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

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 Markets, to make decisions about resources to be allocated to the segments and assess their performance.

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

Teva 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:


	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	)		—
Inventory step-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

b. Segment revenues by major products and activities:

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

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 of generic competition, even in the form of non-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 IP rights could therefore significantly adversely affect Teva’s results of operations and financial condition.