Segment, Geographic and Other Revenue Information


A.	Segment Information

We manage our operations through two geographic regions. Each operating segment has responsibility for its commercial activities. Within each of these 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

Our operating segments are the United States and International. Our chief operating decision maker uses the revenue and earnings of the two 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 international commercial segment.


•	Corporate, which is responsible for platform functions such as business technology, facilities, legal, finance, human resources, business development, and communications, 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 associated with acquiring and integrating newly acquired businesses, such as transaction costs and integration costs ; and (iii) Certain significant items, which comprise 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 as 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 asset impairment charges, certain legal and commercial settlements and the impact of divestiture-related gains and losses.


•	Other unallocated includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with business technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.

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 $8.6 billion and $7.6 billion at December 31, 2017, and 2016, respectively.

Selected Statement of Income Information



	Earnings									Depreciation and Amortization^(a)
	Year Ended December 31,									Year Ended December 31,
(MILLIONS OF DOLLARS)	2017			2016			2015			2017		2016		2015
U.S.
Revenue	$	2,620		$	2,447		$	2,328
Cost of Sales	565			551			551
Gross Profit	2,055			1,896			1,777
Gross Margin	78.4		%	77.5		%	76.3		%
Operating Expenses	421			388			389
Other (income)/deductions	(3		)	—			(2		)
U.S. Earnings	1,637			1,508			1,390			$	29	$	27	$	24

International
Revenue^(b)	2,643			2,390			2,386
Cost of Sales	889			833			873
Gross Profit	1,754			1,557			1,513
Gross Margin	66.4		%	65.1		%	63.4		%
Operating Expenses	515			501			570
Other (income)/deductions	(1		)	2			2
International Earnings	1,240			1,054			941			44		44		46

Total operating segments	2,877			2,562			2,331			73		71		70

Other business activities	(313		)	(309		)	(293		)	23		25		26
Reconciling Items:
Corporate	(625		)	(684		)	(606		)	52		45		40
Purchase accounting adjustments	(88		)	(99		)	(57		)	88		84		53
Acquisition-related costs	(10		)	(4		)	(21		)	—		—		—
Certain significant items^(c)	(25		)	(57		)	(592		)	—		7		6
Other unallocated	(291		)	(181		)	(217		)	6		8		4
Total Earnings^(d)	$	1,525		$	1,228		$	545		$	242	$	240	$	199


^(a)	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.


^(b)	Revenue denominated in euros was $660 million in 2017, $632 million in 2016, and $593 million in 2015.

^(c)

For 2017, certain significant items primarily includes: (i) charges related to our operational efficiency initiative and supply network strategy of $20 million; (ii) Zoetis stand-up costs of $3 million; (iii) employee termination costs in Europe of $4 million; (iv) income related to an insurance recovery from commercial settlements in Mexico recorded in 2014 and 2016 of $5 million; and (v) charges of $3 million associated with changes to our operating model. 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, and certain legal registration and patent assignment costs.

For 2016, certain significant items primarily includes: (i) Zoetis stand-up costs of $23 million; (ii) charges related to our operational efficiency initiative and supply network strategy of $10 million; (iii) charges related to a commercial settlement in Mexico of $14 million; (iv) charges of $10 million associated with changes to our operating model; (v) a reversal of $1 million related to other restructuring charges/(reversals) and cost-reduction/productivity initiatives; and (vi) an impairment of finite-lived trademarks of $1 million related to a canine pain management product.

For 2015, certain significant items primarily includes: (i) Zoetis stand-up costs of $118 million; (ii) charges related to our operational efficiency initiative and supply network strategy of $373 million, (iii) charges of $93 million of foreign currency losses related to the Venezuela revaluation; (iv) impairment charges of $3 million related to assets held by our joint venture in Taiwan, classified as assets held for sale in 2015 and subsequently sold in 2016, and an impairment of IPR&D assets related to the termination of a canine oncology project of $2 million; and (v) charges due to unusual investor-related activities of $3 million.


^(d)	Defined as income before provision for taxes on income.


B.	Geographic Information

Revenue exceeded $100 million in eight countries outside the United States in 2017, 2016, and 2015. 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)	2017		2016
U.S.	$	1,047	$	985
International	388		396
Property, plant and equipment, less accumulated depreciation	$	1,435	$	1,381


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. Sales to our largest customer, a U.S. veterinary distributor, represented approximately 14%, 13% and 14% of total revenue for 2017, 2016, and 2015, respectively.

Revenue by Species

Species revenue are as follows:



	Year Ended December 31,
(MILLIONS OF DOLLARS)	2017		2016		2015
Livestock:
Cattle	$	1,735	$	1,653	$	1,680
Swine	621		602		668
Poultry	479		457		525
Fish	118		90		5
Other	84		79		80
	3,037		2,881		2,958
Companion Animal:
Horses	151		150		162
Dogs and Cats	2,075		1,806		1,594
	2,226		1,956		1,756

Contract Manufacturing	44		51		51

Total revenue	$	5,307	$	4,888	$	4,765

Revenue by Major Product Category

Revenue by major product category are as follows:



	Year Ended December 31,
(MILLIONS OF DOLLARS)	2017		2016		2015
Anti-infectives	$	1,253	$	1,255	$	1,305
Vaccines	1,373		1,245		1,149
Parasiticides	763		659		651
Medicated feed additives	475		500		505
Other pharmaceuticals	1,181		988		910
Other non-pharmaceuticals	218		190		194
Contract manufacturing	44		51		51
Total revenue	$	5,307	$	4,888	$	4,765