Segment Information

3 Months Ended

Mar. 31, 2023

Segment Reporting [Abstract]

Segment Information

16. Segment Information

Operating Segments

We manage our operations through two geographic operating segments: the U.S. and International. Each operating segment has responsibility for its commercial activities. Within each of these operating segments, we offer a diversified product portfolio, including parasiticides, vaccines, other pharmaceutical products, dermatology, anti-infectives, medicated feed additives and animal health diagnostics, for both companion animal and livestock customers. 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 Client Supply Services (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 enabling 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.

Selected Statement of Income Information    

	Earnings						Depreciation and Amortization(a)
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(MILLIONS OF DOLLARS)	2023			2022			2023		2022
U.S.
Revenue	$	1,005		$	1,020
Cost of sales	203			185
Gross profit	802			835
Gross margin	79.8		%	81.9		%
Operating expenses	188			165
Other (income)/deductions-net	—			—
U.S. Earnings	614			670			$	19	$	13
International
Revenue(b)	978			948
Cost of sales	291			265
Gross profit	687			683
Gross margin	70.2		%	72.0		%
Operating expenses	151			145
Other (income)/deductions-net	1			—
International Earnings	535			538			21		18
Total operating segments	1,149			1,208			40		31
Other business activities	(114)			(98)			8		7
Reconciling Items:
Corporate	(208)			(259)			32		35
Purchase accounting adjustments	(42)			(40)			39		40
Acquisition-related costs	(1)			(2)			—		—
Certain significant items(c)	(22)			—			—		—
Other unallocated	(65)			(82)			1		1
Total Earnings(d)	$	697		$	727		$	120	$	114

(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 $204 million and $203 million for the three months ended March 31, 2023 and 2022, respectively.

(c)    For the three months ended March 31, 2023, primarily consisted of employee termination costs related to organizational structure refinements.

For the three months ended March 31, 2022, primarily consisted of product transfer costs offset by other items.

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