Segments

3 Months Ended

Mar. 31, 2019

NOTE 17 – Segments:

Teva 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.

The Company began reporting its financial results under this structure in the 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 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 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:

	Three months ended March 31, 2019
	North America			Europe			International Markets
	(U.S. $ in millions)
Revenues	$	2,047		$	1,264		$	668
Gross profit		1,039			730			269
R&D expenses		165			66			22
S&M expenses		268			215			115
G&A expenses		112			48			36
Other income		(4	)		(1	)		(0.2	)
Segment profit	$	498		$	403		$	97

	Three months ended March 31, 2018
	North America			Europe		International Markets
	(U.S. $ in millions)
Revenues	$	2,531		$	1,442	$	750
Gross profit		1,403			792		313
R&D expenses		188			73		24
S&M expenses		276			250		134
G&A expenses		126			91		41
Other (income) loss		(102	)		1		(8	)
Segment profit	$	915		$	377	$	122

	Three months ended March 31,
	2019			2018
	(U.S.$ in millions)
North America profit	$	498		$	915
Europe profit		403			377
International Markets profit		97			122
Total segment profit		998			1,414
Profit of other activities		21			21
		1,019			1,435
Amounts not allocated to segments:
Amortization		283			310
Other assets impairments, restructuring and other items		1			501
Goodwill impairment		—			180
Intangible asset impairments		469			206
Gain on divestitures, net of divestitures related costs		§			(93	)
Other R&D expenses		§			22
Costs related to regulatory actions taken in facilities		4			1
Legal settlements and loss contingencies		57			(1,278	)
Other unallocated amounts		70			61
Consolidated operating income		134			1,525
Financial expenses, net		218			271
Consolidated (loss) income before income taxes	$	(84	)	$	1,254

§	Represents an amount less than $0.5 million.

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, 2019 and 2018:

	Three months ended March 31,
	2019		2018
	(U.S.$ in millions)
North America
Generic products	$	966	$	1,088
COPAXONE		208		476
BENDEKA / TREANDA		122		181
ProAir		59		130
QVAR		64		107
AJOVY		20		—
AUSTEDO		74		30
Anda		379		331
Other		155		188
Total	$	2,047	$	2,531

	Three months ended March 31,
	2019		2018
	(U.S.$ in millions)
Europe
Generic products	$	919	$	997
COPAXONE		114		153
Respiratory products		91		113
Other		140		179
Total	$	1,264	$	1,442

	Three months ended March 31,
	2019		2018
	(U.S.$ in millions)
International markets
Generic products	$	441	$	488
COPAXONE		13		16
Distribution		151		153
Other		62		93
Total	$	668	$	750

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 launch 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 expiration or loss of such intellectual property rights could therefore significantly adversely affect Teva’s results of operations and financial condition.