x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2017
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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Zoetis Inc.
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(Exact name of registrant as specified in its charter)
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Delaware
|
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46-0696167
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(State or other jurisdiction of
|
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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10 Sylvan Way, Parsippany, New Jersey
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07054
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(Address of principal executive offices)
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(Zip Code)
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(973) 822-7000
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(Registrant’s telephone number, including area code)
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 par value per share
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New York Stock Exchange
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Emerging growth company
¨
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•
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economic differences, such as standards of living in developed markets as compared to emerging markets;
|
•
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cultural differences, such as dietary preferences for different animal proteins, pet ownership preferences and pet care standards;
|
•
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epidemiological differences, such as the prevalence of certain bacterial and viral strains and disease dynamics;
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•
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treatment differences, such as utilization of different types of medicines and vaccines, as well as the pace of adoption of new technologies;
|
•
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environmental differences, such as seasonality, climate and the availability of arable land and fresh water; and
|
•
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regulatory differences, such as standards for product approval and manufacturing.
|
•
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United States
with revenue of $
2,620 million
, or
49%
of total revenue for the year ended
December 31, 2017
; and
|
•
|
International
with revenue of
$2,643 million
, or
50%
of total revenue for the year ended
December 31, 2017
.
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•
|
anti-infectives
: products that prevent, kill or slow the growth of bacteria, fungi or protozoa;
|
•
|
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;
|
•
|
medicated feed additives
: products added to animal feed that provide medicines to livestock; and
|
•
|
other pharmaceutical products
: allergy and dermatology, pain and sedation, antiemetic, reproductive, and oncology products.
|
•
|
Apoquel
®
, the first Janus kinase inhibitor for use in veterinary medicine, was approved for the control of pruritus associated with allergic dermatitis and the control of atopic dermatitis in dogs at least 12 months of age. Since January 2014, we launched Apoquel in all key markets including the United States, Europe, Japan, Brazil, and Australia;
|
•
|
Cerenia
®
, the first and only product on the market to prevent vomiting due to motion sickness in dogs, was first launched in Europe in 2006, followed by the United States in 2007; it was approved to prevent vomiting in cats in 2012 in the United States and European countries. In January 2016, it was approved in the United States for intravenous administration in dogs and cats four months of age and older and for the prevention of vomiting caused by emetogenic or chemotherapeutic agents in dogs four months of age or older;
|
•
|
Convenia
®
,
the first single-injection anti-infective for common bacterial skin infections in cats and dogs, launched in 2006;
|
•
|
Cytopoint
®
, the first canine monoclonal antibody to help reduce the clinical signs such as itching of atopic dermatitis in dogs of any age, licensed in the United States in 2016 and Canada, the European Union and New Zealand in 2017. An injection given once every four to eight weeks, Cytopoint neutralizes interleukin - 31, a protein that has been demonstrated to trigger itching in dogs.
|
•
|
Fostera
®
PCV MH was introduced in November 2013 in the United States and approved in the European Union in 2015 and Australia in 2017. It was developed to help protect pigs from porcine circovirus-associated disease (PCVAD) and enzootic pneumonia caused by
M. hyopneumoniae (M. hyo)
. The one-bottle formulation of Fostera PCV MH allows the convenience of a one-dose program or the flexibility of a two-dose program. The Fostera franchise also includes Fostera/Suvaxyn
®
PRRS, which was approved in the United States in 2015 and in Taiwan, Vietnam and European Union countries in 2017. This vaccine offers protection against both the respiratory and reproductive forms of disease caused by porcine reproductive and respiratory syndrome (PRRS) virus.
|
•
|
Improvac
®
/Improvest
®
/Vivax
®
, a protein product that works like an immunization, is currently the only product that provides a safe and effective alternative to physical castration to manage unpleasant aromas that can occur when cooking pork; launched in Australia and New Zealand in 2004, in Brazil in 2007, in certain European countries beginning in 2008, and in the United States in 2011;
|
•
|
Inforce
®
3, the first vaccine for cattle that prevents respiratory disease caused by bovine respiratory syncytial virus (BRSV) while also aiding in the prevention of infectious bovine rhinotracheitis (IBR) and parainfluenza
3 (PI 3), launched in 2010;
|
•
|
Simparica
®
(sarolaner) Chewables, a monthly chewable tablet for dogs to control fleas and ticks, was approved in the European Union and New Zealand in 2015, the United States, Canada, Australia, and Brazil (Simparic) in 2016, and Japan along with multiple additional European, Latin American and Asia Pacific markets in 2017. Building on this franchise, in 2017, Zoetis received European Commission approval for Stronghold
®
Plus (selamectin/sarolaner), a topical combination product that treats ticks, fleas, ear mites, lice and gastrointestinal worms and prevents heartworm disease in cats;
|
•
|
Vanguard
®
is a market leading vaccine line for dogs intended to help prevent a range of diseases. In recent years, Zoetis has added new and innovative enhancements to its Vanguard line with Vanguard crLyme, Vanguard Rapid Resp Intranasal, Vanguard B Oral, and Vanguard CIV H3N2/H3N8.
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|
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Product line / product
|
|
Description
|
|
Primary species
|
|
|
|
|
|
Anti-infectives
|
|
|
|
|
Ceftiofur injectable line
|
|
Broad-spectrum cephalosporin antibiotic active against gram-positive and gram-negative bacteria, including ß-lactamase-producing strains, with some formulations producing a single course of therapy in one injection
|
|
Cattle, sheep, swine
|
Draxxin
®
|
|
Single-dose low-volume antibiotic for the treatment and prevention of bovine and swine respiratory disease, infectious bovine keratoconjunctivitis and bovine foot rot
|
|
Cattle, swine, sheep
|
Spectramast
®
|
|
Treatment of subclinical or clinical mastitis in dry or lactating dairy cattle, delivered via intramammary infusion; same active ingredient as the ceftiofur line
|
|
Cattle
|
Terramycin
®
line
|
|
Antibiotic for the treatment of susceptible infections
|
|
Cattle, poultry, sheep, swine
|
|
|
|
|
|
Vaccines
|
|
|
|
|
Bovi-Shield
®
line
|
|
Aids in preventing diseases, including infectious bovine rhinotracheitis (IBR), bovine viral diarrhea (BVD) Types 1 and 2, parainfluenza 3
(PI 3), bovine respiratory syncytial virus (BRSV), and leptospirosis caused by
Leptospira borgpetersenii
,
L.canicola, L grippotyphosa, L. hardjo, L. icterohaemorrhagiae, and L. pamona
, depending on formulation
|
|
Cattle
|
Improvac / Improvest / Vivax
|
|
Reduces boar taint, as an alternative to surgical castration
|
|
Swine
|
Rispoval
®
line
|
|
Aids in preventing three key viruses involved in cattle pneumonia-BRSV, PI 3
virus and BVD-viruses as well as other respiratory diseases, depending on formulation
|
|
Cattle
|
Suvaxyn
®
/ Fostera
®
|
|
Aids in preventing or controlling disease associated with major pathogens in swine such as porcine circovirus type 2 (PCV2), porcine reproductive and respiratory syndrome virus (PRRSv) and Mycoplasma hyopneumoniae, depending on formulation
|
|
Swine
|
|
|
|
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|
Parasiticides
|
|
|
|
|
Cydectin
®
|
|
Injectable or pour-on endectocide to treat and control internal and external cattle parasites, including gastrointestinal roundworms, lungworms, cattle grubs, mites and lice
|
|
Cattle, sheep
|
Dectomax
®
|
|
Injectable or pour-on endectocide, characterized by extended duration of activity, for the treatment and control of internal and external parasite infections
|
|
Cattle, swine
|
|
|
|
|
|
Medicated Feed Additives
|
|
|
|
|
Aureomycin
®
|
|
Provides livestock producers control, treatment and convenience against a wide range of respiratory, enteric and reproductive diseases
|
|
Cattle, poultry, sheep, swine
|
BMD
®
|
|
Aids in preventing and controlling enteritis; and increases rate of weight gain and improves feed efficiency in poultry and swine
|
|
Poultry, swine
|
Lasalocid line
|
|
Controls coccidiosis in poultry (Avatec
®
) and cattle (Bovatec
®
) and for increased rate of weight gain and improved feed efficiency in cattle
|
|
Poultry, cattle
|
Lincomycin line
|
|
Controls necrotic enteritis; treatment of dysentery (bloody scours), control of ileitis and treatment/reduction in severity of mycoplasmal pneumonia
|
|
Swine, poultry
|
|
|
|
|
|
Other
|
|
|
|
|
Embrex
®
devices
|
|
Devices for enhancing hatchery operations' efficiency through
in ovo
detection and vaccination
|
|
Poultry
|
Lutalyse
®
|
|
For estrus control or in the induction of parturition or abortion
|
|
Cattle, swine
|
|
|
|
|
|
Product line / product
|
|
Description
|
|
Primary species
|
|
|
|
|
|
Anti-infectives
|
|
|
|
|
Clavamox
®
/ Synulox
®
|
|
A broad-spectrum antibiotic and the first and only potentiated penicillin approved for use in dogs and cats
|
|
Cats, dogs
|
Convenia
®
|
|
Anti-infective for the treatment of common bacterial skin infections that provides a course of treatment in a single injection
|
|
Cats, dogs
|
|
|
|
|
|
Vaccines
|
|
|
|
|
Vanguard
®
L4 (4-way Lepto)
|
|
Compatible with the Vanguard line and helps protect against leptospirosis caused by
Leptospira canicola
,
L. grippotyphosa
,
L. icterohaemorrhagiae
and
L. pomona
|
|
Dogs
|
Vanguard
®
line
|
|
Aids in preventing canine distemper caused by canine distemper virus; infectious canine hepatitis caused by canine adenovirus type 1; respiratory disease caused by canine adenovirus type 2; canine parainfluenza caused by canine parainfluenza virus; canine parvoviral enteritis caused by canine parvovirus; Lyme disease and subclinical arthritis associated with
Borrelia burgdorferi
, the causative agent of Lyme disease; and Rapid Resp - a group of three vaccines combating infections in dogs caused by
Bordetella bronchiseptica
, canine parainfluenza and canine adenovirus; canine influenza vaccines; and an oral vaccine for
Bordatella bronchiseptica
|
|
Dogs
|
|
|
|
||
Parasiticides
|
|
|
|
|
ProHeart
®
|
|
Prevents heartworm infestation; also for treatment of existing larval and adult hookworm infections
|
|
Dogs
|
Revolution
®
/ Stronghold
®
|
|
An antiparasitic for protection against fleas, heartworm disease and ear mites in cats and dogs; sarcoptic mites and American dog tick in dogs and roundworms and hookworms for cats
|
|
Cats, dogs
|
Simparica
®
|
|
A monthly chewable tablet for dogs to control fleas and ticks
|
|
Dogs
|
|
|
|
||
Other
|
|
|
|
|
Apoquel
®
|
|
A selective inhibitor of the Janus Kinase 1 enzyme that controls pruritus associated with allergic dermatitis and control of atopic dermatitis in dogs at least 12 months of age
|
|
Dogs
|
Cerenia
®
|
|
A medication that prevents and treats acute vomiting in dogs, treats acute vomiting in cats and prevents vomiting due to motion sickness in dogs
|
|
Cats, dogs
|
Cytopoint
®
|
|
An injectable to help reduce the clinical signs such as itching of atopic dermatitis in dogs of any age
|
|
Dogs
|
Rimadyl
®
|
|
For the relief of pain and inflammation associated with osteoarthritis and for the control of postoperative pain associated with soft tissue and orthopedic surgeries
|
|
Dogs
|
Site
|
|
Location
|
|
Site
|
|
Location
|
Campinas
|
|
Brazil
|
|
Melbourne
|
|
Australia
|
Catania
|
|
Italy
|
|
Olot
|
|
Spain
|
Charles City
|
|
Iowa, U.S.
|
|
Oslo
|
|
Norway
|
Chicago Heights
|
|
Illinois, U.S.
|
|
Overhalla
|
|
Norway
|
Durham
|
|
North Carolina, U.S.
|
|
Rathdrum
(b)
|
|
Ireland
|
Eagle Grove
|
|
Iowa, U.S.
|
|
Salisbury
|
|
Maryland, U.S.
|
Farum
|
|
Denmark
|
|
San Diego
|
|
California, U.S.
|
Jilin
(a)
|
|
China
|
|
Suzhou
|
|
China
|
Kalamazoo
|
|
Michigan, U.S.
|
|
Tullamore
(c)
|
|
Ireland
|
Lincoln
|
|
Nebraska, U.S.
|
|
Wellington
|
|
New Zealand
|
London
|
|
Ontario, Canada
|
|
White Hall
|
|
Illinois, U.S.
|
Louvain-la-Neuve
|
|
Belgium
|
|
Willow Island
|
|
West Virginia, U.S.
|
Medolla
|
|
Italy
|
|
|
|
|
(a)
|
In September 2017, Zoetis acquired the remaining noncontrolling interest in our China joint venture, Jilin Zoetis Guoyan Animal Health Company, Ltd.
|
(b)
|
In September 2017, Zoetis completed the purchase of a manufacturing facility in Rathdrum, Ireland. We are investing in this facility and expect it to be ready for commercial production in 2020.
|
(c)
|
In July 2017, Zoetis acquired a biologic therapeutics company in Ireland. We will be investing in this facility to prepare it for commercial production.
|
•
|
Establish and implement harmonized technical requirements for the registration of veterinary medicinal products in the VICH regions, which meet high quality, safety and efficacy standards and minimize the use of test animals and costs of product development.
|
•
|
Provide a basis for wider international harmonization of registration requirements through the VICH Outreach Forum.
|
•
|
Monitor and maintain existing VICH guidelines, taking particular note of the ICH work program and, where necessary, update these VICH guidelines.
|
•
|
Ensure efficient processes for maintaining and monitoring consistent interpretation of data requirements following the implementation of VICH guidelines.
|
•
|
By means of a constructive dialogue between regulatory authorities and industry, provide technical guidance enabling response to significant emerging global issues and science that impact on regulatory requirements within the VICH regions.
|
•
|
environmental-related capital expenditures - approximately $6 million; and
|
•
|
other environmental-related expenditures - approximately $9 million.
|
•
|
the failure of us or any of our vendors or suppliers, including logistical service providers, to comply with applicable regulations and quality assurance guidelines;
|
•
|
construction delays;
|
•
|
equipment malfunctions;
|
•
|
shortages of materials;
|
•
|
labor problems;
|
•
|
natural disasters;
|
•
|
power outages;
|
•
|
criminal and terrorist activities;
|
•
|
changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, shipping distributions or physical limitations; and
|
•
|
the outbreak of any highly contagious diseases near our production sites.
|
•
|
volatility in the international financial markets;
|
•
|
compliance with governmental controls;
|
•
|
difficulties enforcing contractual and intellectual property rights;
|
•
|
parallel trade in our products (importation of our products from European Union countries where our products are sold at lower prices into European Union countries where the products are sold at higher prices);
|
•
|
compliance with a wide variety of laws and regulations, such as the FCPA and similar non-U.S. laws and regulations;
|
•
|
compliance with foreign labor laws;
|
•
|
burdens to comply with multiple and potentially conflicting foreign laws and regulations, including those relating to environmental, health and safety requirements;
|
•
|
changes in laws, regulations, government controls or enforcement practices with respect to our business and the businesses of our customers, including the imposition of limits on our profitability;
|
•
|
political and social instability, including crime, civil disturbance, terrorist activities and armed conflicts;
|
•
|
trade restrictions and restrictions on direct investments by foreign entities, including restrictions administered by the Office of Foreign Assets Control of the U.S. Department of Treasury (OFAC) and the European Union, in relation to our products or the products of farmers and other customers (e.g., restrictions on the importation of agricultural products from the European Union to Russia);
|
•
|
government limitations on foreign ownership;
|
•
|
government takeover or nationalization of business;
|
•
|
changes in tax laws, challenges brought against our incentive tax rulings, and tariffs;
|
•
|
imposition of anti-dumping and countervailing duties or other trade-related sanctions;
|
•
|
costs and difficulties in staffing, managing and monitoring international operations;
|
•
|
longer payment cycles and increased exposure to counterparty risk; and
|
•
|
additional limitations on transferring personal information between countries or other restrictions on the processing of personal information.
|
•
|
pay monetary damages;
|
•
|
obtain a license in order to continue manufacturing or marketing the affected products, which may not be available on commercially reasonable terms, or at all; or
|
•
|
stop activities, including any commercial activities, relating to the affected products, which could include a recall of the affected products and/or a cessation of sales in the future.
|
•
|
making it more difficult for us to satisfy our obligations with respect to our debt;
|
•
|
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, business development or other general corporate requirements, including dividends;
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
•
|
exposing us to the risk of increased interest rates as certain of our borrowings are and may in the future be at variable rates of interest;
|
•
|
limiting our flexibility in planning for and reacting to changes in the animal health industry;
|
•
|
placing us at a competitive disadvantage to other, less leveraged competitors;
|
•
|
impacting our effective tax rate; and
|
•
|
increasing our cost of borrowing.
|
•
|
our operating performance and the performance of our competitors;
|
•
|
our or our competitors' press releases, other public announcements and filings with the SEC regarding new products or services, enhancements, significant contracts, acquisitions or strategic investments;
|
•
|
changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;
|
•
|
changes in our investor base;
|
•
|
failures to meet external expectations or management guidance;
|
•
|
fluctuations in our financial results or the financial results of companies perceived to be similar to us;
|
•
|
changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of common stock by our stockholders or the incurrence of additional debt;
|
•
|
reputational issues;
|
•
|
changes in general economic and market conditions in any of the regions in which we conduct our business;
|
•
|
the arrival or departure of key personnel;
|
•
|
the actions of speculators and financial arbitrageurs (such as hedge funds);
|
•
|
changes in applicable laws, rules or regulations and other dynamics; and
|
•
|
other developments or changes affecting us, our industry or our competitors.
|
•
|
a Board of Directors that is divided into three classes with staggered terms;
|
•
|
rules regarding how our stockholders may present proposals or nominate directors for election at stockholder meetings;
|
•
|
the right of our Board of Directors to issue preferred stock without stockholder approval; and
|
•
|
limitations on the right of stockholders to remove directors.
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
|
High
|
Low
|
2016
|
|
|
First Quarter
|
$48.35
|
$38.26
|
Second Quarter
|
$49.10
|
$45.01
|
Third Quarter
|
$52.64
|
$46.84
|
Fourth Quarter
|
$54.15
|
$46.86
|
2017
|
|
|
First Quarter
|
$56.50
|
$52.00
|
Second Quarter
|
$63.85
|
$52.25
|
Third Quarter
|
$65.83
|
$59.50
|
Fourth Quarter
|
$73.58
|
$63.03
|
|
Issuer Purchases of Equity Securities
|
|||
|
Total Number of Shares Purchased
(a)
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Programs
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
|
October 2 - October 29, 2017
|
630,182
|
$64.62
|
626,898
|
$1,084,681,628
|
October 30 - November 30, 2017
|
599,007
|
$68.38
|
598,493
|
$1,043,755,651
|
December 1 - December 31, 2017
|
605,653
|
$72.02
|
604,762
|
$1,000,123,816
|
Total
|
1,834,842
|
$68.29
|
1,830,153
|
$1,000,123,816
|
|
2017
|
2016
|
First Quarter
|
$0.105
|
$0.095
|
Second Quarter
|
$0.105
|
$0.095
|
Third Quarter
|
$0.105
|
$0.095
|
Fourth Quarter
|
$0.105
|
$0.095
|
|
February 1, 2013
|
June 30,
2013
|
December 31, 2013
|
June 29,
2014
|
December 31, 2014
|
June 28,
2015
|
December 31, 2015
|
July 3,
2016
|
December 31, 2016
|
July 2, 2017
|
December 31, 2017
|
Zoetis Inc.
|
$100
|
$99.81
|
$106.07
|
$105.56
|
$140.84
|
$159.73
|
$157.98
|
$157.42
|
$177.95
|
$208.55
|
$241.21
|
S&P 500
|
$100
|
$107.14
|
$124.61
|
$133.55
|
$141.67
|
$146.06
|
$143.63
|
$149.46
|
$160.81
|
$175.83
|
$195.92
|
S&P 500 Pharmaceuticals Index
|
$100
|
$109.67
|
$125.16
|
$140.83
|
$152.97
|
$166.53
|
$161.82
|
$169.39
|
$159.29
|
$175.62
|
$179.31
|
|
Year Ended December 31,
(a)
|
|||||||||||||||||||
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|||||
Statement of income data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
$
|
4,785
|
|
|
$
|
4,561
|
|
Net income attributable to Zoetis
|
|
864
|
|
|
821
|
|
|
339
|
|
|
583
|
|
|
504
|
|
|||||
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
|
$
|
8,586
|
|
|
$
|
7,649
|
|
|
$
|
7,913
|
|
|
$
|
6,588
|
|
|
$
|
6,536
|
|
Long-term obligations
|
|
4,953
|
|
|
4,468
|
|
|
4,463
|
|
|
3,624
|
|
|
3,620
|
|
|||||
Other data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted net income
(b)
|
|
$
|
1,185
|
|
|
$
|
975
|
|
|
$
|
889
|
|
|
$
|
790
|
|
|
$
|
709
|
|
Earnings per share attributable to Zoetis Inc. stockholders:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
1.76
|
|
|
$
|
1.66
|
|
|
$
|
0.68
|
|
|
$
|
1.16
|
|
|
$
|
1.01
|
|
Diluted
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
|
$
|
1.16
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Dividends declared per common share
|
|
$
|
0.441
|
|
|
$
|
0.390
|
|
|
$
|
0.344
|
|
|
$
|
0.299
|
|
|
$
|
0.267
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
489,918
|
|
|
495,715
|
|
|
499,707
|
|
|
501,055
|
|
|
500,002
|
|
|||||
Diluted
|
|
493,161
|
|
|
498,225
|
|
|
502,019
|
|
|
502,025
|
|
|
500,317
|
|
(a)
|
Starting in 2015, includes the acquisitions of Pharmaq and certain assets from Abbott Animal Health.
|
(b)
|
Adjusted net income (a non-GAAP financial measure) is defined as reported net income attributable to Zoetis excluding purchase accounting adjustments, acquisition-related costs and certain significant items. Management uses adjusted net income, among other factors, to set performance goals and to measure the performance of the overall company, as described in
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Adjusted net income
. We believe that investors’ understanding of our performance is enhanced by disclosing this performance measure. Reconciliations of U.S. GAAP reported net income attributable to Zoetis to non-GAAP adjusted net income for the years ended
December 31, 2017
,
2016
and
2015
are provided in
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Adjusted net income
. The adjusted net income measure is not, and should not be viewed as, a substitute for U.S. GAAP reported net income attributable to Zoetis.
|
|
|
Years Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|||
Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
9
|
|
|
3
|
Net income attributable to Zoetis
|
|
864
|
|
|
821
|
|
|
339
|
|
|
5
|
|
|
*
|
|||
Adjusted net income
(a)
|
|
1,185
|
|
|
975
|
|
|
889
|
|
|
22
|
|
|
10
|
(a)
|
Adjusted net income is a non-GAAP financial measure. See the
Adjusted net income
section of this MD&A for more information.
|
•
|
human population growth and increasing standards of living, particularly in many emerging markets;
|
•
|
increasing demand for improved nutrition, particularly animal protein;
|
•
|
natural resource constraints, such as scarcity of arable land, fresh water and increased competition for cultivated land, resulting in fewer resources that will be available to meet this increased demand for animal protein;
|
•
|
increasing urbanization; and
|
•
|
increased focus on food safety and food security.
|
•
|
economic development and related increases in disposable income, particularly in many emerging markets;
|
•
|
increasing pet ownership; and
|
•
|
companion animals living longer, increasing medical treatment of companion animals and advances in companion animal medicines and vaccines.
|
•
|
leverage our direct local presence and strong customer relationships
—Through our direct selling commercial model, we can deepen our understanding of our customers’ businesses and can encourage the adoption of more sophisticated animal health products;
|
•
|
further penetrate emerging markets
—We seek to maximize our presence where economic development is driving increased demand for animal protein and increased demand for and spending on companion animals;
|
•
|
pursue new product research and development and value-added product lifecycle innovation
to extend our product portfolio
—New product R&D and product lifecycle innovation enable us to deliver products to address unmet needs and evolve our product lines so they remain relevant for our customers. We leverage our strong direct presence in many regions and cost-effectively develop new products;
|
•
|
remain the partner of choice
for access to new products and technologies
—We support cutting-edge research and secure the right to develop and commercialize new products and technologies;
|
•
|
continue to provide high-quality products
and improve manufacturing production margins
—We believe our manufacturing and supply chain provides us with a global platform for continued expansion, including in emerging markets, and that our quality and reliability differentiate us from our competitors; and
|
•
|
expand into complementary businesses
to become a more complete, trusted partner in providing solutions
—We believe we have the potential to generate incremental and complementary revenue, in the areas of diagnostics, genetics, devices, dairy data management, e-learning and professional consulting, which could also enhance the loyalty of our customer base and may lead to increased product sales.
|
•
|
for sales returns, we perform calculations in each market that incorporate the following, as appropriate: local returns policies and practices; returns as a percentage of revenue; an understanding of the reasons for past returns; estimated shelf life by product; an estimate of the amount of time between shipment and return or lag time; and any other factors that could impact the estimate of future returns, product recalls, discontinuation of products or a changing competitive environment; and
|
•
|
for revenue incentives, we use our historical experience with similar incentives programs to estimate the impact of such programs on revenue.
|
•
|
a significant adverse change in the extent or manner in which an asset is used. For example, restrictions imposed by the regulatory authorities could affect our ability to manufacture or sell a product, and
|
•
|
a projection or forecast that demonstrates losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that results in a significant loss of market share or the inability to achieve the previously projected revenue growth, or from the lack of acceptance of a product by customers.
|
•
|
In 2017, we did not have any significant intangible asset impairment charges.
|
•
|
In 2016, the intangible asset impairment charges reflect approximately $1 million of finite-lived trademarks related to a canine pain management product that is no longer marketed.
|
•
|
In 2015, the intangible asset impairment charges reflect (i) approximately $27 million of developed technology rights due to product rationalization decisions associated with our operational efficiency initiative; and (ii) approximately $2 million of acquired in-process research and development (IPR&D) assets related to the termination of a canine oncology project.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|
|||
Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
9
|
|
|
3
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cost of sales
(a)
|
|
1,775
|
|
|
1,666
|
|
|
1,738
|
|
|
7
|
|
|
(4
|
)
|
|||
% of revenue
|
|
33
|
%
|
|
34
|
%
|
|
36
|
%
|
|
|
|
|
|||||
Selling, general and administrative expenses
(a)
|
|
1,334
|
|
|
1,364
|
|
|
1,532
|
|
|
(2
|
)
|
|
(11
|
)
|
|||
% of revenue
|
|
25
|
%
|
|
28
|
%
|
|
32
|
%
|
|
|
|
|
|||||
Research and development expenses
(a)
|
|
382
|
|
|
376
|
|
|
364
|
|
|
2
|
|
|
3
|
|
|||
% of revenue
|
|
7
|
%
|
|
8
|
%
|
|
8
|
%
|
|
|
|
|
|||||
Amortization of intangible assets
(a)
|
|
91
|
|
|
85
|
|
|
61
|
|
|
7
|
|
|
39
|
|
|||
Restructuring charges and certain acquisition-related costs
|
|
19
|
|
|
5
|
|
|
320
|
|
|
*
|
|
|
(98
|
)
|
|||
Interest expense, net of capitalized interest
|
|
175
|
|
|
166
|
|
|
124
|
|
|
5
|
|
|
34
|
|
|||
Other (income)/deductions—net
|
|
6
|
|
|
(2
|
)
|
|
81
|
|
|
*
|
|
|
*
|
|
|||
Income before provision for taxes on income
|
|
1,525
|
|
|
1,228
|
|
|
545
|
|
|
24
|
|
|
*
|
|
|||
% of revenue
|
|
29
|
%
|
|
25
|
%
|
|
11
|
%
|
|
|
|
|
|||||
Provision for taxes on income
|
|
663
|
|
|
409
|
|
|
206
|
|
|
62
|
|
|
99
|
|
|||
Effective tax rate
|
|
43.5
|
%
|
|
33.3
|
%
|
|
37.8
|
%
|
|
|
|
|
|||||
Net income before allocation to noncontrolling interests
|
|
862
|
|
|
819
|
|
|
339
|
|
|
5
|
|
|
*
|
|
|||
Less: Net income attributable to noncontrolling interests
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
*
|
|
|||
Net income attributable to Zoetis
|
|
$
|
864
|
|
|
$
|
821
|
|
|
$
|
339
|
|
|
5
|
|
|
*
|
|
% of revenue
|
|
16
|
%
|
|
17
|
%
|
|
7
|
%
|
|
|
|
|
(a)
|
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 these intangible assets benefit 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.
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|||
U.S.
|
|
$
|
2,620
|
|
|
$
|
2,447
|
|
|
$
|
2,328
|
|
|
7
|
|
|
5
|
International
|
|
2,643
|
|
|
2,390
|
|
|
2,386
|
|
|
11
|
|
|
—
|
|||
Total operating segments
|
|
5,263
|
|
|
4,837
|
|
|
4,714
|
|
|
9
|
|
|
3
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||||||
Contract manufacturing
|
|
44
|
|
|
51
|
|
|
51
|
|
|
(14
|
)
|
|
—
|
|||
Total Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
9
|
|
|
3
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|
|||
Livestock
|
|
$
|
3,037
|
|
|
$
|
2,881
|
|
|
$
|
2,958
|
|
|
5
|
|
|
(3
|
)
|
Companion animal
|
|
2,226
|
|
|
1,956
|
|
|
1,756
|
|
|
14
|
|
|
11
|
|
|||
Contract manufacturing
|
|
44
|
|
|
51
|
|
|
51
|
|
|
(14
|
)
|
|
—
|
|
|||
Total Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
9
|
|
|
3
|
|
•
|
increased sales of our dermatology portfolio and new product launches, which contributed approximately 7%; and
|
•
|
growth of our in-line products, which contributed approximately 2%, of which volume comprised 1% and price comprised 1%,
|
•
|
product rationalizations as part of the operational efficiency initiative, which resulted in a decline of approximately 1%.
|
•
|
increased sales of Apoquel
®
and new product launches, which contributed approximately 5%;
|
•
|
growth of our in-line products, which contributed approximately 3%, of which price comprised 2% and volume comprised 1%; and
|
•
|
recent acquisitions, primarily Pharmaq and the acquisition of certain assets of Abbott Animal Health, which contributed approximately 2%,
|
•
|
our product and market rationalization as part of the operational efficiency initiative, which resulted in a decline of approximately 5%.
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|
|||
Cost of sales
|
|
$
|
1,775
|
|
|
$
|
1,666
|
|
|
$
|
1,738
|
|
|
7
|
|
(4
|
)
|
% of revenue
|
|
33
|
%
|
|
34
|
%
|
|
36
|
%
|
|
|
|
|
•
|
an increase in sales volume;
|
•
|
an increase in manufacturing and supply costs; and
|
•
|
unfavorable foreign exchange,
|
•
|
a decrease in inventory obsolescence, scrap and other charges;
|
•
|
the nonrecurrence of charges reflecting fair value adjustments to inventory related to the acquisition of Pharmaq; and
|
•
|
favorable product mix.
|
•
|
favorable product mix;
|
•
|
favorable foreign exchange;
|
•
|
a reduction in the amount of costs related to becoming an independent public company;
|
•
|
lower global manufacturing and supply costs; and
|
•
|
business model changes in Venezuela,
|
•
|
the inclusion of the cost of products for Pharmaq, as well as charges reflecting fair value adjustments to inventory related to the acquisition of Pharmaq;
|
•
|
an increase in sales volume; and
|
•
|
an increase in inventory obsolescence, scrap and other charges.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|
|||
Selling, general and administrative expenses
|
|
$
|
1,334
|
|
|
$
|
1,364
|
|
|
$
|
1,532
|
|
|
(2
|
)
|
|
(11
|
)
|
% of revenue
|
|
25
|
%
|
|
28
|
%
|
|
32
|
%
|
|
|
|
|
•
|
the nonrecurrence of additional costs related to becoming an independent public company;
|
•
|
a reduction in marketing and general and administrative expense driven by our operational efficiency initiative; and
|
•
|
a reduction in consulting charges relating to our operational efficiency initiative,
|
•
|
higher advertising and promotional spending associated with new products and Apoquel
®
.
|
•
|
a reduction in marketing and general and administrative expense driven by our operational efficiency initiative;
|
•
|
a reduction in the amount of additional costs related to becoming an independent public company;
|
•
|
favorable foreign exchange; and
|
•
|
a reduction in consulting charges relating to our operational efficiency initiative,
|
•
|
higher advertising and promotional spending associated with new products;
|
•
|
the inclusion of Pharmaq; and
|
•
|
an increase in depreciation associated with the implementation of our enterprise resource planning system.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|||
Research and development expenses
|
|
$
|
382
|
|
|
$
|
376
|
|
|
$
|
364
|
|
|
2
|
|
3
|
% of revenue
|
|
7
|
%
|
|
8
|
%
|
|
8
|
%
|
|
|
|
|
•
|
the inclusion of a veterinary diagnostics business acquired in 2016 and an Irish biologic therapeutics company in 2017,
|
•
|
a reduction in spending driven by our operational efficiency initiative.
|
•
|
higher development expenses for late-stage projects; and
|
•
|
the inclusion of Pharmaq;
|
•
|
a reduction in spending driven by our operational efficiency initiative.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|||
Amortization of intangible assets
|
|
$
|
91
|
|
|
$
|
85
|
|
|
$
|
61
|
|
|
7
|
|
39
|
|
|
Year Ended December 31,
|
|
% Change
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|
|||
Restructuring charges and certain acquisition-related costs
|
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
320
|
|
|
*
|
|
(98
|
)
|
•
|
higher employee termination costs a result of the acquisition of an Irish biologic therapeutics company in the third quarter of 2017, initiatives to better align our organizational structure in Europe, and our operational efficiency initiative and supply network strategy, and
|
•
|
higher integration costs in 2017 as a result of the acquisition of an Irish biologic therapeutics company in the third quarter of 2017, and the acquisition of Pharmaq in 2015.
|
•
|
higher employee termination costs and higher asset impairment charges incurred in 2015 as a result of the launch of our operational efficiency initiative and supply network strategy, and
|
•
|
lower transaction costs in 2016.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|||
Interest expense, net of capitalized interest
|
|
$
|
175
|
|
|
$
|
166
|
|
|
$
|
124
|
|
|
5
|
|
34
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|||
Other (income)/deductions—net
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
81
|
|
|
*
|
|
*
|
•
|
a net loss of $11 million in 2017 related to sales of certain manufacturing sites and products, including the disposal of our manufacturing site in Guarulhos, Brazil, in the fourth quarter of 2017, compared with a net gain of $26 million in 2016 related to sales of certain manufacturing sites and products, and
|
•
|
lower royalty income,
|
•
|
lower foreign currency losses, primarily driven by costs related to hedging and exposures to certain emerging market currencies, and
|
•
|
income of a $8 million in 2017 due to an insurance recovery related to commercial settlements in Mexico, as well as a favorable outcome on a patent infringement settlement, compared with a charge of $14 million in 2016 related to a commercial settlement in Mexico.
|
•
|
charges of $89 million in 2015 related to the revaluation of the net monetary assets in Venezuela; and
|
•
|
a net gain of $26 million in 2016 related to sales of certain manufacturing sites and products,
|
•
|
a charge of $14 million in 2016 related to a commercial settlement in Mexico; and
|
•
|
a charge of $15 million related to the devaluation of the Egyptian pound in November 2016.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
16/15
|
|||
Provision for taxes on income
|
|
$
|
663
|
|
|
$
|
409
|
|
|
$
|
206
|
|
|
62
|
|
99
|
Effective tax rate
|
|
43.5
|
%
|
|
33.3
|
%
|
|
37.8
|
%
|
|
|
|
|
•
|
a $212 million net discrete provisional tax expense recorded in the fourth quarter of 2017, related to the impact of the Tax Act enacted on December 22, 2017, including a one-time mandatory deemed repatriation tax, partially offset by a net tax benefit related to the remeasurement of the deferred tax assets and liabilities, as of the date of enactment, due to the reduction in the U.S. federal corporate tax rate;
|
•
|
changes in valuation allowances and resolution of other tax items;
|
•
|
tax expense related to changes in uncertain tax positions, see Notes to Consolidated Financial Statements—
Note 8D. Tax Matters: Tax Contingencies
,
|
•
|
changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items;
|
•
|
a $15 million discrete tax benefit recorded in the fourth quarter of 2017 related to the effective settlement of certain issues with U.S. and non-U.S. tax authorities;
|
•
|
a $9 million discrete tax benefit recorded in 2017 related to the excess tax benefits for share-based payments; and
|
•
|
a $3 million discrete tax benefit recorded in the first quarter of 2017 related to a remeasurement of deferred tax assets and liabilities as a result of a change in non-U.S. statutory tax rates.
|
•
|
the impact of the extent and location of restructuring charges related to the operational efficiency initiative, supply network strategy, asset impairments and gains and losses on asset divestitures;
|
•
|
a $15 million discrete tax benefit recorded in the fourth quarter of 2016 related to prior period tax adjustments;
|
•
|
a $10 million discrete tax benefit recorded in the first quarter of 2016 related to a remeasurement of deferred taxes as a result of a change in statutory tax rates;
|
•
|
a $7 million discrete tax benefit recorded in 2016 related to the excess tax benefits for share-based payments; and
|
•
|
a $2 million discrete tax benefit recorded in the second half of 2016 related to a remeasurement of the company’s deferred tax assets and liabilities using the tax rates expected to be in place going forward
as a result of the implementation of operational changes,
|
•
|
changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings from operations and repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and operating fluctuations in the normal course of business and the impact of non-deductible items;
|
•
|
a net tax expense of approximately $35 million mainly recorded in the first half of 2016 related to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium. This net charge represents the recovery of prior tax benefits for the periods 2013 through 2015 offset by the remeasurement of the company’s deferred tax assets and liabilities using the rates expected to be in place at the time of the reversal and without consideration of implementation of any future operational changes, and does not include any benefits associated with a successful appeal of the decision;
|
•
|
changes in valuation allowances and resolution of other tax items; and
|
•
|
tax expense related to changes in uncertain tax positions, see Notes to Consolidated Financial Statements—
Note 8D. Tax Matters: Tax Contingencies.
|
|
|
|
|
|
% Change
|
||||||||||||||||||||||
|
|
|
|
|
17/16
|
|
16/15
|
||||||||||||||||||||
|
|
|
|
|
Related to
|
|
|
|
Related to
|
||||||||||||||||||
|
Year Ended December 31,
|
|
|
|
Foreign
|
|
|
|
|
|
Foreign
|
|
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
2017
|
|
2016
|
|
2015
|
|
|
Total
|
|
Exchange
|
|
Operational
|
|
Total
|
|
Exchange
|
|
Operational
|
|||||||||
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Livestock
|
$
|
1,244
|
|
$
|
1,227
|
|
$
|
1,251
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Companion animal
|
1,376
|
|
1,220
|
|
1,077
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|||
|
2,620
|
|
2,447
|
|
2,328
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|||
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Livestock
|
1,793
|
|
1,654
|
|
1,707
|
|
|
8
|
|
|
1
|
|
|
7
|
|
|
(3
|
)
|
|
(6
|
)
|
|
3
|
|
|||
Companion animal
|
850
|
|
736
|
|
679
|
|
|
15
|
|
|
(1
|
)
|
|
16
|
|
|
8
|
|
|
(5
|
)
|
|
13
|
|
|||
|
2,643
|
|
2,390
|
|
2,386
|
|
|
11
|
|
|
1
|
|
|
10
|
|
|
—
|
|
|
(5
|
)
|
|
5
|
|
|||
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Livestock
|
3,037
|
|
2,881
|
|
2,958
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
(3
|
)
|
|
(4
|
)
|
|
1
|
|
|||
Companion animal
|
2,226
|
|
1,956
|
|
1,756
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
11
|
|
|
(2
|
)
|
|
13
|
|
|||
Contract manufacturing
|
44
|
|
51
|
|
51
|
|
|
(14
|
)
|
|
1
|
|
|
(15
|
)
|
|
—
|
|
|
(3
|
)
|
|
3
|
|
|||
|
$
|
5,307
|
|
$
|
4,888
|
|
$
|
4,765
|
|
|
9
|
|
|
1
|
|
|
8
|
|
|
3
|
|
|
(2
|
)
|
|
5
|
|
|
|
|
|
% Change
|
||||||||||||||||
|
|
|
|
17/16
|
|
16/15
|
||||||||||||||
|
|
|
|
Related to
|
|
|
Related to
|
|||||||||||||
|
Year Ended December 31,
|
|
|
Foreign
|
|
|
|
Foreign
|
|
|||||||||||
(MILLIONS OF DOLLARS)
|
2017
|
|
2016
|
|
2015
|
|
|
Total
|
Exchange
|
Operational
|
|
Total
|
Exchange
|
Operational
|
||||||
U.S.
|
$
|
1,637
|
|
$
|
1,508
|
|
$
|
1,390
|
|
|
9
|
|
—
|
9
|
|
8
|
|
—
|
|
8
|
International
|
1,240
|
|
1,054
|
|
941
|
|
|
18
|
|
1
|
17
|
|
12
|
|
(5
|
)
|
17
|
|||
Total reportable segments
|
2,877
|
|
2,562
|
|
2,331
|
|
|
12
|
|
—
|
12
|
|
10
|
|
(2
|
)
|
12
|
|||
Other business activities
|
(313
|
)
|
(309
|
)
|
(293
|
)
|
|
1
|
|
|
|
|
5
|
|
|
|
||||
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Corporate
|
(625
|
)
|
(684
|
)
|
(606
|
)
|
|
(9
|
)
|
|
|
|
13
|
|
|
|
||||
Purchase accounting adjustments
|
(88
|
)
|
(99
|
)
|
(57
|
)
|
|
(11
|
)
|
|
|
|
74
|
|
|
|
||||
Acquisition-related costs
|
(10
|
)
|
(4
|
)
|
(21
|
)
|
|
*
|
|
|
|
|
(81
|
)
|
|
|
||||
Certain significant items
|
(25
|
)
|
(57
|
)
|
(592
|
)
|
|
(56
|
)
|
|
|
|
(90
|
)
|
|
|
||||
Other unallocated
|
(291
|
)
|
(181
|
)
|
(217
|
)
|
|
61
|
|
|
|
|
(17
|
)
|
|
|
||||
Income before income taxes
|
$
|
1,525
|
|
$
|
1,228
|
|
$
|
545
|
|
|
24
|
|
|
|
|
*
|
|
|
|
•
|
Livestock revenue increased primarily due to cattle and poultry products, partly offset by swine products. Cattle experienced growth across our portfolio, while poultry growth was due to increased sales of medicated feed additives. Certain medicated feed additive products for both cattle and swine were negatively impacted by livestock producers’ implementation of the Veterinary Feed Directive. In addition, swine declined due to vaccine competition.
|
•
|
Companion animal revenue growth was driven primarily by our dermatology portfolio, in addition to new products, particularly Simparica
®
. Growth was tempered by the prior year’s initial sales of certain products into expanded distribution relationships, as well as lower sales due to competition for our pain and anti-infective products.
|
•
|
Livestock growth was driven primarily by increased sales of cattle, swine and fish products. Growth of cattle products was driven by Latin American markets, while swine was driven by new product launches primarily in Europe and Asia, as well as growth in China. Growth of fish products was driven by new products and in-line product growth across various markets. Livestock growth was partially offset by product rationalizations, primarily impacting poultry and swine product sales.
|
•
|
Companion animal revenue growth resulted primarily from increased sales of our dermatology portfolio, in addition to new products, primarily Simparica
®
. Sales also benefited from increased demand in China due to field force expansions and increasing medicalization rates.
|
•
|
Livestock revenue declined primarily due to product rationalizations as part of the company’s operational efficiency initiative, which impacted both poultry and swine. Additionally, sales of cattle products were impacted by unfavorable market conditions, while swine was impacted by increased competition.
|
•
|
Companion animal revenue growth was driven by increased sales of Apoquel
®
, new product launches, and initial sales of products into expanded distribution relationships. Partially offsetting growth was a decline in the company’s surgical fluid products.
|
•
|
Livestock revenue growth was driven primarily by the acquisition of Pharmaq, with sales primarily in Chile and Norway. Growth also benefited from swine performance in China, as well as cattle performance in certain emerging markets. Growth was partially offset by our operational efficiency initiative, which includes product rationalization and the impact of our business decisions in Venezuela and India.
|
•
|
Companion animal revenue growth resulted from increased sales of Apoquel
®
, other new product launches, and demand for our vaccines portfolio in China, due to increased field force expansions and positive medicalization rates.
|
•
|
Corporate,
which includes certain costs associated with information technology, facilities, legal, finance, human resources, business development, and communications, among others. These costs also include certain compensation costs and other miscellaneous operating expenses that are not charged to our operating segments, as well as interest income and expense;
|
•
|
Certain transactions and events such as (i)
Purchase accounting adjustments
, which includes expenses associated with the amortization of fair value adjustments to inventory, intangible assets and property, plant and equipment; (ii)
Acquisition-related activities
, which includes costs for acquisition and integration; and (iii)
Certain significant items
, which includes non-acquisition-related restructuring charges, certain asset impairment charges, stand-up costs, certain legal and commercial settlements, and costs associated with cost reduction/productivity initiatives; and
|
•
|
Other unallocated
, which includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with information technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.
|
•
|
senior management receives a monthly analysis of our operating results that is prepared on an adjusted net income basis;
|
•
|
our annual budgets are prepared on an adjusted net income basis; and
|
•
|
other goal setting and performance measurements.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
2016
|
|
2015
|
|
17/16
|
|
|
16/15
|
|
||||||
GAAP reported net income attributable to Zoetis
|
|
$
|
864
|
|
|
$
|
821
|
|
|
$
|
339
|
|
|
5
|
|
|
*
|
|
Purchase accounting adjustments—net of tax
|
|
51
|
|
|
60
|
|
|
39
|
|
|
(15
|
)
|
|
54
|
|
|||
Acquisition-related costs—net of tax
|
|
7
|
|
|
4
|
|
|
22
|
|
|
75
|
|
|
(82
|
)
|
|||
Certain significant items—net of tax
|
|
263
|
|
|
90
|
|
|
489
|
|
|
*
|
|
|
(82
|
)
|
|||
Non-GAAP adjusted net income
(a)(b)
|
|
$
|
1,185
|
|
|
$
|
975
|
|
|
$
|
889
|
|
|
22
|
|
|
10
|
|
(a)
|
The effective tax rate on adjusted pretax income is
28.2%
,
29.9%
and
26.8%
for full year 2017, 2016 and 2015, respectively. The lower effective tax rate in 2017 compared to 2016 is primarily due to changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, a $15 million discrete tax benefit recorded in the fourth quarter of 2017 related to the effective settlement of certain issues with U.S. and non-U.S. tax authorities, and a $9 million discrete tax benefit recorded in 2017 related to the excess tax benefits for share-based payments. The higher effective tax rate in 2016 compared to 2015 is primarily due to changes in the jurisdictional mix of earnings, which includes the impact of the location of earnings as well as repatriation costs, offset by a $15 million discrete tax benefit related to prior period tax adjustments, a $7 million discrete tax benefit recorded in 2016 related to the excess tax benefits for share-based payments, and a $4 million discrete tax benefit recorded in the first quarter of 2015 related to prior period deferred tax adjustments.
|
(b)
|
The impact of the incentive tax rulings in Belgium and Singapore were a component of the 2015 effective tax rate, but are no longer a component of the 2017 and 2016 effective tax rates. For additional information on the impact of the European Commission’s negative decision on the Belgium excess profits ruling on January 11, 2016, see Notes to Consolidated Financial Statements—
Note 8A. Tax Matters: Taxes on Income.
The U.S. Research and Development Tax Credit which was permanently extended on December 18, 2015, is a component of the 2017, 2016 and 2015 effective tax rates.
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|
17/16
|
|
|
16/15
|
|
||||||
Earnings per share—diluted
(a)(b)
:
|
|
|
|
|
|
|
|
|
|
|
||||||||
GAAP reported EPS attributable to Zoetis—diluted
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
|
6
|
|
|
*
|
|
Purchase accounting adjustments—net of tax
|
|
0.10
|
|
|
0.12
|
|
|
0.08
|
|
|
(17
|
)
|
|
50
|
|
|||
Acquisition-related costs—net of tax
|
|
0.01
|
|
|
0.01
|
|
|
0.04
|
|
|
—
|
|
|
(75
|
)
|
|||
Certain significant items—net of tax
|
|
0.54
|
|
|
0.18
|
|
|
0.97
|
|
|
*
|
|
|
(81
|
)
|
|||
Non-GAAP adjusted EPS—diluted
|
|
$
|
2.40
|
|
|
$
|
1.96
|
|
|
$
|
1.77
|
|
|
22
|
|
|
11
|
|
(a)
|
Diluted earnings per share was computed using the weighted-average common shares outstanding during the period plus the common stock equivalents related to stock options, restricted stock units, performance-vesting restricted stock units and deferred stock units.
|
(b)
|
EPS amounts may not add due to rounding.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Interest expense, net of capitalized interest
|
|
$
|
175
|
|
|
$
|
166
|
|
|
$
|
124
|
|
Interest income
|
|
13
|
|
|
8
|
|
|
6
|
|
|||
Income taxes
|
|
465
|
|
|
415
|
|
|
326
|
|
|||
Depreciation
|
|
136
|
|
|
133
|
|
|
124
|
|
|||
Amortization
|
|
18
|
|
|
16
|
|
|
16
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Purchase accounting adjustments:
|
|
|
|
|
|
|
||||||
Amortization and depreciation
(a)
|
|
$
|
81
|
|
|
$
|
76
|
|
|
$
|
48
|
|
Cost of sales
(b)
|
|
7
|
|
|
23
|
|
|
9
|
|
|||
Total purchase accounting adjustments—pre-tax
|
|
88
|
|
|
99
|
|
|
57
|
|
|||
Income taxes
(c)
|
|
37
|
|
|
39
|
|
|
18
|
|
|||
Total purchase accounting adjustments—net of tax
|
|
51
|
|
|
60
|
|
|
39
|
|
|||
Acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs
|
|
6
|
|
|
3
|
|
|
10
|
|
|||
Transaction costs
|
|
—
|
|
|
—
|
|
|
9
|
|
|||
Restructuring charges
(d)
|
|
4
|
|
|
—
|
|
|
—
|
|
|||
Other
|
|
—
|
|
|
1
|
|
|
2
|
|
|||
Total acquisition-related costs—pre-tax
|
|
10
|
|
|
4
|
|
|
21
|
|
|||
Income taxes
(c)
|
|
3
|
|
|
—
|
|
|
(1
|
)
|
|||
Total acquisition-related costs—net of tax
|
|
7
|
|
|
4
|
|
|
22
|
|
|||
Certain significant items:
|
|
|
|
|
|
|
||||||
Operational efficiency initiative
(e)
|
|
5
|
|
|
(9
|
)
|
|
346
|
|
|||
Supply network strategy
(f)
|
|
15
|
|
|
19
|
|
|
27
|
|
|||
Other restructuring charges and cost-reduction/productivity initiatives
(g)
|
|
4
|
|
|
(1
|
)
|
|
—
|
|
|||
Certain asset impairment charges
(h)
|
|
—
|
|
|
1
|
|
|
5
|
|
|||
Stand-up costs
(i)
|
|
3
|
|
|
23
|
|
|
118
|
|
|||
Foreign currency loss related to Venezuela revaluation
(j)
|
|
—
|
|
|
—
|
|
|
93
|
|
|||
Other
(k)
|
|
(2
|
)
|
|
24
|
|
|
3
|
|
|||
Total certain significant items—pre-tax
|
|
25
|
|
|
57
|
|
|
592
|
|
|||
Income taxes
(c)
|
|
(238
|
)
|
|
(33
|
)
|
|
103
|
|
|||
Total certain significant items—net of tax
|
|
263
|
|
|
90
|
|
|
489
|
|
|||
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax
|
|
$
|
321
|
|
|
$
|
154
|
|
|
$
|
550
|
|
(a)
|
Amortization and depreciation expenses related to
Purchase accounting adjustments
with respect to identifiable intangible assets and property, plant and equipment
.
|
(b)
|
Amortization and depreciation expense, as well as fair value adjustments to acquired inventory
.
|
(c)
|
Income taxes include the tax effect of the associated pre-tax amounts, calculated by determining the jurisdictional location of the pre-tax amounts and applying that jurisdiction's applicable tax rate.
|
|
Income taxes in
Purchase accounting adjustments
for 2017, also includes (i) a provisional tax benefit of approximately $17 million related to the remeasurement of the company’s deferred taxes due to the reduction in the U.S. federal corporate tax rate as provided by the Tax Act enacted on December 22, 2017, (ii) remeasurement of deferred taxes as a result of a change in non-U.S. statutory tax rates, and (iii) a net tax charge related to prior period tax adjustments.
|
|
Income taxes in
Purchase accounting adjustments
for 2016, also includes a tax benefit related to the remeasurement of deferred taxes as a result of a change in tax rates.
|
|
Income taxes in
Acquisition-related costs
for 2016, also includes a tax charge related to the acquisition of certain assets of Abbott Animal Health.
|
|
Income taxes in
Certain significant items
for 2017, also includes (i) a provisional net tax charge of approximately $229 million related to the impact of the Tax Act enacted on December 22, 2017, including a one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings, partially offset by a net tax benefit related to the remeasurement of the company’s deferred tax assets and liabilities, as of the date of enactment, due to the reduction in the U.S. federal corporate tax rate, (ii) a net tax charge of approximately $3 million as a result of the implementation of certain operational changes, and (iii) a tax charge of approximately $2 million related to the disposal of certain assets.
|
|
Income taxes in
Certain significant items
for 2016, also includes (i) a net tax charge of approximately $20 million recorded in the second half of 2016, as a result of the implementation of certain operational changes, which represents an increase to current income tax expense of approximately $22 million, offset by a $2 million tax benefit related to a remeasurement of the company’s deferred tax assets and liabilities using the tax rates expected to be in place going forward, and (ii) a net tax charge of approximately $35 million mainly recorded in the first half of 2016, related to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium which represents the recovery of prior tax benefits for the periods 2013 through 2015, offset by the remeasurement of the company’s deferred tax assets and liabilities, using the rates expected to be in place at the time of the reversal and without consideration of implementation of any future operational changes, and does not include any benefits associated with a successful appeal of the decision.
|
(d)
|
For 2017, represents employee termination costs related to the acquisition of an Irish biologic therapeutics company in the third quarter of 2017.
|
(e)
|
For 2017, includes an adjustment to inventory reserves of $2 million, consulting fees of $2 million, restructuring charges of $4 million related to employee termination costs ($1 million) and exit costs ($3 million), and a net loss related to sales of certain manufacturing sites and products of $1 million.
|
|
For 2016, includes inventory write-offs of $5 million, consulting fees of $14 million, accelerated depreciation of $1 million, a reversal of employee termination costs of $8 million, an increase in exit costs of $5 million, and a $26 million net gain related to divestitures.
|
|
For 2015, includes restructuring charges of $291 million related to employee termination costs ($253 million) and asset impairments ($38 million), inventory write-offs of $13 million, accelerated depreciation of $2 million, and $40 million primarily related to consulting fees.
|
(f)
|
For 2017, includes accelerated depreciation of $2 million, an adjustment of $2 million related to discontinuing the depreciation of assets located at the manufacturing site in Guarulhos, Brazil that was sold in the fourth quarter of 2017, consulting fees of $5 million, restructuring charges of $1 million related to a net increase in employee termination costs, and a net loss of $9 million, related to sales of certain manufacturing sites and products, including our manufacturing site in Guarulhos, Brazil.
|
|
For 2016, represents restructuring charges of $6 million related to employee termination costs, accelerated depreciation of $6 million, inventory write-offs of $1 million and consulting fees of $6 million.
|
|
For 2015, represents restructuring charges of $10 million related to employee termination costs ($9 million) and asset impairments ($1 million), accelerated depreciation of $1 million, and $16 million primarily related to consulting fees.
|
(g)
|
Represents charges incurred for restructuring and cost-reduction/productivity initiatives. For 2017, charges are related to employee termination costs in Europe as a result of initiatives to better align our organizational structure.
|
(h)
|
For 2016, represents an impairment of finite-lived trademarks related to a canine pain management product. For 2015, primarily represents impairment charges related to assets held by our joint venture in Taiwan, which was subsequently sold in 2016, and an impairment of IPR&D assets related to the termination of a canine oncology project.
|
(i)
|
Represents certain non-recurring costs related to becoming an independent public company, such as the creation of standalone systems and infrastructure, site separation, new branding (including changes to the manufacturing process for required new packaging),and certain legal registration and patent assignment costs.
|
(j)
|
For 2015, represents charges primarily related to the foreign currency losses associated with our Venezuela business. For additional information, see Notes to Consolidated Financial Statements—
Note 7. Foreign Currency Losses Related to Venezuela Revaluation
.
|
(k)
|
For 2017, primarily represents costs associated with changes to our operating model of $3 million, and income of $5 million related to an insurance recovery from commercial settlements in Mexico recorded in 2014 and 2016.
|
|
For 2016, represents costs associated with changes to our operating model of $10 million and a charge associated with a commercial settlement in Mexico of $14 million.
|
|
For 2015, represents charges due to unusual investor-related activities.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
2016
|
|
2015
|
||||||
Cost of sales:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
$
|
7
|
|
|
$
|
23
|
|
|
$
|
9
|
|
Accelerated depreciation
|
|
2
|
|
|
6
|
|
|
1
|
|
|||
Inventory write-offs
|
|
(2
|
)
|
|
5
|
|
|
13
|
|
|||
Consulting fees
|
|
6
|
|
|
6
|
|
|
16
|
|
|||
Stand-up costs
|
|
3
|
|
|
1
|
|
|
27
|
|
|||
Other
|
|
(2
|
)
|
|
1
|
|
|
—
|
|
|||
Total Cost of sales
|
|
14
|
|
|
42
|
|
|
66
|
|
|||
|
|
|
|
|
|
|
||||||
Selling, general & administrative expenses:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
5
|
|
|
5
|
|
|
—
|
|
|||
Accelerated depreciation
|
|
—
|
|
|
1
|
|
|
—
|
|
|||
Consulting fees
|
|
2
|
|
|
14
|
|
|
40
|
|
|||
Stand-up costs
|
|
—
|
|
|
22
|
|
|
90
|
|
|||
Other
|
|
2
|
|
|
10
|
|
|
—
|
|
|||
Total Selling, general & administrative expenses
|
|
9
|
|
|
52
|
|
|
130
|
|
|||
|
|
|
|
|
|
|
||||||
Research & development expenses:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
2
|
|
|
2
|
|
|
2
|
|
|||
Accelerated depreciation
|
|
—
|
|
|
—
|
|
|
2
|
|
|||
Total Research & development expenses
|
|
2
|
|
|
2
|
|
|
4
|
|
|||
|
|
|
|
|
|
|
||||||
Amortization of intangible assets:
|
|
|
|
|
|
|
||||||
Purchase accounting adjustments
|
|
74
|
|
|
69
|
|
|
46
|
|
|||
Total Amortization of intangible assets
|
|
74
|
|
|
69
|
|
|
46
|
|
|||
|
|
|
|
|
|
|
||||||
Restructuring (benefits)/charges and certain acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs
|
|
6
|
|
|
3
|
|
|
10
|
|
|||
Transaction costs
|
|
—
|
|
|
—
|
|
|
9
|
|
|||
Employee termination costs
|
|
10
|
|
|
(2
|
)
|
|
262
|
|
|||
Asset impairments
|
|
—
|
|
|
—
|
|
|
39
|
|
|||
Exit costs
|
|
3
|
|
|
4
|
|
|
—
|
|
|||
Total Restructuring (benefits)/charges and certain acquisition-related costs
|
|
19
|
|
|
5
|
|
|
320
|
|
|||
|
|
|
|
|
|
|
||||||
Other (income)/deductions—net:
|
|
|
|
|
|
|
||||||
Net loss/(gain) on sale of assets
|
|
10
|
|
|
(26
|
)
|
|
—
|
|
|||
Acquisition-related costs
|
|
—
|
|
|
1
|
|
|
—
|
|
|||
Asset impairments
|
|
—
|
|
|
1
|
|
|
5
|
|
|||
Stand-up costs
|
|
—
|
|
|
—
|
|
|
1
|
|
|||
Foreign currency loss related to Venezuela revaluation
|
|
—
|
|
|
—
|
|
|
93
|
|
|||
Other
|
|
(5
|
)
|
|
14
|
|
|
5
|
|
|||
Total Other (income)/deductions—net
|
|
5
|
|
|
(10
|
)
|
|
104
|
|
|||
|
|
|
|
|
|
|
||||||
Provision for taxes on income
|
|
(198
|
)
|
|
6
|
|
|
120
|
|
|||
|
|
|
|
|
|
|
||||||
Total purchase accounting adjustments, acquisition-related costs, and certain significant items—net of tax
|
|
$
|
321
|
|
|
$
|
154
|
|
|
$
|
550
|
|
|
|
Year Ended December 31,
|
|
% Change
|
||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
17/16
|
|
|
16/15
|
|
|||
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating activities
|
|
$
|
1,346
|
|
|
$
|
713
|
|
|
$
|
664
|
|
|
89
|
|
|
7
|
|
Investing activities
|
|
(270
|
)
|
|
(214
|
)
|
|
(1,115
|
)
|
|
26
|
|
|
(81
|
)
|
|||
Financing activities
|
|
(251
|
)
|
|
(903
|
)
|
|
755
|
|
|
(72
|
)
|
|
*
|
|
|||
Effect of exchange-rate changes on cash and cash equivalents
|
|
12
|
|
|
(23
|
)
|
|
(32
|
)
|
|
*
|
|
|
(28
|
)
|
|||
Net increase/(decrease) in cash and cash equivalents
|
|
$
|
837
|
|
|
$
|
(427
|
)
|
|
$
|
272
|
|
|
*
|
|
|
*
|
|
|
December 31,
|
|
|
December 31,
|
|
||
(MILLIONS OF DOLLARS)
|
2017
|
|
|
2016
|
|
||
Cash and cash equivalents
|
$
|
1,564
|
|
|
$
|
727
|
|
Accounts receivable, net
(a)
|
998
|
|
|
913
|
|
||
Long-term debt
|
4,953
|
|
|
4,468
|
|
||
Working capital
|
3,123
|
|
|
2,273
|
|
||
Ratio of current assets to current liabilities
|
3.85:1
|
|
|
3.03:1
|
|
(a)
|
Accounts receivable are usually collected over a period of 60 to 90 days
.
For the year ended
December 31, 2017
, compared to the year ended December 31, 2016, the number of days that accounts receivables are outstanding remained approximately the same. We regularly monitor our accounts receivable for collectability, particularly in markets where economic conditions remain uncertain. We believe that our allowance for doubtful accounts is appropriate. Our assessment is based on such factors as past due aging, historical and expected collection patterns, the financial condition of our customers, the robust nature of our credit and collection practices and the economic environment.
|
|
|
|
|
|
|
2019-
|
|
|
2021-
|
|
|
There-
|
|
|||||||
(MILLIONS OF DOLLARS)
|
|
Total
|
|
|
2018
|
|
|
2020
|
|
|
2022
|
|
|
after
|
|
|||||
Long-term debt, including current portion and interest obligations
(a)
|
|
$
|
7,759
|
|
|
$
|
191
|
|
|
$
|
882
|
|
|
$
|
348
|
|
|
$
|
6,338
|
|
Other liabilities reflected on our consolidated balance sheets under U.S. GAAP
(b)
|
|
139
|
|
|
79
|
|
|
21
|
|
|
11
|
|
|
28
|
|
|||||
Operating lease commitments
|
|
168
|
|
|
35
|
|
|
49
|
|
|
31
|
|
|
53
|
|
|||||
Purchase obligations and other
(c)
|
|
442
|
|
|
119
|
|
|
215
|
|
|
106
|
|
|
2
|
|
|||||
Benefit plans - continuing service credit obligations
(d)
|
|
19
|
|
|
4
|
|
|
8
|
|
|
7
|
|
|
—
|
|
|||||
Uncertain tax positions
(e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(a)
|
Long-term debt consists of senior notes and other notes. Our calculations of expected interest payments incorporate only current period assumptions for interest rates, foreign currency translation rates and Zoetis hedging strategies. See Notes to Consolidated Financial Statements—
Note 9A. Financial Instruments: Debt
.
|
(b)
|
Includes expected employee termination payments that represent contractual obligations, expected payments related to our unfunded U.S. supplemental (non-qualified) savings plans, deferred compensation and expected payments relating to our future benefit payments net of plan assets (included in the determination of the projected benefit obligation) for pension plans that are dedicated to Zoetis employees and those transferred to us from Pfizer. See Notes to Consolidated Financial Statements—
Note 4. Acquisitions and Divestitures, Note 5
.
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
and
Note 13. Benefit Plans.
Excludes approximately $62 million of noncurrent liabilities related to legal and environmental accruals, certain employee termination and exit costs, deferred income and other accruals, most of which do not represent contractual obligations. See Notes to Consolidated Financial Statements—
Note 5
.
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
and
Note 17
.
Commitments and Contingencies
.
|
(c)
|
Includes agreements to purchase goods and services that are enforceable and legally binding and includes amounts relating to advertising, contract manufacturing, information technology services and potential milestone payments deemed reasonably likely to occur.
|
(d)
|
Includes the cost of service credit continuation for certain Zoetis employees in the Pfizer U.S. qualified defined benefit pension and U.S. retiree medical plans, in accordance with the employee matters agreement. See Notes to Consolidated Financial Statements—
Note 13. Benefit Plans.
|
(e)
|
Except for amounts reflected in
Income taxes payable
, we are unable to predict the timing of tax settlements, as tax audits can involve complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Paper
|
|
Long-term Debt
|
|
Date of
|
||
Name of Rating Agency
|
|
Rating
|
|
Rating
|
|
Outlook
|
|
Last Action
|
Moody’s
|
|
P-2
|
|
Baa1
|
|
Stable
|
|
August 2017
|
S&P
|
|
A-2
|
|
BBB
|
|
Stable
|
|
December 2016
|
•
|
emerging restrictions and bans on the use of antibacterials in food-producing animals;
|
•
|
perceived adverse effects on human health linked to the consumption of food derived from animals that utilize our products;
|
•
|
unanticipated safety, quality or efficacy concerns about our products;
|
•
|
increased regulation or decreased governmental support relating to the raising, processing or consumption of food-producing animals;
|
•
|
fluctuations in foreign exchange rates and potential currency controls;
|
•
|
changes in tax laws and regulations;
|
•
|
legal factors, including product liability claims, antitrust litigation and governmental investigations, including tax disputes, environmental concerns, commercial disputes and patent disputes with branded and generic competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products;
|
•
|
failure to protect our intellectual property rights or to operate our business without infringing the intellectual property rights of others;
|
•
|
an outbreak of infectious disease carried by animals;
|
•
|
adverse weather conditions and the availability of natural resources;
|
•
|
adverse global economic conditions;
|
•
|
failure of our R&D, acquisition and licensing efforts to generate new products;
|
•
|
the possible impact of competing products, including generic alternatives, on our products and our ability to compete against such products;
|
•
|
quarterly fluctuations in demand and costs;
|
•
|
governmental laws and regulations affecting domestic and foreign operations, including without limitation, tax obligations and changes affecting the tax treatment by the United States of income earned outside the United States that may result from pending and possible future proposals; and
|
•
|
governmental laws and regulations affecting our interactions with veterinary healthcare providers.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
|
Page
|
Audited Consolidated Financial Statements of Zoetis Inc. and Subsidiaries:
|
|
Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015
|
|
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015
|
|
Consolidated Balance Sheets as of December 31, 2017 and 2016
|
|
Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016 and 2015
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
|
|
Schedule II—Valuation and Qualifying Accounts
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
Costs and expenses:
|
|
|
|
|
|
|
||||||
Cost of sales
(a)
|
|
1,775
|
|
|
1,666
|
|
|
1,738
|
|
|||
Selling, general and administrative expenses
(a)
|
|
1,334
|
|
|
1,364
|
|
|
1,532
|
|
|||
Research and development expenses
(a)
|
|
382
|
|
|
376
|
|
|
364
|
|
|||
Amortization of intangible assets
|
|
91
|
|
|
85
|
|
|
61
|
|
|||
Restructuring charges and certain acquisition-related costs
|
|
19
|
|
|
5
|
|
|
320
|
|
|||
Interest expense, net of capitalized interest
|
|
175
|
|
|
166
|
|
|
124
|
|
|||
Other (income)/deductions––net
|
|
6
|
|
|
(2
|
)
|
|
81
|
|
|||
Income before provision for taxes on income
|
|
1,525
|
|
|
1,228
|
|
|
545
|
|
|||
Provision for taxes on income
|
|
663
|
|
|
409
|
|
|
206
|
|
|||
Net income before allocation to noncontrolling interests
|
|
862
|
|
|
819
|
|
|
339
|
|
|||
Less: Net loss attributable to noncontrolling interests
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|||
Net income attributable to Zoetis
|
|
$
|
864
|
|
|
$
|
821
|
|
|
$
|
339
|
|
Earnings per share attributable to Zoetis Inc. stockholders:
|
|
|
|
|
|
|
||||||
Basic
|
|
$
|
1.76
|
|
|
$
|
1.66
|
|
|
$
|
0.68
|
|
Diluted
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
||||||
Basic
|
|
489.918
|
|
|
495.715
|
|
|
499.707
|
|
|||
Diluted
|
|
493.161
|
|
|
498.225
|
|
|
502.019
|
|
|||
Dividends declared per common share
|
|
$
|
0.441
|
|
|
$
|
0.390
|
|
|
$
|
0.344
|
|
(a)
|
Exclusive of amortization of intangible assets, except as disclosed in
Note 3. Significant Accounting Policies—Amortization of Intangible Assets, Depreciation and Certain Long-Lived Assets.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Net income before allocation to noncontrolling interests
|
|
$
|
862
|
|
|
$
|
819
|
|
|
$
|
339
|
|
Other comprehensive income/(loss), net of tax and reclassification adjustments:
|
|
|
|
|
|
|
||||||
Unrealized (loss)/gain on derivatives, net
(a)
|
|
(11
|
)
|
|
10
|
|
|
(2
|
)
|
|||
Foreign currency translation adjustments, net
|
|
98
|
|
|
17
|
|
|
(269
|
)
|
|||
Benefit plans: Actuarial gain/(loss), net
(a)
|
|
8
|
|
|
(6
|
)
|
|
9
|
|
|||
Total other comprehensive income/(loss), net of tax
|
|
95
|
|
|
21
|
|
|
(262
|
)
|
|||
Comprehensive income before allocation to noncontrolling interests
|
|
957
|
|
|
840
|
|
|
77
|
|
|||
Comprehensive loss attributable to noncontrolling interests
|
|
—
|
|
|
(3
|
)
|
|
(1
|
)
|
|||
Comprehensive income attributable to Zoetis
|
|
$
|
957
|
|
|
$
|
843
|
|
|
$
|
78
|
|
(a)
|
Presented net of reclassification adjustments and tax impacts, which are not significant in any period presented. Reclassification adjustments related to benefit plans are generally reclassified, as part of net periodic pension cost, into
Cost of sales, Selling, general and administrative expenses,
and/or
Research and development expenses,
as appropriate, in the consolidated statements of income.
|
|
|
December 31,
|
|
|
December 31,
|
|
||
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
|
|
2017
|
|
|
2016
|
|
||
Assets
|
|
|
|
|
||||
Cash and cash equivalents
(a)
|
|
$
|
1,564
|
|
|
$
|
727
|
|
Accounts receivable, less allowance for doubtful accounts of $25 in 2017 and $30 in 2016
|
|
998
|
|
|
913
|
|
||
Inventories
|
|
1,427
|
|
|
1,502
|
|
||
Other current assets
|
|
228
|
|
|
248
|
|
||
Total current assets
|
|
4,217
|
|
|
3,390
|
|
||
Property, plant and equipment, less accumulated depreciation of $1,471 in 2017 and $1,358 in 2016
|
|
1,435
|
|
|
1,381
|
|
||
Goodwill
|
|
1,510
|
|
|
1,481
|
|
||
Identifiable intangible assets, less accumulated amortization
|
|
1,269
|
|
|
1,228
|
|
||
Noncurrent deferred tax assets
|
|
80
|
|
|
96
|
|
||
Other noncurrent assets
|
|
75
|
|
|
73
|
|
||
Total assets
|
|
$
|
8,586
|
|
|
$
|
7,649
|
|
|
|
|
|
|
||||
Liabilities and Equity
|
|
|
|
|
||||
Accounts payable
|
|
$
|
261
|
|
|
$
|
265
|
|
Dividends payable
|
|
61
|
|
|
52
|
|
||
Accrued expenses
|
|
432
|
|
|
464
|
|
||
Accrued compensation and related items
|
|
236
|
|
|
224
|
|
||
Income taxes payable
|
|
60
|
|
|
71
|
|
||
Other current liabilities
|
|
44
|
|
|
41
|
|
||
Total current liabilities
|
|
1,094
|
|
|
1,117
|
|
||
Long-term debt, net of discount and issuance costs
|
|
4,953
|
|
|
4,468
|
|
||
Noncurrent deferred tax liabilities
|
|
380
|
|
|
244
|
|
||
Other taxes payable
|
|
172
|
|
|
73
|
|
||
Other noncurrent liabilities
|
|
201
|
|
|
248
|
|
||
Total liabilities
|
|
6,800
|
|
|
6,150
|
|
||
Commitments and contingencies
(Note 17)
|
|
|
|
|
||||
Stockholders' equity:
|
|
|
|
|
||||
Preferred stock, $0.01 par value; 1,000,000,000 authorized, none issued
|
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value: 6,000,000,000 authorized, 501,891,243 and 501,891,243 shares issued;
486,130,461 and 492,855,297 shares outstanding at December 31, 2017 and 2016, respectively
|
|
5
|
|
|
5
|
|
||
Treasury stock, at cost, 15,760,782 and 9,035,946 shares of common stock at December 31, 2017 and 2016, respectively
|
|
(852
|
)
|
|
(421
|
)
|
||
Additional paid-in capital
|
|
1,013
|
|
|
1,024
|
|
||
Retained earnings
|
|
2,109
|
|
|
1,477
|
|
||
Accumulated other comprehensive loss
|
|
(505
|
)
|
|
(598
|
)
|
||
Total Zoetis Inc. equity
|
|
1,770
|
|
|
1,487
|
|
||
Equity attributable to noncontrolling interests
|
|
16
|
|
|
12
|
|
||
Total equity
|
|
1,786
|
|
|
1,499
|
|
||
Total liabilities and equity
|
|
$
|
8,586
|
|
|
$
|
7,649
|
|
(a)
|
As of
December 31, 2017
, includes
$6 million
of restricted cash.
|
|
|
Zoetis
|
|
|
|
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Equity
|
|
|
|
||||||||||||
|
|
|
|
|
|
Additional
|
|
|
|
|
Other
|
|
|
Attributable to
|
|
|
|
|||||||||||
|
|
Common
|
|
|
Treasury
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|||||||
(MILLIONS OF DOLLARS)
|
|
Stock
(a)
|
|
|
Stock
(a)
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Interests
|
|
|
Equity
|
|
|||||||
Balance, December 31, 2014
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
958
|
|
|
$
|
709
|
|
|
$
|
(361
|
)
|
|
$
|
26
|
|
|
$
|
1,337
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
339
|
|
|
—
|
|
|
—
|
|
|
339
|
|
|||||||
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(261
|
)
|
|
(1
|
)
|
|
(262
|
)
|
|||||||
Share-based compensation awards
(b)
|
|
—
|
|
|
(4
|
)
|
|
51
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|||||||
Treasury stock acquired
(c)
|
|
—
|
|
|
(199
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(199
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.
(d)
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||
Dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
(2
|
)
|
|
(174
|
)
|
|||||||
Balance, December 31, 2015
|
|
$
|
5
|
|
|
$
|
(203
|
)
|
|
$
|
1,012
|
|
|
$
|
876
|
|
|
$
|
(622
|
)
|
|
$
|
23
|
|
|
$
|
1,091
|
|
Net income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
821
|
|
|
—
|
|
|
(2
|
)
|
|
819
|
|
|||||||
Other comprehensive income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
(1
|
)
|
|
21
|
|
|||||||
Share-based compensation awards
(b)
|
|
—
|
|
|
82
|
|
|
9
|
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
|
64
|
|
|||||||
Treasury stock acquired
(c)
|
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.
(d)
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||
Divestitures
(e)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
(8
|
)
|
|
(6
|
)
|
|||||||
Dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(193
|
)
|
|
—
|
|
|
—
|
|
|
(193
|
)
|
|||||||
Balance, December 31, 2016
|
|
$
|
5
|
|
|
$
|
(421
|
)
|
|
$
|
1,024
|
|
|
$
|
1,477
|
|
|
$
|
(598
|
)
|
|
$
|
12
|
|
|
$
|
1,499
|
|
Net income/(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
864
|
|
|
—
|
|
|
(2
|
)
|
|
862
|
|
|||||||
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
2
|
|
|
95
|
|
|||||||
Consolidation of a noncontrolling interest
(f)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
18
|
|
|||||||
Purchase of shares from noncontrolling interest
(g)
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
(43
|
)
|
|||||||
Share-based compensation awards
(b)
|
|
—
|
|
|
69
|
|
|
15
|
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
68
|
|
|||||||
Treasury stock acquired
(c)
|
|
—
|
|
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|||||||
Employee benefit plan contribution from Pfizer Inc.
(d)
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||||
Dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
|
—
|
|
|
—
|
|
|
(216
|
)
|
|||||||
Balance, December 31, 2017
|
|
$
|
5
|
|
|
$
|
(852
|
)
|
|
$
|
1,013
|
|
|
$
|
2,109
|
|
|
$
|
(505
|
)
|
|
$
|
16
|
|
|
$
|
1,786
|
|
(a)
|
As of
December 31, 2017
and
2016
, respectively, there were
486,130,461
and
492,855,297
outstanding shares of common stock and
15,760,782
and
9,035,946
shares or treasury stock. Treasury stock is recognized at the cost to reacquire the shares. For additional information, see
Note 15. Stockholders' Equity
.
|
(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. Upon reissuance of treasury stock, differences between the proceeds from reissuance and the cost of the treasury stock that result in gains are recorded in
Additional paid-in capital
. Losses are recorded in
Additional paid-in capital
to the extent that they can offset previously recorded gains. If no such credit exists, the differences are recorded in
Retained earnings
. 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 14. Share-Based Payments
and
Note 15. Stockholders' Equity.
|
(c)
|
Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see
Note 15. 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
Note 13. Benefit Plans.
|
(e)
|
Reflects the divestiture of our share of our Taiwan joint venture. See
Note 4B. Acquisitions and Divestitures: Divestitures.
|
(f)
|
Represents the consolidation of a European livestock monitoring company, a variable interest entity of which Zoetis is the primary beneficiary.
|
(g)
|
Represents the acquisition of the remaining 55 percent noncontrolling interest in Jilin Zoetis Guoyuan Animal Health Co., Ltd., a variable interest entity previously consolidated by Zoetis as the primary beneficiary.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Operating Activities
|
|
|
|
|
|
|
||||||
Net income before allocation to noncontrolling interests
|
|
$
|
862
|
|
|
$
|
819
|
|
|
$
|
339
|
|
Adjustments to reconcile net income before noncontrolling interests to net cash
|
|
|
|
|
|
|
||||||
provided by operating activities:
|
|
|
|
|
|
|
||||||
Depreciation and amortization expense
|
|
242
|
|
|
240
|
|
|
199
|
|
|||
Share-based compensation expense
|
|
44
|
|
|
37
|
|
|
43
|
|
|||
Restructuring
|
|
19
|
|
|
5
|
|
|
203
|
|
|||
Asset write-offs and asset impairments
|
|
3
|
|
|
5
|
|
|
60
|
|
|||
Loss/(gain) on sales of assets
|
|
11
|
|
|
(26
|
)
|
|
—
|
|
|||
Provision for losses on inventory
|
|
54
|
|
|
105
|
|
|
94
|
|
|||
Deferred taxes
|
|
127
|
|
|
(55
|
)
|
|
(85
|
)
|
|||
Foreign currency loss related to Venezuela Revaluation, excluding impact on cash
|
|
—
|
|
|
—
|
|
|
6
|
|
|||
Employee benefit plan contribution from Pfizer Inc.
|
|
3
|
|
|
3
|
|
|
3
|
|
|||
Other non-cash adjustments
|
|
10
|
|
|
19
|
|
|
10
|
|
|||
Other changes in assets and liabilities, net of acquisitions and divestitures and transfers with Pfizer Inc.
|
|
|
|
|
|
|
||||||
Accounts receivable
|
|
(50
|
)
|
|
15
|
|
|
(58
|
)
|
|||
Inventories
|
|
19
|
|
|
(101
|
)
|
|
(262
|
)
|
|||
Other assets
|
|
(16
|
)
|
|
(50
|
)
|
|
(9
|
)
|
|||
Accounts payable
|
|
(10
|
)
|
|
(28
|
)
|
|
17
|
|
|||
Other liabilities
|
|
(57
|
)
|
|
(295
|
)
|
|
70
|
|
|||
Other tax accounts, net
|
|
85
|
|
|
20
|
|
|
34
|
|
|||
Net cash provided by operating activities
|
|
1,346
|
|
|
713
|
|
|
664
|
|
|||
Investing Activities
|
|
|
|
|
|
|
||||||
Capital expenditures
|
|
(224
|
)
|
|
(216
|
)
|
|
(224
|
)
|
|||
Acquisitions
|
|
(82
|
)
|
|
(88
|
)
|
|
(883
|
)
|
|||
Net proceeds from sales of assets
|
|
37
|
|
|
90
|
|
|
2
|
|
|||
Other investing activities
|
|
(1
|
)
|
|
—
|
|
|
(10
|
)
|
|||
Net cash used in investing activities
|
|
(270
|
)
|
|
(214
|
)
|
|
(1,115
|
)
|
|||
Financing Activities
|
|
|
|
|
|
|
||||||
Decrease in short-term borrowings, net
|
|
—
|
|
|
(5
|
)
|
|
(2
|
)
|
|||
Principal payments on long-term debt
|
|
(750
|
)
|
|
(400
|
)
|
|
—
|
|
|||
Proceeds from issuance of long-term debt—senior notes, net of discount and fees
|
|
1,231
|
|
|
—
|
|
|
1,236
|
|
|||
Payment of contingent consideration related to previously acquired assets
|
|
(7
|
)
|
|
(32
|
)
|
|
—
|
|
|||
Share-based compensation-related proceeds, net of taxes paid on withholding shares and excess tax benefits
(a)
|
|
24
|
|
|
25
|
|
|
11
|
|
|||
Purchases of treasury stock
(b)
|
|
(500
|
)
|
|
(300
|
)
|
|
(203
|
)
|
|||
Cash dividends paid
|
|
(206
|
)
|
|
(188
|
)
|
|
(168
|
)
|
|||
Cash paid to settle Pharmaq debt
|
|
—
|
|
|
—
|
|
|
(119
|
)
|
|||
Acquisition of noncontrolling interest
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
|||
Payment of debt issuance costs
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|||
Net cash (used in)/provided by financing activities
|
|
(251
|
)
|
|
(903
|
)
|
|
755
|
|
|||
Effect of exchange-rate changes on cash and cash equivalents
|
|
12
|
|
|
(23
|
)
|
|
(32
|
)
|
|||
Net increase/(decrease) in cash and cash equivalents
|
|
837
|
|
|
(427
|
)
|
|
272
|
|
|||
Cash and cash equivalents at beginning of period
|
|
727
|
|
|
1,154
|
|
|
882
|
|
|||
Cash and cash equivalents at end of period
|
|
$
|
1,564
|
|
|
$
|
727
|
|
|
$
|
1,154
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
|
||||||
Income taxes
|
|
$
|
455
|
|
|
$
|
408
|
|
|
$
|
224
|
|
Interest, net of capitalized interest
|
|
167
|
|
|
165
|
|
|
117
|
|
|||
Non-cash transactions:
|
|
|
|
|
|
|
||||||
Capital expenditures
|
|
$
|
5
|
|
|
8
|
|
|
11
|
|
||
Contingent purchase price consideration
(c)
|
|
29
|
|
|
27
|
|
|
23
|
|
|||
Dividends declared, not paid
|
|
61
|
|
|
52
|
|
|
47
|
|
(a)
|
Effective 2016, excess tax benefits are reflected within operating activities. See
Note 3. Significant Accounting Policies
for additional information
.
|
(b)
|
Reflects the acquisition of treasury shares in connection with the share repurchase program. For additional information, see
Note 15. Stockholders' Equity
.
|
(c)
|
For 2016, relates primarily to the non-cash portion of the acquisition of a livestock business in South America and a veterinary diagnostics business in Denmark. For 2015, relates primarily to the non-cash portion of the acquisition of certain assets of Abbott Animal Health.
|
2.
|
Basis of Presentation
|
•
|
Goodwill
—goodwill represents the excess of the consideration transferred for an acquired business over the assigned values of its net assets. Goodwill is not amortized.
|
•
|
Identifiable intangible assets, less accumulated amortization
—these acquired assets are recorded at our cost. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Identifiable intangible assets with indefinite lives that are associated with marketed products are not amortized until a useful life can be determined. Identifiable intangible assets associated with IPR&D projects are not amortized until regulatory approval is obtained. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.
|
•
|
Property, plant and equipment, less accumulated depreciation
––these assets are recorded at our cost and are increased by the cost of any significant improvements after purchase. Property, plant and equipment assets, other than land and construction-in-progress, are depreciated on a straight-line basis over the estimated useful life of the individual assets. Depreciation begins when the asset is ready for its intended use. For tax purposes, accelerated depreciation methods are used as allowed by tax laws.
|
•
|
For finite-lived identifiable intangible assets, such as developed technology rights, and for other long-lived assets, such as property, plant and equipment, whenever impairment indicators are present, we calculate the undiscounted value of the projected cash flows associated with the asset, or asset group, and compare this estimated amount to the carrying amount. If the carrying amount is found to be greater, we record an impairment loss for the excess of book value over fair value. In addition, in all cases of an impairment review, we re-evaluate the remaining useful lives of the assets and modify them, as appropriate.
|
•
|
For indefinite-lived identifiable intangible assets, such as brands and IPR&D assets, we test for impairment at least annually, or more frequently if impairment indicators exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If we conclude it is more likely than not that the fair value is less than the carrying amount, a quantitative test that compares the fair value of the indefinite-lived intangible asset with its carrying value is performed. If the fair value is less than the carrying amount, an impairment loss is recognized. We record an impairment loss, if any, for the excess of book value over fair value. In addition, in all cases of an impairment review other than for IPR&D assets, we re-evaluate whether continuing to characterize the asset as indefinite-lived is appropriate.
|
•
|
For goodwill, we test for impairment on at least an annual basis, or more frequently if impairment indicators exist, either by assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or by performing a quantitative assessment. If we choose to perform a qualitative analysis and conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value test is performed. We determine the implied fair value of goodwill by subtracting the fair value of all the identifiable net assets other than goodwill from the fair value of the reporting unit and record an impairment loss for the excess, if any, of book value of goodwill over the implied fair value. In 2017, we performed both qualitative and select quantitative impairment assessments as of October 1, 2017, which did not result in the impairment of goodwill associated with any of our reporting units. In 2016, we qualitatively assessed, as of October 2, 2016, whether it is more likely than not that the respective fair values of our reporting units are less than their carrying amounts, including goodwill. Based on that assessment, we determined that this condition does not exist for any of our reporting units and therefore concluded that a quantitative fair value test was not required and no impairments were recorded.
|
•
|
Income approach, which is based on the present value of a future stream of net cash flows.
|
•
|
Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.
|
•
|
Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence.
|
•
|
Quoted prices for identical assets or liabilities in active markets (Level 1 inputs).
|
•
|
Quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable (Level 2 inputs).
|
•
|
Unobservable inputs that reflect estimates and assumptions (Level 3 inputs).
|
A.
|
Acquisitions
|
B.
|
Divestitures
|
5.
|
Restructuring Charges and Other Costs Associated with Acquisitions and Cost-Reduction/Productivity Initiatives
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Restructuring charges/(reversals) and certain acquisition-related costs:
|
|
|
|
|
|
|
||||||
Integration costs
(a)
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
10
|
|
Transaction costs
(b)
|
|
—
|
|
|
—
|
|
|
9
|
|
|||
Restructuring charges/(reversals)
(c)(d)
:
|
|
|
|
|
|
|
||||||
Employee termination costs/(reversals)
|
|
10
|
|
|
(2
|
)
|
|
262
|
|
|||
Asset impairment charges
|
|
—
|
|
|
—
|
|
|
39
|
|
|||
Exit costs
|
|
3
|
|
|
4
|
|
|
—
|
|
|||
Total
Restructuring charges and certain acquisition-related costs
|
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
320
|
|
(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)
|
Transaction costs represent external costs directly related to acquiring businesses and primarily include expenditures for banking, legal, accounting and other similar services.
|
(c)
|
The restructuring charges for the year ended December 31, 2017, are primarily related to:
|
•
|
a net increase in employee termination costs of
$2 million
related to the operational efficiency initiative and supply network strategy;
|
•
|
employee termination costs of
$4 million
related to the acquisition of an Irish biologic therapeutics company in the third quarter of 2017, and
|
•
|
employee termination costs of
$4 million
in Europe, as a result of initiatives to better align our organizational structure.
|
|
The restructuring charges/(reversals) for the years ended December 31,
2016
and
2015
primarily relate to our operational efficiency initiative and supply network strategy.
|
(d)
|
The restructuring charges/(reversals) are associated with the following:
|
•
|
For the year ended
December 31, 2017
, International of
$2 million
and Manufacturing/research/corporate of
$11 million
.
|
•
|
For the year ended
December 31, 2016
, U.S. of
$1 million
, International of a
$13 million
reversal and Manufacturing/research/corporate of
$14 million
.
|
•
|
For the year ended
December 31, 2015
, U.S. of
$31 million
, International of
$132 million
and Manufacturing/research/corporate of
$138 million
.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Restructuring charges/(reversals) and certain acquisition-related costs:
|
|
|
|
|
|
|
||||||
Operational efficiency initiative
|
|
|
|
|
|
|
||||||
Employee termination costs
(a)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
253
|
|
Asset impairment
|
|
—
|
|
|
—
|
|
|
38
|
|
|||
Exit costs
|
|
3
|
|
|
5
|
|
|
—
|
|
|||
|
|
4
|
|
|
(3
|
)
|
|
291
|
|
|||
Supply network strategy:
|
|
|
|
|
|
|
||||||
Employee termination costs
|
|
1
|
|
|
6
|
|
|
9
|
|
|||
Asset impairment charges
|
|
—
|
|
|
—
|
|
|
1
|
|
|||
|
|
1
|
|
|
6
|
|
|
10
|
|
|||
|
|
|
|
|
|
|
||||||
Total restructuring charges related to the operational efficiency initiative and supply network strategy
|
|
5
|
|
|
3
|
|
|
301
|
|
|||
|
|
|
|
|
|
|
||||||
Other operational efficiency initiative charges:
|
|
|
|
|
|
|
||||||
Cost of sales:
|
|
|
|
|
|
|
||||||
Inventory write-offs
|
|
(2
|
)
|
|
5
|
|
|
13
|
|
|||
Selling, general and administrative expenses:
|
|
|
|
|
|
|
||||||
Accelerated depreciation
|
|
—
|
|
|
1
|
|
|
—
|
|
|||
Consulting fees
|
|
2
|
|
|
14
|
|
|
40
|
|
|||
Research and development expenses:
|
|
|
|
|
|
|
||||||
Accelerated depreciation
|
|
—
|
|
|
—
|
|
|
2
|
|
|||
Other (income)/deductions:
|
|
|
|
|
|
|
||||||
Net loss/(gain) on sale of assets
(b)
|
|
1
|
|
|
(26
|
)
|
|
—
|
|
|||
Total other operational efficiency initiative charges
|
|
1
|
|
|
(6
|
)
|
|
55
|
|
|||
|
|
|
|
|
|
|
||||||
Other supply network strategy charges:
|
|
|
|
|
|
|
||||||
Cost of sales:
|
|
|
|
|
|
|
||||||
Accelerated depreciation
|
|
2
|
|
|
6
|
|
|
1
|
|
|||
Consulting fees
|
|
5
|
|
|
6
|
|
|
16
|
|
|||
Inventory write-offs
|
|
—
|
|
|
1
|
|
|
|
||||
Other
(c)
|
|
(2
|
)
|
|
—
|
|
|
|
||||
Other (income)/deductions—net:
|
|
|
|
|
|
|
||||||
Net loss on sale of assets
(d)
|
|
9
|
|
|
—
|
|
|
|
||||
Total other supply network strategy charges
|
|
14
|
|
|
13
|
|
|
17
|
|
|||
|
|
|
|
|
|
|
||||||
Total costs associated with the operational efficiency initiative and supply network strategy
|
|
$
|
20
|
|
|
$
|
10
|
|
|
$
|
373
|
|
(a)
|
For the year ended December 31, 2016, includes a reduction in employee termination accruals primarily as a result of higher than expected voluntary attrition rates experienced in the first half of 2016.
|
(b)
|
For the year ended December 31, 2016, represents the net gain on the sale of certain manufacturing sites and products, partially offset by the loss on the sale of our share of our Taiwan joint venture, as part of our operational efficiency initiative.
|
(c)
|
For the year ended December 31, 2017, represents an adjustment related to discontinuing the depreciation of assets, located at our manufacturing site in Guarulhos, Brazil, that was sold in the fourth quarter of 2017.
|
(d)
|
For the year ended December 31, 2017, represents the net loss related to the sale our manufacturing site in Guarulhos, Brazil.
|
|
|
Employee
|
|
|
Asset
|
|
|
|
|
|
||||||
|
|
Termination
|
|
|
Impairment
|
|
|
Exit
|
|
|
|
|||||
(MILLIONS OF DOLLARS)
|
|
Costs
|
|
|
Charges
|
|
|
Costs
|
|
|
Accrual
|
|
||||
Balance, December 31, 2014
|
|
18
|
|
|
—
|
|
|
1
|
|
|
19
|
|
||||
Provision
|
|
262
|
|
|
39
|
|
|
—
|
|
|
301
|
|
||||
Utilization and other
(a)
|
|
(59
|
)
|
|
—
|
|
|
—
|
|
|
(59
|
)
|
||||
Non-cash activity
|
|
—
|
|
|
(39
|
)
|
|
—
|
|
|
(39
|
)
|
||||
Balance, December 31, 2015
|
|
221
|
|
|
—
|
|
|
1
|
|
|
222
|
|
||||
Provision/(benefit)
|
|
(2
|
)
|
|
—
|
|
|
4
|
|
|
2
|
|
||||
Utilization and other
(a)
|
|
(129
|
)
|
|
—
|
|
|
(5
|
)
|
|
(134
|
)
|
||||
Balance, December 31, 2016
(b)
|
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
90
|
|
Provision
|
|
10
|
|
|
—
|
|
|
3
|
|
|
13
|
|
||||
Utilization and other
(a)
|
|
(59
|
)
|
|
—
|
|
|
(3
|
)
|
|
(62
|
)
|
||||
Balance, December 31, 2017
(b)
|
|
41
|
|
|
—
|
|
|
—
|
|
|
41
|
|
(a)
|
Includes adjustments for foreign currency translation.
|
(b)
|
At
December 31, 2017
and
2016
, included in
Accrued Expenses
(
$19 million
and
$61 million
, respectively) and
Other noncurrent liabilities
(
$22 million
and $
29 million
, respectively).
|
6.
|
Other (Income)/Deductions—Net
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Royalty-related income
(a)
|
|
$
|
(12
|
)
|
|
$
|
(30
|
)
|
|
$
|
(24
|
)
|
Identifiable intangible asset impairment charges
(b)
|
|
—
|
|
|
1
|
|
|
2
|
|
|||
Other asset impairment charges
(c)
|
|
—
|
|
|
—
|
|
|
6
|
|
|||
Net loss/(gain) on sale of assets
(d)
|
|
11
|
|
|
(26
|
)
|
|
—
|
|
|||
Certain legal and other matters, net
(e)
|
|
(8
|
)
|
|
14
|
|
|
—
|
|
|||
Foreign currency loss
(f)
|
|
29
|
|
|
49
|
|
|
13
|
|
|||
Foreign currency loss related to Venezuela revaluation
(g)
|
|
—
|
|
|
—
|
|
|
89
|
|
|||
Other, net
(h)
|
|
(14
|
)
|
|
(10
|
)
|
|
(5
|
)
|
|||
Other (income)/deductions—net
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
81
|
|
(a)
|
Includes an adjustment to our royalty income.
|
(b)
|
In 2016, the intangible asset impairment charge represents an impairment of finite-lived trademarks related to a canine pain management product. In 2015, charges include the impairment of acquired IPR&D assets related to the termination of a canine oncology project.
|
(c)
|
For 2015, represents impairment charges related to assets held by our joint venture in Taiwan, which was subsequently sold in 2016. See
Note 4B. Acquisitions and Divestitures
.
|
(d)
|
For 2017, primarily represents the net loss related to sales of certain manufacturing sites and products, including our manufacturing site in Guarulhos, Brazil, as part of our operational efficiency initiative and supply network strategy. For 2016, represents the net gain on the sale of certain manufacturing sites and products, partially offset by the loss on the sale of our share of our Taiwan joint venture, as part of our operational efficiency initiative.
|
(e)
|
In July 2014 and December 2016, we reached commercial settlements with several large poultry customers in Mexico associated with specific lots of a Zoetis poultry vaccine. Although there have been no quality or efficacy issues with the manufacturing of this vaccine, certain shipments from several lots in Mexico may have experienced an issue in storage with a third party in Mexico that could have impacted their efficacy. We issued a recall of these lots in July 2014 and the product is currently unavailable in Mexico. For 2017, includes income associated with an insurance recovery related to these commercial settlements, as well as a favorable outcome on a patent infringement settlement. For 2016, represents a charge related to the commercial settlement in Mexico for these products.
|
(f)
|
Primarily driven by costs related to hedging and exposures to certain emerging market currencies. For 2016, also includes losses related to the depreciation of the Egyptian pound in the fourth quarter of 2016.
|
(g)
|
For additional information, see
Note 7. Foreign Currency Loss Related to Venezuela Revaluation
.
|
(h)
|
Includes interest income and other miscellaneous income. For 2017, primarily includes a settlement refund and reimbursement of legal fees related to costs incurred by Pharmaq prior to the acquisition in 2015 and income associated with certain state business employment tax incentive credits. For 2016, primarily represents income associated with certain state business employment tax incentive credits, as well as interest income. For 2015, includes inventory losses sustained as result of weather damage at storage facilities in Brazil and Australia.
|
7.
|
Foreign Currency Loss Related to Venezuela Revaluation
|
8.
|
Tax Matters
|
A.
|
Taxes on Income
|
•
|
One-Time Mandatory Deemed Repatriation Tax: As a result of the enactment of the Tax Act, the company will be subject to a one-time mandatory deemed repatriation tax on accumulated non-U.S. earnings. Due to the fact that the non-U.S. subsidiaries are on a fiscal year ending November 30, this tax liability will not become a fixed obligation until 2018. The estimated impact of the Tax Act is based on a preliminary review of the new law and projected future financial results and is subject to revision based upon further analysis and interpretation of the Tax Act and to the extent that future results differ from currently available projections.
|
•
|
Reduction of U.S. Federal Corporate Tax Rate: The Tax Act reduces the corporate tax rate to
21%
, effective January 1, 2018. Consequently, we have recorded a decrease related to deferred tax assets and liabilities with a corresponding net adjustment to deferred income tax benefit for the year ended December 31, 2017. Since, as discussed herein, the company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding deferred tax remeasurement is also provisional.
|
•
|
Valuation Allowances: The company must assess whether its valuation allowance analyses are affected by various aspects of the Tax Act (e.g., one-time mandatory deemed repatriation of deferred foreign income, global intangible low-taxed income inclusions, and new categories of foreign tax credits). Since, as discussed herein, the company has recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional.
|
•
|
Global Intangible Low-Taxed Income (GILTI) Policy Election: The GILTI provisions of the Tax Act do not apply to the company until 2019 and we are still evaluating its impact. The FASB allows companies to adopt an accounting policy to either recognize deferred taxes for GILTI or treat such tax cost as a current-period expense when incurred. We have not yet determined our accounting policy because determining the impact of the GILTI provisions requires analysis of our existing legal entity structure, the reversal of our U.S. GAAP and U.S. tax basis differences in the assets and liabilities of our foreign subsidiaries, and our ability to offset any tax with foreign tax credits. As such, we have not made a policy decision regarding whether to record deferred taxes on GILTI or treat such tax cost as a current-period expense.
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
United States
|
|
$
|
897
|
|
|
$
|
723
|
|
|
$
|
469
|
|
International
|
|
628
|
|
|
505
|
|
|
76
|
|
|||
Income before provision for taxes on income
|
|
$
|
1,525
|
|
|
$
|
1,228
|
|
|
$
|
545
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
United States:
|
|
|
|
|
|
|
||||||
Current income taxes:
|
|
|
|
|
|
|
||||||
Federal
|
|
$
|
384
|
|
|
$
|
281
|
|
|
$
|
221
|
|
State and local
|
|
25
|
|
|
3
|
|
|
19
|
|
|||
Deferred income taxes:
|
|
|
|
|
|
|
||||||
Federal
|
|
113
|
|
|
(38
|
)
|
|
(63
|
)
|
|||
State and local
|
|
2
|
|
|
11
|
|
|
(15
|
)
|
|||
Total U.S. tax provision
|
|
524
|
|
|
257
|
|
|
162
|
|
|||
International:
|
|
|
|
|
|
|
||||||
Current income taxes
|
|
126
|
|
|
179
|
|
|
50
|
|
|||
Deferred income taxes
|
|
13
|
|
|
(27
|
)
|
|
(6
|
)
|
|||
Total international tax provision
|
|
139
|
|
|
152
|
|
|
44
|
|
|||
Provision for taxes on income
(a)(b)(c)
|
|
$
|
663
|
|
|
$
|
409
|
|
|
$
|
206
|
|
(a)
|
In 2017, the
Provision for taxes on income
reflects the following:
|
•
|
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from (i) operations and (ii) restructuring charges related to the operational efficiency initiative and supply network strategy, as well as repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and as a result of operating fluctuations in the normal course of business, the impact of non-deductible items and the extent and location of other income and expense items, such as restructuring charges/(benefits), asset impairments and gains and losses on asset divestitures;
|
•
|
a
$212 million
net discrete provisional tax expense recorded in the fourth quarter of 2017, related to the impact of the Tax Act enacted on December 22, 2017, including a one-time mandatory deemed repatriation tax, partially offset by a net tax benefit related to the remeasurement of the deferred tax assets and liabilities, as of the date of enactment, due to the reduction in the U.S. federal corporate tax rate;
|
•
|
U.S. tax benefit related to U.S. Research and Development Tax Credit and the U.S. Domestic Production Activities deduction;
|
•
|
a
$15 million
discrete tax benefit recorded in the fourth quarter of 2017 related to the effective settlement of certain issues with U.S. and non-U.S. tax authorities;
|
•
|
a
$9 million
discrete tax benefit recorded in 2017 related to the excess tax benefits for share-based payments;
|
•
|
a
$3 million
discrete tax benefit recorded in the first quarter of 2017 related to a remeasurement of the company’s deferred tax assets and liabilities using the tax rates expected to be in place going forward;
|
•
|
tax expense related to the changes in valuation allowances and the resolution of other tax items; and
|
•
|
tax expense related to changes in uncertain tax positions (see
D. Tax Contingencies
).
|
(b)
|
In
2016
,
the
Provision for taxes on income
reflects the following:
|
•
|
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from (i) operations and (ii) restructuring charges related to the operational efficiency initiative and supply network strategy, as well as repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and as a result of operating fluctuations in the normal course of business, the impact of non-deductible items and the extent and location of other income and expense items, such as restructuring charges/(benefits), asset impairments and gains and losses on asset divestitures;
|
•
|
U.S. tax benefit related to U.S. Research and Development Tax Credit and the U.S. Domestic Production Activities deduction;
|
•
|
a
$15 million
discrete tax benefit recorded in the fourth quarter of 2016 related to prior period tax adjustments;
|
•
|
a
$10 million
discrete tax benefit recorded in the first quarter of 2016 related to a remeasurement of deferred taxes as a result of a change in statutory tax rates;
|
•
|
a
$7 million
discrete tax benefit recorded in 2016 related to the excess tax benefits for share-based payments;
|
•
|
a
$2 million
discrete tax benefit related to a remeasurement of the company’s deferred tax assets and liabilities using the tax rates expected to be in place going forward;
|
•
|
a net tax expense of approximately
$35 million
mainly recorded in the first half of 2016 related to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium. This net charge represents the recovery of prior tax benefits for the periods 2013 through 2015 offset by the remeasurement of the company’s deferred tax assets and liabilities using the rates expected to be in place at the time of the reversal and without consideration of implementation of any future operational changes, and does not include any benefits associated with a successful appeal of the decision;
|
•
|
tax expense related to the changes in valuation allowances and the resolution of other tax items; and
|
•
|
tax expense related to changes in uncertain tax positions (see
D. Tax Contingencies
).
|
(c)
|
In
2015
, the
Provision for taxes on income
reflects the following:
|
•
|
the change in the jurisdictional mix of earnings, which includes the impact of the location of earnings from (i) operations and (ii) restructuring charges related to the operational efficiency initiative and supply network strategy, as well as repatriation costs. The jurisdictional mix of earnings can vary as a result of repatriation decisions and as a result of operating fluctuations in the normal course of business, the impact of non-deductible items and the extent and location of other income and expense items, such as restructuring charges/(benefits), asset impairments and gains and losses on asset divestitures;
|
•
|
the tax expense related to the non-deductible revaluation of the net monetary assets in Venezuela to the SIMADI exchange rate recorded in the fourth quarter of 2015;
|
•
|
tax expense related to the changes in valuation allowances and the resolution of other tax items;
|
•
|
tax expense related to changes in uncertain tax positions (see
D. Tax Contingencies
);
|
•
|
a
$9 million
discrete tax benefit recorded in the first quarter of 2015 related to a remeasurement of deferred taxes as a result of a change in tax rates;
|
•
|
a
$6 million
discrete tax benefit recorded in the second quarter of 2015 related to prior period tax adjustments; and
|
•
|
U.S. tax benefit related to U.S. Research and Development Tax Credit which was permanently extended on December 18, 2015, and the U.S. Domestic Production Activities deduction.
|
|
|
Year Ended December 31,
|
|||||||
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
U.S. statutory income tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local taxes, net of federal benefits
|
|
0.7
|
|
|
0.8
|
|
|
(1.1
|
)
|
Taxation of non-U.S. operations
(a)(b)
|
|
(3.9
|
)
|
|
(3.0
|
)
|
|
(3.2
|
)
|
Unrecognized tax benefits and tax settlements and resolution of certain tax positions
(c)
|
|
6.0
|
|
|
0.4
|
|
|
1.8
|
|
Impact of the Tax Act
(d)
|
|
7.7
|
|
|
—
|
|
|
—
|
|
Venezuela revaluation
(e)
|
|
—
|
|
|
—
|
|
|
5.6
|
|
Annulment of Belgium Excess Profit Ruling
(f)
|
|
—
|
|
|
2.9
|
|
|
—
|
|
U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction
(g)
|
|
(1.3
|
)
|
|
(1.4
|
)
|
|
(2.8
|
)
|
Stock-based compensation
(h)
|
|
(0.5
|
)
|
|
(0.5
|
)
|
|
—
|
|
Non-deductible / non-taxable items
(i)
|
|
0.5
|
|
|
0.2
|
|
|
1.3
|
|
All other—net
|
|
(0.7
|
)
|
|
(1.1
|
)
|
|
1.2
|
|
Effective tax rate
|
|
43.5
|
%
|
|
33.3
|
%
|
|
37.8
|
%
|
(a)
|
The rate impact of taxation of non-U.S. operations was a decrease to our effective tax rate in 2015 through 2017 due to (i) the jurisdictional mix of earnings as tax rates outside the United States are generally lower than the U.S. statutory income tax rate; and (ii) incentive tax rulings in Belgium and Singapore in 2015.
|
(b)
|
In all years, the impact to the rate due to increases in uncertain tax positions was more than offset by the jurisdictional mix of earnings and other U.S. tax implications of our foreign operations described in the above footnotes.
|
(c)
|
For a discussion about unrecognized tax benefits and tax settlements and resolution of certain tax positions, see
A. Taxes on Income
and
D. Tax Contingencies
.
|
(d)
|
The rate impact related to the Tax Act was an increase to our effective tax rate in 2017. This provisional net tax charge represents the amount related to the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings, partially offset by a net tax benefit related to the remeasurement of the company’s deferred tax assets and liabilities, as of the date of enactment, due to the reduction in the U.S. federal corporate tax rate.
|
(e)
|
The rate impact related to the non-deductible revaluation of the net monetary assets in Venezuela to the SIMADI exchange rate was an increase to our effective tax rate in 2015.
|
(f)
|
The rate impact related to the European Commission’s negative decision on the excess profits rulings in Belgium was an increase to our effective tax rate in 2016. This net charge represents the recovery of prior tax benefits for the periods 2013 through 2015 offset by the remeasurement of the company’s deferred tax assets and liabilities using the rates expected to be in place at the time of the reversal and without consideration of implementation of any future operational changes, and does not include any benefits associated with a successful appeal of the decision.
|
(g)
|
In all years, the decrease in the rate was due to the benefit associated with the U.S. Research and Development Tax Credit and the U.S. Domestic Production Activities deduction.
|
(h)
|
The rate impact related to the excess tax benefits for share-based payments was a decrease to our effective tax rate in 2017 and 2016.
|
(i)
|
In all years, non-deductible items include meals and entertainment expenses.
|
B.
|
Tax Matters Agreement
|
•
|
Pfizer will be responsible for any U.S. federal, state, local or foreign income taxes and any U.S. state or local non-income taxes (and any related interest, penalties or audit adjustments and including those taxes attributable to our business) reportable on a consolidated, combined or unitary return that includes Pfizer or any of its subsidiaries (and us and/or any of our subsidiaries) for any periods or portions thereof ending on or prior to December 31, 2012. We will be responsible for the portion of any such taxes for periods or portions thereof beginning on or after January 1, 2013, as would be applicable to us if we filed the relevant tax returns on a standalone basis.
|
•
|
We will be responsible for any U.S. federal, state, local or foreign income taxes and any U.S. state or local non-income taxes (and any related interest, penalties or audit adjustments) that are reportable on returns that include only us and/or any of our subsidiaries, for all tax periods whether before or after the completion of the separation from Pfizer.
|
•
|
Pfizer will be responsible for certain specified foreign taxes directly resulting from certain aspects of the separation from Pfizer.
|
C.
|
Deferred Taxes
|
|
|
As of December 31,
|
||||||
|
|
2017
|
|
|
2016
|
|
||
(MILLIONS OF DOLLARS)
|
|
Assets (Liabilities)
|
||||||
Prepaid/deferred items
|
|
$
|
54
|
|
|
$
|
52
|
|
Inventories
|
|
8
|
|
|
47
|
|
||
Intangibles
|
|
(170
|
)
|
|
(203
|
)
|
||
Property, plant and equipment
|
|
(80
|
)
|
|
(101
|
)
|
||
Employee benefits
|
|
53
|
|
|
63
|
|
||
Restructuring and other charges
|
|
4
|
|
|
9
|
|
||
Legal and product liability reserves
|
|
14
|
|
|
18
|
|
||
Net operating loss/credit carryforwards
|
|
137
|
|
|
94
|
|
||
Unremitted earnings
|
|
(148
|
)
|
|
—
|
|
||
All other
|
|
(2
|
)
|
|
(2
|
)
|
||
Subtotal
|
|
(130
|
)
|
|
(23
|
)
|
||
Valuation allowance
|
|
(170
|
)
|
|
(125
|
)
|
||
Net deferred tax liability
(a)(b)
|
|
$
|
(300
|
)
|
|
$
|
(148
|
)
|
(a)
|
The increase in the total net deferred tax liability from December 31, 2016, to December 31, 2017, is primarily attributable to the provisional liability recorded for the one-time mandatory deemed repatriation tax on the company’s undistributed non-U.S. earnings, partially offset by the remeasurement of all U.S. deferred tax assets and liabilities as of December 22, 2017, based on the provisions of the Tax Act. In addition, the increase in the total net deferred tax liability was also attributable to an increase in valuation allowances representing the amounts determined to be unrecoverable, a decrease in deferred tax assets related to inventory, and employee benefits, partially offset by an increase in deferred tax assets related to net operating loss/credit carryforwards and a decrease in deferred tax liabilities related to intangibles, and property, plant and equipment.
|
(b)
|
In
2017
, included in
Noncurrent deferred tax assets
(
$80 million
) and
Noncurrent deferred tax liabilities
(
$380 million
). In
2016
, included in
Noncurrent deferred tax assets
(
$96 million
) and
Noncurrent deferred tax liabilities
(
$244 million
).
|
D.
|
Tax Contingencies
|
•
|
Tax assets associated with uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another tax jurisdiction. These potential benefits generally result from cooperative efforts among taxing authorities, as required by tax treaties to minimize double taxation, commonly referred to as the competent authority process. The recoverability of these assets, which we believe to be more likely than not, is dependent upon the actual payment of taxes in one tax jurisdiction and, in some cases, the successful petition for recovery in another tax jurisdiction. As of
December 31, 2017
,
2016
and
2015
, we had approximately $
3 million
, $
3 million
and
$1 million
, respectively, in assets associated with uncertain tax positions recorded in
Other noncurrent assets
.
|
•
|
Tax liabilities associated with uncertain tax positions represent unrecognized tax benefits, which arise when the estimated benefit recorded in our financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. These unrecognized tax benefits relate primarily to issues common among multinational corporations. Substantially all of these unrecognized tax benefits, if recognized, would impact our effective income tax rate.
|
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Balance, January 1
|
|
$
|
(68
|
)
|
|
$
|
(61
|
)
|
|
$
|
(54
|
)
|
Increases based on tax positions taken during a prior period
(a)(b)
|
|
(4
|
)
|
|
(48
|
)
|
|
—
|
|
|||
Decreases based on tax positions taken during a prior period
(a)(c)
|
|
12
|
|
|
2
|
|
|
6
|
|
|||
Increases based on tax positions taken during the current period
(a)(d)
|
|
(107
|
)
|
|
(9
|
)
|
|
(14
|
)
|
|||
Settlements
(e)
|
|
—
|
|
|
46
|
|
|
—
|
|
|||
Lapse in statute of limitations
|
|
3
|
|
|
2
|
|
|
1
|
|
|||
Balance, December 31
(f)
|
|
$
|
(164
|
)
|
|
$
|
(68
|
)
|
|
$
|
(61
|
)
|
(a)
|
Primarily included in
Provision for taxes on income.
|
(b)
|
In 2017, the increases are primarily related to movements on prior year positions, including movements in foreign translation adjustments on prior year positions. In 2016, the increases are primarily related to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium. See
A. Taxes on Income.
|
(c)
|
In 2017, the decreases are primarily related to movements on prior year positions and effective settlement of certain issues with U.S. and non-U.S. tax authorities. In 2016, the decreases are primarily related to movements on prior year positions. In 2015, the decreases are primarily related to movements in foreign translation adjustments on prior year positions and effective settlement of certain issues with U.S. tax authorities and non-U.S. tax authorities. See
A. Taxes on Income.
|
(d)
|
In 2017, the increases are primarily related to the impact of the newly enacted Tax Act. See
A. Taxes on Income.
|
(e)
|
In 2016, the decreases are due to cash payments related to the impact of the European Commission’s negative decision on the excess profits rulings in Belgium. See
A. Taxes on Income.
|
(f)
|
In
2017
, included in
Noncurrent deferred tax assets
(
$3 million
) and
Other taxes payable
(
$161 million
). In
2016
, included in
Noncurrent deferred tax assets
(
$3 million
) and
Other taxes payable
(
$65 million
). In
2015
, included in
Noncurrent deferred tax assets
(
$6 million
) and
Other taxes payable
(
$55 million
).
|
•
|
Interest related to our unrecognized tax benefits is recorded in accordance with the laws of each jurisdiction and is recorded in
Provision for taxes on income
in our consolidated statements of income. In
2017
, we recorded a net interest expense of $
1 million
; in
2016
, we recorded
|
9.
|
Financial Instruments
|
A.
|
Debt
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
1.875% 2013 senior notes due 2018
|
|
—
|
|
|
750
|
|
||
3.450% 2015 senior notes due 2020
|
|
500
|
|
|
500
|
|
||
3.250% 2013 senior notes due 2023
|
|
1,350
|
|
|
1,350
|
|
||
4.500% 2015 senior notes due 2025
|
|
750
|
|
|
750
|
|
||
3.000% 2017 senior notes due 2027
|
|
750
|
|
|
—
|
|
||
4.700% 2013 senior notes due 2043
|
|
1,150
|
|
|
1,150
|
|
||
3.950% 2017 senior notes due 2047
|
|
500
|
|
|
—
|
|
||
|
|
5,000
|
|
|
4,500
|
|
||
Unamortized debt discount / debt issuance costs
|
|
(47
|
)
|
|
(32
|
)
|
||
Less current portion of long-term debt
|
|
—
|
|
|
—
|
|
||
Long-term debt, net of discount and issuance costs
|
|
$
|
4,953
|
|
|
$
|
4,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2022
|
|
|
Total
|
|
|||||||
Maturities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,500
|
|
|
$
|
5,000
|
|
B.
|
Derivative Financial Instruments
|
|
|
|
|
Fair Value of Derivatives
|
||||||
|
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
Balance Sheet Location
|
|
2017
|
|
|
2016
|
|
||
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
||||
Foreign currency forward-exchange contracts
|
|
Other current assets
|
|
$
|
10
|
|
|
$
|
12
|
|
Foreign currency forward-exchange contracts
|
|
Other current liabilities
|
|
(9
|
)
|
|
(8
|
)
|
||
Total derivatives not designated as hedging instruments
|
|
|
|
1
|
|
|
4
|
|
||
|
|
|
|
|
|
|
||||
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
||||
Interest rate swap contracts
|
|
Other current assets
|
|
—
|
|
|
17
|
|
||
Total derivatives designated as hedging instruments
|
|
|
|
—
|
|
|
17
|
|
||
|
|
|
|
|
|
|
||||
Total derivatives
|
|
|
|
$
|
1
|
|
|
$
|
21
|
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Foreign currency forward-exchange contracts
|
|
$
|
(33
|
)
|
|
$
|
(24
|
)
|
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Interest rate swaps
|
|
$
|
(11
|
)
|
|
$
|
10
|
|
10.
|
Inventories
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Finished goods
|
|
$
|
788
|
|
|
$
|
799
|
|
Work-in-process
|
|
484
|
|
|
499
|
|
||
Raw materials and supplies
|
|
155
|
|
|
204
|
|
||
Inventories
|
|
$
|
1,427
|
|
|
$
|
1,502
|
|
|
|
Useful Lives
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
(Years)
|
|
2017
|
|
|
2016
|
|
||
Land
|
|
—
|
|
$
|
22
|
|
|
$
|
22
|
|
Buildings
|
|
33
1
/
3
- 50
|
|
934
|
|
|
923
|
|
||
Machinery, equipment and fixtures
|
|
3 - 20
|
|
1,696
|
|
|
1,582
|
|
||
Construction-in-progress
|
|
—
|
|
254
|
|
|
212
|
|
||
|
|
|
2,906
|
|
|
2,739
|
|
|||
Less: Accumulated depreciation
|
|
|
1,471
|
|
|
1,358
|
|
|||
Property, plant and equipment
|
|
|
$
|
1,435
|
|
|
$
|
1,381
|
|
12.
|
Goodwill and Other Intangible Assets
|
A.
|
Goodwill
|
(MILLIONS OF DOLLARS)
|
|
U.S.
|
|
|
International
|
|
|
Total
|
|
|||
Balance, December 31, 2015
|
|
$
|
665
|
|
|
$
|
790
|
|
|
$
|
1,455
|
|
Additions / Adjustments
(a)
|
|
(4
|
)
|
|
20
|
|
|
16
|
|
|||
Other
(b)
|
|
—
|
|
|
10
|
|
|
10
|
|
|||
Balance, December 31, 2016
|
|
$
|
661
|
|
|
$
|
820
|
|
|
$
|
1,481
|
|
Additions / Adjustments
(a)
|
|
10
|
|
|
7
|
|
|
17
|
|
|||
Other
(b)
|
|
—
|
|
|
12
|
|
|
12
|
|
|||
Balance, December 31, 2017
|
|
$
|
671
|
|
|
$
|
839
|
|
|
$
|
1,510
|
|
(a)
|
For 2017, primarily represents
$9 million
related to the acquisition of an Irish biologic therapeutics company in the third quarter of 2017, as well as
$10 million
related to the consolidation of a European livestock monitoring company, a variable interest entity of which Zoetis is the primary beneficiary, in the first quarter of 2017, partially offset by a
$2 million
reduction to the consolidation of a European livestock monitoring company, in the third quarter of 2017.
|
|
For 2016, primarily includes a
$16 million
purchase price allocation associated with the acquisition of a veterinary diagnostics business in Denmark and a
$12 million
purchase price allocation associated with the acquisition of a livestock business in South America, offset by a
$13 million
reduction in the acquisition date fair value of goodwill associated with the acquisition of certain assets of Abbott Animal Health.
|
(b)
|
Includes adjustments for foreign currency translation. For 2017, also includes
$3 million
related to the sale of our manufacturing site in Guarulhos, Brazil.
|
B.
|
Other Intangible Assets
|
|
|
As of December 31, 2017
|
|
As of December 31, 2016
|
||||||||||||||||||||
|
|
|
|
|
|
Identifiable
|
|
|
|
|
|
|
Identifiable
|
|
||||||||||
|
|
Gross
|
|
|
|
|
Intangible Assets,
|
|
|
Gross
|
|
|
|
|
Intangible Assets,
|
|
||||||||
|
|
Carrying
|
|
|
Accumulated
|
|
|
Less Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Less Accumulated
|
|
||||||
(MILLIONS OF DOLLARS)
|
|
Amount
|
|
|
Amortization
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amortization
|
|
||||||
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Developed technology rights
(a)(b)
|
|
$
|
1,185
|
|
|
$
|
(428
|
)
|
|
$
|
757
|
|
|
$
|
1,064
|
|
|
$
|
(342
|
)
|
|
$
|
722
|
|
Brands
|
|
213
|
|
|
(143
|
)
|
|
70
|
|
|
213
|
|
|
(132
|
)
|
|
81
|
|
||||||
Trademarks and tradenames
|
|
62
|
|
|
(47
|
)
|
|
15
|
|
|
62
|
|
|
(44
|
)
|
|
18
|
|
||||||
Other
(c)
|
|
234
|
|
|
(143
|
)
|
|
91
|
|
|
222
|
|
|
(130
|
)
|
|
92
|
|
||||||
Total finite-lived intangible assets
|
|
1,694
|
|
|
(761
|
)
|
|
933
|
|
|
1,561
|
|
|
(648
|
)
|
|
913
|
|
||||||
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Brands
|
|
37
|
|
|
—
|
|
|
37
|
|
|
37
|
|
|
—
|
|
|
37
|
|
||||||
Trademarks and trade names
|
|
67
|
|
|
—
|
|
|
67
|
|
|
66
|
|
|
—
|
|
|
66
|
|
||||||
In-process research and development
(b)(d)
|
|
224
|
|
|
—
|
|
|
224
|
|
|
204
|
|
|
—
|
|
|
204
|
|
||||||
Product rights
|
|
8
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
—
|
|
|
8
|
|
||||||
Total indefinite-lived intangible assets
|
|
336
|
|
|
—
|
|
|
336
|
|
|
315
|
|
|
—
|
|
|
315
|
|
||||||
Identifiable intangible assets
|
|
$
|
2,030
|
|
|
$
|
(761
|
)
|
|
$
|
1,269
|
|
|
$
|
1,876
|
|
|
$
|
(648
|
)
|
|
$
|
1,228
|
|
(a)
|
Includes the consolidation of a European livestock monitoring company, a variable interest entity of which Zoetis is the primary beneficiary, and intangible assets associated with the purchase of a Norwegian fish vaccination company, both during the first quarter of 2017.
|
(b)
|
In the first quarter of 2017, certain intangible assets, acquired in 2015 as part of the Pharmaq acquisition, were placed into service. In 2016, includes the acquisition of intangible assets associated with the purchase of a veterinary diagnostics business in Denmark in the third quarter of 2016, the acquisition of intangible assets associated with the purchase of a livestock business in South America in the first quarter of 2016 and an increase in the acquisition date fair value of intangible assets associated with the acquisition of certain assets of Abbott Animal Health, as well as the impact of foreign exchange.
|
(c)
|
Includes the acquisition of land use rights in China in the fourth quarter of 2017 and the acquisition of intangible assets associated with the purchase of a veterinary diagnostics business in Denmark in the third quarter of 2016.
|
(d)
|
Includes the intangible assets related to the acquisition of an Irish biologic therapeutics company in the third quarter of 2017.
|
C.
|
Amortization
|
(MILLIONS OF DOLLARS)
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|||||
Amortization expense
|
|
$
|
100
|
|
|
$
|
97
|
|
|
$
|
94
|
|
|
$
|
93
|
|
|
$
|
84
|
|
D.
|
Impairments
|
A.
|
International Pension Plans
|
|
|
As of and for the
|
||||||
|
|
Year Ended December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Change in benefit obligation:
|
|
|
|
|
||||
Projected benefit obligation, beginning
|
|
$
|
130
|
|
|
$
|
127
|
|
Service cost
|
|
7
|
|
|
9
|
|
||
Interest cost
|
|
3
|
|
|
3
|
|
||
Plan combinations
|
|
(1
|
)
|
|
—
|
|
||
Changes in actuarial assumptions and other
|
|
(6
|
)
|
|
9
|
|
||
Settlements and curtailments
(a)
|
|
(10
|
)
|
|
(12
|
)
|
||
Benefits paid
|
|
(5
|
)
|
|
(3
|
)
|
||
Net transfer out related to divestitures
(b)
|
|
—
|
|
|
(4
|
)
|
||
Adjustments for foreign currency translation
|
|
11
|
|
|
1
|
|
||
Benefit obligation, ending
|
|
129
|
|
|
130
|
|
||
Change in plan assets:
|
|
|
|
|
||||
Fair value of plan assets, beginning
|
|
68
|
|
|
72
|
|
||
Plan combinations
|
|
(1
|
)
|
|
—
|
|
||
Actual return on plan assets
|
|
5
|
|
|
(1
|
)
|
||
Company contributions
|
|
6
|
|
|
9
|
|
||
Settlements and curtailments
(a)
|
|
(10
|
)
|
|
(6
|
)
|
||
Divestitures
(b)
|
|
—
|
|
|
(4
|
)
|
||
Adjustments for foreign currency translation
|
|
5
|
|
|
1
|
|
||
Other––net
|
|
(4
|
)
|
|
(3
|
)
|
||
Fair value of plan assets, ending
|
|
69
|
|
|
68
|
|
||
Funded status—Projected benefit obligation in excess of plan assets at end of year
(c)
|
|
$
|
(60
|
)
|
|
$
|
(62
|
)
|
(a)
|
For 2017, reflects the conversion of a defined benefit plan in Norway into a defined contribution plan. For 2016, reflects the impact of employee terminations due to our operational efficiency and supply network strategy initiatives
.
|
(b)
|
For 2016, reflects the impact of the sale of our share of our Taiwan joint venture.
|
(c)
|
Included in
Other noncurrent liabilities.
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Pension plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
||||
Fair value of plan assets
|
|
$
|
58
|
|
|
$
|
49
|
|
Accumulated benefit obligation
|
|
97
|
|
|
88
|
|
||
Pension plans with a projected benefit obligation in excess of plan assets:
|
|
|
|
|
||||
Fair value of plan assets
|
|
67
|
|
|
58
|
|
||
Projected benefit obligation
|
|
128
|
|
|
120
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Service cost
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Interest cost
|
|
3
|
|
|
3
|
|
|
3
|
|
|||
Expected return on plan assets
|
|
(3
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|||
Amortization of net (gains) / losses
|
|
1
|
|
|
1
|
|
|
1
|
|
|||
Special termination benefits
|
|
—
|
|
|
—
|
|
|
1
|
|
|||
Settlement and curtailments (gains) / losses
|
|
1
|
|
|
(2
|
)
|
|
2
|
|
|||
Net periodic benefit cost
|
|
$
|
9
|
|
|
$
|
8
|
|
|
$
|
13
|
|
|
|
As of December 31,
|
|||||||
(PERCENTAGES)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Weighted average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
|||
Discount rate
|
|
2.2
|
%
|
|
2.1
|
%
|
|
2.6
|
%
|
Rate of compensation increase
|
|
3.0
|
%
|
|
3.1
|
%
|
|
3.0
|
%
|
Weighted average assumptions used to determine net benefit cost for the year ended December 31:
|
|
|
|
|
|
|
|||
Discount rate
|
|
2.1
|
%
|
|
2.5
|
%
|
|
2.8
|
%
|
Expected return on plan assets
|
|
3.9
|
%
|
|
4.1
|
%
|
|
4.3
|
%
|
Rate of compensation increase
|
|
3.2
|
%
|
|
2.9
|
%
|
|
3.6
|
%
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
Cash and cash equivalents
|
|
$
|
1
|
|
|
$
|
1
|
|
Equity securities: Equity commingled funds
|
|
26
|
|
|
22
|
|
||
Debt securities: Government bonds
|
|
32
|
|
|
27
|
|
||
Other investments
|
|
10
|
|
|
18
|
|
||
Total
(a)
|
|
$
|
69
|
|
|
$
|
68
|
|
(a)
|
Fair values are determined based on valuation inputs categorized as Level 1, 2 or 3 (see
Note 3. Significant Accounting Policies—Fair Value
). Investment plan assets are valued using Level 1 or Level 2 inputs.
|
•
|
Equity commingled funds––observable market prices.
|
•
|
Government bonds and other investments––principally observable market prices.
|
|
|
As of December 31,
|
|||||||
|
|
Target allocation
|
|
|
|
|
|
||
|
|
percentage
|
|
|
Percentage of Plan Assets
|
||||
(PERCENTAGES)
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Cash and cash equivalents
|
|
0-10%
|
|
|
1.0
|
%
|
|
0.8
|
%
|
Equity securities
|
|
0-60%
|
|
|
41.9
|
%
|
|
35.5
|
%
|
Debt securities
|
|
0-100%
|
|
|
45.9
|
%
|
|
39.5
|
%
|
Other investments
|
|
0-100%
|
|
|
11.2
|
%
|
|
24.2
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
B.
|
Postretirement Plans
|
C.
|
Defined Contribution Plans
|
14.
|
Share-Based Payments
|
A.
|
Share-Based Compensation Expense
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Stock options / stock appreciation rights
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
20
|
|
RSUs / DSUs
|
|
26
|
|
|
22
|
|
|
21
|
|
|||
PSUs
|
|
8
|
|
|
5
|
|
|
2
|
|
|||
Share-based compensation expense—total
(a)(b)
|
|
$
|
44
|
|
|
$
|
37
|
|
|
$
|
43
|
|
Tax benefit for share-based compensation expense
|
|
(13
|
)
|
|
(10
|
)
|
|
(8
|
)
|
|||
Share-based compensation expense, net of tax
|
|
$
|
31
|
|
|
$
|
27
|
|
|
$
|
35
|
|
(a)
|
For each of the years ended
December 31, 2017
,
2016
and
2015
, we capitalized approximately
$1 million
of share-based compensation expense to inventory.
|
(b)
|
Includes additional share-based compensation expense as a result of accelerated vesting of the outstanding stock options and the settlement, on a pro-rata basis, of other equity awards of terminated employees in connection with our operational efficiency initiative and supply network strategy for the years ended December 31,
2016
and
2015
, of approximately
$1 million
and
$2 million
, respectively, which is included in
Restructuring charges/(benefits) and certain acquisition-related costs
. (See
G. Accelerated Vesting of Outstanding Equity Awards
). These amounts were de minimis in 2017.
|
B.
|
Stock Options
|
|
|
Year Ended December 31,
|
|||||||
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Expected dividend yield
(a)
|
|
0.76
|
%
|
|
0.89
|
%
|
|
0.72
|
%
|
Risk-free interest rate
(b)
|
|
2.29
|
%
|
|
1.57
|
%
|
|
1.79
|
%
|
Expected stock price volatility
(c)
|
|
23.26
|
%
|
|
26.70
|
%
|
|
23.92
|
%
|
Expected term
(d)
(years)
|
|
6.5
|
|
|
6.5
|
|
|
6.5
|
|
(a)
|
Determined using a constant dividend yield during the expected term of the Zoetis stock option.
|
(b)
|
Determined using the interpolated yield on U.S. Treasury zero-coupon issues.
|
(c)
|
Determined using an equal weighting between historical volatility of the Zoetis stock price and implied volatility. The selection of the blended historical and implied volatility approach was based on our assessment that this calculation of expected volatility is more representative of future stock price trends.
|
(d)
|
Determined using expected exercise and post-vesting termination patterns.
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|||||
|
|
|
|
Weighted-Average
|
|
|
Remaining
|
|
Aggregate
|
|
|||
|
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
Intrinsic Value
(a)
|
|
|||
|
|
Shares
|
|
|
Per Share
|
|
|
(Years)
|
|
(MILLIONS)
|
|
||
Outstanding, December 31, 2016
|
|
5,370,784
|
|
|
$
|
33.23
|
|
|
|
|
|
||
Granted
|
|
718,278
|
|
|
55.17
|
|
|
|
|
|
|||
Exercised
|
|
(1,151,726
|
)
|
|
30.18
|
|
|
|
|
|
|||
Forfeited
|
|
(31,452
|
)
|
|
42.05
|
|
|
|
|
|
|||
Outstanding, December 31, 2017
|
|
4,905,884
|
|
|
$
|
37.10
|
|
|
6.8
|
|
$
|
171
|
|
Exercisable, December 31, 2017
|
|
2,742,526
|
|
|
$
|
28.73
|
|
|
5.7
|
|
$
|
119
|
|
(a)
|
Market price of underlying Zoetis common stock less exercise price.
|
|
|
Year Ended/As of December 31,
|
||||||||||
(MILLIONS OF DOLLARS, EXCEPT PER STOCK OPTION AMOUNTS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Weighted-average grant date fair value per stock option
|
|
$
|
14.31
|
|
|
$
|
11.34
|
|
|
$
|
11.70
|
|
Aggregate intrinsic value on exercise
|
|
32
|
|
|
23
|
|
|
5
|
|
|||
Cash received upon exercise
|
|
35
|
|
|
36
|
|
|
9
|
|
|||
Tax benefits realized related to exercise
|
|
16
|
|
|
15
|
|
|
2
|
|
C.
|
Restricted Stock Units (RSUs)
|
|
|
|
|
Weighted-Average
|
|
||
|
|
|
|
Grant Date Fair Value
|
|
||
|
|
Shares
|
|
|
Per Share
|
|
|
Nonvested, December 31, 2016
|
|
1,792,988
|
|
|
$
|
39.86
|
|
Granted
|
|
538,604
|
|
|
55.18
|
|
|
Vested
|
|
(600,177
|
)
|
|
31.94
|
|
|
Reinvested dividend equivalents
|
|
12,310
|
|
|
45.18
|
|
|
Forfeited
|
|
(82,225
|
)
|
|
45.45
|
|
|
Nonvested, December 31, 2017
|
|
1,661,500
|
|
|
$
|
47.45
|
|
D.
|
Deferred Stock Units (DSUs)
|
E.
|
Performance-Vesting Restricted Stock Units (PSUs)
|
|
|
|
|
Weighted-Average
|
|
||
|
|
|
|
Grant Date Fair Value
|
|
||
|
|
Shares
|
|
|
Per Share
|
|
|
Nonvested, December 31, 2016
|
|
289,889
|
|
|
$
|
55.29
|
|
Granted
|
|
136,964
|
|
|
74.28
|
|
|
Vested
|
|
(8,434
|
)
|
|
58.15
|
|
|
Reinvested dividend equivalents
|
|
2,812
|
|
|
60.26
|
|
|
Forfeited
|
|
(12,489
|
)
|
|
58.53
|
|
|
Nonvested, December 31, 2017
|
|
408,742
|
|
|
$
|
61.53
|
|
F.
|
Other Equity-Based or Cash-Based Awards.
|
G.
|
Accelerated Vesting of Outstanding Equity Awards
|
15.
|
Stockholders' Equity
|
(a)
|
Shares may not add due to rounding.
|
(b)
|
Includes the issuance of shares of common stock and, beginning in the first quarter of 2016, the reissuance of shares from treasury stock in connection with the vesting of employee share-based awards. Treasury stock also includes the reacquisition of shares associated with the vesting of employee share-based awards to satisfy tax withholding requirements. For additional information regarding share-based compensation, see
Note 14. Share-Based Payments
.
|
|
|
|
|
Currency Translation
|
|
|
|
|
Accumulated
|
|
||||||
|
|
Derivatives
|
|
|
Adjustment
|
|
|
Benefit Plans
|
|
|
Other
|
|
||||
|
|
Net Unrealized
|
|
|
Net Unrealized
|
|
|
Actuarial
|
|
|
Comprehensive
|
|
||||
(MILLIONS OF DOLLARS)
|
|
(Losses)/Gains
|
|
|
(Losses)/Gains
|
|
|
(Losses)/Gains
|
|
|
(Loss)/Income
|
|
||||
Balance, December 31, 2014
|
|
$
|
—
|
|
|
$
|
(336
|
)
|
|
$
|
(25
|
)
|
|
$
|
(361
|
)
|
Other comprehensive (loss)/gain, net of tax
|
|
(2
|
)
|
|
(268
|
)
|
|
9
|
|
|
(261
|
)
|
||||
Balance, December 31, 2015
|
|
(2
|
)
|
|
(604
|
)
|
|
(16
|
)
|
|
(622
|
)
|
||||
Other comprehensive gain/(loss), net of tax
|
|
10
|
|
|
19
|
|
|
(7
|
)
|
|
22
|
|
||||
Divestiture of noncontrolling interest
(a)
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||
Balance, December 31, 2016
|
|
8
|
|
|
(583
|
)
|
|
(23
|
)
|
|
(598
|
)
|
||||
Other comprehensive gain/(loss), net of tax
|
|
(11
|
)
|
|
96
|
|
|
8
|
|
|
93
|
|
||||
Balance, December 31, 2017
|
|
$
|
(3
|
)
|
|
$
|
(487
|
)
|
|
$
|
(15
|
)
|
|
$
|
(505
|
)
|
(a)
|
Reflects the divestiture of our share of our Taiwan joint venture. See
Note 4B. Acquisitions and Divestitures: Divestitures.
|
(b)
|
Reflects the acquisition of the remaining noncontrolling interest in a variable interest entity previously consolidated by Zoetis as the primary beneficiary. See
Note 4B. Acquisitions and Divestitures: Divestitures.
|
16.
|
Earnings per Share
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Numerator
|
|
|
|
|
|
|
||||||
Net income before allocation to noncontrolling interests
|
|
$
|
862
|
|
|
$
|
819
|
|
|
$
|
339
|
|
Less: net loss attributable to noncontrolling interests
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|||
Net income attributable to Zoetis Inc.
|
|
$
|
864
|
|
|
$
|
821
|
|
|
$
|
339
|
|
Denominator
|
|
|
|
|
|
|
||||||
Weighted-average common shares outstanding
|
|
489.918
|
|
|
495.715
|
|
|
499.707
|
|
|||
Common stock equivalents: stock options, RSUs, DSUs and PSUs
|
|
3.243
|
|
|
2.510
|
|
|
2.312
|
|
|||
Weighted-average common and potential dilutive shares outstanding
|
|
493.161
|
|
|
498.225
|
|
|
502.019
|
|
|||
Earnings per share attributable to Zoetis Inc. stockholders—basic
|
|
$
|
1.76
|
|
|
$
|
1.66
|
|
|
$
|
0.68
|
|
Earnings per share attributable to Zoetis Inc. stockholders—diluted
|
|
$
|
1.75
|
|
|
$
|
1.65
|
|
|
$
|
0.68
|
|
17.
|
Commitments and Contingencies
|
A.
|
Legal Proceedings
|
•
|
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 United States and in other countries.
|
B.
|
Guarantees and Indemnifications
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|||||||||||||
(MILLIONS OF DOLLARS)
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2022
|
|
|
Total
|
|
|||||||
Maturities
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
21
|
|
|
$
|
17
|
|
|
$
|
14
|
|
|
$
|
53
|
|
|
$
|
168
|
|
18.
|
Segment, Geographic and Other Revenue Information
|
A.
|
Segment Information
|
•
|
Other business activities
, includes our CSS contract manufacturing results, as well as expenses associated with our dedicated veterinary medicine research and development organization, research alliances, U.S. regulatory affairs and other operations focused on the development of our products. Other R&D-related costs associated with non-U.S. market and regulatory activities are generally included in the international commercial segment.
|
•
|
Corporate
, which is responsible for platform functions such as business technology, facilities, legal, finance, human resources, business development, and communications, among others. These costs also include compensation 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 certain costs related to becoming an independent public company, restructuring
|
•
|
Other unallocated
includes (i) certain overhead expenses associated with our global manufacturing operations not charged to our operating segments; (ii) certain costs associated with business technology and finance that specifically support our global manufacturing operations; (iii) certain supply chain and global logistics costs; and (iv) procurement costs.
|
|
|
Earnings
|
|
Depreciation and Amortization
(a)
|
||||||||||||||||||||
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
||||||||||||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
||||||
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenue
|
|
$
|
2,620
|
|
|
$
|
2,447
|
|
|
$
|
2,328
|
|
|
|
|
|
|
|
||||||
Cost of Sales
|
|
565
|
|
|
551
|
|
|
551
|
|
|
|
|
|
|
|
|||||||||
Gross Profit
|
|
2,055
|
|
|
1,896
|
|
|
1,777
|
|
|
|
|
|
|
|
|||||||||
Gross Margin
|
|
78.4
|
%
|
|
77.5
|
%
|
|
76.3
|
%
|
|
|
|
|
|
|
|||||||||
Operating Expenses
|
|
421
|
|
|
388
|
|
|
389
|
|
|
|
|
|
|
|
|||||||||
Other (income)/deductions
|
|
(3
|
)
|
|
—
|
|
|
(2
|
)
|
|
|
|
|
|
|
|||||||||
U.S. Earnings
|
|
1,637
|
|
|
1,508
|
|
|
1,390
|
|
|
$
|
29
|
|
|
$
|
27
|
|
|
$
|
24
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
International
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenue
(b)
|
|
2,643
|
|
|
2,390
|
|
|
2,386
|
|
|
|
|
|
|
|
|||||||||
Cost of Sales
|
|
889
|
|
|
833
|
|
|
873
|
|
|
|
|
|
|
|
|||||||||
Gross Profit
|
|
1,754
|
|
|
1,557
|
|
|
1,513
|
|
|
|
|
|
|
|
|||||||||
Gross Margin
|
|
66.4
|
%
|
|
65.1
|
%
|
|
63.4
|
%
|
|
|
|
|
|
|
|||||||||
Operating Expenses
|
|
515
|
|
|
501
|
|
|
570
|
|
|
|
|
|
|
|
|||||||||
Other (income)/deductions
|
|
(1
|
)
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|||||||||
International Earnings
|
|
1,240
|
|
|
1,054
|
|
|
941
|
|
|
44
|
|
|
44
|
|
|
46
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total operating segments
|
|
2,877
|
|
|
2,562
|
|
|
2,331
|
|
|
73
|
|
|
71
|
|
|
70
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Other business activities
|
|
(313
|
)
|
|
(309
|
)
|
|
(293
|
)
|
|
23
|
|
|
25
|
|
|
26
|
|
||||||
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate
|
|
(625
|
)
|
|
(684
|
)
|
|
(606
|
)
|
|
52
|
|
|
45
|
|
|
40
|
|
||||||
Purchase accounting adjustments
|
|
(88
|
)
|
|
(99
|
)
|
|
(57
|
)
|
|
88
|
|
|
84
|
|
|
53
|
|
||||||
Acquisition-related costs
|
|
(10
|
)
|
|
(4
|
)
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Certain significant items
(c)
|
|
(25
|
)
|
|
(57
|
)
|
|
(592
|
)
|
|
—
|
|
|
7
|
|
|
6
|
|
||||||
Other unallocated
|
|
(291
|
)
|
|
(181
|
)
|
|
(217
|
)
|
|
6
|
|
|
8
|
|
|
4
|
|
||||||
Total Earnings
(d)
|
|
$
|
1,525
|
|
|
$
|
1,228
|
|
|
$
|
545
|
|
|
$
|
242
|
|
|
$
|
240
|
|
|
$
|
199
|
|
(a)
|
Certain production facilities are shared. Depreciation and amortization is allocated to the reportable operating segments based on estimates of where the benefits of the related assets are realized.
|
(b)
|
Revenue denominated in euros was
$660 million
in
2017
,
$632 million
in
2016
, and
$593 million
in
2015
.
|
(c)
|
For 2017, certain significant items primarily includes: (i) charges related to our operational efficiency initiative and supply network strategy of
$20 million
; (ii) Zoetis stand-up costs of
$3 million
; (iii) employee termination costs in Europe of
$4 million
; (iv) income related to an insurance recovery from commercial settlements in Mexico recorded in 2014 and 2016 of
$5 million
; and (v) charges of
$3 million
associated with changes to our operating model. Stand-up costs include certain nonrecurring costs related to becoming an independent public company, such as new branding (including changes to the manufacturing process for required new packaging), the creation of standalone systems and infrastructure, site separation, and certain legal registration and patent assignment costs.
|
|
For 2016, certain significant items primarily includes: (i) Zoetis stand-up costs of $
23 million
; (ii) charges related to our operational efficiency initiative and supply network strategy of
$10 million
; (iii) charges related to a commercial settlement in Mexico of
$14 million
; (iv) charges of
$10 million
associated with changes to our operating model; (v) a reversal of
$1 million
related to other restructuring charges/(reversals) and cost-reduction/productivity initiatives; and (vi) an impairment of finite-lived trademarks of
$1 million
related to a canine pain management product.
|
|
For 2015, certain significant items primarily includes: (i) Zoetis stand-up costs of
$118 million
; (ii) charges related to our operational efficiency initiative and supply network strategy of
$373 million
, (iii) charges of
$93 million
of foreign currency losses related to the Venezuela revaluation; (iv) impairment charges of
$3 million
related to assets held by our joint venture in Taiwan, classified as assets held for sale in 2015 and subsequently sold in 2016, and an impairment of IPR&D assets related to the termination of a canine oncology project of
$2 million
; and (v) charges due to unusual investor-related activities of
$3 million
.
|
(d)
|
Defined as income before provision for taxes on income.
|
B.
|
Geographic Information
|
|
|
As of December 31,
|
||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
||
U.S.
|
|
$
|
1,047
|
|
|
$
|
985
|
|
International
|
|
388
|
|
|
396
|
|
||
Property, plant and equipment, less accumulated depreciation
|
|
$
|
1,435
|
|
|
$
|
1,381
|
|
C.
|
Other Revenue Information
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Livestock:
|
|
|
|
|
|
|
||||||
Cattle
|
|
$
|
1,735
|
|
|
$
|
1,653
|
|
|
$
|
1,680
|
|
Swine
|
|
621
|
|
|
602
|
|
|
668
|
|
|||
Poultry
|
|
479
|
|
|
457
|
|
|
525
|
|
|||
Fish
|
|
118
|
|
|
90
|
|
|
5
|
|
|||
Other
|
|
84
|
|
|
79
|
|
|
80
|
|
|||
|
|
3,037
|
|
|
2,881
|
|
|
2,958
|
|
|||
Companion Animal:
|
|
|
|
|
|
|
||||||
Horses
|
|
151
|
|
|
150
|
|
|
162
|
|
|||
Dogs and Cats
|
|
2,075
|
|
|
1,806
|
|
|
1,594
|
|
|||
|
|
2,226
|
|
|
1,956
|
|
|
1,756
|
|
|||
|
|
|
|
|
|
|
||||||
Contract Manufacturing
|
|
44
|
|
|
51
|
|
|
51
|
|
|||
|
|
|
|
|
|
|
||||||
Total revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
|
Year Ended December 31,
|
||||||||||
(MILLIONS OF DOLLARS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|||
Anti-infectives
|
|
$
|
1,253
|
|
|
$
|
1,255
|
|
|
$
|
1,305
|
|
Vaccines
|
|
1,373
|
|
|
1,245
|
|
|
1,149
|
|
|||
Parasiticides
|
|
763
|
|
|
659
|
|
|
651
|
|
|||
Medicated feed additives
|
|
475
|
|
|
500
|
|
|
505
|
|
|||
Other pharmaceuticals
|
|
1,181
|
|
|
988
|
|
|
910
|
|
|||
Other non-pharmaceuticals
|
|
218
|
|
|
190
|
|
|
194
|
|
|||
Contract manufacturing
|
|
44
|
|
|
51
|
|
|
51
|
|
|||
Total revenue
|
|
$
|
5,307
|
|
|
$
|
4,888
|
|
|
$
|
4,765
|
|
|
|
|
|
|
|
|
|
|
||||||||
(MILLIONS OF DOLLARS, EXCEPT PER COMMON SHARE DATA)
|
|
FIRST
|
|
|
SECOND
|
|
|
THIRD
|
|
|
FOURTH
|
|
||||
2017
|
|
|
|
|
|
|
|
|
||||||||
Revenue
|
|
$
|
1,231
|
|
|
$
|
1,269
|
|
|
$
|
1,347
|
|
|
$
|
1,460
|
|
Costs and expenses
(a)
|
|
895
|
|
|
924
|
|
|
926
|
|
|
1,018
|
|
||||
Restructuring charges/(reversals) and certain acquisition-related costs
|
|
(1
|
)
|
|
—
|
|
|
8
|
|
|
12
|
|
||||
Income before provision for taxes on income
|
|
337
|
|
|
345
|
|
|
413
|
|
|
430
|
|
||||
Provision for taxes on income
(b)
|
|
98
|
|
|
98
|
|
|
117
|
|
|
350
|
|
||||
Net income before allocation to noncontrolling interests
|
|
239
|
|
|
247
|
|
|
296
|
|
|
80
|
|
||||
Net income/(loss) attributable to noncontrolling interests
|
|
1
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||
Net income attributable to Zoetis
|
|
$
|
238
|
|
|
$
|
247
|
|
|
$
|
298
|
|
|
$
|
81
|
|
Earnings per common share--basic
|
|
$
|
0.48
|
|
|
$
|
0.50
|
|
|
$
|
0.61
|
|
|
$
|
0.17
|
|
Earnings per common share--diluted
|
|
$
|
0.48
|
|
|
$
|
0.50
|
|
|
$
|
0.61
|
|
|
$
|
0.16
|
|
2016
|
|
|
|
|
|
|
|
|
||||||||
Revenue
|
|
$
|
1,162
|
|
|
$
|
1,208
|
|
|
$
|
1,241
|
|
|
$
|
1,277
|
|
Costs and expenses
(a)
|
|
828
|
|
|
897
|
|
|
904
|
|
|
1,026
|
|
||||
Restructuring charges and certain acquisition-related costs
|
|
2
|
|
|
(21
|
)
|
|
4
|
|
|
20
|
|
||||
Income before provision for taxes on income
|
|
332
|
|
|
332
|
|
|
333
|
|
|
231
|
|
||||
Provision for taxes on income
|
|
128
|
|
|
108
|
|
|
96
|
|
|
77
|
|
||||
Net income before allocation to noncontrolling interests
|
|
204
|
|
|
224
|
|
|
237
|
|
|
154
|
|
||||
Net loss attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
||||
Net income attributable to Zoetis
|
|
$
|
204
|
|
|
$
|
224
|
|
|
$
|
239
|
|
|
$
|
154
|
|
Earnings per common share--basic
|
|
$
|
0.41
|
|
|
$
|
0.45
|
|
|
$
|
0.48
|
|
|
$
|
0.31
|
|
Earnings per common share--diluted
|
|
$
|
0.41
|
|
|
$
|
0.45
|
|
|
$
|
0.48
|
|
|
$
|
0.31
|
|
(a)
|
Costs and expenses in the fourth quarter reflect seasonal trends.
|
(b)
|
For the fourth quarter of 2017, includes a provisional net tax charge of approximately
$212 million
related to the impact of the Tax Act enacted on December 22, 2017. See
Note 8. Tax Matters
.
|
|
|
Balance,
|
|
|
|
|
|
|
Balance,
|
|
||||||
|
|
Beginning of
|
|
|
|
|
|
|
End of
|
|
||||||
(MILLIONS OF DOLLARS)
|
|
Period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Period
|
|
||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
30
|
|
|
3
|
|
|
(8
|
)
|
|
25
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
$
|
34
|
|
|
$
|
7
|
|
|
$
|
(11
|
)
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
||||||||
Allowance for doubtful accounts
|
|
32
|
|
|
9
|
|
|
(7
|
)
|
|
34
|
|
||||
|
|
|
|
|
|
|
|
|
Item 9A.
|
Controls and Procedures
|
A.
|
(1) The financial statements and notes to financial statements are filed as part of this report in Item 8. Financial Statements and Supplementary Data.
|
|
Share Purchase Agreement, dated as of November 2, 2015, by and among SalarLux Parent S.à.r.l., Salar Invest AS
|
|
|
|
and Zoetis Inc. (incorporated by reference to Exhibit 2.1 to Zoetis Inc.'s Current Report on Form 8-K filed on
|
|
|
November 2, 2015 (File No. 001-35797))
|
|
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Zoetis Inc.'s Quarterly
|
|
|
|
Report on Form 10-Q filed on November 10, 2014 (File No. 001-35797))
|
|
By-laws of the Registrant, amended and restated as of February 19, 2016 (incorporated by reference to Exhibit 3.2 to Zoetis
|
|
|
|
Inc.’s 2015 Annual Report on Form 10-K filed on February 24, 2016 (File No. 001-35797))
|
|
Specimen Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Zoetis Inc.’s registration
|
|
|
|
statement on Form S-1 (File No. 333-183254))
|
|
Indenture, dated as of January 28, 2013, between Zoetis Inc. and Deutsche Bank Trust Company Americas, as trustee
|
|
|
|
(incorporated by reference to Zoetis Inc.'s registration statement on Form S-1 (File No. 333-183254))
|
|
First Supplemental Indenture, dated as of January 28, 2013, between Zoetis Inc. and Deutsche Bank Trust Company
|
|
|
|
Americas, as trustee (incorporated by reference to Exhibit 4.3 of Zoetis Inc.'s registration statement on Form S-1
|
|
|
(File No. 333-183254))
|
|
Second Supplemental Indenture, dated November 13, 2015, between Zoetis Inc. and Deutsche Bank Trust Company
|
|
|
|
Americas, as trustee (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K filed on
|
|
|
November 13, 2015 (File No. 001-35797))
|
|
Third Supplemental Indenture, dated September 12, 2017, between Zoetis Inc. and Deutsche Bank Trust Company Americas,
|
|
|
|
as trustee (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K filed on September 12, 2017
|
|
|
(File No. 001-35797))
|
|
Form of 3.450% Senior Notes due 2020 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on
|
|
|
|
Form 8-K filed on November 13, 2015 (File No. 001-35797))
|
|
Form of 3.250% Senior Notes due 2023 (incorporated by reference to Exhibit 4.3 of Zoetis Inc.'s registration statement on
|
|
|
|
Form S-1 (File No. 333-183254))
|
|
Form of 4.500% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on
|
|
|
|
Form 8-K filed on November 13, 2015 (File No. 001-35797))
|
|
Form of 4.700% Senior Notes due 2043 (incorporated by reference to Exhibit 4.3 of Zoetis Inc.'s registration statement on
|
|
|
|
Form S-1 (File No. 333-183254))
|
|
Form of 3.000% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K
|
|
|
|
filed on September 12, 2017 (File No. 001-35797))
|
|
Form of 3.950% Senior Notes due 2027 (incorporated by reference to Exhibit 4.2 to Zoetis Inc.’s Current Report on Form 8-K
|
|
|
|
filed on September 12, 2017 (File No. 001-35797))
|
|
Global Separation Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc. (incorporated by reference to
|
|
|
|
Exhibit 10.1 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013 (File No. 001-35797))
|
|
Transitional Services Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc. (incorporated by reference
|
|
|
|
to Exhibit 10.2 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013 (File No. 001-35797))
|
|
Tax Matters Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc. (incorporated by reference to
|
|
|
|
Exhibit 10.3 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013 (File No. 001-35797))
|
|
Research and Development Collaboration and License Agreement, dated February 6, 2013, by and between Zoetis Inc.
|
|
|
|
and Pfizer Inc. (incorporated by reference to Exhibit 10.4 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on
|
|
|
March 28, 2013 (File No. 001-35797))
|
|
Employee Matters Agreement (incorporated by reference to Exhibit 10.5 of Zoetis Inc.'s registration statement on Form S-1
|
|
|
|
(File No. 333-183254))
|
|
Pfizer Inc. 2004 Stock Plan, as Amended and Restated (incorporated by reference to Exhibit 10.6 of Zoetis Inc.'s registration
|
|
|
|
statement on Form S-1 (File No. 333-183254))*
|
|
Pfizer Inc. Amended and Restated Nonfunded Supplemental Retirement Plan, together with all material Amendments
|
|
|
|
(incorporated by reference to Exhibit 10.7 of Zoetis Inc.'s registration statement on Form S-1 (File No. 333-183254))*
|
|
Patent and Know-How License Agreement (Zoetis as licensor), dated February 6, 2013, by and between Zoetis Inc. and
|
|
|
|
Pfizer Inc. (incorporated by reference to Exhibit 10.8 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on
|
|
|
March 28, 2013 (File No. 001-35797))
|
|
Patent and Know-How License Agreement (Pfizer as licensor), dated February 6, 2013, by and between Zoetis Inc. and
|
|
|
|
Pfizer Inc. (incorporated by reference to Exhibit 10.9 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on
|
|
|
March 28, 2013 (File No. 001-35797))
|
|
Trademark and Copyright License Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc.
|
|
|
|
(incorporated by reference to Exhibit 10.10 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013
|
|
|
(File No. 001-35797))
|
|
Environmental Matters Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc. (incorporated by
|
|
|
|
reference to Exhibit 10.13 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013) (File No. 001-35797))
|
|
Master Manufacturing and Supply Agreement, dated October 1, 2012, by and between Pfizer Inc. and Zoetis Inc. (Pfizer as
|
|
|
|
manufacturer) (incorporated by reference to Exhibit 10.14 of Zoetis Inc.'s registration statement on Form S-1
|
|
|
(File No. 333-183254))
|
|
Registration Rights Agreement, dated February 6, 2013, by and between Zoetis Inc. and Pfizer Inc. (incorporated by reference to
|
|
|
|
Exhibit 10.15 to Zoetis Inc.’s 2012 Annual Report on Form 10-K filed on March 28, 2013 (File No. 001-35797))
|
|
Zoetis Inc. 2013 Equity and Incentive Plan (incorporated by reference to Exhibit 10.16 to Zoetis Inc.’s 2012 Annual Report
|
|
|
|
on Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Sale of Business Severance Plan (incorporated by reference to Exhibit 10.17 to Zoetis Inc.’s 2012 Annual Report on
|
|
|
|
Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Revolving Credit Agreement, dated as of December 21, 2016, among Zoetis Inc., the lenders party thereto and JPMorgan
|
|
|
|
Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of Zoetis Inc.'s Current Report
|
|
|
on Form 8-K filed on December 21, 2016 (File No. 001-35797))
|
|
Extension Agreement to Revolving Credit Agreement, dated as of December 21, 2017, among Zoetis Inc., the lenders party
|
|
|
|
thereto and JPMorgan Chase Bank, N.A., as administrative agent †
|
|
Form of Indemnification Agreement for directors and officers (incorporated by reference to Exhibit 10.19 of Zoetis Inc.'s
|
|
|
|
registration statement on Form S-1 (File No. 333-183254))
|
|
Registration Rights Agreement, dated as of January 28, 2013, by and among Zoetis Inc. and Merrill Lynch, Pierce, Fenner &
|
|
|
|
Smith Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC and Deutsche Bank Securities Inc., as representatives
|
|
|
of the several initial purchasers (incorporated by reference to Exhibit 10.20 of Zoetis Inc.'s registration statement on Form
|
|
|
S-1 (File No. 333-183254))
|
|
Form of Restricted Stock Unit Award agreement (incorporated by reference to Exhibit 10.21 to Zoetis Inc.’s 2012 Annual
|
|
|
|
Report on Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Form of Stock Option Award agreement (incorporated by reference to Exhibit 10.22 to Zoetis Inc.’s 2012 Annual Report
|
|
|
|
on Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Form of Non-Employee Director Deferred Stock Unit Award agreement (incorporated by reference to Exhibit 10.23
|
|
|
|
on Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Form of Cash Award agreement (incorporated by reference to Exhibit 10.24 to Zoetis Inc.’s 2012 Annual Report on
|
|
|
|
Form 10-K filed on March 28, 2013 (File No. 001-35797))*
|
|
Form of Performance Restricted Stock Unit Award Agreement, effective as of February 27, 2015 (incorporated by
|
|
|
|
reference to Exhibit 99.1 to Zoetis Inc.’s Current Report on Form 8-K filed on March 4, 2015 (File No. 001-35797))*
|
|
Form of Restricted Stock Unit Award Agreement, effective as of February 27, 2015 (incorporated by reference to
|
|
|
|
Exhibit 99.2 to Zoetis Inc.’s Current Report on Form 8-K filed on March 4, 2015 (File No. 001-35797))*
|
|
Form of Stock Option Award Agreement, effective as of February 27, 2015 (incorporated by reference to Exhibit 99.3
|
|
|
|
to Zoetis Inc.’s Current Report on Form 8-K filed on March 4, 2015 (File No. 001-35797))*
|
|
Form of Cash Award Agreement, effective as of February 27, 2015 (incorporated by reference to Exhibit 99.4 to
|
|
|
Zoetis Inc.’s Current Report on Form 8-K filed on March 4, 2015 (File No. 001-35797))*
|
|
Non-Employee Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to Zoetis Inc.’s
|
|
|
|
Current Report on Form 8-K filed on May 7, 2013 (File No. 001-35797))*
|
|
Zoetis Executive Severance Plan (incorporated by reference to Exhibit 10.1 to Zoetis Inc.’s Quarterly Report on Form 10-Q
|
|
|
|
filed on August 14, 2013 (File No. 001-35797))*
|
|
Zoetis Supplemental Savings Plan, as amended and restated, effective September 15, 2014 (incorporated by reference to
|
|
|
|
Exhibit 10.4 to Zoetis Inc.'s Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-35797))*
|
|
Zoetis Equity Deferral Plan, effective November 1, 2014 (incorporated by reference to Exhibit 10.5 to Zoetis Inc.’s
|
|
|
|
Quarterly Report on Form 10-Q filed on November 10, 2014 (File No. 001-35797))*
|
|
Letter Agreement, dated as of February 3, 2015, by and among Zoetis and Pershing Square Capital Management, L.P.
|
|
|
|
and certain affiliates thereof and Sachem Head Capital Management LP and certain affiliates thereof (incorporated by
|
|
|
reference to Exhibit 99.1 to Zoetis Inc.’s Current Report on Form 8-K filed on February 4, 2015 (File No. 001-35797))
|
|
Computation of Ratio of Earnings to Fixed Charges †
|
|
|
Subsidiaries of the Registrant †
|
|
|
Consent of KPMG LLP †
|
|
|
Power of Attorney (included as part of signature page) †
|
|
|
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †
|
|
|
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †
|
|
|
Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
|
|
|
|
Sarbanes-Oxley Act of 2002 †
|
|
Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
|
|
|
|
Sarbanes-Oxley Act of 2002 †
|
EX-101.INS
|
|
INSTANCE DOCUMENT
|
EX-101.SCH
|
|
SCHEMA DOCUMENT
|
EX-101.CAL
|
|
CALCULATION LINKBASE DOCUMENT
|
EX-101.LAB
|
|
LABELS LINKBASE DOCUMENT
|
EX-101.PRE
|
|
PRESENTATION LINKBASE DOCUMENT
|
EX-101.DEF
|
|
DEFINITION LINKBASE DOCUMENT
|
†
|
Filed herewith
|
*
|
Management contracts or compensatory plans or arrangements
|
Zoetis Inc.
|
|
|
|
By:
|
/S/ JUAN RAMÓN ALAIX
|
|
Juan Ramón Alaix
|
|
Chief Executive Officer and Director
|
Name
|
|
Title
|
|
Date
|
|
|
|
||
/S/ JUAN RAMÓN ALAIX
|
|
Chief Executive Officer and Director
|
|
February 15, 2018
|
Juan Ramón Alaix
|
(Principal Executive Officer)
|
|
||
|
|
|
|
|
/S/ GLENN DAVID
|
|
Executive Vice President and
|
|
February 15, 2018
|
Glenn David
|
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
||
|
|
|
|
|
/S/ MICHAEL B. MCCALLISTER
|
|
Chairman and Director
|
|
February 15, 2018
|
Michael B. McCallister
|
|
|
|
|
|
|
|
|
|
/S/ PAUL M. BISARO
|
|
Director
|
|
February 15, 2018
|
Paul M. Bisaro
|
|
|
|
|
|
|
|
|
|
/S/ FRANK A. D'AMELIO
|
|
Director
|
|
February 15, 2018
|
Frank A. D’Amelio
|
|
|
|
|
|
|
|
|
|
/S/ SANJAY KHOSLA
|
|
Director
|
|
February 15, 2018
|
Sanjay Khosla
|
|
|
|
|
|
|
|
|
|
/s/ GREGORY NORDEN
|
|
Director
|
|
February 15, 2018
|
Gregory Norden
|
|
|
|
|
|
|
|
|
|
/S/ LOUISE M. PARENT
|
|
Director
|
|
February 15, 2018
|
Louise M. Parent
|
|
|
|
|
|
|
|
|
|
/S/ WILLIE M. REED
|
|
Director
|
|
February 15, 2018
|
Willie M. Reed
|
|
|
|
|
|
|
|
|
|
/S/ LINDA RHODES
|
|
Director
|
|
February 15, 2018
|
Linda Rhodes
|
|
|
|
|
|
|
|
|
|
/s/ ROBERT W. SCULLY
|
|
Director
|
|
February 15, 2018
|
Robert W. Scully
|
|
|
|
|
|
|
|
|
|
/S/ WILLIAM C. STEERE, JR.
|
|
Director
|
|
February 15, 2018
|
William C. Steere, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
||||||||||||||||||
(IN MILLIONS, EXCEPT RATIOS)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|||||
Determination of earnings:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income before provision for taxes on income
|
|
|
|
|
|
|
|
|
|
|
||||||||||
and noncontrolling interests
|
|
$
|
1,525
|
|
|
$
|
1,228
|
|
|
$
|
545
|
|
|
$
|
820
|
|
|
$
|
690
|
|
Net (loss)/income attributable to noncontrolling interests
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
4
|
|
|
(1
|
)
|
|||||
Income attributable to Zoetis Inc.
|
|
1,527
|
|
|
1,230
|
|
|
545
|
|
|
816
|
|
|
691
|
|
|||||
Add: fixed charges
|
|
188
|
|
|
177
|
|
|
137
|
|
|
131
|
|
|
127
|
|
|||||
Total earnings as defined
|
|
$
|
1,715
|
|
|
$
|
1,407
|
|
|
$
|
682
|
|
|
$
|
947
|
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense, net of capitalized interest
(a)
|
|
$
|
175
|
|
|
$
|
166
|
|
|
$
|
124
|
|
|
$
|
117
|
|
|
$
|
113
|
|
Capitalized interest
|
|
4
|
|
|
3
|
|
|
4
|
|
|
4
|
|
|
3
|
|
|||||
Interest portion of rent expense
(b)
|
|
9
|
|
|
8
|
|
|
9
|
|
|
10
|
|
|
11
|
|
|||||
Total Fixed charges
|
|
188
|
|
|
177
|
|
|
137
|
|
|
131
|
|
|
127
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
|
9.1
|
|
|
7.9
|
|
|
5.0
|
|
|
7.2
|
|
|
6.4
|
|
(a)
|
Interest expense, net of capitalized interest, includes amortization of debt discount and fees. Interest expense does not include interest related to uncertain tax positions.
|
(b)
|
One-third of all rental expense is deemed to be interest, which we believe to be a conservative estimate of an interest factor in our leases.
|
SUBSIDIARY NAME
|
|
JURISDICTION OF INCORPORATION / FORMATION
|
Alpharma (Bermuda) Investments Ltd.
|
|
Bermuda
|
Alpharma (Bermuda) Ltd.
|
|
Bermuda
|
Alpharma (Bermuda), LLC
|
|
United States
|
Alpharma (Luxembourg) S.A.R.L. y Compania Limitada
|
|
Chile
|
Alpharma (Luxembourg) S.àr.l.
|
|
Luxembourg
|
Alpharma Animal Health (Hong Kong) Co. Limited
|
|
Hong Kong
|
Alpharma Animal Health Company
|
|
United States
|
Alpharma Bermuda G.P.
|
|
Bermuda
|
Alpharma do Brasil Ltda.
|
|
Brazil
|
Alpharma Euro Holdings, LLC
|
|
United States
|
Alpharma Holdings (Barbados) SRL
|
|
Barbados
|
Alpharma Pharmaceuticals (Thailand) Limited
|
|
Thailand
|
Alpharma, LLC
|
|
United States
|
BioNua Limited
|
|
Ireland
|
Continental Farmaceutica SPRL
|
|
Belgium
|
Embrex LLC
|
|
United States
|
Jilin Zoetis Guoyuan Animal Health Co., Ltd.
|
|
China
|
Mikjan Corporation
|
|
United States
|
Nexvet Australia Pty Ltd
|
|
Australia
|
Nexvet Biopharma plc
|
|
Ireland
|
Nexvet Ireland Limited
|
|
Ireland
|
Nexvet US Inc.
|
|
United States
|
NVIP Pty Ltd
|
|
Australia
|
Nordic FishTech AB
|
|
Sweden
|
Pharmaq Settvac AS
|
|
Norway
|
Pharmaq Fishteq AS
|
|
Norway
|
PAH 7V6 Holding Limited
|
|
Hong Kong
|
PAH CHHK Holding B.V.
|
|
Netherlands
|
PAH India Holdco LLC
|
|
United States
|
PAH India Holding 1 B.V.
|
|
Netherlands
|
PAH Mexico Holdco SARL
|
|
Luxembourg
|
PAH Netherlands 2 B.V.
|
|
Netherlands
|
PAH Oceania B.V.
|
|
Netherlands
|
PAH Spain, S.L.
|
|
Spain
|
Pharmaq Analytiq AS
|
|
Norway
|
Pharmaq AS
|
|
Norway
|
Pharmaq AS Chile Limitada
|
|
Chile
|
Pharmaq AS Service SpA
|
|
Chile
|
Pharmaq AS Technika SpA
|
|
Chile
|
Pharmaq CA Panama Inc.
|
|
Panama
|
Pharmaq Costa Rica S.A.
|
|
Costa Rica
|
Pharmaq Holding AS
|
|
Norway
|
Pharmaq Hong Kong Limited
|
|
Hong Kong
|
Pharmaq Ltd
|
|
United Kingdom
|
Pharmaq Spain Aqua SL
|
|
Spain
|
Pharmaq Veterinar Ecza Deposu ve su Urunleri Ticaret Ltd Ski
|
|
Turkey
|
SUBSIDIARY NAME
|
|
JURISDICTION OF INCORPORATION / FORMATION
|
Pharmaq Vietnam Company Limited
|
|
Vietnam
|
PT Zoetis Animalhealth Indonesia
|
|
Indonesia
|
Zoetis Denmark Aps
|
|
Denmark
|
Synbiotics LLC
|
|
United States
|
Tevxen Limited
|
|
Ireland
|
Zoetis (Shenzhou) Manufacturing Co., Ltd.
|
|
China
|
Zoetis (Thailand) Limited
|
|
Thailand
|
Zoetis Argentina S.R.L.
|
|
Argentina
|
Zoetis Australia Pty Ltd
|
|
Australia
|
Zoetis Australia Research & Manufacturing Pty Ltd
|
|
Australia
|
Zoetis B.V.
|
|
Netherlands
|
Zoetis Belgium S.A.
|
|
Belgium
|
Zoetis Biopharmaceutical Co., Ltd
|
|
China
|
Zoetis Canada Inc.
|
|
Canada
|
Zoetis Česká republika, s.r.o.
|
|
Czech Republic
|
Zoetis Colombia S.A.S.
|
|
Colombia
|
Zoetis Costa Rica, S.R.L.
|
|
Costa Rica
|
Zoetis de Chile S.A.
|
|
Chile
|
Zoetis de Uruguay S.R.L.
|
|
Uruguay
|
Zoetis Deutschland GmbH
|
|
Germany
|
Zoetis Egypt Import LLC
|
|
Egypt
|
Zoetis Egypt LLC
|
|
Egypt
|
Zoetis Egypt Pharmaceuticals LLC
|
|
Egypt
|
Zoetis Egypt Trading LLC
|
|
Egypt
|
Zoetis Enterprise Management (Shanghai) Co., Ltd.
|
|
China
|
Zoetis Finland Oy
|
|
Finland
|
Zoetis France
|
|
France
|
Zoetis Hayvan Sagligi Ltd. Sti.
|
|
Turkey
|
Zoetis Hellas S.A.
|
|
Greece
|
Zoetis Holdings LLC
|
|
United States
|
Zoetis Hungary Kft.
|
|
Hungary
|
Zoetis India Limited
|
|
India
|
Zoetis Indústria de Produtos Veterinários Ltda.
|
|
Brazil
|
Zoetis International Holdings B.V.
|
|
Netherlands
|
Zoetis International Services
|
|
France
|
Zoetis Ireland Limited
|
|
Ireland
|
Zoetis Israël Holding B.V.
|
|
Netherlands
|
Zoetis Italia S.r.l.
|
|
Italy
|
Zoetis Japan K.K.
|
|
Japan
|
Zoetis Korea Ltd.
|
|
Korea, Republic of
|
Zoetis LLC
|
|
United States
|
Zoetis Luxembourg Holding S.à r.l.
|
|
Luxembourg
|
Zoetis Malaysia Sdn. Bhd.
|
|
Malaysia
|
Zoetis Manufacturing & Research Spain, S.L.
|
|
Spain
|
Zoetis Manufacturing Italia S.R.L.
|
|
Italy
|
Zoetis Medolla Manufacturing S.R.L.
|
|
Italy
|
Zoetis Mexico, S. de R.L. de C.V.
|
|
Mexico
|
Zoetis Netherlands 1 B.V.
|
|
Netherlands
|
Zoetis Netherlands 3 B.V.
|
|
Netherlands
|
Zoetis Netherlands 4 B.V.
|
|
Netherlands
|
Zoetis Netherlands 5 B.V.
|
|
Netherlands
|
Zoetis New Zealand Limited
|
|
New Zealand
|
Zoetis OOO
|
|
Russian Federation
|
SUBSIDIARY NAME
|
|
JURISDICTION OF INCORPORATION / FORMATION
|
Zoetis Österreich GmbH
|
|
Austria
|
Zoetis Overseas Holding B.V.
|
|
Netherlands
|
Zoetis Overseas Services Inc.
|
|
United States
|
Zoetis Panama S. de R.L.
|
|
Panama
|
Zoetis Pharmaceutical Research Private Limited
|
|
India
|
Zoetis Philippines Inc.
|
|
Philippines
|
Zoetis Polska sp. z o.o
|
|
Poland
|
Zoetis Portugal, Lda.
|
|
Portugal
|
Zoetis Products Inc.
|
|
United States
|
Zoetis Romania SRL
|
|
Romania
|
Zoetis S.R.L.
|
|
Peru
|
Zoetis Salud Animal de Bolivia S.A.
|
|
Bolivia
|
Zoetis Schweiz GmbH
|
|
Switzerland
|
Zoetis Services LLC
|
|
United States
|
Zoetis Singapore Pte. Ltd.
|
|
Singapore
|
Zoetis South Africa (Pty) Ltd.
|
|
South Africa
|
Zoetis Spain, S.L.
|
|
Spain
|
Zoetis Suzhou Manufacturing Co., Ltd.
|
|
China
|
Zoetis Taiwan Limited
|
|
Taiwan
|
Zoetis Treasury Center BVBA
|
|
Belgium
|
Zoetis UK Limited
|
|
United Kingdom
|
Zoetis Ukraine LLC
|
|
Ukraine
|
Zoetis US LLC
|
|
United States
|
Zoetis Vietnam Limited Liability Company
|
|
Vietnam
|
Zoetis Weesp B.V.
|
|
Netherlands
|
Zoetis WLC LLC
|
|
United States
|
Zoetis Yantai Manufacturing Co., Ltd.
|
|
China
|
Zoetis, C.A.
|
|
Venezuela
|
ZOETISECUADOR Cia. Ltda.
|
|
Ecuador
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
I have reviewed this Annual Report of Zoetis Inc. on Form 10-K for the period ending
December 31, 2017
as filed with the Securities and Exchange Commission on the date hereof;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
February 15, 2018
|
By:
|
/s/ JUAN RAMÓN ALAIX
|
|
|
Juan Ramón Alaix
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report of Zoetis Inc. on Form 10-K for the period ending
December 31, 2017
as filed with the Securities and Exchange Commission on the date hereof;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
February 15, 2018
|
By:
|
/s/ GLENN DAVID
|
|
|
Glenn David
|
|
|
Executive Vice President and Chief Financial Officer
|
February 15, 2018
|
By:
|
/s/ JUAN RAMÓN ALAIX
|
|
|
Juan Ramón Alaix
|
|
|
Chief Executive Officer
|
February 15, 2018
|
By:
|
/s/ GLENN DAVID
|
|
|
Glenn David
|
|
|
Executive Vice President and Chief Financial Officer
|