Segment Information

6 Months Ended

Jun. 30, 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, dermatology, other pharmaceutical products, anti-infectives, animal health diagnostics and medicated feed additives, 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 certain compensation costs, certain procurement 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) certain 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
	June 30,						June 30,
(MILLIONS OF DOLLARS)	2023			2022			2023		2022
U.S.
Revenue	$	1,165		$	1,091
Cost of sales	214			198
Gross profit	951			893
Gross margin	81.6		%	81.9		%
Operating expenses	212			207
Other (income)/deductions-net	—			(7)
U.S. Earnings	739			693			$	20	$	15
International
Revenue(b)	995			943
Cost of sales	315			288
Gross profit	680			655
Gross margin	68.3		%	69.5		%
Operating expenses	166			161
Other (income)/deductions-net	(1)			(2)
International Earnings	515			496			22		23
Total operating segments	1,254			1,189			42		38
Other business activities	(116)			(111)			7		7
Reconciling Items:
Corporate	(256)			(267)			30		31
Purchase accounting adjustments	(43)			(40)			40		40
Acquisition-related costs	(4)			(1)			—		—
Certain significant items(c)	90			(4)			—		—
Other unallocated	(53)			(96)			2		1
Total Earnings(d)	$	872		$	670		$	121	$	117

(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 $217 million and $204 million for the three months ended June 30, 2023 and 2022, respectively.

(c)    For the three months ended June 30, 2023, primarily consisted of a gain on the sale of a majority interest in our pet insurance business, partially offset by certain asset impairment charges related to our precision animal health business and employee termination costs related to organizational structure refinements.

For the three months ended June 30, 2022, primarily represents inventory charges related to the consolidation of manufacturing sites in China.

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

	Earnings						Depreciation and Amortization(a)
	Six Months Ended						Six Months Ended
	June 30,						June 30,
(MILLIONS OF DOLLARS)	2023			2022			2023		2022
U.S.
Revenue	$	2,170		$	2,111
Cost of sales	417			383
Gross profit	1,753			1,728
Gross margin	80.8		%	81.9		%
Operating expenses	400			372
Other (income)/deductions-net	—			(7)
U.S. Earnings	1,353			1,363			$	39	$	28
International
Revenue(b)	1,973			1,891
Cost of sales	606			553
Gross profit	1,367			1,338
Gross margin	69.3		%	70.8		%
Operating expenses	317			306
Other (income)/deductions-net	—			(2)
International Earnings	1,050			1,034			43		41
Total operating segments	2,403			2,397			82		69
Other business activities	(230)			(209)			15		14
Reconciling Items:
Corporate	(464)			(526)			62		66
Purchase accounting adjustments	(85)			(80)			79		80
Acquisition-related costs	(5)			(3)			—		—
Certain significant items(c)	68			(4)			—		—
Other unallocated	(118)			(178)			3		2
Total Earnings(d)	$	1,569		$	1,397		$	241	$	231

(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 $421 million and $407 million for the six months ended June 30, 2023 and 2022, respectively.

(c)    For the six months ended June 30, 2023, primarily consisted of a gain on the sale of a majority interest in our pet insurance business, partially offset by employee termination costs related to organizational structure refinements and certain asset impairment charges related to our precision animal health business.

For the six months ended June 30, 2022, primarily represents inventory charges related to the consolidation of manufacturing sites in China and product transfer costs, partially offset by other items.

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