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Segment and Other Revenue Information (Notes)
 12 Months Ended
Dec. 31, 2014
Segment Reporting [Abstract]  
Segment and Other Revenue Information
Segment, Geographic and Other Revenue Information
A.
Segment Information
In the first quarter of 2014, we realigned our segment reporting with respect to our CSS organization, which provides contract manufacturing services to third parties, to reflect how our chief operating decision maker currently evaluates our financial results. The revenue and earnings associated with CSS are now reported within Other business activities, separate from our four reportable segments. In 2013 and 2012, CSS results were reported in the EuAfME segment. The current presentation of segments is more reflective of our commercial business since CSS operates differently from our commercial operations within the geographic segments. CSS revenue for 2013 was $53 million (livestock - $15 million; companion animal - $38 million). CSS revenue for 2012 was $28 million (livestock - $11 million; companion animal - $17 million) CSS earnings (loss) for 2013 and 2012 were $8 million and $(1) million, respectively. We have revised our segment results presented herein to reflect this new segment structure, including for the comparable 2013 and 2012 periods.
The animal health medicines and vaccines industry is characterized by meaningful differences in customer needs across different regions. As a result of these differences, among other things, we manage our operations through four geographic regions. Each operating segment has responsibility for its commercial activities. Within each of these regional operating segments, we offer a diversified product portfolio, including vaccines, parasiticides, anti-infectives, medicated feed additives and other pharmaceuticals, for both livestock and companion animal customers.
Operating Segments
•
The U.S.
•
EuAfME—Includes, among others, the United Kingdom, Germany, France, Italy, Spain, Northern Europe and Central Europe as well as Russia, Turkey and South Africa.
•
CLAR––Includes Canada, Brazil, Mexico, Central America and other South American countries.
•
APAC––Includes Australia, Japan, New Zealand, South Korea, India, China/Hong Kong, Northeast Asia, Southeast Asia and South Asia.
Our chief operating decision maker uses the revenue and earnings of the four operating segments, among other factors, for performance evaluation and resource allocation.
Other Costs and Business Activities
Certain costs are not allocated to our operating segment results, such as costs associated with the following:
•
Other business activities, includes our CSS contract manufacturing results, as well as expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the respective regional segment.
•
Corporate, which is responsible for platform functions such as business technology, facilities, legal, finance, human resources, business development, public affairs and procurement, among others. These costs also include compensation costs and other miscellaneous operating expenses not charged to our operating segments, as well as interest income and expense.
•
Certain transactions and events such as (i) Purchase accounting adjustments, where we incur expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii) Acquisition-related activities, where we incur costs for restructuring and integration; and (iii) Certain significant items, which includes non-acquisition-related restructuring charges, certain asset impairment charges, stand-up costs and costs associated with cost reduction/productivity initiatives.
•
Other unallocated includes certain overhead expenses associated with our global manufacturing operations not charged to our operating segments. Effective January 1, 2014, Other unallocated also includes certain costs associated with business technology and finance that specifically support our global manufacturing operations. These costs were previously reported in Corporate. Also, beginning in the first quarter of 2014, certain supply chain and global logistics costs that were previously reported in the four reportable segments are reported in Other unallocated. This presentation better reflects how we measure the performance of the global manufacturing organization.
Segment Assets
We manage our assets on a total company basis, not by operating segment. Therefore, our chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, we do not report asset information by operating segment. Total assets were approximately $6.6 billion at both December 31, 2014 and 2013.
Selected Statement of Income Information                            
 
 
 
 
 
 
Depreciation
(MILLIONS OF DOLLARS)
 
Revenue(a)
 
Earnings(b)
 
and Amortization(c)
Year Ended December 31, 2014
 
 
 
 
 
 
U.S.
 
$
2,059

 
$
1,176

 
$
33

EuAfME
 
1,141

 
437

 
20

CLAR
 
815

 
310

 
13

APAC
 
720

 
278

 
17

Total reportable segments
 
4,735

 
2,201

 
83

Other business activities(d)
 
50

 
(314
)
 
28

Reconciling Items:
 
 
 
 
 
 
Corporate(e)
 
—

 
(571
)
 
31

Purchase accounting adjustments(f)
 
—

 
(51
)
 
51

Acquisition-related costs(g)
 
—

 
(8
)
 
—

Certain significant items(h)
 
—

 
(205
)
 
5

Other unallocated(i)
 
—

 
(232
)
 
6

 
 
$
4,785

 
$
820

 
$
204

 
 
 
 
 
 
 
Year Ended December 31, 2013
 
 
 
 
 
 
U.S.
 
$
1,902

 
$
1,045

 
$
43

EuAfME
 
1,115

 
412

 
22

CLAR
 
778

 
266

 
18

APAC
 
713

 
271

 
13

Total reportable segments
 
4,508

 
1,994

 
96

Other business activities(d)
 
53

 
(312
)
 
28

Reconciling Items:
 
 
 
 
 
 
Corporate(e)
 
—

 
(567
)
 
23

Purchase accounting adjustments(f)
 
—

 
(48
)
 
48

Acquisition-related costs(g)
 
—

 
(22
)
 
—

Certain significant items(h)
 
—

 
(240
)
 
5

Other unallocated(i)
 
—

 
(115
)
 
9

 
 
$
4,561

 
$
690

 
$
209

 
 
 
 
 
 
 
Year Ended December 31, 2012
 
 
 
 
 
 
U.S.
 
$
1,776

 
$
921

 
$
28

EuAfME
 
1,068

 
376

 
27

CLAR
 
769

 
253

 
23

APAC
 
695

 
236

 
17

Total reportable segments
 
4,308

 
1,786

 
95

Other business activities(d)
 
28

 
(276
)
 
17

Reconciling Items:
 
 
 
 
 
 
Corporate(e)
 
—

 
(506
)
 
25

Purchase accounting adjustments(f)
 
—

 
(52
)
 
52

Acquisition-related costs(g)
 
—

 
(53
)
 
10

Certain significant items(h)
 
—

 
(96
)
 
1

Other unallocated(i)
 
—

 
(93
)
 
—

 
 
$
4,336

 
$
710

 
$
200

(a) 
Revenue denominated in euros were $710 million in 2014, $693 million in 2013, and $639 million in 2012.
(b) 
Defined as income before provision for taxes on income.
(c) 
Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.
(d) 
Other business activities reflects R&D costs managed by our Research and Development organization and not allocated to the operating segments, as well as our contract manufacturing business.
(e) 
Corporate includes, among other things, administration expenses, interest expense, certain compensation and other costs not charged to our operating segments.
(f) 
Purchase accounting adjustments include certain charges related to intangible assets, property, plant and equipment not charged to our operating segments.
(g) 
Acquisition-related costs can include costs associated with acquiring, integrating and restructuring acquired businesses, such as allocated transaction costs, integration costs, restructuring charges and additional depreciation associated with asset restructuring. For additional information, see Note 6. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives.
(h) 
Certain significant items are substantive, unusual items that, either as a result of their nature or size, would not be expected to occur as part of our normal business on a regular basis. Such items primarily include certain costs related to becoming an independent public company, restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, certain legal and commercial settlements and the impact of divestiture-related gains and losses. For additional information, see Note 6. Restructuring Charges and Other Costs Associated with Acquisition and Cost-Reduction/Productivity Initiatives.
•
For 2014, certain significant items primarily includes: (i) Zoetis stand-up costs of $168 million; (ii) charges related to a commercial settlement in Mexico of $13 million, partially offset by the insurance recovery of $1 million; (iii) restructuring charges of $12 million related to employee termination costs in EuAfME and $6 million related to employee termination costs in our global manufacturing operations, partially offset by a $2 million benefit related to the reversal of a previously established reserve as a result of a change in estimate of employee termination costs; (iv) intangible asset impairment charges related to an IPR&D project acquired with the FDAH acquisition in 2009 of $6 million; (v) costs of $5 million due to unusual investor-related activities; (vi) the Zoetis portion of a net gain on the sale of land by our Taiwan joint venture of $3 million income, and the net gain on the government-mandated sale of certain product rights in Argentina that were acquired with the FDAH acquisition in 2009 of $2 million income; (vii) additional depreciation associated with asset restructuring of $1 million; (viii) a pension plan settlement charge related to a divestiture of a manufacturing plant of $4 million; and (ix) an insurance recovery of other litigation related charges of $2 million income. Stand-up costs include certain nonrecurring costs related to becoming an independent public company, such as new branding (including changes to the manufacturing process for required new packaging), the creation of standalone systems and infrastructure, site separation, accelerated vesting and associated cash payment related to certain Pfizer equity awards, and certain legal registration and patent assignment costs.
•
For 2013, certain significant items includes: (i) Zoetis stand-up costs of $206 million; (ii) $20 million income primarily related to a reversal of certain employee termination expenses, partially offset by restructuring charges related to exiting certain manufacturing and research facilities; (iii) $6 million income on the government-mandated sale of certain product rights in Brazil that were acquired with the FDAH acquisition in 2009; (iv) asset impairment charges associated with asset restructuring of $19 million; (v) additional depreciation associated with asset restructuring of $8 million; (vi) write-offs of inventory and intercompany accounts that were transferred to us as part of the Separation from Pfizer of $24 million; and (vii) litigation-related charges of $5 million.
•
In 2012, certain significant items includes: (i) $115 million for restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition; (ii) $14 million income related to a favorable legal settlement for an intellectual property matter; and (iii) $4 million income due to a change in estimate related to transitional manufacturing purchase agreements associated with divestitures.
(i) 
Includes overhead expenses associated with our manufacturing operations.
B. Geographic Information
Revenue exceeded $100 million in each of nine countries outside the United States in 2014, and in each of eight countries outside the United States in 2013 and 2012. The United States was the only country to contribute more than 10% of total revenue in each year.
Property, plant and equipment, less accumulated depreciation, by geographic region follow:
 
 
As of December 31,
(MILLIONS OF DOLLARS)
 
2014

 
2013

U.S.
 
$
867

 
$
827

EuAfME
 
217

 
233

CLAR
 
104

 
114

APAC
 
130

 
121

Property, plant and equipment, less accumulated depreciation
 
$
1,318

 
$
1,295


C.
Other Revenue Information
Significant Customers
We sell our livestock products primarily to veterinarians and livestock producers as well as third-party veterinary distributors, and retail outlets who generally sell the products to livestock producers. We sell our companion animal products primarily to veterinarians who then sell the products to pet owners. In 2014 and 2013, sales to our largest U.S. veterinary distributor represented approximately 11% of total revenue. No single customer accounts for 10% or more of our total revenue in 2012.
Revenue by Species
Significant species revenue are as follows:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2014

 
2013

 
2012

Livestock:
 
 
 
 
 
 
Cattle
 
$
1,747

 
$
1,628

 
$
1,603

Swine
 
695

 
652

 
592

Poultry
 
568

 
551

 
506

Other
 
93

 
85

 
94

 
 
3,103

 
2,916

 
2,795

Companion Animal:
 
 
 
 
 
 
Equine
 
182

 
179

 
185

Dogs and Cats
 
1,450

 
1,413

 
1,328

 
 
1,632

 
1,592

 
1,513

 
 
 
 
 
 
 
Contract Manufacturing
 
50

 
53

 
28

 
 
 
 
 
 
 
Total revenue
 
$
4,785

 
$
4,561

 
$
4,336

Revenue by Major Product Category
Significant revenue by major product category are as follows:
 
 
Year Ended December 31,
(MILLIONS OF DOLLARS)
 
2014

 
2013

 
2012

Anti-infectives
 
$
1,398

 
$
1,295

 
$
1,268

Vaccines
 
1,212

 
1,189

 
1,108

Parasiticides
 
708

 
691

 
675

Medicated feed additives
 
479

 
446

 
403

Other pharmaceuticals
 
783

 
739

 
710

Other non-pharmaceuticals
 
155

 
148

 
144

Contract manufacturing
 
50

 
53

 
28

Total revenue
 
$
4,785

 
$
4,561

 
$
4,336