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. 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:

(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.

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 September 30,
	2018			2017			2018			2017			2018			2017
	(U.S. $ in millions)
Revenues	$	2,265		$	3,043		$	1,212		$	1,380		$	726		$	882
Gross profit		1,232			1,833			683			721			301			351
R&D expenses		158			230			62			101			21			35
S&M expenses		301			325			249			289			120			158
G&A expenses		128			149			74			90			37			51
Other income (loss)		(4	)		(1	)		1			—			—			(3	)

Segment profit	$	649		$	1,130		$	297		$	241		$	123		$	110


	North America						Europe						International Markets
	Nine months ended September 30,
	2018			2017			2018			2017			2018			2017
	(U.S. $ in millions)
Revenues	$	7,059		$	9,452		$	3,982		$	4,016		$	2,265		$	2,485
Gross profit		3,867			5,971			2,211			2,147			942			1,043
R&D expenses		528			777			208			312			70			129
S&M expenses		902			1,158			741			864			384			503
G&A expenses		357			432			243			258			115			144
Other income		(206	)		(82	)		(1	)		(15	)		(11	)		(4	)

Segment profit	$	2,286		$	3,686		$	1,020		$	728		$	384		$	271


	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
	(U.S. $ in millions)						(U.S. $ in millions)
North America profit	$	649		$	1,130		$	2,286		$	3,686
Europe profit		297			241			1,020			728
International Markets profit		123			110			384			271

Total segment profit		1,069			1,481			3,690			4,685
Profit (loss) of other activities		35			(11	)		87			3

		1,104			1,470			3,777			4,688
Amounts not allocated to segments:
Amortization		297			357			909			1,088
Other asset impairments, restructuring and other items		658			550			2,080			1,209
Goodwill impairment		—			—			300			6,100
Gain on divestitures, net of divestitures related costs		(31	)		—			(114	)		—
Inventory step-up		—			—			—			67
Other R&D expenses		60			150			82			176
Costs related to regulatory actions taken in facilities		1			(1	)		6			48
Legal settlements and loss contingencies		19			(20	)		(1,239	)		324
Other unallocated amounts		84			56			226			143

Consolidated operating income (loss)		16			378			1,527			(4,467	)

Financial expenses, net		229			259			736			704

Consolidated income (loss) before income taxes	$	(213	)	$	119		$	791		$	(5,171	)

b. Segment revenues by major products and activities:

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(U.S. $ in millions)				(U.S. $ in millions)
North America segment
Generic products	$	922	$	1,233	$	2,957	$	3,979
COPAXONE		463		819		1,403		2,475
BENDEKA / TREANDA		161		179		502		498
ProAir		107		155		352		399
QVAR		36		83		173		265
AUSTEDO		62		6		136		8
Distribution		333		294		984		864

	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(U.S. $ in millions)				(U.S. $ in millions)
Europe segment
Generic products	$	845	$	871	$	2,749	$	2,543
COPAXONE		124		150		417		440
Respiratory products		93		90		312		258
	Three months ended				Nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
	(U.S. $ in millions)				(U.S. $ in millions)
International Markets segment
Generic products	$	498	$	629	$	1,523	$	1,720
COPAXONE		14		18		52		65
Distribution		149		146		456		406

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-equivalentproducts, 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.