Segment Information

12 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

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, animal health diagnostics and other pharmaceuticals, for both companion animal and livestock customers.

In 2021, certain costs associated with information technology that specifically support our global manufacturing operations, which were previously reported in Other unallocated, are now reported in Corporate. In addition, in the first quarter of 2021, the company realigned certain management responsibilities. These changes did not impact the determination of our operating segments, however they resulted in the reallocation of certain costs between segments. These changes primarily include the following: (i) certain diagnostics costs, which were previously reported in Corporate, are

now reported in our U.S. results; and (ii) certain other miscellaneous costs, which were previously reported in our U.S. results, are now reported in Corporate.

Operating Segments

Our operating segments are the U.S. 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, our human health business, and 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, includes platform functions such as information technology, facilities, legal, finance, human resources, business development, certain diagnostic costs 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 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 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 $13.9 billion and $13.6 billion at December 31, 2021 and 2020, respectively.

Selected Statement of Income Information                                 

	Earnings									Depreciation and Amortization(a)
	Year Ended December 31,									Year Ended December 31,
(MILLIONS OF DOLLARS)	2021			2020			2019			2021		2020		2019
U.S.
Revenue	$	4,042		$	3,557		$	3,203
Cost of Sales	788			709			655
Gross Profit	3,254			2,848			2,548
Gross Margin	80.5		%	80.1		%	79.6		%
Operating Expenses	681			602			543
Other (income)/deductions-net	4			7			—
U.S. Earnings	2,569			2,239			2,005			$	54	$	55	$	44
International
Revenue(b)	3,652			3,035			2,972
Cost of Sales	1,106			971			925
Gross Profit	2,546			2,064			2,047
Gross Margin	69.7		%	68.0		%	68.9		%
Operating Expenses	602			510			560
Other (income)/deductions-net	(4)			7			—
International Earnings	1,948			1,547			1,487			74		56		53
Total operating segments	4,517			3,786			3,492			128		111		97
Other business activities	(406)			(372)			(348)			28		27		24
Reconciling Items:
Corporate	(1,052)			(879)			(755)			115		101		69
Purchase accounting adjustments	(175)			(198)			(234)			175		199		219
Acquisition-related costs	(12)			(18)			(43)			—		—		—
Certain significant items(c)	(73)			(43)			(67)			—		—		—
Other unallocated	(311)			(280)			(244)			2		3		3
Total Earnings(d)	$	2,488		$	1,996		$	1,801		$	448	$	441	$	412

(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 $814 million in 2021, $718 million in 2020 and $742 million in 2019.

(c)    For 2021, certain significant items primarily included certain asset impairment charges of $46 million, as well as employee termination costs associated with our international operations and other costs associated with cost-reduction and productivity initiatives of $21 million.

For 2020, certain significant items primarily included certain asset impairment charges of $37 million and CEO transition-related costs of $16 million, partially offset by a net gain resulting from a cash payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites of $18 million.

For 2019, certain significant items primarily includes: (i) a change in estimate related to inventory costing of $69 million, (ii) CEO transition-related costs of $10 million, (iii) consulting fees, product transfer costs, employee termination costs and exit costs related to cost-reduction and productivity initiatives of $7 million, and (iv) income of $20 million resulting from a cash payment received pursuant to an agreement related to the 2016 sale of certain U.S. manufacturing sites.

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

B. Geographic Information

Property, plant and equipment, less accumulated depreciation, by geographic region follow:

	As of December 31,
(MILLIONS OF DOLLARS)	2021		2020
U.S.	$	1,638	$	1,486
International	784		716
Property, plant and equipment, less accumulated depreciation	$	2,422	$	2,202