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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
September 30, 2021
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
At October 29, 2021, there were 473,125,822 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)
Review Report of Independent Registered Public Accounting Firm
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 EndedNine Months Ended
September 30,September 30,
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)2021202020212020
Revenue$1,990 $1,786 $5,809 $4,868 
Costs and expenses:
Cost of sales
586 546 1,703 1,456 
Selling, general and administrative expenses
504 424 1,408 1,206 
Research and development expenses
132 112 370 330 
Amortization of intangible assets
40 40 121 120 
Restructuring charges and certain acquisition-related costs9 5 39 22 
Interest expense, net of capitalized interest
56 62 170 173 
Other (income)/deductions—net
4  16 (15)
Income before provision for taxes on income659 597 1,982 1,576 
Provision for taxes on income107 118 361 298 
Net income before allocation to noncontrolling interests552 479 1,621 1,278 
Less: Net loss attributable to noncontrolling interests  (2)(1)
Net income attributable to Zoetis Inc.$552 $479 $1,623 $1,279 
Earnings per share attributable to Zoetis Inc. stockholders:
 Basic$1.16 $1.01 $3.42 $2.69 
 Diluted$1.16 $1.00 $3.40 $2.67 
Weighted-average common shares outstanding:
 Basic474.0 475.5 474.8 475.5 
 Diluted476.3 478.5 477.1 478.5 
Dividends declared per common share$ $ $0.500 $0.400 

See notes to condensed consolidated financial statements.
1 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months EndedNine Months Ended
September 30,September 30,
(MILLIONS OF DOLLARS)2021202020212020
Net income before allocation to noncontrolling interests$552 $479 $1,621 $1,278 
Other comprehensive (loss)/income, net of tax:
Unrealized gains/(losses) on derivatives for cash flow hedges, net1 5 21 (27)
Unrealized gains/(losses) on derivatives for net investment hedges, net16 (30)33 (27)
Foreign currency translation adjustments, net
(61)147 9 46 
    Benefit plans: Actuarial loss, net (1) (1)
Total other comprehensive (loss)/income, net of tax(44)121 63 (9)
Comprehensive income before allocation to noncontrolling interests508 600 1,684 1,269 
Less: Comprehensive loss attributable to noncontrolling interests  (2)(1)
Comprehensive income attributable to Zoetis Inc.$508 $600 $1,686 $1,270 



See notes to condensed consolidated financial statements.
2 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,December 31,
20212020
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)(Unaudited)
Assets
Cash and cash equivalents(a)
$3,274 $3,604 
Accounts receivable, less allowance for doubtful accounts of $17 in 2021 and $20 in 2020
1,152 1,013 
Inventories1,875 1,628 
Other current assets381 366 
Total current assets6,682 6,611 
Property, plant and equipment, less accumulated depreciation of $2,113 in 2021 and $1,952 in 2020
2,338 2,202 
Operating lease right of use assets188 192 
Goodwill2,703 2,694 
Identifiable intangible assets, less accumulated amortization1,572 1,710 
Noncurrent deferred tax assets110 94 
Other noncurrent assets112 106 
Total assets$13,705 $13,609 
Liabilities and Equity
Short-term borrowings$ $4 
Current portion of long-term debt 600 
Accounts payable387 457 
Dividends payable 119 
Accrued expenses618 556 
Accrued compensation and related items314 295 
Income taxes payable91 46 
Other current liabilities61 93 
Total current liabilities1,471 2,170 
Long-term debt, net of discount and issuance costs6,592 6,595 
Noncurrent deferred tax liabilities291 378 
Operating lease liabilities160 163 
Other taxes payable259 260 
Other noncurrent liabilities251 270 
Total liabilities9,024 9,836 
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; 473,374,057 and 475,317,751 shares outstanding at September 30, 2021, and December 31, 2020, respectively
5 5 
Treasury stock, at cost, 28,517,186 and 26,573,492 shares of common stock at September 30, 2021, and December 31, 2020, respectively
(2,759)(2,230)
Additional paid-in capital1,056 1,065 
Retained earnings7,044 5,659 
Accumulated other comprehensive loss(667)(730)
Total Zoetis Inc. equity4,679 3,769 
Equity attributable to noncontrolling interests2 4 
Total equity4,681 3,773 
Total liabilities and equity$13,705 $13,609 
(a)    As of September 30, 2021 and December 31, 2020, 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 September 30, 2021
Zoetis
AccumulatedEquity
AdditionalOtherAttributable to
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
Shares (a)
Amount
Shares (a)
AmountCapitalEarningsLossInterestsEquity
Balance, June 30, 2021501.9 $5 27.7 $(2,568)$1,044 $6,492 $(623)$2 $4,352 
Net income     552   552 
Other comprehensive loss      (44) (44)
Share-based compensation awards (b)
  (0.2)7 11    18 
Treasury stock acquired (c)
  1.0 (198)    (198)
Employee benefit plan contribution from Pfizer Inc. (d)
    1    1 
Balance, September 30, 2021501.9 $5 28.5 $(2,759)$1,056 $7,044 $(667)$2 $4,681 
Three months ended September 30, 2020
Zoetis
AccumulatedEquity
AdditionalOtherAttributable to
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
Shares (a)
Amount
Shares (a)
AmountCapitalEarningsLossInterestsEquity
Balance, June 30, 2020501.9 $5 26.9 $(2,245)$1,030 $5,048 $(856)$5 $2,987 
Net income— — — — — 479 — — 479 
Other comprehensive income— — — — — — 121 — 121 
Share-based compensation awards (b)
— — (0.3)11 9 (1)— — 19 
Employee benefit plan contribution from Pfizer Inc.(d)
— — — — 1 — — — 1 
Balance, September 30, 2020501.9 $5 26.6 $(2,234)$1,040 $5,526 $(735)$5 $3,607 
(a)    Shares may not add due to rounding.
(b)    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.
(c)    Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see Note 13. Stockholders' Equity.
(d)    Represents contributed capital from Pfizer Inc. associated with service credit continuation for certain Zoetis Inc. employees in Pfizer Inc.'s U.S. qualified defined benefit and U.S. retiree medical plans.








See notes to condensed consolidated financial statements.
4 |


ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY - Continued
(UNAUDITED)
Nine months ended September 30, 2021
Zoetis
AccumulatedEquity
AdditionalOtherAttributable to
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
Shares (a)
Amount
Shares (a)
AmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2020501.9 $5 26.6 $(2,230)$1,065 $5,659 $(730)$4 $3,773 
Net income     1,623  (2)1,621 
Other comprehensive income      63  63 
Share-based compensation awards (b)
  (1.2)16 (11)   5 
Treasury stock acquired (c)
  3.1 (545)    (545)
Employee benefit plan contribution from Pfizer Inc. (d)
    2    2 
Dividends declared     (238)  (238)
Balance, September 30, 2021501.9 $5 28.5 $(2,759)$1,056 $7,044 $(667)$2 $4,681 
Nine months ended September 30, 2020
Zoetis
AccumulatedEquity
AdditionalOtherAttributable to
Common StockTreasury StockPaid-inRetainedComprehensiveNoncontrollingTotal
(MILLIONS OF DOLLARS AND SHARES)
Shares (a)
Amount
Shares (a)
AmountCapitalEarningsLossInterestsEquity
Balance, December 31, 2019501.9 $5 26.4 $(2,042)$1,044 $4,427 $(726)$ $2,708 
Net income— — — — — 1,279 — (1)1,278 
Other comprehensive loss— — — — — — (9)— (9)
Consolidation of noncontrolling interests— — — — — — — 6 6 
Share-based compensation awards (b)
— — (1.6)58 (6)10 — — 62 
Treasury stock acquired (c)
— — 1.8 (250)— — — — (250)
Employee benefit plan contribution from Pfizer Inc.(d)
— — — — 2 — — — 2 
Dividends declared— — — — — (190)— — (190)
Balance, September 30, 2020501.9 $5 26.6 $(2,234)$1,040 $5,526 $(735)$5 $3,607 
(a)    Shares may not add due to rounding.
(b)    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.
(c)    Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see Note 13. Stockholders' Equity.
(d)    Represents contributed capital from Pfizer Inc. associated with service credit continuation for certain Zoetis Inc. employees in Pfizer Inc.'s U.S. qualified defined benefit and U.S. retiree medical plans.

See notes to condensed consolidated financial statements.
5 |

ZOETIS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
(MILLIONS OF DOLLARS)20212020
Operating Activities
Net income before allocation to noncontrolling interests$1,621 $1,278 
Adjustments to reconcile net income before noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization expense331 332 
Share-based compensation expense44 46 
Asset write-offs and asset impairments19 12 
Net loss/(gain) on sale of assets3 (19)
Provision for losses on inventory36 56 
Deferred taxes(121)(40)
Employee benefit plan contribution from Pfizer Inc.2 2 
Loss on treasury locks (6)
Other non-cash adjustments4 9 
Other changes in assets and liabilities, net of acquisitions and divestitures:
    Accounts receivable(143)69 
    Inventories(299)(294)
    Other assets8 (150)
    Accounts payable(71)49 
    Other liabilities62 (49)
    Other tax accounts, net38 113 
Net cash provided by operating activities1,534 1,408 
Investing Activities
Capital expenditures(309)(301)
Acquisitions, net of cash acquired(14)(108)
Purchase of investments(10) 
Settlement on swaps designated as net investment hedges17 (8)
Net proceeds from sale of assets1 21 
Other investing activities(1)1 
Net cash used in investing activities(316)(395)
Financing Activities
Increase in short-term borrowings, net(4)1 
Proceeds from issuance of long-term debt—senior notes, net of discount 1,240 
Principal payments on long-term debt(600) 
Payment of consideration related to previous acquisitions(5) 
Acquisition of a noncontrolling interest, net of cash acquired 3 
Share-based compensation-related proceeds, net of taxes paid on withholding shares(37)23 
Purchases of treasury stock(545)(250)
Cash dividends paid(357)(285)
Payment of debt issuance costs (12)
Net cash (used in)/provided by financing activities(1,548)720 
Effect of exchange-rate changes on cash and cash equivalents (13)
Net (decrease)/increase in cash and cash equivalents(330)1,720 
Cash and cash equivalents at beginning of period3,604 1,934 
Cash and cash equivalents at end of period$3,274 $3,654 
Supplemental cash flow information
Cash paid during the period for:
  Income taxes$412 $305 
  Interest, net of capitalized interest221 217 
 Amounts included in the measurement of lease liabilities34 31 
Non-cash transactions:
     Capital expenditures3 3 
     Lease obligations obtained in exchange for right-of-use assets30 38 
See notes to condensed consolidated financial statements.
6 |

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, biodevices, genetic tests and precision livestock farming technology. 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 markets and emerging markets. We have a diversified business, marketing products across eight core species: dogs, cats and horses (collectively, companion animals) and cattle, swine, poultry, fish and sheep (collectively, livestock); and within seven major product categories: vaccines, parasiticides, anti-infectives, dermatology, other pharmaceutical products, medicated feed additives and animal health diagnostics.
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 nine months ended August 31, 2021 and August 31, 2020.
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 2020 Annual Report on Form 10-K.
3. Accounting Standards
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendment to the initial guidance: ASU No. 2021-01, Reference Rate Reform (Topic 848). The new guidance provides temporary optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Adoption of the guidance is optional and effective as of March 12, 2020, but only available through December 31, 2022. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements and related disclosures, as well as the timing of the potential adoption.
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 and 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 a single product in all brands, 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 across each of our major product categories.
Our major product categories are:
vaccines: biological preparations that help prevent diseases of the respiratory, gastrointestinal and reproductive tracts or induce a specific immune response;
parasiticides: products that prevent or eliminate external and internal parasites such as fleas, ticks and worms;
anti-infectives: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
dermatology products: products that relieve itch associated with allergic conditions and atopic dermatitis;
other pharmaceutical products: pain and sedation, antiemetic, reproductive, and oncology products;
medicated feed additives: products added to animal feed that provide medicines to livestock; and
7 |

animal health diagnostics: portable blood and urine analysis systems and point-of-care diagnostic products, including instruments and reagents, rapid immunoassay tests, reference laboratory kits, blood glucose monitors and reference laboratory services.
Our remaining revenue is derived from other non-pharmaceutical product categories, such as nutritionals and agribusiness, as well as products and services in biodevices, genetic tests and precision livestock farming.
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 EndedNine Months Ended
September 30,September 30,
(MILLIONS OF DOLLARS)2021202020212020
United States$1,065 $996 $3,002 $2,605 
Australia70 60 196 154 
Brazil78 62 227 181 
Canada56 50 169 144 
Chile32 24 100 72 
China72 66 289 198 
France31 29 98 82 
Germany47 38 135 112 
Italy30 28 87 63 
Japan43 39 140 133 
Mexico31 26 98 84 
Spain33 31 97 83 
United Kingdom