Zoetis (ZTS) 8-K Results of Operations and Financial Condition

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT

(UNAUDITED)

(millions of dollars)

	First Quarter				% Change						2014
	2015		2014		Total		Foreign Exchange		Operational		Second Quarter		Third Quarter		Fourth Quarter
Revenue:
Livestock	$	715	$	706	1	%	(6	)%	7	%	$	703	$	790	$	904
Companion Animal	377		380		(1	)%	(5	)%	4	%	439		408		405
Contract Manufacturing	10		11		(9	)%	3	%	(12	)%	16		12		11
Total Revenue	$	1,102	$	1,097	—	%	(6	)%	6	%	$	1,158	$	1,210	$	1,320
U.S.
Livestock	$	299	$	263	14	%	—	%	14	%	$	224	$	308	$	368
Companion Animal	222		216		3	%	—	%	3	%	235		224		221
Total U.S. Revenue	$	521	$	479	9	%	—	%	9	%	$	459	$	532	$	589
International
Livestock	$	416	$	443	(6	)%	(9	)%	3	%	$	479	$	482	$	536
Companion Animal	155		164		(5	)%	(10	)%	5	%	204		184		184
Total International Revenue	$	571	$	607	(6	)%	(10	)%	4	%	$	683	$	666	$	720

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS

(UNAUDITED)

(millions of dollars)

	First Quarter				% Change						2014
	2015		2014		Total		Foreign Exchange		Operational		Second Quarter		Third Quarter		Fourth Quarter
Total International	$	571	$	607	(6	)%	(10	)%	4	%	$	683	$	666	$	720
Australia	28		33		(15	)%	(11	)%	(4	)%	45		47		48
Brazil	64		64		—	%	(14	)%	14	%	83		71		93
Canada	33		36		(8	)%	(10	)%	2	%	55		39		60
China	35		33		6	%	(1	)%	7	%	23		24		27
France	26		40		(35	)%	(11	)%	(24	)%	34		40		37
Germany	28		33		(15	)%	(14	)%	(1	)%	40		34		43
Italy	25		27		(7	)%	(12	)%	5	%	24		26		27
Japan	26		29		(10	)%	(10	)%	—	%	32		17		26
Mexico	18		21		(14	)%	(10	)%	(4	)%	21		20		22
Spain	19		21		(10	)%	(14	)%	4	%	23		23		23
United Kingdom	42		43		(2	)%	(8	)%	6	%	36		42		44
Other Developed	65		71		(8	)%	(9	)%	1	%	87		84		84
Other Emerging	162		156		4	%	(7	)%	11	%	180		199		186

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

SEGMENT EARNINGS

(UNAUDITED)

(millions of dollars)

	First Quarter						% Change						2014
	2015			2014			Total		Foreign Exchange		Operational		Second Quarter			Third Quarter			Fourth Quarter
U.S.:
Revenue	$	521		$	479		9	%	—	%	9	%	$	459		$	532		$	589
Cost of Sales	125			111			13	%	—	%	13	%	106			126			139
Gross Profit	396			368			8	%	—	%	13	%	353			406			450
Gross Margin	76.0		%	76.8		%							76.9		%	76.3		%	76.4		%
Operating Expenses	81			90			(10	)%	—	%	(10	)%	95			93			123
Other (income)/deductions	—			—			*		—	%	*		—			—			—
U.S. Earnings	315			278			13	%	—	%	13	%	258			313			327
International:
Revenue	$	571		$	607		(6	)%	(10	)%	4	%	683			666			720
Cost of Sales	204			217			(6	)%	(7	)%	1	%	243			241			263
Gross Profit	367			390			(6	)%	(12	)%	6	%	440			425			457
Gross Margin	64.3		%	64.3		%							64.4		%	63.8		%	63.5		%
Operating Expenses	135			147			(8	)%	(10	)%	2	%	175			168			195
Other (income)/deductions	2			1			100	%	100	%	—	%	2			2			(3		)
International Earnings	230			242			(5	)%	(13	)%	8	%	263			255			265
Total Operating Segments	$	545		$	520		5	%	(6	)%	11	%	$	521		$	568		$	592
Other business activities(a)	(68		)	(73		)	(7	)%					(75		)	(76		)	(94		)
Reconciling Items:
Corporate(b)	(131		)	(122		)	7	%					(125		)	(142		)	(170		)
Purchase accounting adjustments(c)	(13		)	(12		)	8	%					(13		)	(13		)	(13		)
Acquisition-related costs(d)	(1		)	(2		)	(50	)%					(2		)	(1		)	(3		)
Certain significant items(e)	(41		)	(36		)	14	%					(53		)	(38		)	(78		)
Other unallocated(f)	(61		)	(48		)	27	%					(53		)	(60		)	(79		)
Total Earnings(g)	$	230		$	227		1	%					$	200		$	238		$	155

*Calculation not meaningful.

(a) Other business activities reflect the research and development costs managed by our Research and Development organization as well as our contract manufacturing business.

(b) Corporate includes, among other things, administration expenses, interest expense, certain compensation and other costs not charged to our operating segments.

(c) Purchase accounting adjustments include certain charges related to intangible assets and property, plant and equipment not charged to our operating segments.

(d) Acquisition-related costs can include costs associated with acquiring, integrating and restructuring newly acquired businesses, such as transaction costs, integration costs, restructuring charges and additional depreciation associated with asset restructuring.

(e) 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, costs associated with the operational efficiency initiative, certain legal and commercial settlements, and the impact of divestiture-related gains and losses.

(f) Includes overhead expenses associated with our manufacturing and supply operations not directly attributable to an operating segment.

(g) Defined as income before provision for taxes on income.

Certain amounts and percentages may reflect rounding adjustments.