Merck & Co. Inc. | 2013 | FY | 3

Segment Reporting
The Company’s operations are principally managed on a products basis and are comprised of four operating segments – Pharmaceutical, Animal Health, Consumer Care and Alliances (which includes revenue and equity income from the Company’s relationship with AZLP). The Animal Health, Consumer Care and Alliances segments are not material for separate reporting and are included in all other in the table below. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccines is sold to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. The Company also has animal health operations that discover, develop, manufacture and market animal health products, including vaccines, which the Company sells to veterinarians, distributors and animal producers. Additionally, the Company has consumer care operations that develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through wholesale and retail drug, food chain and mass merchandiser outlets, as well as club stores and specialty channels.
The accounting policies for the segments described above are the same as those described in Note 2.
Sales of the Company’s products were as follows:
Years Ended December 31
2013
 
2012
 
2011
Primary Care and Women’s Health
 
 
 
 
 
Cardiovascular
 
 
 
 
 
Zetia
$
2,658

 
$
2,567

 
$
2,428

Vytorin
1,643

 
1,747

 
1,882

Diabetes and Obesity
 
 
 
 
 
Januvia
4,004

 
4,086

 
3,324

Janumet
1,829

 
1,659

 
1,363

Respiratory
 
 
 
 
 
Nasonex
1,335

 
1,268

 
1,286

Singulair
1,196

 
3,853

 
5,479

Dulera
324

 
207

 
96

Asmanex
184

 
185

 
206

Women’s Health and Endocrine
 
 
 
 
 
NuvaRing
686

 
623

 
623

Fosamax
560

 
676

 
855

Follistim AQ
481

 
468

 
530

Implanon
403

 
348

 
294

Cerazette
208

 
271

 
268

Other
 
 
 
 
 
Arcoxia
484

 
453

 
431

Avelox
140

 
201

 
322

Hospital and Specialty
 
 
 
 
 
Immunology
 
 
 
 
 
Remicade
2,271

 
2,076

 
2,667

Simponi
500

 
331

 
264

Infectious Disease
 
 
 
 
 
Isentress
1,643

 
1,515

 
1,359

Cancidas
660

 
619

 
640

PegIntron
496

 
653

 
657

Invanz
488

 
445

 
406

Victrelis
428

 
502

 
140

Noxafil
309

 
258

 
230

Oncology
 
 
 
 
 
Temodar
708

 
917

 
935

Emend
507

 
489

 
419

Other
 
 
 
 
 
Cosopt/Trusopt
416

 
444

 
477

Bridion
288

 
261

 
201

Integrilin
186

 
211

 
230

Diversified Brands
 
 
 
 
 
Cozaar/Hyzaar
1,006

 
1,284

 
1,663

Primaxin
335

 
384

 
515

Zocor
301

 
383

 
456

Propecia
283

 
424

 
447

Clarinex
235

 
393

 
621

Remeron
206

 
232

 
241

Claritin Rx
204

 
244

 
314

Proscar
183

 
217

 
223

Maxalt
149

 
638

 
639

Vaccines (1)
 
 
 
 
 
Gardasil
1,831

 
1,631

 
1,209

ProQuad/M-M-R II/Varivax
1,306

 
1,273

 
1,202

Zostavax
758

 
651

 
332

Pneumovax 23
653

 
580

 
498

RotaTeq
636

 
601

 
651

Other pharmaceutical (2)
4,316

 
4,333

 
4,266

Total Pharmaceutical segment sales
37,437

 
40,601

 
41,289

Other segment sales (3)
6,325

 
6,412

 
6,428

Total segment sales
43,762

 
47,013

 
47,717

Other (4)
271

 
254

 
330

 
$
44,033

 
$
47,267

 
$
48,047

(1) 
These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.
(2) 
Other pharmaceutical primarily reflects sales of other human health pharmaceutical products, including products within the franchises not listed separately.
(3)  
Represents the non-reportable segments of Animal Health, Consumer Care and Alliances. The Alliances segment includes revenue from the Company’s relationship with AZLP.
(4) 
Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and other supply sales not included in segment results. On October 1, 2013, the Company divested a substantial portion of its third-party manufacturing sales (see Note 3). In addition, other revenues in 2013 reflect $50 million of revenue for the out-license of a pipeline compound.
Consolidated revenues by geographic area where derived are as follows:
Years Ended December 31
2013
 
2012
 
2011
United States
$
18,246

 
$
20,392

 
$
20,495

Europe, Middle East and Africa
13,140

 
12,990

 
13,782

Japan
4,044

 
5,102

 
4,835

Asia Pacific
3,845

 
3,775

 
3,496

Latin America
3,203

 
3,389

 
3,472

Other
1,555

 
1,619

 
1,967

 
$
44,033

 
$
47,267

 
$
48,047


A reconciliation of total segment profits to consolidated Income before taxes is as follows:
Years Ended December 31
2013
 
2012
 
2011
Segment profits:
 
 
 
 
 
Pharmaceutical segment
$
22,983

 
$
25,852

 
$
25,617

Other segments
3,094

 
3,163

 
2,995

Total segment profits
26,077

 
29,015

 
28,612

Other profits (losses)
19

 
26

 
(11
)
Unallocated:
 
 
 
 
 
Interest income
264

 
232

 
145

Interest expense
(801
)
 
(714
)
 
(695
)
Equity income from affiliates
(159
)
 
102

 
41

Depreciation and amortization
(2,250
)
 
(2,059
)
 
(2,412
)
Research and development
(6,381
)
 
(7,126
)
 
(7,251
)
Amortization of purchase accounting adjustments
(4,690
)
 
(4,872
)
 
(5,000
)
Restructuring costs
(1,709
)
 
(664
)
 
(1,306
)
Net charge related to settlement of ENHANCE Litigation
—

 
(493
)
 
—

Arbitration settlement charge
—

 
—

 
(500
)
Other unallocated, net
(4,825
)
 
(4,708
)
 
(4,289
)
 
$
5,545

 
$
8,739

 
$
7,334


Segment profits are comprised of segment sales less standard costs and certain operating expenses directly incurred by the segments. For internal management reporting presented to the chief operating decision maker, Merck does not allocate materials and production costs, other than standard costs, the majority of research and development expenses or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.
Other profits (losses) are primarily comprised of miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales, divested products or businesses and other supply sales.
Other unallocated, net includes expenses from corporate and manufacturing cost centers, product intangible asset impairment charges, gain or losses on sales of businesses and other miscellaneous income or expense items.
Equity income from affiliates and depreciation and amortization included in segment profits is as follows:
 
Pharmaceutical
 
All Other
 
Total
Year Ended December 31, 2013
  
 
  
 
  
Included in segment profits:
 
 
 
 
 
Equity income from affiliates
$
88

 
$
475

 
$
563

Depreciation and amortization
(27
)
 
(22
)
 
(49
)
Year Ended December 31, 2012
  
 
  
 
  
Included in segment profits:
 
 
 
 
 
Equity income from affiliates
$
36

 
$
504

 
$
540

Depreciation and amortization
(25
)
 
(20
)
 
(45
)
Year Ended December 31, 2011
  
 
  
 
  
Included in segment profits:
 
 
 
 
 
Equity income from affiliates
$
59

 
$
510

 
$
569

Depreciation and amortization
(51
)
 
(20
)
 
(71
)

Property, plant and equipment, net by geographic area where located is as follows:
Years Ended December 31
2013
 
2012
 
2011
United States
$
10,076

 
$
10,687

 
$
10,826

Europe, Middle East and Africa
3,346

 
3,688

 
3,780

Asia Pacific
1,001

 
1,059

 
1,064

Latin America
242

 
250

 
234

Japan
211

 
243

 
279

Other
97

 
103

 
114

 
$
14,973

 
$
16,030

 
$
16,297


The Company does not disaggregate assets on a products and services basis for internal management reporting and, therefore, such information is not presented.

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