NOTE 3—FAIR VALUE MEASUREMENT:

Financial items carried at fair value as of December 31, 2018 and 2017 are classified in the tables below in one of the three categories described in note 1f:


	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—cross-currency swaps		—		58			—			58
Liabilities derivatives—options and forward contracts		—		(26	)		—			(26	)
Liabilities derivatives—interest rate and cross-currency swaps		—		(50	)		—			(50	)
Contingent consideration*		—		—			(507	)		(507	)

Total	$	1,835	$	—		$	(497	)	$	1,338


	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
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

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

Teva determined the fair value of 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 for product candidates including risks associated with uncertainty regarding achievement and payment of milestone events; the time and resources needed to complete the development and approval of product candidates; the life of the potential commercialized products and associated risks of obtaining regulatory approvals in the U.S. and Europe and the 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 under other asset impairments, restructuring and other items.

Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liability.

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


	December 31,			December 31,
	2018			2017
	(U.S. $ in millions)
Fair value at the beginning of the period	$	(717	)	$	(811	)
Investment in debt securities		(8	)		—
Translation differences		—			(17	)
Adjustments to provisions for contingent consideration:
Actavis Generics transaction		—			(35	)
Labrys acquisition		(17	)		(40	)
Eagle transaction		(40	)		(178	)
MicroDose acquisition		—			89
Cephalon acquisition		—			10
Settlement of contingent consideration:
Labrys acquisition		151			100
Eagle transaction		134			165

Fair value at the end of the period	$	(497	)	$	(717	)

Teva’s financial instruments consist mainly of cash and cash equivalents, investments in securities, current and non-current receivables, short-term credit, accounts payable and accruals, loans and senior notes, convertible senior debentures and derivatives.

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

Financial instruments not measured at fair value

Financial instruments measured on a basis other than fair value consist of senior notes and convertible senior debentures (see note 11), and are presented in the below table in terms of fair value:


	Estimated fair value*
	December 31,
	2018		2017
	(U.S. $ in millions)
Senior notes included under long-term liabilities	$	23,560	$	23,459
Senior notes and convertible senior debentures included under short-term liabilities		2,140		2,713

Fair value at the end of the period	$	25,700	$	26,172

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