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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number:001-35797
Zoetis Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
46-0696167
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
10 Sylvan Way,
Parsippany,
New Jersey
07054
(Address of principal executive offices)(Zip Code)
(973) 822-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareZTSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of April 26, 2024, there were 456,295,137 shares of common stock outstanding.



TABLE OF CONTENTS
Page
Item 1.
Condensed Consolidated Statements of Income (Unaudited)
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Equity (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.




PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)20242023
Revenue$2,190 $2,000 
Costs and expenses:
Cost of sales
643 588 
Selling, general and administrative expenses
547 505 
Research and development expenses
162 142 
Amortization of intangible assets
37 37 
Restructuring charges and certain acquisition-related costs4 21 
Interest expense, net of capitalized interest
58 63 
Other (income)/deductions—net
(8)(53)
Income before provision for taxes on income747 697 
Provision for taxes on income148 146 
Net income before allocation to noncontrolling interests599 551 
Less: Net loss attributable to noncontrolling interests (1)
Net income attributable to Zoetis Inc.$599 $552 
Earnings per share attributable to Zoetis Inc. stockholders:
 Basic$1.31 $1.19 
 Diluted$1.31 $1.19 
Weighted-average common shares outstanding:
 Basic458.0 463.5 
 Diluted458.8 464.6 
Dividends declared per common share$0.432 $0.375 

See notes to condensed consolidated financial statements.
1 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Net income before allocation to noncontrolling interests$599 $551 
Other comprehensive loss, net of tax(a):
Unrealized losses on derivatives for cash flow hedges, net of tax of $0 and $(1) for the three months ended March 31, 2024 and 2023, respectively
 (2)
Unrealized gains/(losses) on derivatives for net investment hedges, net of tax of $5 and $(2) for the three months ended March 31, 2024 and 2023, respectively
16 (6)
Foreign currency translation adjustments(18)(7)
Benefit plans: Actuarial gains, net of tax of $0 and $1 for the three months ended March 31, 2024 and 2023, respectively
 4 
Total other comprehensive loss, net of tax(2)(11)
Comprehensive income before allocation to noncontrolling interests597 540 
Less: Comprehensive loss attributable to noncontrolling interests (1)
Comprehensive income attributable to Zoetis Inc.$597 $541 
(a) Presented net of reclassification adjustments, which are not material in any period presented.



See notes to condensed consolidated financial statements.
2 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,December 31,
20242023
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)(Unaudited)
Assets
Cash and cash equivalents(a)
$1,975 $2,041 
Accounts receivable, less allowance for doubtful accounts of $20 in 2024 and $18 in 2023
1,293 1,304 
Inventories2,651 2,564 
Other current assets440 434 
Total current assets6,359 6,343 
Property, plant and equipment, less accumulated depreciation of $2,673 in 2024 and $2,594 in 2023
3,251 3,204 
Operating lease right of use assets225 230 
Goodwill2,759 2,759 
Identifiable intangible assets, less accumulated amortization1,295 1,338 
Noncurrent deferred tax assets232 206 
Other noncurrent assets227 206 
Total assets$14,348 $14,286 
Liabilities and Equity
Short-term borrowings$24 $3 
Accounts payable405 411 
Dividends payable198 198 
Accrued expenses691 683 
Accrued compensation and related items272 382 
Income taxes payable230 110 
Other current liabilities89 102 
Total current liabilities1,909 1,889 
Long-term debt, net of discount and issuance costs6,562 6,564 
Noncurrent deferred tax liabilities136 146 
Operating lease liabilities184 188 
Other taxes payable277 271 
Other noncurrent liabilities228 237 
Total liabilities9,296 9,295 
Commitments and contingencies (Note 15)
Stockholders equity:
Common stock, $0.01 par value: 6,000,000,000 authorized; 501,891,243 and 501,891,243 shares issued; 456,947,205 and 458,367,358 shares outstanding at March 31, 2024, and December 31, 2023, respectively
5 5 
Treasury stock, at cost, 44,944,038 and 43,523,885 shares of common stock at March 31, 2024 and December 31, 2023, respectively
(5,928)(5,597)
Additional paid-in capital1,126 1,133 
Retained earnings10,696 10,295 
Accumulated other comprehensive loss(841)(839)
Total Zoetis Inc. equity5,058 4,997 
Equity attributable to noncontrolling interests(6)(6)
Total equity5,052 4,991 
Total liabilities and equity$14,348 $14,286 
(a)    As of March 31, 2024 and December 31, 2023, includes $2 million of restricted cash.
See notes to condensed consolidated financial statements.
3 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Three months ended March 31, 2024
Zoetis
Accumulated
AdditionalOther
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
SharesAmountSharesAmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2023501.9 $5 43.5 $(5,597)$1,133 $10,295 $(839)$(6)$4,991 
Net income     599   599 
Other comprehensive loss      (2) (2)
Share-based compensation awards (a)
  (0.4)11 (7)   4 
Treasury stock acquired (b)
  1.8 (342)    (342)
Dividends declared     (198)  (198)
Balance, March 31, 2024501.9 $5 44.9 $(5,928)$1,126 $10,696 $(841)$(6)$5,052 
Three months ended March 31, 2023
Zoetis
Accumulated
AdditionalOther
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
SharesAmountSharesAmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2022501.9 $5 38.1 $(4,539)$1,088 $8,668 $(817)$(2)$4,403 
Net income/(loss)— — — — — 552 — (1)551 
Other comprehensive loss— — — — — — (11)— (11)
Share-based compensation awards (a)
— — (0.4)17 (9)(1)— — 7 
Treasury stock acquired (b)
— — 1.7 (285)— — — — (285)
Dividends declared— — — — — (174)— — (174)
Balance, March 31, 2023501.9 $5 39.4 $(4,807)$1,079 $9,045 $(828)$(3)$4,491 
Shares may not add due to rounding.
(a)    Includes the issuance of shares of Zoetis Inc. common stock and the reacquisition of shares of treasury stock associated with exercises of employee share-based awards. Also includes the reacquisition of shares of treasury stock associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information, see Note 12. Share-based Payments and Note 13. Stockholders’ Equity.
(b)    Reflects the acquisition of treasury shares in connection with the share repurchase program and includes excise tax accrued on net share repurchases. For additional information, see Note 13. Stockholders’ Equity.

See notes to condensed consolidated financial statements.
4 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Operating Activities
Net income before allocation to noncontrolling interests$599 $551 
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense126 120 
Share-based compensation expense18 9 
Asset write-offs and asset impairments2 1 
Provision for losses on inventory17 16 
Deferred taxes(43)8 
Other non-cash adjustments(3)(1)
Other changes in assets and liabilities, net of acquisitions and divestitures:
    Accounts receivable(12)27 
    Inventories(98)(235)
    Other assets(9)(24)
    Accounts payable(3)22 
    Other liabilities(125)(63)
    Other tax accounts, net126 118 
Net cash provided by operating activities595 549 
Investing Activities
Capital expenditures(140)(223)
Acquisitions, net of cash acquired (7)
Purchase of investments(1)(1)
Proceeds from derivative instrument activity, net10 13 
Net proceeds from sale of assets1 2 
Other investing activities(1) 
Net cash used in investing activities(131)(216)
Financing Activities
Increase in short-term borrowings, net21 1 
Principal payments on long-term debt (1,350)
Share-based compensation-related proceeds, net of taxes paid on withholding shares(8)4 
Purchases of treasury stock(339)(283)
Cash dividends paid(198)(174)
Net cash used in financing activities(524)(1,802)
Effect of exchange-rate changes on cash and cash equivalents(6)(3)
Net decrease in cash and cash equivalents(66)(1,472)
Cash and cash equivalents at beginning of period2,041 3,581 
Cash and cash equivalents at end of period$1,975 $2,109 
Supplemental cash flow information
Cash paid during the period for:
Income taxes$59 $20 
Interest, net of capitalized interest68 89 
Amounts included in the measurement of lease liabilities:
        Operating cash flows - operating leases15 14 
Non-cash transactions:
Capital expenditures3 3 
Excise tax accrued on net share repurchases, not paid3 2 
Lease obligations obtained in exchange for right-of-use assets - operating8 13 
  Dividends declared, not paid198 174 
See notes to condensed consolidated financial statements.
5 |

ZOETIS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization
Zoetis Inc. (including its subsidiaries, collectively, Zoetis, the company, we, us or our) is a global leader in the animal health industry, focused on the discovery, development, manufacture and commercialization of medicines, vaccines, diagnostic products and services, biodevices, genetic tests and precision animal health. We organize and operate our business in two geographic regions: the United States (U.S.) and International.
We directly market our products in approximately 45 countries across North America, Europe, Africa, Asia, Australia and South America. Our products are sold in more than 100 countries, including developed and emerging markets. We have a diversified business, commercializing products across eight core species: dogs, cats and horses (collectively, companion animals) and cattle, poultry, swine, fish and sheep (collectively, livestock); and within eight major product categories: parasiticides, vaccines, dermatology, anti-infectives, pain and sedation, other pharmaceutical, animal health diagnostics and medicated feed additives.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (U.S. GAAP) can be condensed or omitted. Balance sheet amounts and operating results for subsidiaries operating outside the U.S. are as of and for the three months ended February 29, 2024 and February 28, 2023.
Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year.
Certain reclassifications of prior year information have been made to conform to the current year's presentation.
We are responsible for the unaudited condensed consolidated financial statements included in this Form 10-Q. The condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The information included in this interim report should be read in conjunction with the financial statements and accompanying notes included in our 2023 Annual Report on Form 10-K.
3. Accounting Standards
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires expanded annual and interim disclosures for significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. This update is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The update is to be applied retrospectively to all periods presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our notes to the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax disclosures. The new guidance requires standardized categories for the effective tax rate reconciliation, disaggregation of income taxes paid and other income tax-related disclosures. This update is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact that the new guidance will have on our notes to the consolidated financial statements.
4. Revenue
A. Revenue from Product Sales
We offer a diversified portfolio of products which allows us to capitalize on local and regional customer needs. Generally, our products are promoted to veterinarians and livestock producers by our sales organization which includes sales representatives and technical and veterinary operations specialists, and then sold directly by us or through distributors, retailers or e-commerce outlets. The depth of our product portfolio enables us to address the varying needs of customers in different species and geographies. Many of our top-selling product lines are distributed across both of our operating segments, leveraging our research and development (R&D) operations and manufacturing and supply chain network.
Over the course of our history, we have focused on developing a diverse portfolio of animal health products, including medicines, vaccines and diagnostics, complemented by biodevices, genetic tests and a range of services. We refer to all different brands of a particular product, or its dosage forms for all species, as a product line. We have approximately 300 comprehensive product lines, including products for both companion animals and livestock within each of our major product categories.
In the first quarter of 2024, we modified the list of major product categories to include a category for pain and sedation products, which were previously included within other pharmaceutical products. The prior period presentation has been revised to reflect the new product category.
Our major product categories are:
parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;
vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
6 |

dermatology: products that relieve itch associated with allergic conditions and atopic dermatitis;
anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
pain and sedation: products that alleviate pain, primarily associated with osteoarthritis and postoperative pain;
other pharmaceutical: antiemetic, reproductive and oncology products;
animal health diagnostics: testing and analysis of blood, urine and other animal samples and related products and services, including point-of-care diagnostic products, instruments and reagents, rapid immunoassay tests, reference laboratory kits and services and blood glucose monitors; and
medicated feed additives: products added to animal feed that provide medicines to livestock.
Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals, as well as products and services in biodevices, genetic tests and precision animal health.
Our companion animal products help extend and improve the quality of life for pets; increase convenience and compliance for pet owners; and help veterinarians improve the quality of their care and the efficiency of their businesses. Growth in the companion animal medicines, vaccines and diagnostics sector is driven by economic development, related increases in disposable income and increases in pet ownership and spending on pet care. Companion animals are also living longer, deepening the human-animal bond, receiving increased medical treatment and benefiting from advances in animal health medicine, vaccines and diagnostics.
Our livestock products primarily help prevent or treat diseases and conditions to allow veterinarians and producers to care for their animals and to enable the cost-effective production of safe, high-quality animal protein. Human population growth and increasing standards of living are important long-term growth drivers for our livestock products in three major ways. First, population growth and increasing standards of living drive demand for improved nutrition, particularly through increased consumption of animal protein. Second, population growth leads to greater natural resource constraints driving a need for enhanced productivity. Finally, as standards of living improve and the global food chain faces increased scrutiny, there is more focus on food quality, safety and reliability of supply.
The following tables present our revenue disaggregated by geographic area, species and major product category:
Revenue by geographic area
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
United States$1,163 $1,005 
Australia73 82 
Brazil101 84 
Canada61 50 
Chile31 39 
China76 102 
France41 34 
Germany51 45 
Italy28 26 
Japan37 39 
Mexico44 39 
Spain32 33 
United Kingdom77 68 
Other developed markets127 122 
Other emerging markets228 215 
2,170 1,983 
Contract manufacturing & human health20 17 
Total Revenue$2,190 $2,000 

7 |

Revenue by major species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
U.S.
Companion animal$898 $721 
Livestock265 284 
1,163 1,005 
International
Companion animal552 504 
Livestock455 474 
1,007 978 
Total
Companion animal1,450 1,225 
Livestock720 758 
Contract manufacturing & human health20 17 
Total Revenue$2,190 $2,000 
Revenue by species
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Companion Animal:
Dogs and Cats$1,384 $1,153 
Horses66 72 
1,450 1,225 
Livestock:
Cattle391 399 
Poultry139 139 
Swine127 142 
Fish45 49 
Sheep and other18 29 
720 758 
Contract manufacturing & human health20 17 
Total Revenue$2,190 $2,000 
Revenue by major product category
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Parasiticides$504 $432 
Vaccines452 429 
Dermatology363 292 
Anti-infectives281 288 
Pain and sedation194 116 
Other pharmaceutical156 178 
Animal health diagnostics82 93 
Medicated feed additives77 87 
Other non-pharmaceutical61 68 
2,170 1,983 
Contract manufacturing & human health20 17 
Total Revenue$2,190 $2,000 
B. Revenue from Contracts with Customers
Contract liabilities reflected within Other current liabilities as of December 31, 2023 and 2022, and subsequently recognized as revenue during the first three months of 2024 and 2023 were $2 million and $1 million, respectively. Contract liabilities as of March 31, 2024 and December 31, 2023 were $13 million and $11 million, respectively.
Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of March 31, 2024 is not material.

8 |

5. Acquisitions and Divestitures
A. Acquisitions
During the third quarter of 2023, we acquired 100% of the issued share capital of PetMedix Ltd. (PetMedix), a privately held research and development stage animal health biopharmaceutical company based in the United Kingdom, which develops antibody-based therapeutics for companion animals. The purchase price included upfront cash consideration of $111 million, excluding $19 million of cash acquired, $5 million in cash withheld for customary post-closing adjustments, and contingent consideration up to $100 million based on the achievement of certain milestones. There are additional contingent payments to be made to the seller upon receipt of payments from a third party related to a preexisting collaboration arrangement between PetMedix and the third party. The initial fair value assessment of the contingent consideration and additional contingent payments is not material and the transaction did not have a material impact on our condensed consolidated financial statements.
During the third quarter of 2023, we also completed the acquisition of adivo GmbH (adivo), a privately held research and development stage animal health biopharmaceutical company based in Germany. The transaction did not have a material impact on our condensed consolidated financial statements.
B. Divestitures
During the second quarter of 2023, we received net cash proceeds of $93 million ($99 million sales proceeds, net of cash sold of $6 million) for the sale of a majority interest in our pet insurance business, Pumpkin Insurance Services. We recorded a net pre-tax gain of $101 million within Other (income)/deductions—net, which includes $24 million related to the remeasurement of our retained noncontrolling investment to fair value. We also completed the divestiture of Performance Livestock Analytics, part of our precision animal health business in the third quarter of 2023. The transaction did not have a material impact on our condensed consolidated financial statements.
6. Restructuring Charges and Other Costs Associated with Acquisitions, Cost-Reduction and Productivity
Initiatives
In connection with our cost-reduction/productivity initiatives, we typically incur costs and charges associated with workforce reductions and site closings. In connection with our acquisition activity, we typically incur costs and charges associated with executing the transactions, integrating the acquired operations, which may include expenditures for consulting and the integration of systems and processes, product transfers and restructuring the company, which may include charges related to employees, assets and activities that will not continue in the company. All operating functions can be impacted by these actions, including sales and marketing, manufacturing and R&D, as well as functions such as business technology, shared services and corporate operations.
The components of costs incurred in connection with restructuring initiatives, acquisitions and cost-reduction/productivity initiatives are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Restructuring charges and certain acquisition-related costs:
Integration costs(a)
$ $1 
Restructuring charges, net(b):
Employee termination costs, net4 20 
Total Restructuring charges and certain acquisition-related costs
$4 $21 
(a)    Integration costs represent external, incremental costs directly related to integrating acquired businesses and primarily include expenditures for consulting and the integration of systems and processes, as well as product transfer costs.
(b)    The restructuring charges 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.
The restructuring charges for the three months ended March 31, 2023 primarily consisted of employee termination costs related to organizational structure refinements.
(MILLIONS OF DOLLARS)
Accrual
Balance, December 31, 2023(a)
$35 
Provision11 
Reserve adjustment(7)
Utilization and other(b)
(12)
Balance, March 31, 2024(a)
$27 
(a)     At March 31, 2024 and December 31, 2023, included in Accrued expenses ($25 million and $26 million, respectively) and Other noncurrent liabilities ($2 million and $9 million, respectively).
(b)     Includes adjustments for foreign currency translation.

9 |


7. Other (Income)/Deductions—Net
The components of Other (income)/deductions—net are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Royalty-related income(a)
$(2)$(34)
Interest income(32)(33)
Foreign currency loss(b)
19 9 
Other, net7 5 
Other (income)/deductions—net$(8)$(53)
(a)     For the three months ended March 31, 2023, predominantly associated with a settlement for underpayment of royalties in prior periods.
(b)    Primarily driven by costs related to hedging and exposures to certain emerging and developed market currencies.
8. Income Taxes
A. Taxes on Income
Our effective tax rate was 19.8% and 20.9% for the three months ended March 31, 2024 and 2023, respectively. The lower effective tax rate for the three months ended March 31, 2024, compared with the three months ended March 31, 2023, was primarily attributable to a higher benefit in the U.S. related to foreign-derived intangible income and a more favorable jurisdictional mix of earnings (which includes the impact of the location of earnings and repatriation costs). Jurisdictional mix of earnings can vary depending on repatriation decisions, operating fluctuations in the normal course of business and the impact of non-deductible items and non-taxable items.
In 2022, the company implemented an initiative to maximize its cash position in the U.S. This initiative resulted in a tax benefit in the U.S. in connection with a prepayment from a related foreign entity in Belgium which qualifies as foreign-derived intangible income; however, this income tax benefit was deferred to 2023 and 2024. A portion of this benefit was recognized during the three months ended March 31, 2024 and 2023.
The global minimum tax provisions (Pillar Two) resulting from the Organisation for Economic Co-operation and Development (OECD) Based Erosion and Profit Shifting project are effective beginning in 2024 and the impact of these provisions is included in our effective tax rate for the three months ended March 31, 2024.
B. Deferred Taxes
As of March 31, 2024, the total net deferred income tax asset of $96 million is included in Noncurrent deferred tax assets ($232 million) and Noncurrent deferred tax liabilities ($136 million).
As of December 31, 2023, the total net deferred income tax asset of $60 million is included in Noncurrent deferred tax assets ($206 million) and Noncurrent deferred tax liabilities ($146 million).
C. Tax Contingencies
As of March 31, 2024, the net tax liabilities associated with uncertain tax positions of $212 million (exclusive of interest and penalties related to uncertain tax positions of $29 million) are included in Other taxes payable.
As of December 31, 2023, the net tax liabilities associated with uncertain tax positions of $209 million (exclusive of interest and penalties related to uncertain tax positions of $27 million) are included in Other taxes payable.
Our tax liabilities for uncertain tax positions relate primarily to issues common among multinational corporations. Any settlements or statute of limitations expirations could result in a significant decrease in our uncertain tax positions. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate. We do not expect that within the next twelve months any of our uncertain tax positions could significantly decrease as a result of settlements with taxing authorities or the expiration of the statutes of limitations. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but our estimates of uncertain tax positions and potential tax benefits may not be representative of actual outcomes, and any variation from such estimates could materially affect our financial statements in the period of settlement or when the statutes of limitations expire, as we treat these events as discrete items in the period of resolution. Finalizing audits with the relevant taxing authorities can include formal administrative and legal proceedings, and, as a result, it is difficult to estimate the timing and range of possible changes related to our uncertain tax positions, and such changes could be significant.
9. Financial Instruments
A. Debt
Credit Facilities
In December 2022, we entered into an amended and restated revolving credit agreement with a syndicate of banks providing for a multi-year $1.0 billion senior unsecured revolving credit facility (the credit facility), which expires in December 2027. Subject to certain conditions, we have the right to increase the credit facility to up to $1.5 billion. The credit facility contains a financial covenant requiring us to not exceed a maximum total leverage ratio (the ratio of consolidated net debt as of the end of the period to consolidated Earnings Before Interest, Income Taxes, Depreciation and Amortization (EBITDA) for such period) of 3.50:1. Upon entering into a material acquisition, the maximum total leverage ratio increases to 4.00:1, and extends until the fourth full consecutive fiscal quarter ended immediately following the consummation of a material acquisition. In addition, the credit facility contains other customary covenants.

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We were in compliance with all financial covenants as of March 31, 2024 and December 31, 2023. There were no amounts drawn under the credit facility as of March 31, 2024 or December 31, 2023.
We have additional lines of credit and other credit arrangements with a group of banks and other financial intermediaries for general corporate purposes. We maintain cash and cash equivalent balances in excess of our outstanding short-term borrowings. As of March 31, 2024, we had access to $60 million of lines of credit which expire at various times and are generally renewed annually. There was $3 million of borrowings outstanding related to these facilities as of March 31, 2024 and December 31, 2023. In addition, there was $21 million of other short-term borrowings as of March 31, 2024.
Commercial Paper Program
In February 2013, we entered into a commercial paper program with a capacity of up to $1.0 billion. As of March 31, 2024 and December 31, 2023, there was no commercial paper outstanding under this program.
Senior Notes and Other Long-Term Debt
On November 8, 2022, we issued $1.35 billion aggregate principal amount of our senior notes (2022 senior notes), with an original issue discount of $2 million. These notes are comprised of $600 million aggregate principal amount of 5.400% senior notes due 2025 and $750 million aggregate principal amount of 5.600% senior notes due 2032. On February 1, 2023, the net proceeds were used to redeem in full, upon maturity, the $1.35 billion aggregate principal amount of our 3.250% 2013 senior notes due 2023.
Our senior notes are governed by an indenture and supplemental indentures (collectively, the indenture) between us and Deutsche Bank Trust Company Americas, as trustee. The indenture contains certain covenants, including limitations on our and certain of our subsidiaries’ ability to incur liens or engage in sale-leaseback transactions. The indenture also contains restrictions on our ability to consolidate, merge or sell substantially all of our assets. In addition, the indenture contains other customary terms, including certain events of default, upon the occurrence of which the senior notes may be declared immediately due and payable.
Pursuant to the indenture, we are able to redeem the senior notes of any series, in whole or in part, at any time by paying a “make whole” premium, plus accrued and unpaid interest to, but excluding, the date of redemption. Upon the occurrence of a change of control of us and a downgrade of the senior notes below an investment grade rating by each of Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, we are, in certain circumstances, required to make an offer to repurchase all of the outstanding senior notes at a price equal to 101% of the aggregate principal amount of the senior notes together with accrued and unpaid interest to, but excluding, the date of repurchase.
The components of our long-term debt are as follows:
March 31,December 31,
(MILLIONS OF DOLLARS)20242023
4.500% 2015 senior notes due 2025
$750 $750 
5.400% 2022 senior notes due 2025
600 600 
3.000% 2017 senior notes due 2027
750 750 
3.900% 2018 senior notes due 2028
500 500 
2.000% 2020 senior notes due 2030
750 750 
5.600% 2022 senior notes due 2032
750 750 
4.700% 2013 senior notes due 2043
1,150 1,150 
3.950% 2017 senior notes due 2047
500 500 
4.450% 2018 senior notes due 2048
400 400 
3.000% 2020 senior notes due 2050
500 500 
6,650 6,650 
Unamortized debt discount / debt issuance costs(59)(60)
Cumulative fair value adjustment for interest rate swap contracts(29)(26)
Long-term debt, net of discount and issuance costs$6,562 $6,564 
The fair value of our long-term debt was $6,156 million and $6,319 million as of March 31, 2024 and December 31, 2023, respectively, and has been determined using a third-party model that uses significant inputs derived from, or corroborated by, observable market data, including benchmark security prices and Zoetis’ credit spreads (Level 2 inputs).
The following table provides the principal amount of debt outstanding, as of March 31, 2024, by scheduled maturity date:
After
(MILLIONS OF DOLLARS)202420252026202720282028Total
Maturities$ $1,350 $ $750 $500 $4,050 $6,650 
Interest Expense
Interest expense, net of capitalized interest, was $58 million and $63 million for the three months ended March 31, 2024 and 2023, respectively. Capitalized interest expense was $8 million and $6 million for the three months ended March 31, 2024 and 2023, respectively.

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B. Derivative Financial Instruments
Foreign Exchange Risk
A significant portion of our revenue, earnings and net investment in foreign affiliates is exposed to changes in foreign exchange rates. We seek to manage our foreign exchange risk, in part, through operational means, including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities. Depending on market conditions, foreign exchange risk is also managed through the use of various derivative financial instruments. These derivative financial instruments serve to manage the exposure of our net investment in certain foreign operations to changes in foreign exchange rates and protect net income against the impact of translation into U.S. dollars of certain foreign exchange-denominated transactions.
All derivative financial instruments used to manage foreign currency risk are measured at fair value and are reported as assets or liabilities on the Condensed Consolidated Balance Sheets. The derivative financial instruments primarily offset exposures in the Australian dollar, British pound, Canadian dollar, Chinese renminbi, euro and Norwegian krone. Changes in fair value are reported in earnings or in Accumulated other comprehensive loss, depending on the nature and purpose of the financial instrument, as follows:
For foreign currency forward-exchange contracts not designated as hedging instruments, we recognize the gains and losses that are used to offset the same foreign currency assets or liabilities immediately into earnings along with the earnings impact of the items they generally offset. These contracts essentially take the opposite currency position of that reflected in the month-end balance sheet to counterbalance the effect of any currency movement. The vast majority of the foreign currency forward-exchange contracts mature within 60 days and all mature within four years.
For foreign exchange derivative instruments that are designated as hedging instruments against our net investment in foreign operations, changes in the fair value are recorded as a component of cumulative translation adjustment within Accumulated other comprehensive loss and reclassified into earnings when the foreign investment is sold or substantially liquidated. These instruments include cross-currency interest rate swaps and foreign currency forward-exchange contracts. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense, net of capitalized interest). The cash flows from these contracts are reflected within the investing section of our Condensed Consolidated Statements of Cash Flows. These contracts have varying maturities of up to two years.
Interest Rate Risk
The company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rates and to reduce its overall cost of borrowing.
In anticipation of issuing fixed-rate debt, we may use forward-starting interest rate swaps that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. Unrealized gains or losses on the forward-starting interest rate swaps are reported in Accumulated other comprehensive loss and are recognized in earnings over the life of the future fixed rate notes. When the company discontinues hedge accounting because it is no longer probable that an anticipated transaction will occur within the originally expected period of execution, or within an additional two-month period thereafter, changes to fair value accumulated in other comprehensive income are recognized immediately in earnings.
During the period from 2019 to 2022, we entered into forward-starting interest rate swaps with an aggregate notional value of $650 million. We designated these swaps as cash flow hedges against interest rate exposure related principally to the issuance of fixed-rate debt to refinance our 3.250% 2013 senior notes due 2023. Upon issuance of our 2022 senior notes, we terminated these contracts and received $114 million in cash from the counterparties for settlement, included in Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows. The settlement amount, which represented the fair value of the contracts at the time of termination, was recorded in Accumulated other comprehensive loss, and will be amortized into income (offset to Interest expense, net of capitalized interest) over the life of the 5.600% 2022 senior notes due 2032.
As of March 31, 2024, we had outstanding forward-starting interest rate swaps, having an effective date and mandatory termination date in March 2026, to hedge against interest rate exposure related principally to the anticipated future issuance of fixed-rate debt to be used primarily to refinance our 4.500% 2015 senior notes due 2025.
We may use fixed-to-floating interest rate swaps that are designated as fair value hedges to hedge against changes in the fair value of certain fixed-rate debt attributable to changes in the benchmark of the Secured Overnight Financing Rate (SOFR). These derivative instruments effectively convert a portion of the company’s long-term debt from fixed-rate to floating-rate debt based on the daily SOFR rate plus a spread. Gains or losses on the fixed-to-floating interest rate swaps due to changes in SOFR are recorded in Interest expense, net of capitalized interest. Changes in the fair value of the fixed-to-floating interest rate swaps are offset by changes in the fair value of the underlying fixed-rate debt. As of March 31, 2024, we had outstanding fixed-to-floating interest rate swaps that correspond to a portion of the 3.900% 2018 senior notes due 2028 and the 2.000% 2020 senior notes due 2030. The amounts recorded during the three months ended March 31, 2024 for changes in the fair value of these hedges are not material to our condensed consolidated financial statements.
During the first quarter of 2023, we executed amendments to certain of our interest rate swap contracts, which changed the floating rate index from LIBOR to SOFR. These amendments did not have a material impact on our condensed consolidated financial statements.

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Outstanding Positions
The aggregate notional amount of derivative instruments are as follows:
Notional
March 31,December 31,
(MILLIONS)20242023
Derivatives not Designated as Hedging Instruments:
     Foreign currency forward-exchange contracts $2,194 $1,948 
Derivatives Designated as Hedging Instruments:
     Foreign exchange derivative instruments (in foreign currency):
          Euro 650 650 
          Danish krone575 600 
          Swiss franc25 25 
     Forward-starting interest rate swaps $100 $100 
     Fixed-to-floating interest rate swap contracts$250 $250 
Fair Value of Derivative Instruments
The classification and fair values of derivative instruments are as follows:
Fair Value of Derivatives
March 31,December 31,
(MILLIONS OF DOLLARS)Balance Sheet Location20242023
Derivatives Not Designated as Hedging Instruments:
   Foreign currency forward-exchange contractsOther current assets$10 $11 
   Foreign currency forward-exchange contracts
Other current liabilities
(7)(11)
Total derivatives not designated as hedging instruments$3 $ 
Derivatives Designated as Hedging Instruments:
   Forward-starting interest rate swap contractsOther noncurrent assets$14 $12 
   Foreign exchange derivative instruments Other current assets12 5 
   Foreign exchange derivative instruments Other noncurrent assets15 11 
   Foreign exchange derivative instruments Other current liabilities(7)(20)
   Foreign exchange derivative instruments Other noncurrent liabilities (1)
   Fixed-to-floating interest rate swap contractsOther noncurrent liabilities(30)(26)
Total derivatives designated as hedging instruments4 (19)
Total derivatives$7 $(19)
The company’s derivative transactions are subject to master netting agreements that mitigate credit risk by permitting net settlement of transactions with the same counterparty. The company also has collateral security agreements with certain of its counterparties. Under these collateral security agreements each party is required to post cash collateral when the net fair value of derivative instruments covered by the collateral agreement exceeds contractually established thresholds. At March 31, 2024, there was $17 million of collateral received and $30 million of collateral posted related to derivative instruments recorded in Other current liabilities and Other current assets, respectively. At December 31, 2023, there was $13 million of collateral received and $33 million of collateral posted related to derivative instruments recorded in Other current liabilities and Other current assets, respectively.
We use a market approach in valuing financial instruments on a recurring basis. Our derivative financial instruments are measured at fair value on a recurring basis using Level 2 inputs in the calculation of fair value.
The amounts of net losses on derivative instruments not designated as hedging instruments, recorded in Other (income)/deductions—net, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Foreign currency forward-exchange contracts$(1)$(16)
These amounts were substantially offset in Other (income)/deductions—net by the effect of changing exchange rates on the underlying foreign currency exposures.

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The amounts of unrecognized net gains/(losses) on interest rate swap contracts, recorded, net of tax, in Accumulated other comprehensive loss, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Forward-starting interest rate swap contracts$2 $(1)
Foreign exchange derivative instruments$16 $(6)
Gains on interest rate swap contracts, recognized within Interest expense, net of capitalized interest, are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Foreign exchange derivative instruments$4 $5 
The net amount of deferred gains related to derivative instruments designated as cash flow hedges that is expected to be reclassified from Accumulated other comprehensive loss into earnings over the next 12 months is not material.
10. Inventories
The components of inventory are as follows:
March 31,December 31,
(MILLIONS OF DOLLARS)20242023
Finished goods$1,120 $1,147 
Work-in-process1,051 966 
Raw materials and supplies480 451 
Inventories$2,651 $2,564 
11. Goodwill and Other Intangible Assets
A. Goodwill
The components of, and changes in, the carrying amount of goodwill are as follows:
(MILLIONS OF DOLLARS)U.S.InternationalTotal
Balance, December 31, 2023$1,532 $1,227 $2,759 
Other(a)
   
Balance, March 31, 2024$1,532 $1,227 $2,759 
(a) Includes adjustments for foreign currency translation.
The gross goodwill balance was $3,295 million as of March 31, 2024 and December 31, 2023. Accumulated goodwill impairment losses were $536 million as of March 31, 2024 and December 31, 2023.
B. Other Intangible Assets
The components of identifiable intangible assets are as follows:
As of March 31, 2024As of December 31, 2023
IdentifiableIdentifiable
GrossIntangible AssetsGrossIntangible Assets
CarryingAccumulatedLess AccumulatedCarryingAccumulatedLess Accumulated
(MILLIONS OF DOLLARS)AmountAmortizationAmortizationAmountAmortizationAmortization
Finite-lived intangible assets:
Developed technology rights$1,986 $(1,139)$847 $1,986 $(1,101)$885 
Brands and tradenames383 (249)134 383 (246)137 
Other270 (192)78 270 (190)80 
Total finite-lived intangible assets2,639 (1,580)1,059 2,639 (1,537)1,102 
Indefinite-lived intangible assets:
Brands and tradenames88  88 88 — 88 
In-process research and development141  141 141 — 141 
Product rights7  7 7 — 7 
Total indefinite-lived intangible assets236  236 236 — 236 
Identifiable intangible assets$2,875 $(1,580)$1,295 $2,875 $(1,537)$1,338 


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C. Amortization
Amortization expense related to finite-lived acquired intangible assets that contribute to our ability to sell, manufacture, research, market and distribute products, compounds and intellectual property is included in Amortization of intangible assets as it benefits multiple business functions. Amortization expense related to finite-lived acquired intangible assets that are associated with a single function is included in Cost of sales, Selling, general and administrative expenses or Research and development expenses, as appropriate. Total amortization expense for finite-lived intangible assets was $44 million and $47 million for the three months ended March 31, 2024 and 2023, respectively.
12. Share-based Payments
The Zoetis 2013 Equity and Incentive Plan, Amended and Restated as of May 19, 2022 (Equity Plan), provides long-term incentives to our employees and non-employee directors. The principal types of share-based awards available under the Equity Plan may include, but are not limited to, stock options, restricted stock and restricted stock units (RSUs), deferred stock units (DSUs), performance-vesting restricted stock units (PSUs) and other equity-based or cash-based awards.
The components of share-based compensation expense are as follows:
Three Months Ended
March 31,
(MILLIONS OF DOLLARS)20242023
Stock options / stock appreciation rights$3 $1 
RSUs / DSUs10 7 
PSUs5 1 
Share-based compensation expense—total(a)
$18 $9 
(a) For the three months ended March 31, 2024 and 2023, we capitalized less than $1 million of share-based compensation expense to inventory.
During the three months ended March 31, 2024, the company granted 265,800 stock options with a weighted-average exercise price of $196.14 per stock option and a weighted-average fair value of $51.00 per stock option. The fair-value based method for valuing each Zoetis stock option grant on the grant date uses the Black-Scholes-Merton option-pricing model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 4.06%; expected dividend yield of 0.88%; expected stock price volatility of 27.03%; and expected term of 4.1 years. Stock options granted prior to 2023 generally vest after three years of continuous service from the date of grant and have a contractual term of 10 years. Beginning in 2023, stock options granted are subject to graded vesting over three years from the date of grant and have a contractual term of 10 years. The values determined through this fair-value based method generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2024, the company granted 236,220 RSUs, with a weighted-average grant date fair value of $195.91 per RSU. RSUs are accounted for using a fair-value-based method that utilizes the closing price of Zoetis common stock on the date of grant. RSUs granted prior to 2023 generally vest after three years of continuous service from the date of grant. Beginning in 2023, RSUs granted are subject to graded vesting over three years from the date of grant. The values generally are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
During the three months ended March 31, 2024, the company granted 101,099 PSUs with a weighted-average grant date fair value of $268.71 per PSU. PSUs are accounted for using a Monte Carlo simulation model. The units underlying the PSUs will be earned and vested over a three-year performance period, based upon the total shareholder return of the company in comparison to the total shareholder return of the companies comprising the S&P 500 stock market index at the start of the performance period, excluding companies that during the performance period are acquired or no longer publicly traded (Relative TSR). The weighted-average fair value was estimated based on volatility assumptions of Zoetis common stock and an average of the S&P 500 companies, which were 26.2% and 30.6%, respectively. Depending on the company’s Relative TSR performance at the end of the performance period, the recipient may earn from 0% to 200% of the target number of units. Vested units are settled in shares of the company’s common stock. PSU values are amortized on a straight-line basis over the vesting term into Cost of sales, Selling, general and administrative expenses, or Research and development expenses, as appropriate.
13. Stockholders’ Equity
Zoetis is authorized to issue 6 billion shares of common stock and 1 billion shares of preferred stock.
In December 2021, our Board of Directors authorized a $3.5 billion multi-year share repurchase program. As of March 31, 2024, there was $1.2 billion remaining under this authorization. Purchases of Zoetis shares may be made at the discretion of management, depending on market conditions and business needs.

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Accumulated other comprehensive loss
Changes, net of tax, in accumulated other comprehensive loss, were as follows:
Currency Translation Adjustments
Other CurrencyBenefit PlansAccumulated Other
Cash FlowNet InvestmentTranslationActuarialComprehensive
(MILLIONS OF DOLLARS)HedgesHedgesAdjustmentsGains/(Losses)Loss
Balance, December 31, 2023$85 $18 $(944)$2 $(839)
Other comprehensive income/(loss), net of tax 16 (18) 

(2)
Balance, March 31, 2024$85 $34 $(962)$2 $(841)
Balance, December 31, 2022$90 $41 $(944)$(4)$(817)
Other comprehensive (loss)/income, net of tax(2)(6)(7)4 (11)
Balance, March 31, 2023$88 $35 $(951)$ $(828)
14. Earnings per Share
The following table presents the calculation of basic and diluted earnings per share:
Three Months Ended
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)March 31,
20242023
Numerator
Net income before allocation to noncontrolling interests$599 $551 
Less: Net loss attributable to noncontrolling interests (1)
Net income attributable to Zoetis Inc.$599 $552 
Denominator
Weighted-average common shares outstanding458.0 463.5 
Common stock equivalents: stock options, RSUs, PSUs and DSUs0.8 1.1 
Weighted-average common and potential dilutive shares outstanding458.8 464.6 
Earnings per share attributable to Zoetis Inc. stockholders—basic$1.31 $1.19 
Earnings per share attributable to Zoetis Inc. stockholders—diluted$1.31 $1.19 
The number of stock options outstanding under the company’s Equity Plan that were excluded from the computation of diluted earnings per share, as the effect would have been antidilutive, were not material for the three months ended March 31, 2024 and 2023.
15. Commitments and Contingencies
We and certain of our subsidiaries are subject to numerous contingencies arising in the ordinary course of business. For a discussion of our tax contingencies, see Note 8. Income Taxes.
A. Legal Proceedings
Our non-tax contingencies include, among others, the following:
•    Product liability and other product-related litigation, which can include injury, consumer, off-label promotion, antitrust and breach of contract claims.
•    Commercial and other matters, which can include product-pricing claims and environmental claims and proceedings.
•    Patent litigation, which typically involves challenges to the coverage and/or validity of our patents or those of third parties on various products or processes.
•    Government investigations, which can involve regulation by national, state and local government agencies in the U.S. and in other countries.
Certain of these contingencies could result in losses, including damages, fines and/or civil penalties, and/or criminal charges, which could be substantial.
We believe that we have strong defenses in these types of matters, but litigation is inherently unpredictable and excessive verdicts do occur. We do not believe that any of these matters will have a material adverse effect on our financial position. However, we could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on our results of operations or cash flows in the period in which the amounts are paid.
We have accrued for losses that are both probable and reasonably estimable. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. Consequently, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions.

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Amounts recorded for legal and environmental contingencies can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions.
The principal matters to which we are a party are discussed below. In determining whether a pending matter is significant for financial reporting and disclosure purposes, we consider both quantitative and qualitative factors in order to assess materiality, such as, among other things, the amount of damages and the nature of any other relief sought in the proceeding, if such damages and other relief are specified; our view of the merits of the claims and of the strength of our defenses; whether the action purports to be a class action and our view of the likelihood that a class will be certified by the court; the jurisdiction in which the proceeding is pending; any experience that we or, to our knowledge, other companies have had in similar proceedings; whether disclosure of the action would be important to a reader of our financial statements, including whether disclosure might change a reader’s judgment about our financial statements in light of all of the information about the company that is available to the reader; the potential impact of the proceeding on our reputation; and the extent of public interest in the matter. In addition, with respect to patent matters, we consider, among other things, the financial significance of the product protected by the patent.
Ulianopolis, Brazil
In February 2012, the Municipality of Ulianopolis (State of Para, Brazil) filed a complaint against Fort Dodge Saúde Animal Ltda. (FDSAL), a Zoetis entity, and five other large companies alleging that waste sent to a local waste incineration facility for destruction, but that was not ultimately destroyed as the facility lost its operating permit, caused environmental impacts requiring cleanup.
The Municipality is seeking recovery of cleanup costs purportedly related to FDSAL’s share of all waste accumulated at the incineration facility awaiting destruction, and compensatory damages to be allocated among the six defendants. We believe we have strong arguments against the claim, including defense strategies against any claim of joint and several liability.
At the request of the Municipal prosecutor, in April 2012, the lawsuit was suspended for one year. Since that time, the prosecutor has initiated investigations into the Municipality's actions in the matter as well as the efforts undertaken by the six defendants to remove and dispose of their individual waste from the incineration facility. On October 3, 2014, the Municipal prosecutor announced that the investigation remained ongoing and outlined the terms of a proposed Term of Reference (a document that establishes the minimum elements to be addressed in the preparation of an Environmental Impact Assessment), under which the companies would be liable to withdraw the waste and remediate the area.
On March 5, 2015, we presented our response to the prosecutor’s proposed Term of Reference, arguing that the proposed terms were overly general in nature and expressing our interest in discussing alternatives to address the matter. The prosecutor agreed to consider our request to engage a technical consultant to conduct an environmental diagnostic of the contaminated area. On May 29, 2015, we, in conjunction with the other defendant companies, submitted a draft cooperation agreement to the prosecutor, which outlined the proposed terms and conditions for the engagement of a technical consultant to conduct the environmental diagnostic. On August 19, 2016, the parties and the prosecutor agreed to engage the services of a third-party consultant to conduct a limited environmental assessment of the site. The site assessment was conducted during June 2017, and a written report summarizing the results of the assessment was provided to the parties and the prosecutor in November 2017. The report noted that waste is still present on the site and that further (Phase II) environmental assessments are needed before a plan to manage that remaining waste can be prepared. On April 1, 2019, the defendants met with the Prosecutor to discuss the conclusions set forth in the written report. Following that discussion, on April 10, 2019, the Prosecutor issued a procedural order requesting that the defendants prepare and submit a technical proposal outlining the steps needed to conduct the additional Phase II environmental assessments. The defendants presented the technical proposal to the Prosecutor on October 21, 2019. On March 3, 2020, the Prosecutor notified the defendants that he submitted the proposal to the Ministry of the Environment for its review and consideration by the Prosecutor. On July 15, 2020, the Prosecutor recommended certain amendments to the proposal for the Phase II testing. On September 28, 2020, the parties and the Prosecutor agreed to the final terms and conditions concerning the cooperation agreement with respect to the Phase II testing. The parties have been unable to secure a start date for the Phase II testing and have confirmed with the Municipality that the earliest testing could begin is sometime after May 2024.

B. Guarantees and Indemnifications
In the ordinary course of business and in connection with the sale of assets and businesses, we indemnify our counterparties against certain liabilities that may arise in connection with the transaction or related to activities prior to the transaction. These indemnifications typically pertain to environmental, tax, employee and/or product-related matters and patent-infringement claims. If the indemnified party were to make a successful claim pursuant to the terms of the indemnification, we would be required to reimburse the loss. These indemnifications are generally subject to threshold amounts, specified claim periods and other restrictions and limitations. Historically, we have not paid significant amounts under these provisions and, as of March 31, 2024, recorded amounts for the estimated fair value of these indemnifications were not material.
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.

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•    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 EndedThree Months Ended
March 31,March 31,
(MILLIONS OF DOLLARS)2024202320242023
U.S.
Revenue$1,163 $1,005 
Cost of sales217 203 
Gross profit946 802 
    Gross margin81.3 %79.8 %
Operating expenses190 188 
Other (income)/deductions-net  
U.S. Earnings756 614 $24 $19 </