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 International Markets (previously named “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. The Company began reporting its financial results under this structure in the first quarter of 2018.

In addition to these three segments, Teva has other activities, primarily the sale of API to third parties 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:

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

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

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

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

Teva 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						International Markets
	Three months ended June 30,						Three months ended June 30,						Three months ended June 30,
	2018			2017			2018			2017			2018			2017
	(U.S. $ in millions)
Revenues	$	2,263		$	3,169		$	1,328		$	1,295		$	789		$	885
Gross profit		1,203			2,058			731			692			328			400
R&D expenses		182			280			73			105			25			47
S&M expenses		296			392			237			296			130			187
G&A expenses		103			144			78			89			37			45
Other income		(100	)		(8	)		(3	)		(17	)		(3	)		—

Segment profit	$	722		$	1,250		$	346		$	219		$	139		$	121


	North America						Europe						International Markets
	Six months ended June 30,						Six months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017			2018			2017
	(U.S. $ in millions)
Revenues	$	4,794		$	6,409		$	2,770		$	2,636		$	1,539		$	1,603
Gross profit		2,635			4,138			1,528			1,426			641			692
R&D expenses		370			547			146			211			49			94
S&M expenses		601			833			492			575			264			345
G&A expenses		229			283			169			168			78			93
Other income		(202	)		(81	)		(2	)		(15	)		(11	)		(1	)

Segment profit	$	1,637		$	2,556		$	723		$	487		$	261		$	161


	Three months ended June 30,						Six months ended June 30,
	2018			2017			2018			2017
	(U.S. $ in millions)
North America profit	$	722		$	1,250		$	1,637		$	2,556
Europe profit		346			219			723			487
International Markets profit		139			121			261			161

Total segment profit		1,207			1,590			2,621			3,204
Profit of other activities		31			7			52			14

		1,238			1,597			2,673			3,218
Amounts not allocated to segments:
Amortization		302			411			612			731
Other asset impairments, restructuring and other items		715			419			1,422			659
Goodwill impairment		120			6,100			300			6,100
Gain (loss) on divestitures, net of divestitures related costs		10			—			(83	)		—
Inventory step-up		—			3			—			67
Other R&D expenses		—			21			22			26
Costs related to regulatory actions taken in facilities		4			15			5			49
Legal settlements and loss contingencies		20			324			(1,258	)		344
Other unallocated amounts		81			44			142			87

Consolidated operating income (loss)		(14	)		(5,740	)		1,511			(4,845	)

Financial expenses, net		236			238			507			445

Consolidated income (loss) before income taxes	$	(250	)	$	(5,978	)	$	1,004		$	(5,290	)

b. Segment revenues by major products and activities:

The following tables present revenues by major products and activities for the three and six months ended June 30, 2018 and 2017:


	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
	(U.S. $ in millions)
North America segment
Generic products	$	947	$	1,331	$	2,035	$	2,746
COPAXONE		464		859		940		1,656
BENDEKA / TREANDA		160		163		341		319
ProAir		115		123		245		244
QVAR		30		98		137		181
AUSTEDO		44		1		74		1
Distribution		320		275		651		570


	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
	(U.S. $ in millions)
Europe segment
Generic products	$	907	$	822	$	1,904	$	1,672
COPAXONE		140		138		293		290
Respiratory products		106		84		219		168


	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
	(U.S. $ in millions)
International Markets segment
Generic products	$	537	$	604	$	1,025	$	1,090
COPAXONE		22		26		38		47
Distribution		154		135		307		260

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.