Segment Information

3 Months Ended

Mar. 31, 2024

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, anti-infectives, pain and sedation, other pharmaceutical, 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 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
	March 31,						March 31,
(MILLIONS OF DOLLARS)	2024			2023			2024		2023
U.S.
Revenue	$	1,163		$	1,005
Cost of sales	217			203
Gross profit	946			802
Gross margin	81.3		%	79.8		%
Operating expenses	190			188
Other (income)/deductions-net	—			—
U.S. Earnings	756			614			$	24	$	19
International
Revenue(b)	1,007			978
Cost of sales	313			291
Gross profit	694			687
Gross margin	68.9		%	70.2		%
Operating expenses	159			151
Other (income)/deductions-net	—			1
International Earnings	535			535			23		21
Total operating segments	1,291			1,149			47		40
Other business activities	(132)			(114)			9		8
Reconciling Items:
Corporate	(288)			(208)			32		32
Purchase accounting adjustments	(37)			(42)			37		39
Acquisition-related costs	—			(1)			—		—
Certain significant items(c)	(6)			(22)			—		—
Other unallocated	(81)			(65)			1		1
Total Earnings(d)	$	747		$	697		$	126	$	120

(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 $223 million and $204 million for the three months ended March 31, 2024 and 2023, respectively.

(c)    For the three months ended March 31, 2024, primarily consisted of employee termination costs related to organizational structure refinements, partially offset by a reversal of certain employee termination costs as a result of a change in strategy from our 2015 operational efficiency initiative.

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

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