Zoetis Inc. [ZTS] Filings

10-Q 1 zts-20240630.htm 10-Q zts-20240630

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
			June 30, 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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ZTS

New 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging 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 August 2, 2024, there were 453,050,990 shares of common stock outstanding.

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TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

SIGNATURES

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)	2024		2023		2024		2023
Revenue	$	2,361	$	2,180	$	4,551	$	4,180
Costs and expenses:
Cost of sales	668		607		1,311		1,195
Selling, general and administrative expenses	581		556		1,128		1,061
Research and development expenses	171		146		333		288
Amortization of intangible assets	35		37		72		74
Restructuring charges and certain acquisition and divestiture-related costs	42		8		46		29
Interest expense, net of capitalized interest	59		58		117		121
Other (income)/deductions—net	25		(104)		17		(157)
Income before provision for taxes on income	780		872		1,527		1,569
Provision for taxes on income	156		202		304		348
Net income before allocation to noncontrolling interests	624		670		1,223		1,221
Less: Net loss attributable to noncontrolling interests	—		(1)		—		(2)
Net income attributable to Zoetis Inc.	$	624	$	671	$	1,223	$	1,223
Earnings per share attributable to Zoetis Inc. stockholders:
Basic	$	1.37	$	1.45	$	2.68	$	2.64
Diluted	$	1.37	$	1.45	$	2.67	$	2.64
Weighted-average common shares outstanding:
Basic	455.5		461.9		456.7		462.7
Diluted	456.0		462.9		457.4		463.8
Dividends declared per common share	$	0.432	$	0.375	$	0.864	$	0.750

See notes to condensed consolidated financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
Net income before allocation to noncontrolling interests	$	624	$	670	$	1,223	$	1,221
Other comprehensive loss, net of tax(a):
Unrealized losses on derivatives for cash flow hedges, net of tax of $0 and $0 for the three months ended June 30, 2024 and 2023, respectively, and $0 and $(1) for the six months ended June 30, 2024 and 2023, respectively	(1)		(1)		(1)		(3)
Unrealized gains/(losses) on derivatives for net investment hedges, net of tax of $0 and $(2) for the three months ended June 30, 2024 and 2023, respectively, and $5 and $(4) for the six months ended June 30, 2024 and 2023, respectively	2		(7)		18		(13)
Foreign currency translation adjustments	(5)		(59)		(23)		(66)
Benefit plans: Actuarial gains, net of tax of $0 and $0 for the three months ended June 30, 2024 and 2023, respectively, and $0 and $1 for the six months ended June 30, 2024 and 2023, respectively	—		—		—		4
Total other comprehensive loss, net of tax	(4)		(67)		(6)		(78)
Comprehensive income before allocation to noncontrolling interests	620		603		1,217		1,143
Less: Comprehensive loss attributable to noncontrolling interests	—		(1)		—		(2)
Comprehensive income attributable to Zoetis Inc.	$	620	$	604	$	1,217	$	1,145

(a) Presented net of reclassification adjustments, which are not material in any period presented.

See notes to condensed consolidated financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2024		2023
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)	(Unaudited)
Assets
Cash and cash equivalents(a)	$	1,574	$	2,041

Accounts receivable, less allowance for doubtful accounts of $22 in 2024 and $18 in 2023	1,383		1,304
Inventories	2,452		2,564

Assets held for sale	326		—
Other current assets	467		434
Total current assets	6,202		6,343
Property, plant and equipment, less accumulated depreciation of $2,590 in 2024 and $2,594 in 2023	3,200		3,204
Operating lease right-of-use assets	222		230
Goodwill	2,739		2,759
Identifiable intangible assets, less accumulated amortization	1,226		1,338
Noncurrent deferred tax assets	366		206
Other noncurrent assets	210		206
Total assets	$	14,165	$	14,286

Liabilities and Equity
Short-term borrowings	$	—	$	3

Accounts payable	420		411
Dividends payable	197		198
Accrued expenses	704		683
Accrued compensation and related items	276		382
Income taxes payable	82		110
Liabilities associated with assets held for sale	25		—
Other current liabilities	93		102
Total current liabilities	1,797		1,889
Long-term debt, net of discount and issuance costs	6,563		6,564
Noncurrent deferred tax liabilities	175		146
Operating lease liabilities	181		188
Other taxes payable	267		271

Other noncurrent liabilities	222		237
Total liabilities	9,205		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; 453,812,361 and 458,367,358 shares outstanding at June 30, 2024, and December 31, 2023, respectively	5		5
Treasury stock, at cost, 48,078,882 and 43,523,885 shares of common stock at June 30, 2024 and December 31, 2023, respectively	(6,464)		(5,597)
Additional paid-in capital	1,146		1,133
Retained earnings	11,124		10,295
Accumulated other comprehensive loss	(845)		(839)
Total Zoetis Inc. equity	4,966		4,997
Equity attributable to noncontrolling interests	(6)		(6)
Total equity	4,960		4,991
Total liabilities and equity	$	14,165	$	14,286

(a) As of June 30, 2024 and December 31, 2023, includes $1 million and $2 million of restricted cash, respectively.

See notes to condensed consolidated financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


Three months ended June 30, 2024
	Zoetis
												Accumulated
								Additional				Other
		Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Noncontrolling		Total
(MILLIONS OF DOLLARS AND SHARES)		Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Interests		Equity
Balance, March 31, 2024		501.9	$	5	44.9	$	(5,928)	$	1,126	$	10,696	$	(841)	$	(6)	$	5,052
Net income		—	—		—	—		—		624		—		—		624
Other comprehensive loss		—	—		—	—		—		—		(4)		—		(4)

Share-based compensation awards (a)		—	—		(0.1)	2		20		—		—		—		22
Treasury stock acquired (b)		—	—		3.2	(538)		—		—		—		—		(538)

Dividends declared		—	—		—	—		—		(196)		—		—		(196)
Balance, June 30, 2024		501.9	$	5	48.0	$	(6,464)	$	1,146	$	11,124	$	(845)	$	(6)	$	4,960

Three months ended June 30, 2023
	Zoetis
												Accumulated
								Additional				Other
		Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Noncontrolling		Total
(MILLIONS OF DOLLARS AND SHARES)		Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Interests		Equity
Balance, March 31, 2023		501.9	$	5	39.4	$	(4,807)	$	1,079	$	9,045	$	(828)	$	(3)	$	4,491
Net income/(loss)		—	—		—	—		—		671		—		(1)		670
Other comprehensive loss		—	—		—	—		—		—		(67)		—		(67)

Share-based compensation awards (a)		—	—		(0.1)	8		19		(1)		—		—		26
Treasury stock acquired (b)		—	—		1.9	(327)		—		—		—		—		(327)

Dividends declared		—	—		—	—		—		(172)		—		—		(172)
Balance, June 30, 2023		501.9	$	5	41.2	$	(5,126)	$	1,098	$	9,543	$	(895)	$	(4)	$	4,621

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.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED) - Continued


Six months ended June 30, 2024
	Zoetis
												Accumulated
								Additional				Other
		Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Noncontrolling		Total
(MILLIONS OF DOLLARS AND SHARES)		Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Interests		Equity
Balance, December 31, 2023		501.9	$	5	43.5	$	(5,597)	$	1,133	$	10,295	$	(839)	$	(6)	$	4,991
Net income		—	—		—	—		—		1,223		—		—		1,223
Other comprehensive loss		—	—		—	—		—		—		(6)		—		(6)

Share-based compensation awards (a)		—	—		(0.5)	13		13		—		—		—		26
Treasury stock acquired (b)		—	—		5.0	(880)		—		—		—		—		(880)

Dividends declared		—	—		—	—		—		(394)		—		—		(394)
Balance, June 30, 2024		501.9	$	5	48.0	$	(6,464)	$	1,146	$	11,124	$	(845)	$	(6)	$	4,960

Six months ended June 30, 2023
	Zoetis
												Accumulated
								Additional				Other
		Common Stock			Treasury Stock			Paid-in		Retained		Comprehensive		Noncontrolling		Total
(MILLIONS OF DOLLARS AND SHARES)		Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Interests		Equity
Balance, December 31, 2022		501.9	$	5	38.1	$	(4,539)	$	1,088	$	8,668	$	(817)	$	(2)	$	4,403
Net income/(loss)		—	—		—	—		—		1,223		—		(2)		1,221
Other comprehensive loss		—	—		—	—		—		—		(78)		—		(78)

Share-based compensation awards (a)		—	—		(0.5)	25		10		(2)		—		—		33
Treasury stock acquired (b)		—	—		3.6	(612)		—		—		—		—		(612)

Dividends declared		—	—		—	—		—		(346)		—		—		(346)
Balance, June 30, 2023		501.9	$	5	41.2	$	(5,126)	$	1,098	$	9,543	$	(895)	$	(4)	$	4,621

Shares may not add due to rounding.

See notes to condensed consolidated financial statements.

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ZOETIS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended
	June 30,
(MILLIONS OF DOLLARS)	2024		2023
Operating Activities
Net income before allocation to noncontrolling interests	$	1,223	$	1,221
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense	253		241
Share-based compensation expense	37		26
Asset write-offs and asset impairments	13		13
Loss on assets held for sale	22		—
Net gain on sale of businesses, excluding transaction costs	—		(118)

Provision for losses on inventory	42		47
Deferred taxes	(144)		(26)


Other non-cash adjustments	11		(6)
Other changes in assets and liabilities, net of acquisitions and divestitures:
Accounts receivable	(112)		(116)
Inventories	(115)		(424)
Other assets	(35)		(82)
Accounts payable	20		65
Other liabilities	(88)		(59)
Other tax accounts, net	(30)		(50)
Net cash provided by operating activities	1,097		732
Investing Activities
Capital expenditures	(272)		(389)

Acquisitions, net of cash acquired	(8)		(7)

Purchase of investments	(3)		(2)
Proceeds from derivative instrument activity, net	21		3
Proceeds from sale of businesses, net of cash sold	—		93
Net proceeds from sale of assets	1		3
Other investing activities	(2)		3
Net cash used in investing activities	(263)		(296)
Financing Activities
Decrease in short-term borrowings, net	(3)		—

Principal payments on long-term debt	—		(1,350)
Payment of consideration related to previous acquisitions	(5)		—

Share-based compensation-related proceeds, net of taxes paid on withholding shares	(12)		8
Purchases of treasury stock	(872)		(607)
Cash dividends paid	(395)		(347)

Net cash used in financing activities	(1,287)		(2,296)
Effect of exchange-rate changes on cash and cash equivalents	(14)		(4)
Net decrease in cash and cash equivalents	(467)		(1,864)
Cash and cash equivalents at beginning of period	2,041		3,581
Cash and cash equivalents at end of period	$	1,574	$	1,717

Supplemental cash flow information
Cash paid during the period for:
Income taxes	$	481	$	458
Interest, net of capitalized interest	138		158
Amounts included in the measurement of lease liabilities:
Operating cash flows - operating leases	30		28
Financing cash flows - finance leases	1		—
Non-cash transactions:
Capital expenditures	3		3
Excise tax accrued on net share repurchases, not paid	8		5

Lease obligations obtained in exchange for right-of-use assets - operating	26		33

Dividends declared, not paid	197		173

See notes to condensed consolidated financial statements.

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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 and six months ended May 31, 2024 and May 31, 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;

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•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				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
United States	$	1,308	$	1,165	$	2,471	$	2,170
Australia	83		82		156		164
Brazil	99		91		200		175
Canada	75		70		136		120
Chile	31		39		62		78
China	68		84		144		186
France	34		34		75		68
Germany	58		53		109		98
Italy	36		35		64		61
Japan	39		47		76		86
Mexico	46		38		90		77
Spain	33		31		65		64
United Kingdom	73		63		150		131
Other developed markets	138		125		265		247
Other emerging markets	222		203		450		418
	2,343		2,160		4,513		4,143
Contract manufacturing & human health	18		20		38		37
Total Revenue	$	2,361	$	2,180	$	4,551	$	4,180

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Revenue by major species


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
U.S.
Companion animal	$	1,080	$	959	$	1,978	$	1,680
Livestock	228		206		493		490
	1,308		1,165		2,471		2,170
International
Companion animal	569		530		1,121		1,034
Livestock	466		465		921		939
	1,035		995		2,042		1,973
Total
Companion animal	1,649		1,489		3,099		2,714
Livestock	694		671		1,414		1,429
Contract manufacturing & human health	18		20		38		37
Total Revenue	$	2,361	$	2,180	$	4,551	$	4,180

Revenue by species


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
Companion Animal:
Dogs and Cats	$	1,581	$	1,424	$	2,965	$	2,577
Horses	68		65		134		137
	1,649		1,489		3,099		2,714
Livestock:
Cattle	350		329		741		728
Poultry	132		131		271		270
Swine	130		133		257		275
Fish	62		52		107		101
Sheep and other	20		26		38		55
	694		671		1,414		1,429
Contract manufacturing & human health	18		20		38		37
Total Revenue	$	2,361	$	2,180	$	4,551	$	4,180

Revenue by major product category


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
Parasiticides	$	600	$	568	$	1,104	$	1,000
Vaccines	445		430		897		859
Dermatology	418		359		781		651
Anti-infectives	264		244		545		532
Pain and sedation	221		145		415		261
Other pharmaceutical	153		170		309		348
Animal health diagnostics	103		96		185		189
Medicated feed additives	74		84		151		171
Other non-pharmaceutical	65		64		126		132
	2,343		2,160		4,513		4,143
Contract manufacturing & human health	18		20		38		37
Total Revenue	$	2,361	$	2,180	$	4,551	$	4,180

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 each of the first six months of 2024 and 2023 were $3 million. Contract liabilities as of June 30, 2024 and December 31, 2023 were $18 million and $11 million, respectively.

Estimated future revenue expected to be generated from long-term contracts with unsatisfied performance obligations as of June 30, 2024 is not material.

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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 2024, we entered into a definitive agreement where Phibro Animal Health will acquire Zoetis’ medicated feed additive product portfolio, certain water soluble products and related assets for $350 million, subject to customary closing adjustments. Net assets and liabilities related to the sale met all the criteria to be classified as held for sale during the second quarter of 2024. We have determined that this future divestiture does not qualify for reporting as a discontinued operation, as it does not represent a strategic shift that has or will have a major effect on our operations and/or financial results. This transaction is expected to be completed in the second half of 2024.

As of June 30, 2024, major classes of assets held for sale and liabilities associated with assets held for sale are summarized below:


	June 30,
(MILLIONS OF DOLLARS)	2024
Assets held for sale
Accounts receivable, less allowance for doubtful accounts	$	1
Inventories	176
Other current assets	1
Property, plant and equipment, less accumulated depreciation	106
Operating lease right-of-use assets	2
Goodwill(a)	12
Identifiable intangible assets, less accumulated amortization	26
Noncurrent deferred tax assets	3
Other noncurrent assets	9
Loss on assets held for sale(a)	(10)
Total Assets Held for Sale	$	326

Liabilities associated with assets held for sale
Accounts payable	$	8
Accrued expenses	9
Accrued compensation and related items	1
Other noncurrent liabilities	7
Total Liabilities Associated with Assets Held for Sale	$	25

(a) We recorded a loss on assets held for sale of $22 million in the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2024. Of the loss on assets held for sale, $12 million is allocated to goodwill and the remaining $10 million relates to selling costs to be recognized upon closing and foreign currency translation losses to be reclassified out of accumulated other comprehensive income into earnings at closing of the transaction.

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 and Divestitures

In connection with our cost-reduction/productivity initiatives, we typically incur restructuring charges associated with workforce reductions and site closings. In connection with our acquisition and divestiture activities, we typically incur costs associated with executing the transactions. Acquisition activity may also include 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. Divestiture activity may also include costs to separate the divested operations, which may include expenditures for consulting and the disintegration of systems and processes, transfer costs, and restructuring charges which may include charges related to employees, assets and activities that will not continue in the company's ongoing operations. 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.

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The components of costs incurred in connection with restructuring initiatives, acquisitions and divestitures are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
Restructuring charges and certain acquisition and divestiture-related costs:
Acquisition-related costs	$	1	$	3	$	1	$	4


Divestiture-related costs(a)	4		—		4		—
Restructuring charges, net(b):
Employee termination costs, net	37		5		41		25



Total Restructuring charges and certain acquisition and divestiture-related costs	$	42	$	8	$	46	$	29

(a) Divestiture-related costs consisted of costs related to the planned sale of our medicated feed additive product portfolio, certain water soluble products and related assets.

(b) The restructuring charges for the three and six months ended June 30, 2024 primarily consisted of employee termination costs related to organizational structure refinements. Restructuring charges for the six months ended June 30, 2024 were 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 and six months ended June 30, 2023 primarily consisted of employee termination costs related to organizational structure refinements.

The change in our restructuring accrual is as follows:



(MILLIONS OF DOLLARS)	Accrual
Balance, December 31, 2023(a)	$	35
Provision	48
Reserve adjustment	(7)

Utilization and other(b)	(21)

Balance, June 30, 2024(a)	$	55

(a) At June 30, 2024 and December 31, 2023, included in Accrued expenses ($53 million and $26 million, respectively) and Other noncurrent liabilities ($2 million and $9 million, respectively).

(b) Includes adjustments for foreign currency translation.

7. Other (Income)/Deductions—Net

The components of Other (income)/deductions—net are as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(MILLIONS OF DOLLARS)	2024		2023		2024		2023
Royalty-related income(a)	$	(1)	$	(1)	$	(3)	$	(35)
Interest income	(24)		(23)		(56)		(56)
Identifiable intangible asset impairment charges(b)	11		10		11		11
Loss on assets held for sale(c)	22		—		22		—


Net gain on sale of business(d)	—		(101)		—		(101)
Foreign currency loss(e)	18		13		37		22

Other, net	(1)		(2)		6		2
Other (income)/deductions—net	$	25	$	(104)	$	17	$	(157)

(a) For the six months ended June 30, 2023, predominantly associated with a settlement for underpayment of royalties in prior periods.

(b) For the three and six months ended June 30, 2024, represents asset impairment charges related to our aquaculture business.

For the three and six months ended June 30, 2023, primarily represents asset impairment charges related to our precision animal health business.

(c) Represents a loss on assets held for sale related to the planned sale of our medicated feed additive product portfolio, certain water soluble products and related assets. For additional information, see Note 5. Acquisitions and Divestitures.

(d) Relates to the gain on sale of a majority interest in our pet insurance business. For additional information, see Note 5. Acquisitions and Divestitures.

(e) 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 20.0% and 23.2% for the three months ended June 30, 2024 and 2023, respectively, and 19.9% and 22.2% for the six months ended June 30, 2024 and 2023, respectively. The lower effective tax rate for the three and six months ended June 30, 2024, compared with the three and six months ended June 30, 2023, was primarily attributable to lower net discrete tax expenses, 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

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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 and six months ended June 30, 2024 and 2023.

The global minimum tax provisions (Pillar Two) resulting from the Organisation for Economic Co-operation and Development (OECD) Base 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 and six months ended June 30, 2024.

B. Deferred Taxes

As of June 30, 2024, the total net deferred income tax asset of $191 million is included in Noncurrent deferred tax assets ($366 million) and Noncurrent deferred tax liabilities ($175 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 June 30, 2024, the net tax liabilities associated with uncertain tax positions of $214 million (exclusive of interest and penalties related to uncertain tax positions of $33 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. See Note 17. Subsequent Events for further details on the status of the U.S. income tax audit for tax years 2017 and 2018.

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

Zoetis Inc. [ZTS] Filings
10-Q	[2024-08-06]
10-Q	[2024-05-02]
10-K	[2024-02-13]
10-Q	[2023-11-02]
10-Q	[2023-08-08]
10-Q	[2023-05-04]
10-K	[2023-02-14]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-15]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-16]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-06]
10-K	[2020-02-13]
10-Q	[2019-11-07]
10-Q	[2019-08-06]
10-Q	[2019-05-02]
10-K	[2019-02-14]
10-Q	[2018-11-01]
10-Q	[2018-08-02]
10-Q	[2018-05-02]
10-K	[2018-02-15]
10-Q	[2017-11-02]
10-Q	[2017-08-08]
10-Q	[2017-05-04]
10-K	[2017-02-16]
10-Q	[2016-11-03]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-24]
10-Q	[2015-11-05]
10-Q	[2015-08-06]
10-Q	[2015-05-07]
10-K	[2015-02-27]
10-Q	[2014-11-10]
10-Q	[2014-08-12]
10-Q	[2014-05-13]
10-K	[2014-03-26]
10-Q	[2013-11-13]
10-Q	[2013-08-14]
10-Q	[2013-05-15]
10-K	[2013-03-28]
S-1	[2012-08-13]