentage of revenues were 6.1% in the first quarter of 2019, compared to 6.3% in the first quarter of ~~2018, compared to 7.6% in the first quarter of 2017.~~2018.

Selling and Marketing (S&M) Expenses

S&M expenses in the first quarter of ~~2018~~2019 were ~~$771~~$648 million, a decrease of ~~20%~~12% compared to the first quarter of ~~2017.~~2018. Our S&M expenses were primarily the result of the factors discussed above under “—North America Segment— S&M Expenses,” “—Europe Segment— S&M Expenses” and “—~~Growth~~International Markets Segment— S&M Expenses.”

S&M expenses as a percentage of revenues were ~~15%~~15.1% in the first quarter of ~~2018,~~2019, compared to ~~17%~~14.6% in the first quarter of ~~2017.~~2018.

General and Administrative (G&A) Expenses

G&A expenses in the first quarter of ~~2018~~2019 were ~~$329~~$292 million, a decrease of ~~10%~~11% compared to the first quarter of ~~2017.~~2018. Our G&A expenses were primarily the result of the factors discussed above under “—North America Segment— G&A Expenses,” “—Europe Segment— G&A Expenses” and “—~~Growth~~International Markets Segment— G&A ~~Expenses,” as well as cost reductions in certain corporate functions as part of the restructuring plan.~~Expenses”.

G&A expenses as a percentage of revenues were 6.8% in the first quarter of 2019, compared to 6.5% in the first quarter of ~~2018, flat compared to~~2018.

Identifiable Intangible Asset Impairments

We recorded expenses of $469 million for identifiable intangible asset impairments in the first quarter of ~~2017.~~2019, compared to expenses of $206 million in the first quarter of 2018. See note 6 to our consolidated financial statements.

Goodwill Impairment

In the first quarter of 2019, there were no goodwill impairments recorded, compared to a goodwill impairment of $180 million in the first quarter of 2018. The goodwill impairment in the first quarter of 2018 was mainly attributable to goodwill associated with our Rimsa reporting unit (now included in International Markets reporting unit). See note 7 to our consolidated financial statements.

Other ~~Asset~~Assets Impairments, Restructuring and Other Items

We recorded ~~expenses~~an expense of ~~$707~~$1 million for other ~~asset~~assets impairments, restructuring and other items in the first quarter of ~~2018,~~2019, compared to expenses of ~~$240~~$501 million in the first quarter of ~~2017. The expenses in the first quarter of 2018 consisted of:~~

~~Impairments~~

~~Impairments of long-lived intangible assets in the first quarter of 2018 were $206 million, mainly consisting of:~~

~~Identifiable product rights of $76 million due to revaluation of Actavis Generics product rights in the United States.~~

~~Impairments of property, plant and equipment in the first quarter of 2018 were $226 million, mainly consisting of:~~

~~$147 million related to restructuring costs, including:~~

~~$113 million related to site closures in Israel; and~~

~~$34 million related to headquarters and distribution sites consolidation in the United States;~~

~~Other impairment costs, mainly $56 million related to a plant located in India in connection with the P&G separation agreement.~~2018. See note 314 to our consolidated financial statements.

Significant regulatory events

In July 2018, the FDA completed an inspection of our manufacturing plant in Davie, Florida in the United States, and issued a FormFDA-483 to the site. In October 2018, the FDA notified us that the inspection of the site is classified as “official action indicated” (OAI). On February 5, 2019, we received a warning letter from the FDA that contains four enumerated concerns related to production, quality control and investigations at this site. We are working diligently to remediate the FDA’s concerns in a manner consistent with current good manufacturing practice (CGMP) requirements as quickly and as thoroughly as possible. If we are unable to remediate the warning letter findings to the FDA’s satisfaction, we may face additional consequences, including delays in FDA approval for future products from the site, financial implications due to loss of revenues, impairments, inventory write offs, customer penalties, idle capacity charges, costs of additional remediation and possible FDA enforcement action. We expect to generate approximately $240 million in revenues from this site for the remainder of 2019, assuming remediation or enforcement does not cause any unscheduled slowdown or stoppage at the facility.

In July 2018, we announced the voluntary recall of valsartan and certain combination valsartan medicines in various countries due to the detection of trace amounts of a previously unknown impurity called NDMA found in valsartan API supplied to us by Zhejiang Huahai Pharmaceutical. Since July 2018, we have been actively engaged with regulatory agencies around the world in reviewing our valsartan and other sartan products for NDMA and other related impurities and, where necessary, have initiated additional voluntary recalls. The impact of this recall on our 2018 financial statements was $51 million, primarily related to inventory reserves. We expect to continue to experience loss of revenues and profits in connection with this matter. In addition, multiple lawsuits have been filed in connection with this matter. We may also incur additional customer penalties, impairments and litigation costs going forward.

Restructuring

In the first quarter of ~~2018,~~2019, we recorded ~~$247~~$32 million of restructuring expenses, compared to ~~$130~~$247 million in the first quarter of ~~2017.~~2018. The expenses in the first quarter of ~~2018~~2019 were primarily related to headcount reductions across all ~~functions.~~functions as part of the restructuring plan announced in 2017.

Thetwo-year restructuring plan announced in 2017 is intended to reduce our total cost base by $3 billion by the end of 2019.

Since ~~announcing our restructuring plan,~~the announcement, we reduced our global headcount by approximately ~~6,200~~10,400 full-time-equivalent employees.

~~Goodwill Impairment~~Legal Settlements and Loss Contingencies

InLegal settlements and loss contingencies in the first quarter of 2018, we recorded a goodwill impairment of $180 million. This impairment was driven by the change in fair value, including the discount rate and the change in allocated net assets to the Rimsa reporting unit. See note 7 to our consolidated financial statements.

~~Legal Settlements and Loss Contingencies~~

~~In the first quarter of 2018, we recorded income of $1.3 billion, compared~~2019 amounted to an expense of ~~$20~~$57 million, compared to an income of $1,278 million in the first quarter of ~~2017.~~2018. The income in the first quarter of 2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa settlement and athe reversal of the reserve ~~recorded in the second quarter of 2017 with respect~~related to the carvedilol ~~patent litigation, following the reversal of the verdict granting the award to GSK (see note 16 to our consolidated financial statements).~~judgment.

Other Income

Other income in the first quarter of ~~2018~~2019 was ~~$203~~$6 million, compared to ~~$72~~$203 million in the first quarter of ~~2017.~~2018. Other income in the first quarter of 2018 was primarily the result of ~~the factors discussed above under “—North America Segment— Other Income,” as well as~~higher Section 8 recoveries from multiple cases in Canada and a ~~$93 million~~ net gain related to the divestment of our women’s health business.

~~Other~~Operating Income

Operating income was $134 million in the first quarter of 2019, compared to $1,525 million in the first quarter of 2018.

Operating income as a percentage of revenues was ~~4.0%~~3.1% in the first quarter of ~~2018,~~2019, compared to ~~1.3%~~30.1% in the first quarter of ~~2017.~~

~~Operating Income~~

~~Operating income was $1.5 billion in the first quarter of 2018, compared to $895 million in the first quarter of 2017.~~

2018. The ~~increase in operating income~~decrease was mainly due to ~~income from~~ legal settlements and loss contingencies ~~higher operating~~expenses (compared to income in ~~our Europe and Growth Markets segments and net gain from the sale of our women’s health business during the first quarter of 2018, partially offset by~~2018), higher ~~other~~intangible asset impairments ~~restructuring and other items, a goodwill impairment~~ and lower ~~operating income~~profit in our North America ~~segment.~~segment, partially offset by lower other assets impairments and reduced expenses related to restructuring.

The following table presents a reconciliation of our segment profits to our consolidated operating income and to consolidated income (loss) before income taxes for the three months ended March 31, ~~2018~~2019 and ~~2017:~~2018:


	Three months ended March 31,					Three months ended March 31,
	2018			2017		2019		2018
	(U.S.$ in millions)					(U.S.$ in millions)
North America profit	$	915		$	1,306	$	498	$	915
Europe profit		377			268		403		377
Growth Markets profit		122			40
International Markets profit							97		122

Total segment profit		1,414			1,614		998		1,414
Profit of other activities		21			7		21		21

		1,435			1,621		1,019		1,435

Amounts not allocated to segments:
Amortization		310			320		283		310
Other asset impairments, restructuring and other items		707			240
Other assets impairments, restructuring and other items							1		501
Goodwill impairment		180			—		—		180
Intangible asset impairments							469		206
Gain on divestitures, net of divestitures related costs		(93	)		—		§		(93	)
Inventorystep-up		—			64
Other R&D expenses		22			—		§		22
Costs related to regulatory actions taken in facilities		1			34		4		1
Legal settlements and loss contingencies		(1,278	)		20		57		(1,278	)
Other unallocated amounts		61			48		70		61

Consolidated operating income		1,525			895		134		1,525

Financial expenses - net		271			207
Financial expenses, net							218		271

Consolidated income before income taxes	$	1,254		$	688
Consolidated (loss) income before income taxes						$	(84)	$	1,254

The increase in operating margin was 14.2 points, mainly due to legal settlements and loss contingencies (25.6 points), higher profits in our Europe (2.7 points) and Growth Markets (1.7 points) segments and the sale of our women’s health business (1.8 points), partially offset by higher other asset impairments, restructuring and other items (9.7 points), goodwill impairment (3.6 points) and lower profit in our North America segment (5.1 points).

During the fourth quarter of 2017, we deconsolidated our subsidiaries in Venezuela from our financial results. Consequently, results of operations of our subsidiaries in Venezuela are not included in our financial results for the first quarter of 2018.§ Represents an amount less than $0.5 million.

Financial Expenses, Net

Financial expenses were $218 million in the first quarter of 2019, compared to $271 million in the first quarter of ~~2018, compared to $207 million~~2018. Financial expenses in the first quarter of ~~2017. The increase was~~2019 were mainly ~~due to $60 million~~comprised of ~~early redemption charges and accelerated amortization~~interest expenses of ~~issuance costs related to the repayment of senior notes and term loans, partially offset by a $29 million gain derived from net foreign exchange losses and financial derivatives during~~$227 million. Financial expenses in the first quarter of 2018 ~~compared to a $36~~were mainly comprised of interest expenses of $218 million ~~gain~~and approximately $67 million resulting from ~~the sale~~early redemption of ~~Mylan shares during the first quarter of 2017.~~debt.

Tax Rate

In the first quarter of 2019, we recognized a tax expense of $9 million, or 11%, onpre-tax loss of $84 million. In the first quarter of 2018, ~~income taxes were~~we recognized a tax expense of $46 million, or 4%, onpre-tax income of ~~$1.3 billion. In the first quarter of 2017, income taxes were $54 million, or 8%, onpre-tax~~ ~~income of $688~~$1,254 million. Our tax rate for the first quarter of ~~2018~~2019 was mainly affected by~~one-time~~ ~~legal settlements~~ impairments, amortization and ~~divestments that had~~interest disallowance as a ~~low corresponding tax effect.~~result of the U.S. Tax Cuts and Jobs Act.

The statutory Israeli corporate tax rate is 23% in ~~2018.~~2019. Our tax rate differs from the Israeli statutory tax rate mainly due to ~~the mix~~generation of profits ~~generated~~ in various jurisdictions ~~where~~in which tax rates are different than the Israeli tax rate, tax benefits in Israel and other countries, as well as infrequent or nonrecurring items.

~~In future years, our effective tax rate is expected to increase following the enactment of the Tax Cuts and Jobs Act in the United States.~~

Share in ~~(Profits)~~ Losses of Associated Companies, Net

Share in losses of associated companies, net in the first quarter of ~~2018~~2019 was ~~$74~~$4 million, compared to ~~share in profits of $7~~$74 million in the first quarter of ~~2017. The loss in the first quarter of 2018 is mainly due to a $94 million impairment related to the investment in New Chapter Inc. in connection with the P&G separation agreement.~~2018.

Net Income (Loss)

Net ~~income attributable to Teva~~loss was ~~$1.1 billion in the first quarter of 2018, compared to $645~~$97 million in the first quarter of 2017. The increase was mainly due to the factors previously discussed in “—Operating Income” above, partially offset by factors previously discussed in “—Financial Expenses, Net” and “—Share in (Profits) Losses of Associated Companies, Net.”

~~Net income attributable to ordinary shareholders was $1.1 billion in the first quarter of 2018,~~2019, compared to ~~$580~~net income of $1,134 million in the first quarter of ~~2017. The difference from net income attributable to Teva is due to the aforementioned factors.~~2018.

Diluted Shares Outstanding and Earnings ~~Per~~(Loss) per Share

The weighted average diluted shares outstanding used for the fully diluted share calculation for the three months ended March 31, 2019 and 2018 ~~and 2017~~ were ~~1,020~~1,090 million and ~~1,017~~1,020 million shares, respectively.

~~Diluted earnings~~In computing loss per share for the three months ended March 31, ~~2018 and 2017 take into~~2019, no account was taken of the potential dilution ~~that could occur upon~~by the assumed exercise of employee stock options andnon-vested RSUs granted under employee stock compensation plans ~~using the treasury stock method.~~and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 64 million shares (including shares that ~~may be~~were issued due to unpaid dividends tountil that date) for the three months ended March 31, 2018, ~~and 59 million for the three months ended March 31, 2017, as well as for the convertible senior debentures for the respective periods,~~ since ~~both~~they had an anti-dilutive effect on ~~earnings~~loss per share.

Diluted loss per share was $0.10 in the first quarter of 2019, compared to diluted earnings per share ~~were~~of $1.03 in the first quarter of ~~2018, compared to $0.57 in the first quarter of 2017.~~2018.

Share Count for Market Capitalization

We calculate share amounts using the outstanding number of shares (i.e., excluding treasury shares) plus shares that would be outstanding upon the exercise of options and vesting of RSUs and performance share units (“PSUs”)~~, as well as~~ and the conversion of our convertible senior debentures, ~~and mandatory convertible preferred shares,~~ in each case, at period end.

As of March 31, ~~2018~~2019 and ~~2017,~~2018, the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,095~~1,107 million and ~~1,082~~1,095 million, respectively.

Impact of Currency Fluctuations on Results of Operations

In the first quarter of ~~2018,~~2019, approximately ~~51%~~49% of our revenues ~~came from sales outside of~~were denominated in currencies other than the ~~United States.~~U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency ~~risks and, accordingly,~~risks. Accordingly, changes in the rate of exchange ~~rate~~ between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, ~~new~~ Israeli shekel, ~~British pound,~~ Canadian dollar, Polish zloty, Argentinean peso, Turkish lira and Russian ~~ruble, and Polish zloty)~~ruble) impact our results.

During the first quarter of ~~2018,~~2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on ~~an annual~~a quarterly average compared to ~~annual~~quarterly average basis): ~~Argentinean~~Argentinian peso by ~~20%. During the first quarter of 2018, the following main currencies relevant to our operations increased in value against the U.S. dollar:~~49%, Turkish lira by 29%, Russian ruble by 14%, Hungarian forint by 10%, Polish zloty by 10%, Indian rupee by 9%, euro by ~~15%~~8%, British pound by ~~12%, new Israeli shekel by 8%, Polish zloty by 19%, Japanese yen by 5%~~6%, Canadian dollar by 5%, ~~Hungarian forint~~Israeli shekel by ~~15%, Chilean peso by 9%~~5%, Swiss franc by 6%5% and ~~Russian ruble~~Japanese yen by 3%2%.

As a result, exchange rate movements during the first quarter of ~~2018,~~2019 negatively impacted overall revenues by $177 million and our operating income by $49 million, in comparison with the first quarter of ~~2017, positively impacted overall revenues by $240 million and~~2018.

Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a3-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our ~~operating income by $37 million.~~results of operations.

Liquidity and Capital Resources

Total balance sheet assets were ~~$69.2 billion~~$59,854 million as of March 31, ~~2018,~~2019, compared to ~~$70.6 billion~~$60,683 million as of December 31, ~~2017.~~

Trade receivables as of March 31, 2018, net of sales reserves and allowances (“SR&A”), were negative $1.1 billion, compared to negative $0.8 billion as of December 31, 2017, mainly due to the decrease in sales in the first quarter of 2018, compared with the fourth quarter of 2017.

As of March 31, 2018, we do not present any material assets held for sale following the completion of the sale of our woman’s health business. As of December 31, 2017, we presented net assets held for sale in the amount of $0.6 billion.

~~Accrued expenses as of March 31, 2018 were $2.6 billion, compared to $3.0 billion as of December 31, 2017. The decrease was mainly due to $0.4 billion in connection with legal settlements.~~2018.

Our working capital balance, which includes trade receivables net of SR&A, inventories, prepaid expenses and other current assets, trade payables, employee-related obligations, accrued expenses and other current liabilities, was ~~negative $0.2 billion~~$59 million as of March 31, ~~2018,~~2019, compared to negative ~~$0.4 billion~~$186 million as of December 31, ~~2017.~~2018.

Employee-related obligations, as of March 31, 2019, were $633 million, compared to $870 million as of December 31, 2018. The decrease in the first quarter of 2019 was mainly due to performance incentive payments to employees for 2018.

Investment in property, plant and equipment in the first quarter of ~~2018~~2019 was approximately ~~$0.2 billion, flat~~$125 million, compared to $213 million in the fourth quarter of ~~2017.~~2018. Depreciation ~~was $0.2 billion~~ in the first quarter of ~~2018, flat~~2019 was $152 million, compared to $161 million in the fourth quarter of ~~2017.~~2018.

Cash and cash equivalents and short-term and long-term investments as of March 31, ~~2018~~2019 were ~~$1.5 billion,~~$2,040 million, compared to ~~$1.1 billion~~$1,846 million as of December 31, ~~2017,~~2018, mainly due to proceeds from the issuance of senior notes in March 2018, proceeds from the sale of our women’s health business, proceeds from the working capital adjustment with Allergan and the legal settlement with Rimsa, as well as other free cash ~~flow~~ generated during the quarter, partially offset by ~~debt prepayments as discussed below.~~the repurchase and cancellation of $126 million of our $1,700 million 1.7% senior notes due July 2019.

Our cash on hand that is not used for ongoing operations is generally invested in bank deposits as well as liquid securities that bear fixed and floating rates.

Our principal sources of short-term liquidity are our existing cash investments, liquid securities and available credit facilities, primarily our ~~$3 billion syndicated~~ revolving ~~line of~~ credit facility (“RCF”), which was ~~not utilized as of March 31, 2018,~~replaced in April 2019, as well as internally generated ~~funds,~~funds.

In April 2019, we entered into a $2.3 billion unsecured syndicated revolving credit facility which replaced the previous $3 billion revolving credit facility. The revolving credit facility contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of certain financial ratios, including a maximum leverage ratio, which becomes more restrictive over time. As of March 31, 2019, we ~~believe are~~did not have any outstanding debt under our then-applicable revolving credit facility, which was our only debt subject to a maximum leverage ratio, and met all financial covenants thereunder.

We expect that we will continue to have sufficient cash resources to ~~meet~~support our~~on-going~~ ~~operating needs.~~

debt service payments and all other financial obligations for at least twelve months from the date of this report.

~~2018~~ Debt Balance and Movements

As of March 31, ~~2018,~~2019, our debt was ~~$30.8 billion,~~$28,624 million, compared to ~~$32.5 billion~~$28,916 million as of December 31, ~~2017.~~2018. The decrease was mainly due to ~~$6.5 billion of debt prepayments, partially offset by our March 2018 issuance of an aggregate principal amount of $4.4 billion of senior notes,~~favorable exchange rates as well as ~~exchange rate fluctuations.~~

~~In January 2018 we prepaid in full $15~~repurchase and cancellation of $126 million of our ~~U.S. dollar debentures.~~$1,700 million 1.7% senior notes due July 2019.

During the first quarter of ~~2018,~~2019, we ~~prepaid in full $2.3 billion of our3-year~~repurchased and~~5-year~~ ~~U.S. dollar term loans, as well as JPY 156.8 billion of our term loans.~~

~~In March 2018, we completed debt issuances for an aggregate~~ canceled approximately $126 million principal amount of $4.4 billion, consisting of senior notes with aggregate principal amounts of $2.5 billion and €1.6 billion with maturities ranging from four to ten years. The effective average interest rate of the notes issued is 5.3% per annum. See note 11 to our ~~consolidated financial statements.~~

~~In March 2018, we redeemed in full our $1.5 billion 1.4%~~$1,700 million 1.7% senior notes due in July ~~2018 and our Euro 1.0 billion 2.875% senior notes due in April~~ 2019.

Our debt as of March 31, ~~2018~~2019 was effectively denominated in the following currencies: ~~63%~~66% in U.S. dollars, ~~32%~~31% in euros and 5%3% in Swiss francs.

The portion of total debt classified as short-term as of March 31, ~~2018~~2019 was 4%10%, compared to ~~11%~~8% as of December 31, ~~2017, mainly~~2018, due to ~~the activities described above.~~a net increase in current maturities.

Our financial leverage was ~~60%~~64% as of March 31, ~~2018,~~2019, a slight decrease compared to ~~63%~~65% as of December 31 ~~2017.~~2018.

Our average debt maturity was approximately ~~7.3~~6.6 years as of March 31, ~~2018,~~2019, compared to ~~6.4~~6.8 years as of December 31 ~~2017.~~2018.

Total Equity

Total equity was ~~$20.1 billion~~$15,821 million as of March 31, ~~2018,~~2019, flat compared to ~~$18.7 billion as of~~ December 31, ~~2017. The increase was mainly due to $1.1 billion of net income during the quarter and $239 million positive impact of exchange rate fluctuations.~~2018.

Exchange rate fluctuations affected our balance sheet, as approximately ~~61%~~36% of our net assets in the first quarter of ~~2018~~2019 (including bothnon-monetary and monetary assets) were in currencies other than the U.S. dollar. When compared to December 31, ~~2017,~~2018, changes in currency rates had a positive impact of ~~$330~~$47 million on our equity as of March 31, ~~2018,~~2019, mainly due to the ~~change~~changes in value against the U.S. dollar of: the euro by ~~(3%)~~2%, the ~~Mexican peso~~Russian ruble by ~~(8%), the Japanese Yen by (6%)~~6%, the British pound by ~~(4%)~~3%, the ~~Polish zloty~~Canadian dollar by ~~(2%)~~2% and the ~~Bulgarian lev~~Chilean peso by ~~(3%)~~2%. All comparisons are on aquarter-end toquarter-end basis.

Cash Flow

Cash flow generated from operating activities during the first quarter of ~~2018~~2019 was ~~$1.5 billion,~~$112 million, compared to ~~$0.1 billion~~$1,496 million in the first quarter of ~~2017.~~2018. The ~~increase~~higher cash flow in the first quarter of 2018 was mainly due to the proceeds from the working capital adjustment with Allergan and the legal settlement with ~~Rimsa, compared to payments made to~~Rimsa. In addition, the ~~SEC and DOJ related to the FCPA settlement~~lower cash flow in the first quarter of ~~2017.~~2019 was mainly due to lower revenues from COPAXONE, as well as a decline in sales of certain other specialty products and generic products and performance incentive payments to employees for 2018.

Cash flow generated from operating activities in the first quarter of ~~2018,~~2019, net of cash used for capital investments and beneficial interest collected in exchange for securitized trade receivables, was ~~$1.9 billion,~~$360 million, compared to ~~$0.3 billion~~$1,894 million in the first quarter of ~~2017.~~2018. The ~~increase~~decrease in cash flow was mainly due to ~~the increase in~~less cash flow generated from operating activities ~~as well as lower~~and higher net capital ~~investments and higher beneficial interest collected in exchange for securitized trade receivables.~~investments.

Dividends

~~In December 2017, we announced an immediate suspension of~~We have not paid dividends on our ordinary shares ~~and~~or ADSs ~~and that dividends on our mandatory convertible preferred shares will be evaluated on a quarterly basis per current practice.~~since December 2017.

~~We have suspended cash dividends on our mandatory convertible preferred shares in the first quarter of 2018 due to our accumulated deficit.~~

Commitments

In addition to financing obligations under short-term debt and long-term senior notes and loans, debentures and convertible debentures, our major contractual obligations and commercial commitments include leases, royalty payments, contingent payments pursuant to acquisition agreements and participation in joint ventures associated with R&D activities.

In September 2016, we entered into an agreement to develop and commercialize Regeneron’s pain medication product, fasinumab. We paid Regeneron $250 million upfront and will share equally with Regeneron in the global commercial benefits of this product, as well as ongoing associated R&D costs of approximately $1.0 billion. Milestone payments of $25 million, $35 million and $60 million were paid in the second quarter of 2017, the first quarter of 2018 and the fourth quarter of 2018, respectively.

In October 2016, we entered into an exclusive partnership with Celltrion to commercialize two of Celltrion’s biosimilar products in development for the U.S. and Canadian markets. We paid Celltrion $160 million, of which up to $60 million is refundable or creditable under certain circumstances. We will share the profit from the commercialization of these products with Celltrion. These two products, Truxima and Herzuma, were approved by the FDA in November and December 2018, respectively.

In September 2017, we entered into a partnership agreement with Nuvelution for development of AUSTEDO for the treatment of Tourette syndrome in pediatric patients in the United States. Nuvelution will fund and manage clinical development, driving all operational aspects of the phase 3 program, and we will lead the regulatory process and be responsible for commercialization. Upon and subject to FDA approval of AUSTEDO for Tourette syndrome, we will pay Nuvelution apre-agreed return.

Dividends on our mandatory convertible preferred shares (aggregate liquidation preference of approximately $3.7 billion) are payable on a cumulative basis when, as and if declared by our Board of Directors at an annual rate of 7% on the liquidation preference of $1,000 per mandatory convertible preferred share. Declared dividends are paid in cash on March 15, June 15, September 15 and December 15 of each year to and including December 15, 2018. We have suspended cash dividend payments on our mandatory convertible preferred shares.

We are committed to pay royalties to owners ofknow-how, partners in alliances and certain other arrangements, and to parties that financed R&D at a wide range of rates as a percentage of sales of certain products, as defined in the agreements. In some cases, the royalty period is not defined; in other cases, royalties will be paid over various periods not exceeding 20 years.

In connection with certain development, supply and marketing, and research and collaboration or services agreements, we are required to indemnify, in unspecified amounts, the parties to such agreements against third-party claims relating to (i) infringement or violation of intellectual property or other rights of such third party; or (ii) damages to users of the related products. Except as described in our financial statements, we are not aware of any material pending action that may result in the counterparties to these agreements claiming such indemnification.

Our principal sources of short-term liquidity are our existing cash investments, liquid securities and available credit facilities, primarily our $3 billion syndicated revolving credit facility (“RCF”), which was not utilized as of March 31, 2018, as well as internally generated funds.

Pursuant to the requirements of the RCF, we have entered into negative pledge agreements with certain banks and institutional investors. Under the agreements, we and certain subsidiaries have undertaken not to register floating charges on assets in favor of any third parties without the prior consent of the banks, to maintain certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time, and to fulfill other restrictions, as stipulated by the agreements. As of March 31, 2018, we did not have any outstanding debt under the RCF, which is our only debt subject to the net debt to EBITDA covenant. Assuming utilization of the RCF and under specified circumstances, including~~non-compliance~~ with such covenants and the unavailability of any waiver, amendment or other modification thereto and the expiration of any applicable grace period thereto, substantially all of our other debt could be negatively impacted by~~non-compliance~~ ~~with such covenants. We have sufficient resources to meet our financial obligations in the ordinary course of business for at least twelve months from the date of the release of this Quarterly Report.~~

~~2018~~2019 Aggregated Contractual Obligations

There have not been any material changes in our assessment of material contractual obligations and commitments as set forth in Item 7 of our Annual Report on Form10-K for the year ended December 31, ~~2017,~~2018, other than as set forth below. ~~These changes are the result~~

For a description of ~~the significant debt movements during the first quarter of 2018, as described under~~our new revolving credit facility entered into in April 2019, see “—~~2018 Debt Balance~~Liquidity and ~~Movements”~~Capital Resources” above.

In the first quarter of 2018, we repaid debt in a total amount of approximately $6.5 billion and raised new debt in a total amount of approximately $4.4 billion. As of March 31, 2018, the total debt on the balance sheet is approximately $30.8 billion. See note 11 to our consolidated financial statements.

SupplementalNon-GAAP Income Data

We utilize certainnon-GAAP financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize thenon-GAAP measures:

our management and Board of Directors use thenon-GAAP measures to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management;

our annual budgets are prepared on anon-GAAP basis; and

senior management’s annual compensation is derived, in part, using thesenon-GAAP measures. While qualitative factors and judgment also affect annual bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan, ~~and thus~~which is based on thenon-GAAP presentation set forth below.

Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide suchnon-GAAP data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP,non-GAAP measures may not be comparable with the calculation of similar measures for other companies. Thesenon-GAAP financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using ~~these~~non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

Investors should considernon-GAAP financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with ~~U.S.~~ GAAP.

In arriving at ournon-GAAP presentation, we exclude items that either have anon-recurring impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. In addition, we also exclude equity compensation expenses to facilitate a better understanding of our financial results, since we believe that ~~this~~such exclusion is important for understanding the trends in our financial results and that these expenses do not affect our business operations. While not all inclusive, examples of these items include:

amortization of purchased intangible assets;

legal settlements and/or loss contingencies, due to the difficulty in predicting their timing and ~~size;~~scope;

impairments of long-lived assets, including intangibles, property, plant and equipment and goodwill;

restructuring expenses, including severance, retention costs, contract cancellation costs and certain accelerated depreciation expenses primarily related to the rationalization of our plants or to certain other strategic activities, such as the realignment of R&D focus or other similar activities;

~~acquisition~~

acquisition- or ~~divestment~~divestment- related items, including changes in contingent consideration, integration costs, banker and other professional fees, inventorystep-up andin-process R&D acquired in development arrangements;

expenses related to our equity compensation;

significantone-time financing costs and devaluation losses;

deconsolidation charges;

~~material~~

unusual tax ~~and~~ items;

other awards or ~~settlements, both~~settlement amounts, either paid ~~and~~or received;

other exceptional items that we believe are sufficiently large that their exclusion is important to facilitate an understanding of trends in our financial results, such as impacts due to changes in accounting, significant costs for remediation of plants, such as inventory write-offs or related consulting costs, or other unusual events; and

corresponding tax effects of the foregoing items.

The following tables present supplementalnon-GAAP data, in U.S. ~~dollars,~~dollar, which we believe facilitates an understanding of the factors affecting our business. In these tables, we exclude the following amounts:

   Three Months Ended
March 31,
   2018    2017
   (U.S. $ in millions)
Gain on divestitures, net of divestitures related costs
   (93 )    —
Amortization of purchased intangible assets
   310    320
Restructuring expenses
   247    130
Inventorystep-up
   —      64
Capital loss from currency translation
   —      52
Equity compensation expenses
   30    36
Costs related to regulatory actions taken in facilities
   1    34
Acquisition, integration and related expenses
   2    23
Other R&D expenses
   22    —
Contingent consideration
   8    21
Legal settlements and loss contingencies
   (1,278 )    20
Goodwill impairment
   180    —
Impairment of long-lived assets
   432    11
Othernon-GAAP items
   49    15
Financial expense (income)
   68    (28 )
Minority interest
   (8 )    (13 )
Impairments of equity investments
   94    —
Tax effect
   (165 )    (186 )

The data so presented — after these exclusions — are the results used by management and our board of directors to evaluate our operational performance, to compare against work plans and budgets, and ultimately to evaluate the performance of management. For example, each year we prepare a detailed work plan for the next fiscal year. This work plan is used to manage the business and is the plan against which management’s performance is measured. All such plans are prepared on a basis comparable to the presentation below, in that none of the plans take into account those elements that are factored out in our~~non-GAAP~~ presentations. In addition, at quarterly meetings of the Board at which management provides financial updates to the Board, presentations are made comparing the current fiscal quarterly results against: (i) the comparable quarter of the prior year, (ii) the immediately preceding fiscal quarter and (iii) the work plan. Such presentations are based upon the~~non-GAAP~~ approach reflected in the tables below. Moreover, while there are always qualitative factors and elements of judgment involved in the granting of annual cash bonuses, the principal quantitative element in the determination of such bonuses is performance targets tied to the work plan and thus, tied to the same~~non-GAAP~~ ~~presentation as is set forth below.~~
   Three Months Ended
March 31,
   2019    2018
   (U.S. $ in millions)
Gain on divestitures, net of divestitures related costs
   0    (93 )
Amortization of purchased intangible assets
   283    310
Restructuring expenses
   32    247
Equity compensation expenses
   34    30
Costs related to regulatory actions taken in facilities
   4    1
Acquisition, integration and related expenses
   2    2
Other R&D expenses
   0    22
Contingent consideration
   (71 )    8
Legal settlements and loss contingencies
   57    (1,278 )
Goodwill impairment
   —      180
Impairment of long-lived assets
   489    432
Othernon-GAAP items
   54    49
Financial expense (income)
   (2 )    68
Minority interest
   (8 )    (8 )
Impairments of equity investments
   —      94
Corresponding tax effect
   (177 )    (165 )
Unusual tax item
   61    —

~~In arriving at ournon-GAAP~~ ~~presentation, we have in the past factored out items, and would expect in the future to continue to factor out items, that either have anon-recurring~~ impact on the income statement or which, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not singled out, potentially cause investors to extrapolate future performance from an improper base. While not all inclusive, examples of these items include: legal settlements and reserves, purchase accounting expense adjustments related to acquisitions, including adjustments for write-offs of IPR&D, amortization of intangible assets and inventory~~“step-ups”~~ following acquisitions; changes in the fair value of contingent consideration related to business combination; restructuring expenses related to efforts to rationalize and integrate operations on a global basis; material tax and other

awards or settlements—both in terms of amounts paid or amounts received; impairments related to intangible and other assets such as intellectual property, product rights or goodwill; the income tax effects of the foregoing types of items when they occur; and costs related to regulatory actions taken at our facilities (such as uncapitalized production costs, consulting expenses or write-offs of inventory related to remediation). Included in restructuring expenses are severance, shut down costs, contract termination costs and other costs that we believe are sufficiently large that their exclusion is important to understanding trends in our financial results.

~~These data arenon-GAAP~~ ~~financial measures and should not be considered replacements for GAAP results. We provide suchnon-GAAP~~ ~~data because management believes that such data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP,non-GAAP~~ ~~measures may not be comparable with the calculation of similar measures for other companies. Thesenon-GAAP~~ ~~financial measures are presented solely to permit investors to more fully understand how management assesses our performance. The limitations of using thesenon-GAAP~~ financial measures as performance measures are that they provide a view of our results of operations without including all events during a period, such as the effects of acquisition, merger-related, restructuring and other charges, and may not provide a comparable view of our performance to other companies in the pharmaceutical industry.

~~Investors should considernon-GAAP~~ ~~financial measures in addition to, and not as replacements for, or superior to, measures of financial performance prepared in accordance with GAAP.~~

The following table presents the GAAP measures, relatednon-GAAP adjustments and the correspondingnon-GAAP amounts for the applicable periods:

   Three Months Ended March 31, 2018 Three Months Ended March 31, 2017
   U.S. dollars and shares in millions (except per share amounts)
   GAAP Non-GAAP
Adjustments Dividends
on
Preferred
Shares Non-GAAP % of Net
Revenues GAAP Non-GAAP
Adjustments Dividends
on
Preferred
Shares Non-GAAP % of Net
Revenues
   Gross profit (1) 2,348 303 2,651 52 % 2,839 377 3,216 57 %
   Operating income (loss) (1)(2) 1,525 (90 ) 1,435 28 % 895 726 1,621 29 %
   Net income attributable to ordinary shareholders (1)(2)(3)(4) 1,055 (101 ) 954 19 % 580 499 1,079 19 %
   Earnings per share attributable to ordinary shareholders - diluted 1.03 (0.09 ) 0.94 0.57 0.49 1.06
(1)
   Amortization of purchased intangible assets 264 267
   Inventorystep-up —   64
   Costs related to regulatory actions taken in facilities 1 34
   Equity compensation expenses �� 6 5
   Other COGS related adjustments 32 7


   Gross profit adjustments 303 377
(2)

Gain on divestitures, net of divestitures related costs
(93 ) —
   Goodwill impairment 180 —
   Restructuring expenses 247 130
   Amortization of purchased intangible assets 46 53
   Capital loss on currency translation —   52
   Equity compensation expenses 24 31
   Acquisition, Integration and related expenses 2 23
   Other R&D expenses 22 —
   Contingent consideration 8 21
   Legal settlements and loss contingencies (1,278 ) 20
   Impairment of long-lived assets 432 11
   Other operating related adjustments 17 8


   (393 ) 349


   Operating income adjustments (90 ) 726


(3)
   Financial expense (income) 68 (28 )
   Tax effect (165 ) (186 )
   Impairment of equity investment 94 —
   Minority interest (8 ) (13 )


   Net income adjustments (101 ) 499


	Three Months Ended March 31, 2019
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies		Impair- ment of long- lived assets		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compen- sation		Contin- gent conside- ration			Gain on sale of business		Other non GAAP items		Other items			Corres- ponding tax effect			Unusual tax item*		Non- GAAP
COGS		2,440			248										4		7							35										2,146
R&D		261															6							0										255
S&M		648			35												10																	602
G&A		292															12							0										280
Other income		(6	)																			0												(6	)
Legal settlements and loss contingencies		57					57																											—
Other assets impairments, restructuring and other items		1							20		2		32						(71	)				19										—
Intangible assets impairment		469							469																									—
Financial expenses		218																								(2	)							220
Income taxes		9																											(177	)		61		125
Share in losses of associated companies – net		4																								—								4
Net income attributable to non-controlling interests		8																								(8	)							16

Total reconciled items					283		57		489		2		32		4		34		(71	)		0		54		(10	)		(177	)		61

EPS—Basic		(0.10	)																													0.70		0.60
EPS—Diluted		(0.10	)																													0.70		0.60

~~(4)~~*

~~Thenon-GAAP~~ diluted weighted average number of shares was 1,020 and 1,017 million for the three months ended March 31, 2018 and 2017, respectively. For the three months ended March 31, 2018, the mandatory convertible preferred shares amounting to 64 million weighted average shares had an anti-dilutive effect on earnings per share and were therefore excluded from the outstanding shares calculation.~~Non-GAAP~~ ~~earnings per share can be reconciled with GAAP earnings per share by dividing each~~

Interest disallowance as a result of the ~~amounts included in footnotes1-3~~ ~~above by the applicable weighted average share number.~~U.S. Tax Cuts and Jobs Act.

The non-GAAP diluted weighted average number of shares was 1,093 million for the three months ended March 31, 2019.


	Three Months Ended March 31, 2018
	U.S. $ and shares in millions (except per share amounts)
	Excluded for non GAAP measurement
	GAAP			Amorti- zation of purchased intangible assets		Legal settlements and loss contin- gencies			Impair- ment of long- lived assets		Other R&D expenses		Acquisition, integration and related expenses		Restruc- turing costs		Costs related to regulatory actions taken in facilities		Equity compens- ation		Contin- gent conside- ration		Other non GAAP items			Other items			Corres- ponding tax effect			Non GAAP
COGS		2,750			264													1		6				32									2,447
R&D		317										22								5				1									289
S&M		738			46															9				1									682
G&A		329																		10				(3	)								322
Other income		(203	)																					(93	)								(110	)
Legal settlements and loss contingencies		(1,278	)				(1,278	)																									—
Impairments, restructuring and other		501								226				2		247						8		18									—
Intangible assets impairment		206								206																							—
Goodwill impairment		180								180																							—
Financial expenses		271																									68						203
Income taxes		46																												(165	)		211
Share in losses of associated companies – net		74																									94						(20	)
Net income attributable to non-controlling interests		14																									(8	)					22

Total reconciled items					310		(1,278	)		612		22		2		247		1		30		8		(44	)		154			(165	)

EPS—Basic		1.04																												(0.10	)		0.94
EPS—Diluted		1.03																												(0.09	)		0.94

Thenon-GAAP diluted weighted average number of shares was 1,020 million for the three months ended March 31, 2018.

Non-GAAP Tax Rate

Non-GAAP income taxes for the first quarter of 2019 were $125 million, or 16%, onpre-taxnon-GAAP income of $799 million.Non-GAAP income taxes in the first quarter of 2018 were $211 million, or 17%, onpre-taxnon-GAAP income of ~~$1.2 billion.Non-GAAP~~ ~~income taxes in the first quarter of 2017 were $240 million, or 17%, onpre-taxnon-GAAP~~ ~~income of $1.4 billion.~~

~~We expect our annualnon-GAAP~~ ~~tax rate for 2018 to be 17%.~~$1,232 million. Ournon-GAAP tax rate for ~~2017~~the first quarter of 2019 was ~~15%. The expected 2018 non-GAAP tax rate is higher than our 2017non-GAAP~~ ~~tax rate, as we expect less tax benefits associated with~~mainly affected by the ~~Actavis Generics acquisition as a result~~mix of products sold in different geographies and the enactment of the Tax Cuts and Jobs Act in the United States.

Off-Balance Sheet Arrangements

Except for securitization transactions, which are disclosed in note ~~16d~~16 (d) to our consolidated financial statements included in our ~~annual report~~Annual Report on Form10-K for the year ended December 31, ~~2017,~~2018, we do not have any materialoff-balance sheet arrangements.

Critical Accounting Policies

~~The preparation~~For a summary of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. We base our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.

~~As applicable~~significant accounting policies, see note 1 to our consolidated financial statements ~~the most significant estimates~~ and assumptions relate to purchase price allocation on acquisitions, including determination of useful lives and contingent consideration; determining the valuation and recoverability of intangible assets and goodwill; and assessing sales reserves and allowances, uncertain tax positions, valuation allowances, contingencies, restructuring costs and inventory valuation.

~~Please refer to note 1 in the consolidated financial statements and critical accounting policies~~“Critical Accounting Policies” included in our Annual Report on Form10-K for the year ended December 31, ~~2017 for a summary of our significant accounting policies.~~2018.

Recently Issued Accounting Pronouncements

See note 2 to our consolidated financial statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in our assessment of material contractual obligations and commitments as set forth in Item 7A to our Annual Report on Form10-K for the year ended December 31, 2017, other than as set forth below. These changes are the result of the significant debt movements during the first quarter of 2018, as described under Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—2018 Debt Balance and Movements” above.

Our outstanding debt obligations, the corresponding interest rates, currency and repayment schedules as of March 31, 2018 are set forth in the table below in U.S. dollar equivalent terms, taking into account recent changes in our debt movement:2018.

Currency
   Total
Amount Interest
Rate Ranges 2018    2019    2020    2021    2022    2023 &
thereafter
   (U.S. dollars in millions)
Fixed Rate:

USD
   18,433 1.70 % 6.75 % —      2,000    700    3,620    863    11,250
Euro
   9,914 0.38 % 3.85 % —      —      2,152    587    863    6,312
CHF
   1,521 0.13 % 1.50 % 786             367    368
USD convertible debentures*
   514 0.25 % 0.25 % 514    —      —      —      —      —
Floating Rate:

USD
   500 2.80 % 2.80 % —      —      —      —      —      500
JPY
   —   —      —      —      —      —      —
Others
   7 8.00 % 13.00 % 2    —      —      —      —      5












Total:
   30,889 $ 1,302    $ 2,000    $ 2,852    $ 4,207    $ 2,093    $ 18,435












Less debt issuance costs
   (137 )



Total:
   $ 30,752

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Teva maintains “disclosure controls and ~~procedures.~~ ~~Our management, including our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures~~procedures” (as defined in ~~Rule~~Rules 13a-15(e) and 15d-15(e) under ~~and15d-15(e)~~the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in Teva’s reports filed or submitted under the Securities Exchange Act of ~~1934)~~1934, as of the end of the period covered by this Quarterly Report, has concluded that, as of such date, Teva’s disclosure controls and procedures were effective to ensure that the information required in the reports that we file or submit under the Exchange Actamended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to ~~our~~Teva’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.

After evaluating the effectiveness of our disclosure controls and procedures as of March 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, Teva’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal ~~control~~. Control over Financial Reporting

During the ~~period covered by this Quarterly Report,~~quarter ended March 31, 2019, there were no changes in ~~Teva’s~~ internal control over financial reporting that ~~have~~ materially affected or are reasonably likely to materially affect Teva’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are subject to various litigation and other legal proceedings. For a discussion of these matters, see “Commitments and Contingencies” included in note 16 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form10-Q.

ITEM 1A.

RISK FACTORS

There are no material changes to the risk factors previously disclosed in our Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

There were no sales of unregistered equity securities during the three months ended March 31, ~~2018.~~2019.

Repurchase of Shares

In December 2011, our Board of Directors authorized us to repurchase up to an aggregate amount of $3.0 billion of our ordinary shares or ADSs, of which $1.3 billion remained available for purchase, when in October 2014, the Board of Directors authorized us to increase our share repurchase program by $1.7 billion to $3.0 billion, of which $2.1 billion remained available as of March 31, ~~2018.~~2019. We did not repurchase any of our shares during the three months ended March 31, ~~2018~~2019 and currently cannot do so due to our accumulated deficit. The repurchase program has no time limit. Repurchases may be commenced or suspended at any time, subject to applicable law.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

~~Not applicable.~~None.

ITEM 6.

EXHIBITS


~~4.1~~
10.1		Senior ~~Indenture,~~Unsecured Revolving Credit Agreement, dated as of ~~March 14, 2018,~~April 8, 2019, by and among Teva Pharmaceutical Industries Limited, Teva Pharmaceuticals USA, Inc., Teva Pharmaceutical Finance Netherlands III B.V., Teva Pharmaceutical ~~Industries Limited and The~~Finance Netherlands II B.V., Bank of ~~New York Mellon, as trustee~~^{America, N.A. and the lenders party thereto (1)}

~~4.2~~		First Supplemental Senior Indenture, dated as of March 14, 2018, among Teva Pharmaceutical Finance Netherlands III B.V., Teva Pharmaceutical Industries Limited and The Bank of New York Mellon, as trustee, including the form of 6.000% Senior Notes due 2024 and the form of 6.750% Senior Notes due 2028⁽²⁾

~~4.3~~		~~Registration Rights Agreement, dated as of March 14, 2018, among Teva Pharmaceutical Finance Netherlands III B.V., Teva Pharmaceutical Industries Limited and the initial purchasers party thereto~~⁽³⁾

~~4.4~~		~~Senior Indenture, dated as of March 14, 2018, among Teva Pharmaceutical Finance Netherlands II B.V., Teva Pharmaceutical Industries Limited and The Bank of New York Mellon, as trustee~~⁽⁴⁾

~~4.5~~		First Supplemental Senior Indenture, dated as of March 14, 2018, among Teva Pharmaceutical Finance Netherlands II B.V., Teva Pharmaceutical Industries Limited, The Bank of New York Mellon, as trustee, and The Bank of New York Mellon, London Branch, as paying agent, including the form of 3.250% Senior Notes due 2022 and the form of 4.500% Senior Notes due 2025⁽⁵⁾

~~4.6~~		~~Registration Rights Agreement, dated as of March 14, 2018, among Teva Pharmaceutical Finance Netherlands II B.V., Teva Pharmaceutical Industries Limited and the initial purchasers party thereto~~⁽⁶⁾

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS		XBRL Taxonomy Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Linkbase Document

*	Filed herewith.

~~(1)~~1.

Incorporated by reference to Exhibit ~~4.1~~10.1 to Current Report on Form8-K filed on ~~March 14, 2018.~~April 10, 2019.

~~(2)~~

~~Incorporated by reference to Exhibit 4.2 to Form8-K~~ ~~filed on March 14, 2018.~~

~~(3)~~

~~Incorporated by reference to Exhibit 4.4 to Form8-K~~ ~~filed on March 14, 2018.~~

~~(4)~~

~~Incorporated by reference to Exhibit 4.5 to Form8-K~~ ~~filed on March 14, 2018.~~

~~(5)~~

~~Incorporated by reference to Exhibit 4.6 to Form8-K~~ ~~filed on March 14, 2018.~~

~~(6)~~

~~Incorporated by reference to Exhibit 4.8 to Form8-K~~ ~~filed on March 14, 2018.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

7865


	Generics			Specialty			Other			Total			North America			Europe			Growth Market			Other		Total
	(U.S. $ in millions)												(U.S. $ in millions)
Balance as of December 31, 2017⁽³⁾	$	18,864		$	8,464		$	1,086		$	28,414		$	—		$	—		$	—		$	—	$	—
Relative fair value allocation		(18,864	)		(8,464	)		(1,086	)		(28,414	)		11,144			9,001			5,404			2,865		28,414

Balance as of January 1, 2018		—			—			—			—			11,144			9,001			5,404			2,865		28,414
Changes during the period:
Goodwill impairment⁽¹⁾																				(180	)				(180	)
Goodwill disposal⁽²⁾																	(54	)							(54	)
Translation differences														(13	)		269			28			1		285

Balance as of March 31, 2018⁽³⁾	$	—		$	—		$	—		$	—		$	11,131		$	9,216		$	5,252		$	2,866	$	28,465


	North America						Europe				Growth Markets
	Three months ended March 31,						Three months ended March 31,				Three months ended March 31,
	2018			2017			2018		2017		2018			2017
	(U.S. $ in millions)						(U.S. $ in millions)				(U.S. $ in millions)
Revenues	$	2,531		$	3,240		$	1,442	$	1,341	$	750		$	718
Gross profit		1,432			2,080			797		734		313			292
R&D expenses		188			267			73		106		24			47
S&M expenses		305			441			255		279		134			158
G&A expenses		126			139			91		79		41			48
Other income		(102	)		(73	)		1		2		(8	)		(1	)

Segment profit	$	915		$	1,306		$	377	$	268	$	122		$	40


Generic Name	Brand Name	Total U.S. Annual Branded Market (U.S. $ in millions (IQVIA))*
Eltrombopag tablets, 12.5 mg, 25 mg & 75 mg	Promacta^®	$	200
Esomeprazole magnesium delayed-release capsules, 20 mg	Nexium^® DR	$	85
Ingenol mebutate gel, 0.05%	Picato^®	$	17
Nicotine polacrilex mini mint lozenges, 2 mg & 4 mg	Nicorette^®	$	68
Perampanel tablets, 2 mg, 4 mg, 6 mg, 8 mg & 10 mg	Fycompa^®	$	68
Rotigotine transdermal system, 1 mg/24 hr, 2 mg/24 hr, 3 mg/24 hr, 4 mg/24 hr, 6 mg/24 hr & 8 mg/24 hr	Neupro^®	$	143
Ticagrelor tablets, 60 mg & 90 mg	Brilinta^®	$	712


		Three Months Ended March 31, 2018											Three Months Ended March 31, 2017
		U.S. dollars and shares in millions (except per share amounts)
		GAAP		Non-GAAP Adjustments			Dividends on Preferred Shares	Non-GAAP		% of Net Revenues			GAAP		Non-GAAP Adjustments			Dividends on Preferred Shares	Non-GAAP		% of Net Revenues
	Gross profit (1)		2,348		303				2,651		52	%		2,839		377				3,216		57	%
	Operating income (loss) (1)(2)		1,525		(90	)			1,435		28	%		895		726				1,621		29	%
	Net income attributable to ordinary shareholders (1)(2)(3)(4)		1,055		(101	)			954		19	%		580		499				1,079		19	%
	Earnings per share attributable to ordinary shareholders - diluted		1.03		(0.09	)			0.94					0.57		0.49				1.06

(1)	Amortization of purchased intangible assets				264											267
	Inventorystep-up				—											64
	Costs related to regulatory actions taken in facilities				1											34
	Equity compensation expenses			��	6											5
	Other COGS related adjustments				32											7

	Gross profit adjustments				303											377
(2)	Gain on divestitures, net of divestitures related costs				(93	)										—
	Goodwill impairment				180											—
	Restructuring expenses				247											130
	Amortization of purchased intangible assets				46											53
	Capital loss on currency translation				—											52
	Equity compensation expenses				24											31
	Acquisition, Integration and related expenses				2											23
	Other R&D expenses				22											—
	Contingent consideration				8											21
	Legal settlements and loss contingencies				(1,278	)										20
	Impairment of long-lived assets				432											11
	Other operating related adjustments				17											8

					(393	)										349

	Operating income adjustments				(90	)										726

(3)	Financial expense (income)				68											(28	)
	Tax effect				(165	)										(186	)
	Impairment of equity investment				94											—
	Minority interest				(8	)										(13	)

	Net income adjustments				(101	)										499


Currency	Total Amount			Interest Rate Ranges					2018		2019		2020		2021		2022		2023 & thereafter
	(U.S. dollars in millions)
Fixed Rate:
USD		18,433			1.70	%	6.75	%		—		2,000		700		3,620		863		11,250
Euro		9,914			0.38	%	3.85	%		—		—		2,152		587		863		6,312
CHF		1,521			0.13	%	1.50	%		786								367		368
USD convertible debentures*		514			0.25	%	0.25	%		514		—		—		—		—		—

Floating Rate:
USD		500			2.80	%	2.80	%		—		—		—		—		—		500
JPY		—								—		—		—		—		—		—
Others		7			8.00	%	13.00	%		2		—		—		—		—		5

Total:		30,889							$	1,302	$	2,000	$	2,852	$	4,207	$	2,093	$	18,435

Less debt issuance costs		(137	)

Total:	$	30,752

Large accelerated filer

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Smaller reporting company

Emerging growth company