UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-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~~

June 30, 2019

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

Commission file number

001-16174

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Exact name of registrant as specified in its charter)


~~Israel~~		~~Not Applicable~~
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 Regulation

S-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, a

non-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 Rule

12b-2

of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

~~Non-accelerated~~ ~~filer~~	~~☐ (Do not check if a smaller reporting company)~~
Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

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 Rule

12b-2

of the Act). Yes

☐

☒

As of ~~April~~June 30, ~~2018,~~2019, the registrant had ~~1,018,226,803~~

1,091,906,300

ordinary shares outstanding.

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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 “ADS(s)” are to Teva’s American Depositary Share(s). 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 to

in-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 Form

10-Q,

and the reports and documents incorporated by reference in this Quarterly Report on Form

10-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; 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 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 ~~indebtedness~~regulation; delays in launches of new products and ~~significantly decreased cash on hand,~~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 substantial indebtedness, 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; implementation of a new enterprise resource planning system that, if deficient, could materially and adversely affect our operations and/or the effectiveness of our internal controls; 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~~

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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 Form

10-Q

and in our Annual Report on Form

10-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.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in ~~millions)~~

millions, except for share data)

(Unaudited)

   March 31,
2018 December 31,
2017
ASSETS

Current assets:

Cash and cash equivalents
   $ 1,418 $ 963
Trade receivables
   6,289 7,128
Inventories
   5,113 4,924
Prepaid expenses
   1,138 1,100
Other current assets
   712 701
Assets held for sale
   17 566


Total current assets
   14,687 15,382
Deferred income taxes
   463 574
Othernon-current assets
   832 932
Property, plant and equipment, net
   7,420 7,673
Identifiable intangible assets, net
   17,314 17,640
Goodwill
   28,465 28,414


Total assets
   $ 69,181 $ 70,615


LIABILITIES AND EQUITY

Current liabilities:

Short-term debt
   $ 1,302 $ 3,646
Sales reserves and allowances
   7,410 7,881
Trade payables
   1,929 2,069
Employee-related obligations
   607 549
Accrued expenses
   2,632 3,014
Other current liabilities
   876 724
Liabilities held for sale
   —   38


Total current liabilities
   14,756 17,921
Long-term liabilities:

Deferred income taxes
   2,998 3,277
Other taxes and long-term liabilities
   1,875 1,843
Senior notes and loans
   29,450 28,829


Total long-term liabilities
   34,323 33,949


Commitments and contingencies, see note 16

Total liabilities
   49,079 51,870


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
Additionalpaid-in capital
   23,443 23,479
Retained earnings
   (2,688 ) (3,808 )
Accumulated other comprehensive loss
   (1,735 ) (1,848 )
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 )


   18,621 17,359


Non-controlling interests
   1,481 1,386


Total equity
   20,102 18,745


Total liabilities and equity
   $ 69,181 $ 70,615


	June 30,			December 31,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	2,165		$	1,782
Trade receivables		5,260			5,822
Inventories		4,850			4,731
Prepaid expenses		1,069			899
Other current assets		437			468
Assets held for sale		24			92
Total current assets		13,805			13,794
Deferred income taxes		317			368
Other non-current assets		721			731
Property, plant and equipment, net		6,732			6,868
Operating lease right-of-use assets		500			—
Identifiable intangible assets, net		12,435			14,005
Goodwill		24,913			24,917
Total assets	$	59,424		$	60,683
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	2,771		$	2,216
Sales reserves and allowances		6,054			6,711
Trade payables		1,806			1,853
Employee-related obligations		587			870
Accrued expenses		2,335			1,868
Other current liabilities		899			804
Total current liabilities		14,452			14,322
Long-term liabilities:
Deferred income taxes		1,698			2,140
Other taxes and long-term liabilities		1,642			1,727
Senior notes and loans		25,955			26,700
Operating lease liabilities		426			—
Total long-term liabilities		29,721			30,567
Commitments and contingencies , see note 16
Total liabilities		44,173			44,889
Equity:
Teva shareholders’ equity:
Ordinary shares of NIS 0.10 par value per share; June 30, 2019 and December 31, 2018: authorized 2,495 million shares; issued 1,198 million shares and 1,196 million shares, respectively		56			56
Additional paid-in capital		27,258			27,210
Accumulated deficit		(6,752	)		(5,958	)
Accumulated other comprehensive loss		(2,312	)		(2,459	)
Treasury shares as of June 30, 2019 and December 31, 2018 — 107 million ordinary shares and 106 million ordinary shares, respectively		(4,128	)		(4,142	)
		14,122			14,707
Non-controlling interests		1,128			1,087
Total equity		15,251			15,794
Total liabilities and equity	$	59,424		$	60,683

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(LOSS)

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

(Unaudited)

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


Gross profit
   2,348 2,839
Research and development expenses
   317 432
Selling and marketing expenses
   771 958
General and administrative expenses
   329 366
Other asset Impairments, restructuring and other items
   707 240
Goodwill impairment
   180 —
Legal settlements and loss contingencies
   (1,278 ) 20
Other income
   (203 ) (72 )


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


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


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


Net income attributable to Teva
   1,120 645


Dividends on preferred shares
   65 65


Net income attributable to ordinary shareholders
   $ 1,055 $ 580


Earnings per share attributable to ordinary shareholders:

Basic
   $ 1.04 $ 0.57


Diluted
   $ 1.03 $ 0.57


Weighted average number of shares (in millions):

Basic
   1,017 1,016


Diluted
   1,020 1,017


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018

Net revenues	$	4,337		$	4,701		$	8,632		$	9,766
Cost of sales		2,443			2,668			4,883			5,418

Gross profit		1,893			2,033			3,749			4,348
Research and development expenses		276			290			537			607
Selling and marketing expenses		666			682			1,313			1,420
General and administrative expenses		296			316			589			645
Intangible assets impairment		561			521			1,030			727
Goodwill impairment		—			120			—			300
Other assets impairments, restructuring and other items		101			194			103			695
Legal settlements and loss contingencies		646			20			703			(1,258	)
Other income		(9	)		(96	)		(15	)		(299	)

Operating income (loss)		(644	)		(14	)		(510	)		1,511
Financial expenses, net		206			236			425			507

Income (loss) before income taxes		(850	)		(250	)		(934	)		1,004
Income taxes		(179	)		(76	)		(170	)		(30	)
Share in losses (income) of associated companies, net		—			(8	)		4			66

Net income (loss)		(671	)		(166	)		(768	)		968
Net income attributable to non-controlling interests		18			10			26			24

Net income (loss) attributable to Teva		(689	)		(176	)		(794	)		944

Dividends on preferred shares		—			65			—			130

Net income (loss) attributable to ordinary shareholders	$	(689	)	$	(241	)	$	(794	)	$	814

Earnings (loss) per share attributable to ordinary shareholders:
Basic	$	(0.63	)	$	(0.24	)	$	(0.73	)	$	0.80

Diluted	$	(0.63	)	$	(0.24	)	$	(0.73	)	$	0.80

Weighted average number of shares (in millions):
Basic		1,092			1,018			1,091			1,018

Diluted		1,092			1,018			1,091			1,020

Amounts may not add up due to rounding.

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

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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						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income (loss)	$	(671	)	$	(166	)	$	(768	)	$	968
Other comprehensive income (loss), net of tax:
Currency translation adjustment		86			(711	)		133			(472	)
Unrealized gain (loss) from derivative financial instruments		(10	)		100			37			56
Unrealized gain (loss) from available-for-sale securities		1			(1	)		1			(1	)
Unrealized loss on defined benefit plans		(1	)		(2	)		(1	)		(1	)

Total other comprehensive income (loss)		76			(614	)		170			(418	)

Total comprehensive income (loss)		(595	)		(780	)		(598	)		550
Comprehensive income (loss) attributable to non-controlling interests		47			(51	)		49			46

Comprehensive income (loss) attributable to Teva	$	(642	)	$	(729	)	$	(647	)	$	504

Amounts may not add up due to rounding.

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

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~(U.S. dollars in millions)~~

~~(Unaudited)~~

   Three months ended
March 31,
   2018 2017
Operating activities:

Net income
   $ 1,134 $ 641
Adjustments to reconcile net income to net cash provided by operations:

Net change in operating assets and liabilities
   (592 ) (797 )
Impairment of long-lived assets
   432 11
Depreciation and amortization
   507 480
Goodwill impairment
   180 —
Deferred income taxes – net and uncertain tax positions
   (221 ) (217 )
Net gain from sale of long-lived assets and investments
   (106 ) (39 )
Impairment of equity investment
   94 —
Research and development in process
   54 —
Stock-based compensation
   30 40
Other items
   (16 ) 17


Net cash provided by operating activities
   1,496 136


Investing activities:

Proceeds from sales of business, investments and long-lived assets
   824 1,412
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 )
Other investing activities
   (10 ) (22 )


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


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 —
Net change in short-term debt
   (261 ) (1,350 )
Dividends paid on ordinary shares
   (12 ) (346 )
Dividends paid on preferred shares
   (10 ) (65 )
Other financing activities
   (5 ) (7 )


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


Translation adjustment on cash and cash equivalents
   11 28


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


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


Supplemental cash flow information:

Non-cash financing and investing activities:

Beneficial interest obtained in exchange for securitized trade receivables
   $ 551 $ 285

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 shareholders ’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at March 31, 2018**		1,124		54		3,696		23,443			(2,688	)		(1,735	)		(4,149	)		18,621			1,481			20,102
Comprehensive income (loss)											(176	)		(554	)					(730	)		(51	)		(780	)
Stock-based compensation expense								47												47						47
Dividends to preferred shareholders						65		(65	)											—			—			—

Balance at June 30, 2018		1,124	$	54	$	3,760	$	23,426		$	(2,864	)	$	(2,289	)	$	(4,149	)	$	17,938		$	1,430		$	19,368

Mandatory convertible preferred shares.

Following the adoption of ASU 2016-01, the Company recorded a $5 million opening balance reclassification from accumulated other comprehensive income to retained earnings.

	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 shareholders’ equity			Non- controlling interests			Total equity
	(U.S. dollars in millions)
Balance at March 31, 2019		1,198		56		—		27,234			(6,063	)		(2,359	)		(4,137	)		14,732			1,089			15,821
Comprehensive income (loss)											(689	)		47						(642	)		47			(595	)
Issuance of Shares				**
Issuance of Treasury Shares								(6	)								9			3						3
Stock-based compensation expense								32												32						32
Other								(2	)											(2	)					(2	)
Transactions with non-controlling interests																							(8	)		(8	)

Balance at June 30, 2019		1,198	$	56		—	$	27,258		$	(6,752	)	$	(2,312	)	$	(4,128	)	$	14,122		$	1,128		$	15,251

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.

Table of Contents

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
shareholders’
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)
944 (441 ) 503 46 550
Dividends to preferred shareholders 129

(129
)
Stock-based compensation expense

77

77

77

Transactions with non-controlling interests (2 ) (2 )

Balance at June 30, 2018

1,124
$
54
$
3,760
$
23,426
$
(2,864
) $
(2,289
) $
(4,149
) $
17,938
$
1,430
$
19,368

* 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
shareholders’
equity

Non-
controlling
interests

Total equity

(U.S. dollars in millions)

Balance at December 31, 2018

1,196

56

—

27,210

(5,958
)
(2,459
)
(4,142
)
14,707

1,087

15,794

Comprehensive income (loss)

(794
)
147

(647
)
49

(598
)
Issuance of Shares

2
**
Issuance of Treasury Shares

(8
)
14

6

6

Stock-based compensation expense

64

64

64

Transactions with
non-controlling

interests
(8 ) (8 )
Other

(8
)
(8
)
(8
)

Balance at June 30, 2019

1,198
$
56

—
$
27,258
$
(6,752
) $
(2,312
) $
(4,128
) $
14,122
$
1,128
$
15,251

*
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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

(Unaudited)

Six months ended
June 30,

2019

2018

Operating activities:

Net income (loss)
$
(768
) $
968

Adjustments to reconcile net income (loss) to net cash provided by operations:

Net change in operating assets and liabilities

(1,056
)
(1,268
)
Impairment of long-lived assets

1,097

980

Depreciation and amortization

893

986

Deferred income taxes – net and uncertain tax positions
(362
)
(489
)
Stock-based compensation

64

77

Other items
11

44

Net gain from sale of long-lived assets and investments

6

(88
)
Goodwill impairment

—

300

Impairment of equity investment

—

94

In process Research and development
—

54

Net cash provided by (used in) operating activities

(115
)
1,658

Investing activities:

Beneficial interest collected in exchange for securitized trade receivables

746

970

Purchases of property, plant and equipment

(237
)
(299
)
Proceeds from sales of business, investments and long-lived assets
134

841

Other investing activities
59

(11
)
Purchases of investments and other assets

(1
)
(56
)

Net cash provided by investing activities

701

1,445

Financing activities:

Repayment of senior notes and loans and other long-term liabilities

(157
)
(6,289
)
Tax withholding payments made on shares and dividends

(52
)
(22
)
Other financing activities

(13
)
(10
)
Net change in short-term debt

(2
)
(261
)
Proceeds from senior notes and loans, net of issuance costs

—

4,435

Net cash used in financing activities

(224
)
(2,147
)

Translation adjustment on cash and cash equivalents

21

(58
)

Net change in cash and cash equivalents

383

898

Balance of cash and cash equivalents at beginning of period

1,782

963

Balance of cash and cash equivalents at end of period

$
2,165

$
1,861

Non-cash
financing and investing activities:

Beneficial interest obtained in exchange for securitized trade receivables
$
770
$
968

Amounts may not add up due to rounding.
The accompanying notes are an integral part of the financial statements.
10

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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 Form

10-Q

should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form

10-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~~six months ended ~~March 31, 2018~~June 30, 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,~~

In June 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,~~ the FASB issued ASU

2018-07

“Improvement to Nonemployee Share-Based Payments Accounting.” This guidance ~~on changes~~simplifies the accounting for

non-employee

share-based payment transactions. The amendments specify that ASC 718 applies to ~~terms and conditions of~~all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendment provides guidance about which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective for the fiscal year beginning on January 1, 2018, including interim periods within that year. 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~~ASU

2017-12

“Derivatives and ~~hedging, which~~Hedging—Targeted Improvements to Accounting for Hedging Activities.” This guidance expands and refines hedge accounting for both

non-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 ASU

2016-02

“Leases.” The guidance establishes a

right-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 the

use-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 and

non-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

have material impact on

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, the Company’s accounting for finance leases remained substantially unchanged. See note 20 for further discussion.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Recently issued accounting pronouncements, not yet adopted

In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).

”

This ASU provides clarifications for three topics related to financial instruments accounting. The guidance will be effective for fiscal years beginning after December 15, ~~2018, including interim periods within those fiscal years (early adoption is permitted for any interim and annual financial statements that have not yet been issued). Teva~~2019. The Company is currently evaluating this guidance to determine the ~~potential effect of the guidance~~impact it may have on its consolidated financial statements.

In November 2018, the FASB issued ASU

2018-18

“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) adds

unit-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, 2019. Early adoption is permitted and should be applied retrospectively. 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 ASU

2018-15

“Intangibles—Goodwill and

other—Internal-use

software (Subtopic

350-40):

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 obtain

internal-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 ASU

2018-13

“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~~ASU

2016-13

“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,~~

Reclassifications of prior periods

During 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 Januaryfourth quarter of 2018, the ~~FASB issued an update~~Company changed its accounting policy for the presentation of royalty payments to third parties that ~~permits an entity to elect an optional transition practical expedient to~~are not ~~evaluate land easements that existed or expired before~~involved in the ~~entity’s adoption~~production of ~~the new standard and that were not~~products. Teva previously accounted for royalty payments to such third parties as ~~leases. Although~~S&M expenses. Royalties paid to a party that is involved in the production process are classified as cost of sales. The Company believes this change in accounting policy is preferable in order to be aligned with industry practice of classifying all royalty payments related to currently marketed products in cost of sales. The Company now reports all royalty payments as cost of sales. The Company has ~~not finalized its process of evaluating~~retrospectively adjusted prior periods to reflect this change and the impact of ~~adoption~~the change for the first and second quarters of ~~the ASU on its consolidated financial statements, the Company expects there will be~~2018 was an increase in cost of sales of $33 million and $28 million, respectively, with a ~~material increase to assets and liabilities related to the recognition of newright-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)~~

corresponding decrease in S&M expenses.

NOTE 3 – Certain transactions:

Business acquisitions:

Actavis Generics and Anda acquisitions

On August 2, 2016, Teva ~~consummated its~~completed the acquisition of ~~Allergan~~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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Rimsa

On March 3, 2016, Teva completed the acquisition of Representaciones e ~~Investigaciones~~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’s

pre-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: a

pre-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 a

one-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~~June 30, 2019 and December 31, ~~2017:~~

   March 31, 2018    December 31, 2017
   (U.S. $ in millions)
Inventories
   —      39
Property, plant and equipment, net
   17    16
Identifiable intangible assets, net
   —      236
Goodwill
   —      275




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




Other taxes and long-term liabilities
   —      38




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

2018:


	June 30, 2019			December 31, 2018
	(U.S. $ in millions)
Property, plant and equipment, net	$	30		$	92
Goodwill		—			51
Adjustments of assets held for sale to fair value		(6	)		(51	)

Total assets of the disposal group classified as held for sale in the consolidated balance sheets	$	24		$	92

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~~^®

United Kingdom.

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.~~United States 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.

Table of Contents

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 market
over-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 ~~FDA~~and subject to U.S. Food and Drug Administration (“FDA”) approval of AUSTEDO for the treatment of Tourette syndrome, Teva will pay Nuvelution a

pre-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

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 ~~respectively.~~

and the fourth quarter of 2018, respectively.

Table of Contents

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
   (U.S. $ in millions)
Finished products
   $ 2,772    $ 2,689
Raw and packaging materials
   1,483    1,454
Products in process
   646    597
Materials in transit and payments on account
   212    184




   $ 5,113    $ 4,924


	June 30,		December 31,
	2019		2018
	(U.S. $ in millions)
Finished products	$	2,643	$	2,665
Raw and packaging materials		1,393		1,328
Products in process		638		590
Materials in transit and payments on account		176		148

Total	$	4,850	$	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.~~


	June 30,			December 31,
	2019			2018
	(U.S. $ in millions)
Machinery and equipment	$	5,713		$	5,691
Buildings		3,092			3,143
Computer equipment and other assets		2,129			2,097
Payments on account		526			514
Land		370			351

		11,830			11,796
Less—accumulated depreciation		(5,099	)		(4,928	)

Total	$	6,732		$	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
   March 31,    December 31,    March 31,    December 31,    March 31,    December 31,
   2018    2017    2018    2017    2018    2017
   (U.S. $ in millions)
Product rights
   $ 21,395    $ 21,011    $ 8,728    $ 8,276    $ 12,667    $ 12,735
Trade names
   618    617    64    55    554    562
Research and development in process
   4,093    4,343    —      —      4,093    4,343












Total
   $ 26,106    $ 25,971    $ 8,792    $ 8,331    $ 17,314    $ 17,640

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2019		2018		2019		2018		2019		2018
	(U.S. $ in millions)
Product rights	$	19,995	$	20,361	$	10,043	$	9,565	$	9,952	$	10,796
Trade names		604		606		109		91		496		515
In process research and development		1,988		2,694		—		—		1,988		2,694

Total	$	22,587	$	23,661	$	10,152	$	9,656	$	12,435	$	14,005

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~~pharmaceutical products from various categories with a weighted average ~~amortization~~ life of approximately 1112 years.

Amortization of intangible assets ~~was $310~~amounted to $285 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~~$302 million in the three months ended ~~March 31,~~June 30, 2019 and 2018, respectively.

Amortization of intangible assets amounted to $568 million and $612 million in the six months ended June 30, 2019 and 2018, respectively.

IPR&D

Teva’s IPR&D are assets that have not yet been approved in major markets. Teva’s IPR&D is ~~recorded~~comprised mainly of the following acquisitions and related assets: various generic products (Actavis Generics) – $1,730 million; various generic products (Rimsa) – $47 million; and AUSTEDO – $211 million. IPR&D carries intrinsic risks that the asset might not succeed in ~~earnings under other asset impairments, restructuring~~advanced phases and ~~other items. See note 14.~~

~~Additional reductions to R~~may be impaired in future periods.

In the three months ended June

2019

, Teva reclassified $19 million of products from IPR&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.~~

approval.

In the first ~~quarter~~six months of ~~2018, $103~~ 2019, Teva reclassified

256

million ~~was reclassified~~of products from IPR&D to product rights following regulatory approval,

mainly $

174

million in connection with ~~mesalamine following regulatory approval~~methylphenidate ER.

Intangible assets impairment

Impairments of long-lived intangible assets for ~~this product.~~

the three months ended on June

30,

2019 and

2018 were $561 million and $521 million, respectively. Impairments in the

second

quarter of

2019 consisted of:

Identifiable product rights of $365 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

IPR&D assets of $196 million, mainly due to: (i) $137 million of generic pipeline 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) in the United States and (ii)

$59

million related to a change in the assumption of the future market share of few products within Teva’s Actavis Generics related pipeline in Europe.

Impairments of long-lived intangible assets for the six months ended on June

2019

and

2018

were $1,030 million and $727 million, respectively. Impairments in the first six months of

2019

consisted of:

Identifiable product rights of $569 million, mainly due to updated market assumptions regarding price and volume of products acquired from Actavis Generics and primarily marketed in the United States.

IPR&D assets of $461 million, due to: (i) $277 million of

generic

pipeline 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) in the United States and (ii) $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 (iii) $59 million related to a change in

the

assumption of the future market share of few products within Teva’s Actavis

Generics related pipeline in Europe.

NOTE 7 -– Goodwill:

The changes in the carrying amount of goodwill for the period ended ~~March 31, 2018~~June 30, 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 (1)	$	11,098		$	8,653		$	2,479	$	2,687	$	24,917

Changes during the period:
Goodwill disposal		(23	)		(5	)		—		—		(28	)
Goodwill adjustments		(13	)		—			—		—		(13	)
Translation differences		16			(32	)		53		—		37

Balance as of June 30, 2019 (1)	$	11,078		$	8,616		$	2,532	$	2,687	$	24,913

(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~~June 30, 2019 and ~~December 31, 2017~~January 1, 2019 was approximately ~~$18.2 billion and $18.0 billion, respectively.~~$21.0 billion.

~~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.~~

. 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 an

out-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. 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 believed that its fair value assessment was reasonably supported by Teva’s market capitalization. Based on this assessment, management concluded that it was not more likely than not that the fair value of any of the reporting units was below its carrying value as of March 31, 2019 and, therefore, no quantitative assessments were performed.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In the second quarter of 2019, the Company completed its long-range planning (“LRP”) process. The LRP is part of Teva’s internal financial planning and budgeting processes and is discussed and reviewed by Teva’s management and its board of directors. Certain events and changes in circumstances, reflected in the LRP, indicated that it was more likely than not that the carrying value of certain reporting units may exceed their fair value. The following analysis was performed based upon the June 30, 2019 assessment:

International Markets

Management noted a further decrease in the profitability projections in the Japanese market related to new price regulation and further generic competition. Consequently, management conducted a quantitative analysis to its International Markets reporting unit, which resulted in no impairment.

The percentage difference between estimated fair value and estimated carrying value for the International Markets reporting unit is 4%.

The Company used a terminal growth rate of 2.3% and a discount rate of 10.74%. If Teva holds all other assumptions constant, a reduction in the terminal value growth rate of 0.4% or an increase in discount rate of 0.3% would result in an impairment related to its International Markets reporting unit.

North America

Management believes that the sharp decline in the Company’s share price, which commenced

May 2019

, was mainly a result of events related to increased publicity surrounding certain litigations in the United States. Management considered the sharp decline in share price as an indication that it was more likely than not that the carrying value of its North America reporting unit exceeded its fair value.

Consequently, management conducted a quantitative analysis to its North America reporting unit, which resulted in no impairment.

The percentage difference between estimated fair value and estimated carrying value for the North America reporting unit is 9%.

The Company used a terminal growth rate of 2.0% and a discount rate of 10.0

If Teva holds all other assumptions constant, a reduction in the terminal value growth rate

0.9% or an increase in discount rate

0.6% would result in an impairment related to its North America reporting unit.

Remaining reporting units

After assessing the totality of relevant events and circumstances, Teva determined that it is not more likely than not that the fair value of its remaining reporting units is less than their carrying amount.

The percentage difference between estimated fair value and estimated carrying value for the Europe, Medis and TAPI reporting units is 22%, 45% and 15%, respectively.

Market Capitalization

Teva analyzed the aggregate fair value of its reporting units as compared to its market capitalization in order to assess the reasonableness of the results of its cash flow projections used for its goodwill impairment analysis.

During the second quarter of 2019, Teva noted its market capitalization was significantly below management’s assessment of the aggregate fair value of its reporting units. Management analyzed the difference and the underlying factors:

Based on research analysts’ reports reviewed by management and responses from certain analysts to Teva’s inquiries, management noted a gap in the sales projections of AJOVY in the Europe and International Markets reporting units. Management concluded that the majority of analysts do not focus on these markets in preparing their financial models and, as a result, have not attributed value to the launch potential in these reporting units. Management believes that its fair value assessment relies on more accurate information and therefore no adjustment was incorporated to the fair value.

Management also noted a difference with regard to sales projections of AUSTEDO in North America resulting in higher fair value as analyzed by management compared to Teva’s market capitalization. Management believes that it has more accurate information based on its knowledge of the market and its growth through the remainder of 2019 and therefore no adjustment was incorporated to the fair value.

Management believes that the remaining difference in fair value is attributable to market concerns regarding certain litigation risks, namely from the opioid and price fixing litigations, and concern surrounding the company’s cash flow and overall liquidity. Management believes that these concerns led to an acute reaction, which resulted in further decline in the share price. Although ultimately the outcome of the relevant cases will not be known in the near term, developments in these cases, likely to occur through the end of 2019, are expected to clarify the outlook with regards to the opioid litigation, which may result in a share price recovery. Consequently, management believes that this disparity results from a market value not reflective of the underlying fair value of its reporting units and therefore it would be inappropriate to record an impairment charge in the second quarter of 2019 related thereto.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Management will continue to monitor business conditions and potential events or circumstances that could have a negative effect on the estimated fair value of the Company.

Based on assumptions in place at this time, if Teva’s share price does not recover in the near term, this may lead to a goodwill impairment charge of up to an aggregated amount of approximately $5,000 million in its North America and International Markets reporting units. Future impairment charges, if any, reflecting conditions at that time may be materially different.

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 ~~earnings~~loss per share for the three months ended ~~March 31,~~June 30, 2019 and 2018, ~~and 2017, basic earnings per share~~no account was ~~adjusted to take into account~~taken of the potential dilution ~~that could occur upon~~of the assumed exercise of employee stock options andnon-vested RSUs granted under employee stock compensation plans, ~~using~~and convertible senior debentures, since they had an anti-dilutive effect on loss per share.

Additionally, in the ~~treasury stock method.~~

~~Additionally,~~three months ended June 30, 2018, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 6463 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 loss per share.

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.

In computing the diluted loss per share for the six months ended June 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and non-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 six months ended June 30, 2018 take into account the potential dilution that could occur upon the exercise of options and non-vested RSUs granted under employee stock compensation plans, using the treasury stock method.

Additionally, in the six months ended June 30, 2018, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 65 million shares (including shares that were issued due to unpaid dividends until that date), since they had an anti-dilutive effect on loss per share.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 9 – Revenue from contracts with customers:

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.

~~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~~


	Three months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,686		1,173		526		204		3,588
Licensing arrangements		35		10		2		1		48
Distribution		351		§		164		—		515
Other		—		§		49		137		186

	$	2,071	$	1,183	$	741	$	342		4,337

§ Represents an amount less than $1 million.


	Three months ended June 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		1,913		1,317		573		186		3,989
Licensing arrangements		30		8		1		2		41
Distribution		320		3		154		—		477
Other		—		—		61		133		194

	$	2,263	$	1,328	$	789	$	321	$	4,701

	Six months ended June 30, 2019
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		3,324		2,433		994		390		7,141
Licensing arrangements		65		15		2		3		85
Distribution		729		§		315		—		1,044
Other		—		§		97		264		362

	$	4,118	$	2,448	$	1,409	$	657	$	8,632

§ Represents an amount less than $1 million.

	Six months ended June 30, 2018
	North America		Europe		International Markets		Other activities		Total
	(U.S. $ in millions)
Sale of goods		4,081		2,746		1,092		365		8,284
Licensing arrangements		62		18		21		4		105
Distribution		651		6		307		—		964
Other		—		—		119		294		413

	$	4,794	$	2,770	$	1,539	$	663	$	9,766

Table of ~~revenue streams~~

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.

Contents

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,~~June 30, 2019, with the remaining balance primarily in Canada and Germany.

The changes in SR&A for third-party sales for the ~~period~~six months ended ~~March 31, 2018~~June 30, 2019 were as follows:

   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
   (U.S. dollars in millions)
Balance at December 31, 2017
   $ 196 $ 3,077 $ 1,908 $ 1,849 $ 780 $ 267 $ 7,881 $ 8,077
Provisions related to sales made in current year period
   136 1,865 357 2,711 70 103 5,106 5,242
Provisions related to sales made in prior periods
   2 (19 ) 3 (1 ) 21 (8 ) (4 ) (2 )
Credits and payments
   (157 ) (2,051 ) (349 ) (2,927 ) (119 ) (139 ) (5,585 ) (5,742 )
Translation differences
   1 9 2 1 1 (1 ) 12 13


Balance at March 31, 2018
   $ 178 2,881 $ 1,921 $ 1,633 $ 753 $ 222 $ 7,410 $ 7,588


	Sales Reserves and Allowances
	Reserves included in Accounts Receivable, net			Rebates			Medicaid and other governmental allowances			Chargebacks			Returns			Other			Total reserves included in SR&A			Total
	(U.S.$ in millions)
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		229			2,651			548			4,822			148			213			8,427			8,656
Provisions related to sales made in prior periods		—			7			—			(5	)		3			(4	)		1			1
Credits and payments		(242	)		(2,975	)		(739	)		(4,936	)		(196	)		(206	)		(9,052	)		(9,294	)
Translation differences		—			4			—			2			2			4			12			12

Balance at June 30, 2019	$	162		$	2,693		$	1,170		$	1,413		$	595		$	183		$	6,054		$	6,261

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
   Foreign
currency
translation
adjustments Available-for-
sale securities    Derivative
financial
instruments Actuarial
gains/(losses)
and prior
service
(costs)/credits Total
Balance as of December 31, 2017*
   $ (1,316 ) $ 1    $ (442 ) $ (91 ) $ (1,848 )




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




Net other comprehensive income (loss) before 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 )


	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, 2017*	$	(1,316	)	$	1		$	(442	)	$	(91	)	$	(1,848	)
Other comprehensive income (loss) before reclassifications		(495	)		—			42			—			(453	)
Amounts reclassified to the statements of income		—			(1	)		14			1			14

Net other comprehensive income (loss) before tax		(495	)		(1	)		56			1			(439	)
Corresponding income tax		—			—			—			(2	)		(2	)
Net other comprehensive income (loss) after tax**		(495	)		(1	)		56			(1	)		(441	)

Balance as of June 30, 2018	$	(1,811	)	$	—		$	(386	)	$	(92	)	$	(2,289	)

*	Following the adoption of ASU 2016-01, the Company recorded a $5 $ 5 million opening balance reclassification from accumulated other comprehensive income to retained earnings.

**	Amounts do not include a $ 23 million gain from foreign currency translation adjustments attributable to non-controlling ~~interests of a $83 million gain.~~ interests.

Table of Contents

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		111			—		22			—			133
Amounts reclassified to the statements of income		—			—		15			—			15

Net other comprehensive income (loss) before tax		111			—		37			—			148
Corresponding income tax		—			—		—			(1	)		(1	)

Net other comprehensive income (loss) after tax*		111			—		37			(1	)		147

Balance as of June 30, 2019	$	(1,944	)	$	1	$	(290	)	$	(79	)	$	(2,312	)

*	Amounts do not include a $ 24 million gain from foreign currency translation adjustments attributable to non-controlling ~~interests of a $70 million gain.~~ interests.

NOTE 11 – Debt obligations:

a. Short-term debt:

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

   786    2,880




Total short term debt

   $ 1,302    $ 3,646

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


	Weighted average interest rate as of June 30, 2019			Maturity		June 30, 2019		December 31, 2018
						(U.S. $ in millions)
Bank and financial institutions		4.25	%		—	$	1	$	2
Convertible debentures		0.25	%		2026		514		514
Current maturities of long-term liabilities							2,256		1,700

Total short-term debt						$	2,771	$	2,216

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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

   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)~~

~~Debt development~~

debt:


	Weighted average interest rate as of June 30, 2019		Maturity		June 30, 2019			December 31, 2018
					(U.S. $ in millions)
Senior notes EUR 1,660 million		0.38%		2020	$	1,886		$	1,897
Senior notes EUR 1,500 million		1.13%		2024		1,697			1,707
Senior notes EUR 1,300 million		1.25%		2023		1,472			1,480
Senior notes EUR 900 million		4.50%		2025		1,023			1,029
Senior notes EUR 750 million		1.63%		2028		846			850
Senior notes EUR 700 million		3.25%		2022		796			801
Senior notes EUR 700 million		1.88%		2027		794			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 1,556 million (1)		1.70%		2019		1,556			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		858			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		619			621
Senior notes USD 588 million		3.65%		2021		587			587
Senior notes CHF 350 million		0.50%		2022		359			356
Senior notes CHF 350 million		1.00%		2025		359			356
Fair value hedge accounting adjustments						9			(9	)

Total senior notes						28,313			28,483
Other long-term debt		1.15%		2026		1			12
Less current maturities						(2,256	)		(1,700	)
Derivative instruments						(9	)		9
Less debt issuance costs						(94	)		(104	)

Total senior notes and loans					$	25,955		$	26,700

(1)	~~In March 2018,~~During the first six months of 2019, Teva ~~Pharmaceutical Finance Netherlands II B.V., a Teva finance subsidiary, issued senior notes in an aggregate~~repurchased and canceled approximately $144 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,~~ In July 2019, 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~~repaid at maturity $1,556 million of its ~~outstanding debentures.~~1.7% senior notes.

~~Long term~~

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~~

Long-term debt as of ~~March 31, 2018~~June 30, 2019 is effectively denominated (taking into consideration cross currency swap agreements) in the following currencies: U.S. dollar ~~64%~~62%, euro ~~34%~~35% and Swiss franc 2%3%.

Teva’s principal sources of short-term liquidity are its cash on hand, existing cash investments, liquid securities and available credit facilities, primarily its $3$2.3 billion ~~syndicated~~ revolving credit facility (“RCF”)~~, which was not utilized as of March 31, 2018, as well as internally generated funds.~~ .

In ~~connection with the requirements of the RCF,~~April 2019, the Company entered into ~~negative pledge agreements with~~a $2.3

billion unsecured syndicated RCF, which replaced the previous

billion revolving credit facility. The RCF contains certain ~~banks~~covenants, including certain limitations on incurring liens and ~~institutional investors. Under the agreements, the Company~~indebtedness and ~~its subsidiaries have undertaken not to register floating charges on assets in favor~~maintenance 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, the Company did not have any outstanding debt under the RCF, which is our only debt subject to the~~time. The net debt to EBITDA ~~covenant Assuming utilization~~ratio limit is 6.25x through December 31, 2019, gradually declines to 5.75x in the third and fourth quarters of 2020, and continues to gradually decline over the remaining term of the RCF.

The RCF can be used for general corporate purposes, including repaying existing debt. As of June 30, 2019, no amounts were outstanding under the RCF. As of the date of this report, $500 million was outstanding under the RCF. Based on current and ~~under~~forecasted results, the Company expects that it will not exceed the financial covenant thresholds set forth in the RCF within one year from the date that these financial statements are issued.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Under specified circumstances, includingnon-compliance with ~~such~~any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, ~~and~~ the ~~expiration of any applicable grace period thereto, substantially all~~Company will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under the Company’s ~~debt could be negatively impacted bynon-compliance~~ ~~with such covenants. The Company has~~senior notes due to cross acceleration provisions.

Teva expects that it will continue to 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~~within one year from the date ~~of the release of this Quarterly Report.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

that these financial statements are issued.

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~~six months of ~~2018.~~

2019.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Financial items carried at fair value as of ~~March 31, 2018~~June 30, 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
   Level 1    Level 2    Level 3    Total
   (U.S. $ in millions)
Cash and cash equivalents:

Money markets
   $ 6    $ —      $ —      $ 6
Cash, deposits and other
   1,412    —      —      1,412
Investment in securities:

Equity securities
   58    —      —      58
Other, mainly debt securities
   13    —      19    32
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 )
Contingent consideration*
   —      —      (708 )    (708 )








Total
   $ 1,489    $ (140 )    $ (689 )    $ 660








   December 31, 2017
   Level 1 �� Level 2    Level 3    Total
   (U.S. $ in millions)
Cash and cash equivalents:

Money markets
   $ 5    $ —      $ —      $ 5
Cash, deposits and other
   958    —      —      958
Investment in securities:

Equity securities
   65    —      —      65
Structured investment vehicles
   —      —      —      —
Other, mainly debt securities
   14    —      18    32
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 )
Contingent consideration*
   —      —      (735 )    (735 )








Total
   $ 1,042    $ (71 )    $ (717 )    $ 254


	June 30, 2019
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	401	$	—		$	—		$	401
Cash, deposits and other		1,764		—			—			1,764
Investment in securities:
Equity securities		48		—			—			48
Other, mainly debt securities		5		—			13			18
Derivatives:
Asset derivatives—options and forward contracts		—		14			—			14
Asset derivatives —interest rate and cross-currency swaps				85			—			85
Liability derivatives—options and forward contracts		—		(55	)		—			(55	)
Liability derivatives—interest rate and cross-currency swaps		—		(37	)		—			(37	)
Contingent consideration*		—		—			(403	)		(403	)

Total	$	2,218	$	7		$	(390	)	$	1,835


	December 31, 2018
	Level 1		Level 2			Level 3			Total
	(U.S. $ in millions)
Cash and cash equivalents:
Money markets	$	203	$	—		$	—		$	203
Cash, deposits and other		1,579		—			—			1,579
Investment in securities:
Equity securities		51		—			—			51
Other, mainly debt securities		2		—			10			12
Derivatives:
Asset derivatives — options and forward contracts		—		18			—			18
Asset derivatives—interest rate and cross-currency swaps		—		58			—			58
Liability derivatives—options and forward contracts		—		(26	)		—			(26	)
Liability derivatives—interest rate and cross-currency swaps		—		(50	)		—			(50	)
Contingent consideration*		—		—			(507	)		(507	)

Total	$	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.~~

United States

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.

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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:

   Three months ended
March 31, 2018

   (U.S. $ in millions)
Fair value at the beginning of the period
   $ (717 )
Revaluation of debt securities
   1
Adjustments to provisions for contingent consideration:

Actavis Generics transaction
   (6 )
Labrys transaction
   (1 )
Eagle transaction
   (1 )
Settlement of contingent consideration:

Eagle transaction
   35


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


	Six months ended June 30, 2019
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(497	)
Revaluation of debt securities		3
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		101
Eagle transaction		(54	)
Settlement of contingent consideration:
Eagle transaction		57

Fair value at the end of the period	$	(390	)

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




Total
   $ 27,607    $ 26,172


	Fair value*
	June 30, 2019		December 31, 2018

	(U.S. $ in millions)
Senior notes included under senior notes and loans	$	22,770	$	23,560
Senior notes and convertible senior debentures included under short-term debt		2,719		2,140

Total	$	25,489	$	25,700

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

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

NOTE 13 – Derivative instruments and hedging activities:

a.	Foreign exchange risk management:

In the first six months 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.

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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.

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


	June 30, 2019		December 31, 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
   Designated as hedging
instruments    Not designated as hedging
instruments
   March 31,
2018    December 31,
2017    March 31,
2018    December 31,
2017
Reported under
   (U.S. $ in millions)
Asset derivatives:

Other current assets:

Option and forward contracts
   $ —      $ —      $ 15    $ 17
Othernon-current assets:

Cross-currency swaps – cash flow hedge
   4    25    —      —
Liability derivatives:

Other current liabilities:

Option and forward contracts
   —      —      (18 )    (15 )
Other taxes and long-term liabilities:

Cross-currency swaps – net investment hedge
   (125 )    (96 )    —      —
Senior notes and loans:

Interest rate swaps – fair value hedge
   (16 )    (2 )    —      —

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


	Fair value
	Designated as hedging instruments						Not designated as hedging instruments
	June 30, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Reported under	(U.S. $ in millions)
Asset derivatives:
Other current assets:
Option and forward contracts	$	—		$	—		$	14		$	18
Other non-current assets:
Cross-currency swaps—cash flow hedge		76			58			—			—
Senior notes and loans:
Interest rate swaps—fair value hedge		9			—			—			—

Liability derivatives:
Other current liabilities:
Option and forward contracts		—			—			(55	)		(26	)
Cross-currency swaps—net investment hedge		(37	)		—			—			—
Other taxes and long-term liabilities:
Cross-currency swaps—net investment hedge		—			(41	)		—			—
Senior notes and loans:
Interest rate swaps—fair value hedge		—			(9	)		—			—

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


	Financial expenses, net						Other comprehensive income
	Three month ended,						Three month ended,
	June 30, 2019			June 30, 2018**			June 30, 2019			June 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	206		$	236		$	(76	)	$	614
Cross-currency swaps—cash flow hedge (1)		(1	)		*			4			(28	)
Cross-currency swaps—net investment hedge (2)		(7	)		(9	)		14			(59	)
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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Financial expenses, net						Other comprehensive income
	Six month ended,						Six month ended,
	June 30, 2019			June 30, 2018**			June 30, 2019			June 30, 2018**
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	425		$	507		$	(170	)	$	418
Cross-currency swaps—cash flow hedge (1)		(1	)		(1	)		(15	)		(11	)
Cross-currency swaps—net investment hedge (2)		(15	)		(16	)		(6	)		(29	)
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 pre-tax (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 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.

instruments:


	Financial expenses, net						Net revenues
	Three month ended,						Three month ended,
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	206		$	236		$	(4,337	)	$	(4,701	)
Option and forward contracts (4)		34			(24	)		—			—
Option and forward contracts Economic hedge		—			—			4			(1	)

	Financial expenses, net						Net revenues
	Six month ended,						Six month ended,
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Reported under	(U.S. $ in millions)
Line items in which effects of hedges are recorded	$	425		$	507		$	(8,632	)	$	(9,766	)
Option and forward contracts (4)		(7	)		(5	)		—			—
Option and forward contracts Economic hedge		—			—			4			(1	)

(1)	With respect to cross-currency swap agreements, Teva recognized gains which mainly reflect the differences between the fixed interest rate and the floating interest rate.

(2)

In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement with a notional amount of $500 million maturing in 2020. These cross currency swaps were designated as a net investment hedge of Teva’s foreign subsidiaries euro denominated net assets, in order to reduce the risk of adverse exchange rate fluctuations. With respect to these cross currency swap agreements, Teva recognized gains which mainly reflect the differences between the

float-for-float

interest rates paid and received. No amounts were reclassified from accumulated other comprehensive income 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.

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).

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,~~June 30, 2019 and 2018, and ~~2017.~~

losses of $15 million and $14 million were recognized under financial expenses, net for the six months ended June 30, 2019 and 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 $2$

2 million were recognized under financial expenses, net for the three months ended ~~March 31,~~June 30, 2019 and 2018, and ~~2017.~~

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.

In each of the first and second quarters of 2017, Teva entered into a cross currency swap agreement maturing 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$3 million were recognized under financial expenses, net for the ~~three~~six months ended ~~March 31,~~June 30, 2019 and 2018. ~~The amount recorded in the statement of income in the first quarter of 2017 was not material.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

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

~~Other impairments, restructuring~~


	Three months ended June 30,					Six months ended June 30,
	2019			2018		2019			2018
	(U.S. $ in millions)
Impairments of long-lived tangible assets (1)	$	48		$	27	$	68		$	253
Contingent consideration		24			47		(47	)		55
Restructuring		47			107		79			354
Other		(18	)		13		3			33

Total	$	101		$	194	$	103		$	695

(1)	Including impairments related to exit and disposal activities

Impairments

Impairments of property, plant 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 flowsequipment for the ~~impaired assets reflect, among others,~~three months ended on June 30, 2019 and 2018 were

million and $27 million, respectively.

Impairments of property, plant and equipment for the ~~following: (i) for IPR&D assets, the impact of changes to the development programs, the projected development~~six months ended on June 30, 2019 and ~~regulatory timeframes~~2018 were $68 million 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.~~

$253 million, respectively.

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

~~Impairments~~

~~Impairments~~

Contingent consideration

In the three months ended June 30, 2019, Teva recorded

an expense of ~~long-lived intangible assets~~

$24 million for contingent consideration, compared to an expense of $47

million in the three months ended June 30, 2018. The expenses in the second quarter of 2019 mainly related to an increase in the expected future royalty payments to Eagle Pharmaceuticals, Inc. due to the orphan drug status granted to BENDEKA and the expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid

) which was part of the Actavis acquisition.

In the six months ended June 30, 2019, Teva recorded $47 million of contingent consideration income, compared to $55 million expense in the six months ended June 30, 2018. The income in the first ~~quarter~~six months of ~~2018 were $206 million, mainly consisting of:~~

~~Identifiable IPR&D of $117 million~~2019 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~~the decrease 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,~~expected royalty payments in connection with lenalidomide (generic equivalent of Revlimid

) which was part of the ~~P&G separation agreement.~~Actavis acquisition.

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Restructuring

In the ~~first quarter of 2018,~~three months ended June 30, 2019, Teva recorded ~~$247~~$47 million of restructuring expenses, compared to ~~$130~~$107 million in the ~~first quarter~~three months ended June 30, 2018.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

In the six months ended June 30, 2019, Teva recorded $79 million of restructuring expenses, compared to $354 million in the ~~first quarter of 2018 were primarily related to headcount reductions across all functions.~~

six months ended June 30, 2018.

Since ~~Teva’s~~the announcement of its restructuring plan, ~~the Company~~Teva reduced its global headcount by approximately ~~6,200~~11,145 full-time-equivalent employees.

During the three months ended June

2019

and

2018

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

of $21 million and $8 million, respectively.

During the six months ended June

2019

and

2018

, Teva recorded

impairments

of property, plant and equipment related to restructuring costs of $21 million and $155 million, respectively.

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

   Three months ended March 31,
   2018    2017
   (U.S. $ in millions)
Restructuring

Employee termination
   $ 228    $ 95
Other
   19    35




Total
   $ 247    $ 130

recorded under different items:


	Three months ended June 30,
	2019		2018
	(U.S. $ in millions)
Restructuring
Employee termination	$	36	$	90
Other		11		17

Total	$	47	$	107


	Six months ended June 30,
	2019		2018
	(U.S. $ in millions)
Restructuring
Employee termination	$	56	$	318
Other		23		36

Total	$	79	$	354

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

   Employee termination
costs    Other    Total
   (U.S. $ in millions )
Balance as of January 1, 2018
   $ (294 )    $ (17 )    $ (311 )
Provision
   (228 )    (19 )    (247 )
Utilization and other*
   129    7    136






Balance as of March 31, 2018
   $ (393 )    $ (29 )    $ (422 )


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2019	$	(204	)	$	(29	)	$	(233	)
Provision		(56	)		(23	)		(79	)
Utilization and other*		67			45			112

Balance as of June 30, 2019	$	(193	)	$	(7	)	$	(200	)

*	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 Form

FDA-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 $142 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

as of June 30, 2019

on Teva’s financial statements was $55 million, primarily related to inventory reserves

and returns

. 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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 15 – Legal settlements and loss contingencies:

~~Legal~~

In the second quarter of 2019, Teva recorded an expense of $646 million in legal

settlements and loss contingencies ~~for the three months ended March 31, 2018 resulted in income of $1.3 billion~~

, compared to ~~expenses of~~ $20 million for the three months ended March 31, 2017. 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~~2018. The expense in the second quarter of 2019 was mainly related to the ~~carvedilol patent~~$85 million settlement paid in the opioid litigation ~~following~~brought by the ~~reversal~~Oklahoma Attorney General and an estimated provision made

for

certain other opioid cases.

the first six months of 2019

, Teva recorded

an expense of $703 million

in legal settlements and loss contingencies

, compared to income of $1,258 million in the ~~verdict granting~~first six months of 2018. The expense in the ~~award~~first six months of 2019

was mainly

related to ~~GSK.~~ the

$85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases

As of ~~March 31, 2018~~June 30, 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 $1,149 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 Form

10-K

for the year ended December 31, 2018.

Intellectual Property Litigation

From time to time, Teva seeks to develop generic versions of ~~patent-protected~~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.

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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 including

pre-

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. A hearing is scheduled for September 4, 2019. 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, and oral argument in that

appeal is ~~limited to~~scheduled for September

2019

. 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

U.S.

District Court

for the District

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

U.S.

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

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 for

inter partes

review, the Patent Trials and Appeals Board (“PTAB”) found the patent to be invalid. In October 2018, the District Court for the District of New Jersey also found the patent to be invalid. Teva launched its generic 250mg product in November 2018. On May 14, 2019, the U.S. Court of Appeals affirmed that Janssen’s patent is invalid. That decision became final on June 20, 2019. Janssen may seek U.S. Supreme Court review of this decision. 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.

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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~~

U.S.

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~~2016, and on July 23, 2019, reached a settlement with the State of California, ~~have given notices~~which is pending court approval.

Table of ~~potential claims related~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes 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.

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,~~Modafi

l 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

ntitrust lawsuits, as described below, Teva and the ~~United States.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes~~FTC agreed to ~~Consolidated Financial Statements~~

~~(Unaudited)~~

~~Following~~amend certain provisions of the Modafinil Consent Decree and to restart its ten-year term.

Additionally, following an investigation initiated by the European Commission in April 2011 ~~regarding~~

reg

arding 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~~and approximately ~~$350~~$

140

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~~U.S. 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,~~case, but in June 2015, the ~~court denied the direct purchaser plaintiffs’ motion~~U.S. Court of Appeals for ~~reconsideration and affirmed its original dismissal. 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 appeals court 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 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~~

(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.

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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~~

(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 claimsModafinil Consent Decree, as described above. On July 23, 2019 Teva and the State of ~~California’s claims against Allergan and Watson, pending the outcome of the declaratory judgment action in Pennsylvania. Annual sales of Lidoderm~~^® ~~at the time of the~~California reached a settlement ~~were approximately $1.2 billion, and were approximately $1.4 billion at the time Actavis launched its generic version in September 2013.~~

agreement.

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/~~

(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 the

opt-out

direct purchaser plaintiffs, and with two of the

opt-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 U.S. Court of Appeals for 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.

~~Since~~Modafinil Consent Decree, as described above.

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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~~

(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 court denied defendants’ motions to dismiss, but stayed the cases with respect to the claims brought under state law, which are the only claims asserted against Teva.~~ 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

2017

and March

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

2018

. See note

. 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.

Since 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~~

335

million at the time of the settlement and approximately ~~$327~~$

327

million at the time Actavis launched its generic ~~competition began~~ version of Intuniv

in 2014.

In January 2019, generic manufacturer Cipla Limited filed a lawsuit against Amgen in Delaware federal court, alleging, among other things, that a January 2, 2019 settlement agreement between Amgen and Teva, resolving patent litigation over cinacalcet (generic Sensipar

), violated the antitrust laws. In March 2019, Cipla Limited amended its complaint to name Teva as an additional defendant, and putative classes of direct-purchaser and end-payer plaintiffs have also filed antitrust lawsuits in U.S. federal district court against Amgen and Teva related to the January 2, 2019 settlement. Both Cipla Limited and the putative class plaintiffs seek damages and injunctive relief. Annual sales of Sensipar

in the United States were approximately $1.4 billion at the time Teva launched its generic version of Sensipar

in December 2018, and at the time of the January 2, 2019 settlement.

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 as

qui 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 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.

Several

qui 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.

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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 civil

qui 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. Trial is scheduled to commence on August 19, 2019 and a provision was included in the financial statements.

In January 2014, a

qui tam

complaint ~~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. The

qui 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, a

qui tam

action was filed against a number of Teva subsidiaries. The

qui tam

action was unsealed on June 13, 2018 after the government declined to intervene. The relator in ~~discovery.~~

~~Beginning~~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 paid in-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.

Since May 2014, ~~various~~approximately 2,000 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~~private plaintiffs (including various putative class actions ~~currently pending against Teva and its affiliates that have been brought by various states, subdivisions and state agencies~~of individuals) 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, approximately 350 complaints 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. ~~None~~Certain plaintiffs assert that the measure of damages is the entirety of the ~~complaints specifies~~costs associated with addressing the ~~exact amount~~abuse of ~~damages at issue. Teva~~opioids and ~~its affiliates that are defendants~~opioid addiction and certain plaintiffs specify multiple billions of dollars in the ~~various~~aggregate as alleged damages. In many of these cases, plaintiffs are seeking joint and several damages among all defendants. An adverse resolution of any of these lawsuits or investigations may involve large monetary penalties, damages, and/or other forms of monetary and non-monetary relief and could have a material and adverse effect on Teva’s reputation, business, results of operations and cash flows. On October 5, 2018, the magistrate judge in the MDL Opioid Proceeding issued a 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 overruled defendants’ objections to the Report & Recommendation. 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 ~~all allegations asserted~~ in ~~these complaints and have filed or will be filing~~part pending motions to dismiss ~~where possible.~~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. On ~~April 11, 2018,~~June 13, 2019, the ~~judge~~District Court adopted the two Report & Recommendations in all respects except those regarding the plaintiffs’ negligence per se claims, for which the District Court overruled the Report & Recommendation and held that Plaintiffs cannot state a claim for negligence per se pursuant to the statutes that the plaintiffs identified. Motions to dismiss in additional similar cases remain pending. Discovery in the ~~multidistrict litigation issued a case management order setting~~MDL Opioid Proceeding for the first ~~trial~~track of cases is closed and motions for ~~March~~summary judgment were filed in June 2019. Trial is scheduled for October 2019. Other cases remain pending in various states. In some jurisdictions, such as Illinois, New York, Pennsylvania, South Carolina, Texas and Utah, certain state court cases have been transferred to a single court within their respective state court systems for coordinated pretrial proceedings. Trials are expected to proceed in several states in 2020.

In May 2019, Teva settled the Oklahoma litigation brought by the Oklahoma Attorney General (State of Oklahoma, ex. rel. Mike Hunter, Attorney General of Oklahoma vs. Purdue Pharma L.P., et. al.) for $

million. The settlement did not include any admission of violation of law for any of the claims or allegations made. Management believes that the Oklahoma settlement amount is not likely indicative of the settlement of the other opioid-related litigation due to a variety of distinguishing factors. There is a wide range of potential outcomes given the state governments, subdivisions and other private party suits have made claims for large recoveries, the breadth of the litigation, novel legal theories and numerous defenses raised versus Teva’s willingness to potentially settle for a small fraction of such claimed amounts. As the Company demonstrated a willingness to settle part of the litigation, for accounting purposes, management considered a portion of opioid-related cases as probable and, as such, recorded an estimated provision. Given the relatively early status of the cases, management viewed no amount within the range to be the most likely outcome. Therefore, management recorded a provision for the reasonably estimable minimum amount in the assessed range for such opioid-related cases in accordance with Accounting

Standards Codification 450 “Accounting for Contingencies.”

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

Table of ~~State Attorneys General,~~Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

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~~time.

In addition, several jurisdictions in Canada have initiated litigation regarding opioids alleging similar claims as those in the ~~outcome.~~

United States. The cases in Canada are likely to be consolidated and are in their early stages.

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.~~2015

. Teva and Actavis are cooperating with the DOJ subpoena requests. On July

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. AnThat complaint was later amended to add new states as named plaintiffs, as well as new allegations and new state law claims, and on June 18, 2018, the attorneys general of 49 states plus Puerto Rico and the District of Columbia filed a consolidated amended complaint against Actavis and Teva, as well as other companies and individuals. On May 10, 2019, most (though not all) of these same attorneys general filed yet another antitrust complaint against Actavis and Teva, plus other companies and individuals, alleging price-fixing and market allocation as concerns additional generic products. The complaint alleges that Teva was ~~filed on March 1, 2017 adding twenty~~at the center of a conspiracy in the generic pharmaceutical industry, and asserts that Teva and others fixed prices, rigged bids, and allocated customers and market share with respect to certain additional ~~states to~~products, many of which were not previously at issue in the ~~named plaintiffs and adding supplemental state law claims.~~

~~TEVA PHARMACEUTICAL INDUSTRIES LIMITED~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~The~~Pennsylvania MDL. In the various complaints described above, 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”) transferred this action to the generic drug multidistrict litigation pending in federal court in Pennsylvania, which is discussed in greater detail below. 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 alsoAll such complaints have been transferred to the generic drug multidistrict litigation ~~discussed below, makes the same factual allegations and claims that are at issue~~ in the ~~earlier State Attorneys General complaint. On October 31, 2017 the attorneys general of 45 states plus Puerto Rico and the~~Eastern District of Columbia filed a motion for leave to file an 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.

Pennsylvania (“Pennsylvania MDL”).

Beginning on March

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 purchaser

opt-out

plaintiffs. These complaints, ~~which~~whi

ch 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

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~~

2017

. On October

2018

, the court denied certain of the defendants’ motions to dismiss as to certain ~~of those consolidated amended complaints~~federal claims, and on ~~October 6, 2017. In~~ February ~~2018,~~

2019

, the court ~~overseeing the multidistrict litigation lifted the stay of discovery on a limited basis~~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.

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

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 in certain countries. In December 2016, Teva reached a resolution with the SEC and DOJ to fully resolve these FCPA matters.~~DOJ. 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.

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Notes to Consolidated Financial Statements

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Shareholder Litigation

On November 6

2016

and December

2016

, two putative securities class actions were filed in the U.S. District Court for the Central District of ~~California~~C

alifornia 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

2018

, the court dismissed the case without prejudice.

The lead

plaintiff filed a second amended complaint on June

2018

, purportedly on behalf of purchasers of Teva’s securities between February

2014

and August

3 ~~2017.~~

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

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

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

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

2017

, the court entered an order deferring all deadlines pending the resolution of the motions to dismiss filed in the ~~consolidated~~Ontario Teachers Securities Litigation described above.

On August

and

2017

, Elliot Grodko and Barry Baker filed putative securities class ~~action described above.~~

~~On August 21, 2017, a putative class action securities lawsuit was filed by Elliot Grodko~~actions in the U.S. District Court for the Eastern District of Pennsylvania purportedly on behalf of purchasers of Teva’s securities between November

2016

and August

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

2017

, the court consolidated the Baker and Grodko cases. On April

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.

Between August 2018 and June 2019, fourteen 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 class in the Ontario Teachers Securities Litigation. The plaintiffs in these “opt-out” cases filed their complaints in the Court of Common Pleas of Montgomery County, Pennsylvania, the U.S. District Court for the Eastern District of Pennsylvania and the U.S. District Court for the District of Connecticut. Teva and the current and former officer and director defendants filed or will file motions or stipulations to transfer the cases filed in Pennsylvania to the U.S. District Court for the District of Connecticut, where the Ontario Teachers Securities Litigation is 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. On ~~August 30, 2017,~~June 21, 2019, the Employees’ Retirement System of the City of St. Petersburg, Florida filed a putative securities class action ~~was filed by Barry Baker~~ 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~~August 4, 2017 and ~~August 2, 2017~~May 10, 2019 seeking unspecified damages, legal fees, interest, and costs. The complaint alleges that Teva and certain officers violated the federal 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 case with the Grodko case, discussed above. On April 10, 2018, the Court granted Teva’s motionsimilar claims to ~~transfer this action to the District of Connecticut where~~ the Ontario Teachers ~~securities litigation is currently pending.~~

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.

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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.~~

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

~~c) Growth~~

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

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

(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 ~~North America~~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 ~~Europe segments.~~

an out-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.

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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 June 30, 2019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,071		$	1,183		$	741
Gross profit		1,067			674			312
R&D expenses		175			70			24
S&M expenses		269			216			119
G&A expenses		117			70			34
Other (income) expense		2			1			(1	)

Segment profit	$	504		$	316		$	136


	Three months ended June 30, 2018
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,263		$	1,328		$	789
Gross profit		1,179			727			328
R&D expenses		182			73			25
S&M expenses		272			233			130
G&A expenses		103			78			37
Other (income) expense		(100	)		(3	)		(3	)

Segment profit	$	722		$	346		$	139


	Six months ended June 30, 2 019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	4,118		$	2,448		$	1,409
Gross profit		2,107			1,404			582
R&D expenses		340			136			46
S&M expenses		537			431			234
G&A expenses		230			119			70
Other (income) expense		(2	)		(1	)		(1	)

Segment profit	$	1,001		$	719		$	233


	Six months ended June 30, 2018
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	4,794		$	2,770		$	1,539
Gross profit		2,582			1,519			641
R&D expenses		370			146			49
S&M expenses		548			483			264
G&A expenses		229			169			78
Other (income) expense		(202	)		(2	)		(11	)

Segment profit	$	1,637		$	723		$	261

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

~~a. Segment information:~~

   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)~~

	Three months ended						Six months ended
	June 30,						June 30,
	2019			2018			2019			2018
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	504		$	722		$	1,001		$	1,637
Europe profit		316			346			719			723
International Markets profit		136			139			233			261

Total segment profit		956			1,207			1,954			2,621
Profit of other activities		55			31			76			52

		1,011			1,238			2,029			2,673
Amounts not allocated to segments:
Amortization		285			302			568			612
Other assets impairments, restructuring and other items		101			194			103			695
Goodwill impairment		—			120			—			300
Intangible asset impairments		561			521			1,030			727
(Gain) loss on divestitures, net of divestitures related costs		(9	)		10			(9	)		(83	)
Other R&D expenses		§			—			§			22
Costs related to regulatory actions taken in facilities		12			4			16			5
Legal settlements and loss contingencies		646			20			703			(1,258	)
Other unallocated amounts		59			81			129			142

Consolidated operating income (loss)		(644	)		(14	)		(510	)		1,511

Financial expenses, net		206			236			425			507

Consolidated income (loss) before income taxes	$	(850	)	$	(250	)	$	(934	)	$	1,004

§	Represents an amount less than $1 million.

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three months

and the six months ended ~~March 31, 2018~~June 30, 20

19 and ~~2017:~~

   Three months ended
March 31,
   2018    2017
   (U.S.$ in millions)
North America segment

Generic products
   $ 1,088    $ 1,415
COPAXONE
   476    797
BENDEKA / TREANDA
   181    156
ProAir
   130    121
QVAR
   107    84
AUSTEDO
   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

2018:


	Three months ended June 30,
	2019		2018
	(U.S. $ in millions)
North America
Generic products	$	946	$	947
COPAXONE		274		464
TREANDA/BENDEKA		115		160
ProAir*		65		115
QVAR		60		30
AJOVY		23		—
AUSTEDO		96		44
Anda		351		320
Other		141		183
Total	$	2,071	$	2,263

*	Does not include sales of ProAir authorized generic, which are included under generics.


	Six months ended
	June 30,
	2019		2018
	(U.S. $ in millions)
North America
Generic prod uct s	$	1,913	$	2,035
COPAXONE		482		940
TREANDA/BENDEKA		229		341
ProAir*		123		245
QVAR		124		137
AJOVY		43		—
AUSTEDO		171		74
Anda		729		651
Other		305		372
Total	$	4,118	$	4,794

*	Does not include sales of ProAir authorized generic, which are included under generics.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)


	Three months ended June 30,
	2019		2018
	(U.S. $ in millions)
Europe
Generic products	$	844	$	907
COPAXONE		107		140
Respiratory products		89		106
Other		143		175
Total	$	1,183	$	1,328


	Six months ended June 30,
	2019		2018
	(U.S. $ in millions)
Europe
Generic products	$	1,763	$	1,904
COPAXONE		221		293
Respiratory products		181		219
Other		283		354
Total	$	2,448	$	2,770


	Three months ended June 30,
	2019		2018
	(U.S. $ in millions)
International markets
Generic products	$	489	$	537
COPAXONE		13		22
Distribution		164		154
Other		75		76
Total	$	741	$	789


	Six months ended June 30,
	2019		2018
	(U.S. $ in millions)
International markets
Generic products	$	930	$	1,025
COPAXONE		27		38
Distribution		315		307
Other		137		168
Total	$	1,409	$	1,539

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




Total other income
   $ 203    $ 72


	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
	(U.S. $ in millions)						(U.S. $ in millions)
Gain (loss) on divestitures, net of divestitures related costs (1)	$	9			(10	)	$	9			83
Section 8 and similar payments (2)		—			95			—			194
Gain (loss) on sale of assets		(5	)		1			(4	)		9
Other, net		5			10			11			13

Total other income	$	9		$	96		$	15		$	299

(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.

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 19 – Income ~~Taxes:~~

taxes:

In the second quarter of

2019

, Teva recognized a tax benefit of $179 million, or 21%, on

pre-tax

loss of $850 million. In the second quarter of

2018

, Teva recognized a tax benefit of $76 million, or 30%, on

pre-tax

loss of $250 million. Teva’s tax rate for the second quarter of

2019

was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.

In the first ~~quarter~~six months of ~~2018, income taxes were $46~~

2019

, Teva recognized a tax benefit of $170 million, or 4%18%, onpre-tax ~~income~~ loss of ~~$1.3 billion.~~$934 million. In the first ~~quarter~~six months of ~~2017, income taxes were $54~~

2018

, Teva recognized a tax benefit of $30 million ~~or 8%,~~ onpre-tax income of ~~$688~~$1,004 million. ~~Our~~Teva’s tax rate for the first ~~quarter~~six months 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 six months ended June 30, 2018 and the 12 months ended December 31, 2018, was $90 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 ASC 842-10-25-2. 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 lease

right-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 and

non-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.

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Some of

Teva’s

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 operating lease cost for the three months ended and six months ended June 30, 2019 were as follows:


	Three months ended June 30,		Six months ended June 30,
	2019
	(U.S. $ in millions)
Operating lease cost:
Fixed payments and variable payments that depend on an index or rate	$	36	$	78
Variable lease payments not included in the lease liability		2		4
Short-term lease cost		1		3

Total operating lease cost	$	39	$	85

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


	Six months ended
	June 30, 2019
	(U.S. $ in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	79
Right-of-use assets obtained in exchange for lease obligations (non- cash):
Operating leases	$	46

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


	June 30, 2019
	(U.S. $ in millions)
Operating leases:
Operating lease ROU assets	$	500
Other current liabilities		120
Operating lease liabilities		426

Total operating lease liabilities	$	546


	June 30, 2019
Weighted average remaining lease term
Operating leases		7.7 years
Weighted average discount rate
Operating leases		5.9	%

Table of Contents

TEVA PHARMACEUTICAL INDUSTRIES LIMITED

Notes to Consolidated Financial Statements

(Unaudited)

Maturities of operating lease liabilities were as follows:


	June 30, 2019
	(U.S. $ in millions)
2019 (excluding the six months ended June 30, 2019)	$	87
2020		124
2021		100
2022		78
2023		58
2024 and thereafter		266

Total operating lease payments	$	713

Less: imputed interest		167

Present value of lease liabilities	$	546


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

Total lease payments	$	905

As of June 30, 2019, Teva has additional operating leases for office space, which have yet to commence, with undiscounted future payments of $94 million. These operating leases will commence during fiscal year 2020 with lease terms of 9 to 12 years.

As of June 30, 2019, Teva’s total finance lease assets and finance lease liabilities are $78 million and $27 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~~second quarter of ~~2018.~~

~~Highlights~~

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

•

, as well as declines in revenues from TREANDA

/BENDEKA

, certain other specialty products in the United States, our Europe segment and Japan, partially offset by higher revenues from AUSTEDO

, AJOVY

and QVAR

in the United States.

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 Europe~~ segment generated revenues of ~~$1.4 billion~~$2,071 million and profit of ~~$377 million.~~$504 million in the second quarter of 2019. Revenues ~~increased~~decreased by 8% ~~but~~compared to the second quarter of 2018, mainly due to a decline in revenues from COPAXONE, TREANDA/BENDEKA and certain other specialty products, partially offset by higher revenues from our Anda business, QVAR, AUSTEDO and AJOVY. Profit decreased by ~~6% in local currency terms,~~30%, mainly due to the ~~loss of~~changes in revenues ~~from the closure of our distribution business in Hungary~~described above and the ~~sale~~non-recurrence of ~~our women’s health business, partially offset by new generic product launches. Profit increased by 41%. The increase was mainly due to higher revenues~~other income, as well as cost reductions and efficiency measures as part of the restructuring plan.

Our ~~Growth Markets~~Europe segment generated revenues of ~~$750~~$1,183 million and profit of ~~$122 million.~~$316 million in the second quarter of 2019. Revenues ~~increased~~decreased by 4%11%, ~~flat~~or 5% in local currency ~~terms. Profit increased by $82 million,~~terms, compared to the second quarter of 2018, mainly due to ~~higher~~a decline in COPAXONE revenues ~~as well as~~due to the entry of competing glatiramer acetate products and the termination of the PGT joint venture, partially offset by new generic product launches. Profit decreased by 9%, mainly due to the changes in revenues and the impact of currency fluctuations, partially offset by cost reductions and efficiency measures as part of the restructuring plan.

~~Other asset impairments, restructuring~~

Our International Markets segment generated revenues of $741 million and ~~other items were $707 million, compared to $240~~profit of $136 million in the ~~first~~second quarter of ~~2017,~~2019. Revenues decreased by 6%, or 2% in local currency terms, and profit decreased by 2% compared to the second quarter of 2018. The decrease in revenues and profit was mainly due to ~~a $432~~lower sales in Japan resulting from generic competition to off-patent products, partially offset by higher sales in Russia and cost reductions and efficiency measures as part of the restructuring plan.

Intangible asset impairments were $561 million in the second quarter of 2019, compared to $521 million in the second quarter of 2018. The impairment expenses in the second quarter of ~~long-lived~~2019 were related to identifiable product rights of $365 million and IPR&D assets of $196 million. The impairments were mainly related to products acquired from Actavis Generics.

Operating loss was $644 million in the second quarter of 2019, compared to $14 million in the second quarter of 2018. The increase in operating loss was mainly due to lower profit from our operating segments and ~~$247 million restructuring expenses.~~

~~We recorded a goodwill impairment of $180 million, driven by the change~~an increase 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.contingencies expenses.

Operating income was $1.5 billion in the first quarter of 2018, compared to $895 million in the first quarter of 2017, mainly due to income in connection with legal settlements, partially offset by other asset impairments, restructuring and other items, a goodwill impairment and lower operating income in our North America segment.

Exchange rate movements between the ~~first~~second quarter of 2019 and the second quarter of 2018 ~~and the first quarter of 2017 positively~~negatively impacted ~~overall~~ revenues by ~~$240~~$125 million and operating income by ~~$37~~$41 million.

~~Our~~

Table of Contents

As of June 30, 2019, our debt ~~decreased by $1.7 billion,~~was $28,726 million, compared to $28,624 million as of March 31, 2019. The increase was mainly due to ~~$6.5 billion~~exchange rates fluctuations.

Cash flow used in operating activities during the second quarter of ~~prepayments~~2019 was $227 million, compared to cash flow generated from operating activities of $162 million in the second quarter of 2018. The decrease in cash flow in the second quarter of 2019 was mainly due to lower revenues, timing of certain ~~term loans~~customer payments and ~~senior notes, partially offset by our March 2018 issuance~~credits and payments of ~~$4.4 billion of senior notes as well as foreign exchange fluctuations.~~U.S. customer rebates paid this quarter, primarily related to managed care and Medicaid.

Cash flow generated from operating activities ~~was $1.5 billion~~ in the ~~first~~second quarter of ~~2018,~~2019, net of cash received for capital investments and beneficial interest collected in exchange for securitized trade receivables, was $168 million, compared to ~~$0.1 billion~~$559 million in the ~~first~~second quarter of ~~2017,~~2018. The decrease in cash flow was mainly due to ~~proceeds from~~ the ~~working capital adjustment with Allergan and the legal settlement with Rimsa.~~reasons mentioned above.

~~Transactions~~

On January 31, 2018, we completed the sale of a portfolio 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 other specialty products such as ACTONEL~~^®.

In April 2018, we signed a separation agreement with P&G 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 separation for a transition period.

Results of Operations

Comparison of Three Months Ended ~~March 31, 2018~~June 30, 2019 to Three Months Ended ~~March 31, 2017~~

June 30, 2018

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

   Percentage of Net Revenues    Percentage
Change
2018 - 2017
   Three Months Ended
March 31,
   2018    2017
   %    %    %
Net revenues
   100.0    100.0    (10 )
Gross profit
   46.4    50.2    (17 )
Research and development expenses
   6.3    7.6    (27 )
Selling and marketing expenses
   15.2    17.0    (20 )
General and administrative expenses
   6.5    6.5    (10 )
Other asset impairments, restructuring and other items
   14.0    4.2    195
Goodwill impairment
   3.6    —      §
Legal settlements and loss contingencies
   (25.2 )    0.4    —
Other income
   (4.0 )    (1.3 )    182
Operating income
   30.0    15.8    70
Financial expenses, net
   5.4    3.7    31
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 )    —
Net income attributable tonon-controlling interests
   0.3    (0.1 )    —
Net income attributable to Teva
   22.0    11.3    74
Dividends on preferred shares
   1.3    1.2    §
Net income attributable to ordinary shareholders
   20.7    10.1    82

statements:


	Percentage of Net Revenues Three Months Ended June 30,						Percentage Change
	2019			2018			2019 - 2018
	%			%			%
Net revenues		100			100			(8	)
Gross profit		44			43			(7	)
Research and development expenses		6			6			(5	)
Selling and marketing expenses		15			15			(2	)
General and administrative expenses		7			7			(6	)
Intangible assets impairment		13			11			8
Goodwill impairment		—			3			(100	)
Other assets impairments, restructuring and other items		2			4			(48	)
Legal settlements and loss contingencies		15			§			—
Other income		§			(2	)		—
Operating income		(15	)		§			—
Financial expenses, net		5			5			(13	)
Income (loss) before income taxes		(20	)		(5	)		240
Income taxes		(4	)		(2	)		135
Share in losses (income) of associated companies, net		§			§			—
Net income attributable to non-controlling interests		§			§			—
Net income (loss) attributable to Teva		(16	)		(4	)		292
Dividends on preferred shares		—			1			(100	)
Net income (loss) attributable to ordinary shareholders		(16	)		(5	)		186

§	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~~June 30, 2019 and ~~2017:~~

   Three months ended March 31,
                         2018                                              2017
   (U.S.$ in millions / % of Segment Revenues)
Revenues
   $ 2,531    100 % $ 3,240    100 %
Gross profit
   1,432    57 % 2,080    64 %
R&D expenses
   188    8 % 267    8 %
S&M expenses
   305    12 % 441    14 %
G&A expenses
   126    5 % 139    4 %
Other income
   (102 )    (4 %) (73 )    (2 %)






Segment profit*
   $ 915    36 % $ 1,306    40 %

2018:


	Three months ended June 30,
	2019				2018
	(U.S. $ in millions / % of Segment Revenues)
Revenues	$	2,071	100.0	%	$	2,263		100.0	%
Gross profit		1,067	51.5	%		1,179		52.1	%
R&D expenses		175	8.5	%		182		8.0	%
S&M expenses		269	13.0	%		272		12.0	%
G&A expenses		117	5.6	%		103		4.6	%
Other (income) expense		2	§			(100	)	(4.4	%)

Segment profit*	$	504	24.3	%	$	722		31.9	%

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%.

Table of Contents

North America Revenues

Our North America segment includes the United States and Canada. Revenues from our North America segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$2.5 billion,~~$2,071 million, a decrease of ~~$709~~$192 million, or ~~22%~~8%, compared to the ~~first~~second 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~~TREANDA/BENDEKA and ~~the loss of revenues from the sale of our women’s health business,~~certain other specialty products, partially offset by higher revenues from our Anda business, QVAR, 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~~June 30, 2019 and ~~2017:~~

   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 %
2018:

Three months ended
June 30,

Percentage
Change

2019

2018

2019-2018

(U.S. $ in millions)

Generic products
$
946
$
947

§

COPAXONE

274

464

(41
%)
TREANDA/BENDEKA

115

160

(28
%)
ProAir*

65

115

(44
%)
QVAR

60

30

103
%
AJOVY

23

—

NA

AUSTEDO

96

44

117
%
Anda

351

320

10
%
Other

141

183

(23
%)

Total
$
2,071
$
2,263

(8
%)

* Does not include sales of ProAir authorized generic, which are included under generics.
§ Represents an amount less than 0.5%.
Generic products
revenues in our North America segment in the ~~first~~second quarter of 2019 were $946 million flat compared to the second quarter of 2018, ~~decreased by 23% to $1.1 billion, compared to the first quarter of 2017,~~ mainly due to ~~lower volumes~~new generic product launches, offset by market dynamics, including product mix and ~~continued~~ price ~~erosion.~~
erosion in our U.S. generics business.
Among the most significant generic products we sold in North America in the ~~first~~second quarter of ~~2018~~2019 were ~~methylphenidate extended-release tablets (Concerta~~^{epinephrine injection (the generic equivalent of EpiPen® authorized generic)
), sildenafil citratesolifenacin succinate tablets (the generic equivalent of Viagra^{Vesicare®
), daptomycin injection (thealbuterol sulfate inhalation aerosol (ProAir®
HFA authorized generic equivalent of Cubicin^®)Teva’s specialty product), amphetamine salt tablets (the generic equivalent of Adderall IR^{®
), and estradiol vaginal creamlidocaine transdermal patch (the generic equivalent of Estrace^{Lidoderm Patch®
).}}}}
In the ~~first~~second quarter of ~~2018,~~2019, we led the U.S. generics market in total prescriptions and new prescriptions, with approximately ~~584~~404 million total prescriptions (based on trailing twelve months), representing ~~15%~~11% of total U.S. generic prescriptions according to IQVIA data.
COPAXONE^®
revenues in our North America segment in the ~~first~~second quarter of ~~2018~~2019 decreased by ~~40%~~41% to ~~$476~~$274 million, compared to the ~~first~~second quarter of ~~2017,~~2018, mainly due to generic competition in the United States.
COPAXONE revenues in the United States were ~~$462~~$260 million in the ~~first~~second quarter of ~~2018.~~
2019.
Revenues of COPAXONE in our North America segment were ~~74%~~69% of global COPAXONE revenues in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~82%~~74% in the ~~first~~second quarter of ~~2017.~~
2018.
COPAXONE global sales accounted for approximately ~~13%~~9% of our global revenues in the ~~first~~second 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 U.S. Orange Book patents that expire in 2030. These patents have been challenged in proceedings in the United States. We are appealing certain adverse U.S. District Court, Patent Trial and Appeal Board decisions to defend these patents in the United States. At least one competitor has fully launched its generic version of COPAXONE 40 mg/mL. This launch, prior 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 our favor, the company selling this generic product could face significant damages claims and other potential remedies. 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~~various jurisdictions. In October 2017, the ~~European Patent Office. The~~ U.K. High Court found this patent invalid and our application for permission to appeal this decision was rejected.
The patent was upheld by the Opposition Division of the European Patent Office in April 2019.
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^{®
, continuescontinue to present significant and increasing competition. COPAXONE also continues to face competition from existing injectable products, as well as from monoclonal antibodies.}}}

Table of Contents

BENDEKA
and
TREANDA
combined revenues in our North America segment in the ~~first~~second quarter of ~~2018 increased~~2019 decreased by ~~16%~~28% to ~~$181~~$115 million, compared to the ~~first~~second quarter of ~~2017,~~2018, mainly due to ~~higher~~lower volumes and lower pricing, resulting partly from ~~supply stabilization.~~
the June 2018 launch of a ready-to-dilute bendamustine hydrochloride by Eagle Pharmaceuticals, Inc. (“Eagle”). In July 2018, 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 United States 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~~second quarter of ~~2018 increased~~2019 decreased by 7%44% to ~~$130~~$65 million, compared to the ~~first~~second 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%~~25.3% (45.8% including our ProAir HFA authorized generic) in terms of total number of prescriptions for albuterol inhalers during the ~~first~~second quarter of ~~2018,~~2019, compared to ~~47.7%~~44.4% in the ~~first~~second quarter of ~~2017.~~
2018. In June 2014, we settled a patent challenge to ProAir HFA with Perrigo Pharmaceuticals (“Perrigo”), under which Perrigo is now permitted to launch its generic product. 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.
QVAR
revenues in our North America segment in the ~~first~~second quarter of ~~2018~~2019 increased by ~~27%~~103% to ~~$107~~$60 million, compared to the ~~first quarter of 2017. We launched QVAR~~^® ~~RediHaler~~^™ ~~in the first quarter of 2018. The increase in sales in the first~~second quarter of 2018, which was ~~mainly~~a transition period due to ~~slightly higher wholesaler stocking for all~~the launch of QVAR ~~family products in connection with the launch.~~
®
RediHaler™. QVAR maintained its second-place position in the inhaled corticosteroids category in the United States, with an exit market share of ~~29.4%~~20.2% in terms of total number of prescriptions during the ~~first~~second quarter of ~~2018,~~2019, compared to ~~38.1%~~24.2% in the ~~first~~second quarter of ~~2017.~~
~~AUSTEDO~~2018.
AJOVY
revenues in our North America segment in the ~~first~~second quarter of 2019 were $23 million. AJOVY was approved by the FDA and launched in the United States in September 2018 ~~were $30 million.~~ 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 is 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 U.S. 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, and as a result the litigation in the district court has been stayed pending resolution of the IPRs. 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 United Kingdom.
AUSTEDO
revenues in our North America segment in the second quarter of 2019 increased by 117%, to $96 million, compared to $44 million in the second 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%~~10% to ~~$331~~$351 million in the ~~first~~second quarter of 2019, compared to the second quarter of 2018, ~~compared to the first quarter of 2017,~~ 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.
49

Table of Contents

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

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
America:

Product Name

Brand Name

Launch
Date

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

Fluoxetine tablets, USP 20 mg

—

April
$
56

Testosterone gel, metered 1.62% CIII

AndroGel
®
April
$
755

1.62
[CIII]
%

Solifenacin succinate tablets, 5 mg & 10 mg

Vesicare
®
April
$
946

Ambrisentan tablets, 5 mg & 10 mg

Letairis
®
May
$
254

Erlotinib tablets, 100 mg & 150 mg

Tarceva
®
May
$
188

Mesalamine delayed-release capsules, 400 mg

Delzicol
®
May
$
130

Ranolazine extended-release tablets, 500 mg & 1000 mg

Ranexa
®
May
$
950

Aspirin and extended-release dipyridamole capsules, 25 mg/200 mg **

Aggrenox
®
June
$
168

Desmopressin acetate injection, USP, 4 mcg/mL**

DDAVP
®
June
$
58

Albendazole tablets, USP, 200 mg

Albenza
®
June
$
85

Bosentan tablets, 62.5 mg & 125 mg

Tracleer
®
June
$
84

Doxylamine succinate and pyridoxine hydrochloride delayed-release tablets, 10 mg/10 mg

Diclegis
®
June
$
151

Penicillamine capsules, USP, 250 mg

Cuprimine
®
June
$
130

1% Sodium hyaluronate injection

***

June
$
—

* The figures presented are for the twelve months ended in the calendar quarter immediately prior to our launch orre-launch.
** ~~Authorized generic version of~~Product was re-launched.
***   Approved via 515(d)(1)(B)(ii) regulatory pathway for medical devices; not equivalent to a ~~Teva specialty~~brand product.
Our generic products pipeline in the United States includes, as of ~~March 31, 2018, 325~~June 30, 2019, 256 product applications awaiting FDA approval, including 86 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~~March 31, ~~2017~~2019 exceeding $111 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~~101 of these products, or ~~129~~123 products including final approvals where launch is pending a settlement agreement or court decision. Collectively, these first to file opportunities represent over ~~$63~~$74 billion in U.S. brand sales for the twelve months ended ~~December~~March 31, ~~2017,~~2019, 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~~second 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))*
Icatibant injection, 30 mg/3 mL
Firazyr
® $
318
Sorafenib tablets, 200 mg
Nexavar
® $
55
* For the twelve months ended in the calendar quarter immediately prior to the receipt of tentative approval.
~~In the first quarter~~
50

Table of ~~2018,~~Contents

Below is a description of key products in our specialty pipeline ~~in North America consisted~~as of ~~the following products:~~
June 30, 2019:


~~Therapeutic Area~~	~~Product~~	~~Potential Indication(s)~~	~~Route of~~ ~~Administration~~
Product	Potential Indication(s)	Route of Administration	Development Phase (date entered phase 3)
~~neurology and neuropsychiatry~~	~~AUSTEDO~~ ~~(deutetrabenazine)~~	~~Tourette syndrome~~	~~Oral~~		~~3 (December 2017)~~ Comments
	~~Laquinimod~~	~~Relapsing remitting multiple sclerosis~~	~~Oral~~		~~Discontinued~~
		~~Progressive forms of multiple sclerosis~~	~~Oral~~		~~Discontinued~~
		~~Huntington disease~~	~~Oral~~		2
	~~Pridopidine~~	~~Huntington disease~~	~~Oral~~		~~Discontinued due to pipeline prioritization~~
	~~TV-46000 (risperidone~~ ~~LAI)~~	~~Schizophrenia~~	~~LAI~~		~~3 (April 2018)~~
~~Migraine~~ CNS, Neurology and ~~Pain~~	~~Fremanezumab (anti~~ ~~CGRP)~~	~~Chronic and episodic migraine~~	~~Subcutaneous~~		~~Submitted to FDA (October 2017)~~⁽¹⁾
		~~Cluster headache~~	~~Subcutaneous~~		~~3 (November 2016)~~
		~~Post traumatic headache~~	~~Subcutaneous~~		2
	~~Fasinumab~~⁽²⁾	~~Osteoarthritis pain~~	~~Subcutaneous~~		~~3 (March 2016)~~
		~~Chronic lower back pain~~	~~Subcutaneous~~		2
	~~TV-45070~~	~~Neuropathic pain~~	~~Topical~~		~~Partnership with Xenon terminated by mutual agreement~~
~~Respiratory~~	~~CINQAIR/~~ ~~CINQAERO~~	~~Severe asthma with~~ ~~eosinophilia~~	~~Subcutaneous~~		~~3 (August 2015)~~
~~Respiratory~~	~~ProAire-RespiClick~~^™	~~Bronchospasm and exercise induced bronchitis~~	~~Oral~~ ~~inhalation~~		~~Submitted to FDA (September 2017)~~
~~Oncology~~	~~CT-P10~~⁽³⁾	~~(biosimilar candidate to Rituxan~~^® ~~US)~~ Neuropsychiatry			~~Submitted to FDA (2017)~~
~~Oncology~~	~~CT-P6~~⁽³⁾	~~(biosimilar candidate to Herceptin~~^® ~~US)~~			~~Submitted~~
AUSTEDO (deutetrabenazine)	Tourette syndrome	Oral		3 (December 2017)		Teva and Nuvelution entered into a partnership agreement on September 19, 2017 to ~~FDA (2017)~~

~~(1)~~

~~We do not expect to receive FDA approval on our Biologics License Applications (“BLA”)~~develop AUSTEDO for ~~fremanezumab on~~ the~~mid-June~~ ~~PDUFA date. We are engaged~~ treatment of tics associated with Tourette syndrome 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~~pediatric patients in the ~~coming months~~United States. Nuvelution will fund and ~~to receive FDA approval~~manage phase 3 clinical development, leading all operational aspects of the program. Teva will lead the regulatory process and ~~launch before the end of 2018.~~be responsible for commercialization.

~~(2)~~	Dyskinesia in cerebral palsy	Oral	3 (January 2019)
TV-46000 (risperidone LAI)	Schizophrenia	LAI	3 (April 2018)

Migraine and Pain
fremanezumab (anti CGRP)	Post traumatic headache	Subcutaneous	2
Fasinumab	Osteoarthritis pain	Subcutaneous	3 (March 2016)	Developed in collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”). In August 2018, Regeneron ~~recently reported that an independent Data Monitoring Committee monitoring the ongoing safety~~ and ~~efficacy~~Teva announced positive topline phase 3 results in patients with chronic pain from osteoarthritis of the ~~fasinumab clinical trials recommended~~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	3 (December 2017)
Respiratory
CINQAIR/CINQAERO	Severe asthma with eosinophilia	Subcutaneous	3 (August 2015)	In January 2018, we announced that the ~~higher dose-regimens be discontinued based on~~phase 3 study did not meet its primary endpoint. We are reviewing the ~~risk benefit assessment,~~full data to determine next steps.
ProAir e-RespiClick™	Bronchospasm and ~~that the program may continue with the lower dose-regimens~~exercise induced bronchitis	Oral inhalation	Approved by FDA (December 2018)
AirDuo ® Digihaler TM	Treatment of ~~fasinumab. We understand that Regeneron is modifying the trials accordingly.~~asthma in patients aged 12 years and older	Oral inhalation	Approved by FDA (July 2019)
Oncology
Truxima (formerly CT-P10)	(biosimilar to Rituxan ® US)		Approved by FDA (November 2018) Approved in Canada (April 2019)
Herzuma (formerly CT-P06)	(biosimilar to Herceptin ® US)		Approved by FDA (December 2018)

~~(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.

Table of Contents

North America Gross Profit
Gross profit from our North America segment in the ~~first~~second quarter of ~~2018~~2019 was ~~$1.4 billion,~~$1,067 million, a decrease of ~~31%~~9%, compared to ~~$2.1 billion~~$1,179 million in the ~~first~~second 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, partially offset by increases in sales of AUSTEDO, QVAR and ~~generic products revenues.~~
AJOVY.
Gross profit margin for our North America segment in the ~~first~~second quarter of ~~2018~~2019 decreased to ~~56.6% from 64.2%~~51.5%, compared to 52.1% in the ~~first~~second quarter of ~~2017. This~~2018. The decrease was mainly due to lower revenues from COPAXONE ~~revenues (4.0 points)~~ and ~~continued price erosion~~certain other specialty products, partially offset by improved gross profit margin of generic ~~products (3.0 points).~~
products.
North America R&D Expenses
R&D expenses relating to our North America segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$188~~$175 million, a decrease of ~~30%~~4%, compared to ~~$267~~$182 million in the ~~first~~second quarter of ~~2017.~~
2018.
For a description of our R&D expenses in the ~~first~~second 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~~second quarter of ~~2018~~2019 were ~~$305~~$269 million, a decrease of ~~31%~~1%, compared to ~~$441~~$272 million in the ~~first~~second quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures as part of the restructuring ~~plan.~~
plan, partially offset by increased expenses related to AJOVY.
North America G&A Expenses
G&A expenses relating to our North America segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$126~~$117 million, ~~a decrease~~an increase of 9%14%, compared to ~~$139~~$103 million in the ~~first~~second quarter of ~~2017.~~2018. The ~~decrease~~increase was mainly due to legal expenses, partially offset by cost reductions and efficiency measures as part of the restructuring plan.
North America Other Income
(Expense)
Other ~~income~~expenses from our North America segment in the ~~first~~second quarter of 2019 was $2 million, compared to other income of $100 million in the second quarter of 2018. The income in the second quarter of 2018 was ~~$102 million, an increase of 40% compared to $73 million in the first quarter of 2017. The increase 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~~legal recovery of lost ~~revenue related to~~profits, where U.S. patent infringement ~~proceedings.~~
litigation had previously prevented a product’s sales.
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~~second quarter of ~~2018~~2019 was ~~$915~~$504 million, a decrease of 30%, compared to ~~$1.3 billion~~$722 million in the ~~first~~second quarter of ~~2017.~~2018. The decrease was mainly due to lower revenues ~~due to generic competition for~~from COPAXONE, as well as a decline in sales of certain other specialty products and ~~continued price erosion in~~ the ~~U.S. generics market,~~non-recurrence of other income, partially offset by increases in sales of AUSTEDO and QVAR, as well as cost reductions and efficiency measures as part of the restructuring ~~plan~~plan.
52

Table of Contents
ERP Implementation
Teva is in the process of implementing a company-wide enterprise resource planning (“ERP”) system in the U.S. to upgrade certain operational and ~~higher other income.~~
financial processes. ERP implementation is a complex and time-consuming project. As with any new information system we implement, this application, along with the internal controls over financial reporting included in this process, has required testing for effectiveness and management has made appropriate efforts in this regard. In connection with this ERP implementation, we are updating our internal controls over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. We do not expect that the ERP implementation will have an adverse effect on our business. However, if the design or implementation of our new ERP system is deficient, it could adversely affect our operations, such as manufacturing or distribution, and/or the effectiveness of our internal controls.
Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the three months ended ~~March 31, 2018~~June 30, 2019 and ~~2017:~~

   Three months ended March 31,
   2018 2017
   (U.S.$ in millions / % of Segment Revenues)
Revenues
   $ 1,442        100 % $ 1,341        100 %
Gross profit
   797    55 % 734    55 %
R&D expenses
   73    5 % 106    8 %
S&M expenses
   255    18 % 279    21 %
G&A expenses
   91    6 % 79    6 %
Other expenses
   1    § 2    §






Segment profit*
   $ 377    26 % 268    20 %






2018:

Three months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
1,183

100.0
% $
1,328

100.0
%
Gross profit

674

56.9
%
727

54.7
%
R&D expenses

70

5.9
%
73

5.5
%
S&M expenses

216

18.3
%
233

17.5
%
G&A expenses

70

5.9
%
78

5.9
%
Other (income) expense

1

§

(3
)
§

Segment profit*
$
316

26.7
% $
346

26.1
%

* 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%.
Europe Revenues
Our Europe segment includes the European Union and certain other European countries. Revenues from our Europe segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$1.4 billion, an increase~~$1,183 million, a decrease of 8%11% or ~~$101~~$145 million, compared to the ~~first~~second 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 the closure of our distribution business in Hungary~~competing glatiramer acetate products and the ~~sale~~termination of ~~our women’s health business,~~the PGT joint venture, 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~~June 30, 2019 and ~~2017:~~

   Three months ended    Percentage
   March 31,    Change
   2018    2017    2017-2018
   (U.S.$ in millions)
Generic products
   $ 997    $ 850    17 %
COPAXONE
   153    152    1 %
Respiratory products
   113    84    35 %
2018:

Three months ended
June 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
844
$
907

(7
%)
COPAXONE

107

140

(24
%)
Respiratory products

89

106

(16
%)
Other

143

175

(18
%)

Total
$
1,183
$
1,328

(11
%)

Generic products
revenues in our Europe segment in the ~~first~~second quarter of ~~2018,~~2019, including OTC products, ~~increased~~decreased by ~~17%~~7% to ~~$997~~$844 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased~~decreased by ~~2%,~~1% compared to the second quarter of 2018, mainly due to ~~new product launches~~the loss of revenues from the termination of the PGT joint venture and volume ~~growth~~decline due to specific market conditions in ~~OTC,~~various European Union countries, partially offset by ~~price reductions.~~
new generic product launches.
COPAXONE
revenues in our Europe segment in the ~~first~~second quarter of ~~2018 increased~~2019 decreased by 1%24% to ~~$153~~$107 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues decreased by ~~13%~~19%, 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%~~27% of global COPAXONE revenues in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~16%~~22% in the ~~first~~second 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~~second quarter of ~~2018 increased~~2019 decreased by ~~35%~~16% to ~~$113~~$89 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues ~~increased~~decreased by ~~18%~~11%, mainly due to lower sales in the ~~launch of BRALTUS~~^® ~~in 2017.~~
United Kingdom.
Product Launches and Pipeline
As of ~~March 31, 2018,~~June 30, 2019, our generic products pipeline in Europe included ~~234~~384 generic approvals ~~in Europe~~ relating to 4649 compounds in 95101 formulations, and approximately ~~1,503~~1,326 marketing authorization applications pending approval in 37 European countries, relating to ~~183~~144 compounds in ~~364~~296 formulations ~~including one application pending with the EMA for one strength~~ in 30 countries.
53

Table of Contents
For information regarding our specialty pipeline and launches in the ~~first~~second 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~~second quarter of ~~2018~~2019 was ~~$797~~$674 million, ~~an increase~~a decrease of 9%7% compared to ~~$734~~$727 million in the ~~first~~second quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to a decline in COPAXONE revenues and the ~~positive~~ impact of currency fluctuations, partially offset by ~~the loss of revenues from the sale of our women’s health business.~~
new generic product launches.
Gross profit margin for our Europe segment in the ~~first~~second quarter of ~~2018~~2019 increased to ~~55.3%~~56.9%, ~~from~~compared to 54.7% in the ~~first~~second 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 and network optimization.
Europe R&D Expenses
R&D expenses relating to our Europe segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$73~~$70 million, a decrease of ~~31%~~4% compared to ~~$106~~$73 million in the ~~first~~second quarter of ~~2017.~~
2018.
For a description of our R&D expenses in the ~~first~~second 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~~second quarter of ~~2018~~2019 were ~~$255~~$216 million, a decrease of 9%7% compared to ~~$279~~$233 million in the ~~first~~second quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures 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~~second quarter of ~~2018~~2019 were ~~$91~~$70 million, ~~an increase~~a decrease of ~~15%~~10% compared to ~~$79~~$78 million in the ~~first~~second 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~~second quarter of ~~2018~~2019 was ~~$377~~$316 million, ~~an increase~~a decrease of ~~41%~~9% compared to ~~$268~~$346 million in the ~~first~~second quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to ~~higher~~lower revenues ~~as well as~~and the impact of currency fluctuations, partially offset by impact of 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~~June 30, 2019 and ~~2017:~~

   Three months ended March 31,
                     2018                                      2017
   (U.S.$ in millions / % of Segment Revenues)
Revenues
   $ 750    100 % $ 718    100 %
Gross profit
   313    42 % 292    41 %
R&D expenses
   24    4 % 47    7 %
S&M expenses
   134    18 % 158    22 %
G&A expenses
   41    5 % 48    7 %
Other income
   (8 )    (1 %) (1 )    §






Segment profit*
   $ 122    16 % $ 40    6 %






2018:

Three months ended June 30,

2019

2018

(U.S. $ in millions / % of
Segment Revenues)

Revenues
$
741

100.0
% $
789

100.0
%
Gross profit

312

42.1
%
328

41.5
%
R&D expenses

24

3.2
%
25

3.2
%
S&M expenses

119

16.1
%
130

16.4
%
G&A expenses

34

4.7
%
37

4.7
%
Other (income) expense

(1
)
§

(3
)
§

Segment profit*
$
136

18.3
% $
139

17.6
%

* 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.
54

Table of Contents
Revenues from our ~~Growth~~International Markets segment in the ~~first~~second quarter of ~~2018~~2019 were ~~$750~~$741 million, ~~an increase~~a decrease of ~~$32~~$48 million, or 4%6%, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues ~~were flat~~decreased 2% compared to the ~~first~~second 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~~June 30, 2019 and ~~2017:~~

   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%.~~
2018:

Three months ended
June 30,

Percentage
Change

2019

2018

2018-2019

(U.S. $ in millions)

Generic products
$
489
$
537

(9
%)
COPAXONE

13

22

(40
%)
Distribution

164

154

6
%
Other

75

76

(1
%)

Total
$
741
$
789

(6
%)

Generic products
revenues in our ~~Growth~~International Markets segment in the ~~first~~second quarter of ~~2018,~~2019, which include OTC products, ~~were flat~~decreased by 9% to $489 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues decreased by 3%4%, mainly due to ~~the effect of the deconsolidation of our subsidiaries~~lower sales in ~~Venezuela.~~
Japan resulting from generic competition to off-patented products, partially offset by higher sales in Russia.
COPAXONE
revenues in our ~~Growth~~International Markets segment in the ~~first~~second quarter of ~~2018~~2019 decreased by ~~24%~~40% to ~~$16~~$13 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues decreased by ~~20%~~28%.
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~~second quarter of ~~2018~~2019 increased by ~~22%~~6% to ~~$153~~$164 million, compared to the ~~first~~second quarter of ~~2017.~~2018. In local currency terms, revenues increased by ~~13%~~7%.
~~Growth~~
International Markets Gross Profit
Gross profit from our ~~Growth~~International Markets segment in the ~~first~~second quarter of ~~2018~~2019 was ~~$313~~$312 million, ~~an increase~~a decrease of 7%5% compared to ~~$292~~$328 million in the ~~first~~second quarter of ~~2017.~~2018.
Gross profit margin for our International Markets segment in the second quarter of 2019 increased to 42.1%, compared to 41.5% in the second quarter of 2018. The increase was mainly due to ~~higher revenues~~lower cost of goods and portfolio optimization, mainly in ~~Japan, including a milestone payment from Takeda following approval of AZILECT~~^®,Russia 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.~~
Gross profit margin for our Growth Markets segment in the first quarter of 2018 increased to 41.7%, from 40.7% in the first quarter of 2017. This increase was mainly due to higher gross profit in Japan (3.5 points), partially offset by the deconsolidation of our subsidiaries in Venezuela (1.3 points) and currency fluctuations in Argentina (0.8 points).
~~Growth~~Israel.
International Markets R&D Expenses
R&D expenses relating to our ~~Growth~~International Markets segment in the ~~first~~second quarter of ~~2018~~2019 were $24 million, a decrease of ~~49%~~6% compared to ~~$47~~$25 million in the ~~first~~second quarter of ~~2017.~~
2018.
For a description of our R&D expenses in the ~~first~~second 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~~second quarter of ~~2018~~2019 were ~~$134~~$119 million, a decrease of ~~15%~~8% compared to ~~$158~~$130 million in the ~~first~~second 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~~second quarter of ~~2018~~2019 were ~~$41~~$34 million, a decrease of ~~15%~~7% compared to ~~$48~~$37 million in the ~~first~~second quarter of ~~2017.~~2018. The decrease was mainly due to cost reductions and efficiency measures 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~~second quarter of ~~2018~~2019 was ~~$122~~$136 million, a decrease of 2% compared to ~~$40~~$139 million in the ~~first~~second quarter of ~~2017.~~2018. The ~~increase~~decrease was mainly due to lower sales in Japan resulting from generic competition to off-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~~
55

Table 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.
Contents

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 an out-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~~second quarter of ~~2018 decreased by 2.6%~~2019 were $342 million, an increase of 6% compared to ~~$342 million.~~the second quarter of 2018. In local currency terms, revenues ~~decreased~~increased by 8%10%, mainly due to ~~lower~~higher revenues from API sales to third parties.

API sales to third parties in the ~~first~~second quarter of ~~2018 decreased by 9% to $179 million. In~~2019 were $204 million, an increase of 10%, in both U.S. dollar and local currency terms, ~~revenues decreased by 10%, mainly due~~compared to the ~~timing of certain shipments in the first~~second quarter of 2018.

Teva Consolidated Results

Revenues

Revenues in the ~~first~~second quarter of ~~2018~~2019 were ~~$5.1 billion,~~$4,337 million, a decrease of ~~10%~~8%, or ~~15%~~5% in local currency terms, compared to the ~~first~~second quarter of ~~2017,~~2018, mainly due to ~~adverse market dynamics in the U.S. generics market,~~ generic competition to COPAXONE, as well as declines in revenues from TREANDA/BENDEKA, certain other specialty products in the United States, our Europe segment and ~~loss of~~Japan, partially offset by higher revenues ~~following our divestment of certain products~~from AUSTEDO, AJOVY and ~~discontinuation of certain activities.~~QVAR in the United States. See “—North America Revenues,” “—Europe Revenues,” “—~~Growth~~International Markets Revenues” and “—Other Activities” above.

Exchange rate movements during the ~~first~~second quarter of ~~2018 in comparison with the first quarter of 2017 positively~~2019 negatively impacted revenues by ~~$240 million.~~
$125 million compared to the second quarter of 2018.

Gross Profit

Gross profit in the ~~first~~second quarter of ~~2018~~2019 was ~~$2.3 billion,~~$1,893 million, a decrease of ~~17%~~7% compared to the ~~first~~second 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%~~43.7% in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~50.2%~~43.2% in the ~~first~~second quarter of ~~2017.~~
2018.

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

Research and Development (R&D) Expenses

Net R&D expenses in the ~~first~~second quarter of ~~2018~~2019 were ~~$317~~$276 million, a decrease of ~~27%~~5% compared to the ~~first~~second 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~~second 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~~second quarter of ~~2018~~2019 compared to the ~~first~~second quarter of ~~2017~~2018 primarily resulted from pipeline optimization and project terminations ~~phase 3 studies that 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 ~~6.3%~~6.4% in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~7.6%~~6.2% in the ~~first~~second quarter of ~~2017.~~
2018.

Table of Contents
Selling and Marketing (S&M) Expenses
S&M expenses in the ~~first~~second quarter of ~~2018~~2019 were ~~$771~~$666 million, a decrease of ~~20%~~2% compared to the ~~first~~second 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%~~15.4% in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~17%~~14.5% in the ~~first~~second quarter of ~~2017.~~
2018.
General and Administrative (G&A) Expenses
G&A expenses in the ~~first~~second quarter of ~~2018~~2019 were ~~$329~~$296 million, a decrease of ~~10%~~6% compared to the ~~first~~second 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,~~Expenses.” ~~as well as cost reductions in certain corporate functions as part of the restructuring plan.~~
G&A expenses as a percentage of revenues were ~~6.5%~~6.8% in the ~~first~~second quarter of 2019, compared to 6.7% in the second quarter of 2018.
Intangible Asset Impairments
We recorded expenses of $561 million for identifiable intangible asset impairments in the second quarter of 2019, compared to expenses of $521 million in the second quarter of 2018. See note 6 to our consolidated financial statements.
Goodwill Impairment
In the second quarter of 2019, there were no goodwill impairments recorded, compared to a goodwill impairment of $120 million in the second quarter of 2018. The goodwill impairment in the second quarter of 2018 ~~flat compared~~was mainly attributable to ~~the first quarter of 2017.~~
goodwill associated with our Rimsa reporting unit (now included in our International Markets reporting unit). See note 7 to our consolidated financial statements.
Other ~~Asset~~Assets Impairments, Restructuring and Other Items
We recorded expenses of ~~$707~~$101 million for other ~~asset~~assets impairments, restructuring and other items in the ~~first~~second quarter of ~~2018,~~2019, compared to expenses of ~~$240~~$194 million in the ~~first~~second 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:~~
a) 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).
b) ~~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 Form FDA-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 $142 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 as of June 30, 2019 on our financial statements was $55 million, primarily related to inventory reserves and returns. 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~~second quarter of ~~2018,~~2019, we recorded ~~$247~~$47 million of restructuring expenses, compared to ~~$130~~$107 million in the ~~first~~second quarter of ~~2017.~~2018. The expenses in the ~~first~~second quarter of ~~2018~~2019 were primarily related to headcount reductions across all ~~functions.~~
~~Since announcing our~~functions as part of the restructuring plan announced in 2017.
The two-year restructuring plan announced in 2017 is intended to reduce our total cost base by $3 billion by the end of 2019.
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Since the announcement, we reduced our global headcount by approximately ~~6,200~~11,145 full-time-equivalent employees.
~~Goodwill Impairment~~
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~~second quarter of ~~2018,~~2019, we recorded ~~income of $1.3 billion, compared to~~ an expense of ~~$20~~$646 million in ~~the first quarter of 2017. The income in the first quarter of 2018 consisted primarily of the working capital adjustment with Allergan, the Rimsa settlement~~legal settlements and ~~a reversal of the reserve recorded~~loss contingencies, compared to $20 million in the second quarter of ~~2017 with respect~~2018. The expense in the second quarter of 2019 was mainly related to the ~~carvedilol patent~~$85 million settlement paid in the opioid litigation ~~following~~brought by the ~~reversal of the verdict granting the award to GSK (see~~Oklahoma Attorney General and an estimated provision made for certain other opioid cases. See note 16 to our consolidated financial ~~statements).~~
statements.
Other Income
Other income in the ~~first~~second quarter of ~~2018~~2019 was ~~$203~~$9 million, compared to ~~$72~~$96 million in the ~~first~~second quarter of ~~2017.~~2018. Other income in the second quarter of 2018 was primarily the result of legal recovery of lost profits, where U.S. patent infringement litigation had previously prevented a product’s sales.
Operating Income (Loss)
Operating loss was $644 million in the ~~factors discussed above under “—North America Segment— Other Income,” as well as a $93~~second quarter of 2019, compared to $14 million ~~net gain related to~~in the ~~divestment~~second quarter of ~~our women’s health business.~~
~~Other income~~2018.
Operating loss as a percentage of revenues was ~~4.0%~~14.8% in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~1.3%~~0.3% in the ~~first~~second 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~~ was mainly due to ~~income from~~ legal settlements and loss contingencies ~~higher operating income~~expenses, lower profit in our ~~Europe~~North America segment and ~~Growth Markets segments and net gain from~~higher intangible asset impairments, partially offset by goodwill impairment in the ~~sale of our women’s health business during the first~~second quarter of 2018 ~~partially offset by higher~~which did not recur in the second quarter of 2019 and lower other ~~asset~~assets impairments, restructuring and other ~~items, a goodwill impairment and lower operating income~~items.
Financial Expenses, Net
Financial expenses were $206 million in ~~our North America segment.~~
the second quarter of 2019, compared to $236 million in the second quarter of 2018. Financial expenses in the second quarter of 2019 were mainly comprised of interest expenses of $226 million. Financial expenses in the second quarter of 2018 were mainly comprised of interest expenses of $231 million.
The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the three months ended ~~March 31, 2018~~June 30, 2019 and ~~2017:~~

   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




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 and2018:

Three months ended
June 30,

2019

2018

(U.S. $ in millions)

North America profit
$
504
$
722

Europe profit

316

346

International Markets profit

136

139

Total segment profit

956

1,207

Profit of other activities

55

31

1,011

1,238

Amounts not allocated to segments:

Amortization

285

302

Other assets impairments, restructuring and other items

101

194

Goodwill impairment

—

120

Intangible asset impairments

561

521

Gain on divestitures, net of divestitures related costs

(9
)
10

Other R&D expenses

§

—

Costs related to regulatory actions taken in facilities

12

4

Legal settlements and loss contingencies

646

20

Other unallocated amounts

59

81

Consolidated operating income (loss)

(644
)
(14
)

Financial expenses, net

206

236

Consolidated income (loss) before income taxes
$
(850
) $
(250
)

§   Represents an amount less than $1 million.
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Tax Rate
In 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~~second quarter of ~~2017,~~2019, we ~~deconsolidated our subsidiaries in Venezuela from our financial results. Consequently, results~~recognized a tax benefit of ~~operations~~$179 million, or 21%, on pre-tax loss of ~~our subsidiaries in Venezuela are not included in our financial results for~~$850 million. In the ~~first quarter of 2018.~~
~~Financial Expenses, Net~~
~~Financial expenses were $271 million in the first~~second quarter of 2018, ~~compared to $207 million in the first quarter~~we recognized a tax benefit of 2017. The increase was mainly due to $60 million of early redemption charges and accelerated amortization 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 the first quarter of 2018, compared to a $36 million gain from the sale of Mylan shares during the first quarter of 2017.
~~Tax Rate~~
~~In the first quarter of 2018, income taxes were $46~~$76 million, or 4%30%, onpre-tax ~~income~~ loss of ~~$1.3 billion. In the first quarter of 2017, income taxes were $54 million, or 8%, onpre-tax~~ ~~income of $688~~$250 million. Our tax rate for the ~~first~~second 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 (Income) of Associated Companies, Net
~~Share~~
We had no share in ~~losses~~income of associated companies, net in the ~~first~~second quarter of ~~2018 was $74 million,~~2019, compared to ~~share in profits of $7~~$8 million in the ~~first~~second 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~~loss attributable to Teva was ~~$1.1 billion in the first quarter of 2018, compared to $645~~$689 million in the ~~first~~second quarter of ~~2017. The increase was mainly due~~2019, compared to $176 million in the ~~factors previously discussed in “—Operating Income” above, partially offset by factors previously discussed in “—Financial Expenses, Net” and “—Share in (Profits) Losses~~second quarter of ~~Associated Companies, Net.”~~
2018.
Net ~~income~~loss attributable to ordinary shareholders was ~~$1.1 billion in the first quarter of 2018, compared to $580~~$689 million in the ~~first~~second quarter of ~~2017. The difference from~~2019, compared to net ~~income attributable to Teva is due to~~loss of $241 million in the ~~aforementioned factors.~~
second quarter of 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,~~June 30, 2019 and 2018 ~~and 2017~~ were ~~1,020~~1,092 million and ~~1,017~~1,018 million shares, respectively.
~~Diluted earnings~~
In computing loss per share for the three months ended ~~March 31, 2018 and 2017 take into~~June 30, 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 6463 million shares (including shares that ~~may be~~were issued due to unpaid dividends tountil that date) for the three months ended ~~March 31,~~June 30, 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.
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, we issued 70.6 million ADSs in December 2018.
Diluted ~~earnings~~loss per share ~~were $1.03~~was $0.63 in the ~~first~~second quarter of ~~2018,~~2019, compared to ~~$0.57~~diluted loss per share of $0.24 in the ~~first~~second 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,~~June 30, 2019 and 2018, ~~and 2017,~~ the fully diluted share count for purposes of calculating our market capitalization was approximately ~~1,095~~1,107 million and ~~1,082~~1,109 million, respectively.
Impact of Currency Fluctuations on Results of Operations
In the second quarter of 2019, approximately 50% of our revenues were denominated in currencies other than the U.S. dollar. Because our results are reported in U.S. dollars, we are subject to significant foreign currency risks. Accordingly, changes in the rate of exchange between the U.S. dollar and the local currencies in the markets in which we operate (primarily the euro, British pound, Japanese yen, Israeli shekel, Canadian dollar, Polish zloty, Argentinean peso, Turkish lira and Russian ruble) impact our results.
During the second quarter of 2019, the following main currencies relevant to our operations decreased in value against the U.S. dollar (each on a quarterly average compared to quarterly average basis): Argentinian peso by 47%, Turkish lira by 26%, Hungarian forint by 8%, euro by 6%, British pound by 6%, Polish zloty by 6%, Russian ruble by 4%, Indian rupee by 4%, Canadian dollar by 4%, Swiss franc by 2%, Israeli shekel by 1% and Japanese yen by 1%.
As a result, exchange rate movements during the second quarter of 2019 negatively impacted overall revenues by $125 million and our operating income by $41 million, in comparison with the second quarter of 2018.
Commencing in the third quarter of 2018, the cumulative inflation in Argentina exceeded 100% or more over a three-year period. Although this triggered highly inflationary accounting treatment, it did not have a material impact on our results of operations.
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Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018
The factors used to explain quarterly changes on a year-over-year basis are also generally relevant to a comparison of the results for the six months ended June 30, 2019 and 2018. Additional factors affecting the six months comparison are described below.
The following table sets forth, for the periods indicated, certain financial data derived from our U.S. GAAP financial statements:

Percentage of Net Revenues

Percentage
Change
2019
-
2018

Six Months Ended
June 30,

2019

2018

%

%

%

Net revenues

100.0

100.0

(12
)
Gross profit

43.4

44.5

(14
)
Research and development expenses

6.2

6.2

(12
)
Selling and marketing expenses

15.2

14.5

(7
)
General and administrative expenses

6.8

6.6

(9
)
Other asset impairments, restructuring and other items

1.2

7.1

(85
)
Goodwill impairment

—

3

—

Legal settlements and loss contingencies

8.1

(12.9
)
—

Other income

(0.2
)
(3.1
)
(95
)
Operating income (loss)

(5.9
)
15.6

—

Financial expenses, net

4.9

5.2

(16
)
Income (loss) before income taxes

(10.8
)
10.4

—

Tax benefit

(2.0
)
(0.3
)
466

Share in (profits) losses of associated companies, net

§

0.7

—

Net income (loss) attributable to non-controlling interests

(0.3
)
0.2

—

Net income (loss) attributable to Teva

(9.2
)
9.7

—

Dividends on preferred shares

—

1.3

—

Net income (loss) attributable to ordinary shareholders

(9.2
)
8.3

—

§ 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 six months ended June 30, 2019 and 2018:

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
4,118

100.0
% $
4,794

100.0
%
Gross profit

2,107

51.2
%
2,582

53.9
%
R&D expenses

340

8.3
%
370

7.7
%
S&M expenses

537

13.0
%
548

11.4
%
G&A expenses

230

5.6
%
229

4.8
%
Other (income) expense

(2
)
§

(202
)
(4.2
%)

Segment profit*
$
1,001

24.3
% $
1,637

34.1
%

* Segment profit does not include amortization and certain other items.
§   Represents an amount less than 0.5%.
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North America Revenues
Our North America segment includes the United States and Canada. Revenues from our North America segment in the first six months of 2019 were $4,118 million, a decrease of $676 million, or 14%, compared to the first six months of 2018.
Revenues by Major Products and Activities
The following table presents revenues for our North America segment by major products and activities for the six months ended June 30, 2019 and 2018:

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,913
$
2,035

(6
%)
COPAXONE

482

940

(49
%)
TREANDA/BENDEKA

229

341

(33
%)
ProAir*

123

245

(50
%)
QVAR

124

137

(10
%)
AJOVY

43

—

N/A

AUSTEDO

171

74

130
%
Anda

729

651

12
%
Other

305

372

(18
%)

Total
$
4,118
$
4,794
(14 %)

* Does not include sales of ProAir authorized generic, which are included under generics.
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North America Gross Profit
Gross profit from our North America segment in the first six months of 2019 was $2,107 million, a decrease of 18%, compared to $2,582 million in the first six months of 2018.
Gross profit margin for our North America segment in the first six months of 2019 decreased to 51.2% from 53.9% in the first six months of 2018.
North America R&D Expenses
R&D expenses relating to our North America segment in the first six months of 2019 were $340 million, a decrease of 8%, compared to $370 million in the first six months of 2018.
North America S&M Expenses
S&M expenses relating to our North America segment in the first six months of 2019 were $537 million, a decrease of 2%, compared to $548 million in the first six months of 2018.
North America G&A Expenses
G&A expenses relating to our North America segment in the first six months of 2019 were $230 million, flat compared to the first six months of 2018.
North America Other Income
Other income from our North America segment in the first six months of 2019 was $2 million, compared to $202 million in the first six months of 2018.
North America Profit
Profit from our North America segment in the first six months of 2019 was $1,001 million, a decrease of 39%, compared to $1,637 million in the first six months of 2018.
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Europe Segment
The following table presents revenues, expenses and profit for our Europe segment for the six months ended June 30, 2019 and 2018:

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of Segment Revenues)

Revenues
$
2,448

100
% $
2,770

100
%
Gross profit

1,404

57.4
%
1,519

54.9
%
R&D expenses

136

5.5
%
146

5.3
%
S&M expenses

431

17.6
%
483

17.5
%
G&A expenses

119

4.8
%
169

6.1
%
Other (income) expense

(1
)
§

(2
)
§

Segment profit*
$
719

29.4
% $
723

26.1
%

* Segment profit does not include amortization and certain other items.
§   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 six months of 2019 were $2,448 million, a decrease of 12% or $322 million, compared to the first six months of 2018. In local currency terms, revenues decreased by 5% compared to the first six months of 2018.
Revenues by Major Products and Activities
The following table presents revenues for our Europe segment by major products and activities for the six months ended June 30, 2019 and 2018:

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
1,763
$
1,904

(7
%)
COPAXONE

221

293

(25
%)
Respiratory products

181

219

(18
%)
Other

283

354

(20
%)

Total
$
2,448
$
2,770

(12
%)

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Europe Gross Profit
Gross profit from our Europe segment in the first six months of 2019 was $1,404 million, a decrease of 8% compared to $1,519 million in the first six months of 2018.
Gross profit margin for our Europe segment in the first six months of 2019 increased to 57.4% from 54.9% in the first six months of 2018.
Europe R&D Expenses
R&D expenses relating to our Europe segment in the first six months of 2019 were $136 million, a decrease of 7% compared to $146 million in the first six months of 2018.
Europe S&M Expenses
S&M expenses relating to our Europe segment in the first six months of 2019 were $431 million, a decrease of 11% compared to $483 million in the first six months of 2018.
Europe G&A Expenses
G&A expenses relating to our Europe segment in the first six months of 2019 were $119 million, a decrease of 30% compared to $169 million in the first six months of 2018.
Europe Profit
Profit from our Europe segment in the first six months of 2019 was $719 million, flat compared to the first six months of 2018.
International Markets Segment
The following table presents revenues, expenses and profit for our International Markets segment for the six months ended June 30, 2019 and 2018:

Six months ended June 30,

2019

2018

(U.S. $ in millions / % of
Segment Revenues)

Revenues
$
1,409

100.0
% $
1,539

100.0
%
Gross profit

582

41.3
%
641

41.6
%
R&D expenses

46

3.2
%
49

3.2
%
S&M expenses

234

16.6
%
264

17.2
%
G&A expenses

70

5.0
%
78

5.1
%
Other (income) expense

(1
)
§

(11
)
(0.7
%)

Segment profit*
$
233

16.5
% $
261

17.0
%

* Segment profit does not include amortization and certain other items.
§   Represents an amount less than 0.5%.
International Markets Revenues
Our International Markets segment includes all countries other than those in our North America and Europe segments. Revenues from our International Markets segment in the first six months of 2019 were $1,409 million, a decrease of $130 million, or 8%, compared to the first six months of 2018. In local currency terms, revenues decreased by 3% compared to the first six months of 2018.
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Revenues by Major Products and Activities
The following table presents revenues for our International Markets segment by major products and activities for the six months ended June 30, 2019 and 2018:

Six months ended
June 30,

Percentage
Change
2018-2019

2019

2018

(U.S. $ in millions)

Generic products
$
930
$
1,025

(9
%)
COPAXONE

27

38

(31
%)
Distribution

315

307

3
%
Other

137

168

(19
%)

Total
$
1,409
$
1,539

(8
%)

International Markets Gross Profit
Gross profit from our International Markets segment in the first six months of 2019 was $582 million, a decrease of 9% compared to $641 million in the first six months of 2018.
Gross profit margin for our International Markets segment in the first six months of 2019 decreased to 41.3%, from 41.6% in the first six months of 2018. The decrease was mainly due to lower sales in Japan, partially offset by higher sales in Russia.
International Markets R&D Expenses
R&D expenses relating to our International Markets segment in the first six months of 2019 were $46 million, a decrease of 7% compared to $49 million in the first six months of 2018.
International Markets S&M Expenses
S&M expenses relating to our International Markets segment in the first six months of 2019 were $234 million, a decrease of 11% compared to $264 million in the first six months of 2018.
International Markets G&A Expenses
G&A expenses relating to our International Markets segment in the first six months of 2019 were $70 million, a decrease of 10% compared to $78 million in the first six months of 2018.
International Markets Profit
Profit from our International Markets segment in the first six months of 2019 was $233 million, compared to $261 million in the first six months of 2018.
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Other Activities
Our revenues from other activities in the first six months of 2019 decreased by 1% to $658 million, compared to the first six months of 2018. In local currency terms, revenues increased by 2%.
API sales to third parties in the first six months of 2019 increased by 7%, in both U.S. dollar and local currency terms, to $390 million, compared to the first six months of 2018.
Teva Consolidated Results
Revenues
Revenues in the first six months of 2019 were $8,632 million, a decrease of 12% or 9% in local currency terms, compared to the first six months of 2018.
Exchange rate movements during the first six months of 2019 compared to the first six months of 2018 negatively impacted revenues by $301 million.
Gross Profit
Gross profit in the first six months of 2019 was $3,749 million, a decrease of $599 million compared to the first six months of 2018.
Gross profit as a percentage of revenues was 43.4% in the first six months of 2019, compared to 44.5% in the first six months of 2018.
Research and Development (R&D) Expenses
Net R&D expenses in the first six months of 2019 were $537 million, a decrease of 12% compared to the first six months of 2018.
R&D expenses as a percentage of revenues were 6.2% in the first six months of 2019, flat compared to the first six months of 2018.
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Selling and Marketing (S&M) Expenses
S&M expenses in the first six months of 2019 were $1,313 million, a decrease of 7% compared to the first six months of 2018.
S&M expenses as a percentage of revenues were 15.2% in the first six months of 2019, compared to 14.5% in the first six months of 2018.
General and Administrative (G&A) Expenses
G&A expenses in the first six months of 2019 were $589 million, a decrease of 9% compared to the first six months of 2018.
G&A expenses as a percentage of revenues were 6.8% in the first six months of 2019, compared to 6.6% in the first six months of 2018.
Intangible Asset Impairments
We recorded expenses of $1,030 million for identifiable intangible asset impairments in the first six months of 2019, compared to expenses of $727 million in the first six months of 2018. See note 6 to our consolidated financial statements.
Goodwill Impairment
In the first six months of 2019, there were no goodwill impairments recorded, compared to a $300 million goodwill impairment charge recorded in the first six months of 2018. See note 7 to our consolidated financial statements.
Other Asset Impairments, Restructuring and Other Items
We recorded expenses of $103 million for other asset impairments, restructuring and other items in the first six months of 2019, compared to expenses of $695 million in the first six months of 2018. See note 14 to our consolidated financial statements.
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Legal Settlements and Loss Contingencies
In the first six months of 2019, we recorded an expense of $703 million in legal settlements and loss contingencies, compared to an income of $1,258 million in the first six months of 2018. The expense in the first six months of 2019 was mainly related to the $85 million settlement paid in the opioid litigation brought by the Oklahoma Attorney General and an estimated provision made for certain other opioid cases. See note 16 to our consolidated financial statements.
Other Income
Other income in the first six months of 2019 was $15 million, compared to $299 million in the first six months of 2018.
Other income as a percentage of revenues was 0.2% in the first six months of 2019, compared to 3.1% in the first six months of 2018.
Operating Income (Loss)
Operating loss was $510 million in the first six months of 2019, compared to an operating income of $1,511 million in the first six months of 2018.
Financial Expenses, Net
Financial expenses were $425 million in the first six months of 2019, compared to $507 million in the first six months of 2018.
Financial expenses in the first six months of 2019 were mainly comprised of interest expenses of $454 million, partially offset by $27 million of interest income. Financial expenses in the first six months of 2018 were mainly comprised of interest expenses of $449 million and $60 million of early redemption charges and accelerated amortization related to the repayment of senior notes and term loans in the first quarter of 2018.
The following table presents a reconciliation of our segment profits to our consolidated operating income (loss) and to consolidated income (loss) before income taxes for the six months ended June 30, 2019 and 2018:

Six months ended
June 30,

2019

2018

(U.S. $ in millions)

North America profit
$
1,001
$
1,637

Europe profit

719

723

International Markets profit

233

261

Total segment profit

1,954

2,621

Profit of other activities

76

52

2,029

2,673

Amounts not allocated to segments:

Amortization

568

612

Other asset impairments, restructuring and other items

103

695

Goodwill impairment

—

300

Intangible asset impairments

1,030

727

Gain on divestitures, net of divestitures related costs

(9
)
(83
)
Other R&D expenses

§

22

Costs related to regulatory actions taken in facilities

16

5

Legal settlements and loss contingencies

703

(1,258
)
Other unallocated amounts

129

142

Consolidated operating income (loss)

(510
)
1,511

Financial expenses, net

425

507

Consolidated income (loss) before income taxes
$
(934
) $
1,004

§ Represents an amount less than $1 million.
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Tax Rate
In the first six months of 2019, we recognized a tax benefit of $170 million, on pre-tax loss of $934 million. In the first six months of 2018, we recognized a tax benefit of $30 million, on pre-tax income of $1,004 million. Our tax rate for the first six months of 2019 was mainly affected by impairments, amortization and interest disallowance as a result of the U.S. Tax Cuts and Jobs Act.
Share in Losses (Income) of Associated Companies, Net
Share in losses of associated companies, net in the first six months of 2019 was $4 million, compared to share in losses of $66 million in the first six months of 2018.
Net Income (Loss)
Net loss attributable to Teva was $794 million in the first six months of 2019, compared to net income attributable to Teva of $944 million in the first six months of 2018.
Net loss attributable to ordinary shareholders was $794 million in the first six months of 2019, compared to net income of $814 million in the first six months of 2018.
Diluted Shares Outstanding and Earnings (Loss) per Share
The weighted average diluted shares outstanding used for the fully diluted share calculation for the six months ended June 30, 2019 and 2018 were 1,091 million and 1,020 million shares, respectively.
In computing diluted loss per share for the six months ended June 30, 2019, no account was taken of the potential dilution by the assumed exercise of employee stock options and non-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 six months ended June 30, 2018 take into account the potential dilution that could occur upon the exercise of options and non-vested RSUs granted under employee stock compensation plans, using the treasury stock method.
Additionally, no account was taken of the potential dilution by the mandatory convertible preferred shares, amounting to 65 million shares (including shares that may be issued due to unpaid dividends to date) for the six months ended June 30, 2018, since they had an anti-dilutive effect on loss per share.
Diluted loss per share was $0.73 in the first six months of 2019, compared to diluted earnings per share of $0.80 in the first six months of 2018.
Impact of Currency Fluctuations on Results of Operations
In the first six months of 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, changes in the 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~~six months of ~~2018,~~2019, the following main currencies relevant to our operations decreased in value against the U.S. ~~dollar (each on an annual average compared to annual average basis):~~dollar: Argentinean 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:~~48%, Turkish lira by 27%, Russian ruble by 9%, Hungarian forint by 9%, Polish zloty by 8%, euro by ~~15%~~7%, British pound by ~~12%~~6%, Indian rupee by 6%, Canadian dollar by 4%, new Israeli shekel by ~~8%, Polish zloty by 19%,~~3% and Japanese yen by ~~5%, Canadian dollar by 5%, Hungarian forint by 15%, Chilean peso by 9%, Swiss franc by 6% and Russian ruble by 3%~~1% (all compared on a six-monthly average basis).
As a result, exchange rate movements during the first ~~quarter~~six months of ~~2018, in comparison with the first quarter of 2017, positively~~2019 negatively impacted overall revenues by ~~$240~~$301 million and our operating income by ~~$37 million.~~
$91 million, in comparison to the first six months of 2018.
Liquidity and Capital Resources
Total balance sheet assets were ~~$69.2 billion~~$59,424 million as of June 30, 2019, compared to $59,854 million as of March 31, ~~2018, compared to $70.6 billion 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.~~
2019.
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~~$65 million as of June 30, 2019, compared to $59 million as of March 31, ~~2018,~~2019.
Trade receivables as of June 30, 2019 were $5,260 million, compared to ~~negative $0.4 billion~~$5,108 million as of ~~December~~March 31, ~~2017.~~
2019. The increase in the second quarter of 2019 was mainly due to timing of sales within the quarter and timing of issuance of credit memos to customers. SR&A as of June 30, 2019 was $6,054 million, compared to $6,200 million as of March 31, 2019. The reduction in the second quarter of 2019 is attributable to the payout of certain rebates, primarily managed care and Medicaid for prior periods. Payments exceed new provisions for the current period due to a decline in sales resulting in overall reduction to the liability.
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Table of Contents
Accrued expenses as of June 30, 2019, were $2,335 million, compared to $1,869 million as of March 31, 2019. The increase in the second quarter of 2019 was mainly due to provisions made under legal settlements and loss contingencies.
Investment in property, plant and equipment in the ~~first~~second quarter of ~~2018~~2019 was approximately ~~$0.2 billion, flat~~$112 million, compared to ~~the fourth quarter of 2017. Depreciation was $0.2 billion~~$125 million in the first quarter of ~~2018, flat~~2019. Depreciation in the second quarter of 2019 was $153 million, compared to $152 million in the ~~fourth~~first quarter of ~~2017.~~
2019.
Cash and cash equivalents and short-term and long-term investments as of June 30, 2019 were $2,232 million, compared to $2,040 million as of March 31, ~~2018 were $1.5 billion, compared to $1.1 billion as~~2019. The increase in the second quarter of ~~December 31, 2017,~~2019 was 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, offset by debt prepayments as discussed below.~~
quarter.
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 cash on hand, existing cash investments, liquid securities and available credit facilities, primarily our $2.3 billion revolving credit facility (“RCF”).
In April 2019, we entered into a $2.3 billion unsecured syndicated RCF, which replaced the previous $3 billion ~~syndicated~~ revolving ~~line~~credit facility. The RCF contains certain covenants, including certain limitations on incurring liens and indebtedness and maintenance of ~~credit,~~certain financial ratios, including the requirement to maintain compliance with a net debt to EBITDA ratio, which becomes more restrictive over time. The net debt to EBITDA ratio limit is 6.25x through December 31, 2019, gradually declines to 5.75x in the third and fourth quarters of 2020, and continues to gradually decline over the remaining term of the RCF.
The RCF can be used for general corporate purposes, including repaying existing debt. As of June 30, 2019, no amounts were outstanding under the RCF. As of the date of this report, $500 million was outstanding under the RCF. Based on current and forecasted results, we expect that we will not ~~utilized~~exceed the financial covenant thresholds set forth in the RCF within one year from the date that the financial statements are issued.
Under specified circumstances, including non-compliance with any of the covenants described above and the unavailability of any waiver, amendment or other modification thereto, we will not be able to borrow under the RCF. Additionally, violations of the covenants, under the above-mentioned circumstances, would result in an event of default in all borrowings under the RCF and, when greater than a specified threshold amount as set forth in each series of senior notes is outstanding, could lead to an event of default under our senior notes due to cross acceleration provisions.
We expect that we will continue to have sufficient cash resources to support our debt service payments and all other financial obligations within one year from the date that the financial statements are issued.
Debt Balance and Movements
As of June 30, 2019, our debt was $28,726 million, compared to $28,624 million as of March 31, ~~2018, as well as internally generated funds, which we believe are sufficient to meet ouron-going~~ ~~operating needs.~~
~~2018 Debt Balance and Movements~~
~~As of March 31, 2018, our debt was $30.8 billion, compared to $32.5 billion as of December 31, 2017.~~2019. The ~~decrease~~increase 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, as well as~~ exchange ~~rate~~rates fluctuations.
~~In January 2018 we prepaid in full $15 million of our U.S. dollar debentures.~~
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~~2019.
During the second quarter of 2019, we repurchased and canceled approximately $18 million principal amount of our ~~Euro 1.0 billion 2.875%~~$1,574 million 1.7% senior notes due ~~in April~~July 2019.
In July 2019, we repaid at maturity our $1,556 million 1.7% senior notes.
Our debt as of ~~March 31, 2018~~June 30, 2019 was effectively denominated in the following currencies: ~~63%~~66% in U.S. dollars, 32% in euros and 5%2% in Swiss francs.
The portion of total debt classified as short-term as of June 30, 2019 was 10%, similar to March 31, ~~2018 was 4%, compared to 11% as of December 31, 2017, mainly due to the activities described above.~~
2019.
Our financial leverage was ~~60%~~65% as of June 30, 2019, a slight increase compared to 64% as of March 31, ~~2018, compared to 63% as of December 31, 2017.~~
2019.
Our average debt maturity was approximately ~~7.3~~6.3 years as of June 30, 2019, compared to 6.6 years as of March 31, ~~2018, compared to 6.4 years as of December 31, 2017.~~
2019.
Total Equity
Total equity was ~~$20.1 billion~~$15,251 million as of June 30, 2019, compared to $15,821 million as of March 31, ~~2018, compared to $18.7 billion as of December 31, 2017.~~2019. The ~~increase~~decrease was mainly due to ~~$1.1 billion~~net loss of ~~net income during the quarter and $239~~$671 million, ~~positive impact of~~partially offset by $86 million in exchange rate ~~fluctuations.~~
fluctuations in the second quarter of 2019.
Exchange rate fluctuations affected our balance sheet, as approximately ~~61%~~36% of our net assets in the ~~first~~second quarter of ~~2018~~2019 (including bothnon-monetary and monetary assets) were in currencies other than the U.S. dollar. When compared to ~~December~~March 31, ~~2017,~~2019, changes in currency rates had a positive impact of ~~$330~~$86 million on our equity as of ~~March 31, 2018,~~June 30, 2019, mainly due to the ~~change~~changes in value against the U.S. dollar of: the Japanese yen by 3%, the euro by ~~(3%)~~1%, the ~~Mexican peso~~Russian ruble by ~~(8%), the Japanese Yen by (6%)~~4%, the British pound by ~~(4%)~~3%, the Canadian dollar by 2% and the Polish zloty by ~~(2%) and the Bulgarian lev by (3%)~~3%. All comparisons are on aquarter-end toquarter-end basis.
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Table of Contents
Cash Flow
Cash flow used in operating activities during the second quarter of 2019 was $227 million, compared to cash flow generated from operating activities ~~during~~of $162 million in the ~~first~~second quarter of ~~2018 was $1.5 billion, compared to $0.1 billion~~2018. The decrease in cash flow in the ~~first~~second quarter of ~~2017. The increase~~2019 was mainly due to ~~proceeds from the working capital adjustment with Allergan~~lower revenues, timing of certain customer payments and ~~the legal settlement with Rimsa, compared to~~credits and payments ~~made to the SEC and DOJ~~of U.S. customer rebates paid this quarter, primarily related to ~~the FCPA settlement in the first quarter of 2017.~~
managed care and Medicaid.
Cash flow generated from operating activities in the ~~first~~second quarter of ~~2018,~~2019, net of cash ~~used~~received for capital investments and beneficial interest collected in exchange for securitized trade receivables, was ~~$1.9 billion,~~$168 million, compared to ~~$0.3 billion~~$559 million in the ~~first~~second quarter of ~~2017.~~2018. The ~~increase~~decrease in cash flow was mainly due to the ~~increase in cash flow generated from operating activities as well as lower net capital investments and higher beneficial interest collected in exchange for securitized trade receivables.~~
reasons mentioned above.
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.~~
~~We have suspended cash dividends on our mandatory convertible preferred shares in the first quarter of 2018 due to our accumulated deficit.~~
since December 2017.
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.
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Table of Contents
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 related~~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~~

Three months ended
June 30,

Six months ended
June 30,

2019

2018

2019

2018

(U.S. $ in millions)

Gain on divestitures, net of divestitures related costs

(9
)
10

(9
)
(83
)
Amortization of purchased intangible assets

285

302

568

612

Restructuring expenses

47

107

79

354

Equity compensation expenses

35

47

69

77

Costs related to regulatory actions taken in facilities

12

4

16

5

Acquisition, integration and related expenses

—

3

2

5

Other R&D expenses

—

—

—

22

Contingent consideration

24

47

(47
)
55

Legal settlements and loss contingencies

646

20

703

(1,258
)
Goodwill impairment

—

120

—

300

Impairment of long-lived assets

609

548

1,097

980

Other non-GAAP items

6

44

60

93

Financial expense (income)

8

(2
)
6

66

Minority interest

(8
)
(12
)
(16
)
(20
)
Impairments of equity investments

—

—

—

94

Corresponding tax effect

(312
)
(203
)
(429
)
(368
)
72
Table 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.~~
~~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.~~
Contents
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 June 30, 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

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

Non-
GAAP

Cost of Sales

2,443

249

12

7

26

2,149



R&D expenses

276

6

—

271

S&M expenses

666

35

10

621

G&A expenses

296

12

(2
)
286

Other (income) expenses

(9
)
(9
)
(0
)

Legal settlements and loss contingencies

646

646

—

Other assets impairments, restructuring and other items

101

48

47

24

(18
)
—

Intangible assets impairment

561

561

—

Financial expenses, net

206

8

198

Income taxes

(179
)
(312
)
134

Net income (loss) attributable to non-controlling interests

18

(8
)
26

Total reconciled items

285

646

609

47

12

35

24

(9
)
6

(0
)
(312
)

EPS—Basic

(0.63
)
1.23

0.60

EPS—Diluted

(0.63
)
1.23

0.60

The non-GAAP diluted weighted average number of shares was 1,093 million for the three months ended June 30, 2019.
73
Table of Contents

Three months ended June 30, 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

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

Cost of Sales

2,668

261

4

9

32

2,362

R&D expenses

290

9

—

281



S&M expenses

682

41

12

(5
)
634

G&A expenses

316

17

7

292

Other (income) expenses

(96
)
10

(106
)

Legal settlements and loss contingencies

20

20

—

Other assets impairments, restructuring and other items

194

27

3

107

47

10

—

Intangible assets impairment

521

521

—

Goodwill impairment

120

120

—

Financial expenses, net

236

(2
)
238

Income taxes

(76
)
(203
)
127

Share in losses (income) of associated companies, net

(8
)
—

(8
)

Net income (loss) attributable to non-controlling interests

10

(12
)
22

Total reconciled items

302

20

668

3

107

4

47

47

54

(14
)
(203
)

EPS—Basic

(0.24
)
1.02

0.78

EPS—Diluted

(0.24
)
1.02

0.78

The non-GAAP diluted weighted average number of shares was 1,021 million for the three months ended June 30, 2018.
74
Table of Contents

Six months ended June 30, 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
contingencies

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

Contingent
conside-
ration

Gain on
sale of
business

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Unusual
tax
item*

Non-
GAAP



Cost of Sales

4,883

497

16

14

61

4,294

R&D expenses

537

11

0

525

S&M expenses

1,313

71

20

—

1,223

G&A expenses

589

24

(1
)
566

Other (income) expenses

(15
)
(9
)
(6
)

Legal settlements and loss contingencies

703

703

—

Other assets impairments, restructuring and other items

103

68

2

79

(47
)
1

(0
)

Intangible assets impairment

1,030

1,030

—

Financial expenses, net

425

6

419

Corresponding tax effect

(170
)
(490
)
61

259

Share in losses (income) of associated companies, net

4

—

4

Net income (loss) attributable to non-controlling interests

26

(16
)
42

Total reconciled items

568

703

1,098

2

79

16

69

(47
)
(9
)
60

(10
) (490
)
61

EPS—Basic

(0.73
) 1.93

1.20

EPS—Diluted

(0.73
) 1.93

1.20

~~(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 six months ended June 30, 2019.
75

Table of Contents

Six months ended June 30, 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
contingencies

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
compen-
sation

Contingent
conside-
ration

Other
non-
GAAP
items

Other
items

Corres-
ponding
tax
effect

Non-
GAAP

Cost of Sales

5,418

525

5

15

64

4,809

R&D expenses

607

22

14

1

570

S&M expenses

1,420

87

21

(4
)
1,316



G&A expenses

645

27

4

614

Other (income) expenses

(299
)
(83
)
(216
)

Legal settlements and loss contingencies

(1,258
)
(1,258
)
—

Other assets impairments, restructuring and other items

695

253

5

354

55

28

—

Intangible assets impairment

727

727

—

Goodwill impairment

300

300

—

Financial expenses, net

507

66

441

Corresponding tax effect

(30
)
(368
)
338

Share in losses (income) of associated companies, net

66

94

(28
)

Net income (loss) attributable to non-controlling interests

24

(20
)
44

Total reconciled items

612

(1,258
)
1,280

22

5

354

5

77

55

10

140
(368
)

EPS—Basic

0.80
0.92

1.72

EPS—Diluted

0.80
0.91

1.71

The non-GAAP diluted weighted average number of shares was 1,020 million for the six months ended June 30, 2018.
76

Table of Contents

Non-GAAP Tax Rate
Non-GAAP income taxes for the ~~first~~second quarter of 2019 were $134 million, or 16%, on pre-tax non-GAAP income of $812 million. Non-GAAP income taxes in the second quarter of 2018 were ~~$211~~$127 million, or ~~17%~~13%, on~~pre-taxnon-GAAP~~ pre-tax non-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 annual~~$1,000 million. Our non-GAAP tax rate for ~~2018 to be 17%. Ournon-GAAP~~ ~~tax rate for 2017~~the second 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.
Non-GAAP income taxes for the first six months of 2019 were $259 million, or 16%, on pre-tax non-GAAP income of $1,611 million. Non-GAAP income taxes in the first six months of 2018 were $338 million, or 15% on pre-tax non-GAAP income of $2,232 million.
We expect our annual non-GAAP tax rate for 2019 to be 16%, which is higher than our previous projection. This is due to changes in the geographical mix of income we expect to earn this year. Our non-GAAP tax rate for 2018 was 14%.
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 on Form10-K~~ ~~for the year ended December 31, 2017, we do not have any materialoff-balance~~ ~~sheet arrangements.~~
~~Critical Accounting Policies~~
The preparation 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 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~~ included in our Annual Report on Form 10-K for the year ended December 31, ~~2017 for~~2018, we do not have any material off-balance sheet arrangements.
Critical Accounting Policies
For a summary of our significant accounting ~~policies.~~
policies, see note 1 to our consolidated financial statements and “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 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~~market risk 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:

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



2018.
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) and15d-15(e) under the Securities Exchange Act of ~~1934)~~1934, as ~~of the end of the period covered by this Quarterly Report, has concluded~~amended) that ~~as of such date, Teva’s disclosure controls and procedures were effective~~are designed to ~~ensure~~provide reasonable assurance that ~~the~~ information required to be disclosed in ~~the~~Teva’s reports ~~that we file~~filed or ~~submit~~submitted under the Securities Exchange Act of 1934, as amended, 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 June 30, 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 June 30, 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.
77

Table of Contents
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.~~June 30, 2019. We did not repurchase any of our shares during the three months ended ~~March 31, 2018~~June 30, 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.
78
Table of Contents
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 Bank of New York Mellon, as trustee~~⁽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⁾America, N.A. and the lenders party thereto (1)
~~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~~
31.1
~~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 *2002*
~~31.2~~
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *2002*
32
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 *2002*
~~101.INS~~
101.INS
XBRL Taxonomy Instance Document
~~101.SCH~~
101.SCH
XBRL Taxonomy Extension Schema Document
~~101.CAL~~
101.CAL
XBRL Taxonomy Calculation Linkbase Document
~~101.DEF~~
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
~~101.LAB~~
101.LAB
XBRL Taxonomy Label Linkbase Document
~~101.PRE~~
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.~~
79

Table of Contents

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.

TEVA PHARMACEUTICAL INDUSTRIES LIMITED
~~Date: May 3, 2018~~ ~~By:~~
Date: August 7, 2019

By:
/s/ Michael McClellan

Name:
~~Name:~~
Michael McClellan

Title:
~~Title:~~
Executive Vice President,
Chief Financial Officer
(Duly Authorized Officer)
78
80


PART I.	FINANCIAL INFORMATION
		~~Page No.~~
~~PART I – FINANCIAL INFORMATION~~ Item 1.

~~Item 1.~~	Financial Statements (unaudited)		5
~~Item 2.~~
	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		10

	Notes to Consolidated Financial Statements		11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		5046
~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		7477
~~Item 4.~~	~~Controls and Procedures~~		75

~~PART II – OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~		76
Item 1A 4.	~~Risk Factors~~Controls and Procedures		7677
~~Item 2.~~
PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		78

Item 1A.	Risk Factors		78

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		76
~~Item 3.~~	~~Defaults Upon Senior Securities~~		76
~~Item 4.~~	~~Mine Safety Disclosures~~		76
~~Item 5.~~	~~Other Information~~		76
~~Item 6.~~	~~Exhibits~~		77

~~SIGNATURES~~			78

Item 3.	Defaults Upon Senior Securities		78

Item 4.	Mine Safety Disclosures		78

Item 5.	Other Information		78

Item 6.	Exhibits		79

	Signatures	80


	March 31, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,418		$	963
Trade receivables		6,289			7,128
Inventories		5,113			4,924
Prepaid expenses		1,138			1,100
Other current assets		712			701
Assets held for sale		17			566

Total current assets		14,687			15,382
Deferred income taxes		463			574
Othernon-current assets		832			932
Property, plant and equipment, net		7,420			7,673
Identifiable intangible assets, net		17,314			17,640
Goodwill		28,465			28,414

Total assets	$	69,181		$	70,615

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,302		$	3,646
Sales reserves and allowances		7,410			7,881
Trade payables		1,929			2,069
Employee-related obligations		607			549
Accrued expenses		2,632			3,014
Other current liabilities		876			724
Liabilities held for sale		—			38

Total current liabilities		14,756			17,921
Long-term liabilities:
Deferred income taxes		2,998			3,277
Other taxes and long-term liabilities		1,875			1,843
Senior notes and loans		29,450			28,829

Total long-term liabilities		34,323			33,949

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

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
Additionalpaid-in capital		23,443			23,479
Retained earnings		(2,688	)		(3,808	)
Accumulated other comprehensive loss		(1,735	)		(1,848	)
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	)

		18,621			17,359

Non-controlling interests		1,481			1,386

Total equity		20,102			18,745

Total liabilities and equity	$	69,181		$	70,615


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

Gross profit		2,348			2,839
Research and development expenses		317			432
Selling and marketing expenses		771			958
General and administrative expenses		329			366
Other asset Impairments, restructuring and other items		707			240
Goodwill impairment		180			—
Legal settlements and loss contingencies		(1,278	)		20
Other income		(203	)		(72	)

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

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

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

Net income attributable to Teva		1,120			645

Dividends on preferred shares		65			65

Net income attributable to ordinary shareholders	$	1,055		$	580

Earnings per share attributable to ordinary shareholders:
Basic	$	1.04		$	0.57

Diluted	$	1.03		$	0.57

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

Diluted		1,020			1,017


	March 31, 2018		December 31, 2017
	(U.S. $ in millions)
Inventories		—		39
Property, plant and equipment, net		17		16
Identifiable intangible assets, net		—		236
Goodwill		—		275

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

Other taxes and long-term liabilities		—		38

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


	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


	Gross carrying amount net of impairment				Accumulated amortization				Net carrying amount
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2018		2017		2018		2017		2018		2017
	(U.S. $ in millions)
Product rights	$	21,395	$	21,011	$	8,728	$	8,276	$	12,667	$	12,735
Trade names		618		617		64		55		554		562
Research and development in process		4,093		4,343		—		—		4,093		4,343

Total	$	26,106	$	25,971	$	8,792	$	8,331	$	17,314	$	17,640


	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


	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 as of December 31, 2017*	$	(1,316	)	$	1	$	(442	)	$	(91	)	$	(1,848	)

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

Net other comprehensive income (loss) before 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	)


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

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


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

Total	$	27,607	$	26,172


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

Liability derivatives:
Other current liabilities:
Option and forward contracts		—			—			(18	)		(15	)
Other taxes and long-term liabilities:
Cross-currency swaps – net investment hedge		(125	)		(96	)		—			—
Senior notes and loans:
Interest rate swaps – fair value hedge		(16	)		(2	)		—			—


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

Total	$	247	$	130


	Employee termination costs			Other			Total
	(U.S. $ in millions )
Balance as of January 1, 2018	$	(294	)	$	(17	)	$	(311	)
Provision		(228	)		(19	)		(247	)
Utilization and other*		129			7			136

Balance as of March 31, 2018	$	(393	)	$	(29	)	$	(422	)


	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


	Percentage of Net Revenues						Percentage Change 2018 - 2017
	Three Months Ended March 31,
	2018			2017
	%			%			%
Net revenues		100.0			100.0			(10	)
Gross profit		46.4			50.2			(17	)
Research and development expenses		6.3			7.6			(27	)
Selling and marketing expenses		15.2			17.0			(20	)
General and administrative expenses		6.5			6.5			(10	)
Other asset impairments, restructuring and other items		14.0			4.2			195
Goodwill impairment		3.6			—			§
Legal settlements and loss contingencies		(25.2	)		0.4			—
Other income		(4.0	)		(1.3	)		182
Operating income		30.0			15.8			70
Financial expenses, net		5.4			3.7			31
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	)		—
Net income attributable tonon-controlling interests		0.3			(0.1	)		—
Net income attributable to Teva		22.0			11.3			74
Dividends on preferred shares		1.3			1.2			§
Net income attributable to ordinary shareholders		20.7			10.1			82


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


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				Percentage
	March 31,				Change
	2018		2017		2017-2018
	(U.S.$ in millions)
Generic products	$	997	$	850		17	%
COPAXONE		153		152		1	%
Respiratory products		113		84		35	%


	Percentage of Net Revenues						Percentage Change 2019 - 2018
	Six Months Ended June 30,
	2019			2018
	%			%			%
Net revenues		100.0			100.0			(12	)
Gross profit		43.4			44.5			(14	)
Research and development expenses		6.2			6.2			(12	)
Selling and marketing expenses		15.2			14.5			(7	)
General and administrative expenses		6.8			6.6			(9	)
Other asset impairments, restructuring and other items		1.2			7.1			(85	)
Goodwill impairment		—			3			—
Legal settlements and loss contingencies		8.1			(12.9	)		—
Other income		(0.2	)		(3.1	)		(95	)
Operating income (loss)		(5.9	)		15.6			—
Financial expenses, net		4.9			5.2			(16	)
Income (loss) before income taxes		(10.8	)		10.4			—
Tax benefit		(2.0	)		(0.3	)		466
Share in (profits) losses of associated companies, net		§			0.7			—
Net income (loss) attributable to non-controlling interests		(0.3	)		0.2			—
Net income (loss) attributable to Teva		(9.2	)		9.7			—
Dividends on preferred shares		—			1.3			—
Net income (loss) attributable to ordinary shareholders		(9.2	)		8.3			—


	Six months ended June 30,				Percentage Change 2018-2019
	2019		2018		Percentage Change 2018-2019
	(U.S. $ in millions)
Generic products	$	1,913	$	2,035		(6	%)
COPAXONE		482		940		(49	%)
TREANDA/BENDEKA		229		341		(33	%)
ProAir*		123		245		(50	%)
QVAR		124		137		(10	%)
AJOVY		43		—		N/A
AUSTEDO		171		74		130	%
Anda		729		651		12	%
Other		305		372		(18	%)

Total	$	4,118	$	4,794		(14	%)


	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	)


		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 June 30, 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		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			Non- GAAP
Cost of Sales		2,443			249								12		7							26									2,149
R&D expenses		276													6							—									271
S&M expenses		666			35										10																621
G&A expenses		296													12							(2	)								286
Other (income) expenses		(9	)																(9	)											(0	)
Legal settlements and loss contingencies		646					646																								—
Other assets impairments, restructuring and other items		101							48		47						24					(18	)								—
Intangible assets impairment		561							561																						—
Financial expenses, net		206																							8						198
Income taxes		(179	)																									(312	)		134
Net income (loss) attributable to non-controlling interests		18																							(8	)					26

Total reconciled items					285		646		609		47		12		35		24		(9	)		6			(0	)		(312	)

EPS—Basic		(0.63	)																									1.23			0.60
EPS—Diluted		(0.63	)																									1.23			0.60


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


~~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 Bank of New York Mellon, as trustee~~⁽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⁾America, N.A. and the lenders party thereto (1)

~~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~~	31.1		~~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 2002

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

32
	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 2002

~~101.INS~~
	101.INS			XBRL Taxonomy Instance Document

~~101.SCH~~
	101.SCH			XBRL Taxonomy Extension Schema Document

~~101.CAL~~
	101.CAL			XBRL Taxonomy Calculation Linkbase Document

~~101.DEF~~
	101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~
	101.LAB			XBRL Taxonomy Label Linkbase Document

~~101.PRE~~
	101.PRE			XBRL Taxonomy Presentation Linkbase Document


			TEVA PHARMACEUTICAL INDUSTRIES LIMITED

~~Date: May 3, 2018~~		~~By:~~
Date: August 7, 2019	By:	/s/ Michael McClellan
	Name:	~~Name:~~	Michael McClellan
	Title:	~~Title:~~	Executive Vice President, Chief Financial Officer (Duly Authorized Officer)