Segment and Other Revenue Information | 3 Months Ended |
Mar. 30, 2014 |
Segment Reporting [Abstract] | ' |
Segment and Other Revenue Information | ' |
Segment and Other Revenue Information |
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A. | Segment Information | | | | | | | | | | | | | | | | | | | | | | | |
In the first quarter of 2014, we realigned our segment reporting with respect to our Client Supply Services (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, 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 the first, second, third and fourth quarters of 2013, including livestock (LS) and companion animal (CA) revenue, was $11 million (LS - $3 million; CA - $8 million), $12 million (LS - $3 million; CA - $9 million), $14 million (LS - $4 million; CA - $10 million) and $16 million (LS - $5 million; CA - $11 million), respectively. CSS earnings (loss) for the first, second, third and fourth quarters of 2013 was $3 million, $(2) million, $2 million and $5 million, respectively. We have revised our segment results presented herein to reflect this new segment structure, including for the comparable 2013 period. |
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 |
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• | The United States (U.S.). | | | | | | | | | | | | | | | | | | | | | | | |
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• | Europe/Africa/Middle East (EuAfME)—Includes, among others, the United Kingdom, Germany, France, Italy, Spain, Northern Europe and Central Europe as well as Russia, Turkey and South Africa. | | | | | | | | | | | | | | | | | | | | | | | |
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• | Canada/Latin America (CLAR)––Includes Canada, Brazil, Mexico, Central America and Other South America. | | | | | | | | | | | | | | | | | | | | | | | |
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• | Asia/Pacific (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: |
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• | 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 clinical trials and regulatory activities are generally included in the respective regional segment. | | | | | | | | | | | | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | | | | | | | | | | | | |
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• | 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. | | | | | | | | | | | | | | | | | | | | | | | |
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• | Other unallocated, which 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 $6.4 billion and $6.6 billion at March 30, 2014 and December 31, 2013, respectively. |
Selected Statement of Income Information |
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| | | | | | | | | | Depreciation and |
| | Revenue(a) | | Earnings(b) | | Amortization(c) |
| | March 30, | | | March 31, | | | March 30, | | | March 31, | | | March 30, | | | March 31, | |
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(MILLIONS OF DOLLARS) | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
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Three months ended | | | | | | | | | | | | |
U.S. | | $ | 479 | | | $ | 454 | | | $ | 278 | | | $ | 234 | | | $ | 8 | | | $ | 14 | |
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EuAfME | | 270 | | | 279 | | | 112 | | | 114 | | | 5 | | | 6 | |
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CLAR | | 168 | | | 171 | | | 64 | | | 52 | | | 3 | | | 5 | |
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APAC | | 169 | | | 175 | | | 66 | | | 75 | | | 5 | | | 4 | |
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Total reportable segments | | 1,086 | | | 1,079 | | | 520 | | | 475 | | | 21 | | | 29 | |
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Other business activities(d) | | 11 | | | 11 | | | (72 | ) | | (71 | ) | | 7 | | | 7 | |
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Reconciling Items: | | | | | | | | | | | | |
Corporate(e) | | — | | | — | | | (125 | ) | | (116 | ) | | 6 | | | 2 | |
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Purchase accounting adjustments(f) | | — | | | — | | | (12 | ) | | (12 | ) | | 12 | | | 12 | |
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Acquisition-related costs(g) | | — | | | — | | | (2 | ) | | (6 | ) | | — | | | — | |
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Certain significant items(h) | | — | | | — | | | (36 | ) | | (42 | ) | | 2 | | | — | |
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Other unallocated(i) | | — | | | — | | | (46 | ) | | (36 | ) | | 2 | | | 1 | |
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| | $ | 1,097 | | | $ | 1,090 | | | $ | 227 | | | $ | 192 | | | $ | 50 | | | $ | 51 | |
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(a) | Revenue denominated in euros was $168 million for both the three months ended March 30, 2014 and March 31, 2013. | | | | | | | | | | | | | | | | | | | | | | | |
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(b) | Defined as income before provision for taxes on income. | | | | | | | | | | | | | | | | | | | | | | | |
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(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. | | | | | | | | | | | | | | | | | | | | | | | |
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(d) | Other business activities reflect the research and development costs managed by our Research and Development organization, as well as our contract manufacturing business. | | | | | | | | | | | | | | | | | | | | | | | |
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(e) | Corporate includes, among other things, administration expenses, interest expense, certain compensation and other costs not charged to our operating segments. | | | | | | | | | | | | | | | | | | | | | | | |
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(f) | Purchase accounting adjustments include certain charges related to intangible assets and property, plant and equipment not charged to our operating segments. | | | | | | | | | | | | | | | | | | | | | | | |
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(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 5. Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives. | | | | | | | | | | | | | | | | | | | | | | | |
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(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 restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition, the impact of divestiture-related gains and losses and certain costs related to becoming an independent public company. For additional information, see Note 5. Restructuring Charges and Other Costs Associated with Acquisition and Cost-Reduction/Productivity Initiatives. | | | | | | | | | | | | | | | | | | | | | | | |
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• | In the first quarter of 2014, Certain significant items primarily includes: (i) Zoetis stand-up costs of $33 million; (ii) restructuring charges of $2 million related to employee severance costs in EuAfME, offset by $2 million income related to a reversal of a previously established reserve as a result of a change in estimate of severance costs; (iii) additional depreciation associated with asset restructuring of $1 million; (iv) a pension plan settlement charge related to the divestiture of a manufacturing plant of $4 million; and (v) an insurance recovery of 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, and certain legal registration and patent assignment costs. | | | | | | | | | | | | | | | | | | | | | | | |
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• | In the first quarter of 2013, Certain significant items includes: (i) Zoetis stand-up costs of $34 million; (ii) charges related to transitional manufacturing purchase agreements associated with divestitures of $4 million; (iii) restructuring charges and implementation costs associated with our cost-reduction/productivity initiatives that are not associated with an acquisition of $3 million; and (iv) certain asset impairment charges of $1 million. | | | | | | | | | | | | | | | | | | | | | | | |
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(i) | Includes overhead expenses associated with our manufacturing operations. | | | | | | | | | | | | | | | | | | | | | | | |
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B. | Other Revenue Information | | | | | | | | | | | | | | | | | | | | | | | |
Revenue by Species |
Significant species revenue are as follows: |
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| | Three Months Ended | | | | | | | | | | | | | | | | |
| | March 30, | | | March 31, | | | | | | | | | | | | | | | | | |
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(MILLIONS OF DOLLARS) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
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Livestock: | | | | | | | | | | | | | | | | | | | | |
Cattle | | $ | 391 | | | $ | 390 | | | | | | | | | | | | | | | | | |
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Swine | | 160 | | | 155 | | | | | | | | | | | | | | | | | |
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Poultry | | 135 | | | 133 | | | | | | | | | | | | | | | | | |
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Other | | 20 | | | 25 | | | | | | | | | | | | | | | | | |
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| | 706 | | | 703 | | | | | | | | | | | | | | | | | |
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Companion Animal: | | | | | | | | | | | | | | | | | | | | |
Horses | | 43 | | | 42 | | | | | | | | | | | | | | | | | |
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Dogs and Cats | | 337 | | | 334 | | | | | | | | | | | | | | | | | |
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| | 380 | | | 376 | | | | | | | | | | | | | | | | | |
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Contract Manufacturing | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | | | |
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Total revenue | | $ | 1,097 | | | $ | 1,090 | | | | | | | | | | | | | | | | | |
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Revenue by Major Product Category |
Significant revenue by major product category are as follows: |
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| | Three Months Ended | | | | | | | | | | | | | | | | |
| | March 30, | | | March 31, | | | | | | | | | | | | | | | | | |
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(MILLIONS OF DOLLARS) | | 2014 | | | 2013 | | | | | | | | | | | | | | | | | |
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Anti-infectives | | $ | 322 | | | $ | 307 | | | | | | | | | | | | | | | | | |
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Vaccines | | 274 | | | 274 | | | | | | | | | | | | | | | | | |
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Parasiticides | | 151 | | | 163 | | | | | | | | | | | | | | | | | |
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Medicated feed additives | | 104 | | | 104 | | | | | | | | | | | | | | | | | |
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Other pharmaceuticals | | 191 | | | 187 | | | | | | | | | | | | | | | | | |
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Other non-pharmaceuticals | | 44 | | | 44 | | | | | | | | | | | | | | | | | |
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Contract manufacturing | | 11 | | | 11 | | | | | | | | | | | | | | | | | |
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Total revenue | | $ | 1,097 | | | $ | 1,090 | | | | | | | | | | | | | | | | | |
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